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EX-99.3 - EX-99.3 - VIRTUS INVESTMENT PARTNERS, INC.d438531dex993.htm
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EX-23.1 - EX-23.1 - VIRTUS INVESTMENT PARTNERS, INC.d438531dex231.htm
8-K/A - 8-K/A - VIRTUS INVESTMENT PARTNERS, INC.d438531d8ka.htm

Exhibit 99.4

Pro Forma Condensed Combined Financial Statements

(unaudited)

On June 1, 2017, Virtus Investment Partners, Inc. (the “Company”, “we”, “us”, “our” or “Virtus”) completed the acquisition (the “Acquisition”) of RidgeWorth Investments (“RidgeWorth”). The total purchase price of the Acquisition was $547.1 million, comprising $485.2 million for the business and $61.9 million for certain balance sheet investments. At the closing, the Company paid $471.4 million in cash, issued 213,669 shares of the Company’s common stock with a value of $21.7 million, based on stock price of $101.76, and recorded $51.7 million in contingent consideration and $2.3 million in deferred cash consideration.

The following Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended March 31, 2017 and for the year ended December 31, 2016, combine the historical consolidated statements of operations of Virtus and RidgeWorth for those periods, giving effect to the Acquisition as if it had been consummated on January 1, 2016, the beginning of the full year period presented. The following Unaudited Pro Forma Condensed Combined Balance Sheet combines the consolidated balance sheets of Virtus and RidgeWorth, giving effect to the Acquisition as if it had been consummated on March 31, 2017. Virtus and RidgeWorth have the same fiscal year end, and, as such, no adjustments were necessary to align the reporting periods.

The Unaudited Pro Forma Condensed Combined Financial Statements were prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with Virtus considered as the accounting acquirer and RidgeWorth as the accounting acquiree. Accordingly, consideration paid by Virtus to complete the Acquisition were allocated to the identifiable assets and liabilities of RidgeWorth based on their estimated fair values as of the closing date of the Acquisition.

As of the date of the Form 8-K/A filing to which these Pro Forma Condensed Combined Financial Statements are attached (the “Form 8-K/A”), our estimate of the fair value adjustment specific to the acquired intangible assets and final tax positions remains preliminary given the timing of the transaction and complexity of the purchase accounting. We intend to finalize the accounting for these items as soon as reasonably possible. In addition, the Company may adjust the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the closing date as it obtains more information as to facts and circumstances existing as of the acquisition date.    As a result of the foregoing, the unaudited adjustments to the Pro Forma Condensed Combined Financial statements (the “pro forma adjustments”) are preliminary and are subject to change as additional information becomes available. Any increases or decreases in the fair value of relevant balance sheet amounts upon completion of the final valuations will result in differences from the Unaudited Pro Forma Condensed Combined Balance Sheet and Statement of Operations. The final acquisition method of accounting will be different from that reflected in the pro forma information presented herein, and this difference may be material. In addition, an estimated effective tax rate was used in preparation of these Unaudited Pro Forma Condensed Combined Financial Statements. The actual effective tax rate may differ from this estimate.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the Unaudited Pro Forma Condensed Combined Financial Statements to give effect to pro forma events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) with respect to the Unaudited Pro Forma Condensed Combined Statement of Operations, expected to have a continuing impact on the combined results following the Acquisition. The Unaudited Pro Forma Condensed Combined Financial Statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Acquisition occurred on the dates indicated. Further, the Unaudited Pro Forma Condensed Combined Financial Statements do not purport to project the future operating results or financial position of the combined company following the Acquisition.

These Unaudited Pro Forma Condensed Combined Financial Statements have been derived from, and should be read in conjunction with:


    The unaudited condensed consolidated financial Statements of Virtus as of and for the three-month period ended March 31, 2017, as contained in its Quarterly Report on Form 10-Q filed on May 8, 2017;

 

    The audited consolidated financial statements of Virtus as of and for the year ended December 31, 2016, as contained in its Annual Report on Form 10-K filed on February 27, 2017;

 

    The unaudited consolidated financial statements of RidgeWorth as of March 31, 2017 and for the three months ended March 31, 2017 and 2016 filed with this Form 8-K/A; and

 

    The audited consolidated financial statements of RidgeWorth as of and for the years ending December 31, 2016 and 2015 filed with this Form 8-K/A.

The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities including any benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Acquisition. Although Virtus believes that there will be integration costs and that cost savings will be realized following the Acquisition, these cost savings may not be achieved in full or at all. In addition, the Unaudited Pro Forma Condensed Combined Statements of Operations do not include other one-time costs directly attributable to the Acquisition or professional fees incurred by Virtus or RidgeWorth as those costs are not considered part of the purchase price nor are they expected to have a continuing impact on the combined company.


Virtus Investment Partners, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

Three Months Ended March 31, 2017

 

($ in thousands, except per share data)   Historical
Virtus
    Historical
RidgeWorth
    Reclassifications (1)     Note
References
    Acquisition &
Financing
Adjustments (2)
    Note
References
    Pro Forma
Combined
 

Revenues

             

Investment management fees

  $ 59,271     $ 37,816     $ —         $ —         $ 97,087  

Distribution and service fees

    10,783       —         —           —           10,783  

Administration and transfer agent fees

    8,981       —         —           —           8,981  

Other income and fees

    741       —         —           —           741  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total revenues

    79,776       37,816       —           —           117,592  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Operating Expenses

             

Employment expenses

    39,641       20,392       —           761       (1     60,794  

Distribution and other asset-based expenses

    15,323       1,804       —           —           17,127  

Other operating expenses

    13,226       7,175       —           (2,463     (2     17,938  

Other operating expenses of consolidated sponsored investment products

    577       —         —           —           577  

Other operating expenses of consolidated investment products

    65       79       —           —           144  

Depreciation and other amortization

    664       322           —           986  

Amortization expense

    233       964       —           3,911       (3     5,108  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total operating expenses

    69,729       30,736       —           2,209         102,674  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Operating Income

    10,047       7,080       —           (2,209       14,918  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Other Income (Expense)

             

Realized and unrealized gain (loss) on investments, net

    297       (2,242     (45     (a     —           (1,990

Realized and unrealized gain on investments of consolidated sponsored investment products, net

    3,726       —         —           —           3,726  

Realized and unrealized gain on investments of consolidated investment products, net

    718       411       —           —           1,129  

Other income (expense), net

    646       (9     45       (a     —           682  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total other income (expense), net

    5,387       (1,840     —           —           3,547  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Interest Income (Expense)

             

Interest expense

    (243     (1,597     —           (2,129     (4     (3,969

Interest and dividend income

    188       113       —           —           301  

Interest and dividend income of investments consolidated sponsored investment products

    1,495       —         —           —           1,495  

Interest income of consolidated investment products

    4,161       8,620       —           —           12,781  

Interest expense of consolidated investment products

    (2,857     (6,178     —           —           (9,035
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total interest income, net

    2,744       958       —           (2,129       1,573  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Income Before Income Taxes

    18,178       6,198       —           (4,338       20,038  

Income tax expense

    4,433       —         —           729       (5     5,162  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income

    13,745       6,198       —           (5,067       14,876  

Noncontrolling interests

    (718     193       —           —           (525
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income Attributable to Stockholders

    13,027       6,391           (5,067       14,351  

Preferred stock dividends

    (2,084     —         —           —           (2,084
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income Attributable to Common Stockholders

  $ 10,943     $ 6,391     $ —         $ (5,067     $ 12,267  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Earnings per Share-Basic

  $ 1.67     $ —       $ —         $ —         $ 1.82  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Earnings per Share-Diluted

  $ 1.62     $ —       $ —         $ —         $ 1.75  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Cash Dividends Declared per Preferred Share

  $ 1.81     $ —       $ —         $ —         $ 1.81  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Cash Dividends Declared per Common Share

  $ 0.45     $ —       $ —         $ —         $ 0.45  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Weighted Average Shares Outstanding-Basic (in thousands)

    6,542       —         —           214       (6     6,756  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Weighted Average Shares Outstanding-Diluted (in thousands)

    6,773       —         —           239       (6     7,012  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

 

(1) See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements
(2) See Note 6 to the Unaudited Pro Forma Condensed Combined Financial Statements


Virtus Investment Partners, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2016

 

($ in thousands, except per share data)   Historical
Virtus
    Historical
RidgeWorth
    Reclassifications (1)     Note
References
    Acquisition &
Financing
Adjustments (2)
    Note
References
    Pro Forma
Combined
 

Revenues

             

Investment management fees

  $ 235,230     $ 143,875     $ —         $ —         $ 379,105  

Distribution and service fees

    48,250       —         —           —           48,250  

Administration and transfer agent fees

    38,261       —         —           —           38,261  

Other income and fees

    813       —         —           —           813  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total revenues

    322,554       143,875       —           —           466,429  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Operating Expenses

             

Employment expenses

    135,641       74,308       (1,454     (b     1,686       (1     210,181  

Distribution and other asset-based expenses

    69,049       6,662       —           —           75,711  

Other operating expenses

    50,274       34,590       —           (10,319     (2     74,545  

Other operating expenses of consolidated sponsored investment products

    3,009       —         —           —           3,009  

Other operating expenses of consolidated investment products, net

    3,944       3,325       —           —           7,269  

Restructuring and severance

    4,270       —         1,454       (b     —           5,724  

Depreciation and other amortization

    3,092       1,372       —           —           4,464  

Amortization expense

    2,461       4,454       —           15,048       (3     21,963  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total operating expenses

    271,740       124,711       —           6,415         402,866  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Operating Income

    50,814       19,164       —           (6,415       63,563  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Other Income (Expense)

             

Realized and unrealized gain (loss) on investments, net

    4,982       889       (472     (a     —           5,399  

Realized and unrealized gain (loss) on investments of consolidated sponsored investment products, net

    3,818       —         —           —           3,818  

Realized and unrealized gain (loss) on investments of consolidated investment products, net

    (1,070     3,934       —           —           2,864  

Other income (expense), net

    1,089       (26     472       (a     —           1,535  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total other income, net

    8,819       4,797       —           —           13,616  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Interest Income (Expense)

             

Interest expense

    (679     (6,680     —           (8,515     (4     (15,874

Interest and dividend income

    1,743       501       —           —           2,244  

Interest and dividend income of investments of consolidated sponsored investment products

    7,509       —         —           —           7,509  

Interest income of consolidated investment products, net

    12,893       21,975       —           —           34,868  

Interest expense of consolidated investment product

    (11,292     (14,924     —               (26,216
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total interest income, net

    10,174       872       —           (8,515       2,531  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Income Before Income Taxes

    69,807       24,833       —           (14,930       79,710  

Income tax expense

    21,044       —         —           3,881       (5     24,925  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income

    48,763       24,833       —           (18,811       54,785  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Noncontrolling interests

    (261     —         —           —           (261
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income Attributable to Stockholders

    48,502       24,833       —           (18,811       54,524  

Preferred stock dividends

    —         —         —           (8,338     (7     (8,338
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Net Income Attributable to Common Stockholders

  $ 48,502     $ 24,833     $ —         $ (27,149     $ 46,186  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Earnings per Share-Basic

  $ 6.34     $ —       $ —         $ —         $ 5.87  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Earnings per Share-Diluted

  $ 6.20     $ —       $ —         $ —         $ 5.74  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Cash Dividends Declared per Share

  $ 1.80     $ —       $ —         $ —         $ 1.80  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Weighted Average Shares Outstanding-Basic (in thousands)

    7,648       —         —           214       (6     7,862  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Weighted Average Shares Outstanding-Diluted (in thousands)

    7,822       —         —           224       (6     8,046  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

 

(1) See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements
(2) See Note 6 to the Unaudited Pro Forma Condensed Combined Financial Statements


Virtus Investment Partners, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2017

 

($ in thousands, except per share data)    Historical Virtus     Historical
RidgeWorth
     Acquisition &
Financing
Adjustments (1)
    Note
References
    Pro Forma
Combined
 

Assets:

           

Cash and cash equivalents

   $ 235,930     $ 82,576      $ (291,215     (8   $ 27,291  

Investments

     86,066       7,261        (1,818     (9     91,509  

Accounts receivable, net

     37,841       21,335        —           59,176  

Assets of consolidated sponsored investment products

           

Cash of consolidated sponsored investment products

     1,866       —          —           1,866  

Cash pledged or on deposit of consolidated sponsored investment products

     1,107       —          —           1,107  

Investments of consolidated sponsored investment products

     112,930       —          —           112,930  

Other assets of consolidated sponsored investment products

     39,702       —          —           39,702  

Assets of consolidated investment products

           

Cash equivalents of consolidated investment products

     13,957       33,736        —           47,693  

Investments of consolidated investment products

     354,002       701,431        —           1,055,433  

Other assets of consolidated investment products

     6,152       1,449        —           7,601  

Furniture, equipment and leasehold improvements, net

     7,264       5,721        —         (10     12,985  

Intangible assets, net

     38,194       163,207        112,493       (3     313,894  

Goodwill

     6,788       42,726        158,303       (11     207,817  

Deferred taxes, net

     45,716       —          —           45,716  

Other assets

     25,908       2,965        2,650       (12     31,523  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total assets

   $ 1,013,423     $ 1,062,407      $ (19,587     $ 2,056,243  
  

 

 

   

 

 

    

 

 

     

 

 

 

Liabilities and Equity

           

Liabilities:

           

Accrued compensation and benefits

   $ 16,519     $ 9,709      $ 8,636       (13   $ 34,864  

Accounts payable and accrued liabilities

     30,364       7,570        7,821       (14     45,755  

Dividends payable

     5,991       —          —           5,991  

Debt

     —         104,542        143,425       (4     247,967  

Other liabilities

     13,702       7,574        51,156       (15     72,432  

Liabilities of consolidated sponsored investment products

     2,834       —          —           2,834  

Liabilities of consolidated investment products

           

Notes payable of consolidated investment products

     325,843       661,457        —           987,300  

Securities purchased payable and other liabilities of consolidated investment products

     20,806       27,259        —           48,065  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total liabilities

     416,059       818,111        211,038         1,445,208  
  

 

 

   

 

 

    

 

 

     

 

 

 

Commitments and Contingencies

           

Redeemable noncontrolling interests

     44,976       —          —           44,976  

Equity:

           

Equity attributable to stockholders:

           

Preferred stock

     110,837       —          —           110,837  

Common stock

     102       —          2       (16     104  

Members’ equity

     —         234,657        (234,657     (16     —    

Additional paid-in capital

     1,196,031       —          21,740       (16     1,217,771  

Accumulated deficit

     (410,200     —          (17,710     (16     (427,910

Accumulated other comprehensive loss

     (136     —          —           (136

Treasury stock

     (344,246     —          —           (344,246
  

 

 

   

 

 

    

 

 

     

 

 

 

Total equity attributable to stockholders

     552,388       234,657        (230,625       556,420  

Noncontrolling interests

     —         9,639        —           9,639  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total equity

     552,388       244,296        (230,425       566,059  
  

 

 

   

 

 

    

 

 

     

 

 

 

Total liabilities and equity

   $ 1,013,423     $ 1,062,407      $ (19,587     $ 2,056,243  
  

 

 

   

 

 

    

 

 

     

 

 

 

 

(1) See Note 6 to the Unaudited Pro Forma Condensed Combined Financial Statements


Virtus Investment Partners, Inc.

Notes To Pro Forma Condensed Combined Financial Statements

(Unaudited)

Note 1 - Description of Acquisition

On June 1, 2017, the Company completed the acquisition of RidgeWorth. The total purchase price of the Acquisition was $547.1 million, comprising $485.2 million for the business and $61.9 million for certain balance sheet investments. At closing, the Company paid $471.4 million in cash, issued 213,669 shares of the Company’s common stock with a value of $21.7 million, based on stock price of $101.76 on the date of issuance, and recorded $51.7 million in contingent consideration and $2.3 million in deferred cash consideration.

Note 2 - Basis of Presentation

The Unaudited Pro Forma Condensed Combined Financial Statements are prepared in accordance with Article 11 of Regulation S-X. The historical financial information has been adjusted to give effect to the transactions that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the Unaudited Pro Forma Condensed Combined Statements of Operations, expected to have a continuing impact on the operating results of the combined company. The historical information of Virtus and RidgeWorth is presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), except that it does not contain all of the footnote disclosures normally required by U.S. GAAP.

Note 3 - Reclassifications and Conforming Accounting Policies

The Unaudited Pro Forma Condensed Combined Statements of Operations reflect the following reclassifications in order to conform the presentation of RidgeWorth’s financial results to that of Virtus:

 

(a) An adjustment to conform the presentation of income from equity method investments from Realized and unrealized (loss) gain on investments, net to Virtus’s presentation as Other income, net.

 

(b) An adjustment to conform the presentation of severance expenses as a component of Employment expenses to Virtus’s presentation as Restructuring and severance.

At this time, Virtus is not aware of any additional differences that would have a material impact on the Unaudited Pro Forma Condensed Combined Financial Statements.

Note 4 - Calculation of Preliminary Estimated Purchase Price and Transaction Financing

The Acquisition was financed with a combination of debt, equity, equity-linked securities and balance sheet resources. During the three months ended March 31, 2017, the Company issued 1,046,500 shares of common stock and 1,150,000 shares of 7.25% mandatory convertible preferred stock (“MCPS”) in public offerings for net proceeds of $220.5 million, after underwriting discounts, commissions and other offering expenses. The Company used the net proceeds of these offerings, together with cash on hand, 213,699 shares of our common stock with a value of $21.7 million, proceeds from the sale of investments and net borrowings of approximately $244.1 million from a new credit agreement (the “Credit Agreement”) to finance the Acquisition and pay related fees and expenses.


The transaction consideration was as follows (in thousands):

 

Cash consideration

   $ 227,286  

Contingent consideration

     51,690  

Deferred cash consideration

     2,300  

Stock consideration

     21,742  

Debt, net of issuance costs

     244,064  
  

 

 

 

Total consideration

   $ 547,082  
  

 

 

 

Note 5 - Preliminary Estimated Purchase Price Allocation

Under the acquisition method of accounting, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition.

The Company performed a preliminary valuation analysis of the fair market value of RidgeWorth’s tangible and intangible assets and liabilities.

The table below represents a preliminary estimated allocation of the total estimated consideration to RidgeWorth’s tangible and intangible assets and liabilities as of March 31, 2017 based on the Company’s preliminary estimate of their respective fair values (in thousands):

 

Total consideration

   $ 547,082  

Tangible net assets acquired

     (70,353

Identifiable intangible assets acquired

     (275,700
  

 

 

 

Consideration allocated to goodwill

   $ 201,029  
  

 

 

 

This preliminary estimated purchase price allocation was used to prepare pro forma adjustments in these Unaudited Pro Forma Condensed Combined Financial Statements. Any changes to the initial estimates of the fair value of assets and liabilities that are made within the measurement period, which will not exceed one year, will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

Note 6 - Pro Forma Adjustments

The Unaudited Pro Forma Condensed Combined Statements of Operations do not include any material non-recurring charges that will arise in subsequent periods related to the Acquisition. In addition, the Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities including any benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Acquisition. The Unaudited Pro Forma Condensed Combined Financial Statements do, however, reflect the following adjustments:

(1) Employment Expenses

A transaction-related stock incentive program was established upon closing of the Acquisition for certain RidgeWorth employees to replace incentives that were in place prior to the Acquisition. The incentive program provides for two grants of restricted stock units, each of which will be comprised of time and performance based elements. The first grant was made on the closing date, while the second grant will be made on the first anniversary of the closing date; in each case, the grants will be subject to vesting over a five-year period and subject, in the case of performance grants, to the satisfaction of specified performance measures. Each grant has a fair value of approximately $10.0 million at the time of grant. The impact of the stock incentive awards in the Unaudited Pro Forma Statement of Operations for the three months ended March 31, 2017 and year ended December 31, 2016 is estimated to be


$1.0 million and $2.0 million, respectively. Separately, to align annual incentive plans with Virtus, certain RidgeWorth annual incentive plans were modified in connection with the closing of the Acquisition to allocate a percentage of the annual incentive to Virtus restricted stock units or mutual fund investments that will vest over a three-year period.    The impact of the modification to certain annual incentive plans for the Unaudited Pro Forma Statement of Operations for the three months ended March 31, 2017 and year ended December 31, 2016 is estimated to be $(0.4) million and $(0.9) million, respectively. Additionally, after the Acquisition, the employment status of certain members of the  RidgeWorth staff converted from partners to employees resulting in incremental payroll taxes. The impact of the incremental payroll taxes for the Unaudited Pro Forma Statement of Operations for the three months ended March 31, 2017 and year ended December 31, 2016 is estimated to be $0.2 million and $0.6 million, respectively.

(2) Transaction Costs

This amount represents an adjustment to eliminate $2.5 million and $10.3 million of transactions costs incurred by the Company and RidgeWorth in connection with the Acquisition for the three months ended March 31, 2017 and year ended December 31, 2016, respectively.

(3) Intangible Assets

The preliminary valuation analysis conducted by the Company identified intangible assets consisting of investment contracts and trademarks/tradenames. The fair value of acquired investment contracts, which was determined using the multi-period excess earnings method under the income approach, was estimated at $266.2 million. The fair value of the acquired trademarks/tradenames, which was determined using the Relief from Royalty Method, was estimated at $9.5 million. The calculation of these fair values is preliminary and subject to change.

The following table summarizes the estimated fair values of RidgeWorth’s identifiable intangible assets and their estimated useful lives and uses a straight line method of amortization (in thousands):

 

     Estimated
Fair Value
     Estimated Useful
Life in Years
     Three Months
Ended March 31,
2017
     Year Ended
December 31, 2016
 

Investment contracts

   $ 266,200        10-16      $ 4,855      $ 19,422  

Trademarks/tradenames

     9,500        10-Indefinite        20        80  
  

 

 

       

 

 

    

 

 

 

Total

   $ 275,700           4,875        19,502  

Historical amortization expense

           (964      (4,454
        

 

 

    

 

 

 

Pro forma adjustments

         $ 3,911      $ 15,048  
        

 

 

    

 

 

 

Adjustments to intangible assets in the Unaudited Pro Forma Condensed Combined Balance Sheet consist of the following (in thousands):

 

Intangible assets

   $ 275,700  

Elimination of RidgeWorth’s pre-acquisition intangible assets

     (163,207
  

 

 

 

Net adjustment to intangible assets

   $ 112,493  
  

 

 

 

(4) Debt and Interest Expense

At the closing of the Acquisition, existing debt of Ridgeworth was retired and new debt under the Credit Agreement to finance the transaction was incurred which are reflected as adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as follows (in thousands):


Debt       

RidgeWorth debt - repaid at closing

   $ (104,542

Increase for issuance of new debt

     247,967  
  

 

 

 

Pro forma adjustments to debt

   $ 143,425  
  

 

 

 

Amounts outstanding under the Credit Agreement bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves) for interest periods of one, two, three or six months (or, solely in the case of the revolving credit facility, if agreed to by each relevant Lender, twelve months or periods less than one month) (subject to a “floor” of 0% in the case of the revolving credit facility and 0.75% in the case of the term loan) or an alternate base rate, in either case plus an applicable margin. The applicable margins are initially set at 3.75%, in the case of LIBOR-based loans, and 2.75%, in the case of alternate base rate loans and will, following the first delivery of certain financial reports required under the Credit Agreement, range from 3.50% to 3.75%, in the case of LIBOR based loans, and 2.50% to 2.75%, in the case of alternate base rate loans, based on the secured net leverage ratio of the Company as of the last day of the preceding fiscal quarter, as reflected in such financial reports. Interest is payable quarterly in arrears with respect to alternate base rate loans and on the last day of each interest period with respect to LIBOR-based loans (but, in the case of any LIBOR-based loan with an interest period of more than three months, at three-month intervals. The Credit Agreement consists of a $260.0 million Term Loan and a $100.0 million Revolving Credit Facility. The Revolving Credit Facility was undrawn at the closing of the Acquisition. The Credit Agreement had debt issuance costs of $16.1 million

The Unaudited Pro Forma Condensed Combined Statements of Operations reflect an adjustment to interest expense (inclusive of the amortization of deferred financing costs) related to the Credit Agreement for the three months ended March 31, 2017 and year ended December 31, 2016 of $3.9 million and $15.9 million, respectively. It also includes an adjustment to eliminate RidgeWorth’s historical interest expenses of $1.6 million and $6.7 million, for the three months ended March 31, 2017 and year ended in December 31, 2016, respectively, as RidgeWorth’s debt was repaid at closing out of the purchase price proceeds. In connection with entering into the new Credit Agreement, the existing Virtus credit facility was terminated and repaid in full. As a result of the terminated Virtus credit facility, there is also an adjustment to interest expense for the three months ended March 31, 2017 and year ended December 31, 2016 of $0.2 million and $0.7 million, respectively, to eliminate the historical interest expense related to the termination of the Virtus credit facility as it is no longer an on-going cost to Virtus. Adjustments to interest expense in the Unaudited Pro Forma Condensed Combined Statement of Operations consist of the following (in thousands):

 

Interest Expense    Three Months Ended
March 31, 2017
     Year Ended
December 31, 2016
 

RidgeWorth debt - repaid at closing

   $ 1,597      $ 6,680  

Existing Virtus Credit Facility - terminated at closing

     243        679  

New term loan and credit facility

     (3,969      (15,874
  

 

 

    

 

 

 

Pro forma adjustments to interest expense

   $ (2,129    $ (8,515
  

 

 

    

 

 

 

(5) Income Taxes

Prior to the Acquisition, RidgeWorth was not required to provide for income taxes as it was treated as a pass-through entity for U.S. federal and state income tax purposes. Federal and state income taxes were assessed at the owner level and each owner was liable for its own tax payments.

The Unaudited Pro Form Condensed Combined Statements of Operations reflect an adjustment of $0.7 million and $3.9 million to income tax expense from continuing operations for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, based on a statutory rate of 38% as Virtus is subject to federal and state income taxes.


(6) Weighted Average Shares Outstanding

This amount reflects an adjustment to increase basic and diluted weighted average shares outstanding in connection with the issuance of approximately 213,699 common shares with respect to the Acquisition representing a part of the consideration paid to certain RidgeWorth employees in respect of the RidgeWorth equity that they previously held. In addition, this amount represents the dilutive impact of the transaction related stock incentive plan, which was estimated to impact diluted weighted average shares outstanding by 24,902 and 10,078 shares for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively.

(7) Preferred Stock Dividends

This amount represents preferred stock dividends on the 1,150,000 share of 7.25% MCPS issued during the three months ended March 31, 2017.

(8) Cash

This amount represents adjustments to cash to reflect cash receipts and payments related to the Acquisition, as follows (in thousands):

 

Receipts:

  

Issuance of debt, net of costs

   $ 244,064  

Payments:

  

Cash consideration for acquisition

     (471,350

Cash not assumed

     (63,929
  

 

 

 

Net pro forma adjustments to cash and cash equivalents

   $ (291,215
  

 

 

 

(9) Investments

This amount reflects an adjustment of $1.8 million to fair value an equity method investment.

(10) Furniture, Equipment and Leasehold Improvements. net

The useful lives of RidgeWorth’s furniture, equipment and leasehold improvements, net is consistent with Virtus’s useful lives and its fair value is not materially different from its carrying value.

(11) Goodwill

This amount reflects an adjustment to remove RidgeWorth’s historical goodwill of $42.7 million and to record the estimated goodwill associated with the Acquisition of $201.0 million as shown in Note 5.

Goodwill is not amortized, but rather is assessed for impairment at least annually or more frequently whenever events or circumstances indicate that goodwill might be impaired. Adjustments to goodwill consist of the following (in thousands):

 

Goodwill (as determined in Note 5)

   $ 201,029  

Elimination of RidgeWorth’s pre-acquisition goodwill

     (42,726
  

 

 

 

Net adjustment to goodwill

   $ 158,303  
  

 

 

 


(12) Other Assets

This amount reflects: (1) an adjustment of $(1.3) million to remove historical deferred financing costs related to the terminated Virtus credit facility and (2) an adjustment of $3.9 million to capitalize the deferred financing costs related to the Credit Agreement.

(13) Accrued Compensation and Benefits

This amount reflects an adjustment of $8.6 million related to contractual severance obligations that was in place upon completion of the Acquisition.

(14) Accounts Payable and Accrued Liabilities

This amount reflects an adjustment of $7.8 million related to transaction costs incurred after March 31, 2017.

(15) Other Liabilities

This amount reflects the $51.7 million of contingent consideration recorded as part of the purchase consideration and the $2.3 million obligation related to the deferred cash consideration that will be paid following the expiration of a period of time following the completion of the Acquisition. The deferred cash consideration is considered transaction consideration and does not contain an employee service requirement. In addition, there is an adjustment to decrease other liabilities by $2.8 million to reflect the purchase accounting adjustments related to RidgeWorth’s deferred rent liabilities related to leased office space.

(16) Stockholders’ Equity

This amount represents the elimination of the historical equity of RidgeWorth of $234.6 million upon completion of the Acquisition. Additional paid in capital also reflects the issuance of $21.7 million in Virtus stock as part of the consideration for RidgeWorth equity held by certain Ridgeworth employees, as further discussed above in Note 4. Accumulated deficit reflects the write-off of $1.3 million of deferred financing costs on the terminated Virtus credit facility, $8.6 million in contractual severance obligations and $7.8 million of transaction costs.