EX-99.3

EX-99.3 2 d322031dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Pro Forma Condensed Combined Financial Statements

(unaudited)

On December 16, 2016, Virtus Investment Partners, Inc. (“Virtus” or the “Company”) entered into an agreement (the “Merger Agreement”) to acquire RidgeWorth Holdings, LLC (“RidgeWorth”). The purchase price for the Company’s acquisition of RidgeWorth (the “Proposed Acquisition”) equals (x) $472.0 million, plus (y) the fair market value of certain of RidgeWorth’s investments at the effective time of the Proposed Acquisition (the “Closing”), with the final purchase price subject to adjustments for working capital and client consents (the “Purchase Price”). Based on the fair market value of the investments, the total consideration was estimated to be $513.0 million at December 16, 2016. The Proposed Acquisition is expected to close in mid-2017, subject to the satisfaction or waiver of various conditions; however, there can be no assurance that the Proposed Acquisition will close, or if it does, when the Closing will occur.

The following Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2016 and for the year ended December 31, 2015, combine the historical consolidated statements of operations of Virtus and RidgeWorth for those periods, giving effect to the Proposed Acquisition as if it had been consummated on January 1, 2015, 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 Proposed Acquisition as if it had been consummated on September 30, 2016. Virtus and RidgeWorth have the same fiscal year ends and, as such, no adjustments are 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 Proposed Acquisition will be allocated to identifiable assets and liabilities of RidgeWorth based on their estimated fair values as of the closing date of the Proposed Acquisition.

As of the date of the Form 8-K filing to which these Pro Forma Condensed Combined Financial Statements are attached (the “Form 8-K”), the Proposed Acquisition has not closed and Virtus has not completed the detailed valuation analysis necessary to arrive at the required estimates of the fair value of RidgeWorth’s assets to be acquired and the liabilities to be assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform RidgeWorth’s accounting policies to Virtus’ accounting policies. A final determination of the fair value of RidgeWorth’s assets and liabilities, including intangible assets with both indefinite or definite lives, will be based on the actual net tangible and intangible assets and liabilities of RidgeWorth that exist as of the closing date of the Proposed Acquisition and, therefore, cannot be made prior to the completion of the Proposed Acquisition. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed. Virtus has prepared preliminary estimates of the fair value of RidgeWorth’s assets and liabilities based on discussions with RidgeWorth’s management, preliminary valuation analyses and due diligence which are reflected in the Unaudited Pro Forma Condensed Combined Financial Statements. Upon completion of the Proposed Acquisition, final valuations will be performed. 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 and these differences 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 unaudited adjustments to the pro forma condensed combined financial information (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 information to give effect to pro forma events that are:

(1) directly attributable to the Proposed 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 Proposed Acquisition. The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Proposed Acquisition occurred on the date indicated. Further, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of the combined company following the Proposed 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 nine-month period ended September 30, 2016, as contained in its Quarterly Report on Form 10-Q filed on November 7, 2016.

•

The audited consolidated financial statements of Virtus as of and for the year ended December 31, 2015, as contained in its Annual Report on Form 10-K filed on February 24, 2016.

•

The unaudited consolidated financial statements of RidgeWorth as of and for the nine-month period then ended September 30, 2016, attached as an exhibit to Virtus’ Form 8-K filed on December 22, 2016.

•

The audited consolidated financial statements of RidgeWorth as of and for the years ended December 31, 2015 and December 31, 2014, the audited consolidated financial statements of RidgeWorth Capital Management LLC as of May 30, 2014 and for the period January 1, 2014 to May 30, 2014, and the audited consolidated financial statements of RidgeWorth Capital Management, Inc. as of and for the year ended December 31, 2013 attached as an exhibit to Virtus’ Form 8-K filed on December 22, 2016.

The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities or any future cost savings from the Proposed Acquisition. Although Virtus believes that there will be integration costs and that cost savings will be realized following the Proposed Acquisition, there can be no assurance that these costs savings will 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 Proposed Acquisition or professional fees incurred by Virtus or RidgeWorth pursuant to provisions contained in the Merger Agreement as those costs are not considered part of the purchase price nor are they expected to have a continuing impact on the combined company.

The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the October 27, 2016 repurchase of 1,727,746 shares of the Company’s common stock from Bank of Montreal Holding Inc. at a price of $93.50 per share for a total purchase price of $161.5 million. To effect this transaction, the Company used $131.5 million of cash and cash equivalents and borrowed $30.0 million on its senior unsecured revolving credit facility (the “Existing Virtus Credit Facility”) which, as a condition to the incurrence of debt under the new debt facility, is required to be repaid in full and is expected to be repaid with cash on hand.

Virtus Investment Partners, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

Nine Months Ended September 30, 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	$	176,234		$	106,387		$	—						—					$	282,621
Distribution and service fees		36,761			—			—						—						36,761
Administration and transfer agent fees		29,085			—			—						—						29,085
Other income and fees		624			—			—						—						624

Total revenues		242,704			106,387			—						—						349,091

Operating Expenses
Employment expenses		102,184			50,797			(1,454	)		(a	)		3,002			(1	)		154,529
Distribution and other asset-based expenses		52,913			4,916			—						—						57,829
Other operating expenses		34,614			20,840			—						—						55,454
Other operating expenses of consolidated sponsored investment products		2,521			—			—						—						2,521
Other operating expenses of consolidated investment products		3,921			—			—						—						3,921
Restructuring and severance		4,270			—			1,454			(a	)		—						5,724
Depreciation and other amortization		2,392			1,050									—						3,442
Amortization expense		1,858			3,490			—						8,986			(2	)		14,334

Total operating expenses		204,673			81,093			—						11,988						297,754

Operating Income		38,031			25,294			—						(11,988	)					51,337

Other Income
Realized and unrealized gain on investments, net		3,584			756			(395	)		(b	)		—						3,945
Realized and unrealized gain on investments of consolidated sponsored investment products, net		6,928			—			—						—						6,928
Realized and unrealized gain on investments of consolidated investment products, net		2,960			446			—						—						3,406
Other income, net		463			54			395			(b	)		—						912

Total other income, net		13,935			1,256			—						—						15,191

Interest Income (Expense)
Interest expense		(389	)		(5,031	)		—						(8,667	)		(3	)		(14,087	)
Interest and dividend income		1,113			406			—						—						1,519
Interest and dividend income of investments consolidated sponsored investment products		6,021			—			—						—						6,021
Interest expense of consolidated investment products		(10,188	)		(10,514	)		—						—						(20,702	)
Interest income of consolidated investment products		8,835			15,339			—						—						24,174

Total interest income, net		5,392			200			—						(8,667	)					(3,075	)

Income Before Income Taxes		57,358			26,750			—						(20,655	)					63,453

Income tax expense		20,512			—			—						2,402			(4	)		22,914

Net Income		36,846			26,750			—						(23,057	)					40,539

Noncontrolling interests		(770	)		—			—						—						(770	)

Net Income Attributable to Stockholders	$	36,076		$	26,750		$	—					$	(23,057	)				$	39,769

Preferred stock dividends		—			—			—						5,438			(5	)		5,438

Net Income Attributable to Common Stockholders	$	36,076		$	26,750		$	—					$	(28,495	)				$	34,331

Earnings per Share-Basic	$	4.47		$	—		$	—					$	—					$	3.79

Earnings per Share-Diluted	$	4.39		$	—		$	—					$	—					$	3.71

Cash Dividends Declared per Share	$	1.35		$	—		$	—					$	—					$	1.35

Weighted Average Shares Outstanding-Basic (in thousands)		8,062			—			—						1,000			(6	)		9,062

Weighted Average Shares Outstanding-Diluted (in thousands)		8,223			—			—						1,035			(6	)		9,258

(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, 2015


($ 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	$	264,865		$	165,326		$	—						—					$	430,191
Distribution and service fees		67,066			—			—						—						67,066
Administration and transfer agent fees		48,247			—			—						—						48,247
Other income and fees		1,799			—			—						—						1,799

Total revenues		381,977			165,326			—						—						547,303

Operating Expenses
Employment expenses		137,095			74,185									2,146			(1	)		213,426
Distribution and other asset-based expenses		89,731			7,564			—						—						97,295
Other operating expenses		63,901			34,526			—						—						98,427
Other operating expenses of consolidated sponsored investment products		4,134			—			—						—						4,134
Other operating expenses of consolidated investment products, net		—			7,920			—												7,920
Depreciation and other amortization		3,443			1,172			—						—						4,615
Amortization expense		3,295			4,400			—						12,235			(2	)		19,930

Total operating expenses		301,599			129,767			—						14,381						445,747

Operating Income		80,378			35,559			—						(14,381	)					101,556

Other Income (Expense)
Realized and unrealized (loss) gain on investments, net		(862	)		454			(1,069	)		(b	)		—						(1,477	)
Realized and unrealized (loss) on investments of consolidated sponsored investment products, net		(23,181	)		—			—						—						(23,181	)
Realized and unrealized (loss) gain on investments of consolidated investment products, net		(3,505	)		4,895									—						1,390
Other income (loss), net		898			(6	)		1,069			(b	)		—						1,961

Total other (expense) income, net		(26,650	)		5,343			—						—						(21,307	)

Interest Income (Expense)
Interest expense		(523	)		(6,888	)		—						(11,372	)		(3	)		(18,783	)
Interest and dividend income		1,261			892			—						—						2,153
Interest and dividend income of investments of consolidated sponsored investment products		11,504			—			—						—						11,504
Interest income of investments of consolidated investment products, net		1,673			2,694									—						4,367

Total interest income (expense), net		13,915			(3,302	)		—						(11,372	)					(759	)

Income Before Income Taxes		67,643			37,600			—						(25,753	)					79,490
Income tax expense		36,972			14			—						4,624			(4	)		41,610

Net Income		30,671			37,586			—						(30,377	)					37,880

Noncontrolling interests		4,435			—			—						—						4,435

Net Income Attributable to Stockholders	$	35,106		$	37,586		$	—					$	(30,377	)				$	42,315

Preferred stock dividends		—			—			—						7,250			(5	)		7,250

Net Income Attributable to Common Stockholders	$	35,106		$	37,586								$	(37,627	)				$	35,065

Earnings per Share-Basic	$	3.99		$	—		$	—					$	—					$	3.58

Earnings per Share-Diluted	$	3.92		$	—		$	—					$	—					$	3.52

Cash Dividends Declared per Share	$	1.80		$	—		$	—					$	—					$	1.80

Weighted Average Shares Outstanding-Basic (in thousands)		8,797			—			—						1,000			(6	)		9,797

Weighted Average Shares Outstanding-Diluted (in thousands)		8,960			—			—						1,010			(6	)		9,970

(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 September 30, 2016


($ in thousands, except per share data)	Historical Virtus			Historical RidgeWorth (1)		Acquisition & Financing Adjustments (2)			Note References			Pro Forma Combined
Assets:
Cash and cash equivalents	$	165,421		$	85,615	$	(100,943	)		(7	)	$	150,093
Investments		95,174			7,491		—						102,665
Accounts receivable, net		36,867			19,696		—						56,563
Assets of consolidated sponsored investment products
Cash of consolidated sponsored investment products		1,149			—		—						1,149
Cash pledged or on deposit of consolidated sponsored investment products		944			—		—						944
Investments of consolidated sponsored investment products		137,140			—		—						137,140
Other assets of consolidated sponsored investment products		2,560			—		—						2,560
Assets of consolidated investment products
Cash equivalents of consolidated investment products		12,703			45,290		—						57,993
Investments of consolidated investment products		360,210			477,780		—						837,990
Other assets of consolidated investment products		4,628			1,227		—						5,855
Furniture, equipment and leasehold improvements, net		7,864			6,361		—			(8	)		14,225
Intangible assets, net		39,030			165,136		79,664			(2	)		283,830
Goodwill		6,788			42,726		157,757			(9	)		207,271
Deferred taxes, net		44,623			—		—						44,623
Other assets		14,463			3,053		(1,253	)		(10	)		16,263

Total assets	$	929,564		$	854,375	$	135,225					$	1,919,164

Liabilities and Equity
Liabilities:
Accrued compensation and benefits	$	37,813		$	24,693	$	—					$	62,506
Accounts payable and accrued liabilities		21,429			2,668		7,482			(11	)		31,579
Dividends payable		4,117			—		—						4,117
Debt		—			109,308		148,405			(3	)		257,713
Other liabilities		13,619			3,070		1,960			(12	)		18,649
Liabilities of consolidated sponsored investment products		2,930			—		—						2,930
Liabilities of consolidated investment products
Notes payable of consolidated investment products		323,852			453,823		—						777,675
Securities purchased payable and other liabilities of consolidated investment products		25,704			31,523		—						57,227

Total liabilities		429,464			625,085		157,847						1,212,396

Commitments and Contingencies
Redeemable noncontrolling interests		30,301			—		—						30,301
Equity:
Equity attributable to stockholders:
Preferred stock		—			—		96,500			(13	)		96,500
Common stock		91			—		10			(13	)		101
Additional paid-in capital		1,089,350			—		119,990			(13	)		1,209,340
Accumulated deficit		(436,705	)		—		(9,832	)		(13	)		(446,537	)
Accumulated other comprehensive loss		(235	)		—		—						(235	)
Treasury stock		(182,702	)		—		—						(182,702	)
Members’ equity					229,290		(229,290	)		(13	)		—

Total equity attributable to stockholders		469,799			229,290		(22,622	)					676,467

Total equity		469,799			229,290		(22,622	)					676,467

Total liabilities and equity	$	929,564		$	854,375	$	135,225					$	1,919,164

(1)	The RidgeWorth Condensed Balance Sheet has been reclassified from the amounts previously reported to align with the Virtus presentation

(2)	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 Proposed Acquisition

On December 16, 2016, Virtus Investment Partners, Inc. (“Virtus” or the “Company”) entered into an agreement (the “Merger Agreement”) to acquire RidgeWorth Holdings LLC (“RidgeWorth”). The purchase price for the Company’s acquisition of RidgeWorth (the “Proposed Acquisition”) equals (x) $472.0 million plus (y) the fair market value of certain of RidgeWorth’s investments at the effective date of the Proposed Acquisition (the “Closing”), with the final purchase price subject to adjustments for working capital and client consents (the “Purchase Price”). Based on the fair market value of the investments, the total consideration was estimated to be $513.0 million at December 16, 2016. The Proposed Acquisition is expected to close in mid-2017, subject to the satisfaction or waiver of various conditions; however, there can be no assurance that the Proposed Acquisition will close, or if it does, when the Closing will occur.

Note 2 - Basis of Presentation

The Unaudited Pro Forma Condensed Combined Financial Statements are prepared in accordance with Article 11 of the Securities and Exchange Commission Regulation S-X. The historical financial information has been adjusted to give effect to the transactions that are (i) directly attributable to the Proposed 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 severance expenses as a component of Employment expenses to Virtus’ presentation as Restructuring and severance.

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

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. Following the Proposed Acquisition, Virtus will conduct a review of RidgeWorth’s accounting policies in an effort to determine if any further differences require reclassification of RidgeWorth’s results of operations or reclassification of assets or liabilities to conform to Virtus’ accounting policies and classifications. As a result of that review, Virtus may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on these Unaudited Pro Forma Condensed Combined Financial Statements.

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

The Proposed Acquisition is expected to be financed with a combination of net proceeds from a common stock offering, net proceeds from a preferred stock offering, cash on hand and proceeds from the sale of investments, borrowings pursuant to our committed debt financing and deferred cash and common stock to be paid or issued as consideration to certain RidgeWorth employees in exchange for a portion of their RidgeWorth equity, as described below. The final composition of the financing is subject to multiple factors including market conditions. On December 16, 2016, Virtus entered into a commitment to receive a $575.0 million Committed Loan Facility (the “Loan Facility”) with nationally recognized credit institutions to fund the Proposed Acquisition. The Loan Facility consists of a $475.0 million Term Loan and a $100.0 million Revolving Credit Facility. The maturities of the Term Loan and Revolving Credit Facility are seven and five years, respectively. The Loan Facility has customary market-based financial and operating covenants. For purposes of the Unaudited Pro Forma Condensed Combined Financial Statements the Company has assumed the $513.0 million of total estimated consideration will be financed from the following sources: approximately $33.8 million of cash, $5.0 million of deferred cash and $25.0 million of common stock (each to be paid or issued as consideration to certain RidgeWorth employees in exchange for a portion of their RidgeWorth equity), $95.0 million of net proceeds from a public offering of Virtus common stock, $96.5 million of net proceeds from a public offering of Virtus preferred stock, and $257.7 million of debt (net of issuance costs) under the Loan Facility. The preferred stock is a mandatory convertible preferred security that would convert automatically into common stock after three years based on a minimum and maximum conversation rate and would bear a market-based dividend yield.

The preliminary estimated composition of the transaction financing is as follows (in thousands):


Cash on hand	$	33,787
Deferred cash consideration to RidgeWorth employees for a portion of their RidgeWorth equity		5,000
Preferred stock, net of issuance costs		96,500
Common stock, net of issuance costs *		95,000
Common stock consideration to RidgeWorth employees for a portion of their RidgeWorth equity**		25,000
Debt, net of issuance costs		257,713

Total consideration	$	513,000

*	Assumes a share price of $125.00, which is the last reported sale price of our common stock as of January 24, 2017, and results in 800,000 shares.

**	Assumes a share price of $125.00, which is the last reported sale price of our common stock as of January 24, 2017, and results in 200,000 shares.

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 has 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 September 30, 2016 based on the Company’s preliminary estimate of their respective fair values (in thousands):


Total consideration	$	513,000
Tangible net assets acquired		(67,717	)
Identifiable intangible assets acquired		(244,800	)

Consideration allocated to goodwill	$	200,483

This preliminary estimated purchase price allocation has been used to prepare pro forma adjustments in these Unaudited Pro Forma Condensed Combined Financial Statements. Upon completion of the fair value assessment after the Closing, it is anticipated that the ultimate purchase price allocation will differ from the preliminary assessment outlined above. 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 from the Closing, 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 directly attributable to the Proposed Acquisition that will arise in subsequent periods. 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 Proposed Acquisition. The Unaudited Pro Forma Condensed Combined Financial Statements reflect the following adjustments:

(1) Employment Expenses

A transaction related stock incentive program will be established upon Closing for certain RidgeWorth employees in order to align interests, provide participation in future growth and economically replace incentives that were in place prior to the Proposed Acquisition. The incentive program will provide for two grants of Virtus restricted stock units, each of which will be comprised time and performance based elements. The first grant to be made on the Closing date and the second grant, made on first anniversary of the Closing, will both be subject to vesting over a 4 year period. Each grant will have 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 nine months ended September 30, 2016 and year ended December 31, 2015 is estimated at $3.8 million and $2.5 million, respectively. Separately, to align annual incentive plans with Virtus, certain RidgeWorth annual incentive plans upon Closing will be modified to allocate a percentage of the annual incentive to Virtus restricted stock units or mutual fund investments that will vest over a 3 year period. The impact of the modification to certain annual incentive plans for the Unaudited Pro Forma Statement of Operations for the nine months ended September 30, 2016 and year ended December 31, 2015 is estimated at ($1.2) million and ($0.9) million, respectively. Additionally, after the Proposed Acquisition, the employment status of certain RidgeWorth staff will convert 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 nine months ended September 30, 2016 and year ended December 31, 2015 is estimated at $0.4 million and $0.6 million, respectively.

(2) Intangible Assets

The preliminary valuation analysis 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 $233.4 million. The fair value of the acquired trademarks/tradenames, which was determined using the Relief from Royalty Method, was estimated at $11.4 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		Nine Months Ended September 30, 2016			Year Ended December 31, 2015
Investment contracts	$	233,400		8-16	$	12,386		$	16,515
Trademarks/tradenames		11,400		10-Indefinite		90			120

Total	$	244,800				12,476			16,635
Historical amortization expense						(3,490	)		(4,400	)

Pro forma adjustments					$	8,986		$	12,235

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


Intangible assets	$	244,800
Elimination of RidgeWorth’s pre-acquisition intangible assets		(165,136	)

Net adjustment to intangible assets	$	79,664

(3) Debt and Interest Expense

At the Closing of the Proposed Acquisition, existing debt of RidgeWorth will be retired and an estimated $257.7 million of new Term Loan debt (net of issuance costs) under the Loan Facility to finance the transaction will be 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	$	(109,308	)
Increase for issuance of term loan portion of the Loan Facility (net of issuance costs)		257,713

Pro forma adjustments to debt	$	148,405

The Loan Facility is expected to bear interest at a floating market rate based on LIBOR. The Loan Facility consists of a Term Loan of up to $475.0 million and Revolving Credit Facility of $100.0 million. If the Company sells equity securities or equity-linked securities prior to the Closing, the amount of the Term Loan would be reduced by the lesser of the net cash proceeds from any such sale and $275.0 million. The Revolving Credit Facility is expected to be undrawn at the Closing. These assumptions are subject to change based on market conditions at the time the Loan Facility is consummated.

The Unaudited Pro Forma Condensed Combined Statements of Operations reflect an adjustment to interest expense (inclusive of the amortization of deferred financing costs and original issue discount) related to the Loan Facility for the nine months ended September 30, 2016 and year ended December 31, 2015 of $14.1 million and $18.8 million, respectively. A 12.5 basis point increase or decrease in the Loan Facility interest rate has an annual impact to interest rate expense of $0.3 million. As a condition to entering into the new Loan Facility, the Existing Virtus Credit Facility will be terminated and repaid in full. As a result of the terminated Existing Virtus Credit Facility, there is also an adjustment to interest expense for the nine months ended September 30, 2016 and year ended December 31, 2015 of $0.4 million and $0.5 million, respectively, to eliminate the historical interest expense related to the Existing Virtus Credit Facility as it will no longer be an on-going cost to Virtus. It also includes an adjustment to eliminate RidgeWorth’s historical interest expenses of $5.0 million and $6.9 million, for the nine months ended September 30, 2016 and year ended in December 31, 2015, respectively, as RidgeWorth’s debt will be repaid at Closing out of the Purchase Price proceeds. Adjustments to interest expense in the Unaudited Pro Forma Condensed Combined Statement of Operations consist of the following (in thousands):


*Interest Expense*	Nine Months Ended September 30, 2016			Year Ended December 31, 2015
RidgeWorth debt - repaid at closing	$	5,031		$	6,888
Existing Virtus Credit Facility - terminated at closing		389			523
New term loan portion of the Loan Facility		(14,087	)		(18,783	)

Pro forma adjustments to interest expense	$	(8,667	)	$	(11,372	)

(4) Income Tax Expense

Prior to the Proposed 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 Pro Forma Unaudited Statement of Operations reflects an adjustment of $2.4 million and $4.6 million to income tax expense from continuing operations, respectively, for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively, based on a statutory rate of 38% as Virtus will be subject to federal and state income taxes through its ownership of RidgeWorth.

(5) Preferred Stock Dividends

Reflects a market-based preferred stock dividend with respect to the mandatory convertible preferred stock of $5.4 million and $7.3 million for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. A 12.5 basis point change in the dividend has an annual impact of $0.1 million on the preferred stock dividend.

(6) Earnings Per Share

Reflects an adjustment to increase basic and diluted weighted average shares in connection with the issuance of 800,000 common shares in the common stock offering and 200,000 common shares representing consideration to be paid to certain RidgeWorth employees in exchange for a portion of the RidgeWorth equity that they hold as described in Note 4. In addition, represents the dilutive impact of the transaction related stock incentive plan that is estimated to be 35,000 and 10,000 shares for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. Diluted earnings per share also reflects the decrease to net income attributable to stockholders for preferred stock dividends of $5.4 million and $7.3 million for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively, under the “if converted” method.

(7) Cash

Represents adjustments to cash to reflect cash receipts and payments related to the Proposed Acquisition, as follows (in thousands):


Receipts:
Issuance of debt, net of issuance costs	$	257,713
Issuance of preferred stock, net of issuance costs		96,500
Issuance of common stock to investors, net of issuance costs		95,000
Payments:
Cash consideration for acquisition		(483,000	)
RidgeWorth cash distributed to its equity holders and not assumed		(67,156	)

Net pro forma adjustments to cash and cash equivalents	$	(100,943	)

(8) 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 expected to materially differ from its carrying value. Final appraisals will be completed upon Closing.

(9) Goodwill

Reflects an adjustment to remove RidgeWorth’s historical goodwill of $42.7 million and record the estimated goodwill associated with the Proposed Acquisition of $200.5 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)	$	200,483
Elimination of RidgeWorth’s pre-acquisition goodwill		(42,726	)

Net adjustment to goodwill	$	157,757

(10) Other Assets

Reflects an adjustment of $1.3 million to remove historical deferred financing costs related to the Existing Virtus Credit Facility which will be terminated upon Closing.

(11) Accounts Payable and Accrued Liabilities

Reflects an adjustment of $3.3 million to reflect transaction costs incurred through December 31, 2016 and an adjustment of $5.3 million related to contractual severance obligations that will be triggered upon Closing. In addition, reflects an adjustment of ($1.1) million for an incentive plan liability that will not be assumed by Virtus upon Closing.

(12) Other Liabilities

Reflects the $5.0 million obligation related to the deferred cash consideration that will be paid following the expiration of a period of time following Closing. The deferred cash consideration is transaction consideration and does not contain an employee service requirement. In addition, there is an adjustment to decrease other liabilities by $3.0 million to reflect the purchase accounting adjustments related to RidgeWorth’s deferred rent liabilities related to leased office space.

(13) Stockholders’ Equity

Reflects the issuance of $96.5 million of preferred stock and an aggregate of $120 million of common stock in the common stock offering and in the issuance to RidgeWorth employees as further discussed in Note 4 - Calculation of Preliminary Estimated Purchase Price and Transaction Financing. Accumulated deficit reflects $3.3 million of transaction costs incurred through December 31, 2016, the write-off of $1.3 million of deferred financing costs on the Existing Virtus Credit Facility and $5.3 million in contractual severance obligations. Additionally, reflects the elimination of the historical members’ equity of RidgeWorth of $229.3 million at Closing.