Unaudited Pro Forma Consolidated Financial Information
The following unaudited consolidated pro forma statements of operations for the three months ended March 31, 2017 and the year ended December 31, 2016 and the unaudited consolidated pro forma statement of financial condition as of March 31, 2017 are based on the historical consolidated financial statements of Fifth Street Asset Management Inc. (the “Company”) included in its Annual Report on Form 10-K for the year ended December 31, 2016 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, each as filed with the Securities and Exchange Commission. These pro forma financial statements present the Company’s consolidated results of operations and financial position giving pro forma effect to the sale of 100% of the limited liability company interests of Fifth Street CLO Management LLC (“CLO Management”) to NewStar Financial Inc. (“NewStar Financial”) as if such transaction had been completed as of January 1, 2016 with respect to the unaudited consolidated pro forma statements of operations and as of March 31, 2017 with respect to the unaudited pro forma statement of financial condition.
The unaudited pro forma financial information below is provided for informational purposes only and is not intended to reflect what the actual financial position or results of operations of the Company would have been had the disposition of 100% of the limited liability company interests of CLO Management occurred on the date indicated, nor is it necessarily indicative of our future financial position or results of operations. The pro forma adjustments are based upon the best information available and certain assumptions that management believes to be reasonable in the circumstances. The pro forma assumptions and adjustments are described in the accompanying notes to this unaudited pro forma consolidated financial information. There can be no assurance that such information and assumptions will not change from those reflected in the pro forma financial statements and the accompanying notes.
The unaudited pro forma consolidated financial information, including notes thereto, should be read in conjunction with, the audited historical consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the unaudited interim consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, each as filed with the Securities and Exchange Commission.
Fifth Street Asset Management Inc.
Pro Forma Consolidated Statement of Financial Condition
As of March 31, 2017
(unaudited)
| As Reported | CLO Sale Adjustments | Use of Proceeds Adjustments | Pro Forma | |||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | 865,752 | $ | 12,732,225 | $ | (7,751,801 | ) | $ | 5,846,176 | |||||||
| Escrow receivable | - | 2,600,000 | - | 2,600,000 | ||||||||||||
| Management fees receivable (includes Part I Fees of $3,213,667 as of March 31, 2017) | 13,107,090 | - | - | 13,107,090 | ||||||||||||
| Performance fees receivable | 34,587 | - | - | 34,587 | ||||||||||||
| Prepaid expenses (includes $418,300 related to income taxes as of March 31, 2017) | 2,275,311 | - | - | 2,275,311 | ||||||||||||
| Investments in equity method investees | 67,574,280 | - | - | 67,574,280 | ||||||||||||
| Beneficial interests in CLOs at fair value | 23,260,659 | (23,260,659 | ) | - | - | |||||||||||
| Due from affiliates | 2,556,202 | (345,954 | ) | - | 2,210,248 | |||||||||||
| Fixed assets, net | 5,151,743 | - | - | 5,151,743 | ||||||||||||
| Deferred tax assets | 71,703,827 | 118,835 | - | 71,822,662 | ||||||||||||
| Deferred financing costs | 1,300,271 | - | (100,794 | ) | 1,199,477 | |||||||||||
| Other assets | 3,365,910 | - | - | 3,365,910 | ||||||||||||
| Total assets | $ | 191,195,632 | $ | (8,155,553 | ) | $ | (7,852,596 | ) | $ | 175,187,483 | ||||||
| Liabilities and Equity | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 5,253,690 | $ | (100,897 | ) | $ | - | $ | 5,152,793 | |||||||
| Accrued compensation and benefits | 5,225,343 | - | - | 5,225,343 | ||||||||||||
| Income taxes payable | 223,694 | - | - | 223,694 | ||||||||||||
| Loans payable | 14,972,565 | (12,972,565 | ) | - | 2,000,000 | |||||||||||
| Legal settlement payable | - | - | - | - | ||||||||||||
| Credit facility payable | 100,000,000 | - | (7,751,801 | ) | 92,248,199 | |||||||||||
| Dividends payable | 3,022,611 | - | - | 3,022,611 | ||||||||||||
| Due to affiliates | 32,241 | - | - | 32,241 | ||||||||||||
| Deferred rent liability | 2,054,038 | - | - | 2,054,038 | ||||||||||||
| Payable to related parties pursuant to tax receivable agreements | 62,091,926 | - | - | 62,091,926 | ||||||||||||
| Total liabilities | 192,876,108 | (13,073,462 | ) | (7,751,801 | ) | 172,050,845 | ||||||||||
| Commitments and Contingencies | ||||||||||||||||
| Equity (deficit) | ||||||||||||||||
| Preferred Stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2017 | - | - | - | - | ||||||||||||
| Class A common stock, $0.01 par value; 500,000,000 shares authorized; 15,576,620 shares issued and outstanding as of March 31, 2017 | 155,766 | - | - | 155,766 | ||||||||||||
| Class B common stock, $0.01 par value; 50,000,000 shares authorized; 34,285,484 shares issued and outstanding as of March 31, 2017 | 342,855 | - | - | 342,855 | ||||||||||||
| Additional paid-in-capital | 5,348,702 | - | - | 5,348,702 | ||||||||||||
| Retained earnings (accumulated deficit) | (130,932 | ) | 1,507,831 | (30,904 | ) | 1,345,995 | ||||||||||
| Total stockholders’ equity, Fifth Street Asset Management Inc. | 5,716,391 | 1,507,831 | (30,904 | ) | 7,193,318 | |||||||||||
| Non-controlling interests | (7,396,867 | ) | 3,410,078 | (69,891 | ) | (4,056,680 | ) | |||||||||
| Total equity (deficit) | (1,680,476 | ) | 4,917,909 | (100,794 | ) | 3,136,639 | ||||||||||
| Total liabilities and equity | $ | 191,195,632 | $ | (8,155,553 | ) | $ | (7,852,596 | ) | $ | 175,187,483 | ||||||
Fifth Street Asset Management Inc.
Notes to Pro Forma Financial Statements
(unaudited)
Footnotes to Pro Forma Statement of Financial Condition
CLO Management Sale Adjustments
The CLO Management Sale Adjustments give effect to the sale of 100% of the limited liability company interests of CLO Management held by Fifth Street Holdings to NewStar Financial as of March 31, 2017 for an aggregate net purchase price of $15.3 million, which would have resulted in a gain of $4.8 million as shown below.
| CLO Management Sale | ||
| Aggregate net cash proceeds | $ | 12,735,272 |
| Aggregate net proceeds held in escrow | 2,600,000 | |
| Aggregate net proceeds | 15,335,272 | |
| Assets sold to Buyer | (23,609,660) | |
| Liabilities assumed | 13,073,462 | |
| Gain on sale | $ | 4,799,074 |
The sale of CLO Management as of March 31, 2017 would have resulted in a decrease to the income tax expense of $118,835 and a corresponding increase to deferred tax assets of $118,835. Accordingly, an adjustment has been recorded in the unaudited consolidated pro forma statement of financial condition to reflect these tax effects in connection with the sale of CLO Management.
Use of Proceeds
In connection with the sale of CLO Management, the Company is required to repay approximately $7.8 million of borrowings outstanding in accordance with its revolving credit facility. The Use of Proceeds Adjustments give effect to this repayment.
Fifth Street Asset Management Inc.
Pro Forma Consolidated Statement of Operations
For the three months ended March 31, 2017
(unaudited)
| As Reported | CLO Business Adjustments | Pro Forma | ||||||||||
| Revenues | ||||||||||||
| Management fees (includes Part I Fees of $3,455,605 for the three months ended March 31, 2017) | $ | 13,540,646 | $ | (673,898 | ) | $ | 12,866,748 | |||||
| Performance fees | 34,587 | - | 34,587 | |||||||||
| Other fees | 2,063,277 | (75,573 | ) | 1,987,704 | ||||||||
| Total revenues | 15,638,510 | (749,471 | ) | 14,889,039 | ||||||||
| Expenses | ||||||||||||
| Compensation and benefits | 6,523,085 | - | 6,523,085 | |||||||||
| General, administrative and other expenses | 5,115,418 | (14,050 | ) | 5,101,368 | ||||||||
| Depreciation and amortization | 315,867 | - | 315,867 | |||||||||
| Total expenses | 11,954,370 | (14,050 | ) | 11,940,320 | ||||||||
| Other income (expense) | ||||||||||||
| Interest income | 329,852 | (329,843 | ) | 9 | ||||||||
| Interest expense | (1,323,693 | ) | 132,145 | (1,191,548 | ) | |||||||
| Income from equity method investments | 2,958,759 | - | 2,958,759 | |||||||||
| Unrealized gain on beneficial interests in CLOs | 194,270 | (194,270 | ) | - | ||||||||
| Adjustment of TRA liability due to tax change | (92,348 | ) | - | (92,348 | ) | |||||||
| Insurance recoveries | 4,332,024 | - | 4,332,024 | |||||||||
| Total other income (expense), net | 6,398,864 | (391,968 | ) | 6,006,896 | ||||||||
| Income before provision for income taxes | 10,083,004 | (1,127,389 | ) | 8,955,615 | ||||||||
| Provision for income taxes | 1,310,519 | (115,772 | ) | 1,194,747 | ||||||||
| Net income | 8,772,485 | (1,011,617 | ) | 7,760,868 | ||||||||
| Net income attributable to non-controlling interests | (7,177,356 | ) | 789,172 | (6,388,184 | ) | |||||||
| Net income attributable to Fifth Street Asset Management Inc. | $ | 1,595,129 | $ | (222,445 | ) | $ | 1,372,684 | |||||
| Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic | $ | 0.10 | $ | 0.09 | ||||||||
| Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock - Diluted | $ | 0.10 | $ | 0.09 | ||||||||
| Weighted average shares of Class A common stock outstanding - Basic | 15,224,235 | 15,224,235 | ||||||||||
| Weighted average shares of Class A common stock outstanding - Diluted | 15,270,787 | 15,270,787 | ||||||||||
Fifth Street Asset Management Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2016
(unaudited)
| As Reported | CLO Business Adjustments | Pro Forma | ||||||||||
| Revenues | ||||||||||||
| Management fees (includes Part I Fees of $26,956,347 for the year ended December 31, 2016) | $ | 73,809,987 | $ | (2,708,165 | ) | $ | 71,101,822 | |||||
| Performance fees | 123,300 | - | 123,300 | |||||||||
| Other fees | 8,613,835 | (198,728 | ) | 8,415,107 | ||||||||
| Total revenues | 82,547,122 | (2,906,893 | ) | 79,640,229 | ||||||||
| Expenses | ||||||||||||
| Compensation and benefits | 42,068,643 | - | 42,068,643 | |||||||||
| General, administrative and other expenses | 30,634,338 | (60,550 | ) | 30,573,788 | ||||||||
| Depreciation and amortization | 4,213,637 | - | 4,213,637 | |||||||||
| Total expenses | 76,916,618 | (60,550 | ) | 76,856,068 | ||||||||
| Other income (expense) | ||||||||||||
| Interest income | 1,446,818 | (1,446,784 | ) | 34 | ||||||||
| Interest expense | (4,589,318 | ) | 511,803 | (4,077,515 | ) | |||||||
| Income from equity method investments | 929,348 | - | 929,348 | |||||||||
| Realized gain on MMKT Notes | 2,519,049 | - | 2,519,049 | |||||||||
| Unrealized gain on beneficial interests in CLOs | 96,506 | (96,506 | ) | - | ||||||||
| Gain on extinguishment of debt | 2,000,000 | - | 2,000,000 | |||||||||
| Adjustment of TRA liability due to tax change | 7,525,901 | - | 7,525,901 | |||||||||
| Loss on legal settlement | (9,250,000 | ) | - | (9,250,000 | ) | |||||||
| Insurance recoveries | 14,446,162 | - | 14,446,162 | |||||||||
| Realized loss on derivatives | (2,612,932 | ) | - | (2,612,932 | ) | |||||||
| Loss on investor settlement | (10,419,274 | ) | - | (10,419,274 | ) | |||||||
| Other income (expense), net | (626,346 | ) | - | (626,346 | ) | |||||||
| Total other income (expense), net | 1,465,914 | (1,031,487 | ) | 434,427 | ||||||||
| Income before provision for income taxes | 7,096,418 | (3,877,830 | ) | 3,218,588 | ||||||||
| Provision for income taxes | 9,349,790 | (160,021 | ) | 9,189,769 | ||||||||
| Net loss | (2,253,372 | ) | (3,717,809 | ) | (5,971,181 | ) | ||||||
| Net loss attributable to non-controlling interests | 722,297 | 3,409,931 | 4,132,228 | |||||||||
| Net loss attributable to Fifth Street Asset Management Inc. | $ | (1,531,075 | ) | $ | (307,878 | ) | $ | (1,838,953 | ) | |||
| Net loss per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic | $ | (0.25 | ) | $ | (0.30 | ) | ||||||
| Net loss per share attributable to Fifth Street Asset Management Inc. Class A common stock - Diluted | $ | (0.27 | ) | $ | (0.32 | ) | ||||||
| Weighted average shares of Class A common stock outstanding - Basic | 6,037,500 | 6,037,500 | ||||||||||
| Weighted average shares of Class A common stock outstanding - Diluted | 6,037,500 | 6,037,500 | ||||||||||
Fifth Street Asset Management Inc.
Notes to Pro Forma Financial Statements
(unaudited)
Footnotes to Pro Forma Statement of Operations
CLO Business Adjustments
All revenues, expenses and other income (expense) items related to the CLO business have been eliminated for the three months ended March 31, 2017 and year ended December 31, 2016. These pro forma adjustments include the elimination of management fees earned from CLO Management’s investment management agreements with CLO I and CLO II, interest income earned and unrealized gain (loss) from the Company’s beneficial interests in CLO I and CLO II, interest expense incurred in connection with the Company’s risk retention credit facility and general, administrative and other expenses incurred as part of the managing the CLO business.
Earnings per share
Pro forma basic and diluted net income per share were computed in the following manner.
| Three Months Ended March 31, 2017 | Year Ended December 31, 2016 | |||||||
| Numerator for basic pro forma net income (loss) per share of Class A common stock: | ||||||||
| Pro forma net income (loss) attributable to FSAM | $ | 1,372,684 | $ | (1,838,953 | ) | |||
| Numerator for basic pro forma net income (loss) per share of Class A common stock: | ||||||||
| Pro forma net income (loss) attributable to FSAM | $ | 1,372,684 | $ | (1,838,953 | ) | |||
| Dilutive effects of MMKT Notes | - | (103,946 | ) | |||||
| Pro Forma net income (loss) available to Class A common stockholders | $ | 1,372,684 | $ | (1,942,899 | ) | |||
| Denominator for basic pro forma net income (loss) per share of Class A common stock: | ||||||||
| Weighted average share of Class A common stock outstanding - basic | 15,224,235 | 6,037,500 | ||||||
| Denominator for diluted pro forma net income (loss) per share of Class A common stock: | ||||||||
| Weighted average share of Class A common stock outstanding | 15,224,235 | 6,037,500 | ||||||
| Dilutive effects of RSUs | 24,509 | - | ||||||
| Dilutive effections of options to acquire shares of Class A common stock | 22,043 | - | ||||||
| Weighted average share of Class A common stock outstanding - diluted | 15,270,787 | 6,037,500 | ||||||
| Earning (loss) per share of Class A common stock: | ||||||||
| Pro forma net income (loss) attributable to FSAM per share of Class A common stock, basic | $ | 0.09 | $ | (0.30 | ) | |||
| Pro forma net income (loss) attributable to FSAM per share of Class A common stock, diluted | $ | 0.09 | $ | (0.32 | ) | |||