Exhibit 99.1
RCS Capital Corporation
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2014
The unaudited Pro Forma Consolidated Statement of Operations has been prepared through the application of Pro Forma adjustments to the historical Statement of Operations of RCS Capital Corporation (the “Company” or “RCAP”) reflecting the acquisitions and the related financing completed in the year ended December 31, 2014, as detailed below. The Company completed the acquisition of Cetera Financial Holdings, Inc. together with its consolidated subsidiaries (“Cetera”); Summit Financial Services Group, Inc. together with its consolidated subsidiaries (“Summit”); JP Turner & Company, LLC and JP Turner & Company Capital Management, LLC (collectively; “JP Turner”); First Allied Holdings Inc. together with its consolidated subsidiaries (“First Allied”); Hatteras Investment Partners LLC, Hatteras Investment Management LLC, Hatteras Capital Investment Management, LLC, Hatteras Alternative Mutual Funds LLC, and Hatteras Capital Investment Partners, LLC together with their respective consolidated subsidiaries (“Hatteras”); Investors Capital Holdings, Ltd. together with its consolidated subsidiaries (“ICH”); and Validus/Strategic Capital Partners, LLC. together with its consolidated subsidiaries (“StratCap”), which closed on April 29, 2014, June 11, 2014, June 12, 2014, June 30, 2014, June 30, 2014, July 11, 2014, and August 29, 2014, respectively. Cetera, Summit, JP Turner, First Allied, Hatteras, ICH and StratCap are collectively referred to as the “Completed Acquisitions.”
The Company’s acquisition of First Allied, which occurred on June 30, 2014, was accounted for at historical cost in a manner similar to a pooling-of-interest accounting because First Allied and the Company were under the common control of RCAP Holdings, LLC ("RCAP Holdings") at the time of the acquisition of First Allied by RCAP Holdings on September 25, 2013, and, accordingly, is included in the entire period from September 25, 2013.
The Company’s acquisitions of JP Turner, ICH and StratCap were not significant acquisitions under Regulation S-X, but were included in prior presentations of unaudited Pro Forma financial information for other periods filed by the Company with the Securities and Exchange Commission and, accordingly, have also been included as part of this unaudited Pro Forma Consolidated Statement of Operations. The Company's acquisitions of Trupoly, Inc. ("Trupoly) and Docupace Technologies, LLC ("Docupace") which closed during 2014, and VSR Group, Inc. ("VSR") and Girard Securities, Inc. ("Girard") which closed during 2015, also were not significant acquisitions under Regulation S-X and their inclusion in the unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014 would not have had a material impact. These acquisitions have not been included as part of this unaudited Pro Forma Consolidated Statement of Operations. Therefore, no adjustments were made related to these acquisitions and the Pro Forma Statement of Operations only includes the results of operations for Trupoly and Docupace from the date of each of their acquisition during 2014 through December 31, 2014.
The unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014 also includes Pro Forma adjustments to reflect the exchange by RCAP Holdings of all the Class B units owned by it in certain of the Company’s operating subsidiaries for 23,999,999 shares of the Company’s Class A common stock, par value $0.001 per share (the “Exchange”).
The unaudited Consolidated Pro Forma Statement of Operations and the related unaudited Pro Forma adjustments for the year ended December 31, 2014 were prepared as if the acquisitions occurred on January 1, 2014, and should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto and the Completed Acquisitions’ historical financial statements and notes thereto (based on the significance tests performed by the Company, the consolidated financial statements for ICH, JP Turner, StratCap, Trupoly, Docupace, VSR and Girard are not included). The unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014 is not necessarily indicative of what the actual results of operations would have been had the Company acquired the Completed Acquisitions on January 1, 2014, nor does it purport to present the future results of operations of the Company.
The Completed Acquisitions, except VSR and Girard which did not close until 2015, were included in the Company's Statement of Financial Condition as of December 31, 2014 and, therefore, a Pro Forma Statement of Financial Condition is not required.
Pursuant to an agreement, RCS Capital Management LLC (“RCS Capital Management”) implements the Company’s business strategy, as well as the business strategy of the operating subsidiaries, and performs executive and management services for the Company and operating subsidiaries, subject to oversight, directly or indirectly, by the Company’s Board of Directors. For purposes of the Consolidated Pro Forma Statement of Operations for the year ended December 31, 2014 there were no quarterly fees charged due to the fact that, based on the Pro Forma results, the pre-tax income of the Company was negative.
We have entered into a tax receivable agreement with RCAP Holdings, pursuant to which we pay RCAP Holdings 85% of the amount of the reduction, if any, in U.S. federal, state and local income tax liabilities that we realize (or are deemed to realize upon an early termination of the tax receivable agreement or a change of control) as a result of any increases in tax basis created by RCAP Holdings’ exchanges, such as the Exchange. These Pro Forma consolidated financial statements assume RCAP Holdings’ exchanges were effectuated in a tax-free manner in accordance with Internal Revenue Code Section
351; therefore, the tax receivable agreement will not be triggered and RCAP Holdings will not receive payments from the Company for income tax purposes.
Certain reclassifications have been made to the historical Statement of Operations of the Completed Acquisitions to conform to the Company’s presentation.
Purchase Price Allocation
Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition. The purchase price allocations for Completed Acquisitions are as follows (in thousands):
| | | Cetera | | | Summit | | | JP Turner | | | Hatteras | | | ICH | | | Strategic
Capital | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 241,641 | | | $ | 13,353 | | | $ | 10,171 | | | $ | 805 | | | $ | 6,881 | | | $ | 4,522 | |
| Cash and segregated securities | | | 7,999 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Short term investments and securities owned | | | 741 | | | | — | | | | — | | | | — | | | | 499 | | | | 2,239 | |
| Receivables | | | 49,443 | | | | 3,147 | | | | 712 | | | | 7,747 | | | | 7,500 | | | | 4,858 | |
| Property and equipment | | | 17,735 | | | | 362 | | | | 232 | | | | 192 | | | | 275 | | | | 96 | |
| Prepaid expenses and other assets | | | 52,179 | | | | 3,897 | | | | 3,063 | | | | 446 | | | | 1,055 | | | | 629 | |
| Deferred compensation plan investments | | | 76,010 | | | | — | | | | — | | | | — | | | | 2,250 | | | | — | |
| Notes receivable | | | 38,805 | | | | 1,092 | | | | 1,660 | | | | — | | | | 1,875 | | | | — | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable | | | 94,074 | | | | 9,973 | | | | 1,710 | | | | 3,721 | | | | — | | | | 706 | |
| Accrued expenses | | | 32,421 | | | | 3,100 | | | | 8,543 | | | | 5,277 | | | | 1,945 | | | | 201 | |
| Other liabilities | | | 112,977 | | | | — | | | | 656 | | | | — | | | | 7,593 | | | | 908 | |
| Deferred compensation plan accrued liabilities | | | 75,294 | | | | — | | | | — | | | | — | | | | 2,611 | | | | — | |
| Notes payable and long-term debt | | | — | | | | — | | | | — | | | | — | | | | 2,918 | | | | — | |
| Total fair value excluding goodwill, intangible assets, and deferred tax liability | | $ | 169,787 | | | $ | 8,778 | | | $ | 4,929 | | | $ | 192 | | | $ | 5,268 | | | $ | 10,529 | |
| Goodwill | | | 292,165 | | | | 23,891 | | | | 13,579 | | | | 15,348 | | | | 26,680 | | | | 22,871 | |
| Intangible assets | | | 944,542 | | | | 31,240 | | | | 14,200 | | | | 48,770 | | | | 30,100 | | | | 121,380 | |
| Less: deferred tax liability | | | 273,752 | | | | 6,751 | | | | — | | | | — | | | | 9,539 | | | | — | |
| Total consideration | | $ | 1,132,742 | | | $ | 57,158 | | | $ | 32,708 | | | $ | 64,310 | | | $ | 52,509 | | | $ | 154,780 | |
The contingent and deferred consideration in the table below represents the fair value as of the date of the acquisition which includes discounting for the time value of money. The total considerations consisted of the following (in thousands):
| | | Cetera | | | Summit | | | JP Turner | | | Hatteras | | | ICH | | | Strategic
Capital | |
| Cash paid by the Company | | $ | 1,132,742 | | | $ | 46,727 | | | $ | 12,786 | | | $ | 30,000 | | | $ | 8,412 | | | $ | 67,510 | |
| Stock issued by the Company | | | — | | | | 10,431 | | | | 4,860 | | | | — | | | | 44,097 | | | | 10,000 | |
| Contingent consideration | | | — | | | | — | | | | 4,500 | | | | 24,880 | | | | — | | | | 67,300 | |
| Deferred consideration | | | — | | | | — | | | | 10,562 | | | | 9,430 | | | | — | | | | 9,970 | |
| Total consideration | | $ | 1,132,742 | | | $ | 57,158 | | | $ | 32,708 | | | $ | 64,310 | | | $ | 52,509 | | | $ | 154,780 | |
| Purchase price adjustments | | $ | 17,258 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total contractual consideration | | $ | 1,150,000 | | | $ | 57,158 | | | $ | 32,708 | | | $ | 64,310 | | | $ | 52,509 | | | $ | 154,780 | |
Acquired Intangible Assets
The components of intangible assets as of the date of acquisition were based on the purchase price allocations for the Completed Acquisitions were as follows (dollars in thousands):
| | | Weighted-Average
Life (yrs) | | | Gross Carrying
Value | |
| Financial advisor relationships | | | 14 | | | $ | 948,168 | |
| Sponsor relationships | | | 9 | | | | 113,000 | |
| Trade names | | | 29 | | | | 64,892 | |
| Investment management agreements | | | 13 | | | | 47,390 | |
| Non-competition agreements | | | 2 | | | | 8,392 | |
| Internally developed software and technologies | | | 5 | | | | 5,180 | |
| Distribution network | | | 40 | | | | 3,210 | |
| Total consideration | | | | | | $ | 1,190,232 | |
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(in thousands, except earnings per share)
| | | RCAP
Historical
(1) | | | Cetera
Historical
(2) | | | Cetera
Acquisition
Related
Adjustments | | | Cetera
Financing
Related
Adjustments
(3) | | | Summit
Historical
(4) | | | Summit
Acquisition
Related
Adjustments | |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling commissions: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | $ | 445,704 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Non-related party products | | | 11,485 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Dealer manager fees: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 208,509 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | 5,579 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Retail commissions | | | 752,875 | | | | 241,638 | | | | (8,061 | )(10) | | | — | | | | 33,106 | | | | (2,610 | )(16) |
| Investment banking fees: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 62,560 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | 3,375 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Advisory and asset-based fees (non-related party) | | | 436,008 | | | | 134,820 | | | | — | | | | — | | | | 9,471 | | | | — | |
| Transfer agency revenue (related party products) | | | 17,182 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Services revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 34,361 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | 4,429 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Reimbursable expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 9,194 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | 230 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Investment fee revenue | | | 30,129 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Transaction fees | | | 121,151 | | | | 39,030 | | | | (1,748 | )(10) | | | — | | | | 4,431 | | | | (375 | )(16) |
| Other revenue | | | (40,576 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total revenues | | | 2,102,195 | | | | 415,488 | | | | (9,809 | ) | | | — | | | | 47,008 | | | | (2,985 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale commissions: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 374,767 | | | | — | | | | (8,061 | )(10) | | | — | | | | — | | | | (2,610 | )(16) |
| Non-related party products | | | 11,010 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Wholesale reallowance: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | 59,451 | | | | — | | | | (1,748 | )(10) | | | — | | | | — | | | | (375 | )(16) |
| Non-related party products | | | 1,863 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Retail commissions and advisory | | | 1,068,191 | | | | 331,937 | | | | — | | | | — | | | | 36,995 | | | | — | |
| Investment fee expense | | | 16,070 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Internal commission, payroll and benefits | | | 292,494 | | | | 38,268 | | | | — | | | | — | | | | 8,398 | | | | (72 | )(17) |
| Conferences and seminars | | | 37,207 | | | | 3,231 | | | | — | | | | — | | | | 413 | | | | — | |
| Travel | | | 13,896 | | | | 913 | | | | — | | | | — | | | | 155 | | | | — | |
| Marketing and advertising | | | 14,379 | | | | 691 | | | | — | | | | — | | | | 412 | | | | — | |
| Professional fees | | | 41,782 | | | | 5,557 | | | | — | | | | — | | | | 218 | | | | — | |
| Data processing | | | 35,519 | | | | 7,785 | | | | — | | | | — | | | | 317 | | | | — | |
| Quarterly fee (related party) | | | 2,030 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Acquisition-related costs | | | 19,740 | | | | 20,907 | | | | (20,907 | )(11) | | | — | | | | 669 | | | | (669 | )(18) |
| Interest expense | | | 49,154 | | | | 5,439 | | | | (5,439 | )(12) | | | 23,048 | (15) | | | — | | | | — | |
| Occupancy | | | 23,291 | | | | 4,042 | | | | — | | | | — | | | | 433 | | | | — | |
| Depreciation and amortization | | | 71,447 | | | | 6,114 | | | | 23,144 | (13) | | | — | | | | 121 | | | | 1,459 | (19) |
| Clearing and exchange fees | | | 23,603 | | | | 6,420 | | | | — | | | | — | | | | 937 | | | | — | |
| Outperformance bonus (related party) | | | 9,709 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Legal settlement | | | 60,000 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Other expenses | | | 42,717 | | | | 17,301 | | | | — | | | | — | | | | 1,039 | | | | — | |
| Total expenses | | | 2,268,320 | | | | 448,605 | | | | (13,011 | ) | | | 23,048 | | | | 50,107 | | | | (2,267 | ) |
| Income (loss) before taxes | | | (166,125 | ) | | | (33,117 | ) | | | 3,202 | | | | (23,048 | ) | | | (3,099 | ) | | | (718 | ) |
| Provision (benefit) for (from) income taxes | | | (46,485 | ) | | | (10,273 | ) | | | 1,281 | (14) | | | (9,219 | )(15) | | | 157 | | | | (287 | )(20) |
| Net income (loss) | | | (119,640 | ) | | | (22,844 | ) | | | 1,921 | | | | (13,829 | ) | | | (3,256 | ) | | | (431 | ) |
| Less: net income (loss) attributable to non-controlling interests | | | 8,925 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: preferred dividends and deemed dividends | | | 147,121 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net income (loss) attributable to Class A common stockholders | | $ | (275,686 | ) | | $ | (22,844 | ) | | $ | 1,921 | | | $ | (13,829 | ) | | $ | (3,256 | ) | | $ | (431 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (5.55 | ) | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted weighted average common shares | | | 49,765 | | | | | | | | | | | | | | | | | | | | | |
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(in thousands, except earnings per share)
| | | JP Turner
Historical
(5) | | | JP Turner
Acquisition
Related
Adjustments | | | Hatteras
Historical
(6) | | | Hatteras
Acquisition
Related
Adjustments | | | ICH
Historical
(7) | | | ICH
Acquisition
Related
Adjustments | |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling commissions: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Dealer manager fees: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Retail commissions | | | 30,411 | | | | (9,880 | )(21) | | | — | | | | — | | | | 38,147 | | | | (2,951 | )(30) |
| Investment banking fees: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Advisory and asset-based fees (non-related party) | | | 2,827 | | | | — | | | | — | | | | — | | | | 10,741 | | | | — | |
| Transfer agency revenue (related party products) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Services revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Reimbursable expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Investment fee revenue | | | — | | | | — | | | | 27,874 | | | | — | | | | — | | | | — | |
| Transaction fees | | | 5,609 | | | | (1,421 | )(21) | | | — | | | | — | | | | 4,265 | | | | (548 | )(30) |
| Other revenue | | | — | | | | — | | | | 2,604 | | | | — | | | | — | | | | — | |
| Total revenues | | | 38,847 | | | | (11,301 | ) | | | 30,478 | | | | — | | | | 53,153 | | | | (3,499 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale commissions: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | (9,880 | )(21) | | | — | | | | — | | | | — | | | | (2,951 | )(30) |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Wholesale reallowance: | | | | | | | | | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | (1,421 | )(21) | | | — | | | | — | | | | — | | | | (548 | )(30) |
| Non-related party products | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Retail commissions and advisory | | | 29,404 | | | | — | | | | — | | | | — | | | | 43,036 | | | | — | |
| Investment fee expense | | | — | | | | — | | | | 15,619 | | | | — | | | | — | | | | — | |
| Internal commission, payroll and benefits | | | 3,977 | | | | 37 | (22) | | | 7,620 | | | | — | | | | 4,937 | | | | 64 | (31) |
| Conferences and seminars | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | — | |
| Travel | | | 115 | | | | — | | | | — | | | | — | | | | 215 | | | | — | |
| Marketing and advertising | | | 25 | | | | — | | | | — | | | | — | | | | 324 | | | | — | |
| Professional fees | | | 224 | | | | — | | | | — | | | | — | | | | 1,441 | | | | — | |
| Data processing | | | 133 | | | | — | | | | — | | | | — | | | | 653 | | | | — | |
| Quarterly fee (related party) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Acquisition-related costs | | | — | | | | — | | | | 560 | | | | (560 | )(25) | | | — | | | | — | |
| Interest expense | | | 7 | | | | — | | | | 63 | | | | (63 | )(26) | | | 102 | | | | — | |
| Occupancy | | | 627 | | | | — | | | | — | | | | — | | | | 241 | | | | — | |
| Depreciation and amortization | | | 27 | | | | 664 | (23) | | | 82 | | | | 2,061 | (27) | | | 69 | | | | 1,069 | (32) |
| Clearing and exchange fees | | | 660 | | | | — | | | | — | | | | — | | | | 692 | | | | — | |
| Outperformance bonus (related party) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Legal settlement | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Other expenses | | | 1,354 | | | | — | | | | 2,051 | | | | — | | | | 2,939 | | | | — | |
| Total expenses | | | 36,553 | | | | (10,600 | ) | | | 25,995 | | | | 1,438 | | | | 54,652 | | | | (2,366 | ) |
| Income (loss) before taxes | | | 2,294 | | | | (701 | ) | | | 4,483 | | | | (1,438 | ) | | | (1,499 | ) | | | (1,133 | ) |
| Provision (benefit) for (from) income taxes | | | — | | | | (280 | )(24) | | | — | | | | (575 | )(28) | | | 283 | | | | (453 | )(33) |
| Net income (loss) | | | 2,294 | | | | (421 | ) | | | 4,483 | | | | (863 | ) | | | (1,782 | ) | | | (680 | ) |
| Less: net income (loss) attributable to non-controlling interests | | | — | | | | — | | | | 1,619 | | | | (1,619 | )(29) | | | — | | | | — | |
| Less: preferred dividends and deemed dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net income (loss) attributable to Class A common stockholders | | $ | 2,294 | | | $ | (421 | ) | | $ | 2,864 | | | $ | 756 | | | $ | (1,782 | ) | | $ | (680 | ) |
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2014
(in thousands, except earnings per share)
| | | StratCap
Historical
(8) | | | StratCap
Acquisition
Related
Adjustments | | | RCAP
Adjustments
(9) | | | Total RCAP
Pro Forma | |
| Revenues: | | | | | | | | | | | | | | | | |
| Selling commissions: | | | | | | | | | | | | | | | | |
| Related party products | | $ | — | | | $ | — | | | $ | — | | | $ | 445,704 | |
| Non-related party products | | | 80,785 | | | | — | | | | — | | | | 92,270 | |
| Dealer manager fees: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 208,509 | |
| Non-related party products | | | 34,236 | | | | — | | | | — | | | | 39,815 | |
| Retail commissions | | | — | | | | — | | | | — | | | | 1,072,675 | |
| Investment banking fees: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 62,560 | |
| Non-related party products | | | — | | | | — | | | | — | | | | 3,375 | |
| Advisory and asset-based fees (non-related party) | | | — | | | | — | | | | — | | | | 593,867 | |
| Transfer agency revenue (related party products) | | | — | | | | — | | | | — | | | | 17,182 | |
| Services revenue: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 34,361 | |
| Non-related party products | | | — | | | | — | | | | — | | | | 4,429 | |
| Reimbursable expenses: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 9,194 | |
| Non-related party products | | | — | | | | — | | | | — | | | | 230 | |
| Investment fee revenue | | | — | | | | — | | | | — | | | | 58,003 | |
| Transaction fees | | | — | | | | — | | | | — | | | | 170,394 | |
| Other revenue | | | 8,331 | | | | — | | | | — | | | | (29,641 | ) |
| Total revenues | | | 123,352 | | | | — | | | | — | | | | 2,782,927 | |
| | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | |
| Wholesale commissions: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 351,265 | |
| Non-related party products | | | 80,785 | | | | — | | | | — | | | | 91,795 | |
| Wholesale reallowance: | | | | | | | | | | | | | | | | |
| Related party products | | | — | | | | — | | | | — | | | | 55,359 | |
| Non-related party products | | | 14,440 | | | | — | | | | — | | | | 16,303 | |
| Retail commissions and advisory | | | — | | | | — | | | | — | | | | 1,509,563 | |
| Investment fee expense | | | — | | | | — | | | | — | | | | 31,689 | |
| Internal commission, payroll and benefits | | | 17,482 | | | | — | | | | — | | | | 373,205 | |
| Conferences and seminars | | | 401 | | | | — | | | | — | | | | 41,255 | |
| Travel | | | 840 | | | | — | | | | — | | | | 16,134 | |
| Marketing and advertising | | | — | | | | — | | | | — | | | | 15,831 | |
| Professional fees | | | 472 | | | | — | | | | — | | | | 49,694 | |
| Data processing | | | — | | | | — | | | | — | | | | 44,407 | |
| Quarterly fee (related party) | | | — | | | | — | | | | (2,030 | )(37) | | | — | |
| Acquisition-related costs | | | 240 | | | | (240 | )(34) | | | (19,740 | )(38) | | | — | |
| Interest expense | | | — | | | | — | | | | — | | | | 72,311 | |
| Occupancy | | | — | | | | — | | | | — | | | | 28,634 | |
| Depreciation and amortization | | | 22 | | | | 9,296 | (35) | | | — | | | | 115,575 | |
| Clearing and exchange fees | | | — | | | | — | | | | — | | | | 32,312 | |
| Outperformance bonus (related party) | | | — | | | | — | | | | — | | | | 9,709 | |
| Legal settlement | | | — | | | | — | | | | — | | | | 60,000 | |
| Other expenses | | | 946 | | | | — | | | | — | | | | 68,347 | |
| Total expenses | | | 115,628 | | | | 9,056 | | | | (21,770 | ) | | | 2,983,388 | |
| Income (loss) before taxes | | | 7,724 | | | | (9,056 | ) | | | 21,770 | | | | (200,461 | ) |
| Provision (benefit) for (from) income taxes | | | — | | | | (3,622 | )(36) | | | (10,710 | )(39) | | | (80,183 | ) |
| Net income (loss) | | | 7,724 | | | | (5,434 | ) | | | 32,480 | | | | (120,278 | ) |
| Less: net income (loss) attributable to non-controlling interests | | | — | | | | — | | | | — | | | | 8,925 | |
| Less: preferred dividends and deemed dividends | | | — | | | | — | | | | 6,195 | (40) | | | 153,316 | |
| Net income (loss) attributable to Class A common stockholders | | $ | 7,724 | | | $ | (5,434 | ) | | $ | 26,285 | | | $ | (282,519 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | | | | | | | | | | | | | $ | (5.23 | )(41) |
| Basic and diluted weighted average common shares | | | | | | | | | | | | | | | 54,155 | (42) |
RCS Capital Corporation
Notes to Unaudited Pro Forma Consolidated Statement of Operations
| (1) | Reflects the historical Consolidated Statement of Operations of the Company for the period indicated. The Company's historical Consolidated Statement of Operations includes results for Cetera, Summit, JP Turner, Hatteras, ICH and StratCap from the date of their acquisition, April 29, 2014, June 11, 2014, June 12, 2014, June 30, 2014, July 11, 2014 and August 29, 2014, respectively, through December 31, 2014. The Company’s acquisition of First Allied, which occurred on June 30, 2014, was accounted for at historical cost in a manner similar to a pooling-of-interest accounting because First Allied and the Company were under the common control of RCAP Holdings at the time of the acquisition of First Allied by RCAP Holdings, and accordingly is included in the entire year. |
| (2) | Reflects the historical Consolidated Statement of Income of Cetera from January 1, 2014 until the date of acquisition. |
| (3) | Reflects the Pro Forma adjustment to record interest expense on the Cetera financing from January 1, 2014 until the date of incurrence. |
| (4) | Reflects the historical Condensed Consolidated Statement of Operations of Summit from January 1, 2014 until the date of acquisition. |
| (5) | Reflects the historical Consolidated Statement of Income of JP Turner from January 1, 2014 until the date of acquisition. |
| (6) | Reflects the historical Combined Statement of Revenue and Expenses of Hatteras from January 1, 2014 until the date of acquisition. |
| (7) | Reflects the historical Condensed Consolidated Statement of Operations of ICH from January 1, 2014 until the date of acquisition. |
| (8) | Reflects the historical Consolidated Statement of Income of Strategic Capital from January 1, 2014 until the date of acquisition. |
| (9) | Reflects Pro Forma adjustments to the historical Statement of Operations of the Company to reflect the impact of certain related party transactions. Refer to Notes 37 and 38 for additional detail. Also, reflects an adjustment to record a consolidated tax benefit on an assumed tax rate of 40%, which is reflected in Note 39. Additionally, the Pro Forma adjustments reflect the 7% Series A preferred dividend from January 1, 2014 through April 29, 2014. See Note 40 for additional detail. |
| (10) | Reflects the elimination of the Company’s historical retail commissions revenues, transaction fees, wholesale commission expenses and wholesale reallowance expenses derived from transactions with Cetera between January 1, 2014 and the date of acquisition which after the acquisition became intercompany revenues/expenses that eliminate in consolidation. |
| (11) | Reflects the elimination of acquisition related costs incurred in connection with the Cetera acquisition. |
RCS Capital Corporation
Notes to Unaudited Pro Forma Consolidated Statement of Operations
| (12) | Reflects the elimination of interest expense incurred from January 1, 2014 until the date of acquisition due to the repayment of Cetera’s historical long-term debt concurrent with the acquisition. |
| (13) | Reflects the amortization and depreciation expense on Cetera’s intangible and fixed assets from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 13 years and 1 year, respectively. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined by the independent appraisal firm. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquired. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization/depreciation
expense from January 1, 2014
through December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 944.5 | | | | 13.3 | | | $ | 71.0 | | | $ | 50.6 | | | $ | 20.4 | |
| Fixed assets | | | 4.3 | | | | 1.0 | | | | 4.3 | | | | 1.6 | | | | 2.7 | |
| | | | | | | | | | | $ | 75.3 | | | $ | 52.2 | | | $ | 23.1 | |
| (14) | Reflects the income tax effect of the Pro Forma adjustments to Cetera’s historical consolidated financial statements from January 1, 2014 until the date of acquisition. |
| | | (in millions) | |
| Pro Forma adjustments | | $ | 3.2 | |
| Tax effect at an assumed tax rate of 40% | | $ | 1.3 | |
| (15) | Reflects the Pro Forma adjustments to the Company’s historical consolidated statements of operations from January 1, 2014 until the date of acquisition for interest expense on long-term debt and convertible notes issued in connection with the transactions. The tax benefit effect for this expense is $9.2 million using an assumed tax rate of 40%. The U.S. Securities and Exchange Commission Financial Reporting Manual Section 3260.1, which requires disclosure of the effect on income of a 1/8% variance in interest rates, is not applicable since the long-term debt interest is calculated using a floor of 1% LIBOR. |
| (16) | Reflects the elimination of the Company’s historical retail commissions revenues, transaction fees, wholesale commission expenses and wholesale reallowance expenses derived from transactions with Summit between January 1, 2014 and the date of acquisition which after the acquisition became intercompany revenues/expenses that eliminate in consolidation. |
| (17) | Reflects the amortization expense for forgivable loans from January 1, 2014 until the date of acquisition based on a fair value of $1.0 million and a 3 year useful life less amortization expense recorded by Summit in their historical financial results. |
| (18) | Reflects the elimination of acquisition related costs incurred by Summit in connection with the acquisition. |
| (19) | Reflects the amortization expense on Summit’s intangible assets primarily related to client relationships from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 10 years as determined by an independent appraisal based on the expected future cash flows. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined by the independent appraisal firm. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquired. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization expense from
acquisition date through
December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 31.2 | | | | 9.5 | | | $ | 3.3 | | | $ | 1.8 | | | $ | 1.5 | |
RCS Capital Corporation
Notes to Unaudited Pro Forma Consolidated Statement of Operations
| (20) | Reflects the income tax effect of the Pro Forma adjustments to Summit’s historical consolidated financial statements from January 1, 2014 until the date of acquisition. |
| | | (in millions) | |
| Pro Forma adjustments | | $ | (0.7 | ) |
| Tax effect at an assumed tax rate of 40% | | $ | (0.3 | ) |
| (21) | Reflects the elimination of the Company’s historical retail commissions revenues, transaction fees, wholesale commission expenses and wholesale reallowance expenses derived from transactions with JP Turner between January 1, 2014 and the date of acquisition which after the acquisition became intercompany revenues/expenses that eliminate in consolidation. |
| (22) | Reflects the amortization expense for forgivable loans from January 1, 2014 until the date of acquisition based on a fair value of $1.7 million and a 6 year useful life less amortization expense recorded by JP Turner in their historical financial results. |
| (23) | Reflects the amortization expense on JP Turner’s intangible assets from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 10 years. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined by the independent appraisal firm. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquire. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization expense from
acquisition date through
December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 14.2 | | | | 9.6 | | | $ | 1.5 | | | $ | 0.8 | | | $ | 0.7 | |
| (24) | Reflects the income tax effect of the Pro Forma adjustments to JP Turner’s historical consolidated financial statements from January 1, 2014 until the date of acquisition. |
| | | (in millions) | |
| Pro Forma adjustments | | $ | (0.7 | ) |
| Tax effect at an assumed tax rate of 40% | | $ | (0.3 | ) |
| (25) | Reflects the elimination of acquisition related costs incurred by Hatteras in connection with the acquisition. |
| (26) | Reflects the elimination of interest expense from January 1, 2014 until the date of acquisition due to the repayment of Hatteras’ line of credit and notes payable concurrent with the acquisition. |
| (27) | Reflects the amortization expense on Hatteras’ intangible assets primarily related to customer relationships with fund of hedge funds products that are structured as mutual funds from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 12 years as determined by an independent appraisal based on the expected future cash flows. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined by the independent appraisal firm. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquired. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization expense from
acquisition date through
December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 48.8 | | | | 12.0 | | | $ | 4.1 | | | $ | 2.0 | | | $ | 2.1 | |
RCS Capital Corporation
Notes to Unaudited Pro Forma Consolidated Statement of Operations
| (28) | Reflects the Pro Forma income tax adjustments to Hatteras’ historical combined financial statements from January 1, 2014 until the date of acquisition. |
| | | (in millions) | |
| Pro Forma adjustments | | | (1.4 | ) |
| Tax effect at an assumed tax rate of 40% | | $ | (0.6 | ) |
| (29) | Reflects the elimination of the historical non-controlling interest for Hatteras. |
| (30) | Reflects the elimination of the Company’s historical retail commissions revenues, transaction fees, wholesale commission expenses and wholesale reallowance expenses derived from transactions with ICH between January 1, 2014 and the date of acquisition which after the acquisition became intercompany revenues/expenses that eliminate in consolidation. |
| (31) | Reflects the amortization expense for forgivable loans from January 1, 2014 until the date of acquisition based on a fair value of $1.6 million and a 3 year useful life less amortization expense recorded by ICH in their historical financial results. |
| (32) | Reflects the amortization expense on ICH’s intangible assets primarily related to client relationships from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 13 years as determined by an independent appraisal based on the expected future cash flows. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined by the independent appraisal firm. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquired. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization expense from
acquisition date through
December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 30.3 | | | | 13.2 | | | $ | 2.3 | | | $ | 1.2 | | | $ | 1.1 | |
| (33) | Reflects the income tax effect of the Pro Forma adjustments to ICH’s historical consolidated financial statements from January 1, 2014 until the date of acquisition. |
| | | (in millions) | |
| Pro Forma adjustments | | $ | (1.1 | ) |
| Tax effect at an assumed tax rate of 40% | | $ | (0.5 | ) |
| (34) | Reflects the elimination of acquisition related costs incurred by StratCap in connection with the acquisition. |
| (35) | Reflects the amortization expense on StratCap intangible assets from January 1, 2014 until the date of acquisition assuming their useful life will be approximately 9 years. The amortization expense for each acquisition was calculated by dividing the individual intangible assets by the useful life which was determined based on the useful life of intangible assets in the acquisition of a similar company. The total individual intangible assets for each acquisition were then divided by the total annual amortization expense to derive the overall useful life for the combined group of intangible assets acquired. |
| | | Fair value
(in millions) | | | Useful life
(yrs) | | | Annual
amortization
expense
(in millions) | | | Amortization expense from
acquisition date through
December 31, 2014
(in millions) | | | Pro Forma adjustment
(in millions) | |
| Intangible assets | | $ | 121.4 | | | | 8.7 | | | $ | 14.0 | | | $ | 4.7 | | | $ | 9.3 | |
| (36) | Reflects the Pro Forma income tax adjustments to StratCap’ historical combined financial statements from January 1, 2014 until the date of acquisition. |
RCS Capital Corporation
Notes to Unaudited Pro Forma Consolidated Statement of Operations
| | | (in millions) | |
| Pro Forma adjustments | | | (9.1 | ) |
| Tax effect at an assumed tax rate of 40% | | $ | (3.6 | ) |
| (37) | Pursuant to an agreement, RCS Capital Management implements the Company’s business strategy, as well as the business strategy of the operating subsidiaries, and performs executive and management services for the Company and operating subsidiaries, subject to oversight, directly or indirectly, by the Company’s Board of Directors. Reflects the reversal of the Company’s quarterly fee expense for the twelve months ended December 31, 2014 due to the fact that based on the Pro Forma results the quarterly fee was negative. |
| (38) | Reflects the elimination of the Company's acquisition related costs incurred in connection with the Completed Acquisitions. |
| (39) | Reflects an adjustment to record a consolidated tax benefit based on an assumed tax rate of 40%. |
| (40) | Reflects the Pro Forma adjustment to record the 7% convertible Series A Preferred Stock dividend from January 1, 2014 through April 29, 2014. The Company issued 14,657,980 shares of convertible preferred stock to finance the Cetera acquisition in a private placement. The shareholders of convertible preferred stock were entitled to a dividend of 7% of the liquidation preference in cash and a dividend of 8% of the liquidation preference if a quarterly dividend is not paid in cash on the dividend payment date. |
| (41) | Reflects Pro Forma earnings per share calculation based on the following assumptions (in thousands, except per share amounts): |
| | | Income
(Numerator) | | | Weighted
average shares
(Denominator) | | | Per share
amount | |
| Net loss attributable to Class A common stockholders | | $ | (282,519 | ) | | | 54,155 | | | $ | (5.22 | ) |
| Allocation of earnings to nonvested RSU holders | | | (467 | ) | | | — | | | | (0.01 | ) |
| Basic and diluted net loss attributable to Class A common stockholders | | | (282,986 | ) | | | 54,155 | | | | (5.23 | ) |
| (42) | Reflects the number of shares issued for the Summit, JP Turner, First Allied, ICH, and StratCap acquisitions, assuming that the acquisitions had occurred on January 1, 2014. Additionally, reflects the exchange by RCAP Holdings of all but one of its 24.0 million shares of the Company’s Class B common stock and all of its Class B units in the Company’s operating subsidiaries for 24.0 million shares of the Company’s Class A common stock, assuming that the exchange had occurred on January 1, 2014. |
| | | Basic and diluted
shares issued
(in thousands) | |
| Company's historical weighted average number of shares outstanding | | | 49,765 | |
| Adjustment to the total number of shares | | | 4,390 | |
| Total Pro Forma weighted average number of shares outstanding as of December 31, 2014 | | | 54,155 | |
