EFTA00832651.pdf

From: "jeffrey E." <jeevacation@gmail.com> To: Marc Rowan Subject: Re: TRA Valuation Process Date: Fri, 04 Mar 2016 05:25:28 +0000 Worksheet On Thursday, March 3, 2016, Marc Rowan < > wrote: Sent from my iPhone Begin forwarded message: From: Chris Weidler :mailto: >> Date: March 4, 2016 at 12:35:36 AM GMT+2 To: Marc Rowan < cmailto: Subject: RE: TRA Valuation Process Marc Not to be confusing but one point to clarify When we calculate the incremental DTA arising from each TRA payment we are required to calculate the amount of the payment related to principal versus interest. The portion that is deemed to be a `principal' payment creates additional DTA. That amount is also undiscounted when creating the balance sheet asset. The rate used to compute the `interest' portion of each TRA is the IRS applicable federal rate ('AFR') at the time of the original exchange. The interest amount does not create incremental DTA. For the November exchange it was 2.57% so the majority of any TRA payment results in incremental DTA Not sure if you needed this information as well so wanted to pass it along Thanks Chris From: Marc Rowan Sent: Thursday, March 03, 2016 5:25 PM To: Chris Weidler Subject: Re: TRA Valuation Process Tks Sent from my iPhone On Mar 4, 2016, at 12:19 AM, Chris Weidler < :mailto: >> wrote: Marc For purposes of establishing the balance sheet asset the DTA/TRA are undiscounted. EFTA00832651 Each period we re-assess our ability to realize the asset over the allotted time frame. If we have any concerns we would then establish a valuation allowance We also review the tax rate each period and if that changes for any reason (new York state rate change, etc) we apply that change and adjust the DTA/TRA. This we have done in 13 and 14 as there were rate changes. chris From: Marc Rowan Sent: Thursday, March 03, 2016 5:05 PM To: Chris Weidler Subject: Re: TRA Valuation Process This tells me what I already know. What rate do we discount future cash flows/TRA pmts at for purposes of establishing the balance sheet asset? Sent from my iPad On Mar 4, 2016, at 12:02 AM, Chris Weidler < :mailto: wrote: Marc, Please see below for how the deferred tax asset ('DTA') and tax receivable agreement ('TRA') is calculated as well as the key inputs into the computation. I tried to simplify as much as possible but obviously a complex calculation. Please let me know if this is sufficient or if you need more. We have example detailed calculations if you would find that useful. Each exchange related to the TRA is valued using a multi -step process described below The TRA is valued as 85% of DTA that is created as a result of an AOG exchange. The DTA is calculated as: <image002.png> The tax rate is the combined federal and state rates. Currently 38.83% for AGM The DTA is then amortized over 15 years. 85% of the tax benefit derived from the amortization for any given year is paid out to the individuals that exchanged. Each actual TRA payment then creates additional DTA/TRA calculated as TRA payment X the current tax rate Notes: *The % of the business allocated to taxable entities is calculated as the present value of the future cash flows attributable to taxable entities as a % of the present value of the total EFTA00832652  cash flows of the business. This % is —75% as of 12/31/2015. The key inputs used to determine the present value of the cash flows attributable to AMH and the total business are o Management Fees and Carried Interest cash flows sourced from the most recently approved 5-year Budget Plan o Management Fee Cash Flows are discounted by —8-14% and Carried Interest Cash Flows are discounted by 20% o For perpetual funds and unidentified future funds a Long-Term Growth rate of 3% is applied with a discount rate of 10-20% to determine the Terminal Value of these entities. The results of the fair values of the Management Fees and Carried Interest cash flows are mapped to the appropriate parts of the business to determine the final allocation of value that is attributable to taxable entities. Regards Chris This email and any files transmitted with it are confidential and intended solely for the person or entity to whom they are addressed and may contain confidential and/or privileged material. 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