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Exhibit 99.3

ENSTAR GROUP LIMITED

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED

FINANCIAL STATEMENTS

The following preliminary unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2013 is based on the historical financial statements of Enstar Group Limited (“Enstar”) and the consolidated results of Atrium Underwriting Group Ltd. (“Atrium”). It is presented as if Enstar had completed the acquisition of Atrium as of September 30, 2013.

The following preliminary unaudited pro forma statements of earnings are based on the historical financial statements of Enstar, the consolidated results of Atrium, and the consolidated results of the following significant acquisitions that Enstar completed during 2013: (i) HSBC Insurance Company of Delaware and Household Life Insurance Company of Delaware and their subsidiaries: Household Life Insurance Company, Household Life Insurance Company of Arizona, and First Central National Life Insurance Company of New York (the acquired companies collectively, the “Pavonia companies”) and (ii) Arden Reinsurance Company Ltd. (“Arden”).

On November 25, 2013, Kenmare Holdings Ltd. (“Kenmare”), a wholly-owned subsidiary of Enstar, together with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, “Trident”), completed the acquisition of Atrium from Arden Holdings Ltd. The purchaser of Atrium, Alopuc Limited, is 100% owned by Northshore Holdings Limited (“Northshore”), which is 60% owned by Kenmare and 40% owned by Trident.

On March 31, 2013, a wholly-owned subsidiary of Enstar completed the acquisition of the Pavonia companies. On September 9, 2013, Kenmare and Trident, through Northshore, completed the acquisition of Arden from Arden Holdings Ltd. Pavonia and Arden are not separately included in the preliminary unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2013 because the acquisitions were reflected in Enstar’s actual balance sheet as of September 30, 2013, which was included within Enstar’s Quarterly Report on Form 10-Q filed with the U.S Securities and Exchange Commission (“SEC”) on November 7, 2013.

The preliminary unaudited pro forma condensed combined consolidated statement of earnings for the nine months ended September 30, 2013 is presented as if Enstar had completed the acquisitions of Pavonia, Arden, and Atrium as of January 1, 2013. The preliminary unaudited pro forma condensed combined consolidated statement of earnings for the year ended December 31, 2012 is presented as if Enstar had completed the acquisitions of Pavonia, Arden, and Atrium as of January 1, 2012.

The preliminary unaudited condensed combined consolidated pro forma financial information reflects the purchase of Atrium under the purchase method of accounting for business combinations and represents a current estimate of the financial information based on information available as of the date of this Current Report on Form 8-K/A. The preliminary unaudited pro forma information includes adjustments to record the assets and liabilities of Atrium at their estimated fair values under the purchase method of accounting for business combinations. The excess of the acquisition consideration over the fair value of the assets acquired and liabilities assumed, if any, is allocated to goodwill. A final determination of the acquisition consideration and fair values of Atrium’s assets and liabilities will be based on the actual net tangible and intangible assets of Atrium that existed on November 25, 2013, the date the transaction was completed. To the extent there are significant changes to Atrium’s business, the assumptions and estimates herein could change significantly.

The preliminary unaudited pro forma financial information is presented for informational purposes only under one set of assumptions and does not reflect the financial results of the combined companies had consideration been given to other assumptions or to the impact of possible operating efficiencies, asset dispositions, and other factors. Further, the pro forma financial information does not necessarily reflect the historical results of the combined companies that actually would have occurred had the transaction been in effect during the periods indicated or that may be obtained in the future.

The preliminary unaudited pro forma condensed combined consolidated financial information should be read in conjunction with:

 

    Enstar’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and historical financial statements, including the related notes, with respect to the year ended December 31, 2012 included in Enstar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the SEC on February 28, 2013;

 

    Enstar’s subsequent Quarterly Reports on Form 10-Q filed with the SEC;

 

    the historical financial statements of Atrium included in Exhibits 99.1 and 99.2 to this Current Report on Form 8-K/A;

 

    the historical financial statements of the Pavonia companies included in Exhibit 99.1 to the Current Report on Form 8-K/A, which was filed with the SEC on June 14, 2013; and

 

    the historical financial statements of Arden included in Exhibits 99.1 through 99.3 to the Current Report on Form 8-K/A, which was filed with the SEC on November 25, 2013.

 

1


Enstar Group Limited

Preliminary Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet

As of September 30, 2013

(Expressed in thousands of U.S. dollars)

 

     Enstar     Atrium      Atrium Pro Forma
Adjustments
          Combined  

ASSETS

           

Total investments

   $  5,457,099      $ 209,449       $ —          $ 5,666,548   

Cash and cash equivalents

     520,560        104,912         (24,800     (a     600,672   

Restricted cash and cash equivalents

     386,605        —           —            386,605   

Accrued interest receivable

     42,215        —           —            42,215   

Accounts receivable

     59,745        5,211         —            64,956   

Premiums receivable

     153,623        56,038         —            209,661   

Income taxes recoverable

     11,718        —           —            11,718   

Deferred tax asset

     41,478        —           —            41,478   

Reinsurance balances recoverable

     1,395,345        177,937         (382     (b     1,572,900   

Funds held by reinsured companies

     235,156        19,054         —            254,210   

Goodwill

     21,222        20,756         13,800        (c     55,778   

Intangible assets

     —          10,105         92,195        (d     102,300   

Other assets

     17,503        20,318         177        (e     37,998   
  

 

 

   

 

 

    

 

 

     

 

 

 

TOTAL ASSETS

     8,342,269        623,780         80,990          9,047,039   
  

 

 

   

 

 

    

 

 

     

 

 

 

LIABILITIES

           

Losses and loss adjustment expenses

     4,400,418        233,036         (3,301     (f     4,630,153   

Policy benefits for life and annuity contracts

     1,288,148        —           —            1,288,148   

Unearned premium

     34,136        51,768         —            85,904   

Insurance and reinsurance balances payable

     213,033        191,787         —            404,820   

Accounts payable and accrued liabilities

     74,587        9,741         —            84,328   

Income taxes payable

     19,635        —           —            19,635   

Deferred tax liabilities

     7,260        22,468         21,774        (g     51,502   

Loans payable

     355,663        —           95,000        (h     450,663   

Other liabilities

     73,478        19,297             92,775   
  

 

 

   

 

 

    

 

 

     

 

 

 

TOTAL LIABILITIES

     6,466,358        528,097         113,473          7,107,928   
  

 

 

   

 

 

    

 

 

     

 

 

 

COMMITMENTS AND CONTINGENCIES

           

REDEEMABLE NONCONTROLLING INTEREST

     32,507        —           63,200        (i     95,707   
  

 

 

   

 

 

    

 

 

     

 

 

 

SHAREHOLDERS’ EQUITY

           

Share capital

     —              

Ordinary shares

     13,801        24,702         (24,702     (j     13,801   

Non-voting convertible ordinary shares

     5,699        —           —            5,699   

Treasury stock

     (421,559     —           —            (421,559

Additional paid-in capital

     961,270        2,161         (2,161     (k     961,270   

Accumulated other comprehensive income

     14,676        15,953         (15,953     (l     14,676   

Retained earnings

     1,043,996        52,867         (52,867     (m     1,043,996   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total Enstar Shareholders’ Equity

     1,617,883        95,683         (95,683       1,617,883   

Noncontrolling interests

     225,521        —           —            225,521   
  

 

 

   

 

 

    

 

 

     

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     1,843,404        95,683         (95,683       1,843,404   
  

 

 

   

 

 

    

 

 

     

 

 

 

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY

   $ 8,342,269      $ 623,780       $ 80,990        $ 9,047,039   
  

 

 

   

 

 

    

 

 

     

 

 

 

 

2


Enstar Group Limited

Preliminary Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings

For the Nine Months Ended September 30, 2013

(Expressed in thousands of U.S. dollars)

 

    Enstar     Pavonia     Pavonia
Pro forma
Adjustments
          Arden     Arden
Pro forma
Adjustments
          Sub-total
Pro forma
Combined
    Atrium     Atrium
Pro forma
Adjustments
          Pro forma
Combined
 

INCOME

                       

Net premiums earned

  $ 165,931      $  34,061      $ —          $  15,314      $ —          $ 215,306      $  55,960      $ —          $ 271,266   

Consulting fees

    7,805        —          —            —          —            7,805        6,305        —            14,110   

Commission income

    —          826        —            40        —            866        13,251        —            14,117   

Net investment income

    70,224        13,307        —            371        —            83,902        3,377        —            87,279   

Net realized and unrealized gains (losses)

    39,211        82        —            154        —            39,447        647        —            40,094   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 
    283,171        48,275        —            15,879        —            347,326        79,540        —            426,866   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

EXPENSES

                       

Net reduction in ultimate loss and loss adjustment expense liabilities

    (26,638     —          —            16,954        218        (r     (9,460     7,976        —            (1,490

Life and annuity policy benefits

    63,555        36,318        4,991        (n ), (o)      —          —            104,864        —          —            104,864   

Acquisition costs

    —          6,529       
—  
  
      1,720        —            8,248        27,129        —            35,377   

Salaries and benefits

    79,013        —          —            —          —            79,013        —          19,468        (w     98,481   

General and administrative expenses

    67,074        5,149        —            105        —            72,328        20,366        (18,278     (x ),(y)      74,416   

Interest expense

    8,796        —          442        (p     —          1,111        (u     10,349        —          2,449        (z     12,798   

Net foreign exchange gains

    (3,994     —          —            (174     —            (4,168     (354     —            (4,522
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 
    187,806        47,996        5,433          18,605        1,329          261,169        55,117        3,639          319,924   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

EARNINGS BEFORE INCOME TAXES

    95,365        280        (5,433       (2,726     (1,329       86,157        24,423        (3,639       106,942   

INCOME TAXES

    (13,726     (98     1,902        (q     (40     —            (11,962     (2,683     —            (14,645
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

NET EARNINGS

    81,639        182        (3,531       (2,766     (1,329       74,195        21,740        (3,639       92,296   

Less: Net earnings attributable to noncontrolling interest

    (10,496     —          —            —          1,236        (v     (9,260     —          (8,220     (aa     (17,480
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED

  $ 71,143      $ 182      $ (3,531     $ (2,766   $ (93     $ 64,935      $ 21,740      $ (11,859     $ 74,816   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Earning per share — basic

  $ 4.31                  $ 3.93            $ 4.53   

Earning per share — diluted

  $ 4.26                  $ 3.89            $ 4.48   

Weighted average shares outstanding - basic

    16,521,865                    16,521,865              16,521,865   

Weighted average shares outstanding - diluted

    16,698,640                    16,698,640              16,698,640   

 

3


Enstar Group Limited

Preliminary Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings

For the Year Ended December 31, 2012

(Expressed in thousands of U.S. dollars)

 

    Enstar     Pavonia     Pavonia
Pro forma
Adjustments
         Arden     Arden
Pro forma
Adjustments
        Sub-total
Pro forma
Combined
    Atrium     Atrium
Pro forma
Adjustments
        Pro forma
Combined
 

INCOME

                        

Net premiums earned

  $ —        $ 189,937      $ —           $ 171,016      $ —          $ 360,953      $ 48,693      $ —          $ 409,646   

Consulting fees

    8,570        —          —             —          —            8,570        8,064        —            16,634   

Other income

    —          —          —             55,011        —            55,011          —            55,011   

Commission income

    —          3,955        —             —          —            3,955        21,469        —            25,424   

Net investment income

    77,760        64,340        —             8,147        —            150,247        4,211        —            154,458   

Net realized and unrealized gains (losses)

    73,612        21,995        —             20,751        —            1,16,358        1,169        —            1,17,527   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 
    159,942        280,227        —             254,925        —            695,094        83,606        —            778,700   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

EXPENSES

                        

Net reduction in ultimate loss and loss adjustment expense liabilities

    (241,764    
2,977
  
    —             70,047        327      (r)     (168,413     (12,196     —            (180,609

Life and annuity policy benefits

    —          149,719        19,964      (n),(o)      —          —            169,863        —          —            169,863   

Acquisition costs

    —          —          —             14,520        —            14,520        34,643        —            49,163   

Salaries and benefits

    100,473        17,566        —             —          6,791      (s)     124,830        —          25,101      (w)     149,931   

General and administrative expenses

    56,592        79,601        —             22,388        (6,791   (t)     151,790        28,842        (23,514   (x),(y)     157,118   

Interest expense

    8,426        —          2,250      (p)      —          1,855      (u)     12,531        —          3,685      (z)     16,216   

Net foreign exchange losses (gains)

    406        —          —             1,071        —            1,477        (950     —            527   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 
    (75,867     249,863        22,214           108,026        2,181          306,418        50,339        5,271          362,028   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

EARNINGS BEFORE INCOME TAXES

    235,809        30,364        (22,214        146,899        (2,181       388,676        33,267        (5,271       416,672   

INCOME TAXES

    (44,290     (18,120     7,775      (q)      (159     —            (54,794     (3,201     —            (57,995
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

NET EARNINGS

    191,519        12,244        (14,439        146,740        (2,181       333,882        30,066        (5,271       358,677   

Less: Net earnings attributable to noncontrolling interest

    (23,502     —          —             —          (58,565   (v)     (82,067     —          (11,392   (aa)     (93,459
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED

  $ 168,017      $ 12,244      $ (14,439      $ 146,740      $ (60,746     $ 251,815      $ 30,066      $ (16,663     $ 265,218   
 

 

 

   

 

 

   

 

 

      

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Earning per share — basic

  $ 10.22                   $ 15.32            $ 16.13   

Earning per share — diluted

  $ 10.10                   $ 15.13            $ 15.94   

Weighted average shares outstanding - basic

    16,441,461                     16,441,461              16,441,461   

Weighted average shares outstanding - diluted

    16,638,021                     16,638,021              16,638,021   

 

4


1. Acquisition Consideration Allocation

Under the acquisition method of accounting, the total acquisition consideration is allocated to the acquired tangible and identifiable intangible assets and assumed liabilities of Atrium based on their estimated fair values as of the closing of the transaction. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

The preliminary unaudited pro forma adjustments included herein are subject to update as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after completion of a thorough analysis to determine the fair values of Atrium’s tangible and identifiable intangible assets and liabilities. Accordingly, the final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the preliminary unaudited pro forma consolidated financial statements.

The total acquisition consideration is allocated to Atrium’s tangible and identifiable intangible assets and liabilities as of September 30, 2013 based on their preliminary fair values as follows:

 

     September 30, 2013  
     (in thousands of U.S.  
     dollars)  

ASSETS

  

Investments

   $ 184,449   

Cash and cash equivalents

     104,912   

Accounts receivable

     5,211   

Premiums receivable

     56,038   

Reinsurance balances recoverable

     177,555   

Funds held by reinsured companies

     19,054   

Other assets

     20,495   
  

 

 

 

TOTAL ASSETS

     567,714   
  

 

 

 

LIABILITIES

  

Losses and loss adjustment expenses

     229,735   

Insurance and reinsurance balances payable

     191,787   

Unearned premium

     51,768   

Deferred taxes

     44,242   

Other liabilities

     29,038   
  

 

 

 

TOTAL LIABILITIES

     546,570   
  

 

 

 

NET ASSETS ACQUIRED AT FAIR VALUE

     21,144   

Goodwill

     34,556   

Intangibles

     102,300   
  

 

 

 

ACQUISITION DATE FAIR VALUE

   $ 158,000   
  

 

 

 

Approximately $102.3 million has been preliminarily allocated to amortizable intangible assets acquired. The amortization related to the preliminary fair value of amortizable intangible assets is reflected as a pro forma adjustment to the unaudited pro forma consolidated financial statements.

 

5


Identifiable intangible assets. The preliminary fair values of intangible assets were determined based on the provisions of Accounting Standards Codification (ASC) 805, Business Combinations, which defines fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The preliminary allocation to intangible assets is as follows:

 

     September 30, 2013      Estimated Useful Life
     (in thousands of
U.S. dollars)
      

Syndicate capacity

     45,300      Indefinite

Management contract

     33,200      Indefinite

Distribution channel

     17,000      15 Years

Brand

     6,800      10 years
  

 

 

    

Total identified intangible assets

   $ 102,300      
  

 

 

    

Goodwill. Goodwill represents the excess of the acquisition consideration over the preliminary fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the identifiable net tangible and intangible assets are the skill sets, operations and synergies that can be leveraged to enable the combined company to build a stronger enterprise. According to ASC 805, an assembled workforce does not represent the intellectual capital of this workforce, it only represents an existing collection of employees. As such, it is not an identifiable asset and is therefore recognized as part of goodwill.

In accordance with ASC 350, Intangibles-Goodwill and Other, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. If management determines that the value of goodwill has become impaired, Enstar will incur a charge to earnings for the amount of the impairment during the period in which the determination is made.

 

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2. Unaudited Pro Forma and Acquisition Accounting Adjustments

The unaudited pro forma financial information is not necessarily indicative of what the financial position and results from operations actually would have been had the transactions been completed at the dates indicated and includes adjustments which are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the post-transaction periods.

The following unaudited pro forma adjustments result from accounting for the transactions, including the determination of fair value of the assets, liabilities, and commitments which Enstar, as the acquirer for accounting purposes, will acquire and assume from the acquired companies. The descriptions related to these preliminary adjustments are as follows:

Balance Sheet:

 

     Increase (decrease) as of
September 30, 2013
 
     (dollars in thousands)  
(a)    Adjustments to cash and cash equivalents:   
  

To reflect cash received by Enstar from drawdown on its revolving credit facility (“RCF”)

     95,000   
  

To reflect cash received from redeemable noncontrolling interest for their 40% share of the acquisition consideration

     63,200   
  

To reflect cash paid to Atrium’s shareholders

     (158,000
  

To reflect pre-acquisition dividend paid to Atrium’s shareholders

     (25,000
(b)    Adjustment to reflect reinsurance balances recoverable at fair value      (382
(c)    Adjustment to reflect the elimination of Atrium’s carried goodwill      (20,756
   Adjustment to reflect the goodwill recorded by Enstar on the completion of acquisition of Atrium      34,556   
(d)    Adjustment to reflect the intangible assets recorded by Enstar on the completion of the acquisition of Atrium     
102,300
  
   Adjustment to reflect elimination of Atrium’s carried intangible assets      (10,105
(e)    Adjustment to reflect other assets at fair value      177   
(f)    Adjustment to reflect unpaid losses and loss adjustment expenses at fair value      (3,301
(g)    Adjustment to reflect deferred tax liability on the goodwill and intangible assets recorded by Enstar on the completion of acquisition of Atrium      (21,774
(h)    Adjustment to reflect the drawdown by Enstar of its RCF      95,000   
(i)    Adjustment to reflect the fair value of the redeemable noncontrolling interests’ capital contribution      63,200   
(j)    Adjustment to reflect the elimination of Atrium’s common stock      (24,702
(k)    Adjustment to reflect the elimination of Atrium’s additional paid-in capital      (2,161
(l)    Adjustment to reflect the elimination of Atrium’s accumulated other comprehensive income      (15,953
(m)    Adjustment to reflect the elimination of Atrium’s retained earnings      (52,867

Income Statement:

 

     Increase (decrease) for the
Nine Months Ended
September 30, 2013
    Increase (decrease) for
Year Ended
December 31, 2012
 
          (dollars in thousands)  
   Pavonia Pro Forma Adjustments     

(n)

   Adjustment to amortize the fair value adjustment of intangible assets with a definitive life      (2,825     (11,300

(o)

   Net adjustment related to the unlocking and reassessment of the actuarial estimates of the business acquired      (2,166     (8,664

 

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(p)    Adjustment to reflect the interest expense on the drawdown of the RCF      (442     (2,250
(q)    Adjustment to reflect income tax impact of pro forma adjustments based on an assumed tax rate of 35%      1,902        7,775   
   Arden Pro Forma Adjustments     
(r)    Adjustment to amortize the fair value adjustment of intangible assets      (218     (327
(s)    Adjustment to reclassify salaries and benefits to conform presentation      —          (6,791
(t)    Adjustment to remove salary and benefits from general and administrative expenses to conform presentation      —          6,791   
(u)    Adjustment to reflect the interest expense on the drawdown of the RCF      (1,111     (1,855
(v)    Adjustment to reflect the redeemable noncontrolling interest’s 40% share of Arden’s pro forma loss (earnings) and cumulative adjustment entries      1,236        (58,565
   Atrium Pro Forma Adjustments     
(w)    Adjustment to reclassify salaries and benefits to conform presentation      (19,468     (25,101
(x)    Adjustment to remove salary and benefits from general and administrative expenses to conform presentation      19,468        25,101   
(y)    Adjustment to amortize the fair value adjustment of intangible assets      (1,190     (1,587
(z)    Adjustment to reflect the interest expense on the drawdown of the RCF      (2,449     (3,685
(aa)    Adjustment to reflect the redeemable noncontrolling interest’s share of Atrium’s pro forma earnings and adjustments      (8,220     (11,392

 

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