Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information (“Unaudited Pro Forma Financial Information”) included herein presents the unaudited pro forma condensed combined balance sheet (“Pro Forma Balance Sheet”) and the unaudited pro forma condensed combined statements of operations (“Pro Forma Statements of Operations”) based upon the historical financial statements of Bally’s Corporation (“Bally’s” or the “Company”), the Acquired Companies (as defined below) and Gamesys Group plc (“Gamesys”), after giving effect to the acquisitions of the Acquired Companies and Gamesys (the “Gamesys Acquisition”), the Gamesys Financing Transaction (as defined below) and the Equity Offerings (as defined below) (collectively, the “Transactions”), and the adjustments described in the accompanying notes.
The Pro Forma Statements of Operations for the six months ended June 30, 2021 and year ended December 31, 2020 give effect to the Transactions as if each of them had occurred on January 1, 2020. The Pro Forma Balance Sheet as of June 30, 2021 gives effect to the Transactions as if each of them had occurred on June 30, 2021.
The Unaudited Pro Forma Financial Information set out below has been prepared in accordance with Article 11 of Regulation S-X using accounting policies in accordance with principles generally accepted in the United States of America (“U.S. GAAP”).
The Unaudited Pro Forma Financial Information reflects transaction related adjustments management believes are necessary to present fairly Bally’s Pro Forma Balance Sheet and Pro Forma Statements of Operations.
The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only. The hypothetical financial position or results included in the Unaudited Pro Forma Financial Information may differ from the Company’s actual financial position or results following the Transactions. The Unaudited Pro Forma Financial Information has been prepared on the basis set out in the notes below and has been prepared in a manner consistent with the accounting policies applied by the Company in its historical financial statements for the six months ended June 30, 2021 and the year ended December 31, 2020. In preparing the Unaudited Pro Forma Financial Information, no adjustments have been made to reflect the potential operating synergies and administrative cost savings or the costs of integration activities that could result from the combination of Bally’s, the Acquired Companies and Gamesys.
2020 Acquisitions
On July 1, 2020, the Company closed its acquisition of each of Bally’s Kansas City Casino (“Bally’s Kansas City”), formerly IOC-Kansas City, Inc. and Rainbow Casino-Vicksburg Partnership, L.P. (“Casino Vicksburg”) from Caesars Entertainment, Inc., formerly Eldorado Resorts, Inc. (“Caesars”), for an aggregate purchase price of $229.9 million in cash, subject to customary post-closing adjustments pursuant to the terms of an Equity Purchase Agreement, dated July 10, 2019, among Bally’s, Caesars and various of their affiliates. This acquisition was funded with available cash on hand at July 1, 2020 and from borrowings under the Company’s prior revolving credit facility.
On December 23, 2020, the Company closed its acquisition of Eldorado Resort Casino Shreveport (“Shreveport”) from Caesars for a purchase price of $137.2 million in cash, subject to customary post-closing adjustments pursuant to the terms of an Equity Purchase Agreement, dated April 24, 2020 (the “Shreveport/MontBleu Agreement”), among Bally’s, Caesars and certain of their affiliates. This acquisition was funded with available cash on hand at December 23, 2020 and from borrowings under the Company’s prior revolving credit facility.
The acquisitions of Bally’s Kansas City, Casino Vicksburg, and Shreveport (together, the “2020 Acquired Companies”) are being accounted for as business combinations using the acquisition method with Bally’s as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). Under this method of accounting the respective purchase prices for the 2020 Acquisitions will be allocated to the 2020 Acquired Companies’ assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the relevant acquisition.
2021 Acquisitions
On April 6, 2021, the Company acquired Bally’s Lake Tahoe Casino Resort (“Bally’s Lake Tahoe”), formally MontBleu Resort Casino & Spa, in Lake Tahoe, Nevada from Eldorado and certain of its affiliates for a purchase price of $14.2 million in cash, payable one year from the closing date, subject to customary post-closing adjustments pursuant to the terms of the Shreveport/MontBleu Agreement. This acquisition was funded with available cash on hand and available borrowings under the Company’s prior revolving credit facility.
On June 3, 2021, the Company completed its acquisition of the Tropicana Evansville casino operations (“Evansville”) from Caesars for a total purchase price of $139.2 million in cash, subject to customary post-closing adjustments. As part of the transaction, an affiliate of Gaming & Leisure Properties, Inc. (“GLPI”) acquired the real estate associated with the Tropicana Evansville casino for $340 million, which it is leasing to Bally’s for $28 million per year, subject to escalation. GLPI also acquired the real estate associated with Bally’s Dover Downs casino for $144 million, which it is leasing back to Bally’s for $12 million per year, subject to escalation.
The acquisitions of Bally’s Lake Tahoe and Tropicana Evansville (together, the “2021 Acquired Companies” and, together with the 2020 Acquired Companies, the “Acquired Companies”), are being accounted for as business combinations using the acquisition method with Bally’s as the accounting acquirer in accordance with ASC 805. Under this method of accounting the respective purchase prices for the 2021 Acquisitions will be allocated to the 2021 Acquired Companies’ assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the relevant acquisitions.
Gamesys Acquisition
On April 13, 2021, the Company issued an announcement pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers disclosing the terms of the Gamesys Acquisition pursuant to which Bally’s would acquire the entire issued and to be issued ordinary share capital of Gamesys. On October 1, 2021, the Company completed the Gamesys Acquisition, and Gamesys’ shareholders will receive in the aggregate 9,773,537 shares of the Company’s common stock and approximately £1,544,140,832 in cash. The Gamesys Acquisition is expected to be accounted for as a business combination using the acquisition method with Bally’s as the accounting acquirer in accordance with ASC 805. In arriving at the conclusion that Bally’s is the accounting acquirer, the Company considered the structure of the transaction, relative outstanding share ownership, the composition of the combined company’s board of directors, the relative size of Bally’s and Gamesys, and the designation of certain senior management positions of the combined company.
Gamesys Financing Transaction
As part of the financing of the Gamesys Acquisition, on August 20, 2021, two of the Company’s unrestricted subsidiaries, as escrow issuers, completed a private placement of $1.5 billion in senior notes, consisting of two series of senior notes, $750 million aggregate principal amount of 5.625% senior notes due 2029 and $750 million aggregate principal amount of 5.875% senior notes due 2031 (collectively, the “notes”). On October 1, 2021, in connection with the closing of the Gamesys Acquisition, the Company assumed the issuer obligation under the notes.
On October 1, 2021, the Company and certain of its subsidiaries entered into a credit agreement with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the other lenders party thereto, providing for senior secured credit facilities of up to $2.565 billion, consisting of (i) a $1.945 billion senior secured first lien term loan facility (the “New Term Loan Facility”) and (ii) a $620.0 million senior secured first lien revolving credit facility (the “New Revolving Credit Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”). The proceeds of the New Credit Facilities were used to, among other things, refinance certain of the Company’s existing indebtedness. The New Revolving Credit Facility remains undrawn at the time of closing of the Gamesys Acquisition.
The Company used the proceeds from the notes offering, together with proceeds of the New Term Loan Facility, the Equity Offerings, and cash on hand, (i) to (a) pay the cash portion of the purchase price of the Gamesys Acquisition and retire all outstanding Gamesys indebtedness, (b) pay in full all amounts outstanding (including all accrued and unpaid interest) and terminate all commitments under the Company’s prior term loan facility, (c) repay the outstanding revolving borrowings under the prior revolving credit facility, (d) redeem in full the 6.75% Senior Notes due 2027; (ii) to pay fees and expenses related to the foregoing.
The notes and the New Credit Facilities are collectively referred to as the “Gamesys Financing Transaction.”
Equity Offerings
Common Stock Offering. On April 20, 2021, the Company announced the completion of its underwritten public offering of common stock (the “Common Stock Offering”). Bally’s issued a total of 12.65 million shares of common stock in the offering, which included 1.65 million shares pursuant to the full exercise of the underwriters’ over-allotment option. The Unaudited Pro Forma Financial Information reflects the public offering price in the Common Stock Offering of $55.00 per share. The Company received total net proceeds from the Common Stock Offering of approximately $671.4 million, net of estimated issuance costs of $24.4 million.
Private Placement of Equity Securities. On April 20, 2021, the Company issued to affiliates of Sinclair Broadcast Group, Inc. (“Sinclair”) a warrant (the “Warrant”) to purchase 909,090 common shares for an aggregate purchase price of $50 million, the same price per share as the public offering price in the Common Stock Offering ($55.00 per share). The exercise price of the Warrant is nominal, and its exercise is subject to, among other conditions, requisite gaming authority approvals. Sinclair agreed not to acquire more than 4.9% of Bally’s outstanding common shares without such approvals.
The Common Stock Offering and the Private Placement of Equity Securities are collectively referred to as the “Equity Offerings.”
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2021
| | | | | | Pro forma adjustments | | | |
| (In thousands) | | Bally’s Historical
(Note 2) | | | Gamesys
(US GAAP)
(Note 7) | | | Gamesys
Combination
Adjustments
(Note 8) | | Gamesys
Financing
Transaction
(Note 9) | | Pro forma
Combined
Company | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 195,834 | | | $ | 351,191 | | | $ | (3,463,217 | ) | | 8(a) | | $ | 3,357,553 | | | 9(a) | | $ | 441,361 | |
| Restricted cash | | | 677,849 | | | | - | | | | (667,872 | ) | | 8(a),(b) | | | - | | | | | | 9,977 | |
| Players deposit | | | - | | | | 38,206 | | | | - | | | | | | - | | | | | | 38,206 | |
| Accounts receivable, net | | | 32,837 | | | | 58,970 | | | | - | | | | | | - | | | | | | 91,807 | |
| Inventory | | | 12,190 | | | | - | | | | - | | | | | | - | | | | | | 12,190 | |
| Tax receivable | | | 77,347 | | | | - | | | | 10,567 | | | 8(c) | | | - | | | | | | 87,914 | |
| Prepaid expenses and other current assets | | | 74,380 | | | | 692 | | | | - | | | | | | - | | | | | | 75,072 | |
| Total current assets | | | 1,070,437 | | | | 449,059 | | | | (4,120,522 | ) | | | | | 3,357,553 | | | | | | 756,527 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Property and equipment, net | | | 766,694 | | | | 14,535 | | | | - | | | | | | - | | | | | | 781,229 | |
| Right of use assets, net | | | 503,115 | | | | 28,793 | | | | - | | | | | | - | | | | | | 531,908 | |
| Goodwill, net | | | 424,871 | | | | 725,360 | | | | 1,173,749 | | | 8(a) | | | - | | | | | | 2,323,980 | |
| Intangible assets, net | | | 983,424 | | | | 516,335 | | | | 1,086,630 | | | 8(d) | | | - | | | | | | 2,586,389 | |
| Deferred tax assets | | | - | | | | 19,657 | | | | - | | | | | | - | | | | | | 19,657 | |
| Other assets | | | 8,768 | | | | 16,610 | | | | - | | | | | | - | | | | | | 25,378 | |
| Total assets | | $ | 3,757,309 | | | $ | 1,770,349 | | | $ | (1,860,143 | ) | | | | $ | 3,357,553 | | | | | $ | 7,025,068 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | | $ | 5,750 | | | $ | - | | | $ | (5,750 | ) | | 8(g) | | $ | 19,450 | | | 9(b) | | | 19,450 | |
| Current portion of lease liabilities | | | 21,197 | | | | 8,721 | | | | - | | | | | | - | | | | | | 29,918 | |
| Current portion of cross currency and interest rate swap payable | | | - | | | | 9,967 | | | | - | | | | | | - | | | | | | 9,967 | |
| Accounts payable | | | 30,904 | | | | 46,788 | | | | - | | | | | | - | | | | | | 77,692 | |
| Payable to players | | | - | | | | 38,206 | | | | - | | | | | | - | | | | | | 38,206 | |
| Accrued liabilities | | | 171,224 | | | | 165,698 | | | | 37,963 | | | 8(e) | | | - | | | | | | 374,885 | |
| Total current liabilities | | | 229,075 | | | | 269,380 | | | | 32,213 | | | | | | 19,450 | | | | | | 550,118 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, net of current portion | | | 1,328,394 | | | | 684,109 | | | | (2,012,503 | ) | | 8(g) | | | 3,338,103 | | | 9(b) | | | 3,338,103 | |
| Long-term portion of lease liabilities | | | 506,822 | | | | 21,456 | | | | - | | | | | | - | | | | | | 528,278 | |
| Pension benefit obligations | | | 8,515 | | | | - | | | | - | | | | | | - | | | | | | 8,515 | |
| Deferred tax liability | | | 58,641 | | | | 72,536 | | | | 328,205 | | | 8(i) | | | - | | | | | | 459,382 | |
| Naming rights liabilities | | | 197,703 | | | | - | | | | - | | | | | | - | | | | | | 197,703 | |
| Contingent consideration payable | | | 46,920 | | | | - | | | | - | | | | | | - | | | | | | 46,920 | |
| Other long-term liabilities | | | 14,015 | | | | 24,502 | | | | - | | | | | | - | | | | | | 38,517 | |
| Total liabilities | | $ | 2,390,085 | | | $ | 1,071,983 | | | $ | (1,652,085 | ) | | | | $ | 3,357,553 | | | | | $ | 5,167,536 | |
| Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 445 | | | | 15,227 | | | | (15,129 | ) | | 8(j) | | | - | | | | | | 543 | |
| Additional paid-in capital | | | 1,363,779 | | | | 15,780 | | | | 501,826 | | | 8(j) | | | - | | | | | | 1,881,385 | |
| Treasury stock, at cost | | | - | | | | - | | | | - | | | | | | - | | | | | | - | |
| Retained earnings | | | 6,696 | | | | 318,937 | | | | (346,333 | ) | | 8(j) | | | - | | | | | | (20,700 | ) |
| Other Reserves | | | - | | | | 348,422 | | | | (348,422 | ) | | 8(j) | | | - | | | | | | - | |
| Accumulated other comprehensive loss | | | (3,696 | ) | | | - | | | | - | | | | | | - | | | | | | (3,696 | ) |
| Total shareholders’ equity | | | 1,367,224 | | | | 698,366 | | | | (208,058 | ) | | | | | - | | | | | | 1,857,532 | |
| Total liabilities and shareholders’ equity | | $ | 3,757,309 | | | $ | 1,770,349 | | | $ | (1,860,143 | ) | | | | $ | 3,357,553 | | | | | $ | 7,025,068 | |
See accompanying notes to the Unaudited Pro Forma Financial Information, which are an integral part of these statements.
Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2021
| | | | | | Pro forma adjustments | |
| (In thousands, except for shares and share price) | | Bally’s
Historical
(Note 2) | | | 2021
Completed
Acquisitions
pre-acquisition
results
(Note 5) (a) | | | 2021
Completed
Acquisitions
Adjustments
(Note 6) | | Gamesys
(US GAAP)
(Note 7) | | | Gamesys
Combination
Adjustments
(Note 8) | | Gamesys
Financing
Transaction
(Note 9) | | Pro forma
Combined
Company | |
| Revenues | | $ | 459,999 | | | $ | 67,842 | | | $ | - | | | | | $ | 553,890 | | | $ | - | | | | | $ | - | | | | | $ | 1,081,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | 156,290 | | | | 29,422 | | | | - | | | | | | 307,223 | | | | - | | | | | | - | | | | | | 492,935 | |
| Advertising, general and administrative | | | 181,710 | | | | 8,812 | | | | 18,624 | | | 6(a) | | | 96,667 | | | | - | | | | | | - | | | | | | 305,813 | |
| Goodwill and asset impairment | | | 4,675 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | 4,675 | |
| Expansion and pre-opening | | | 1,540 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | 1,540 | |
| Acquisition, integration and restructuring expense | | | 30,660 | | | | - | | | | - | | | | | | 31,528 | | | | 38,014 | | | 8(e) | | | - | | | | | | 100,202 | |
| Storm related losses, net of insurance recoveries | | | (11,255 | ) | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | (11,255 | ) |
| Rebranding | | | 1,295 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | 1,295 | |
| Gain on sale-leaseback | | | (53,425 | ) | | | | | | | 53,425 | | | 6(f) | | | | | | | | | | | | | | | | | | | - | |
| Depreciation and amortization | | | 38,503 | | | | 1,063 | | | | 72 | | | 6(c),(d) | | | 63,333 | | | | 23,124 | | | 8(f) | | | - | | | | | | 126,095 | |
| Foreign Exchange Gain/Loss | | | - | | | | - | | | | - | | | | | | (3,750 | ) | | | - | | | | | | - | | | | | | (3,750 | ) |
| Total operating costs and expenses | | | 349,993 | | | | 39,297 | | | | 72,121 | | | | | | 495,001 | | | | 61,138 | | | | | | - | | | | | | 1,017,550 | |
| Income (loss) from operations | | | 110,006 | | | | 28,545 | | | | (72,121 | ) | | | | | 58,889 | | | | (61,138 | ) | | | | | - | | | | | | 64,181 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 1,054 | | | | 2 | | | | - | | | | | | 278 | | | | - | | | | | | - | | | | | | 1,334 | |
| Interest expense, net of amounts capitalized | | | (42,627 | ) | | | - | | | | - | | | | | | (14,167 | ) | | | 56,794 | | | 8(g) | | | (83,054 | ) | | 9(c) | | | (83,054 | ) |
| Change in value of naming rights liabilities | | | (8,336 | ) | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | (8,336 | ) |
| Gain on bargain purchases | | | 24,114 | | | | - | | | | (24,114 | ) | | 6(f) | | | - | | | | - | | | | | | - | | | | | | - | |
| Other, net | | | (3,823 | ) | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | (3,823 | ) |
| Total other expense | | | (29,618 | ) | | | 2 | | | | (24,114 | ) | | | | | (13,889 | ) | | | 56,794 | | | | | | (83,054 | ) | | | | | (93,879 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | 80,388 | | | | 28,547 | | | | (96,235 | ) | | | | | 45,000 | | | | (4,344 | ) | | | | | (83,054 | ) | | | | | (29,698 | ) |
| Provision (Benefit) for income taxes | | | 22,151 | | | | - | | | | (26,946 | ) | | 6(e) | | | 25,556 | | | | (885 | ) | | 8(h) | | | (23,255 | ) | | 9(d) | | | (3,379 | ) |
| Net income (loss) | | $ | 58,237 | | | $ | 28,547 | | | $ | (69,289 | ) | | | | $ | 19,444 | | | $ | (3,459 | ) | | | | $ | (59,799 | ) | | | | $ | (26,319 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings per share (Note 11): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 1.39 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (0.51 | ) |
| Diluted | | $ | 1.37 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (0.51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding (Note 11) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 42,037,858 | | | | | | | | | | | | | | | | | | 9,773,537 | | | 11(a) | | | | | | | | | 51,811,395 | |
| Diluted | | | 42,374,132 | | | | | | | | | | | | | | | | | | 9,773,537 | | | 11(a) | | | | | | | | | 52,147,669 | |
| (a) | Includes pre-acquisition results for (1) Bally’s Lake Tahoe for the period ended from January 1, 2021 through April 6, 2021 and (2) Tropicana Evansville for the period from January 1, 2021 through June 3, 2021. |
See accompanying notes to the Unaudited Pro Forma Financial Information, which are an integral part of these statements.
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2020
| | | | | | Pro forma adjustments | |
| (In thousands, except for shares and share price) | | Bally’s
Historical
(Note 2) | | | 2020
Completed
Acquisitions
pre-acquisition
results and
reclassifications
(Note 3) (a) | | | 2020
Completed
Acquisitions
Adjustments
(Note 4) | | 2021
Completed Acquisitions
pre-acquisition
results
(Note 5) | | | 2021
Completed
Acquisitions
Adjustments
(Note 6) | | Gamesys
(US GAAP)
(Note 7) | | | Gamesys
Combination
Adjustments
(Note 8) | | Gamesys
Financing
Transaction
(Note 9) | | Equity
Offerings
(Note 10) | | Pro forma
Combined
Company | |
| Revenues | | $ | 372,792 | | | $ | 92,893 | | | $ | - | | | | | $ | 129,286 | | | $ | - | | | | | $ | 934,398 | | | $ | - | | | | | $ | - | | | | | $ | - | | | | | $ | 1,529,369 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | 138,669 | | | | 43,092 | | | | - | | | | | | 54,043 | | | | - | | | | | | 513,489 | | | | - | | | | | | - | | | | | | - | | | | | | 749,293 | |
| Advertising, general and administrative | | | 176,943 | | | | 29,176 | | | | (53 | ) | | 4(a) | | | 37,140 | | | | 46,961 | | | 6(a) | | | 170,778 | | | | - | | | | | | - | | | | | | - | | | | | | 460,945 | |
| Goodwill and asset impairment | | | 8,659 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | - | | | | | | 8,659 | |
| Expansion and pre-opening | | | 921 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | - | | | | | | 921 | |
| Acquisition, integration and restructuring expense | | | 13,257 | | | | - | | | | - | | | | | | - | | | | 3,160 | | | 6(b) | | | 4,751 | | | | 26,708 | | | 8(e) | | | - | | | | | | 74,351 | | | 10(a) | | | 122,227 | |
| Storm related losses, net of insurance recoveries | | | 14,095 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | - | | | | | | 14,095 | |
| Rebranding | | | 792 | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | - | | | | | | 792 | |
| Gain on sale lease-back | | | - | | | | - | | | | - | | | | | | - | | | | (53,425 | ) | | 6(f) | | | | | | | - | | | | | | - | | | | | | - | | | | | | (53,425 | ) |
| Depreciation and amortization | | | 37,842 | | | | 9,817 | | | | (314 | ) | | 4(b),(c) | | | 18,318 | | | | (14,396 | ) | | 6(c),(d) | | | 121,599 | | | | 50,532 | | | 8(f) | | | - | | | | | | - | | | | | | 223,398 | |
| Foreign Exchange Gain/Loss | | | - | | | | - | | | | - | | | | | | - | | | | - | | | | | | 5,393 | | | | - | | | | | | - | | | | | | - | | | | | | 5,393 | |
| Total operating costs and expenses | | | 391,178 | | | | 82,085 | | | | (367 | ) | | | | | 109,501 | | | | (17,700 | ) | | | | | 816,010 | | | | 77,240 | | | | | | - | | | | | | 74,351 | | | | | | 1,532,298 | |
| Income (loss) from operations | | | (18,386 | ) | | | 10,808 | | | | 367 | | | | | | 19,785 | | | | 17,700 | | | | | | 118,388 | | | | (77,240 | ) | | | | | - | | | | | | (74,351 | ) | | | | | (2,929 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 612 | | | | - | | | | - | | | | | | - | | | | - | | | | | | 642 | | | | - | | | | | | - | | | | | | - | | | | | | 1,254 | |
| Interest expense, net of amounts capitalized | | | (63,248 | ) | | | (6,167 | ) | | | (498 | ) | | 4(d) | | | (29,283 | ) | | | - | | | | | | (30,817 | ) | | | 94,065 | | | 8(g) | | | (165,766 | ) | | 9(c) | | | - | | | | | | (201,714 | ) |
| Change in value of naming rights liabilities | | | (57,660 | ) | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | | | - | | | | | | (57,660 | ) |
| Gain on bargain purchases | | | 63,871 | | | | - | | | | - | | | | | | - | | | | 24,114 | | | 6(f) | | | - | | | | - | | | | | | - | | | | | | - | | | | | | 87,985 | |
| Loss on extinguishment of debt | | | - | | | | - | | | | - | | | | | | - | | | | - | | | | | | - | | | | (78,905 | ) | | 8(g) | | | - | | | | | | - | | | | | | (78,905 | ) |
| Total other expense | | | (56,425 | ) | | | (6,167 | ) | | | (498 | ) | | | | | (29,283 | ) | | | 24,114 | | | | | | (30,175 | ) | | | 15,160 | | | | | | (165,766 | ) | | | | | - | | | | | | (249,040 | ) |
| | | | | | | | | | | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | (74,811 | ) | | | 4,641 | | | | (131 | ) | | | | | (9,498 | ) | | | 41,814 | | | | | | 88,213 | | | | (62,080 | ) | | | | | (165,766 | ) | | | | | (74,351 | ) | | | | | (251,969 | ) |
| Provision (Benefit) for income taxes | | | (69,324 | ) | | | 322 | | | | (37 | ) | | 4(e) | | | - | | | | 11,708 | | | 6(e) | | | 1,926 | | | | (13,204 | ) | | 8(h) | | | (46,414 | ) | | 9(d) | | | (20,818 | ) | | 10(b) | | | (135,841 | ) |
| Net income (loss) | | $ | (5,487 | ) | | $ | 4,319 | | | $ | (94 | ) | | | | $ | (9,498 | ) | | $ | 30,106 | | | | | $ | 86,287 | | | $ | (48,876 | ) | | | | $ | (119,352 | ) | | | | $ | (53,533 | ) | | | | $ | (116,128 | ) |
| | | | j | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings per share (Note 11): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.18 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (2.13 | ) |
| Diluted | | $ | (0.18 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (2.13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding (Note 11) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 31,315,151 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,773,537 | | | 11(a) | | | | | | | | | 13,559,090 | | | 11(a) | | | 54,647,778 | |
| Diluted | | | 31,315,151 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,773,537 | | | 11(a) | | | | | | | | | 13,559,090 | | | 11(a) | | | 54,647,778 | |
| | (a) | Includes pre-acquisition results for (1) Bally’s Kansas City and Casino Vicksburg for the period from January 1, 2020 through June 30, 2020 and (2) Shreveport for the period from January 1, 2020 through December 22, 2020. See Note 3 for reclassification adjustments made to conform the 2020 Acquisitions to the presentation used by Bally’s. |
See accompanying notes to the Unaudited Pro Forma Financial Information, which are an integral part of these statements.
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1 — Description of Transaction and Basis of Presentation
The Unaudited Pro Forma Financial Information has been prepared based on U.S. GAAP and pursuant to the rules and regulations of Securities and Exchange Commission’s (“SEC”) Regulation S-X and presents the Pro Forma Balance Sheet and Pro Forma Statements of Operations of the combined companies based upon the historical financial information of Bally’s, the Acquired Companies and Gamesys, after giving effect to the following transactions:
| | • | The 2021 Acquisitions; |
| | | |
| | • | The Gamesys Acquisition; |
| | • | The Gamesys Financing Transaction; and |
The Unaudited Pro Forma Financial Information is not necessarily indicative of what Bally’s consolidated statements of operations or consolidated balance sheet would have been had the Transactions been completed as of the dates indicated or will be for any future periods. The Unaudited Pro Forma Financial Information does not purport to project the future financial position or results of operations of Bally’s following the Transactions. The Unaudited Pro Forma Financial Information reflects transaction related adjustments management believes are necessary to present fairly Bally’s Pro Forma Balance Sheet and Pro Forma Statements of Operations assuming the Transactions (other than, in the case of Bally’s Pro Forma Balance Sheet, the 2020 and 2021 Acquisitions) had been consummated as of June 30, 2021 and January 1, 2020, respectively. The transaction related adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and reflective of adjustments necessary to report Bally’s financial condition and results of operations as a result of the closing of the Transactions. All dollar amounts are presented in thousands, unless otherwise noted.
Bally’s has concluded that the Gamesys Acquisition represents a business combination pursuant to ASC 805. As of the date of this filing, the calculations necessary to estimate the fair values of the assets acquired and liabilities assumed have been performed based on publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions for the Gamesys Acquisition. The Company will continue to refine its identification and valuation of assets acquired and the liabilities assumed as further information becomes available. Using the total consideration for the transactions, Bally’s has preliminarily allocated the purchase price to such assets and liabilities as of June 30, 2021. The preliminary purchase price allocation has been used to prepare pro forma adjustments in the Unaudited Pro Forma Financial Information. The final purchase price allocation will be determined when Bally’s has completed the Gamesys acquisition. The final purchase price allocation could differ materially from the preliminary purchase price allocation. The final purchase price allocation may include changes in the allocation to intangible assets and goodwill based on the results of certain valuations and other studies that have yet to be completed and other changes to assets and liabilities.
The Unaudited Pro Forma Financial Information has been compiled in a manner consistent with the accounting policies adopted by Bally’s and reflect certain adjustments to the Acquired Companies’ and Gamesys’ historical financial information to conform to the accounting policies of Bally’s based on a preliminary review of the Acquired Companies’ and Gamesys accounting policies.
The pro forma adjustments are based on preliminary estimates and currently available information and assumptions that Bally’s management believes are reasonable. The notes to the Unaudited Pro Forma Financial Information describe how such adjustments were derived and presented in the Pro Forma Balance Sheet and Pro Forma Statements of Operations. Changes in facts and circumstances or discovery of new information may result in revised estimates. As a result, there may be material adjustments to the Unaudited Pro Forma Financial Information. Certain historical financial statement caption amounts for Gamesys and the Acquired Companies have been reclassified or combined to conform to Bally’s presentation and disclosure requirements.
The Unaudited Pro Forma Financial Information should be read in conjunction with the audited consolidated financial statements and related notes of Bally’s, Gamesys and the Acquired Companies as of and for the year ended December 31, 2020 and the unaudited interim consolidated financial statements of Bally’s and the 2021 Acquired Companies as of and for the six months ended June 30, 2021.
Note 2 — Bally’s historical financial statements
The results of Bally’s for the year ended December 31, 2020 have been extracted from the audited consolidated financial statements of Bally’s, as set out in Bally’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The results and net assets of Bally’s as of and for the six months ended June 30, 2021 have been extracted from the unaudited consolidated financial statements of Bally’s, as set out in Bally’s Interim Report on Form 10-Q for the six months ended June 30, 2021.
Note 3 — 2020 Completed Acquisitions pre-acquisition results and reclassifications
Certain reclassifications were directly applied to the pre-acquisition historical financial statements of the 2020 Acquired Companies to conform to the financial statement presentation of Bally’s.
Reclassifications in the Pro Forma Statement of Operations for the year ended December 31, 2020 are as follows:
| | | Bally’s Kansas
City and
Casino
Vicksburg
Before
Reclassification | | | Shreveport
Before
Reclassification | | | Reclassifications | | | Notes | | | Completed
Acquisitions
After
Reclassifications | |
| (In thousands) | | Note (a) | | | Note (b) | | | | | | | | | | |
| Revenues | | $ | 25,130 | | | $ | 67,763 | | | $ | - | | | | | | | $ | 92,893 | |
| | | | | | | | | | | | - | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | | | | | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | 10,493 | | | | 34,974 | | | | (2,375 | ) | | | (c) | | | | 43,092 | |
| Marketing & promotions | | | 1,144 | | | | 2,248 | | | | (3,392 | ) | | | (c) | | | | - | |
| Advertising, general and administrative | | | 9,068 | | | | 11,765 | | | | 8,343 | | | | (c) | | | | 29,176 | |
| Management Fee | | | 514 | | | | 2,062 | | | | (2,576 | ) | | | (c) | | | | - | |
| Depreciation and amortization | | | 2,913 | | | | 6,904 | | | | - | | | | | | | | 9,817 | |
| Total operating costs and expenses | | | 24,132 | | | | 57,953 | | | | - | | | | | | | | 82,085 | |
| Income from operations | | | 998 | | | | 9,810 | | | | - | | | | | | | | 10,808 | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net of amounts capitalized | | | (1,730 | ) | | | (4,437 | ) | | | - | | | | | | | | (6,167 | ) |
| Total other expense | | | (1,730 | ) | | | (4,437 | ) | | | - | | | | | | | | (6,167 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | (732 | ) | | | 5,373 | | | | - | | | | | | | | 4,641 | |
| Provision for income taxes | | | 322 | | | | - | | | | - | | | | | | | | 322 | |
| Net income (loss) | | $ | (1,054 | ) | | $ | 5,373 | | | $ | - | | | | | | | $ | 4,319 | |
(a) The results of Bally’s Kansas City and Casino Vicksburg for the period from January 1, 2020 through June 30, 2020 have been extracted from the audited combined financial statements of Bally’s Kansas City and Casino Vicksburg, as set out in Bally’s Current Report on Form 8-K filed with the SEC on February 3, 2021.
(b) The results of Shreveport for the period from January 1, 2020 through December 22, 2020 have been extracted from the audited consolidated financial statements of Shreveport, as set out in Bally’s Current Report on Form 8-K filed with the SEC on February 12, 2021.
(c) Represents the reclassification of balances in “Gaming, racing, hotel, food and beverage, retail, entertainment and other” ($2,375), “Marketing & promotions” ($3,392), and “Management Fee” ($2,576) to Advertising, general and administrative expenses.
Note 4 — 2020 Completed Acquisitions adjustments
The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Pro Forma Statement of Operations for the year ended December 31, 2020:
4(a) Represents a $53 decrease in lease expense related to changes in the fair value of right of use asset and lease liabilities of the Acquired Companies.
4(b) Represents decrease in depreciation expense related to acquired property and equipment resulting from the fair value adjustment of assets acquired in the 2020 Acquisitions. Bally’s estimated that the fair value of property and equipment was greater than Shreveport’s book value by $45.9 million and less than Bally’s Kansas City and Casino Vicksburg’s book value by $8.0 million. Therefore, depreciation expense decreased by a total of $0.4 million on a combined basis for the year ended December 31, 2020 using the straight-line method of depreciation. The estimated remaining useful lives of acquired property and equipment from the 2020 Acquisitions ranged from 2 years to 40 years:
| (In thousands) | | Fair Value | | | Weighted
Average
Useful Life
(Years) | | | Depreciation
Method | | Year ended
December 31,
2020 | |
| Land improvements | | $ | 6,100 | | | | 10 | | | Straight Line | | $ | 428 | |
| Buildings and improvements | | | 114,419 | | | | 37 | | | Straight Line | | | 2,676 | |
| Furniture, fixtures and equipment | | | 26,374 | | | | 6 | | | Straight Line | | | 4,101 | |
| Vessels and automobiles | | | 26,751 | | | | 12 | | | Straight Line | | | 2,191 | |
| Total depreciation expense | | | | | | | | | | | | | 9,396 | |
| Less: historical depreciation expense | | | | | | | | | | | | | (9,765 | ) |
| Total Pro forma Adjustment | | | | | | | | | | | | $ | (369 | ) |
4(c) Represents the amortization of intangible assets related to the 2020 Acquisitions over a three- to ten-year period as if the 2020 Acquisitions occurred on January 1, 2020. The estimated useful lives were determined based on a review of the time period over which economic benefit is expected to be generated as well as additional factors. Factors considered include contractual life, the period over which a majority of cash flow is expected to be generated, and management’s expectations based on historical experience with similar assets:
| (In thousands) | | Fair Value | | | Weighted
Average
Useful Life
(Years) | | | Amortization
Method | | Year ended
December 31,
2020 | |
| Rated Player Relationships | | $ | 1,300 | | | | 8 | | | Straight Line | | $ | 107 | |
| Total acquired finite lived intangible assets | | | 1,300 | | | | | | | | | | 107 | |
| Less: historical intangible asset amortization expense | | | | | | | | | | | | | (52 | ) |
| Total Pro forma Adjustment | | | | | | | | | | | | $ | 55 | |
4(d) Represents the reversal of interest expense on intercompany loans recorded by Bally’s Kansas City and Casino Vicksburg ($1,730) and Shreveport ($4,437). Additionally, represents the interest expense for borrowings that would have been needed to finance the $230 million purchase price of Bally’s Kansas City and Casino Vicksburg and the $140 million purchase price of Shreveport had each of the acquisitions closed on January 1, 2020. The adjustment to record interest expense assumes the additional borrowings for Bally’s Kansas City, Casino Vicksburg, and Shreveport were obtained on January 1, 2020 for both transactions and was outstanding until the point the Company had financing in place to fund each acquisition.
For the Bally’s Kansas City and Casino Vicksburg transaction, interest expense of $2,540 was calculated using a weighted average rate of 4.43% for the first three months of 2020 at which point the Company had financing in place to fund the acquisition.
Interest expense of $4,125 for the Shreveport transaction was calculated assuming the additional debt of $140 million was outstanding at a weighted average rate of 3.8% until October 2020 at which point the Company had financing in place to fund the acquisition:
| (In thousands) | | Bally’s
Kansas
City and
Casino Vicksburg | | | Shreveport | | | Total Pro
Forma
Adjustment | |
| Elimination of historical interest expense | | $ | (1,730 | ) | | $ | (4,437 | ) | | $ | (6,167 | ) |
| Interest expense related to net borrowings | | | 2,540 | | | | 4,125 | | | | 6,665 | |
| Pro forma adjustment to interest expense | | $ | 810 | | | $ | (312 | ) | | $ | 498 | |
4(e) Reflects the income tax effect of the 2020 Acquisitions adjustments, calculated using Bally’s statutory tax rate of 28%. This rate may be subject to change and may not be reflective of Bally’s effective tax rate for future periods after consummation of the Transactions.
Note 5 — 2021 Completed Acquisitions pre-acquisition results
There were no reclassifications applied to the pre-acquisition historical Statements of Operations of the 2021 Acquired Companies. The pre-acquisition historical results for the six months ended June 30, 2021 and the year ended December 31, 2020 are as follows:
| | | Year Ended December 31, 2020 | |
| | | Bally’s
Lake Tahoe | | | Tropicana
Evansville | | | 2021
Completed
Acquisitions | |
| (In thousands) | | Note (a) | | | Note (b) | | | | |
| Revenues | | $ | 31,455 | | | $ | 97,831 | | | $ | 129,286 | |
| | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | 13,819 | | | | 40,224 | | | | 54,043 | |
| Advertising, general and administrative | | | 14,893 | | | | 22,247 | | | | 37,140 | |
| Depreciation and amortization | | | 4,736 | | | | 13,582 | | | | 18,318 | |
| Total operating costs and expenses | | | 33,448 | | | | 76,053 | | | | 109,501 | |
| Income from operations | | | (1,993 | ) | | | 21,778 | | | | 19,785 | |
| Other income (expense) | | | | | | | | | | | | |
| Interest expense, net of amounts capitalized | | | - | | | | (29,283 | ) | | | (29,283 | ) |
| Total other expense | | | - | | | | (29,283 | ) | | | (29,283 | ) |
| | | | | | | | | | | | | |
| Loss before provision for income taxes | | | (1,993 | ) | | | (7,505 | ) | | | (9,498 | ) |
| (Benefit) Provision for income taxes | | | - | | | | - | | | | - | |
| Net loss | | $ | (1,993 | ) | | $ | (7,505 | ) | | $ | (9,498 | ) |
(a) The results of Bally’s Lake Tahoe for the year ended December 31, 2020 have been extracted from the audited consolidated financial statements of Bally’s Lake Tahoe, as set out in Bally’s Current Report on Form 8-K filed with the SEC on March 16, 2021.
(b) The results of Tropicana Evansville for the year ended December 31, 2020 have been extracted from the audited consolidated financial statements of Tropicana Evansville, as set out in Bally’s Current Report on Form 8-K filed with the SEC on August 2, 2021.
| | | Six-months ended June 30, 2021 | |
| | | Bally’s Lake Tahoe | | | Tropicana
Evansville | | | 2021 Completed
Acquisitions | |
| (In thousands) | | Note (a) | | | Note (b) | | | | |
| Revenues | | $ | 10,559 | | | $ | 57,283 | | | $ | 67,842 | |
| | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | 3,947 | | | | 25,475 | | | | 29,422 | |
| Advertising, general and administrative | | | 3,179 | | | | 5,633 | | | | 8,812 | |
| Depreciation and amortization | | | 1,063 | | | | 0 | | | | 1,063 | |
| Total operating costs and expenses | | | 8,189 | | | | 31,108 | | | | 39,297 | |
| Income from operations | | | 2,370 | | | | 26,175 | | | | 28,545 | |
| Other income (expense) | | | | | | | | | | | | |
| Interest expense, net of amounts capitalized | | | - | | | | 2 | | | | 2 | |
| Total other expense | | | - | | | | 2 | | | | 2 | |
| | | | | | | | | | | | | |
| Income before provision for income taxes | | | 2,370 | | | | 26,177 | | | | 28,547 | |
| (Benefit) Provision for income taxes | | | - | | | | - | | | | - | |
| Net income | | $ | 2,370 | | | $ | 26,177 | | | $ | 28,547 | |
(a) The results of Bally’s Lake Tahoe for the period from January 1, 2021 through April 6, 2021 have been extracted from the unaudited consolidated financial statements of Bally’s Lake Tahoe, as set out in Bally’s Current Report on Form 8-K filed with the SEC on August 2, 2021
(b) The results of Tropicana Evansville for the period from January 1, 2021 through June 3, 2021 have been extracted from the unaudited consolidated financial statements of Tropicana Evansville.
Note 6 — 2021 Completed Acquisitions adjustments
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Statements of Operations for the six months ended June 30, 2021 and year ended December 31, 2020:
6(a) Represents an increase to rent expense related to changes in the fair value of right of use asset and lease liabilities and new leases entered into at the acquisition date, of $1.4 million for the period from January 1, 2021 through April 6, 2021 for Bally’s Lake Tahoe and $12.1 million for the period from January 1, 2021 through June 3, 2021 for Evansville. For the year ended December 31, 2020, the increase to rent expense was $5.7 million and $29.2 million for Bally’s Lake Tahoe and Evansville, respectively. Additional rent expense incurred in connection with the sale-leaseback of Bally’s Dover Downs casino for the period from January 1, 2021 through June 3, 2021 was $5.0 million and $12.0 million for the year ended December 31, 2020.
6(b) Represents transaction costs in connection with the Tropicana Evansville acquisition for the year ended December 31, 2020. Transaction costs incurred in connection with the Bally’s Lake Tahoe acquisition were not material.
6(c) Represents depreciation expense related to acquired furniture, fixtures and equipment resulting from the fair value adjustment of assets acquired in the 2021 Acquisitions. Bally’s estimated that the fair value of furniture, fixtures and equipment was less than Tropicana Evansville’s book value by $285.6 million and less than Bally’s Lake Tahoe’s book value by $49.3 million. As a result, for the year ended December 31, 2020, depreciation expense decreased by a total of $7.5 million on a combined basis, using the straight-line method of depreciation. For the period from January 1, 2021 through June 3, 2021, there was no depreciation or amortization expense recorded by Evansville as the assets were classified as held-for-sale. As a result, depreciation expense increased by a total of $1.2 million on a combined basis, using the straight-line method of depreciation. The estimated remaining useful lives of acquired furniture, fixtures and equipment from the 2021 Acquisitions ranged from 1 year to 4 years:
| (In thousands) | | Fair Value | | | Weighted Average
Useful Life
(Years) | | | Depreciation
Method | | Year ended
December 31,
2020 | | | Six-months ended
June 30,
2021 | |
| Furniture, fixtures and equipment | | $ | 12,312 | | | | 3 | | | Straight Line | | $ | 4,324 | | | $ | 1,082 | |
| Less: historical depreciation expense | | | | | | | | | | | | | (9,249 | ) | | | 0 | |
| Evansville Pro forma adjustment | | | | | | | | | | | | | (4,925 | ) | | | 1,802 | |
| Reduction in Bally’s Lake Tahoe depreciation expense | | | | | | | | | | | | | (2,536 | ) | | | (634 | ) |
| Total Pro forma Adjustment | | | | | | | | | | | | $ | (7,461 | ) | | $ | 1,168 | |
Additionally, depreciation expense decreased by $1.1 million and $2.7 million, for the period from January 1, 2021 through June 3, 2021 and the year ended December 31, 2020, respectively, as a result of the sale of Bally’s Dover Downs assets of $89.9 million.
6(d) Represents the amortization of intangible assets related to the 2021 Acquisitions over an eight-year period as if the 2021 Acquisitions occurred on January 1, 2020, offset by the reversal of historical amortization expense. The estimated useful lives were determined based on a review of the time period over which economic benefit is expected to be generated as well as additional factors such as the contractual life and management’s expectations based on historical experience with similar assets:
| (In thousands) | | Fair
Value | | | Weighted
Average
Useful Life
(Years) | | | Amortization
Method | | Year ended
December 31,
2020 | | | Six
months
ended
June 30,
2021 | |
| Rated Player Relationships | | $ | 610 | | | | 8 | | | Straight Line | | $ | 76 | | | $ | 32 | |
| Less: historical intangible asset amortization expense | | | | | | | | | | | | | (4,333 | ) | | | 0 | |
| Evansville Pro forma adjustment | | | | | | | | | | | | | (4,257 | ) | | | 32 | |
| Increase in Bally’s Lake Tahoe amortization expense | | | | | | | | | | | | | 70 | | | | 18 | |
| Total Pro forma Adjustment | | | | | | | | | | | | $ | (4,187 | ) | | $ | 49 | |
6(e) Represents the income tax effect of the 2021 Acquisitions adjustments for the year ended December 31, 2020 and for the six months ended June 30, 2021, calculated using Bally’s statutory tax rate of 28%. This rate may be subject to change and may not be reflective of Bally’s effective tax rate for future periods after consummation of the Transactions.
6(f) Represents the reversal of the bargain purchase gains for both Bally’s Lake Tahoe and Evansville and the gain on sale lease-back related to Dover Downs recognized by Bally’s in the historical statement of operations for the six months ended June 30, 2021 that are to be reflected in the pro forma statement of operations for the year ended December 31, 2020 for purposes of the pro forma combined financial statements.
Note 7 — Gamesys reclassifications and IFRS to U.S. GAAP adjustments
Gamesys’ historical financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘‘IFRS’’), which differ in certain significant respects from U.S. GAAP as applied by Bally’s. Adjustments were made to Gamesys’ financial statements to convert them from IFRS to U.S. GAAP and to Bally’s existing accounting policies after evaluating potential areas of differences.
The historical financial information of Gamesys was prepared in accordance with IFRS and presented in Pounds Sterling. The historical financial information was translated from Pounds Sterling to U.S. dollars using the June 30, 2021 spot rate to translate the Balance Sheet and the average daily exchange rate for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively to translate the Statements of Operations:
| GBP £ / USD $ | | | |
| June 30, 2021 spot rate | | | 1.384 | |
| Six months ended June 30, 2021 average exchange rate | | | 1.389 | |
| Year ended December 31, 2020 average exchange rate | | | 1.284 | |
These exchange rates may differ from future exchange rates which would have an impact on the Unaudited Pro Forma Financial Information and would also impact purchase accounting upon consummation of the acquisition. As an example, utilizing the daily closing exchange rate at September 28, 2021 of £1/US$1.3535 would decrease the translated amounts of net income for the six months ended June 30, 2021 by approximately $495 and increase the translated amounts of net income for the year ended December 31, 2020 presented below by approximately $4,668, respectively, as well as decrease total assets as of June 30, 2021, presented below, by approximately $39,358.
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Balance Sheet as of June 30, 2021:
| (In thousands) | | Gamesys
Reported
IFRS
(GBP) (a) | | | Reclassifications
(GBP) | | | Note | | | Gamesys
US
GAAP
(GBP) | | | Gamesys
US
GAAP
(USD) | |
| Current assets | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 253,700 | | | | - | | | | | | | | 253,700 | | | | 351,191 | |
| Player deposits | | | 27,600 | | | | - | | | | | | | | 27,600 | | | | 38,206 | |
| Accounts receivable, net | | | 42,600 | | | | - | | | | | | | | 42,600 | | | | 58,970 | |
| Taxes receivable | | | 500 | | | | (500 | ) | | | (b) | | | | - | | | | - | |
| Prepaid expenses and other current assets | | | - | | | | 500 | | | | (b) | | | | 500 | | | | 692 | |
| Total current assets | | | 324,400 | | | | - | | | | | | | | 324,400 | | | | 449,059 | |
| Non-current assets | | | | | | | | | | | | | | | | | | | | |
| Property and equipment, net | | | 10,500 | | | | - | | | | | | | | 10,500 | | | | 14,535 | |
| Intangible assets | | | 373,000 | | | | - | | | | | | | | 373,000 | | | | 516,335 | |
| Goodwill | | | 524,000 | | | | - | | | | | | | | 524,000 | | | | 725,360 | |
| Right-of-use assets | | | 20,800 | | | | - | | | | | | | | 20,800 | | | | 28,793 | |
| Deferred tax asset | | | 14,200 | | | | - | | | | | | | | 14,200 | | | | 19,657 | |
| Other long-term receivables | | | 12,000 | | | | (12,000 | ) | | | (c) | | | | - | | | | - | |
| Other assets | | | - | | | | 12,000 | | | | (c) | | | | 12,000 | | | | 16,610 | |
| Total assets | | $ | 1,278,900 | | | $ | - | | | | | | | $ | 1,278,900 | | | $ | 1,770,349 | |
| | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Equity | | | | | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | | 106,500 | | | | (106,500 | ) | | | (d),(e) | | | | - | | | | - | |
| Accounts payable | | | - | | | | 33,800 | | | | (d) | | | | 33,800 | | | | 46,788 | |
| Accrued liabilities | | | - | | | | 119,700 | | | | (e) | | | | 119,700 | | | | 165,698 | |
| Other short-term payables | | | 18,300 | | | | (18,300 | ) | | | (d) | | | | - | | | | - | |
| Current portion of cross currency and interest rate swap payable | | | 7,200 | | | | - | | | | | | | | 7,200 | | | | 9,967 | |
| Current portion of lease obligations | | | 6,300 | | | | - | | | | | | | | 6,300 | | | | 8,721 | |
| Interest payable | | | 2,200 | | | | (2,200 | ) | | | (e) | | | | - | | | | - | |
| Payable to players | | | 27,600 | | | | - | | | | | | | | 27,600 | | | | 38,206 | |
| Provision for taxes | | | 26,500 | | | | (26,500 | ) | | | (e) | | | | - | | | | - | |
| Total current liabilities | | | 194,600 | | | | - | | | | | | | | 194,600 | | | | 269,380 | |
| Non-current liabilities | | | | | | | | | | | | | | | | | | | - | |
| Other long-term payables | | | 12,100 | | | | (12,100 | ) | | | (f) | | | | - | | | | - | |
| Other long-term liabilities | | | - | | | | 17,700 | | | | (f) | | | | 17,700 | | | | 24,502 | |
| Provisions | | | 5,600 | | | | (5,600 | ) | | | (f) | | | | - | | | | - | |
| Lease obligations, net of current portion | | | 15,500 | | | | - | | | | | | | | 15,500 | | | | 21,456 | |
| Deferred tax liability | | | 52,400 | | | | - | | | | | | | | 52,400 | | | | 72,536 | |
| Long-term debt, net of current portion | | | 494,200 | | | | - | | | | | | | | 494,200 | | | | 684,109 | |
| Total liabilities | | | 774,400 | | | | - | | | | | | | | 774,400 | | | | 1,071,983 | |
| Equity | | | | | | | | | | | | | | | | | | | - | |
| Retained earnings | | | 230,400 | | | | - | | | | | | | | 230,400 | | | | 318,937 | |
| Share capital | | | 11,000 | | | | (11,000 | ) | | | (g) | | | | - | | | | - | |
| Common stock | | | - | | | | 11,000 | | | | (g) | | | | 11,000 | | | | 15,227 | |
| Share premium | | | 11,400 | | | | (11,400 | ) | | | (g) | | | | - | | | | - | |
| Additional paid-in capital | | | - | | | | 11,400 | | | | (g) | | | | 11,400 | | | | 15,780 | |
| Other reserves | | | 251,700 | | | | - | | | | | | | | 251,700 | | | | 348,422 | |
| Total shareholders’ equity | | | 504,500 | | | | - | | | | | | | | 504,500 | | | | 698,366 | |
| Total liabilities and shareholders’ equity | | $ | 1,278,900 | | | $ | - | | | | | | | $ | 1,278,900 | | | $ | 1,770,349 | |
(a) The net assets of Gamesys at June 30, 2021 have been extracted from Management’s interim reporting update for the six months ended June 30, 2021.
The classification of certain items presented by Gamesys under IFRS have been modified in order to align with the presentation used by Bally’s under U.S. GAAP. There were no other material adjustments made to the balance sheet to align with U.S. GAAP based on management’s preliminary assessment of differences between IFRS and U.S. GAAP. The following modifications were made to the Unaudited Pro Forma Balance Sheet presentation:
(b) Reclassification of Taxes receivable to Prepaid expenses and other current assets.
(c) Reclassification of Other long-term receivables to Other assets.
(d) Reclassification of £15.5 million of trade payables from Accounts payable and accrued liabilities to Accounts payable and £18.3 million of Other short-term payables to Accounts payable.
(e) Reclassification of Interest payable, Provision for taxes, and £91.0 million of accrued liabilities included in Accounts payable and accrued liabilities to Accrued Liabilities.
(f) Reclassification of Other long-term payables and Provisions to Other long-term liabilities.
(g) Reclassification of Share capital and Share premium to Common stock and Additional paid-in capital, respectively.
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Statement of Operations for the six months ended June 30, 2021:
| | | Gamesys
Reported | | | Reclassification and IFRS
to GAAP adjustments
(GBP) | | | | | | Gamesys
US | | | Gamesys | |
| (In thousands) | | IFRS
(GBP) (a) | | | Reclassification
Adjustments | | | Leases | | | Notes | | | GAAP
(GBP) | | | US
GAAP (USD) | |
| Revenues | | | 398,800 | | | | - | | | | - | | | | | | | | 398,800 | | | $ | 553,890 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | |
| Distribution costs | | | 221,200 | | | | (221,200 | ) | | | - | | | | (b) | | | | - | | | | - | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | - | | | | 221,200 | | | | - | | | | (b) | | | | 221,200 | | | | 307,223 | |
| Administrative costs | | | 114,700 | | | | (114,700 | ) | | | - | | | | (c),(d) | | | | - | | | | - | |
| Impairment of financial assets | | | - | | | | - | | | | - | | | | | | | | - | | | | - | |
| Advertising, general and administrative | | | - | | | | 66,400 | | | | 3,200 | | | | (d),(g) | | | | 69,600 | | | | 96,667 | |
| Severance costs | | | 800 | | | | (800 | ) | | | - | | | | (e) | | | | - | | | | - | |
| Transaction related costs | | | 21,900 | | | | (21,900 | ) | | | - | | | | (e) | | | | - | | | | - | |
| Acquisition, integration and restructuring expense | | | - | | | | 22,700 | | | | - | | | | (e) | | | | 22,700 | | | | 31,528 | |
| Depreciation and amortization | | | - | | | | 48,300 | | | | (2,700 | ) | | | (c),(g) | | | | 45,600 | | | | 63,333 | |
| Foreign exchange loss/(gain) | | | (2,700 | ) | | | - | | | | - | | | | | | | | (2,700 | ) | | | (3,750 | ) |
| Total operating costs and expenses | | | 355,900 | | | | - | | | | 500 | | | | | | | | 356,400 | | | | 495,001 | |
| Income (loss) from operations | | | 42,900 | | | | - | | | | (500 | ) | | | | | | | 42,400 | | | | 58,889 | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair value adjustments on contingent consideration | | | - | | | | - | | | | - | | | | | | | | - | | | | - | |
| Interest income | | | (200 | ) | | | - | | | | - | | | | | | | | (200 | ) | | | (278 | ) |
| Interest expense | | | 10,100 | | | | (10,100 | ) | | | - | | | | (f) | | | | - | | | | - | |
| Accretion on financial liabilities | | | 600 | | | | (600 | ) | | | - | | | | (f) | | | | - | | | | - | |
| Interest expense, net of amounts capitalized | | | - | | | | 10,700 | | | | (500 | ) | | | (f),(g) | | | | 10,200 | | | | 14,167 | |
| Total other expense | | | 10,500 | | | | - | | | | (500 | ) | | | | | | | 10,000 | | | | 13,889 | |
| Income (loss) before provision for income taxes | | | 32,400 | | | | - | | | | - | | | | | | | | 32,400 | | | | 45,000 | |
| Tax expense | | | 18,400 | | | | - | | | | - | | | | | | | | 18,400 | | | | 25,556 | |
| Net income (loss) | | | 14,000 | | | | - | | | | - | | | | | | | | 14,000 | | | $ | 19,444 | |
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Statement of Operations for the year ended December 31, 2020:
| | | | Gamesys
Reported | | | | Reclassification and IFRS
to U.S. GAAP adjustments
(GBP) | | | | | | | | Gamesys
U.S. | | | | Gamesys
U.S. | |
| (In thousands) | | | IFRS
(GBP) (a) | | | | Reclassification
Adjustments | | | | Leases | | | | Notes | | | | GAAP
(GBP) | | | | GAAP
(USD) | |
| Revenues | | | 727,700 | | | | - | | | | - | | | | | | | | 727,700 | | | $ | 934,398 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | - | | | | - | | | | - | | | | | | | | - | | | | - | |
| Distribution costs | | | 399,900 | | | | (399,900 | ) | | | - | | | | (b) | | | | - | | | | - | |
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | | | - | | | | 399,900 | | | | - | | | | (b) | | | | 399,900 | | | | 513,489 | |
| Administrative costs | | | 221,500 | | | | (221,500 | ) | | | - | | | | (c),(d) | | | | - | | | | - | |
| Impairment of financial assets | | | 5,000 | | | | (5,000 | ) | | | - | | | | (d) | | | | - | | | | - | |
| Advertising, general and administrative | | | - | | | | 126,500 | | | | 6,500 | | | | (d),(g) | | | | 133,000 | | | | 170,778 | |
| Severance costs | | | 1,900 | | | | (1,900 | ) | | | - | | | | (e) | | | | - | | | | - | |
| Transaction related costs | | | 1,800 | | | | (1,800 | ) | | | - | | | | (e) | | | | - | | | | - | |
| Acquisition, integration and restructuring expense | | | - | | | | 3,700 | | | | - | | | | (e) | | | | 3,700 | | | | 4,751 | |
| Depreciation and amortization | | | - | | | | 100,000 | | | | (5,300 | ) | | | (c),(g) | | | | 94,700 | | | | 121,599 | |
| Foreign exchange loss/(gain) | | | 4,200 | | | | - | | | | - | | | | | | | | 4,200 | | | | 5,393 | |
| Total operating costs and expenses | | | 634,300 | | | | - | | | | 1,200 | | | | | | | | 635,500 | | | | 816,010 | |
| Income (loss) from operations | | | 93,400 | | | | - | | | | (1,200 | ) | | | | | | | 92,200 | | | | 118,388 | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | (500 | ) | | | - | | | | - | | | | | | | | (500 | ) | | | (642 | ) |
| Interest expense | | | 24,000 | | | | (24,000 | ) | | | - | | | | (f) | | | | - | | | | - | |
| Accretion on financial liabilities | | | 1,200 | | | | (1,200 | ) | | | - | | | | (f) | | | | - | | | | - | |
| Interest expense, net of amounts capitalized | | | - | | | | 25,200 | | | | (1,200 | ) | | | (f),(g) | | | | 24,000 | | | | 30,817 | |
| Total other expense | | | 24,700 | | | | | | | | (1,200 | ) | | | | | | | 23,500 | | | | 30,175 | |
| Income (loss) before provision for income taxes | | | 68,700 | | | | - | | | | - | | | | | | | | 68,700 | | | | 88,213 | |
| Tax expense | | | 1,500 | | | | - | | | | - | | | | | | | | 1,500 | | | | 1,926 | |
| Net income (loss) | | | 67,200 | | | | - | | | | - | | | | | | | | 67,200 | | | $ | 86,287 | |
(a) The results of Gamesys for the six months ended June 30, 2021 and the year ended December 31, 2020 have been extracted from the consolidated financial statements of Gamesys, as set out in Bally’s Current Reports on Form 8-K filed on October 4, 2021 and April 13, 2021, respectively.
The classification of certain items presented by Gamesys under IFRS has been modified in order to align with the presentation used by Bally’s under U.S. GAAP. The following modifications were made to the Unaudited Pro Forma Statements of Operations presentation:
(b) Reclassification of Distribution costs to Gaming, racing, hotel, food and beverage, retail, entertainment and other.
(c) Includes the reclassification of £43.7 million and £91.2 million of amortization for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively and £4.6 million and £8.8 million of depreciation for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, to Depreciation and amortization.
(d) Reclassification of £5.0 million of Impairment of financial assets for the year ended December 31, 2020, and £66.4 million and £121.5 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, of Administrative costs to Advertising, general and administrative.
(e) Reclassification of Severance costs and Transaction related costs to Acquisition, integration and restructuring expense.
(f) Reclassification of Interest expense and Accretion on financial liabilities to Interest expense, net of amounts capitalized.
(g) Reflects reclassification of £2.7 million and £5.3 million of depreciation for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively and £0.5 million and £1.2 million of interest expense for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, related to leased assets to lease expense. Under IFRS, leases are not classified as operating or finance leases. A single recognition and measurement model is applied to all leases, which results in nearly all leases under IFRS being treated similarly to finance leases under U.S. GAAP. Under U.S. GAAP, leases are classified as either operating or finance leases on the basis of specific lease classification criteria. Management performed a preliminary assessment and concluded that Gamesys’ leases would be classified as operating leases under U.S. GAAP with lease expense recognized on a straight-line basis as part of Advertising, general and administrative expenses. Management concluded that there would not be a material difference between the expense already recognized and measuring lease expense on a straight-line basis under U.S. GAAP. Therefore, no further adjustment has been recorded.
Note 8 — Gamesys Acquisition adjustments
8(a) Preliminary purchase consideration and allocation:
The Gamesys Acquisition, which closed on October 1, 2021, resulted in Bally’s acquiring all of the outstanding equity securities of Gamesys for a purchase price of $3,292 million funded through debt financing and the issuance of equity, subject to certain customary post-closing adjustments. The Company acquired both the operations and real estate of Gamesys.
Bally’s has performed a preliminary analysis of the fair value of Gamesys’ assets and liabilities based on publicly available benchmarking information as well as a variety of other factors, including market participant assumptions. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
| (In thousands, except share and share price amounts) | | | |
| Gamesys shares expected to be exchanged | | | 28,494,276 | (i) |
| Gamesys purchase price per share translated using September 28, 2021 spot rate | | $ | 25.04 | |
| Bally's closing share price on September 28, 2021 | | $ | 52.97 | |
| Exchange ratio | | | 0.343 | (i) |
| Total Bally's shares to be issued | | | 9,773,537 | |
| Total value of Bally's shares to be issued | | $ | 517,704 | (i) |
| Total cash consideration paid at $25.04 price per Gamesys Share | | $ | 2,089,995 | (ii) |
| Repayment of Gamesys Debt | | $ | 684,109 | (iii) |
| Total purchase consideration | | $ | 3,291,808 | |
| Less total cash acquired | | $ | (328,350 | )(iv) |
| Purchase consideration, net of cash acquired | | $ | 2,963,458 | |
| | | | | |
| Allocation of purchase consideration, net of cash acquired: | | | | |
| Estimated fair values of assets acquired | | | | |
| Current assets, excluding cash | | $ | 97,868 | (iv) |
| Intangible assets | | $ | 1,602,965 | (iv) |
| Other non-current assets | | $ | 79,595 | (iv) |
| Total estimated fair values of liabilities assumed, excluding debt | | $ | (315,338 | )(iv) |
| Deferred tax liability | | $ | (400,741 | )(iv) |
| Residual Goodwill | | $ | 1,899,109 | |
| Less Gamesys’ historical goodwill | | $ | (725,360 | ) |
| Goodwill adjustment | | $ | 1,173,749 | (v) |
| (i) | On October 1, 2021, the Company completed its previously announced acquisition of Gamesys. Gamesys shareholders will receive in the aggregate 9,773,537 shares of Bally’s common stock and approximately £1,544,140,832 in cash. The table above assumes an exchange rate of $1.3535 per Pound Sterling, based on the September 28, 2021 spot rate, which was used to translate the Gamesys price from Pounds Sterling to U.S. Dollars. |
| (ii) | Cash consideration equals the outstanding Gamesys shares exchanged for cash equal to £18.50 per share. |
| (iii) | Under the terms of the Gamesys Acquisition, Bally’s repaid the outstanding balance of Gamesys debt. The value of the Gamesys debt at June 30, 2021 has been included in the calculation of preliminary purchase consideration, however actual purchase consideration will reflect the balance of Gamesys’ debt outstanding as of the acquisition date ($456.6 million). |
| | |
| (iv) | Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Gamesys based on its estimated fair value as of the closing date. For purposes of the pro forma financial balance sheet and the preliminary allocation of purchase consideration performed above, the closing date is assumed to be as of June 30, 2021. Except as discussed in the notes below, the carrying value of Gamesys’ assets and liabilities are considered to approximate their fair values. |
| (v) | The preliminary fair value adjustments are based on benchmark data available to Bally’s and is subject to change upon completion of the final purchase price allocation. Any change in the estimated fair value of the assets and liabilities acquired will have a corresponding impact on the amount of the goodwill recorded. Goodwill is attributable to the assembled workforce of Gamesys and planned growth in new markets through continued investment. Goodwill recorded is not expected to be deductible for tax purposes. |
8(b) Represents the use of the net proceeds from the April 20, 2021 Equity Offerings that was classified as restricted cash for use in the Gamesys Acquisition.
8(c) Represents the tax benefit related to non-recurring transaction costs that have not been recognized in the historical financial statements of both Gamesys and Bally’s.
8(d) Represents the fair value of intangible assets acquired. This includes the total acquired finite-lived intangible assets less the historical intangible assets recorded by Gamesys.
| (In thousands) | | Six months ended
June 30,
2021 | |
| Trademarks and trade names | | $ | 184,014 | |
| Customer relationships | | | 995,038 | |
| Developed technology (Software) | | | 395,289 | |
| Partnership Agreement | | | 28,624 | |
| Total acquired finite lived intangible assets | | | 1,602,965 | |
| Less: historical intangible assets | | | (516,335 | ) |
| Pro forma adjustment | | $ | 1,086,630 | |
8(e) Represents non-recurring transaction costs that have not been recognized in the historical financial statements of both Gamesys and Bally’s.
8(f) Represents incremental amortization expense of $50,532 and $23,124 for the year ended December 31, 2020 and six months ended June 30, 2021, respectively related to identified intangible assets acquired in connection with the Gamesys Acquisition. The estimated useful lives were determined based on a review of the time period over which economic benefit is estimated to be generated as well as additional factors. Factors considered include contractual life, the period over which a majority of cash flows are expected to be generated or management’s view based on historical experience with similar assets.
| (In thousands) | | Fair Value | | | Useful Life
(Years) | | | Amortization
Method | | Year ended
December 31,
2020 | | | Six months
ended
June 30, 2021 | |
| Trademarks and trade names | | $ | 184,014 | | | | 10 | | | Straight Line | | $ | 17,335 | | | $ | 8,667 | |
| Customer relationships | | | 995,038 | | | | 10 | | | Straight Line | | | 93,735 | | | | 46,868 | |
| Developed technology (Software) | | | 395,289 | | | | 7 | | | Straight Line | | | 53,196 | | | | 26,598 | |
| Partnership Agreement | | | 28,624 | | | | 8 | | | Straight Line | | | 3,371 | | | | 1,685 | |
| Total acquired finite lived intangible assets | | | 1,602,965 | | | | | | | | | | 167,637 | | | | 83,818 | |
| Less: historical intangible asset amortization expense | | | | | | | | | | | | | (117,105 | ) | | | (60,695 | ) |
| Pro forma adjustment | | | | | | | | | | | | $ | 50,532 | | | $ | 23,124 | |
The value of intangible assets is preliminary. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill of $160.3 million and annual amortization expense of approximately $28.1 million, assuming an overall weighted average useful life of 9.22 years.
8(g) Represents repayment of Gamesys' EUR and GBP Term Facilities and Bally's historical debt ($2.0 billion) and reversal of related interest expense ($56,794 and $94,065 for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively). In connection with the repayment of Bally's historical debt and reporting requirements related to the pro forma statement of operations, a $78.9 million loss on extinguishment is estimated as if the repayment of Bally's historical debt occurred during the year ended December 31, 2020. Actual amounts are expected to be finalized within the quarter ended December 31, 2021.
8(h) Reflects the income tax effect of the Gamesys Acquisition adjustments for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, based on a UK statutory rate of 25 percent.
8(i) Represents adjustments to deferred tax liabilities based on a UK statutory tax rate of 25 percent. The total adjustment to deferred tax liabilities is related to the following estimated fair value adjustments:
| (In thousands) | | Fair Value | | | Tax rate | | | Pro Forma
Deferred
Tax
Adjustment | |
| Intangible assets, net | | $ | 1,602,965 | | | | 25 | % | | $ | 400,741 | |
| Less: deferred taxes on historical intangible assets | | | | | | | | | | | (72,536 | ) |
| Pro forma adjustment | | | | | | | | | | $ | 328,205 | |
8(j) Represents adjustments to equity related to the Gamesys Acquisition:
| | | Eliminate
Gamesys'
Equity | | | Issuance to
Gamesys
Shareholders | | | Transaction
Costs | | | Total
Acquisition
Adjustments
to
Equity | |
| Common stock | | $ | (15,227 | ) | | $ | 98 | | | $ | - | | | $ | (15,129 | ) |
| Additional paid-in capital | | | (15,780 | ) | | | 517,606 | | | | - | | | | 501,826 | |
| Retained earnings | | | (318,937 | ) | | | - | | | | (27,396 | ) | | | (346,333 | ) |
| Other Reserves | | | (348,422 | ) | | | - | | | | - | | | | (348,422 | ) |
| Total shareholders’ equity | | $ | (698,366 | ) | | $ | 517,704 | | | $ | (27,396 | ) | | $ | (208,058 | ) |
Note 9 — Gamesys Financing Transaction adjustments
Adjustments to the Pro Forma Balance Sheet related to the New Term Loan Facility and the notes include the following:
9(a) Represents an increase in cash related to net proceeds from the issuance of a $1,889,300 term loan (net of $36,250 in debt financing fees and $19,450 deferred discount, but before expenses), a $734,640 senior unsecured note (net of $15,360 debt financing fees), and a $733,613 senior unsecured note (net of $16,387 debt financing fees) for total net proceeds of $3,357,553 entered into by Bally’s to provide the financing necessary to pay the cash portion of the consideration payable to Gamesys’ shareholders upon consummation of the Gamesys Acquisition, for refinancing existing indebtedness from the Company and Gamesys upon consummation of the Gamesys Acquisition and to pay fees, costs and expenses incurred in connection with the Gamesys Acquisition. The term loan matures 84 months from the issuance date. Interest on the loan which is paid quarterly accrues at a variable rate of LIBOR plus 3.50%, including a LIBOR floor of 0.50%. The senior unsecured notes mature 96 months and 120 months from the issuance date, respectively. Interest on the senior unsecured notes that are paid semi-annually accrue at interest rates of 5.625% and 5.875%, respectively.
| (In thousands) | | | |
| Gross Proceeds from Term Loan B | | $ | 1,945,000 | |
| Term Loan B fees | | | (55,700 | ) |
| Net proceeds from Term Loan B | | $ | 1,889,300 | |
| | | | | |
| Gross proceeds from 8 year Senior Unsecured Note | | $ | 750,000 | |
| Senior Unsecured Note fees | | | (15,360 | ) |
| Net Proceeds from 8 year Senior Unsecured Note | | $ | 734,640 | |
| | | | | |
| Gross proceeds of 10 year Senior Unsecured Note | | $ | 750,000 | |
| Senior Unsecured Note fees | | | (16,387 | ) |
| Net Proceeds from 10 year Senior Unsecured Note | | $ | 733,613 | |
| | | | | |
| Total proceeds from the Gamesys Financing Transactions | | $ | 3,357,553 | |
9(b) Represents a $3,338 million increase in long-term debt from term loan and senior unsecured notes and a $19.5 million increase in current portion of long-term debt from the term loan, net of $87.4 million related fees and expenses.
Adjustments to the Unaudited Pro Forma Income Statements related to the Gamesys Financing Transaction include the following:
9(c) Total interest expense, including amortized debt issuance fees and original issue discount of $5.1 million, for the Gamesys Financing Transaction was $83.1 million for the six months ended June 30, 2021. Total interest expense, including amortized debt issuance fees and original issue discount of $9.8 million, for the Gamesys Financing transaction was $165.8 million for the year ended December 31, 2020. In connection with the term loan, the adjustment assumes that the term loan was outstanding for the full year 2020 at a weighted average interest rate of 3.58%. This rate is based on the 1 Month LIBOR rate plus 3.5%. A change in the underlying interest rate of 1/8 percentage point would result in an increase or decrease in interest expense of $2.4 million.
9(d) Represents the tax benefit related to the Gamesys Financing Transaction adjustments.
Note 10 — Equity Offering adjustments
Adjustments to the Pro Forma Statements of Operations related to the Equity Offerings include the following:
10(a) Represents adjustment to the Pro Forma Statements of Operations as of December 31, 2020 related to issuance fees of $24,351 and $50,000 of offering expenses related to the Equity Offerings.
10(b) Represents tax benefit of $6,818 and $14,000 associated with the issuance fees and offering expenses for the Equity Offerings, calculated using Bally’s statutory tax rate of 28%.
Note 11 — Pro forma earnings per share information
11(a) Represents the net earnings per share calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Gamesys Acquisition, the Gamesys Financing Transaction and the Equity Offerings, assuming the shares were outstanding since January 1, 2020. As the Gamesys Acquisition, the Gamesys Financing Transaction and the Equity Offerings are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding assumes that the shares issuable relating to the Gamesys Acquisition, the Gamesys Financing Transaction and the Equity Offerings have been outstanding for the entire period presented. For shares redeemed, this calculation is retroactively adjusted to eliminate such shares.
| (In thousands, except shares and per share amounts) | | December 31, 2020 | | | June 30, 2021 | |
| Pro forma net loss | | | (116,128 | ) | | | (26,319 | ) |
| Basic weighted average common shares outstanding: | | | | | | | | |
| Historical share count | | | 31,315,151 | | | | 42,037,858 | |
| Expected shares issuable to Gamesys Shareholders | | | 9,773,537 | | | | 9,773,537 | |
| Additional issuance in Common Stock Offering | | | 12,650,000 | | | | - | |
| Sale of Warrant | | | 909,090 | | | | - | |
| Basic weighted average common shares outstanding used in pro forma net loss per share | | | 54,647,778 | | | | 51,811,395 | |
| Pro forma net loss per share, basic | | | (2.13 | ) | | | (0.51 | ) |
| | | | | | | | | |
| Impact of dilution on historical shares outstanding | | | - | | | | - | |
| Diluted weighted average common shares outstanding used in pro forma net loss per share | | | 54,647,778 | | | | 51,811,395 | |
| Pro forma net loss per share, diluted | | | (2.13 | ) | | | (0.51 | ) |
