Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the acquisition of Dover Downs by Twin River in the form of a merger (the “Dover Acquisition”). The Dover Acquisition, which closed on March 28, 2019, resulted in Dover Downs shareholders exchanging their Dover Downs stock for Twin River common shares representing 7.225% of the equity in the combined company at closing. A total of 2,976,825 shares of common stock were issued in the Dover Acquisition and the valuation of those shares was based on the closing price of Dover Downs’ common stock on March 27, 2019. The Dover Acquisition is being accounted for as a business combination using the acquisition method with Twin River 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 purchase price will be allocated to Dover Downs’s assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the Dover Acquisition.
The following unaudited pro forma condensed combined balance sheet as of December 31, 2018, and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 (collectively, the “Pro Forma Statements”) have been prepared in compliance with the requirements of Regulation S-X under the Securities Act using accounting policies in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information is based on Twin River’s and Dover Down’s historical consolidated financial statements as adjusted to give effect to the Dover Acquisition.
Accounting policies used in the preparation of the Pro Forma Statements are based on the audited consolidated financial statements of Twin River for the year ended December 31, 2018.
The pro forma adjustments are based on preliminary estimates and currently available information and assumptions that Twin River management believes are reasonable. The notes to the Pro Forma Statements provide a discussion of how such adjustments were derived and presented in the Pro Forma Statements. 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 Pro Forma Statements. Certain historical Dover Downs and Twin River financial statement caption amounts have been reclassified or combined to conform to Twin River’s presentation and disclosure requirements.
The Pro Forma Statements should be read in conjunction with the audited consolidated financial statements of Twin River and Dover Downs as of and for the year ended December 31, 2018.
The unaudited Pro Forma Statements give effect to the Dover Acquisition as if it had occurred on January 1, 2018, for purposes of the unaudited pro forma condensed combined statements of income for the year ended December 31, 2018. The unaudited Pro Forma Statements give effect to the Dover Acquisition as if it had occurred on December 31, 2018, for purposes of the unaudited pro forma condensed combined balance sheet. The historical consolidated financial information has been adjusted to give effect to pro forma adjustments that are factually supportable, directly attributable to the Dover Acquisition, and expected to have a continuing impact on the financial statements.
The Pro Forma Statements are presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or the results which may be obtained in the future. In preparing the Pro Forma Statements, 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 Twin River and Dover Downs. Actual amounts recorded upon completion of purchase accounting for the Dover Acquisition will differ from the Pro Forma Statements and the differences may be material.
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2018
(in thousands)
| | | Twin River | | | Dover Downs | | | Pro Forma Adjustments | | | Note 3 | | | Pro Forma Combined | | ||||||||||||
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | $ | 77,580 | | | | | $ | 10,864 | | | | | $ | (15,000) 25,000 | | | | (f) (f) | | | | $ | 98,444 | | |
Restricted cash | | | | | 3,851 | | | | | | — | | | | | | — | | | | | | | | | 3,851 | | |
Accounts receivable, net | | | | | 22,966 | | | | | | 4,297 | | | | | | — | | | | | | | | | 27,263 | | |
Receivables from related parties | | | | | — | | | | | | — | | | | | | — | | | | | | | | | — | | |
Due from State of Delaware | | | | | — | | | | | | 7,498 | | | | | | — | | | | | | | | | 7,498 | | |
Inventory | | | | | 6,418 | | | | | | 1,975 | | | | | | — | | | | | | | | | 8,393 | | |
Prepaid expenses and other current assets | | | | | 11,647 | | | | | | 2,810 | | | | | | — | | | | | | | | | 14,457 | | |
Receivable from Dover Motorsports, Inc. | | | | | — | | | | | | 9 | | | | | | — | | | | | | | | | 9 | | |
Income taxes receivable | | | | | — | | | | | | 116 | | | | | | — | | | | | | | | | 116 | | |
Total current assets | | | | | 122,462 | | | | | | 27,569 | | | | | | 10,000 | | | | | | | | | 160,031 | | |
Property and equipment, net | | | | | 416,148 | | | | | | 131,322 | | | | | | (21,712) | | | | (b) | | | | | 525,758 | | |
Goodwill | | | | | 132,035 | | | | | | — | | | | | | — | | | | | | | | | 132,035 | | |
Intangible assets, net | | | | | 110,104 | | | | | | — | | | | | | 2,824 | | | | (b) | | | | | 112,928 | | |
Deferred financing fees, net | | | | | 622 | | | | | | — | | | | | | — | | | | | | | | | 622 | | |
Other assets | | | | | 981 | | | | | | 368 | | | | | | — | | | | | | | | | 1,349 | | |
Deferred income taxes | | | | | — | | | | | | 1,456 | | | | | | 4,050 | | | | (b) | | | | | 5,506 | | |
Total assets | | | | $ | 782,352 | | | | | $ | 160,715 | | | | | $ | (4,838) | | | | | | | | $ | 938,229 | | |
LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current portion of term loan | | | | $ | 3,595 | | | | | $ | – | | | | | $ | – | | | | | | | | $ | 3,595 | | |
Accounts payable | | | | | 14,215 | | | | | | 2,865 | | | | | | 6,088 | | | | (c) | | | | | 23,168 | | |
Purses due horsemen | | | | | — | | | | | | 7,533 | | | | | | — | | | | | | | | | 7,533 | | |
Accrued liabilities | | | | | 57,778 | | | | | | 9,888 | | | | | | 6,486 | | | | (b) | | | | | 74,152 | | |
Deferred credits | | | | | — | | | | | | 76 | | | | | | — | | | | | | | | | 76 | | |
Contract liabilities | | | | | — | | | | | | 4,126 | | | | | | — | | | | | | | | | 4,126 | | |
Revolving line of credit | | | | | — | | | | | | 15,000 | | | | | | (15,000) | | | | (f) | | | | | — | | |
Total current liabilities | | | | | 75,588 | | | | | | 39,488 | | | | | | (2,426) | | | | | | | | | 112,650 | | |
Accrued liabilities long term | | | | | — | | | | | | — | | | | | | 2,134 | | | | (b) | | | | | 2,134 | | |
Deferred tax liability | | | | | 17,526 | | | | | | — | | | | | | — | | | | | | | | | 17,526 | | |
Long term debt, net of current portion, discount and deferred financing fees | | | | | 390,578 | | | | | | — | | | | | | 25,000 | | | | (f) | | | | | 415,578 | | |
Liability for pension benefits | | | | | — | | | | | | 6,883 | | | | | | — | | | | | | | | | 6,883 | | |
Total liabilities | | | | | 483,692 | | | | | | 46,371 | | | | | | 24,708 | | | | | | | | | 554,771 | | |
Commitments and contingencies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock subject to possible redemption | | | | | — | | | | | | — | | | | | | — | | | | | | | | | — | | |
Shareholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | 380 | | | | | | 1,841 | | | | | | 30 (1,841) | | | | (a) (b) | | | | | 410 | | |
Class A common stock | | | | | — | | | | | | 1,487 | | | | | | (1,487) | | | | (b) | | | | | — | | |
Additional paid–in capital | | | | | 125,629 | | | | | | 6,028 | | | | | | (30) (6,028) 90,886 | | | | (a) (b) (b) | | | | | 216,485 | | |
Treasury stock, at cost | | | | | (30,233) | | | | | | — | | | | | | — | | | | | | | | | (30,233) | | |
Retained earnings | | | | | 202,884 | | | | | | 109,881 | | | | | | (109,881) (6,088) | | | | (b) (c) | | | | | 196,796 | | |
Accumulated other comprehensive loss | | | | | — | | | | | | (4,893) | | | | | | 4,893 | | | | (b) | | | | | — | | |
Total shareholders’ equity | | | | | 298,660 | | | | | | 114,344 | | | | | | (29,546) | | | | | | | | | 383,458 | | |
Total liabilities, temporary equity and shareholders’ equity | | | | $ | 782,352 | | | | | $ | 160,715 | | | | | $ | (4,838) | | | | | | | | $ | 938,229 | | |
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Unaudited Pro Forma Condensed Combined Statement of Income — Year Ended December 31, 2018
(in thousands, except share and per share amounts)
| | | Twin River | | | Dover Downs | | | Pro Forma Adjustments | | | Note 3 | | | Pro Forma Combined | | ||||||||||||
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | | | $ | 437,537 | | | | | $ | 179,931 | | | | | | (83,328) | | | | (i) | | | | $ | 534,140 | | |
Operating costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gaming, racing, hotel and food and beverage | | | | | | | | | | | | |||||||||||||||||
| | | 129,341 | | | | | | 164,381 | | | | | | (48,586) | | | | (j) | | | | | 161,808 | | | ||
| | | | | | | | | | | | | | | (83,328) | | | | (i) | | | |||||||
Advertising, general and administrative | | | | | 156,023 | | | | | | 5,324 | | | | | | 48,586 | | | | (j) | | | | | 203,297 | | |
| | | | | | | | | | | | | | | (6,636) | | | | (k) | | | |||||||
Merger costs | | | | | — | | | | | | 1,090 | | | | | | (1,090) | | | | (k) | | | | | — | | |
Expansion and pre-opening | | | | | 2,678 | | | | | | — | | | | | | — | | | | | | | | | 2,678 | | |
Newport Grand disposal loss | | | | | 6,514 | | | | | | — | | | | | | — | | | | | | | | | 6,514 | | |
Depreciation and amortization of intangibles | | | | | | | | | | | | |||||||||||||||||
| | | 22,332 | | | | | | 8,231 | | | | | | 377 | | | | (e) | | | | | 29,770 | | | ||
| | | | | | | | | | | | | | | (1,170) | | | | (g) | | | | | | | | ||
Total operating costs and expenses | | | | | 316,888 | | | | | | 179,026 | | | | | | (91,847) | | | | | | | | | 404,067 | | |
Income from operations | | | | | 120,649 | | | | | | 905 | | | | | | 8,519 | | | | | | | | | 130,073 | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | | | 173 | | | | | | — | | | | | | — | | | | | | | | | 173 | | |
Other income | | | | | — | | | | | | 302 | | | | | | — | | | | | | | | | 302 | | |
Interest expense, net of amounts capitalized | | | | | (23,025) | | | | | | (790) | | | | | | 790 | | | | (f) | | | | | (25,025) | | |
Interest expense, net of amounts capitalized | | | | | | | | | | | | | | | | | (2,000) | | | | (f) | | | | | | | |
Total other expense | | | | | (22,852) | | | | | | (488) | | | | | | (1,210) | | | | | | | | | (24,550) | | |
Income before provision for income taxes | | | | | 97,797 | | | | | | 417 | | | | | | 7,309 | | | | | | | | | 105,523 | | |
Provision for income taxes | | | | | (26,359) | | | | | | (387) | | | | | | (1,817) | | | | (h) | | | | | (28,563) | | |
Net income (loss) | | | | | 71,438 | | | | | | 30 | | | | | | 5,493 | | | | | | | | $ | 76,961 | | |
Deemed dividends related to changes in fair value of common stock subject to possible redemption | | | | | 640 | | | | | | — | | | | | | — | | | | | | | | | 640 | | |
Net income applicable to common stockholders | | | | $ | 72,078 | | | | | $ | 30 | | | | | $ | 5,493 | | | | | | | | $ | 77,601 | | |
Net income (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | $ | 1.95 | | | | | $ | 0.00 | | | | | | | | | | | | | | $ | 1.94 | | |
Diluted | | | | $ | 1.87 | | | | | $ | 0.00 | | | | | | | | | | | | | | $ | 1.87 | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | 36,938,943 | | | | | | 32,446,000 | | | | | | (29,468,900) | | | | (d) | | | | | 39,916,043 | | |
Diluted | | | | | 38,551,708 | | | | | | 32,446,000 | | | | | | (29,468,900) | | | | (d) | | | | | 41,528,808 | | |
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Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1 — Description of Transaction and Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of SEC Regulation S-X and presents the pro forma financial position and results of operations of the combined companies based upon the historical data of Dover Downs and Twin River.
Basis of Presentation
Twin River has concluded that the transaction represents a business combination pursuant to ASC 805. Twin River has not yet completed an external valuation analysis of the fair market value of Dover Downs’ assets to be acquired and liabilities to be assumed. Using the estimated total consideration for the transaction, Twin River has estimated the allocations to such assets and liabilities. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet. The final purchase price allocation will be determined when Twin River has completed the detailed valuations and other studies and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments. The final purchase price allocation may include changes in allocations to intangible assets or goodwill based on the results of certain valuations and other studies that have yet to be completed, other changes to assets and liabilities.
On January 18, 2019, the Twin River board of directors authorized a four-for-one split of the Twin River common stock in the form of a stock dividend of four shares for each outstanding share. As of December 31, 2018, Twin River had outstanding a total of 37,989,376 outstanding common shares as a result of the stock dividend. We accounted for this stock dividend as a stock split.
Items Not Adjusted in the Unaudited Pro Forma Condensed Combined Financial Information
Twin River anticipates that the Dover Acquisition will result in net estimated annual cost synergies of approximately $3 million per year. These net estimated cost synergies include approximately $2 million of legal, accounting and other expenses that Twin River will incur as a public company. Cost synergies are expected to be driven by the elimination of certain corporate overhead redundancies and improved property level efficiencies, with limited incremental costs required to scale operations and integrate Dover Downs. No assurance can be made that Twin River will be able to achieve these cost synergies or when they will be realized, and no such cost synergies have been reflected in the Pro Forma Statements.
Note 2 — Preliminary purchase price allocation
The Dover Acquisition, which closed on March 28, 2019, resulted in Dover Downs shareholders exchanging their Dover Downs stock for Twin River common shares representing 7.225% of the equity in the combined company at closing. A total of 2,976,825 shares of common stock were issued at the transaction closing on March 28, 2019 and the valuation of those shares was based on the closing price of Dover Downs’ common stock on March 27, 2019.
| | | March 28, 2019 | | |||
Dover Downs shares outstanding | | | | | 33,125,997 | | |
Closing Dover Downs share price on March 27, 2019 | | | | $ | 2.62 | | |
Total fair value of stock purchased (in thousands) | | | | $ | 86,790 | | |
Cash paid by TRWH at closing, including amounts to retire Dover Downs debt, inclusive of accrued interest (in thousands) | | | | $ | 29,096 | | |
Consideration Transferred – Preliminary (in thousands) | | | | $ | 115,886 | | |
|
Twin River has performed a preliminary valuation analysis of the fair market value of Dover Downs’ assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
| | | | | | | Debit (Credit) | | |||
| | | | Cash and cash equivalents | | | | $ | 20,864 | | |
| | | | Accounts receivable, net | | | | | 4,297 | | |
| | | | Due from State of Delaware | | | | | 7,498 | | |
| | | | Inventory | | | | | 1,975 | | |
| | | | Prepaid expenses and other current assets | | | | | 2,810 | | |
| | | | Receivable from Dover Motorsports, Inc. | | | | | 9 | | |
| | | | Income taxes receivable | | | | | 116 | | |
| | | | Property and equipment, net | | | | | 109,610 | | |
| | | | Deferred tax asset | | | | | 5,506 | | |
| | | | Goodwill | | | | | — | | |
| | | | Intangible assets | | | | | 2,824 | | |
| | | | Other assets | | | | | 368 | | |
| | | | Accounts payable | | | | | (2,865) | | |
| | | | Purses due horsemen | | | | | (7,533) | | |
| | | | Accrued liabilities | | | | | (9,888) | | |
| | | | Change of control obligations | | | | | (8,620) | | |
| | | | Deferred credits | | | | | (76) | | |
| | | | Contract liabilities | | | | | (4,126) | | |
| | | | Liability for pension benefits | | | | | (6,883) | | |
| | | | Total consideration | | | | $ | 115,886 | | |
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Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Dover Downs based on their estimated fair values as of the Dover Acquisition closing date.
Note 3 — Pro forma 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 unaudited pro forma condensed combined financial information:
(a) Represents the issuance of 2,976,825 common shares of Twin River common stock and its effect on the common stock and additional paid in capital accounts (in thousands):
| | | | | | | Common Stock | | | Additional Paid in Capital | | ||||||
| | | | Issuance of 2,976,825 shares of Twin River common stock | | | | | 30 | | | | | | (30) | | |
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(b) Represents the elimination of the historical equity of Dover Downs and the initial allocation of excess purchase price to identified intangibles, fair value adjustments and goodwill, as follows (in thousands):
| | | | Total consideration | | | | | 115,886(x) | | |
| | | | Common stock | | | | | (1,841) | | |
| | | | Class A common stock | | | | | (1,487) | | |
| | | | Additional paid-in capital | | | | | (6,028) | | |
| | | | Retained earnings | | | | | (109,881) | | |
| | | | Accumulated other comprehensive loss | | | | | 4,893 | | |
| | | | Write-down/(write-up) of assets: | | | | | | | |
| | | | Cash | | | | | (10,000) | | |
| | | | Intangible assets | | | | | (2,824) | | |
| | | | Property and equipment, net | | | | | 21,712 | | |
| | | | Deferred income taxes | | | | | (4,050)(y) | | |
| | | | (Write-down)/write-up of liabilities: | | | | | | | |
| | | | Revolving line of credit | | | | | (15,000) | | |
| | | | Change in control obligations – short term | | | | | 6,486(z) | | |
| | | | Change in control obligations – long term | | | | | 2,134(z) | | |
| | | | Goodwill | | | | | — | | |
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(x) The consideration is $115.9 million (calculated by multiplying $2.62, the closing price of a share of Dover Downs common stock on the NYSE on March 27, 2019, by 33,125,997 shares of Dover Downs Stock, plus cash paid by TRWH at closing, including amounts to retire Dover Downs debt, inclusive of accrued interest).
(y) Represents the income tax effect of the acquisition date differences between the financial reporting and income tax bases of assets acquired and liabilities assumed, excluding goodwill.
(z) Represents the accrual of change of control obligations for Dover Downs employees that were due as a result of the Dover Acquisition.
(c) Reflects an adjustment of approximately $6.1 million for the estimated transaction costs for Twin River, such as adviser fees and legal and accounting expenses that were incurred from January 1, 2019 through the date of the Dover Acquisition.
(d) Represents the increase in the weighted average shares due to the issuance of 2,976,825 shares of common stock and the cancellation of Dover Downs common and Class A common stock in connection with the Dover Acquisition.
(e) Represents the amortization of tradename and other intangible assets related to the acquisition of Dover Downs over a three to eight year period as if the acquisition occurred on January 1, 2018. 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 the period over which a majority of cash flow is expected to be generated and/or management’s view based on historical experience with similar assets.
(f) Dover Downs’ revolving line of credit is payable upon a change of control. Represents the payoff of this revolver and the reversal of interest expense incurred for the year ended December 31, 2018. In addition, in connection with the Dover Acquisition, Twin borrowed $25.0 million under its revolver for the repayment of the Dover Downs’ facility and to fund anticipated payments on change-in-control agreements. Therefore, we reflected additional interest expense related to the debt issuance of $25.0 million using an estimated interest rate.
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(g) Represents the depreciation adjustment of acquired “property and equipment” resulting from the fair value adjustment of these assets relating to the Dover Acquisition. Twin River estimated that the fair value of property and equipment (excluding land) was less than Dover Downs’ book value as of December 31, 2018 by approximately $21.7 million. Therefore, depreciation expense would decrease by approximately $1.2 million for the year ended December 31, 2018 using the straight-line method of depreciation. The estimated remaining useful lives of acquired property and equipment range from 2 years to 50 years.
(h) Reflects the income tax effect of pro forma adjustments based on an estimated blended federal and state statutory tax rate of 24.85%.
(i) Represents a change in the presentation of gaming and racing revenue to be in alignment with the presentation of Twin River.
(j) Represents the reclassification of certain costs related to building and grounds and purchasing and receiving and advertising that are included in Gaming, racing, hotel and food and beverage by Dover Downs to a component of Advertising, general and administrative to conform Dover Downs’ accounting policies with those of Twin River.
(k) Represents the elimination of transaction costs incurred by Twin River and Dover Downs during the year ended December 31, 2018.