EX-99.4 5 tm2121593d20_ex99-4.htm EXHIBIT 99.4

 

Exhibit 99.4

 

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

These Unaudited Pro Forma Financial Statements are based on the consolidated financial statements of Brookfield Business Partners L.P. (the “partnership”), Modulaire Investments 2 S.à r.l. (“Modulaire”) and the combined financial statements of the Lottery Business of Scientific Games Corporation (Carve-Out of Certain Operations of Scientific Games Corporation) (“Scientific Games Lottery”) as adjusted to give effect to the probable acquisitions of Modulaire (the “Modulaire acquisition”) and Scientific Games Lottery (the “Scientific Games Lottery acquisition”). These Unaudited Pro Forma Financial Statements have been prepared to illustrate the effects of the following transaction accounting adjustments that are expected to occur upon completion of the Modulaire acquisition and the Scientific Games Lottery acquisition (collectively, the “Transactions”):

 

•The partnership, together with institutional partners, is expected to acquire a 100% interest in Modulaire for total expected consideration of $5,009 million. Modulaire is a leading provider of modular leasing services in Europe and Asia-Pacific meeting the needs of a diversified customer base across the industrial, infrastructure and public sectors. The partnership is expected to hold a 100% voting interest and a 31% economic interest in Modulaire, with the balance held by institutional partners. It is expected that prior to the completion of the Modulaire acquisition, $2,537 million of debt within Modulaire will be extinguished. The partnership, together with institutional partners, plans to fund a portion of the Modulaire acquisition with approximately $3,085 million of non-recourse borrowings, net of debt issuance costs.

 

•The partnership, together with institutional partners, is expected to acquire a 100% interest in Scientific Games Lottery for total expected consideration of $5,711 million. Scientific Games Lottery is an essential service provider to government sponsored lottery programs through its capabilities in game design, distribution, systems and terminals, and turnkey technology solutions.The partnership is expected to hold a 100% voting interest and a 30% economic interest in Scientific Games Lottery, with the balance held by institutional partners. The partnership, together with institutional partners, plans to fund a portion of the Scientific Games Lottery acquisition with approximately $3,195 million of non-recourse borrowings, net of debt issuance costs.

 

The information in the Unaudited Condensed Pro Forma Statements of Operating Results gives effect to the pro forma adjustments as if they had been consummated on January 1, 2020. The information in the Unaudited Condensed Pro Forma Statement of Financial Position gives effect to the pro forma adjustments as if they had been consummated on September 30, 2021. All financial data in the Unaudited Pro Forma Financial Statements is presented in U.S. dollars, unless otherwise noted, and has been prepared using accounting policies that are consistent with IFRS as issued by the IASB.

 

The Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the Unaudited Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Financial Statements should be read in conjunction with the audited financial statements of the partnership as at December 31, 2020 and 2019 and for each of the years in the three years ended December 31, 2020, the unaudited interim financial statements of the partnership as at September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020, the audited financial statements of Modulaire as at December 31, 2020 and for the year ended December 31, 2020, the unaudited interim financial statements of Modulaire as at September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020, the audited combined financial statements of Scientific Games Lottery as at December 31, 2020, 2019 and 2018 and for each of the years in the three years ended December 31, 2020 and the unaudited combined financial statements of Scientific Games Lottery as at September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021 and 2020. The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of our financial position or results of operations had the items for which we are giving pro forma effect occurred on the dates or for the periods indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

 

 

 

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

 

US$ MILLIONS (except as noted)

As at September 30, 2021 

  Brookfield
Business
Partners L.P.		   Modulaire   Scientific
Games Lottery		   Pro forma
combined		 
       (1)   (2)     
Assets                    
Current Assets                    
Cash and cash equivalents  $2,371   $169   $30   $2,570 
Financial assets   2,070    —    —    2,070 
Accounts and other receivable, net   4,534    362    182    5,078 
Inventory, net   3,971    90    79    4,140 
Other assets   1,273    59    95    1,427 
    14,219    680    386    15,285 
Financial assets   6,575    —    —    6,575 
Accounts and other receivable, net   699    —    —    699 
Other assets   429    17    10    456 
Property, plant and equipment   12,901    1,968    244    15,113 
Deferred income tax assets   910    5    —    915 
Intangible assets   10,859    1,724    3,957    16,540 
Equity accounted investments   1,569    —    411    1,980 
Goodwill   5,599    1,980    1,329    8,908 
   $53,760   $6,374   $6,337   $66,471 
Liabilities and Equity                    
Current Liabilities                    
Accounts payable and other  $11,301   $607   $256   $12,164 
Non-recourse borrowings in subsidiaries of the partnership   2,035    —    —    2,035 
    13,336    607    256    14,199 
Accounts payable and other   7,755    236    101    8,092 
Corporate borrowings   751    —    —    751 
Non-recourse borrowings in subsidiaries of the partnership   19,303    3,085    3,195    25,583 
Deferred income tax liabilities   1,517    530    302    2,349 
   $42,662   $4,458    3,854    50,974 
Equity                    
Limited partners  $2,186   $312   $393   $2,891 
Non-controlling interests attributable to:                    
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.   1,972    280    351    2,603 
Interest of others in operating subsidiaries   6,940    1,324    1,739    10,003 
   $11,098   $1,916   $2,483   $15,497 
   $53,760   $6,374   $6,337   $66,471 

 

See the accompanying notes to the Unaudited Pro Forma Financial Statements.

 

 

 

 

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

 

US$ MILLIONS (except as noted)

For the nine months ended September 30, 2021 

  Brookfield
Business
Partners L.P.		   Modulaire   Scientific
Games Lottery		   Pro forma
combined		 
       (1)   (2)     
Revenues  $33,107   $1,244    769   $35,120 
Direct operating costs   (30,682)   (878)   (543)   (32,103)
General and administrative expenses   (751)   (268)   (78)   (1,097)
Interest income (expense), net   (1,057)   (142)   (119)   (1,318)
Equity accounted income (loss), net   61    —    35    96 
Impairment expense, net   (201)   —    —    (201)
Gain (loss) on acquisitions/dispositions, net   1,823    —    —    1,823 
Other income (expense), net   (78)   16    (6)   (68)
Income (loss) before income tax   2,222    (28)   58    2,252 
Income tax (expense) recovery                    
Current   (430)   (21)   —    (451)
Deferred   246    50    (80)   216 
Net income (loss)  $2,038   $1    (22)  $2,017 
Attributable to:                    
Limited partners  $277   $—   $(4)  $273 
Non-controlling interests attributable to:                    
Redemption-Exchange Units held by Brookfield Asset Management Inc.   246    —    (4)   242 
Special Limited Partners   79    —    —    79 
Interest of others in operating subsidiaries   1,436    1    (14)   1,423 
   $2,038   $1    (22)  $2,017 
Basic and diluted earnings per LP unit  $3.53             $3.47 
Weighted-average LP Units (millions)   78.6              78.6 

 

 

 

 

US$ MILLIONS (except as noted)

For the year ended December 31, 2020 

  Brookfield
Business
Partners L.P.		   Modulaire   Scientific
Games Lottery		   Pro forma
combined		 
       (1)   (2)     
Revenues  $37,635   $1,386    919   $39,940 
Direct operating costs   (32,465)   (729)   (517)   (33,711)
General and administrative expenses   (968)   (303)   (79)   (1,350)
Depreciation and amortization expense   (2,165)   (313)   (184)   (2,662)
Interest income (expense), net   (1,482)   (178)   (158)   (1,818)
Equity accounted income (loss), net   57    —    (8)   49 
Impairment expense, net   (263)   (2)   —    (265)
Gain (loss) on acquisitions/dispositions, net   274    —    —    274 
Other income (expense), net   111    (6)   (45)   60 
Income (loss) before income tax   734    (145)   (72)   517 
Income tax (expense) recovery                    
Current   (284)   (24)   (69)   (377)
Deferred   130    66    (17)   179 
Net income (loss)  $580   $(103)   (158)  $319 
Attributable to:                    
Limited partners   (91)   (18)   (25)   (134)
Non-controlling interests attributable to:                    
Redemption-Exchange Units held by Brookfield Asset Management Inc.   (78)   (16)   (22)   (116)
Interest of others in operating subsidiaries   749    (69)   (111)   569 
   $580   $(103)   (158)  $319 
Basic and diluted earnings per LP Unit  $(1.13)            $(1.67)
Weighted-average LP Units (millions)   80.2              80.2 

 

See the accompanying notes to the Unaudited Pro Forma Financial Statements

 

 

 

 

 

1.Acquisition of Modulaire

 

The following tables and explanatory notes present the statement of financial position as at September 30, 2021 and the statements of operating results for the nine months ended September 30, 2021 and year ended December 31, 2020 of Modulaire, as adjusted to give effect to the Modulaire acquisition.

 

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

 

               Transaction accounting adjustments     

US$ MILLIONS (except as noted)

As at September 30, 2021 

 

Modulaire historical

(in €) 

  

Modulaire historical

(in $) 

   Reclassification to conform presentation   IFRS 3 adjustments   Notes  Other   Notes  Modulaire pro forma 
    (1a)   (1a)   (1a)   (1b)                
Assets                                    
Current Assets                                    
Cash and cash equivalents  €146   $169   $—   $—      $—      $169 
Trade receivables and contract assets   313    362    (362)   —       —       — 
Financial assets   —    —    227    —       (227)  (1h)   — 
Accounts and other receivable, net   —    —    362    —       —       362 
Inventory, net   —    —    90    —       —       90 
Inventories   78    90    (90)   —       —       — 
Other assets   —    —    59    —       —       59 
Prepaid expenses and other current assets   51    59    (59)   —       —       — 
Other current financial assets   196    227    (227)   —       —       — 
   €784   $907   $—   $—      $(227)     $680 
Accounts and other receivable, net   —    —    —    —       —       — 
Other intangible assets   238    276    (276)   —       —       — 
Other assets   —    —    17    —       —       17 
Rental equipment   1,293    1,497    (1,497)   —       —       — 
Other property, plant and equipment   203    235    (235)   —       —       — 
Property, plant and equipment   —    —    1,732    236   (1c)   —       1,968 
Deferred income tax assets   —    —    5    —       —       5 
Deferred tax assets   4    5    (5)   —       —       — 
Intangible assets   —    —    276    1,448   (1c)   —       1,724 
Goodwill   508    588    —    1,392   (1b)   —       1,980 
Other non-current assets   15    17    (17)   —       —       — 
   €3,045   $3,525   $—   $3,076      $(227)     $6,374 
                                     
Liabilities and Equity   (1a)   (1a)    (1a)    (1b)                 
Current Liabilities                                    
Accounts payable and other  €—   $—   $539   $68   (1d)(1f)  $—      $607 
Trade payables and accrued liabilities     311       360       (360 )     —           —           —  
Current tax payable     20       23       (23 )     —           —           —  
Deferred revenue and customer deposits     88       102       (102 )     —           —           —  
Current provisions     12       14       (14 )     —           —           —  
Current portion of long-term debt and interest     272       315       (315 )     —           —           —  
Non-recourse borrowings in subsidiaries of the partnership     —       —       275       —           (275 )   (1g)     —  
    € 703     $ 814     $ —     $ 68         $ (275 )       $ 607  
Accounts payable and other     —       —       236       —           —           236  
Non-recourse borrowings in subsidiaries of the partnership     —       —       2,262       —           823     (1g)     3,085  
Deferred income tax liabilities     92       107       —       423     (1e)     —           530  
Long-term debt     2,070       2,397       (2,397 )     —           —           —  
Non-current provisions     15       17       (17 )     —           —           —  
Other non-current liabilities     73       84       (84 )     —           —           —  
    € 2,953     $ 3,419     $ —     $ 491         $ 548         $ 4,458  
Equity                                                        
Limited partners   € —     $ —     $ 13     $ 427         $ (128 )       $ 312  
Non-controlling interests attributable to:                                                        
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.     —       —       12       382           (114 )         280  
Interest of others in operating subsidiaries     —       —       81       1,776           (533 )         1,324  
Equity attributable to the owners of the Company     70       81       (81 )     —           —           —  
Non-controlling interests     22       25       (25 )     —           —           —  
    € 92     $ 106     $ —     $ 2,585         $ (775 )       $ 1,916   
    € 3,045     $ 3,525     $ —     $ 3,076         $ (227 )       $ 6,374  

 

 

 

 

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

 

               Transaction accounting adjustments     

US$ MILLIONS (except as noted)

For the nine months ended September 30, 2021 

 

Modulaire historical

(in €) 

  

Modulaire historical

(in $) 

   Reclassification to conform presentation   IFRS 3 adjustments   Notes  Other   Notes  Modulaire pro forma 
   (1a)   (1a)   (1a)   (1b)               
Revenues  €—   $—   $1,244   $—      $—      $1,244 
Leasing and services   759    908    (908)   —       —       — 
Sales of modular units and buildings   281    336    (336)   —       —       — 
Direct operating costs   —    —    (809)   (69)  (1c)   —       (878)
Costs of sales of goods and providing services   (511)   (611)   611    —       —       — 
Depreciation of rental equipment   (115)   (138)   138    —       —       — 
General and administrative expenses   —    —    (268)   —       —       (268)
Administrative expenses   (274)   (328)   328    —       —       — 
Finance expense, net   (151)   (181)   181    —       —       — 
Interest income (expense), net   —    —    (217)   —       75   (1g)   (142)
Currency (losses) / gains, net   (17)   (20)   20    —       —       — 
Other income (expense), net   —    —    16    —       —       16 
Income tax (expense) recovery                                    
Current   —    —    (21)   —       —       (21)
Deferred   —    —    13    37   (1e)   —       50 
Income tax expense   (7)   (8)   8    —       —       — 
Net income (loss)  €(35)  $(42)  $—   $(32)     $75      $1 
Attributable to:                                    
Owners of the company  €(36)  $(43)  $43   $—      $—      $— 
Limited partners   —    —    (7)   (5)      12       — 
Non-controlling interests attributable to:                                    
Redemption-Exchange Units held by Brookfield Asset Management Inc.   —    —    (6)   (5)      11       — 
Interest of others in operating subsidiaries   —    —    (29)   (22)      52       1 
Non-controlling interests   1    1    (1)   —       —       — 
   €(35)  $(42)  $—   $(32)     $75      $1 

 

 

 

 

 

               Transaction accounting adjustments    

US$ MILLIONS (except as noted)

For the year ended December 31, 2020 

 

Modulaire historical

(in €) 

  

Modulaire historical

(in $) 

   Reclassification to conform presentation   IFRS 3 adjustments   Notes  Other   Notes  Modulaire pro
forma		 
    (1a)    (1a)    (1a)    (1b)                   
Revenues  €—   $—   $1,386   $—       $—       $1,386 
Leasing and services   816    932    (932)   —        —        — 
Sales of modular units and buildings   398    454    (454)   —        —        — 
Direct operating costs   —    —    (729)   —        —        (729)
Costs of sales of goods and providing services   (638)   (729)   729    —        —        — 
Depreciation of rental equipment   (136)   (155)   155    —        —        — 
General and administrative expenses   —    —    (303)   —        —        (303)
Administrative expenses   (323)   (369)   369    —        —        — 
Depreciation and amortization expense   —    —    (221)   (92)   (1c)   —        (313)
Finance expense, net   (219)   (250)   250    —        —        — 
Interest income (expense), net   —    —    (193)   —        15    (1g)   (178)
Net impairment (losses) / gains on financial and contract assets   (2)   (2)   2    —        —        — 
Impairment expense, net   —    —    (2)   —        —        (2)
Currency (losses) / gains, net   70    80    (80)   —        —        — 
Other income (expense), net   —    —    23    (29)   (1f)   —        (6)
Income tax (expense) recovery                                      
Current   —    —    (24)   —        —        (24)
Deferred   —    —    18    48    (1e)   —        66 
Income tax expense   (5)   (6)   6    —        —        — 
Net income (loss)  €(39)  $(45)  $—   $(73)      $15       $(103)
Attributable to:                                      
Owners of the company  €(40)  $(46)  $46   $—       $—       $— 
Limited partners   —    —    (8)   (12)       2        (18)
Non-controlling interests attributable to:                                      
Redemption-Exchange Units held by Brookfield Asset Management Inc.   —    —    (7)   (11)       2        (16)
Interest of others in operating subsidiaries   —    —    (30)   (50)       11        (69)
Non-controlling interests   1    1    (1)   —        —        — 
   €(39)  $(45)  $—   $(73)      $15       $(103)

 

See the accompanying notes to the Unaudited Pro Forma Financial Statements

 

 

 

 

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

(1a)The historical financial information of Modulaire was prepared in accordance with IFRS as issued by the IASB and presented in euros (€). The partnership has reviewed and determined there are no significant differences in accounting policies applied by Modulaire and the partnership. Certain pro forma adjustments have been made to conform the presentation of the historical financial information of Modulaire to the presentation of financial information in the partnership's financial statements. The historical financial information was translated from euros to U.S. dollars using the following historical exchange rates:

 

   € / $ 
Average exchange rate for the year ended December 31, 2020 (statement of operating results)   1.14 
Average exchange rate for the nine months ended September 30, 2021 (statement of operating results)   1.20 
Period end exchange rate as at September 30, 2021 (statement of financial position)   1.16 

 

(1b)The Modulaire acquisition will be accounted for using the acquisition method under IFRS 3, Business combinations with the partnership being identified as the accounting acquirer. The following table summarizes, on a preliminary basis, the expected cash consideration transferred, assets acquired and liabilities assumed at the acquisition date:

 

(US$ MILLIONS)    
Cash and cash equivalents  $169 
Accounts and other receivable, net   362 
Inventory, net   90 
Other assets   76 
Property, plant and equipment   1,968 
Deferred income tax assets   5 
Intangible assets   1,724 
Accounts payable and other   (814)
Deferred income tax liabilities   (530)
Net identifiable assets acquired  $3,050 
Non-controlling interests   (21)
Goodwill   1,980 
Consideration transferred  $5,009 

 

 

 

 

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position and the Unaudited Pro Forma Statements of Operating Results is based on various assumptions to determine management’s best estimates of fair value. The partnership does not expect the goodwill to be deductible for tax purposes. The final purchase price allocation will be determined when the partnership has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. The final allocation may include (1) changes in fair values of property, plant & equipment; (2) changes in allocations to intangible assets, such as customer relationships and brand, as well as goodwill; and (3) other changes to assets and liabilities. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

 

(1c)As a part of the Modulaire acquisition, the fair value adjustment applied to property, plant and equipment is expected to result in an increase to carrying value of $236 million, with an average useful life of 7 years. In addition, the fair value adjustment applied to intangible assets is expected to result in an increase to carrying value of $1,448 million, where total intangible assets, after the fair value adjustment is applied, comprises $1,023 million relating to customer relationship intangibles with an average useful life of 13 years, $17 million relating to software with an average useful life of 5 years and $684 million relating to brand intangibles with an indefinite useful life. If the acquisition had occurred on January 1, 2020, depreciation and amortization expense for the nine months ended September 30, 2021 and for the year ended December 31, 2020 would have increased by $69 million and $92 million, respectively.

 

(1d)Reflects an increase of $39 million to accounts payable and other associated with the estimated fair value of provisions.

 

(1e)This adjustment reflects the purchase accounting adjustments to the Modulaire historical deferred income tax liabilities of $423 million. The Unaudited Pro Forma Statements of Operating Results have been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 26%.

 

(1f)Represents the accrual of $29 million of estimated transaction costs incurred by the partnership subsequent to September 30, 2021. There were no transaction costs included in the historical statement of operating results of the partnership for the nine months ended September 30, 2021. These costs will not affect the partnership’s statement of operating results beyond 12 months after the acquisition date.

 

(1g)Prior to the closing of the Modulaire acquisition, Modulaire will extinguish $2,537 million of its fixed and variable-rate borrowings (the “Extinguished Modulaire Borrowings”) with a weighted-average interest rate of 6.7%. Prior to closing the Modulaire acquisition, the partnership raised proceeds of $3,162 million of fixed and variable-rate non-recourse borrowings (“New Modulaire Non-Recourse Borrowings”) at a weighted-average cost of borrowing of 5.1% and incurred debt issuance costs of approximately $77 million, which will be used to partially fund the Modulaire acquisition.

 

The table below presents the net increase to non-recourse borrowings in subsidiaries of the partnership reflects the New Modulaire Non-Recourse Borrowings of $3,162 million incurred to partially fund the Modulaire acquisition, less $77 million of debt issuance costs.

 

(US$ MILLIONS)    
Decrease for Extinguished Borrowings of Modulaire  $(2,537)
Increase for issuance of New Modulaire Non-Recourse Borrowings   3,085 
Other Transaction accounting adjustment to non-recourse borrowings in subsidiaries of the partnership  $548 

 

The table below presents the net decrease to borrowing costs presented within interest income (expense), net reflects the interest savings on the Extinguished Borrowings, less the borrowing costs on the New Modulaire Non-Recourse Borrowings and the amortization of related debt issuance costs.

 

(US$ MILLIONS)  Nine months
ended September
30, 2021		   Year ended
December 31, 2020		 
Elimination of interest expense and amortization of debt issuance costs – Extinguished Borrowings  $208   $185 
Interest expense on New Modulaire Non-Recourse Borrowings   (125)   (159)
Amortization of debt issuance costs on New Modulaire Non-Recourse Borrowings   (8)   (11)
Other transaction accounting adjustments to interest income (expense), net  $75   $15 

 

 

 

 

A 1/8 of a percentage point increase or decrease in the benchmark rate would result in a change in interest expense of approximately $2 million for the nine months ended September 30, 2021 and $2 million for the year ended December 31, 2020.

 

(1h)Prior to the closing of the Modulaire acquisition, it is expected that $227 million of financial assets will be distributed in-kind to the former shareholder of the company. The Unaudited Pro Forma Financial Statement of Financial Position is adjusted to represent the other transaction accounting adjustment as a reduction to equity.

 

 

 

 

 

2.Acquisition of Scientific Games Lottery

 

The following tables and explanatory notes present the statement of financial position as at September 30, 2021 and the statements of operating results for the nine months ended September 30, 2021 and year ended December 31, 2020 of Scientific Games Lottery, as adjusted to give effect to the Scientific Games Lottery acquisition.

 

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION

 

            Transaction accounting adjustments      
US$ MILLIONS (except as noted)
As at September 30, 2021  		   Scientific
Games Lottery
historical 		  Reclassification
to conform presentation		   IFRS 3
adjustments		   Notes   Other   Notes   Scientific
Games Lottery
pro forma		  
        (2a)   (2a)                  
Assets                              
Current Assets                              
Cash and cash equivalents   $ 30    $ —    $ —        $ —        $ 30   
Accounts and other receivable, net   —    182   —        —        182   
Receivables, net of allowance for credit losses   182    (182 ) —        —        —   
Inventory, net   —    79   —        —        79   
Inventories   79    (79 ) —        —        —   
Restricted cash   2    (2 ) —        —        —   
Contract assets   75    (75 ) —        —        —   
Prepaid expenses, deposits and other current assets   18    (18 ) —        —        —   
Other assets   —    95   —        —        95   
    $ 386    $ —    $ —        $ —        $ 386   
Other assets   —    10   —        —        10   
Property, plant and equipment   171    31   42    (2b)   —        244   
Operating lease right-of-use assets   31    (31 ) —        —        —   
Intangible assets   70    64   3,823    (2b)   —        3,957   
Software, net   64    (64 ) —        —        —   
Equity accounted investments   —    258   153    (2f)   —        411   
Equity investments   258    (258 ) —        —        —   
Goodwill   365    —   964    (2a)   —        1,329   
Other non-current assets   10    (10 ) —        —        —   
Total Assets   $ 1,355    $                   —   $ 4,982        $ —        $ 6,337   
                               
Liabilities and Equity       (2a)   (2a)                  
Current Liabilities                              
Accounts payable and other   $ 62    $ 161   $ 33    (2d)   $ —       $ 256   
Contract liabilities   47    (47 ) —        —       —   
Accrued liabilities   114    (114 ) —        —       —   
    $ 223    $ —   $ 33        $ —       $ 256   
Accounts payable and other   —    101   —        —       101   
Non-recourse borrowings in subsidiaries of the partnership   —    —   —        3,195   (2e)   3,195   
Deferred income tax liabilities   34    —   268    (2c)   —       302   
Operating lease liabilities   24    (24 ) —        —       —   
Long-term license liabilities   24    (24 ) —        —       —   
Pension liabilities   27    (27 ) —        —       —   
Other long-term liabilities   26    (26 ) —        —       —   
    $ 358    $ —   $ 301        $ 3,195       $ 3,854   
Equity                              
Limited partners   $        —    $ 158   $ 741        $ (506 )     $ 393   
Non-controlling interests attributable to:                              
Redemption-Exchange Units, Preferred Shares and Special Limited Partnership Units held by Brookfield Asset Management Inc.   —    141   663        (453 )     351   
Interest of others in operating subsidiaries   —    698   3,277        (2,236 )     1,739   
Total Parent’s equity   997    (997 ) —        —       —   
    $ 997    $ —   $ 4,681        $ (3,195 )     $ 2,483   
    $ 1,355    $                     —   $ 4,982        $ —       $ 6,337   

 

 

 

UNAUDITED PRO FORMA STATEMENTS OF OPERATING RESULTS

 

           Transaction accounting adjustments     
US$ MILLIONS (except as noted)
For the nine months ended September 30, 2021		  Scientific
Games
Lottery
historical		   Reclassification
to conform
presentation		   IFRS 3
adjustments		   Notes  Other   Notes  Scientific
Games
Lottery pro
forma		 
       (2a)   (2a)               
Revenues  $—   $769   $—      $—      $769 
Instant products   504    (504)   —       —       — 
Lottery systems   265    (265)   —       —       — 
Direct operating costs   —    (452)   (91)  (2b)   —       (543)
Cost of instant products   (239)   239    —       —       — 
Cost of lottery systems   (167)   167    —       —       — 
General and administrative expenses   —    (78)   —       —       (78)
Selling, general and administrative   (78)   78    —       —       — 
Research and development   (4)   4    —       —       — 
Restructuring and other   (1)   1    —       —       — 
Depreciation and amortization expense   (42)   42    —       —       — 
Interest income (expense), net   —    —    —       (119)  (2e)   (119)
Equity accounted income (loss), net   —    35    —       —       35 
Earnings (loss) from equity investments   35    (35)   —       —       — 
Other income (expense), net   (5)   (1)   —       —       (6)
Income tax (expense) recovery                               
Deferred   —    (66)   (14)  (2c)   —       (80)
Income tax expense   (66)   66    —       —       — 
Net income (loss)  $202   $—   $(105)     $(119)     $(22)
Attributable to:                               
Parent  $202   $(202)  $—      $—      $— 
Limited partners   —    32    (17)      (19)      (4)
Non-controlling interests attributable to:                               
Redemption-Exchange Units held by Brookfield Asset Management Inc.   —    28    (15)      (17)      (4)
Interest of others in operating subsidiaries   —    142    (73)      (83)      (14)
   $202   $—   $(105)     $(119)     $(22)

 

 

 

 

           Transaction accounting adjustments     
US$ MILLIONS (except as noted)
For the year ended December 31, 2020		  Scientific Games
Lottery historical		   Reclassification
to conform
presentation		   IFRS 3
adjustments		   Notes  Other   Notes  Scientific
Games Lottery
pro forma		 
       (2a)   (2a)               
Revenues  $—   $919   $—      $—      $919 
Instant products   579    (579)   —       —       — 
Lottery systems   340    (340)   —       —       — 
Direct operating costs   —    (517)   —       —       (517)
Cost of instant products   (282)   282    —       —       — 
Cost of lottery systems   (232)   232    —       —       — 
General and administrative expenses   —    (79)   —       —       (79)
Selling, general and administrative   (79)   79    —       —       — 
Research and development   (3)   3    —       —       — 
Restructuring and other   (13)   13    —       —       — 
Depreciation and amortization expense   (62)   —    (122)  (2b)   —       (184)
Interest income (expense), net   —    —    —       (158)  (2e)   (158)
Equity accounted income (loss), net   —    (8)   —       —       (8)
(Loss) earnings from equity investments   (8)   8    —       —       — 
Other income (expense), net   1    (13)   (33)  (2d)   —       (45)
Income tax (expense) recovery                               
Current   —    (69)   —       —       (69)
Deferred   —    1    (18)  (2c)   —       (17)
Income tax expense   (68)   68    —       —       — 
Net income (loss)  $173   $—   $(173)     $(158)     $(158)
Attributable to:                               
Parent  $173   $(173)  $—      $—      $— 
Limited partners   —    28    (28)      (25)      (25)
Non-controlling interests attributable to:                               
Redemption-Exchange Units held by Brookfield Asset Management Inc.   —    24    (24)      (22)      (22)
Interest of others in operating subsidiaries   —    121    (121)      (111)      (111)
   $173   $—   $(173)     $(158)     $(158)

 

See the accompanying notes to the Unaudited Pro Forma Financial Statements

 

 

 

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

(2a)The Scientific Games Lottery acquisition will be accounted for using the acquisition method under IFRS 3, Business combinations with the partnership being identified as the accounting acquirer. The partnership determined there to be no material adjustments to reconcile the combined financial statements of Scientific Games Lottery, prepared under accounting standards generally accepted in the United States (U.S. GAAP), to IFRS as issued by the IASB, with the exception of certain pro forma adjustments that have been made to conform the presentation of the combined financial statements of Scientific Games Lottery prepared under U.S. GAAP to the presentation of financial information in the partnership's financial statements prepared under IFRS. The following table summarizes, on a preliminary basis, the expected cash consideration transferred, assets acquired and liabilities assumed at the acquisition date:

 

(US$ MILLIONS)    
Cash and cash equivalents  $30 
Accounts and other receivable, net   182 
Inventory, net   79 
Other assets   105 
Property, plant and equipment   244 
Equity accounted investments   411 
Intangible assets   3,957 
Accounts payable and other   (324)
Deferred income tax liabilities   (302)
Net identifiable assets acquired  $4,382 
Goodwill   1,329 
Consideration transferred  $5,711 

 

 

The preliminary purchase price allocation used to prepare the transaction accounting adjustments in the Unaudited Pro Forma Statement of Financial Position and the Unaudited Pro Forma Statements of Operating Results is based on various assumptions to determine management’s best estimates of fair value. The partnership expects approximately 75% of goodwill will be deductible for tax purposes. The final purchase price allocation will be determined when the partnership has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below. The final allocation may include (1) changes in fair values of property, plant & equipment; (2) changes in allocations to intangible assets, such as customer relationships and brand, as well as goodwill; and (3) other changes to assets and liabilities. Accordingly, the unaudited pro forma adjustments are preliminary and have been made solely for illustrative purposes.

 

(2b)The fair value adjustment applied to property, plant and equipment is expected to result in an increase to carrying value of $42 million, with an average useful life of 35 years. In addition, the fair value adjustment applied to intangible assets is expected to result in an increase to carrying value of $3,823 million, where total intangible assets, after the fair value adjustment is applied, comprises $2,771 million relating to customer relationship intangibles with an average useful life of 23 years, $1,097 million relating to brand intangibles with an indefinite useful life, and $89 million relating to other intangible assets with an average useful life of 5 years. If the acquisition had occurred on January 1, 2020, depreciation and amortization expense for the nine months ended September 30, 2021 and for the year ended December 31, 2020 would have increased by $91 million and $122 million, respectively.

 

(2c)This adjustment reflects the purchase accounting adjustments to the Scientific Games historical deferred income tax liabilities of $268 million. The Unaudited Pro Forma Statements of Operating Results have been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on an effective tax rate of 26%.

 

(2d)Represents the accrual of $33 million of estimated transaction costs incurred by the partnership subsequent to September 30, 2021. There were no transaction costs included in the historical statement of operating results of the partnership for the nine months ended September 30, 2021. These costs will not affect the partnership’s statement of operating results beyond 12 months after the acquisition date.
   
(2e)Prior to closing the Scientific Games Lottery acquisition, the partnership expects to raise proceeds of $3,300 million of fixed and variable-rate non-recourse borrowings (“New Scientific Games Lottery Non-Recourse Borrowings”) at a weighted-average cost of borrowing of 4.4% and incur debt issuance costs of approximately $105 million, which will be used to partially fund the Scientific Games Lottery acquisition.

 

The borrowing costs presented within interest income (expense), net reflects the borrowing costs on the New Scientific Games Lottery Non-Recourse Borrowings and the amortization of related debt issuance costs of $119 million for the nine months ended September 30, 2021 and $158 million for the year ended December 31, 2020. A 1/8 of a percentage point increase or decrease in the benchmark rate would result in a change in interest expense of approximately $2 million for the nine months ended September 30, 2021 and $3 million for the year ended December 31, 2020.

 

(2f)Reflects an increase of $153 million to equity accounted investments associated with the estimated fair value of investments in associates and joint ventures.