EX-99.3 7 tm2128881d1_ex99-3.htm EXHIBIT 99.3

 

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.

 

 - 1 - 

 

 

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.

 

 - 2 - 

 

 

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.”

 

 - 3 - 

 

 

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.

 

 - 4 - 

 

 

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.

 

 - 5 - 

 

 

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.

 

 - 6 - 

 

 

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 2020 Acquisitions;

 

  • The 2021 Acquisitions;
     
  • The Gamesys Acquisition;

 

  • The Gamesys Financing Transaction; and

 

  • The Equity Offerings.

 

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.

 

 - 7 - 

 

 

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.

 

 - 8 - 

 

 

(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.

 

 - 9 - 

 

 

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.

 

 - 10 - 

 

 

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.

 

 - 11 - 

 

 

   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.

 

 - 12 - 

 

 

 

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.

 

 - 13 - 

 

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.

 

 - 14 - 

 

 

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:

 

 - 15 - 

 

 

      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  

 

 - 16 - 

 

 

(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:

 

 - 17 - 

 

 

(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.

 

 - 18 - 

 

 

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.

 

 - 19 - 

 

 

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  

 

 - 20 - 

 

 

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%.

 

 - 21 - 

 

 

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)

 

 - 22 -