Bally's Corp 8-K/A, filed Aug 2, 2021
Bally's Corp (BALY)
About this 8-K/A
Bally's Corp filed this 8-K/A on August 2, 2021, reporting on events of June 3, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 2, 2021 (
(Exact name of registrant as specified in its charter)
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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EXPLANATORY NOTE
Bally’s Corporation (the “Company”) completed its acquisition of the Tropicana Evansville casino operations (“Tropicana Evansville”) from Caesars Entertainment, Inc. (“Caesars”) on June 3, 2021. This report includes required financial statements and pro forma financial information of Tropicana Evansville and should be read in conjunction with the Company’s June 4, 2021 Current Report on Form 8-K and the Company’s other filings with the Securities Exchange Commission. Information from (1) the unaudited condensed financial statements of Columbia Properties Tahoe, LLC d/b/a MontBleu Resort Casino and Spa, which Bally’s acquired from Caesars on April 6, 2021, and (2) the unaudited interim condensed consolidated financial statements of Gamesys Group plc (“Gamesys”), in each case as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 were included in the pro forma financial information, and such financial statements are filed with this report as Exhibits 99.3 and 99.5, respectively.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of business acquired.
The audited financial statements of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville as of and for the year ended December 31, 2020 and the notes related thereto are filed as Exhibit 99.2 hereto.
The unaudited condensed financial statements of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 and the notes related thereto are filed as Exhibit 99.1 hereto.
(b) Pro forma financial information.
The unaudited pro forma condensed combined balance sheet of the Company as of March 31, 2021 and the unaudited pro forma condensed combined statements of income of the Company for the year ended December 31, 2020 and the three months ended March 31, 2021 and the notes related thereto are filed as Exhibit 99.4 hereto and are incorporated herein by reference.
(d) Exhibits.
The following exhibits are filed herewith:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BALLY'S CORPORATION | ||
| By: | /s/ Stephen H. Capp | |
| Name: | Stephen H. Capp | |
| Title: | Executive Vice President and Chief Financial Officer | |
Date: August 2, 2021
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement Nos. 333-254450 and 333-254448 on Form S-3 and Registration Statement Nos. 333-256435 and 333-230675 on Form S-8 of Bally’s Corporation of our report dated June 8, 2021, relating to the financial statements of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville appearing in this Form 8-K/A of Bally’s Corporation dated August 2, 2021.
/s/ Deloitte & Touche LLP
Las Vegas, NV
August 2, 2021
Exhibit 99.1
Aztar Indiana Gaming Company,
LLC
d/b/a Tropicana Evansville
Condensed Financial Statements as of March 31, 2021 and December 31,
2020 and for the three months ended March 31, 2021 and 2020
(Unaudited)
AZTAR INDIANA GAMING COMPANY, LLC
INDEX TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
| Page | |
| Condensed Balance Sheets | 3 |
| Condensed Statements of Operations | 4 |
| Condensed Statements of Net Parent Investment | 5 |
| Condensed Statements of Cash Flows | 6 |
| Notes to Condensed Financial Statements | 7 |
2
AZTAR INDIANA GAMING COMPANY, LLC
(UNAUDITED)
| (In thousands) | March 31, 2021 | December 31, 2020 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 8,068 | $ | 7,449 | ||||
| Accounts receivable, net | 1,585 | 1,699 | ||||||
| Inventories | 477 | 474 | ||||||
| Prepayments and other current assets | 989 | 1,882 | ||||||
| Total current assets | 11,119 | 11,504 | ||||||
| Property and equipment, net | 297,882 | 299,903 | ||||||
| Goodwill | 9,311 | 9,311 | ||||||
| Gaming rights and other intangibles, net | 135,667 | 136,750 | ||||||
| Deferred charges and other assets | 32,894 | 33,238 | ||||||
| Total assets | $ | 486,873 | $ | 490,706 | ||||
| Liabilities and Net Parent Investment | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 884 | $ | 970 | ||||
| Accrued expenses and other current liabilities | 9,591 | 9,094 | ||||||
| Total current liabilities | 10,475 | 10,064 | ||||||
| Deferred credits and other liabilities | 15,321 | 15,367 | ||||||
| Total liabilities | 25,796 | 25,431 | ||||||
| Commitments and contingencies (Note 5) | ||||||||
| Net parent investment | 461,077 | 465,275 | ||||||
| Total liabilities and net parent investment | $ | 486,873 | $ | 490,706 | ||||
See accompanying Notes to Condensed Financial Statements.
3
AZTAR INDIANA GAMING COMPANY, LLC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Revenues | ||||||||
| Casino | $ | 27,327 | $ | 28,136 | ||||
| Food and beverage | 1,505 | 2,413 | ||||||
| Hotel | 1,509 | 1,667 | ||||||
| Other | 649 | 792 | ||||||
| Net revenues | 30,990 | 33,008 | ||||||
| Operating expenses | ||||||||
| Direct | ||||||||
| Casino | 10,442 | 11,897 | ||||||
| Food and beverage | 1,168 | 2,134 | ||||||
| Hotel | 554 | 698 | ||||||
| Other | 40 | 118 | ||||||
| General and administrative | 5,268 | 6,051 | ||||||
| Depreciation and amortization | 3,130 | 3,470 | ||||||
| Other operating costs | — | 9 | ||||||
| Total operating expenses | 20,602 | 24,377 | ||||||
| Income from operations | 10,388 | 8,631 | ||||||
| Interest income (expense), net | 2 | (7,727 | ) | |||||
| Net income | $ | 10,390 | $ | 904 | ||||
See accompanying Notes to Condensed Financial Statements.
4
AZTAR INDIANA GAMING COMPANY, LLC
CONDENSED STATEMENTS OF NET PARENT INVESTMENT
(UNAUDITED)
| (In thousands) | ||||
| Balance as of January 1, 2020 | $ | 178,140 | ||
| Net income | 904 | |||
| Distributions to parent, net | (13,786 | ) | ||
| Balance as of March 31, 2020 | $ | 165,258 | ||
| Balance as of January 1, 2021 | $ | 465,275 | ||
| Net income | 10,390 | |||
| Distributions to parent, net | (14,588 | ) | ||
| Balance as of March 31, 2021 | $ | 461,077 | ||
See accompanying Notes to Condensed Financial Statements.
5
AZTAR INDIANA GAMING COMPANY, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Cash flows from operating activities | ||||||||
| Cash flows provided by operating activities | $ | 15,244 | $ | 2,567 | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (37 | ) | (736 | ) | ||||
| Cash flows used in investing activities | (37 | ) | (736 | ) | ||||
| Cash flows from financing activities | ||||||||
| Distributions to parent, net | (14,588 | ) | (13,786 | ) | ||||
| Cash flows used in financing activities | (14,588 | ) | (13,786 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 619 | (11,955 | ) | |||||
| Cash and cash equivalents, beginning of period | 7,449 | 11,992 | ||||||
| Cash and cash equivalents, end of period | $ | 8,068 | $ | 37 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | — | $ | 6,937 | ||||
| Non-cash investing and financing activities: | ||||||||
| Payables for capital expenditures | 97 | 1,000 | ||||||
See accompanying Notes to Condensed Financial Statements.
6
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In these notes, the words “Company,” “we,” “our,” and “us” refer to Aztar Indiana Gaming Company, LLC.
Note 1 — Organization and Basis of Presentation
Organization
The Company is a wholly owned subsidiary of Caesars Entertainment, Inc. (“Parent” or “CEI”). Tropicana Evansville (“Evansville”) in Evansville, Indiana, operates under a license issued by the Indiana Gaming Commission (“IGC”), and is subject to the rules and regulations established by the IGC.
Evansville is a large casino hotel and entertainment complex and a popular attraction in Evansville, the third largest city in the state of Indiana. The property serves customers in the tri-state region of southern Indiana, southeastern Illinois and western Kentucky, as well as the Nashville area in Tennessee, and is the only full-service casino within an 85-mile radius. In addition to a casino, the land-based complex contains dining venues, a race and sportsbook, convention space adjacent to the casino, and a Riverfront Event Center located across the street overlooking the Ohio River.
On October 27, 2020, our Parent entered into an agreement to sell the real estate and equity interests of the Company to Gaming and Leisure Properties, Inc. (“GLPI”) and Bally’s Corporation for $480 million, subject to customary working capital adjustments. The transaction closed on June 3, 2021.
Basis of Presentation
Our condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates incorporated into the Company’s condensed financial statements include useful lives for depreciable and amortizable assets, cash flows in assessing goodwill and indefinite-lived intangible assets for impairment and the recoverability of long-lived assets, self-insurance reserves, player loyalty program liabilities, contingencies and litigation, and claims and assessments. Management believes the accounting estimates are appropriate and reasonably determined. Actual amounts could differ from those estimates.
Our condensed financial statements include the accounts of the Company and its subsidiaries after elimination of all intercompany accounts and transactions.
The accompanying condensed financial statements have been prepared from separate records maintained by our Parent and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had been operated as an entity unaffiliated with the Parent. Portions of certain expenses represent allocations from the Parent. See Note 6, “Related Parties.”
Effect of the COVID-19 Public Health Emergency
A novel strain of coronavirus (“COVID-19”) was declared a public health emergency by the United States Department of Health and Human Services on January 31, 2020. On March 13, 2020, the President of the United States issued a proclamation declaring a national emergency concerning COVID-19. As a result of the COVID-19 public health emergency, Parent began to receive directives from various governmental bodies for the closure of certain properties, and consistent with such directives, on March 17, 2020, Parent announced the temporary shutdown of properties in North America. COVID-19 is present in nearly all regions around the world and has resulted in travel restrictions and business slowdowns or shutdowns in affected areas. Evansville reopened to the public June 15, 2020, however, there can be no assurance as to the time required for our operations to recover to levels prior to these closures, or whether future closures related to COVID-19 could occur.
Note 2 — Summary of Significant Accounting Policies
Additional significant accounting policy disclosures are provided within the applicable notes to the condensed financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash maintained for operations.
7
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues markers to approved casino customers following background checks and assessments of creditworthiness. Trade receivables, including casino receivables, are typically non-interest bearing and initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts, historical collection experience and reasonable forecasts which consider current economic and business conditions. As of March 31, 2021 and December 31, 2020, the Company has estimated an allowance for doubtful accounts of $40 thousand and $32 thousand, respectively.
Inventories
Inventories, consisting of food, beverage and gift shop items, are stated at the lower of average cost, using a first-in, first-out basis, or net realizable value.
Self-Insurance Reserves
The Parent is self-insured for various levels of general liability and workers’ compensation coverage, which is provided to us. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. The Parent utilizes independent consultants to assist management in its determination of estimated insurance liabilities. While the total cost of claims incurred depends on future developments, in managements’ opinion, recorded reserves are adequate to cover future claims payments. Self-insurance reserves are included in accrued other liabilities on the balance sheet.
Outstanding Chip Liability
The Company recognizes the impact on gaming revenues on an annual basis to reflect an estimate of the change in the value of outstanding chips that are not expected to be redeemed. This estimate is determined by the difference between the total value of chips placed in service less the value of chips in the inventory of chips under our control. The outstanding chip liability is included in accrued other current liabilities on the balance sheet.
Customer Relationships
The Company offers programs whereby participating customers can accumulate points for wagering that can be redeemed for free play on slot machines, food and beverage, merchandise and, in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the standalone selling price of the points when earned based upon the retail value of the benefits, historical redemption rates and estimated breakage and recognized as departmental revenue based on where such points are redeemed upon fulfillment of the performance obligation. The loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.
Complimentaries
The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the loyalty program. The retail value of complimentary food, beverage, and other services provided to customers is recognized as a reduction to the revenues for the department which issued the complimentary and a credit to the revenue for the department redeemed. Complimentaries provided by third parties at the discretion and under the control of the Company are recorded as an expense when incurred.
The Company’s revenues included complimentaries and loyalty point redemptions totaling $1.7 million for both the three months ended March 31, 2021 and 2020, respectively.
Casino Revenue
The Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives.
8
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Non-gaming Revenue
Hotel, food and beverage and other operating revenues are recognized as services are performed and is the net amount collected from the customer for such goods and services. Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and are recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met. The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.
Advertising Expenses
Advertising costs are expensed in the period the advertising initially takes place and are included in general and administrative expense or casino expense, within operating expenses on the statement of operations. Advertising costs totaled $238 thousand and $792 thousand for the three months ended March 31, 2021 and 2020, respectively.
Income Taxes
The Company is a disregarded entity (single member LLC) of our Parent and does not file separate tax returns and is included in the U.S. and state income tax returns of the consolidated group. Our Parent is ultimately responsible for the taxes payable of the combined group. Tax expense and related payables are not included in the condensed financial statements of the Company.
Note 3 — Property and Equipment
Property and equipment, net is as follows:
| (In thousands) | As of March 31, 2021 | As of December 31, 2020 | ||||||
| Land | $ | 152,706 | $ | 152,706 | ||||
| Buildings and improvements | 148,813 | 148,690 | ||||||
| Furniture, fixtures, and equipment | 18,932 | 18,899 | ||||||
| Construction in progress | 122 | 252 | ||||||
| Total property and equipment | 320,573 | 320,547 | ||||||
| Less: accumulated depreciation | (22,691 | ) | (20,644 | ) | ||||
| Total property and equipment, net | $ | 297,882 | $ | 299,903 | ||||
| Depreciation Expense | Three Months Ended March 31, | |||||||
| (In thousands) | 2021 | 2020 | ||||||
| Depreciation expense | $ | 2,047 | $ | 2,387 | ||||
9
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4 — Goodwill and Intangible Assets, Net
Goodwill and other intangible assets are as follows:
| (In thousands) | As of March 31, 2021 | As of December 31, 2020 | Estimated Useful Life | |||||||
| Goodwill | $ | 9,311 | $ | 9,311 | Indefinite | |||||
| Gaming rights | 121,000 | 121,000 | Indefinite | |||||||
| Trademarks | 12,500 | 12,500 | Indefinite | |||||||
| Customer relationships | 13,000 | 13,000 | 3 years | |||||||
| Subtotal | 146,500 | 146,500 | ||||||||
| Accumulated amortization | (10,833 | ) | (9,750 | ) | ||||||
| Total gaming rights and other intangibles, net | $ | 135,667 | $ | 136,750 | ||||||
Amortization expense with respect to intangible assets for the three months ended March 31, 2021 and 2020, totaled $1.1 million for each period, which is included in depreciation and amortization in the statement of operations.
Gaming rights represent intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate in the jurisdiction. These gaming license rights are not subject to amortization as the Company has determined that they have indefinite useful lives.
Estimated remaining amortization is as follows:
| (In thousands) | Remaining 2021 | |||
| Estimated annual amortization expense | $ | 2,167 | ||
Note 5 — Commitments and Contingencies
The Company is a party to various legal and administrative proceedings, which have arisen in the normal course of its business. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s financial condition and those estimated losses are not expected to have a material impact on its results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount of scope of existing insurance coverage will be sufficient to cover losses arising from such matter. The Company is party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our financial position, results of operations, or cash flows, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.
Note 6 — Related Parties
Net parent investment—Net parent investments arise primarily from cash transfers between the Company and our Parent related to casino operations provided by the Parent on our behalf offset by capital and financing activities.
Management fees and allocated general corporate expenses—The Company had an agreement with the Parent to provide certain management, administrative and corporate services to the Company in exchange for a fee. The Company incurred $1.0 million of management fees for shared services during the three months ended March 31, 2020, which was included in general and administrative expenses in the statement of operations. The agreement was discontinued as of December 31, 2020.
The Company is provided certain administrative and other services, including consulting, legal, marketing, information technology, accounting, and insurance by its Parent, or affiliates, which are reflected in general and administrative expense in the accompanying statement of operations. The Company recorded allocated general corporate expenses and directly billed expenses totaling $36 thousand for the three months ended March 31, 2021.
10
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CEI maintains a centralized treasury function whereby cash is deposited into our operating accounts, or swept from our operating accounts, while maintaining a targeted amount of cash needed for our day to day operations. Receivables from affiliates is the result of excess cash from operations being swept into the centralized company bank accounts. As a result of the sale of CEI’s equity interests, we do not expect to receive payment for excess cash sweeps and have recorded net distributions to Parent of $14.6 million and $13.8 million for the three months ended March 31, 2021 and 2020, respectively.
Note 7 — Retirement Plans
The Parent maintains a defined contribution plan under section 401(k) of the Internal Revenue Code for all employees with certain eligibility requirement as outlined in the plan document. The plan allows employees to defer a portion of their income on a pretax basis. The Company matches contributions equal to 50% of the first 6%. Matching contribution expenses for the three months ended March 31, 2021 and 2020 totaled $57 thousand and $81 thousand, respectively.
Note 8 — Subsequent Events
In preparing these condensed financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through July 30, 2021, the date the Company’s condensed financial statements were available to be issued. Other than those described in Note 1, we noted no items requiring disclosure.
11
Exhibit 99.2
Aztar Indiana Gaming Company,
LLC
d/b/a Tropicana Evansville
Financial Statements as of and for the year ended December 31, 2020, and Independent Auditors’ Report
AZTAR INDIANA GAMING COMPANY, LLC
INDEX TO FINANCIAL STATEMENTS
| Page | |
| Independent Auditors' Report | 3 |
| Balance Sheet | 5 |
| Statement of Operations | 6 |
| Statement of Net Parent Investment | 7 |
| Statement of Cash Flows | 8 |
| Notes to Financial Statements | 9 |
2
 |
 |
To the Member of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville:
We have audited the accompanying financial statements of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville (the "Company"), which comprise the balance sheet as of December 31, 2020, and the related statements of operations, net parent investment and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
3
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aztar Indiana Gaming Company, LLC d/b/a Tropicana Evansville as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
June 8, 2021
4
AZTAR INDIANA GAMING COMPANY, LLC
| (In thousands) | As of December 31, 2020 | |||
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | $ | 7,449 | ||
| Account receivables, net | 1,699 | |||
| Inventories | 474 | |||
| Prepayments and other current assets | 1,882 | |||
| Total current assets | 11,504 | |||
| Property and equipment, net | 299,903 | |||
| Goodwill | 9,311 | |||
| Gaming rights and other intangibles, net | 136,750 | |||
| Deferred charges and other assets | 33,238 | |||
| Total assets | $ | 490,706 | ||
| Liabilities and Net Parent Investment | ||||
| Current liabilities | ||||
| Accounts payable | $ | 970 | ||
| Accrued expenses and other current liabilities | 9,094 | |||
| Total current liabilities | 10,064 | |||
| Deferred credits and other liabilities | 15,367 | |||
| Total liabilities | 25,431 | |||
| Commitments and contingencies (Note 7) | ||||
| Net parent investment | 465,275 | |||
| Total liabilities and net parent investment | $ | 490,706 | ||
See accompanying Notes to Financial Statements.
5
AZTAR INDIANA GAMING COMPANY, LLC
| (In thousands) | Year
Ended December 31, 2020 | |||
| Revenues | ||||
| Casino | $ | 85,824 | ||
| Food and beverage | 5,385 | |||
| Hotel | 4,362 | |||
| Other | 2,260 | |||
| Net revenues | 97,831 | |||
| Operating expenses | ||||
| Direct | ||||
| Casino | 33,420 | |||
| Food and beverage | 4,779 | |||
| Hotel | 1,833 | |||
| Other | 192 | |||
| General and administrative | 22,247 | |||
| Depreciation and amortization | 13,582 | |||
| Total operating expenses | 76,053 | |||
| Income from operations | 21,778 | |||
| Interest expense, net | (29,283 | ) | ||
| Net loss | $ | (7,505 | ) | |
See accompanying Notes to Financial Statements.
6
AZTAR INDIANA GAMING COMPANY, LLC
STATEMENT OF NET PARENT INVESTMENT
| (In thousands) | ||||
| Balance as of January 1, 2020 | $ | 178,140 | ||
| Net loss | (7,505 | ) | ||
| Exchange of financing lease obligation | 303,276 | |||
| Distributions to parent, net | (8,636 | ) | ||
| Balance as of December 31, 2020 | $ | 465,275 | ||
See accompanying Notes to Financial Statements.
7
AZTAR INDIANA GAMING COMPANY, LLC
| (In thousands) | Year
Ended December 31, 2020 | |||
| Cash flows from operating activities | ||||
| Net loss | $ | (7,505 | ) | |
| Adjustments to reconcile net loss to cash flows from operating activities: | ||||
| Depreciation and amortization | 13,582 | |||
| Gain on disposal of property and equipment | (15 | ) | ||
| Non-cash lease amortization | 2,539 | |||
| Change in current assets and liabilities: | ||||
| Account receivables | 201 | |||
| Prepayments and other current assets | (1,133 | ) | ||
| Accounts payable | (406 | ) | ||
| Accrued expenses and other liabilities | (1,805 | ) | ||
| Cash flows provided by operating activities | 5,458 | |||
| Cash flows from investing activities | ||||
| Purchase of property and equipment | (1,365 | ) | ||
| Cash flows used in investing activities | (1,365 | ) | ||
| Cash flows from financing activities | ||||
| Distributions to parent, net | (8,636 | ) | ||
| Cash flows used in financing activities | (8,636 | ) | ||
| Net decrease in cash and cash equivalents | (4,543 | ) | ||
| Cash and cash equivalents, beginning of period | 11,992 | |||
| Cash and cash equivalents, end of period | $ | 7,449 | ||
| Supplemental Cash Flow Information | ||||
| Cash paid for interest | $ | 27,504 | ||
| Non-cash investing and financing activities: | ||||
| Payables for capital expenditures | 109 | |||
| Exchange of financing lease obligation | 303,276 | |||
See accompanying Notes to Financial Statements.
8
AZTAR INDIANA GAMING COMPANY, LLC
In these notes, the words “Company,” “we,” “our,” and “us” refer to Aztar Indiana Gaming Company, LLC.
Note 1 — Organization and Basis of Presentation
Organization
The Company is a wholly owned subsidiary of Caesars Entertainment, Inc. (“Parent” or “CEI”). Tropicana Evansville (“Evansville”) in Evansville, Indiana, operates under a license issued by the Indiana Gaming Commission (“IGC”), and is subject to the rules and regulations established by the IGC.
Evansville is a large casino hotel and entertainment complex and a popular attraction in Evansville, the third largest city in the state of Indiana. The property serves customers in the tri-state region of southern Indiana, southeastern Illinois and western Kentucky, as well as the Nashville area in Tennessee, and is the only full-service casino within an 85-mile radius. In addition to a casino, the land-based complex contains dining venues, a race and sportsbook, convention space adjacent to the casino, and a Riverfront Event Center located across the street overlooking the Ohio River.
On October 27, 2020, our Parent entered into an agreement to sell the real estate and equity interests of the Company to Gaming and Leisure Properties, Inc. (“GLPI”) and Bally’s Corporation, respectively. The transaction closed on June 3, 2021. See Note 3 for further discussion related to the sale.
Basis of Presentation
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates incorporated into the Company’s financial statements include useful lives for depreciable and amortizable assets, cash flows in assessing goodwill and indefinite-lived intangible assets for impairment and the recoverability of long-lived assets, self-insurance reserves, player loyalty program liabilities, contingencies and litigation, and claims and assessments. Management believes the accounting estimates are appropriate and reasonably determined. Actual amounts could differ from those estimates.
Our financial statements include the accounts of the Company and its subsidiaries after elimination of all intercompany accounts and transactions.
The accompanying financial statements have been prepared from separate records maintained by our Parent and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had been operated as an entity unaffiliated with our Parent. Portions of certain expenses represent allocations from our Parent. See Note 8.
Effect of the COVID-19 Public Health Emergency
A novel strain of coronavirus (“COVID-19”) was declared a public health emergency by the United States Department of Health and Human Services on January 31, 2020. On March 13, 2020, the President of the United States issued a proclamation declaring a national emergency concerning COVID-19. As a result of the COVID-19 public health emergency, our Parent began to receive directives from various governmental bodies for the closure of certain properties, and consistent with such directives, on March 17, 2020, our Parent announced the temporary shutdown of properties in North America. COVID-19 is present in nearly all regions around the world and has resulted in travel restrictions and business slowdowns or shutdowns in affected areas. Evansville reopened to the public June 15, 2020, however, there can be no assurance as to the time required for our operations to recover to levels prior to these closures, or whether future closures related to COVID-19 could occur.
Note 2 — Summary of Significant Accounting Policies
Additional significant accounting policy disclosures are provided within the applicable notes to the financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash maintained for operations.
9
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues markers to approved casino customers following background checks and assessments of creditworthiness. Trade receivables, including casino receivables, are typically non-interest bearing and initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts, historical collection experience and reasonable forecasts which consider current economic and business conditions. As of December 31, 2020, the Company has estimated an allowance for doubtful accounts of $32 thousand.
Inventories
Inventories, consisting of food, beverage and gift shop items, are stated at the lower of average cost, using a first-in, first-out basis, or net realizable value.
Self-Insurance Reserves
Our Parent is self-insured for various levels of general liability and workers’ compensation coverage, which is provided to us. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. Our Parent utilizes independent consultants to assist management in its determination of estimated insurance liabilities. While the total cost of claims incurred depends on future developments, in managements’ opinion, recorded reserves are adequate to cover future claims payments. Self-insurance reserves are included in accrued other liabilities on the balance sheet.
Outstanding Chip Liability
The Company recognizes the impact on gaming revenues on an annual basis to reflect an estimate of the change in the value of outstanding chips that are not expected to be redeemed. This estimate is determined by the difference between the total value of chips placed in service less the value of chips in the inventory of chips under our control. The outstanding chip liability is included in accrued other current liabilities on the balance sheet.
Customer Relationships
The Company offers programs whereby participating customers can accumulate points for wagering that can be redeemed for free play on slot machines, food and beverage, merchandise and, in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the standalone selling price of the points when earned based upon the retail value of the benefits, historical redemption rates and estimated breakage and recognized as departmental revenue based on where such points are redeemed upon fulfillment of the performance obligation. The loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.
Complimentaries
The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the loyalty program. The retail value of complimentary food, beverage, and other services provided to customers is recognized as a reduction to the revenues for the department which issued the complimentary and a credit to the revenue for the department redeemed. Complimentaries provided by third parties at the discretion and under the control of the Company are recorded as an expense when incurred.
The Company’s revenues included complimentaries and loyalty point redemptions totaling $4.6 million for the year ended December 31, 2020.
Casino Revenue
The Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives.
10
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Non-gaming Revenue
Hotel, food and beverage and other operating revenues are recognized as services are performed and is the net amount collected from the customer for such goods and services. Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and are recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met. The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.
Advertising Expenses
Advertising costs are expensed in the period the advertising initially takes place and are included in general and administrative expense or casino expense, within operating expenses on the statement of operations. Advertising costs totaled $1.5 million for the year ended December 31, 2020.
Income Taxes
The Company is a disregarded entity (single member LLC) of our Parent and does not file separate tax returns and is included on the U.S. and state income tax returns of the consolidated group. Our Parent is ultimately responsible for the taxes payable of the combined group. Tax expense and related payables are not included in the financial statements of the Company.
Recently Issued Accounting Pronouncements
Pronouncements Implemented in 2020
In June 2016 (modified in November 2018), the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses related to the timing of recognizing impairment losses on financial assets. The new guidance lowers the threshold on when losses are incurred, from a determination that a loss is probable to a determination that a loss is expected. The guidance is effective for interim and annual periods beginning after December 15, 2020. Adoption of the guidance required a modified-retrospective approach and a cumulative adjustment to retained earnings to the first reporting period that the update is effective. The Company adopted the new guidance on January 1, 2020. Adoption of this guidance did not have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This amendment modifies accounting guidelines for income taxes and is effective for annual periods beginning after December 15, 2021 with early adoption allowed. We adopted the new guidance during 2020 on a retrospective basis as allowed per the amendments by electing not to present income taxes in the Company's financial statements. The adoption of this guidance did not have a material impact on the Company’s financial statements.
Note 3 — Leases
The Company’s management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses our Parent’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for operating leases with minimum lease payments is recognized on a straight-line basis over the expected lease term.
The Company’s lease arrangements have lease and non-lease components. For leases in which the Company is the lessee, the Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately. Leases with an expected or initial term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
11
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has operating leases for various real estate and equipment. Certain of the Company’s lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation and rental payments based on usage. The Company’s leases include options to extend the lease term one month to 35 years.
The Company leases a portion of land on which they operate. The lease has a current term ending November 30, 2027, with renewal options through November 30, 2055. Monthly rent payments are due based on a percentage of annual gross revenue, with a minimum of $2 million due annually. Rent is calculated based on graduated percentages ranging from 2% to 10% of gross revenue. The lease required an initial prepayment of $25 million, of which $2.5 million per year is applied as a credit toward the annual payment and will expire in November 2027. In addition, the lease included a construction incentive, which the Company earned in 2018, that allows a credit of $2 million per year to be applied through December 2027.
Leases recorded on the balance sheet consist of the following:
| (In thousands) | Classification on the Balance Sheet | December 31, 2020 | ||||
| ASSETS | ||||||
| Operating lease ROU assets | Deferred charges and other assets | $ | 32,769 | |||
| LIABILITIES | ||||||
| Current operating lease liabilities | Accrued expenses and other current liabilities | 126 | ||||
| Non-current operating lease liabilities | Deferred credits and other liabilities | 14,746 | ||||
Other information related to lease term and discount rate is as follows as of December 31, 2020:
| Weighted Average Remaining Lease Term | 35.28 years | |
| Weighted Average Discount Rate | 7.11% |
The components of lease expense are as follows for the year ended December 31, 2020:
| (In thousands) | Year Ended December 31, 2020 | |||
| Operating lease expense | $ | 1,382 | ||
| Short-term and variable lease expense | 2,143 | |||
| Total lease expense | $ | 3,525 | ||
Supplemental cash flow information related to leases is as follows for the year ended December 31, 2020:
| (In thousands) | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows for operating leases | $ | 280 | ||
12
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Maturities of lease liabilities at December 31, 2020 are summarized as follows:
| (In thousands) | ||||
| Year ending December 31, | ||||
| 2021 | $ | 2,126 | ||
| 2022 | 2,003 | |||
| 2023 | 2,003 | |||
| 2024 | 2,003 | |||
| 2025 | 2,003 | |||
| Thereafter | 59,838 | |||
| Total future minimum lease payments | 69,976 | |||
| Less: amount representing interest | (55,104 | ) | ||
| Present value of future minimum lease payments | 14,872 | |||
| Less: current lease obligations | (126 | ) | ||
| Long-term lease obligation | $ | 14,746 | ||
GLPI Lease
Evansville was subject to the Parent’s master lease with GLPI (the “GLPI Master Lease”), which provided for the lease of land, buildings, structures and other improvements on the land (including barges and riverboats), easements and similar appurtenances to the land and improvements relating to the operation of the leased properties. On October 27, 2020, the Parent’s subsidiaries entered into an exchange agreement with GLPI pursuant to which the subsidiaries agreed to transfer the real estate relating to the Isle Casino Bettendorf and Isle Casino Waterloo to GLPI in exchange for the real estate relating to Evansville. The exchange transaction closed on December 18, 2020 and as a result of the lease being classified as a finance obligation, the exchange was accounted for as a debt modification. As a result of the exchange, the real estate relating to Evansville was removed from the Parent’s GLPI Master Lease, resulting in an increase of $303.3 million in net parent investment.
Note 4 — Property and Equipment
Property and equipment are stated at cost, except for assets which are adjusted to fair value under ASC 805, when applicable. Depreciation is computed using the straight-line method over the estimated useful life of the asset or the term of the lease, whichever is less. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in operating income.
Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:
| Buildings and improvements | 3 to 40 years | |
| Land improvements | 12 to 40 years | |
| Furniture, fixtures and equipment | 3 to 15 years |
The Company evaluates its property and equipment and other long-lived assets for impairment whenever indicators of impairment exist. The Company then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment charge may be recorded based on the estimated fair value. No impairment charge was recorded for the year ended December 31, 2020.
13
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and equipment, net is as follows:
| (In thousands) | As of December 31, 2020 | |||
| Land | $ | 152,706 | ||
| Buildings and improvements | 148,690 | |||
| Furniture, fixtures, and equipment | 18,899 | |||
| Construction in progress | 252 | |||
| Total property and equipment | 320,547 | |||
| Less: accumulated depreciation | (20,644 | ) | ||
| Total property and equipment, net | $ | 299,903 | ||
| Depreciation Expense | |||
| (In thousands) | Year Ended December 31, 2020 | |||
| Depreciation expense | $ | 9,249 | ||
Note 5 — Goodwill and Intangible Assets, Net
Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. Indefinite-lived intangible assets consist of acquired trade names and our gaming license. Indefinite-lived intangible assets are not subject to amortization.
Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment tests as of October 1st of each fiscal year. If the carrying amount of goodwill or an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess amount. As a result of the annual impairment review for goodwill and indefinite-lived intangible assets, no impairment charges were identified.
Amortization is computed using the straight-line method over the estimated useful life of the asset. The Company evaluates for impairment whenever indicators of impairment exist. When indicators are noted, the Company then compares the estimated undiscounted future cash flows to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is recorded. No impairment charge was recorded for the year ended December 31, 2020.
Goodwill and other intangible assets are as follows:
| (In thousands) | As of December 31, 2020 | Estimated Useful Life | ||||
| Goodwill | $ | 9,311 | Indefinite | |||
| Gaming rights | 121,000 | Indefinite | ||||
| Trademarks | 12,500 | Indefinite | ||||
| Customer relationships | 13,000 | 3 years | ||||
| Subtotal | 146,500 | |||||
| Accumulated amortization | (9,750 | ) | ||||
| Total gaming rights and other intangibles, net | $ | 136,750 | ||||
Amortization expense with respect to intangible assets for the year ended December 31, 2020 totaled $4.3 million, which is included in depreciation and amortization in the statement of operations.
Gaming rights represent intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate in the jurisdiction. These gaming license rights are not subject to amortization as the Company has determined that they have indefinite useful lives.
14
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Estimated remaining amortization is as follows:
| (In thousands) | Year Ending December 31, 2021 | |||
| Estimated annual amortization expense | $ | 3,250 | ||
Note 6 — Accrued Expenses and Other Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
| (In thousands) | December 31, 2020 | |||
| Payroll and other compensation | $ | 750 | ||
| Accrued taxes | 6,440 | |||
| Self-insurance | 141 | |||
| Outstanding chip and progressive jackpots liability | 1,215 | |||
| Advance deposits | 61 | |||
| Operating lease liability | 126 | |||
| Other accruals | 361 | |||
| Total accrued expenses and other current liabilities | $ | 9,094 | ||
Note 7 — Commitments and Contingencies
The Company is a party to various legal and administrative proceedings, which have arisen in the normal course of its business. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s financial condition and those estimated losses are not expected to have a material impact on its results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount of scope of existing insurance coverage will be sufficient to cover losses arising from such matter. The Company is party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our financial position, results of operations, or cash flows, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.
Note 8 — Related Parties
Net parent investment—Net parent investments arise primarily from cash transfers between the Company and our Parent related to casino operations offset by capital and financing activities provided by the Parent on our behalf.
Management fees and allocated general corporate expenses—The Company has an agreement with our Parent to provide certain management, administrative and corporate services to the Company in exchange for a fee. The Company incurred $3.0 million of management fees for shared services during the year ended December 31, 2020, which was included in general and administrative expenses in the statement of operations. The agreement was discontinued as of December 31, 2020.
The Company is provided certain administrative and other services, including consulting, legal, marketing, information technology, accounting, and insurance by its Parent, or affiliates, which are reflected in general and administrative expense in the accompanying statement of operations. The Company recorded allocated general corporate expenses and directly billed expenses totaling $1.1 million for the year ended December 31, 2020.
CEI maintains a centralized treasury function whereby cash is deposited into our operating accounts, or swept from our operating accounts, while maintaining a targeted amount of cash needed for our day to day operations. Receivables from affiliates is the result of excess cash from operations being swept into the centralized company bank accounts. As a result of the sale of CEI’s equity interests, we do not expect to receive payment for excess cash sweeps and have recorded net distributions to Parent of $8.6 million for the year ended December 31, 2020.
15
AZTAR INDIANA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 9 — Retirement Plans
Our Parent maintains a defined contribution plan under section 401(k) of the Internal Revenue Code for all employees with certain eligibility requirement as outlined in the plan document. The plan allows employees to defer a portion of their income on a pretax basis. The Company matches contributions equal to 50% of the first 6%. Matching contribution expenses for the year ended December 31, 2020 was $192 thousand.
Note 10 — Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through June 8, 2021, the date the Company’s financial statements were available to be issued.
16
Exhibit 99.3
Columbia Properties Tahoe, LLC
d/b/a MontBleu Casino Resort & Spa
Consolidated Condensed Financial Statements as of March 31, 2021
and
December 31, 2020 and for the three months ended March 31, 2021
(Unaudited)
COLUMBIA PROPERTIES TAHOE, LLC
INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
| Page | |
| Consolidated Condensed Balance Sheet | 3 |
| Consolidated Condensed Statements of Operations | 4 |
| Consolidated Condensed Statements of Net Parent Investment | 5 |
| Consolidated Condensed Statements of Cash Flows | 6 |
| Notes to Consolidated Condensed Financial Statements | 7 |
2
COLUMBIA PROPERTIES TAHOE, LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
| (In thousands) | March 31, 2021 | December 31, 2020 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 2,160 | $ | 2,494 | ||||
| Accounts receivable, net | 1,696 | 1,370 | ||||||
| Inventories | 524 | 537 | ||||||
| Prepayments and other current assets | 994 | 1,271 | ||||||
| Total current assets | 5,374 | 5,672 | ||||||
| Property and equipment, net | 55,669 | 56,259 | ||||||
| Goodwill | 5 | 5 | ||||||
| Intangible assets | 4,301 | 4,368 | ||||||
| Deferred charges and other assets | 41,284 | 41,644 | ||||||
| Total assets | $ | 106,633 | $ | 107,948 | ||||
| Liabilities and Net Parent Investment | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 496 | $ | 661 | ||||
| Accrued expenses and other current liabilities | 2,659 | 2,813 | ||||||
| Total current liabilities | 3,155 | 3,474 | ||||||
| Deferred credits and other liabilities | 65,868 | 66,226 | ||||||
| Total liabilities | 69,023 | 69,700 | ||||||
| Commitments and contingencies (Note 5) | ||||||||
| Net parent investment | 37,610 | 38,248 | ||||||
| Total liabilities and net parent investment | $ | 106,633 | $ | 107,948 | ||||
See accompanying Notes to Consolidated Condensed Financial Statements.
3
COLUMBIA PROPERTIES TAHOE, LLC
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Revenues | ||||||||
| Casino | $ | 4,396 | $ | 2,721 | ||||
| Food and beverage | 1,704 | 2,312 | ||||||
| Hotel | 3,780 | 2,624 | ||||||
| Other | 679 | 960 | ||||||
| Net revenues | 10,559 | 8,617 | ||||||
| Operating expenses | ||||||||
| Direct | ||||||||
| Casino | 1,948 | 2,003 | ||||||
| Food and beverage | 1,073 | 1,890 | ||||||
| Hotel | 819 | 922 | ||||||
| Other | 107 | 555 | ||||||
| General and administrative | 3,179 | 3,782 | ||||||
| Depreciation and amortization | 1,063 | 1,238 | ||||||
| Total operating expenses | 8,189 | 10,390 | ||||||
| Net income (loss) | $ | 2,370 | $ | (1,773 | ) | |||
See accompanying Notes to Consolidated Condensed Financial Statements.
4
COLUMBIA PROPERTIES TAHOE, LLC
CONSOLIDATED CONDENSED STATEMENTS OF NET PARENT INVESTMENT
(UNAUDITED)
| (In thousands) | ||||
| Balance as of January 1, 2020 | $ | 40,701 | ||
| Net loss | (1,773 | ) | ||
| Distributions to parent, net | (2,345 | ) | ||
| Balance as of March 31, 2020 | $ | 36,583 | ||
| Balance as of January 1, 2021 | $ | 38,248 | ||
| Net income | 2,370 | |||
| Distributions to parent, net | (3,008 | ) | ||
| Balance as of March 31, 2021 | $ | 37,610 | ||
See accompanying Notes to Consolidated Condensed Financial Statements.
5
COLUMBIA PROPERTIES TAHOE, LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2021 | 2020 | ||||||
| Cash flows from operating activities | ||||||||
| Cash flows provided by (used in) operating activities | $ | 3,008 | $ | (584 | ) | |||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (334 | ) | (56 | ) | ||||
| Cash flows used in investing activities | (334 | ) | (56 | ) | ||||
| Cash flows from financing activities | ||||||||
| Distributions to parent, net | (3,008 | ) | (2,345 | ) | ||||
| Cash flows used in financing activities | (3,008 | ) | (2,345 | ) | ||||
| Net decrease in cash and cash equivalents | (334 | ) | (2,985 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,494 | 3,085 | ||||||
| Cash and cash equivalents, end of period | $ | 2,160 | $ | 100 | ||||
See accompanying Notes to Consolidated Condensed Financial Statements.
6
COLUMBIA PROPERTIES TAHOE LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In these notes, the words “Company,” “we,” “our,” and “us” refer to Columbia Properties Tahoe, LLC.
Note 1 — Organization and Basis of Presentation
Organization
The Company is a wholly owned subsidiary of Caesars Entertainment, Inc. (“Parent” or “CEI”). The Company and its wholly owned subsidiary MB Development, LLC, operate MontBleu Casino Resort & Spa (“MontBleu”) in Stateline, Nevada, under a license issued by the Nevada Gaming Commission (“NGC”), and is subject to the rules and regulations established by the NGC.
MontBleu is situated on approximately 21 acres in South Lake Tahoe, Nevada surrounded by the Sierra Nevada Mountains. In addition to a casino, the property offers a race and sportsbook, a hotel, restaurants and various non-gaming amenities, including retail shops, nightclubs, a showroom, meeting and convention space, a parking garage, a full-service health spa and workout area, an indoor heated lagoon-style pool with whirlpool and a wedding chapel. MontBleu’s primary feeder markets include Northern California, the Reno area and the Pacific Northwest.
On April 24, 2020, our Parent entered into an agreement to sell the Company to Bally’s Corporation. On April 6, 2021, Parent consummated the sale of equity interests of MontBleu for $15 million, subject to a customary working capital adjustment. The purchase price for MontBleu is due no later than the first anniversary of the consummation of the transaction.
Basis of Presentation
Our consolidated condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates incorporated into the Company’s consolidated financial statements include useful lives for depreciable and amortizable assets, cash flows in assessing goodwill and indefinite-lived intangible assets for impairment and the recoverability of long-lived assets, self-insurance reserves, player loyalty program liabilities, contingencies and litigation, and claims and assessments. Management believes the accounting estimates are appropriate and reasonably determined. Actual amounts could differ from those estimates.
Our consolidated condensed financial statements include the accounts of the Company and its subsidiaries after elimination of all intercompany accounts and transactions.
The accompanying consolidated condensed financial statements have been prepared from separate records maintained by our Parent and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had been operated as entities unaffiliated with the Parent. Portions of certain expenses represent allocations from the Parent. See Note 6, “Related Parties.”
Effect of the COVID-19 Public Health Emergency
A novel strain of coronavirus (“COVID-19”) was declared a public health emergency by the United States Department of Health and Human Services on January 31, 2020. On March 13, 2020, the President of the United States issued a proclamation declaring a national emergency concerning COVID-19. As a result of the COVID-19 public health emergency, Parent began to receive directives from various governmental bodies for the closure of certain properties, and consistent with such directives, on March 17, 2020, Parent announced the temporary shutdown of properties in North America. COVID-19 is present in nearly all regions around the world and has resulted in travel restrictions and business slowdowns or shutdowns in affected areas. MontBleu reopened to the public June 4, 2020, however, there can be no assurance as to the time required for our operations to recover to levels prior to these closures, or whether future closures related to COVID-19 could occur.
Note 2 — Summary of Significant Accounting Policies
Additional significant accounting policy disclosures are provided within the applicable notes to the consolidated condensed financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash maintained for gaming operations.
7
COLUMBIA PROPERTIES TAHOE LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues markers to approved casino customers following background checks and assessments of creditworthiness. Trade receivables, including casino receivables, are typically non-interest bearing and initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts, historical collection experience and reasonable forecasts which consider current economic and business conditions. As of March 31, 2021 and December 31, 2020, the Company has estimated an allowance for doubtful accounts of $8 thousand and $55 thousand, respectively.
Inventories
Inventories, consisting of food, beverage and gift shop items, are stated at the lower of average cost, using a first-in, first-out basis, or net realizable value.
Self-Insurance Reserves
The Parent is self-insured for various levels of general liability and workers’ compensation coverage, which is provided to us. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. The Parent utilizes independent consultants to assist management in its determination of estimated insurance liabilities. While the total cost of claims incurred depends on future developments, in managements’ opinion, recorded reserves are adequate to cover future claims payments. Self-insurance reserves are included in accrued other liabilities on the consolidated condensed balance sheet.
Outstanding Chip Liability
The Company recognizes the impact on gaming revenues on an annual basis to reflect an estimate of the change in the value of outstanding chips that are not expected to be redeemed. This estimate is determined by the difference between the total value of chips placed in service less the value of chips in the inventory of chips under our control. The outstanding chip liability is included in accrued other current liabilities on the consolidated condensed balance sheet.
Customer Relationships
The Company offers programs whereby participating customers can accumulate points for wagering that can be redeemed for free play on slot machines, food and beverage, merchandise and, in limited situations, cash. The incentives earned by customers under these programs are based on previous revenue transactions and represent separate performance obligations. Points earned, less estimated breakage, are recorded as a reduction of casino revenues at the standalone selling price of the points when earned based upon the retail value of the benefits, historical redemption rates and estimated breakage and recognized as departmental revenue based on where such points are redeemed upon fulfillment of the performance obligation. The loyalty program liability represents a deferral of revenue until redemption occurs, which is typically less than one year.
Complimentaries
The Company offers discretionary coupons and other discretionary complimentaries to customers outside of the loyalty program. The retail value of complimentary food, beverage, and other services provided to customers is recognized as a reduction to the revenues for the department which issued the complimentary and a credit to the revenue for the department redeemed. Complimentaries provided by third parties at the discretion and under the control of the Company are recorded as an expense when incurred.
The Company’s revenues included complimentaries and loyalty point redemptions totaling $1.1 million and $1.5 million for the three months ended March 31, 2021 and 2020, respectively.
Casino Revenue
The Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses, not the total amount wagered. Progressive jackpots are accrued and charged to revenue at the time the obligation to pay the jackpot is established. Gaming revenues are recognized net of certain cash and free play incentives.
8
COLUMBIA PROPERTIES TAHOE LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Non-gaming Revenue
Hotel, food and beverage and other operating revenues are recognized as services are performed and is the net amount collected from the customer for such goods and services. Hotel, food and beverage services have been determined to be separate, stand-alone performance obligations and are recorded as revenue as the good or service is transferred to the customer over the customer’s stay at the hotel or when the delivery is made for the food and beverage. Advance deposits for future hotel occupancy, convention space or food and beverage services contracts are recorded as deferred income until the revenue recognition criteria has been met. The Company also provides goods and services that may include multiple performance obligations, such as for packages, for which revenues are allocated on a pro rata basis based on each service's stand-alone selling price.
Advertising Expenses
Advertising costs are expensed in the period the advertising initially takes place and are included in general and administrative expense or casino expense, within operating expenses on the statement of operations. Advertising costs totaled $110 thousand and $224 thousand for the three months ended March 31, 2021 and 2020, respectively.
Income Taxes
The Company is a disregarded entity (single member LLC) of our Parent. The Company does not file separate tax returns and is included in the U.S. and state income tax returns as part of the consolidated group. Our Parent is ultimately responsible for the taxes payable of the combined group, as such, tax expense and related payables are not included in the consolidated condensed financial statement of the Company.
Note 3 — Property and Equipment
Property and equipment, net is as follows:
| (In thousands) | As of March 31, 2021 | As of December 31, 2020 | ||||||
| Land | $ | 1,027 | $ | 1,027 | ||||
| Buildings and improvements | 51,226 | 50,970 | ||||||
| Furniture, fixtures, and equipment | 14,073 | 13,824 | ||||||
| Construction in progress | 272 | 371 | ||||||
| Total property and equipment | 66,598 | 66,192 | ||||||
| Less: accumulated depreciation | (10,929 | ) | (9,933 | ) | ||||
| Total property and equipment, net | $ | 55,669 | $ | 56,259 | ||||
| Depreciation Expense | Three Months Ended March 31, | |||||||
| (In thousands) | 2021 | 2020 | ||||||
| Depreciation expense | $ | 996 | $ | 747 | ||||
9
COLUMBIA PROPERTIES TAHOE LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4 — Goodwill and Intangible Assets, Net
Goodwill and intangible assets, net, is as follows:
| (In thousands) | As of March 31, 2021 | As of December 31, 2020 | Estimated Useful Life | |||||||
| Goodwill | $ | 5 | $ | 5 | Indefinite | |||||
| Gaming licenses | 568 | 568 | Indefinite | |||||||
| Trademarks | 3,600 | 3,600 | Indefinite | |||||||
| Customer relationships | 800 | 800 | 3 years | |||||||
| Subtotal | 4,968 | 4,968 | ||||||||
| Accumulated amortization | (667 | ) | (600 | ) | ||||||
| Total gaming licenses and other intangible assets, net | $ | 4,301 | $ | 4,368 | ||||||
Amortization expense with respect to intangible assets for the three months ended March 31, 2021 and 2020, totaled $67 thousand and $22 thousand, respectively, which is included in depreciation and amortization in the consolidated condensed statement of operations.
Gaming licenses represent intangible assets acquired from the purchase of a gaming entity located in a gaming jurisdiction where competition is limited, such as when only a limited number of gaming operators are allowed to operate in the jurisdiction. These gaming license rights are not subject to amortization as the Company has determined that they have indefinite useful lives.
Estimated remaining amortization is as follows:
| Remaining | ||||
| (In thousands) | 2021 | |||
| Estimated annual amortization expense | $ | 133 | ||
Note 5 — Commitments and Contingencies
The Company is a party to various legal and administrative proceedings, which have arisen in the normal course of its business. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s financial condition and those estimated losses are not expected to have a material impact on its results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount of scope of existing insurance coverage will be sufficient to cover losses arising from such matter. The Company is party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our financial position, results of operations, or cash flows, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.
Note 6 — Related Parties
Net parent investment—Net parent investments primarily arise from cash transfers between the Company and the Parent related to casino operations provided by the Parent on our behalf offset by capital and financing activities.
Management fees and allocated general corporate expenses—The Company has an agreement with the Parent to provide certain management, administrative and corporate services to the Company in exchange for a fee. The Company did not incur an expense for shared services during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company incurred $186 thousand of management fees for shared services, which was included in general and administrative expenses in the consolidated condensed statement of operations.
| 10 |
COLUMBIA PROPERTIES TAHOE LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CEI maintains a centralized treasury function whereby cash is deposited into our operating accounts, or swept from our operating accounts, while maintaining a targeted amount of cash needed for our day to day operations. Receivables from affiliates is the result of excess cash from operations being swept into the centralized company bank accounts. As a result of the sale of CEI’s equity interests, we do not expect to receive payment for excess cash sweeps and have recorded net distributions to Parent of $3.0 million and $2.3 million for the three months ended March 31, 2021 and 2020, respectively.
Note 7 — Retirement Plans
The Parent maintains a defined contribution plan under section 401(k) of the Internal Revenue Code for all employees with certain eligibility requirement as outlined in the plan document. The plan allows employees to defer a portion of their income on a pretax basis. The Company matches contributions equal to 50% of the first 6%. Matching contribution expenses for the three months ended March 31, 2021 and 2020 totaled $24 thousand and $49 thousand, respectively.
Note 8 — Subsequent Events
In preparing these consolidated condensed financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through July 30, 2021, the date the Company’s consolidated condensed financial statements were available to be issued. Other than those described in Note 1, we noted no items requiring disclosure.
| 11 |
Exhibit 99.4
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 “Corporation”), the Acquired Companies (as defined below) and Gamesys Group plc (“Gamesys”), after giving effect to the acquisitions of the Acquired Companies (specifically, the “2020 Acquisitions” and the “2021 Acquisitions” (as defined below)), and the Company’s planned acquisition of 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 three months ended March 31, 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 March 31, 2021 gives effect to the 2021 Acquisitions, the Gamesys Acquisition, the Gamesys Financing Transaction, and the Equity Offerings as if each of them had occurred on March 31, 2021.
The Unaudited Pro Forma Financial Information set out below have been prepared in accordance with Article 11 of Regulation S-X, as amended by the Securities and Exchange Commission (“SEC”) Final Rule Release No. 33 10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses 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 three months ended March 31, 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 IOC-Kansas City, Inc. (“Casino KC”) 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 existing debt agreements.
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 existing debt agreements.
The acquisitions of Casino KC, 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 completed its acquisition of MontBleu from Caesars 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. The Company notes that this acquisition will be funded with available cash on hand or available borrowings under the Company’s existing debt agreements when due in April 2022.
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 MontBleu 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. Under the terms of the Gamesys Acquisition, Gamesys shareholders would be entitled to receive 1,850 pence in cash for each share of Gamesys or, under a share alternative, Gamesys shareholders would be able to elect to receive newly issued common shares of the Company in lieu of part or all of the cash consideration to which they would be entitled to elect to receive under the Gamesys Acquisition at an exchange ratio of 0.343 new Bally’s common shares for each Gamesys share. Current shareholders holding an aggregate amount of 25% of Gamesys’ shares have agreed to receive shares of Bally’s stock in the Gamesys Acquisition, so the minimum number of shares to be issued, per agreement with certain shareholders, is 9,605,201 which is the number of shares assumed to be issued for purposes of this Unaudited Pro Forma Financial Information. An increase in the number of shares issued could materially impact the Unaudited Pro Forma Financial Information. 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, two of the Company’s unrestricted subsidiaries, as escrow issuers, are conducting a private placement of $2.0 billion in senior notes, consisting of two series of senior notes, $1.0 billion of senior notes due 2029 and $1.0 billion of senior notes due 2031 (collectively, the “notes”). Substantially concurrently with the consummation of this offering, the Company will obtain a commitment, subject to satisfaction of customary closing conditions, for the New Credit Facilities (defined below). Substantially concurrently with the closing date of the Gamesys Acquisition, (i) the Company is expected to assume the rights and obligations under the notes and enter into a new credit agreement, which will provide for a term loan facility in an aggregate principal amount of $1.445 billion (the “New Term Loan Facility”) and a revolving credit facility in an aggregate principal amount of up to $600 million (the “New Revolving Credit Facility” and together with the New Term Loan Facility, the “New Credit Facilities”), which is expected to be undrawn at closing of the Gamesys Acquisition.
- 2 -
After the closing of the Gamesys Acquisition and the release from escrow of the proceeds of this offering, the Company intends to use proceeds from this offering of the notes, 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 Existing Term Loan Facility, (c) repay the outstanding revolving borrowings under the existing revolving credit facility, (d) redeem in full all of the existing 6.75% Senior Notes due 2027, together with all accrued interest, fees and premiums thereon; (ii) to pay fees and expenses related to the foregoing; and (iii) general corporate purposes, which could include, in addition to funding operations, acquisitions and other transactions.
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.
Unregistered Sales 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 Unregistered Sales of Equity Securities are collectively referred to as the “Equity Offerings.”
- 3 -
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2021
| Pro forma adjustments | ||||||||||||||||||||||||||||||||||||
| (In thousands) | Bally’s
Historical (Note 2) | 2021
Acquisitions pre-acquisition results and reclassifications (Note 5) | 2021 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 | ||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 151,653 | $ | 10,228 | $ | (9,349 | ) | 6(a) | $ | 344,912 | $ | (3,995,363 | ) | 8(a) | $ | 3,394,713 | 9(a) | $ | 671,399 | 10(a) | $ | 568,193 | ||||||||||||||
| Restricted cash | 3,818 | - | - | - | - | - | - | 3,818 | ||||||||||||||||||||||||||||
| Players deposit | - | - | - | 39,866 | - | - | - | 39,866 | ||||||||||||||||||||||||||||
| Accounts receivable, net | 24,894 | 3,281 | - | 53,063 | - | - | - | 81,238 | ||||||||||||||||||||||||||||
| Inventory | 10,784 | 1,001 | - | - | - | - | - | 11,785 | ||||||||||||||||||||||||||||
| Tax receivable | 82,417 | - | 884 | 6(c) | - | 4,962 | 8(b) | - | 20,818 | 10(b) | 109,081 | |||||||||||||||||||||||||
| Prepaid expenses and other current assets | 52,543 | 1,983 | - | 687 | - | - | - | 55,213 | ||||||||||||||||||||||||||||
| Total current assets | 326,109 | 16,493 | (8,465 | ) | 438,528 | (3,990,401 | ) | 3,394,713 | 692,217 | 869,194 | ||||||||||||||||||||||||||
| Property and equipment, net | 753,601 | 353,551 | (425,453 | ) | 6(d) | 12,647 | - | - | - | 694,346 | ||||||||||||||||||||||||||
| Right of use assets, net | 36,341 | 41,284 | 420,690 | 6(e) | 29,144 | - | - | - | 527,459 | |||||||||||||||||||||||||||
| Goodwill, net | 289,729 | 9,316 | (9,316 | ) | 6(f) | 720,068 | 1,069,841 | 8(a) | - | - | 2,079,638 | |||||||||||||||||||||||||
| Intangible assets, net | 726,991 | 139,968 | 19,672 | 6(g) | 534,483 | 1,068,482 | 8(c) | - | - | 2,489,596 | ||||||||||||||||||||||||||
| Deferred tax assets | - | - | - | 17,871 | - | - | - | 17,871 | ||||||||||||||||||||||||||||
| Other assets | 6,029 | 32,894 | - | 6,875 | - | - | - | 45,798 | ||||||||||||||||||||||||||||
| Total assets | $ | 2,138,800 | $ | 593,506 | $ | (2,872 | ) | $ | 1,759,616 | $ | (1,852,078 | ) | $ | 3,394,713 | $ | 692,217 | $ | 6,723,902 | ||||||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||||||||||||||||||
| Current portion of long-term debt | $ | 5,750 | $ | - | $ | - | $ | - | $ | (5,750 | ) | 8(f) | $ | 14,450 | 9(b) | $ | - | $ | 14,450 | |||||||||||||||||
| Current portion of lease obligations | 1,578 | 550 | 18,454 | 6(h) | 8,111 | - | - | - | 28,693 | |||||||||||||||||||||||||||
| Current portion of cross currency and interest rate swap payable | - | - | - | 9,348 | - | - | - | 9,348 | ||||||||||||||||||||||||||||
| Accounts payable | 23,732 | 1,380 | - | 17,596 | - | - | - | 42,708 | ||||||||||||||||||||||||||||
| Payable to players | - | - | - | 39,866 | - | - | - | 39,866 | ||||||||||||||||||||||||||||
| Accrued liabilities | 131,850 | 11,700 | 32,130 | 6(i) | 154,929 | 26,119 | 8(d) | - | - | 356,728 | ||||||||||||||||||||||||||
| Total current liabilities | 162,910 | 13,630 | 50,584 | 229,850 | 20,369 | 14,450 | - | 491,793 | ||||||||||||||||||||||||||||
| Long-term debt, net of current portion | 1,128,599 | - | - | 676,352 | (1,804,951 | ) | 8(f) | 3,380,263 | 9(b) | - | 3,380,263 | |||||||||||||||||||||||||
| Lease obligations, net of current portion | 62,720 | 65,868 | 373,012 | 6(j) | 22,408 | - | - | - | 524,008 | |||||||||||||||||||||||||||
| Pension benefit obligations | 8,941 | - | - | - | - | - | - | 8,941 | ||||||||||||||||||||||||||||
| Deferred tax liability | 30,642 | - | - | 58,562 | 246,001 | 8(h) | - | - | 335,205 | |||||||||||||||||||||||||||
| Naming rights liabilities | 219,867 | - | - | - | - | - | - | 219,867 | ||||||||||||||||||||||||||||
| Contingent consideration payable | 55,543 | - | - | - | - | - | - | 55,543 | ||||||||||||||||||||||||||||
| Other long-term liabilities | 14,881 | 15,321 | - | 27,219 | - | - | - | 57,421 | ||||||||||||||||||||||||||||
| Total liabilities | $ | 1,684,103 | $ | 94,819 | $ | 423,596 | $ | 1,014,391 | $ | (1,538,581 | ) | $ | 3,394,713 | $ | - | $ | 5,073,041 | |||||||||||||||||||
| Shareholders’ equity | ||||||||||||||||||||||||||||||||||||
| Common stock | 318 | - | - | 15,122 | (15,026 | ) | 8(i) | - | 106 | 10(c) | $ | 520 | ||||||||||||||||||||||||
| Additional paid-in capital | 434,457 | 389,308 | (389,308 | ) | 6(k) | 13,609 | 439,180 | 8(i) | - | 745,644 | 10(d) | 1,632,890 | ||||||||||||||||||||||||
| Treasury stock, at cost | (9 | ) | - | - | - | - | - | - | (9 | ) | ||||||||||||||||||||||||||
| Retained earnings | 24,087 | 109,379 | (37,160 | ) | 6(k) | 371,719 | (392,876 | ) | 8(i) | - | (53,533 | ) | 10(e) | 21,616 | ||||||||||||||||||||||
| Other Reserves | - | - | - | 344,775 | (344,775 | ) | 8(i) | - | - | - | ||||||||||||||||||||||||||
| Accumulated other comprehensive loss | (4,156 | ) | - | - | - | - | - | - | (4,156 | ) | ||||||||||||||||||||||||||
| Total shareholders’ equity | 454,697 | 498,687 | (426,468 | ) | 745,225 | (313,497 | ) | - | 692,217 | 1,650,861 | ||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 2,138,800 | $ | 593,506 | $ | (2,872 | ) | $ | 1,759,616 | $ | (1,852,078 | ) | $ | 3,394,713 | $ | 692,217 | $ | 6,723,902 | ||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Financial Information, which are an integral part of these statements.
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Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2021
| Pro forma adjustments | |||||||||||||||||||||||||||||||||||
| (In thousands, except for shares and share price) | Bally’s
Historical (Note 2) | 2021
Acquisitions pre-acquisition results and reclassifications (Note 5) | 2021
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 | $ | 192,266 | $ | 41,549 | $ | - | $ | 272,800 | $ | - | $ | - | $ | - | $ | 506,615 | |||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | 66,409 | 16,151 | - | 148,536 | - | - | - | 231,096 | |||||||||||||||||||||||||||
| Advertising, general and administrative | 83,339 | 8,447 | 11,740 | 6(l) | 48,409 | - | - | - | 151,935 | ||||||||||||||||||||||||||
| Goodwill and asset impairment | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Expansion and pre-opening | 603 | - | - | - | - | - | - | 603 | |||||||||||||||||||||||||||
| Acquisition, integration and restructuring expense | 9,418 | - | - | 3,724 | (2,483 | ) | 8(d) | - | - | 10,659 | |||||||||||||||||||||||||
| Storm related losses, net of insurance recoveries | (10,676 | ) | - | - | - | - | - | - | (10,676 | ) | |||||||||||||||||||||||||
| Rebranding | 913 | - | - | - | - | - | - | 913 | |||||||||||||||||||||||||||
| Depreciation and amortization | 12,786 | 4,193 | (3,341 | ) | 6(n),(o) | 31,997 | 11,154 | 8(e) | - | - | 56,789 | ||||||||||||||||||||||||
| Foreign Exchange Gain/Loss | - | - | - | (5,793 | ) | - | - | - | (5,793 | ) | |||||||||||||||||||||||||
| Total operating costs and expenses | 162,792 | 28,791 | 8,399 | 226,873 | 8,671 | - | - | 435,526 | |||||||||||||||||||||||||||
| Income (loss) from operations | 29,474 | 12,758 | (8,399 | ) | 45,927 | (8,671 | ) | - | - | 71,089 | |||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||
| Interest income | 524 | 2 | - | 138 | - | - | - | 664 | |||||||||||||||||||||||||||
| Interest expense, net of amounts capitalized | (20,798 | ) | - | - | (7,034 | ) | 27,832 | 8(f) | (41,227 | ) | 9(c) | - | (41,227 | ) | |||||||||||||||||||||
| Change in value of naming rights liabilities | (27,406 | ) | - | - | - | - | - | - | (27,406 | ) | |||||||||||||||||||||||||
| Gain on bargain purchases | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Other, net | 2,671 | - | - | - | - | - | - | 2,671 | |||||||||||||||||||||||||||
| Total other expense | (45,009 | ) | 2 | - | (6,896 | ) | 27,832 | (41,227 | ) | - | (65,298 | ) | |||||||||||||||||||||||
| Income (loss) before provision for income taxes | (15,535 | ) | 12,760 | (8,399 | ) | 39,031 | 19,161 | (41,227 | ) | - | 5,791 | ||||||||||||||||||||||||
| Provision (Benefit) for income taxes | (4,830 | ) | - | (2,352 | ) | 6(q) | 6,206 | 3,641 | 8(g) | (11,544 | ) | 9(d) | - | (8,879 | ) | ||||||||||||||||||||
| Net income (loss) | $ | (10,705 | ) | $ | 12,760 | $ | (6,047 | ) | $ | 32,825 | $ | 15,520 | $ | (29,683 | ) | $ | - | $ | 14,670 | ||||||||||||||||
| Earnings per share (Note 11): | |||||||||||||||||||||||||||||||||||
| Basic | $ | (0.30 | ) | $ | 0.25 | ||||||||||||||||||||||||||||||
| Diluted | $ | (0.30 | ) | $ | 0.25 | ||||||||||||||||||||||||||||||
| Weighted average shares outstanding (Note 11) | |||||||||||||||||||||||||||||||||||
| Basic | 35,826,924 | 9,605,201 | 11(a) | 13,559,090 | 11(a) | 58,991,215 | |||||||||||||||||||||||||||||
| Diluted | 36,703,709 | 9,605,201 | 11(a) | 13,559,090 | 11(a) | 59,867,999 | |||||||||||||||||||||||||||||
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 Acquisitions pre-acquisition results and reclassifications (Note 3) (a) | 2020 Acquisitions
Adjustments (Note 4) | 2021 Acquisitions pre-acquisition results and reclassifications (Note 5) | 2021 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(l) | 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(m) | 4,751 | 26,708 | 8(d) | - | 74,351 | 10(f) | 122,227 | ||||||||||||||||||||||||||||||||
| Storm related losses, net of insurance recoveries | 14,095 | - | - | - | - | - | - | - | - | 14,095 | |||||||||||||||||||||||||||||||||||
| Rebranding | 792 | - | - | - | - | - | - | - | - | 792 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 37,842 | 9,817 | (314 | ) | 4(b),(c) | 18,318 | (14,396 | ) | 6(n),(o) | 121,599 | 50,532 | 8(e) | - | - | 223,398 | ||||||||||||||||||||||||||||||
| Foreign Exchange Gain/Loss | - | - | - | - | - | 5,393 | - | - | 5,393 | ||||||||||||||||||||||||||||||||||||
| Total operating costs and expenses | 391,178 | 82,085 | (367 | ) | 109,501 | 35,725 | 816,010 | 77,240 | - | 74,351 | 1,585,723 | ||||||||||||||||||||||||||||||||||
| Income (loss) from operations | (18,386 | ) | 10,808 | 367 | 19,785 | (35,725 | ) | 118,388 | (77,240 | ) | - | (74,351 | ) | (56,354 | ) | ||||||||||||||||||||||||||||||
| 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(f) | (164,737 | ) | 9(c) | - | (200,685 | ) | |||||||||||||||||||||||||
| Change in value of naming rights liabilities | (57,660 | ) | - | - | - | - | - | - | - | - | (57,660 | ) | |||||||||||||||||||||||||||||||||
| Gain on sale of PP&E | - | - | - | - | 53,425 | 6(p) | - | - | - | - | 53,425 | ||||||||||||||||||||||||||||||||||
| Gain on bargain purchases | 63,871 | - | - | - | 50,039 | 6(b) | - | - | - | - | 113,910 | ||||||||||||||||||||||||||||||||||
| Total other expense | (56,425 | ) | (6,167 | ) | (498 | ) | (29,283 | ) | 103,464 | (30,175 | ) | 94,065 | (164,737 | ) | - | (89,756 | ) | ||||||||||||||||||||||||||||
| - | |||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before provision for income taxes | (74,811 | ) | 4,641 | (131 | ) | (9,498 | ) | 67,739 | 88,213 | 16,825 | (164,737 | ) | (74,351 | ) | (146,110 | ) | |||||||||||||||||||||||||||||
| Provision (Benefit) for income taxes | (69,324 | ) | 322 | (37 | ) | 4(e) | - | 18,967 | 6(q) | 1,926 | 3,197 | 8(g) | (46,126 | ) | 9(d) | (20,818 | ) | 10(b) | (111,893 | ) | |||||||||||||||||||||||||
| Net income (loss) | $ | (5,487 | ) | $ | 4,319 | $ | (94 | ) | $ | (9,498 | ) | $ | 48,772 | $ | 86,287 | $ | 13,628 | $ | (118,611 | ) | $ | (53,533 | ) | $ | (34,217 | ) | |||||||||||||||||||
| Earnings per share (Note 11): | |||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | (0.18 | ) | $ | (0.63 | ) | |||||||||||||||||||||||||||||||||||||||
| Diluted | $ | (0.18 | ) | $ | (0.63 | ) | |||||||||||||||||||||||||||||||||||||||
| Weighted average shares outstanding (Note 11) | |||||||||||||||||||||||||||||||||||||||||||||
| Basic | 31,315,151 | 9,605,201 | 11(a) | 13,559,090 | 11(a) | 54,479,442 | |||||||||||||||||||||||||||||||||||||||
| Diluted | 31,315,151 | 9,605,201 | 11(a) | 13,559,090 | 11(a) | 54,479,442 | |||||||||||||||||||||||||||||||||||||||
| (a) | Includes pre-acquisition results for (1) Casino KC 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 Acquisitions 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 Acquisitions) had been consummated as of March 31, 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 March 31, 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 three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 2021.
Note 3 — 2020 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:
| Casino KC 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 Casino KC and Casino Vicksburg for the period from January 1, 2020 through June 30, 2020 have been extracted from the audited combined financial statements of Casino KC 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 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 Casino KC 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 Casino KC 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 Casino KC 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 Casino KC, 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 Casino KC 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) | Casino KC and Casino Vicksburg | Shreveport | Total Pro Forma Adjustment | |||||||||
| Elimination of historical interest expense | $ | (1,730 | ) | $ | (4,437 | ) | $ | (6,167 | ) | |||
| Interest expense related to net borrowings | 2,540 | 4,125 | 6,665 | |||||||||
| Pro forma adjustment to interest expense | $ | 810 | $ | (312 | ) | $ | 498 | |||||
4(e) Reflects the income tax effect of the 2020 Acquisitions adjustments, calculated using Bally’s statutory tax rate of 28%. This rate may be subject to change and may not be reflective of Bally’s effective tax rate for future periods after consummation of the Transactions.
Note 5 — 2021 Acquisitions pre-acquisition results and reclassifications
Certain reclassifications were directly applied to the pre-acquisition historical Balance Sheets of the 2021 Acquired Companies to conform to the financial statement presentation of Bally’s, as follows:
| MontBleu Before Reclassifications | Tropicana Evansville Before Reclassifications | 2021 Acquisitions After | ||||||||||||||||||||||
| March 31, | March 31, | Tropicana | Reclassifications | |||||||||||||||||||||
| 2021 | 2021 | MontBleu | Evansville | March 31, | ||||||||||||||||||||
| (In thousands) | Note (a) | Note (b) | Reclassifications | Reclassifications | Note | 2021 | ||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,160 | $ | 8,068 | $ | - | $ | - | $ | 10,228 | ||||||||||||||
| Restricted cash | - | - | - | - | - | |||||||||||||||||||
| Players deposit | - | - | - | - | - | |||||||||||||||||||
| Accounts receivable, net | 1,696 | 1,585 | - | - | 3,281 | |||||||||||||||||||
| Inventory | 524 | 477 | - | - | 1,001 | |||||||||||||||||||
| Tax receivable | - | - | - | - | - | |||||||||||||||||||
| Prepaid expenses and other current assets | 994 | 989 | - | - | 1,983 | |||||||||||||||||||
| Total current assets | 5,374 | 11,119 | - | - | 16,493 | |||||||||||||||||||
| Property and equipment, net | 55,669 | 297,882 | - | - | 353,551 | |||||||||||||||||||
| Right of use assets, net | - | - | 41,284 | - | (c) | 41,284 | ||||||||||||||||||
| Goodwill, net | 5 | 9,311 | - | - | 9,316 | |||||||||||||||||||
| Intangible assets, net | 4,301 | 135,667 | - | - | 139,968 | |||||||||||||||||||
| Deferred tax assets | - | - | - | - | - | |||||||||||||||||||
| Other assets | 41,284 | 32,894 | (41,284 | ) | - | (c) | 32,894 | |||||||||||||||||
| Total assets | $ | 106,633 | $ | 486,873 | $ | - | $ | - | $ | 593,506 | ||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||||||
| Current portion of long-term debt | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
| Current portion of lease obligations | - | - | 550 | - | 550 | |||||||||||||||||||
| Current portion of cross currency and interest rate swap payable | - | - | - | - | - | |||||||||||||||||||
| Accounts payable | 496 | 884 | - | - | 1,380 | |||||||||||||||||||
| Payable to players | - | - | - | - | - | |||||||||||||||||||
| Accrued liabilities | 2,659 | - | (550 | ) | 9,591 | (d) | 11,700 | |||||||||||||||||
| Accrued property, gaming and other taxes | - | - | - | - | - | |||||||||||||||||||
| Accrued payroll and related | - | - | - | - | - | |||||||||||||||||||
| Accrued income taxes payable | - | - | - | - | - | |||||||||||||||||||
| Intercompany debt | - | - | - | - | - | |||||||||||||||||||
| Other current liabilities | - | 9,591 | (9,591 | ) | (d) | - | ||||||||||||||||||
| Total current liabilities | 3,155 | 10,475 | - | - | 13,630 | |||||||||||||||||||
| Long-term debt, net of current portion | - | - | - | - | ||||||||||||||||||||
| Lease obligations, net of current portion | - | - | 65,868 | - | (e) | 65,868 | ||||||||||||||||||
| Pension benefit obligations | - | - | - | - | - | |||||||||||||||||||
| Deferred tax liability | - | - | - | - | - | |||||||||||||||||||
| Naming rights liabilities | - | - | - | - | - | |||||||||||||||||||
| Deferred credits and other liabilities | 65,868 | 15,321 | (65,868 | ) | (15,321 | ) | (e) | - | ||||||||||||||||
| Other long-term liabilities | - | - | - | 15,321 | (e) | 15,321 | ||||||||||||||||||
| Total liabilities | 69,023 | 25,796 | - | - | 94,819 | |||||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||||
| Shareholders’ equity: | - | |||||||||||||||||||||||
| Net parent investment | 37,610 | 461,077 | - | - | 498,687 | |||||||||||||||||||
| Common stock | - | - | - | - | - | |||||||||||||||||||
| Additional paid-in capital | - | - | - | - | - | |||||||||||||||||||
| Treasury stock, at cost | - | - | - | - | - | |||||||||||||||||||
| Retained earnings | - | - | - | - | - | |||||||||||||||||||
| Other Reserves | - | - | - | - | - | |||||||||||||||||||
| Accumulated other comprehensive loss | - | - | - | - | - | |||||||||||||||||||
| Total shareholders’ equity | 37,610 | 461,077 | - | - | 498,687 | |||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 106,633 | $ | 486,873 | $ | - | $ | - | $ | 593,506 | ||||||||||||||
- 10 -
(a) The balances of MontBleu for the three months ended March 31, 2021 have been extracted from the unaudited consolidated financial statements of MontBleu, as set out in this Current Report on Form 8-K.
(b) The balances of Tropicana Evansville for the three months ended March 31, 2021 have been extracted from the unaudited consolidated financial statements of Tropicana Evansville, as set out in this Current Report on Form 8-K.
(c) Reclassification of lease assets from Other Assets to Right of Use Assets, net.
(d) Reclassification of accrued liabilities and current lease liabilities from Other current liabilities to Accrued liabilities and Current portion of lease obligations, respectively.
(e) Reclassification of long-term lease liabilities and other long-term liabilities from Deferred credits and other liabilities to Lease obligations, net of current portion and Other long-term liabilities, respectively.
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 three months ended March 31, 2021 and the year ended December 31, 2020 are as follows:
| Year Ended December 31, 2020 | ||||||||||||
| MontBleu | Tropicana Evansville | 2021 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 MontBleu for the year ended December 31, 2020 have been extracted from the audited consolidated financial statements of MontBleu, 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 this Current Report on Form 8-K.
- 11 -
| Three-months ended March 31, 2021 | ||||||||||||
| MontBleu | Tropicana Evansville | 2021 Acquisitions | ||||||||||
| (In thousands) | Note (a) | Note (b) | ||||||||||
| Revenues | $ | 10,559 | $ | 30,990 | $ | 41,549 | ||||||
| Operating costs and expenses | ||||||||||||
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | 3,947 | 12,204 | 16,151 | |||||||||
| Advertising, general and administrative | 3,179 | 5,268 | 8,447 | |||||||||
| Depreciation and amortization | 1,063 | 3,130 | 4,193 | |||||||||
| Total operating costs and expenses | 8,189 | 20,602 | 28,791 | |||||||||
| Income from operations | 2,370 | 10,388 | 12,758 | |||||||||
| Other income (expense) | ||||||||||||
Interest expense, net of amounts capitalized | - | 2 | 2 | |||||||||
Total other expense | - | 2 | 2 | |||||||||
| Income before provision for income taxes | 2,370 | 10,390 | 12,760 | |||||||||
| (Benefit) Provision for income taxes | - | - | - | |||||||||
| Net income | $ | 2,370 | $ | 10,390 | $ | 12,760 | ||||||
(a) The results of MontBleu for the three months ended March 31, 2021 have been extracted from the unaudited consolidated financial statements of MontBleu, as set out in this Current Report on Form 8-K.
(b) The results of Tropicana Evansville for the three months ended March 31, 2021 have been extracted from the unaudited consolidated financial statements of Tropicana Evansville, as set out in this Current Report on Form 8-K.
Note 6 — 2021 Acquisitions adjustments
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Balance Sheet as of March 31, 2021:
6(a) Reflects the purchase price of $14.2 million and $139.2 million for the acquisitions of MontBleu and Tropicana Evansville, respectively, offset by $144.0 million of cash received for the sale of Bally’s Dover Downs casino to GLPI.
6(b) Preliminary purchase consideration and purchase price allocation:
The acquisitions of MontBleu and Tropicana Evansville, which closed on April 6, 2021 and June 3, 2021, respectively, resulted in Bally’s acquiring all of the outstanding equity securities of MontBleu and the casino operations of Tropicana Evansville for purchase prices of $14.2 million and $139.2 million, respectively, subject to certain customary post-closing adjustments.
- 12 -
Bally’s has performed a preliminary valuation analysis of the fair market value of assets acquired and liabilities assumed related to the 2021 Acquisitions. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
| Fair value of assets acquired and liabilities assumed |
||||||||||||
| (In thousands) | MontBleu | Tropicana Evansville |
Total | |||||||||
| Purchase price | 14,172 | 139,178 | 153,350 | |||||||||
| Assets acquired: | ||||||||||||
| Property and equipment, net | 6,361 | 12,312 | 18,673 | |||||||||
| Right of use assets (a) | 57,017 | 285,772 | 342,789 | |||||||||
| Intangible assets | 5,430 | 154,210 | 159,640 | |||||||||
| All other assets | 5,374 | 44,013 | 49,387 | |||||||||
| Liabilities assumed: | ||||||||||||
| Lease obligations (current portion) | (1,899 | ) | (12,123 | ) | (14,022 | ) | ||||||
| Lease obligations | (51,028 | ) | (273,649 | ) | (324,677 | ) | ||||||
| All other liabilities | (2,605 | ) | (25,796 | ) | (28,401 | ) | ||||||
| Bargain purchase gain | 4,478 | 45,561 | 50,039 | |||||||||
| Tax effect on bargain purchase gain | (1,254 | ) | (12,757 | ) | (14,011 | ) | ||||||
| Net bargain purchase gain | $ | 3,224 | $ | 32,804 | $ | 36,028 | ||||||
(a) Excludes right of use assets recognized in connection with Bally’s lease of Dover Downs from GLPI.
Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of MontBleu and Tropicana Evansville based on its estimated fair value as of the closing date.
6(c) Represents the tax effect on transaction costs accrued in connection with the Tropicana Evansville acquisition.
6(d) Represents a reduction of $334.9 million to reflect Property and equipment, net at fair value in connection with purchase accounting for the 2021 Acquisitions, as well as a reduction of Bally’s Property and equipment, net of $90.6 million related to the sale of Bally’s Dover Downs casino to GLPI.
6(e) Represents an increase of $15.7 million and $285.8 million to the MontBleu and Tropicana Evansville Right of use assets, net, respectively, to reflect the assets at fair value, as well as $119.2 million related to Bally’s lease of Dover Downs from GLPI.
6(f) Represents the reversal of historical Goodwill, net recognized by MontBleu and Tropicana Evansville.
6(g) Represents the adjustment to Intangible assets, net to record at fair value in connection with purchase accounting for the 2021 Acquisitions.
6(h) Represents a $1.3 million and $12.1 million adjustment for MontBleu and Tropicana Evansville, respectively, to reflect the Current portion of lease obligations at the date of acquisition, and $5.0 million related to the sale-leaseback of the Bally’s Dover Downs casino.
6(i) Represents the $12.7 million and $1.2 million tax effect on bargain purchase gains realized related to the Tropicana Evansville and MontBleu acquisitions, respectively, $3.1 million of transaction costs accrued in connection with the Tropicana Evansville acquisition, and a $15.0 million tax effect recognized upon the sale of the Bally’s Dover Downs casino to GLPI.
- 13 -
6(j) Represents a decrease of $14.8 million and increase of $273.6 million for MontBleu and Tropicana Evansville, respectively, to reflect the Lease obligations, net of current portion, at the date of acquisition, and a $114.2 million increase related to the sale-leaseback of Bally’s Dover Downs casino.
6(k) Represents adjustments to Shareholder’s equity in connection with the MontBleu and Tropicana Evansville acquisitions, as summarized in the following table:
| (In thousands) | Eliminate MontBleu Equity | Eliminate Tropicana Evansville Equity | MontBleu Bargain Purchase Gain, net of tax | Tropicana Evansville Bargain Purchase Gain, net of tax | Tropicana Evansville Transaction Costs, net of tax | Gain on Sale of Dover Downs PP&E to GLPI, net of tax | 2021 Acquisitions Total Adjustments to Equity | |||||||||||||||||||||
| Additional paid-in capital | $ | - | (389,308 | ) | $ | - | $ | - | $ | - | $ | - | $ | (389,308 | ) | |||||||||||||
| Retained earnings | (37,610 | ) | (71,769 | ) | 3,224 | 32,804 | (2,275 | ) | 38,466 | (37,160 | ) | |||||||||||||||||
| Total shareholders’ equity | $ | (37,610 | ) | $ | (461,077 | ) | $ | 3,224 | $ | 32,804 | $ | (2,275 | ) | $ | 38,466 | $ | (426,468 | ) | ||||||||||
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Statements of Operations for the three months ended March 31, 2021 and year ended December 31, 2020:
6(l) 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 and $7.3 million for MontBleu and Evansville, respectively for the three months ended March 31, 2021, $5.7 million and $29.2 million for MontBleu and Evansville, respectively for the year ended December 31, 2020, and additional rent expense incurred in connection with the sale-leaseback of Bally’s Dover Downs casino of $3.0 million and $12.0 million for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.
6(m) Represents transaction costs in connection with the Tropicana Evansville acquisition. Transaction costs incurred in connection with the MontBleu acquisition were not material.
6(n) Represents a decrease in 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 MontBleu’s book value by $49.3 million. As a result, depreciation expense decreased by a total of $1.6 million and $7.5 million on a combined basis for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, 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 | Three-months ended March 31, 2021 | |||||||||||||
| Furniture, fixtures and equipment | $ | 12,312 | 3 | Straight Line | $ | 4,324 | $ | 1,081 | ||||||||||
| Less: historical depreciation expense | (9,249 | ) | (2,047 | ) | ||||||||||||||
| Evansville Pro forma adjustment | (4,925 | ) | (966 | ) | ||||||||||||||
| Reduction in MontBleu depreciation expense | (2,536 | ) | (634 | ) | ||||||||||||||
| Total Pro forma Adjustment | $ | (7,461 | ) | $ | (1,600 | ) | ||||||||||||
Additionally, depreciation expense decreased by $0.7 million and $2.7 million, for the three months ended March 31, 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.
- 14 -
6(o) 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 | Three months ended March 31, 2021 | |||||||||||||
| Rated Player Relationships | $ | 610 | 8 | Straight Line | $ | 76 | $ | 19 | ||||||||||
| Less: historical intangible asset amortization expense | (4,333 | ) | (1,083 | ) | ||||||||||||||
| Evansville Pro forma adjustment | (4,257 | ) | (1,064 | ) | ||||||||||||||
| Increase in MontBleu amortization expense | 70 | 18 | ||||||||||||||||
| Total Pro forma Adjustment | $ | (4,187 | ) | $ | (1,046 | ) | ||||||||||||
6(p) Represents the non-recurring gain on the sale of Bally’s Dover Downs casino to GLPI.
6(q) Represents the income tax effect of the 2021 Acquisitions adjustments for the year ended December 31, 2020 and for the three months ended March 31, 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.
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 March 31, 2021 spot rate to translate the Balance Sheet and the average daily exchange rate for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively to translate the Statements of Operations:
| GBP £ / USD $ | ||||
| March 31, 2021 spot rate | 1.375 | |||
| Three months ended March 31, 2021 average exchange rate | 1.379 | |||
| 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 July 16, 2021 of £1/US$1.3792 would increase the translated amounts of net income for the three months ended March 31, 2021 and the year ended December 31, 2020 presented below by approximately $747 and $6,395, respectively, as well as increase total assets as of March 31, 2021, presented below, by approximately $5,760.
- 15 -
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Balance Sheet as of March 31, 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 | 250,900 | - | 250,900 | $ | 344,912 | |||||||||||||||
| Player deposits | 29,000 | - | 29,000 | 39,866 | ||||||||||||||||
| Accounts receivable, net | 38,600 | - | 38,600 | 53,063 | ||||||||||||||||
| Taxes receivable | 500 | (500 | ) | (b) | - | - | ||||||||||||||
| Prepaid expenses and other current assets | - | 500 | (b) | 500 | 687 | |||||||||||||||
| Total current assets | 319,000 | - | 319,000 | 438,528 | ||||||||||||||||
| Non-current assets | - | |||||||||||||||||||
| Property and equipment, net | 9,200 | - | 9,200 | 12,647 | ||||||||||||||||
| Intangible assets | 388,800 | - | 388,800 | 534,483 | ||||||||||||||||
| Goodwill | 523,800 | - | 523,800 | 720,068 | ||||||||||||||||
| Right-of-use assets | 21,200 | - | 21,200 | 29,144 | ||||||||||||||||
| Deferred tax asset | 13,000 | - | 13,000 | 17,871 | ||||||||||||||||
| Other long-term receivables | 5,000 | (5,000 | ) | (c) | - | - | ||||||||||||||
| Other assets | - | 5,000 | (c) | 5,000 | 6,875 | |||||||||||||||
| Total assets | 1,280,000 | - | 1,280,000 | $ | 1,759,616 | |||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | 98,700 | (98,700 | ) | (d),(e) | - | - | ||||||||||||||
| Accounts payable | - | 12,800 | (d) | 12,800 | 17,596 | |||||||||||||||
| Accrued liabilities | - | 112,700 | (e) | 112,700 | 154,929 | |||||||||||||||
| Other short-term payables | 900 | (900 | ) | (d) | - | - | ||||||||||||||
| Current portion of cross currency and interest rate swap payable | 6,800 | - | 6,800 | 9,348 | ||||||||||||||||
| Current portion of lease obligations | 5,900 | - | 5,900 | 8,111 | ||||||||||||||||
| Interest payable | 1,900 | (1,900 | ) | (e) | - | - | ||||||||||||||
| Payable to players | 29,000 | - | 29,000 | 39,866 | ||||||||||||||||
| Provision for taxes | 24,000 | (24,000 | ) | (e) | - | - | ||||||||||||||
| Total current liabilities | 167,200 | - | 167,200 | 229,850 | ||||||||||||||||
| Non-current liabilities | - | |||||||||||||||||||
| Other long-term payables | 13,700 | (13,700 | ) | (f) | - | - | ||||||||||||||
| Other long-term liabilities | - | 19,800 | (f) | 19,800 | 27,219 | |||||||||||||||
| Provisions | 6,100 | (6,100 | ) | (f) | - | - | ||||||||||||||
| Lease obligations, net of current portion | 16,300 | - | 16,300 | 22,408 | ||||||||||||||||
| Deferred tax liability | 42,600 | - | 42,600 | 58,562 | ||||||||||||||||
| Long-term debt, net of current portion | 492,000 | - | 492,000 | 676,352 | ||||||||||||||||
| Total liabilities | 737,900 | - | 737,900 | 1,014,391 | ||||||||||||||||
| Equity | - | |||||||||||||||||||
| Retained earnings | 270,400 | - | 270,400 | 371,719 | ||||||||||||||||
| Share capital | 11,000 | (11,000 | ) | (g) | - | - | ||||||||||||||
| Common stock | - | 11,000 | (g) | 11,000 | 15,122 | |||||||||||||||
| Share premium | 9,900 | (9,900 | ) | (g) | - | - | ||||||||||||||
| Additional paid-in capital | - | 9,900 | (g) | 9,900 | 13,609 | |||||||||||||||
| Other reserves | 250,800 | - | 250,800 | 344,775 | ||||||||||||||||
| Total shareholders’ equity | 542,100 | - | 542,100 | 745,225 | ||||||||||||||||
| Total liabilities and shareholders’ equity | 1,280,000 | - | 1,280,000 | $ | 1,759,616 | |||||||||||||||
(a) The net assets of Gamesys at March 31, 2021 have been extracted from Management’s interim reporting update for the three months ended March 31, 2021.
- 16 -
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 £12.8 million of trade payables from Accounts payable and accrued liabilities to Accounts payable and £0.9 million of Other short-term payables to Accounts payable.
(e) Reclassification of Interest payable, Provision for taxes, and £86.8 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 three months ended March 31, 2021:
| Reclassification and IFRS to GAAP adjustments (GBP) | ||||||||||||||||||||||||
| (In thousands) | Gamesys Reported IFRS (GBP) (a) | Reclassification Adjustments | Leases | Notes | Gamesys US GAAP (GBP) | Gamesys US GAAP (USD) | ||||||||||||||||||
| Revenues | 197,800 | - | - | 197,800 | $ | 272,800 | ||||||||||||||||||
| Operating costs and expenses | ||||||||||||||||||||||||
| Distribution costs | 107,700 | (107,700 | ) | - | (b) | - | - | |||||||||||||||||
| Gaming, racing, hotel, food and beverage, retail, entertainment and other | - | 107,700 | - | (b) | 107,700 | 148,536 | ||||||||||||||||||
| Administrative costs | 58,000 | (58,000 | ) | - | (c),(d) | - | - | |||||||||||||||||
| Impairment of financial assets | - | - | - | (d) | - | - | ||||||||||||||||||
| Advertising, general and administrative | - | 33,500 | 1,600 | (d),(g) | 35,100 | 48,409 | ||||||||||||||||||
| Severance costs | 800 | (800 | ) | - | (e) | - | - | |||||||||||||||||
| Transaction related costs | 1,900 | (1,900 | ) | - | (e) | - | - | |||||||||||||||||
| Acquisition, integration and restructuring expense | - | 2,700 | - | (e) | 2,700 | 3,724 | ||||||||||||||||||
| Depreciation and amortization | - | 24,500 | (1,300 | ) | (c),(g) | 23,200 | 31,997 | |||||||||||||||||
| Foreign exchange loss/(gain) | (4,200 | ) | - | - | (4,200 | ) | (5,793 | ) | ||||||||||||||||
| Total operating costs and expenses | 164,200 | - | 300 | 164,500 | 226,873 | |||||||||||||||||||
| Income (loss) from operations | 33,600 | - | (300 | ) | 33,300 | 45,927 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Interest income | (100 | ) | - | - | (100 | ) | (138 | ) | ||||||||||||||||
| Interest expense | 5,100 | (5,100 | ) | - | (f) | - | - | |||||||||||||||||
| Accretion on financial liabilities | 300 | (300 | ) | - | (f) | - | - | |||||||||||||||||
| Interest expense, net of amounts capitalized | - | 5,400 | (300 | ) | (f),(g) | 5,100 | 7,034 | |||||||||||||||||
| Total other expense | 5,300 | - | (300 | ) | 5,000 | 6,896 | ||||||||||||||||||
| Income (loss) before provision for income taxes | 28,300 | - | - | 28,300 | 39,031 | |||||||||||||||||||
| Tax expense | 4,500 | - | - | 4,500 | 6,206 | |||||||||||||||||||
| Net income (loss) | 23,800 | - | - | 23,800 | $ | 32,825 | ||||||||||||||||||
Refer below for impacted line items and adjustments to the Unaudited Pro Forma Statement of Operations for the year ended December 31, 2020:
- 17 -
| Reclassification and IFRS to U.S. GAAP adjustments (GBP) | ||||||||||||||||||||||||
| (In thousands) | Gamesys Reported IFRS (GBP) (a) | Reclassification Adjustments | Leases | Notes | Gamesys U.S. GAAP (GBP) | Gamesys U.S. 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 | ||||||||||||||||||
- 18 -
(a) The results of Gamesys for the three months ended March 31, 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 Report on Form 8-K incorporated by reference herein.
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 £22.3 million and £91.2 million of amortization for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively and £2.2 million and £8.8 million of depreciation for the three months ended March 31, 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 £33.5 million and £121.5 million for the three months ended March 31, 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 £1.3 million and £5.3 million of depreciation for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively and £0.3 million and £1.2 million of interest expense for the three months ended March 31, 2020 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 is expected to close in late 2021, will result in Bally’s acquiring all of the outstanding equity securities of Gamesys for an estimated purchase price of $3,272 million funded through debt financing and the issuance of equity, subject to certain customary post-closing adjustments. The Company will acquire 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:
- 19 -
| (In thousands, except share and share price amounts) | ||||
| Gamesys shares expected to be exchanged | 28,003,501 | (i) | ||
| Gamesys purchase price per share translated using July 16, 2021 spot rate | $ | 25.52 | ||
| Bally's closing share price on July 16, 2021 | $ | 47.15 | ||
| Exchange ratio | 0.343 | (i) | ||
| Total Bally's shares to be issued | 9,605,201 | |||
| Total value of Bally's shares to be issued | $ | 452,885 | (i) | |
| Total cash consideration paid at $25.52 price per Gamesys Share | $ | 2,142,662 | (ii) | |
| Repayment of Gamesys Debt | $ | 676,352 | (iii) | |
| Total purchase consideration | $ | 3,271,899 | ||
| Less total cash acquired | $ | (302,912 | )(iv) | |
| Purchase consideration, net of cash acquired | $ | 2,968,987 | ||
| Allocation of purchase consideration, net of cash acquired: | ||||
| Estimated fair values of assets acquired | ||||
| Current assets, excluding cash | $ | 93,616 | (v) | |
| Intangible assets | $ | 1,602,965 | (v) | |
| Other non current assets | $ | 66,537 | (v) | |
| Total estimated fair values of liabilities assumed, excluding debt | $ | (279,477 | )(v) | |
| Deferred tax liability | $ | (304,563 | )(v) | |
| Residual Goodwill | $ | 1,789,909 | ||
| Less Gamesys’ historical goodwill | $ | (720,068 | ) | |
| Goodwill adjustment | $ | 1,069,841 | (vi) | |
| (i) | Upon closing of the Gamesys Acquisition, Bally’s will provide Gamesys shareholders who elect to exchange their shares, 0.343 shares of Bally’s common stock for each share of Gamesys common stock. The remaining shares of Gamesys common stock will be settled in cash for which shareholders will be entitled to receive £18.50 per share. The table above assumes an exchange rate of $1.3792 per Pound Sterling, based on the July 16, 2021 spot rate, which was used to translate the Gamesys price from Pounds Sterling to U.S. Dollars. Certain of Gamesys’ current shareholders holding an aggregate amount of 25% of Gamesys’ shares have agreed to receive shares of Bally’s Common Stock in the Gamesys Acquisition. As such, for purposes of this Unaudited Pro Forma Financial Information, Bally’s estimates 25% of Gamesys’ outstanding shares (111,979,409 shares on July 16, 2021, including 2,257,893 Gamesys shares that are expected to vest immediately prior to the transaction) will be exchanged for 9,605,201 shares of Bally’s Common Stock, and the balance of Gamesys’ outstanding shares will be exchanged for cash. For purposes of this Unaudited Pro Forma Financial Information, Bally’s estimates that 74.5% of Gamesys’ outstanding shares will be exchanged for cash, resulting in aggregate cash consideration of $2,143 million to be financed through net proceeds from the Gamesys Financing Transaction. The remaining proceeds from the Gamesys Financing Transaction will be used for the repayment of Gamesys’ EUR and GBP Term Facilities. The actual amount of purchase consideration that will be settled in equity will be determined upon consummation of the Gamesys Acquisition. A hypothetical 10% increase or decrease in the number of outstanding Gamesys shares that are exchanged for Bally’s Common Stock, all other factors remaining constant, would result in a corresponding increase or decrease in the equity consideration of $45.3 million, or 960,520 shares of Bally’s Common Stock. |
| (ii) | Cash consideration assumes 74.5% of outstanding Gamesys shares will be exchanged for cash equal to £18.50 per share. |
| (iii) | Under the terms of the Gamesys Acquisition, Bally’s will repay the outstanding balance of Gamesys debt. The value of the Gamesys debt at March 31, 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. |
| (iv) | Cash acquired excludes $42 million dividend (28 pence per share) declared by Gamesys on March 8, 2021, payment of which will be accelerated upon transaction closing. |
| (v) | 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. Except as discussed in the notes below, the carrying value of Gamesys’ assets and liabilities are considered to approximate their fair values. |
- 20 -
| (vi) | The preliminary fair value adjustments are based on benchmark data available to Bally’s and is subject to change upon completion of the final purchase price allocation. Any change in the estimated fair value of the assets and liabilities acquired will have a corresponding impact on the amount of the goodwill recorded. Goodwill is attributable to the assembled workforce of Gamesys and planned growth in new markets through continued investment. Goodwill recorded is not expected to be deductible for tax purposes. |
8(b) Represents the tax benefit related to non-recurring transaction costs that are expected to be incurred that have not been recognized in the historical financial statements of Gamesys.
8(c) 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) | Three months ended | |||
| 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 | (534,483 | ) | ||
| Pro forma adjustment | $ | 1,068,482 | ||
8(d) Represents non-recurring transaction costs that are expected to be incurred that have not been recognized in the historical financial statements of Gamesys.
8(e) Represents incremental amortization expense of $50,532 and $11,154 for the year ended December 31, 2020 and three months ended March 31, 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 flow is 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 | Quarter ended 2021 | |||||||||||||
| Trademarks and trade names | $ | 184,014 | 10 | Straight Line | $ | 17,335 | $ | 4,334 | ||||||||||
| Customer relationships | 995,038 | 10 | Straight Line | 93,735 | 23,434 | |||||||||||||
| Developed technology (Software) | 395,289 | 7 | Straight Line | 53,196 | 13,299 | |||||||||||||
| Partnership Agreement | 28,624 | 8 | Straight Line | 3,371 | 843 | |||||||||||||
| Total acquired finite lived intangible assets | 1,602,965 | 167,637 | 41,909 | |||||||||||||||
| Less: historical intangible asset amortization expense | (117,105 | ) | (30,755 | ) | ||||||||||||||
| Pro forma adjustment | $ | 50,532 | $ | 11,154 | ||||||||||||||
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.
- 21 -
8(f) Represents repayment of Gamesys’ EUR and GBP Term Facilities and Bally’s historical debt ($1,810,701) and reversal of related interest expense ($27,832 and $94,065 for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively).
8(g) Reflects the income tax effect of the Gamesys Acquisition adjustments for the three months ended March 31, 2020 and the year ended December 31, 2020, respectively, based on a UK statutory rate of 19 percent. On June 10, 2021, Royal Assent was granted for Finance Act 2021, raising the UK statutory tax rate to 25%. For the purpose of the Unaudited Pro Forma Condensed Combined Statements of Income for the three months ended March 31, 2021, the change in the UK statutory tax rate would result in a decrease of net income of $1.15 million.
8(h) Represents adjustments to deferred tax liabilities based on a UK statutory tax rate of 19 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 | 19 | % | $ | 304,563 | ||||||
| Less: deferred taxes on historical intangible assets | (58,562 | ) | ||||||||||
| Pro forma adjustment | $ | 246,001 | ||||||||||
On June 10, 2021, Royal Assent was granted for Finance Act 2021, raising the UK statutory tax rate to 25%. For the purpose of the Unaudited Condensed Combined Balance Sheet as of March 31, 2021, the change in the UK statutory tax rate would result in an increase of $96.2 million to the deferred tax adjustment.
8(i) 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 | $ | (15,122 | ) | $ | 98 | $ | - | $ | (15,024 | ) | ||||||
| Additional paid-in capital | (13,609 | ) | 463,513 | - | 449,904 | |||||||||||
| Retained earnings | (371,719 | ) | - | (21,157 | ) | (392,876 | ) | |||||||||
| Other Reserves | (344,775 | ) | - | - | (344,775 | ) | ||||||||||
| Total shareholders’ equity | $ | (745,225 | ) | $ | 463,611 | $ | (21,157 | ) | $ | (302,771 | ) | |||||
Note 9 — Gamesys Financing Transaction adjustments
Adjustments to the Pro Forma Balance Sheet related to the Term Loan and Senior Unsecured Notes include the following:
9(a) Represents an increase in cash related to net proceeds from the issuance of a $1,419,713 term loan (net of $10,838 in debt financing fees and $14,450 deferred discount) and two $987,500 senior unsecured notes (net of $12,500 debt financing fees for each note) for total net proceeds of $3,394,713 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 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 which are paid semi-annually accrue at interest rates of 5.25% and 5.5%, respectively.
| (In thousands) | ||||
| Gross Proceeds from Term Loan B | $ | 1,445,000 | ||
| Term Loan B fees | (25,288 | ) | ||
| Net proceeds from Term Loan B | $ | 1,419,713 | ||
| Gross proceeds from 8 year Senior Unsecured Note | $ | 1,000,000 | ||
| Senior Unsecured Note fees | (12,500 | ) | ||
| Net Proceeds from 8 year Senior Unsecured Note | $ | 987,500 | ||
| Gross proceeds of 10 year Senior Unsecured Note | $ | 1,000,000 | ||
| Senior Unsecured Note fees | (12,500 | ) | ||
| Net Proceeds from 10 year Senior Unsecured Note | $ | 987,500 | ||
| Total proceeds from the Gamesys Financing Transactions | $ | 3,394,713 | ||
- 22 -
9(b) Represents a $3,380 million increase in long-term debt from term loan and senior unsecured notes and a $14.5 million increase in current portion of long-term debt from the term loan, net of $50,288 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 of $1.4 million, for the Gamesys Financing Transaction was $41.2 million for the three months ended March 31, 2021. Total interest expense, including amortized debt issuance fees of $5.5 million, for the Gamesys Financing transaction was $164.7 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 on July 16, 2021 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 $1.8 million.
9(d) Represents the tax benefit related to the Gamesys Financing Transaction adjustments.
Note 10 — Equity Offering adjustments
Adjustments to the Pro Forma Balance Sheet and Pro Forma Statements of Operations related to the Equity Offerings include the following:
10(a) Represents the net proceeds from the Equity Offerings, reduced by the amount that was used to pay $50 million of transaction costs related to Transactions. A reconciliation of the gross proceeds received to the net cash proceeds received from the Equity Offerings is set forth below:
| (In thousands, except per share amounts) | ||||
| Class A common stock public offering price per share | $ | 55.00 | ||
| Shares of Class A common stock issued | 12,650 | |||
| Gross proceeds | $ | 695,750 | ||
| Less: Underwriting discounts, commissions, and offering expenses | (24,351 | ) | ||
| Net cash proceeds | $ | 671,399 | ||
| Proceeds from sale of Warrant | 50,000 | |||
| Total net cash proceeds from Equity Offerings | $ | 721,399 | ||
| Cash used to pay transaction costs related to the Transactions | 50,000 | |||
| Total pro forma adjustment | $ | 671,399 | ||
10(b) Represents tax benefit related to the issuance fees and offering expenses for the Equity Offerings.
10(c) Represents an adjustment to common stock related to the issuance of 12.65 million shares, par value $0.01 per share, issued pursuant to the Common Stock Offering.
10(d) Comprised of a $695.7 million adjustment related to the Common Stock Offering and a $50 million adjustment related to the sale of the Warrant to Sinclair.
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10(e) Represents an adjustment to retained earnings related to issuance fees and offering expenses for the Equity Offerings, net of tax.
10(f) Represents an adjustment to the Pro Forma Statements of Operations related to issuance fees and offering expenses for the Equity Offerings.
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 | March 31, 2021 | ||||||
| Pro forma net income (loss) | (34,217 | ) | 14,670 | |||||
| Basic weighted average common shares outstanding: | ||||||||
| Historical share count | 31,315,151 | 35,826,924 | ||||||
| Expected shares issuable to Gamesys Shareholders | 9,605,201 | 9,605,201 | ||||||
| Additional issuance in Common Stock Offering | 12,650,000 | 12,650,000 | ||||||
| Sale of Warrant | 909,090 | 909,090 | ||||||
| Basic weighted average common shares outstanding used in pro forma net income (loss) per share | 54,479,442 | 58,991,215 | ||||||
| Pro forma net income (loss) per share, basic | (0.63 | ) | 0.25 | |||||
| Impact of dilution on historical shares outstanding | - | 876,785 | ||||||
| Diluted weighted average common shares outstanding used in pro forma net income (loss) per share | 54,479,442 | 59,867,999 | ||||||
| Pro forma net income (loss) per share, diluted | (0.63 | ) | 0.25 | |||||
- 24 -
Exhibit 99.5
Gamesys Group plc
Unaudited Interim Condensed Consolidated Financial Statements
[in pounds sterling, except where otherwise noted]
For the Three Months Ended 31 March 2021
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three months ended 31 March 2021 | Three months ended 31 March 2020 | |||||||
| (£m) | (£m) | |||||||
| Revenue4 | 197.8 | 155.3 | ||||||
| Costs and expenses | ||||||||
| Distribution costs4,5 | 107.7 | 84.0 | ||||||
| Administrative costs4,5 | 58.0 | 53.1 | ||||||
| Severance costs4 | 0.8 | – | ||||||
| Transaction related costs4 | 1.9 | 2.2 | ||||||
| Foreign exchange (gain)/loss4 | (4.2 | ) | 4.0 | |||||
| Total costs and expenses | 164.2 | 143.3 | ||||||
| Interest income6 | (0.1 | ) | (0.1 | ) | ||||
| Interest expense6 | 5.1 | 6.5 | ||||||
| Accretion on financial liabilities6 | 0.3 | 0.3 | ||||||
| Total financing expenses | 5.3 | 6.7 | ||||||
| Net income for the period before taxes | 28.3 | 5.3 | ||||||
| Tax expense7 | 4.5 | 1.2 | ||||||
| Net income for the period attributable to owners of the parent | 23.8 | 4.1 | ||||||
| Other comprehensive income/(loss): Items that will or may be reclassified to profit or loss in subsequent periods | ||||||||
| Foreign currency translation gain/(loss) on retranslation of foreign subsidiaries | 3.3 | (2.8 | ) | |||||
| (Loss)/gain on currency swap14 | (4.7 | ) | 2.8 | |||||
| Gain/(loss) on interest rate swap14 | 0.3 | (1.0 | ) | |||||
| Other comprehensive loss for the period | (1.1 | ) | (1.0 | ) | ||||
| Total comprehensive income/(loss) for the period attributable to owners of the parent | 22.7 | 3.1 | ||||||
| Net income for the period per share | ||||||||
| Basic8 | 21.8 | p | 3.8 | p | ||||
| Diluted8 | 21.7 | p | 3.8 | p | ||||
See accompanying notes
2
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
| As at 31 March 2021 | As at 31 December 2020 | |||||||
| ASSETS | (£m) | (£m) | ||||||
| Non-current assets | ||||||||
| Tangible assets | 9.2 | 8.9 | ||||||
| Intangible assets10 | 388.8 | 407.6 | ||||||
| Goodwill10 | 523.8 | 526.2 | ||||||
| Right-of-use assets15 | 21.2 | 21.9 | ||||||
| Deferred tax asset7 | 13.0 | 9.9 | ||||||
| Other long-term receivables11,19 | 5.0 | 5.1 | ||||||
| Total non-current assets | 961.0 | 979.6 | ||||||
| Current assets | ||||||||
| Cash12,19,22 | 250.9 | 212.6 | ||||||
| Player deposits12,19 | 29.0 | 29.6 | ||||||
| Trade and other receivables13,19 | 38.6 | 39.9 | ||||||
| Taxes receivable | 0.5 | 3.8 | ||||||
| Total current assets | 319.0 | 285.9 | ||||||
| Total assets | 1,280.0 | 1,265.5 | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities16,19 | 98.7 | 98.6 | ||||||
| Other short-term payables19 | 0.9 | 0.3 | ||||||
| Current portion of currency and interest rate swap payable9,14,19 | 6.8 | 3.7 | ||||||
| Current portion of lease liabilities9,15,19 | 5.9 | 6.1 | ||||||
| Interest payable9,19 | 1.9 | 1.9 | ||||||
| Payable to players19 | 29.0 | 29.6 | ||||||
| Taxes payable | 24.0 | 16.9 | ||||||
| Total current liabilities | 167.2 | 157.1 | ||||||
| Non-current liabilities | ||||||||
| Other long-term payables9,14,19,20 | 13.7 | 13.1 | ||||||
| Provisions17 | 6.1 | 6.8 | ||||||
| Lease liabilities9,15,19 | 16.3 | 16.6 | ||||||
| Deferred tax liability7 | 42.6 | 44.4 | ||||||
| Long-term debt9,18,19 | 492.0 | 508.1 | ||||||
| Total non-current liabilities | 570.7 | 589.0 | ||||||
| Total liabilities | 737.9 | 746.1 | ||||||
| Equity | ||||||||
| Retained earnings | 270.4 | 246.3 | ||||||
| Share capital21 | 11.0 | 11.0 | ||||||
| Share premium | 9.9 | 8.9 | ||||||
| Other reserves | 250.8 | 253.2 | ||||||
| Total equity | 542.1 | 519.4 | ||||||
| Total liabilities and equity | 1,280.0 | 1,265.5 | ||||||
See accompanying notes
3
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Share Capital (£m) | Share Premium (£m) | Merger Reserve (£m) | Share- Based Payment Reserve (£m) | Translation Reserve (£m) | Hedge Reserve (£m) | Retained Earnings (£m) | Total (£m) | |||||||||||||||||||||||||
| Balance at 1 January 2020 | 10.9 | 4.7 | 234.5 | 10.1 | 25.4 | (11.6 | ) | 190.8 | 464.8 | |||||||||||||||||||||||
| Comprehensive income/(loss) for the period: | ||||||||||||||||||||||||||||||||
| Net income for the period | – | – | – | – | – | – | 4.1 | 4.1 | ||||||||||||||||||||||||
| Other comprehensive (loss)/ income | – | – | – | – | (2.8 | ) | 1.8 | – | (1.0 | ) | ||||||||||||||||||||||
| Total comprehensive (loss)/income for the period: | – | – | – | – | (2.8 | ) | 1.8 | 4.1 | 3.1 | |||||||||||||||||||||||
| Contributions by and distributions to shareholders: | ||||||||||||||||||||||||||||||||
| Payment of long-term incentive plan | – | – | – | (0.4 | ) | – | – | – | (0.4 | ) | ||||||||||||||||||||||
| Share-based compensation | – | – | – | 0.2 | – | – | – | 0.2 | ||||||||||||||||||||||||
| Total contributions by and distributions to shareholders: | – | – | – | (0.2 | ) | – | – | – | (0.2 | ) | ||||||||||||||||||||||
| Balance at 31 March 2020 | 10.9 | 4.7 | 234.5 | 9.9 | 22.6 | (9.8 | ) | 194.9 | 467.7 | |||||||||||||||||||||||
| Balance at 1 January 2021 | 11.0 | 8.9 | 234.5 | 12.0 | 17.9 | (11.2 | ) | 246.3 | 519.4 | |||||||||||||||||||||||
| Comprehensive income/(loss) for the period: | ||||||||||||||||||||||||||||||||
| Net income for the period | – | – | – | – | – | – | 23.8 | 23.8 | ||||||||||||||||||||||||
| Other comprehensive income/(loss) | – | – | – | – | 3.3 | (4.4 | ) | – | (1.1 | ) | ||||||||||||||||||||||
| Total comprehensive income/(loss) for the period: | – | – | – | – | 3.3 | (4.4 | ) | 23.8 | 22.7 | |||||||||||||||||||||||
| Contributions by and distributions to shareholders: | ||||||||||||||||||||||||||||||||
| Exercise of options21 | – | 1.0 | – | (0.3 | ) | – | – | 0.3 | 1.0 | |||||||||||||||||||||||
| Purchase of shares to satisfy employee incentive obligations21 | – | – | – | (1.6 | ) | – | – | – | (1.6 | ) | ||||||||||||||||||||||
| Share-based compensation21 | – | – | – | 0.6 | – | – | – | 0.6 | ||||||||||||||||||||||||
| Total contributions by and distributions to shareholders: | – | 1.0 | – | (1.3 | ) | – | – | 0.3 | – | |||||||||||||||||||||||
| Balance at 31 March 2021 | 11.0 | 9.9 | 234.5 | 10.7 | 21.2 | (15.6 | ) | 270.4 | 542.1 | |||||||||||||||||||||||
See accompanying notes
4
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended 31 March 2021 | Three months ended 31 March 2020 | |||||||
| (£m) | (£m) | |||||||
| Operating activities | ||||||||
| Cash generated from operations22 | 56.5 | 36.8 | ||||||
| Income taxes paid | (2.3 | ) | (0.8 | ) | ||||
| Income taxes received | 3.2 | – | ||||||
| Total cash provided by operating activities | 57.4 | 36.0 | ||||||
| Financing activities | ||||||||
| Proceeds from exercise of options | 1.0 | – | ||||||
| Payment of long-term incentive plan | – | (0.4 | ) | |||||
| Debt issuance and repricing costs9,18 | – | (0.3 | ) | |||||
| Principal repayment on long-term debt9,18 | – | (40.0 | ) | |||||
| Payment of one-time incentive plan21 | (1.6 | ) | – | |||||
| Lease payments9,15 | (1.5 | ) | (1.2 | ) | ||||
| Interest and swap payments9 | (5.4 | ) | (7.3 | ) | ||||
| Total cash used in financing activities | (7.5 | ) | (49.2 | ) | ||||
| Investing activities | ||||||||
| Purchase of tangible assets | (1.4 | ) | (0.8 | ) | ||||
| Purchase of intangible assets10 | (4.7 | ) | (3.5 | ) | ||||
| Total cash used in investing activities | (6.1 | ) | (4.3 | ) | ||||
| Net increase/(decrease) in cash during the period | 43.8 | (17.5 | ) | |||||
| Cash, beginning of period | 212.6 | 100.3 | ||||||
| Exchange (loss)/gain on cash and cash equivalents | (5.5 | ) | 2.4 | |||||
| Cash, end of period | 250.9 | 85.2 | ||||||
See accompanying notes
5
SUPPLEMENTARY NOTES FOR THE THREE MONTHS ENDED 31 MARCH 2021
| 1. | Corporate information |
Gamesys Group plc is an online gaming holding company that was incorporated under the Companies Act 2006 (England and Wales) on 29 July 2016. Gamesys Group plc’s registered office is located at 10 Piccadilly, London, United Kingdom. Unless the context requires otherwise, use of ‘Group’ in these accompanying notes means Gamesys Group plc and its subsidiaries, as applicable.
The Group currently offers bingo, casino and other games to its players using the Jackpotjoy, Megaways Casino, Botemania, Virgin Games, Heart Bingo, Virgin Casino, Monopoly Casino, Rainbow Riches Casino, Vera&John, InterCasino and VIP Casino brands. All brands operate off proprietary software owned by the Group.
On 24 March 2021, the boards of the Group and Bally’s Corporation (‘Bally’s’) announced a possible combination and on 13 April 2021, the Group announced agreement of definitive terms by which it will combine with Bally’s (the ‘Bally’s Combination’). Pursuant to the Bally’s Combination, Bally’s would acquire the entire issued and to be issued ordinary share capital of the Group. Under the terms of the Bally’s Combination, each shareholder of the Group will be entitled to receive 1,850p in cash for each ordinary share of the Group. Bally’s will also make available a share alternative, pursuant to which Gamesys shareholders may elect to receive Bally’s shares in lieu of part or all of the cash consideration to which they would otherwise be entitled under the terms of the Bally’s Combination. Under the share alternative, for each ordinary share of the Group, shareholders will be entitled to 0.343 of Bally’s shares.
These Unaudited Interim Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors of Gamesys Group plc on 19 May 2021.
| 2. | Basis of preparation |
Basis of presentation
These Unaudited Interim Condensed Consolidated Financial Statements have been prepared by management on a going concern basis, are presented in compliance with International Accounting Standard 34 – Interim Financial Reporting and have been prepared on a basis consistent with the accounting policies and methods used and disclosed in Gamesys Group plc’s consolidated financial statements for the year ended 31 December 2020 (the ‘Annual Financial Statements’), except as described below. Certain information and disclosures normally included in the Annual Financial Statements prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’) have been omitted or condensed.
These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Annual Financial Statements. All defined terms used herein are consistent with those terms as defined in the Annual Financial Statements.
These Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the historical cost convention, other than for the measurement at fair value of the Group’s Interest Rate Swap, Currency Swap and certain loans receivable.
| 3. | Summary of significant accounting policies |
For a description of the Group’s significant accounting policies, critical accounting estimates and assumptions, and related information see notes 3 and 4 to the Annual Financial Statements. Other than what is described below, there have been no changes to the Group’s significant accounting policies or critical accounting estimates and assumptions during the three months ended 31 March 2021.
6
Contingent liabilities
Management has exercised judgement in applying the Group’s accounting policies to the recognition of transaction related costs attributable to work performed during the three months ended 31 March 2021 in relation to the Bally’s Combination. Furthermore, management has assessed whether any contingent transaction related costs meet the recognition criteria set out by IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, and has concluded that on the basis of the position at the reporting date, no additional provisions or accruals are required. Disclosure of a contingent liability is also not required as economic inflows and outflows are considered improbable as at 31 March 2021.
| 4. | Segment information |
The Group has a single operating segment, being online gaming. The online gaming segment consists of online bingo and casino operating results of the Jackpotjoy, Megaways Casino, Virgin Games, Heart Bingo, Botemania, Rainbow Riches Casino, Virgin Casino, Monopoly Casino, Vera&John, InterCasino and VIP Casino brands.
7
The following tables present selected financial results for online gaming and the unallocated corporate costs:
Three months ended 31 March 2021:
| Online gaming (£m) | Unallocated
corporate costs (£m) | Total (£m) | ||||||||||
| Revenue | 197.8 | — | 197.8 | |||||||||
| Distribution costs | 107.7 | — | 107.7 | |||||||||
| Amortisation and depreciation | 24.3 | 0.2 | 24.5 | |||||||||
| Compensation, professional, and general and administrative expenses | 28.6 | 4.9 | 33.5 | |||||||||
| Severance costs | 0.8 | — | 0.8 | |||||||||
| Transaction related costs | — | 1.9 | 1.9 | |||||||||
| Foreign exchange gain | (0.7 | ) | (3.5 | ) | (4.2 | ) | ||||||
| Financing, net | 0.3 | 5.0 | 5.3 | |||||||||
| Income/(loss) for the period before taxes | 36.8 | (8.5 | ) | 28.3 | ||||||||
| Tax expense | 4.4 | 0.1 | 4.5 | |||||||||
| Net income/(loss) for the period after taxes | 32.4 | (8.6 | ) | 23.8 | ||||||||
| Net income/(loss) for the period after taxes | 32.4 | (8.6 | ) | 23.8 | ||||||||
| Interest expense, net | 0.3 | 4.7 | 5.0 | |||||||||
| Accretion on financial liabilities | — | 0.3 | 0.3 | |||||||||
| Tax expense | 4.4 | 0.1 | 4.5 | |||||||||
| Amortisation and depreciation | 24.3 | 0.2 | 24.5 | |||||||||
| EBITDA | 61.4 | (3.3 | ) | 58.1 | ||||||||
| Severance costs | 0.8 | — | 0.8 | |||||||||
| One-off tax charges | (0.4 | ) | — | (0.4 | ) | |||||||
| Transaction related costs | — | 1.9 | 1.9 | |||||||||
| Foreign exchange gain | (0.7 | ) | (3.5 | ) | (4.2 | ) | ||||||
| Adjusted EBITDA | 61.1 | (4.9 | ) | 56.2 | ||||||||
| Net income/(loss) for the period after taxes | 32.4 | (8.6 | ) | 23.8 | ||||||||
| Severance costs | 0.8 | — | 0.8 | |||||||||
| One-off tax charges | (0.4 | ) | — | (0.4 | ) | |||||||
| Transaction related costs | — | 1.9 | 1.9 | |||||||||
| Foreign exchange gain | (0.7 | ) | (3.5 | ) | (4.2 | ) | ||||||
| Amortisation of acquisition related purchase price intangibles | 19.9 | — | 19.9 | |||||||||
| Accretion on financial liabilities | — | 0.3 | 0.3 | |||||||||
| Deferred tax on purchase price intangibles | (1.8 | ) | — | (1.8 | ) | |||||||
| Adjusted net income/(loss) | 50.2 | (9.9 | ) | 40.3 | ||||||||
8
Three months ended 31 March 2020:
| Online gaming (£m) | Unallocated
corporate costs (£m) | Total (£m) | ||||||||||
| Revenue | 155.3 | — | 155.3 | |||||||||
| Distribution costs | 84.0 | — | 84.0 | |||||||||
| Amortisation and depreciation | 22.6 | 0.2 | 22.8 | |||||||||
| Compensation, professional, and general and administrative expenses | 25.8 | 4.5 | 30.3 | |||||||||
| Transaction related costs | — | 2.2 | 2.2 | |||||||||
| Foreign exchange (gain)/loss | (0.8 | ) | 4.8 | 4.0 | ||||||||
| Financing, net | 0.2 | 6.5 | 6.7 | |||||||||
| Income/(loss) for the period before taxes | 23.5 | (18.2 | ) | 5.3 | ||||||||
| Tax expense | 1.1 | 0.1 | 1.2 | |||||||||
| Net income/(loss) for the period after taxes | 22.4 | (18.3 | ) | 4.1 | ||||||||
| Net income/(loss) for the period after taxes | 22.4 | (18.3 | ) | 4.1 | ||||||||
| Interest expense, net | 0.2 | 6.2 | 6.4 | |||||||||
| Accretion on financial liabilities | — | 0.3 | 0.3 | |||||||||
| Tax expense | 1.1 | 0.1 | 1.2 | |||||||||
| Amortisation and depreciation | 22.6 | 0.2 | 22.8 | |||||||||
| EBITDA | 46.3 | (11.5 | ) | 34.8 | ||||||||
| Transaction related costs | — | 2.2 | 2.2 | |||||||||
| Foreign exchange (gain)/loss | (0.8 | ) | 4.8 | 4.0 | ||||||||
| Adjusted EBITDA | 45.5 | (4.5 | ) | 41.0 | ||||||||
| Net income/(loss) for the period after taxes | 22.4 | (18.3 | ) | 4.1 | ||||||||
| Transaction related costs | — | 2.2 | 2.2 | |||||||||
| Foreign exchange (gain)/loss | (0.8 | ) | 4.8 | 4.0 | ||||||||
| Amortisation of acquisition related purchase price intangibles | 19.2 | — | 19.2 | |||||||||
| Accretion on financial liabilities | — | 0.3 | 0.3 | |||||||||
| Deferred tax on purchase price intangibles | (1.6 | ) | — | (1.6 | ) | |||||||
| Adjusted net income/(loss) | 39.2 | (11.0 | ) | 28.2 | ||||||||
During the three months ended 31 March 2021, revenue was earned from players situated in the following locations: United Kingdom – 60% (three months ended 31 March 2020 – 59%), Japan – 28% (three months ended 31 March 2020 – 24%), Spain – 4% (three months ended 31 March 2020 – 5%), rest of Europe – 2% (three months ended 31 March 2020 – 6%), rest of world – 6% (three months ended 31 March 2020 – 6%).
During the three months ended 31 March 2021, the Group’s B2B Revenue comprised 4% (three months ended 31 March 2020 – 4%) of total Group revenue, with the remaining portion being revenue earned from Net Gaming Revenue operations.
Non-current assets by geographical location as at 31 March 2021 were as follows: Europe £97.5 million (31 December 2020 – £98.8 million), Americas £4.9 million (31 December 2020 – £6.1 million) and United Kingdom £858.6 million (31 December 2020 – £874.7 million). £18.5 million of the movement in non-current assets relates to the Group’s online gaming segment, with the remainder relating to unallocated corporate costs.
9
| 5. | Costs and expenses |
| Three months ended 31 March 2021 (£m) | Three months ended 31 March 2020 (£m) | |||||||
| Distribution costs: | ||||||||
| Selling and marketing | 43.2 | 35.0 | ||||||
| Licensing fees | 17.6 | 13.5 | ||||||
| Gaming taxes | 28.7 | 23.6 | ||||||
| Processing fees | 18.2 | 11.9 | ||||||
| 107.7 | 84.0 | |||||||
| Administrative costs: | ||||||||
| Compensation and benefits | 24.5 | 21.6 | ||||||
| Professional fees | 2.4 | 1.6 | ||||||
| General and administrative | 6.6 | 7.1 | ||||||
| Tangible and right-of-use asset depreciation | 2.2 | 1.9 | ||||||
| Intangible asset amortisation | 22.3 | 20.9 | ||||||
| 58.0 | 53.1 | |||||||
| 6. | Interest income/expense |
| Three months
ended 31 March 2021 (£m) | Three months
ended 31 March 2020 (£m) | |||||||
| Total interest income | 0.1 | 0.1 | ||||||
| Interest accrued and paid on long-term debt | 4.7 | 6.1 | ||||||
| Interest accrued on deferred consideration | 0.1 | 0.1 | ||||||
| Interest accrued and paid on lease liabilities | 0.3 | 0.3 | ||||||
| Total interest expense | 5.1 | 6.5 | ||||||
| Debt issue costs and accretion recognised on long-term debt | 0.3 | 0.3 | ||||||
| Total accretion on financial liabilities | 0.3 | 0.3 | ||||||
10
| 7. | Taxes and deferred taxes |
| Three months
ended 31 March 2021 (£m) | Three months
ended 31 March 2020 (£m) | |||||||
| UK | 2.6 | 1.4 | ||||||
| Foreign jurisdictions | 7.4 | 1.7 | ||||||
| Adjustments for prior periods | — | 2.0 | ||||||
| Current tax expense | 10.0 | 5.1 | ||||||
| Tax effect of temporary differences | (3.7 | ) | (2.3 | ) | ||||
| Reversal of temporary differences related to business combinations | (1.8 | ) | (1.6 | ) | ||||
| Deferred tax credit | (5.5 | ) | (3.9 | ) | ||||
| Total tax expense | 4.5 | 1.2 | ||||||
The difference between the actual tax charge for the period and the standard rate of corporation tax in the United Kingdom applied to profits for the period is as follows:
| Three months
ended 31 March 2021 (£m) | Three months
ended 31 March 2020 (£m) | |||||||
| Profit for the period before taxes (continuing operations) | 28.3 | 5.3 | ||||||
| Tax using Gamesys Group plc’s domestic tax rate of 19% (2020 – 19%) | 5.4 | 1.0 | ||||||
| Adjusted for effects of: | ||||||||
| Non-deductible expenses | 3.6 | 0.4 | ||||||
| Different tax rates applied in foreign jurisdictions | (5.7 | ) | (5.6 | ) | ||||
| Non-capital loss for which no tax benefit has been recorded | 0.9 | 2.9 | ||||||
| Adjustments for prior periods | — | 2.0 | ||||||
| Utilisation of brought forward losses not previously recognised as an asset | (0.1 | ) | — | |||||
| Other differences | 0.4 | 0.5 | ||||||
| Total tax expense | 4.5 | 1.2 | ||||||
As at 31 March 2021, taxes payable and receivable balances consist primarily of taxes related to the 2018, 2019, 2020 and 2021 fiscal years.
As at 31 March 2021, the Group has tax losses amounting to £6.2 million (31 December 2020 – £4.5 million) for which no deferred tax asset has been recognised due to reduced certainty over the existence of future taxable profits in the affected subsidiaries.
| Deferred
tax asset (£m) | Deferred
tax liability (£m) | |||||||
| Balance, 1 January 2020 | — | 53.2 | ||||||
| Deferred tax on purchase price intangibles | — | (8.7 | ) | |||||
| Transfer from current taxes receivable | 7.2 | — | ||||||
| Accrued tax rebates | 4.8 | — | ||||||
| Temporary differences: intangible assets | 1.7 | — | ||||||
| Transfer to current taxes receivable | (3.8 | ) | — | |||||
| Foreign exchange translation | — | (0.1 | ) | |||||
| Balance, 31 December 2020 | 9.9 | 44.4 | ||||||
| Deferred tax on purchase price intangibles | — | (1.8 | ) | |||||
| Temporary differences: intangible assets | (0.4 | ) | — | |||||
| Accrued tax rebates | 4.1 | — | ||||||
| Foreign exchange translation | (0.6 | ) | — | |||||
| Balance, 31 March 2021 | 13.0 | 42.6 | ||||||
11
Deferred tax assets relate to differences in timing of distribution of taxed profits through intercompany dividend declarations (£11.7 million) and other temporary differences (£1.3 million). Deferred tax liabilities relate exclusively to balances arising on business combinations.
| 8. | Earnings per share |
The following table presents the calculation of basic and diluted earnings per share:
| Three months
ended 31 March 2021 (£m) | Three months
ended 31 March 2020 (£m) | |||||||
| Numerator: | ||||||||
| Net income attributable to owners of the parent – basic | 23.8 | 4.1 | ||||||
| Net income attributable to owners of the parent – diluted | 23.8 | 4.1 | ||||||
| Denominator: | ||||||||
| Weighted average number of shares outstanding – basic (#) | 109.4 | 108.7 | ||||||
| Weighted average effect of dilutive share options (#) | 0.4 | — | ||||||
| Weighted average number of shares outstanding – diluted (#) | 109.8 | 108.7 | ||||||
| Net income per share1,2 | ||||||||
| Basic | 21.8 | p | 3.8 | p | ||||
| Diluted | 21.7 | p | 3.8 | p | ||||
1Basic net income per share is calculated by dividing the net income by the weighted average number of shares outstanding during the period.
2Diluted net income per share is calculated by dividing the net income by the weighted average number of shares outstanding during the period and adjusted for the number of potentially dilutive share options and contingently issuable instruments.
| 9. | Liabilities arising from financing activities |
The following is a reconciliation of liabilities arising from financing activities:
| Long-term debt (£m) | Interest payable (£m) | Non- compete clauses (£m) | Interest
rate swap liability (£m) | Currency swap liability (£m) | Deferred consideration (£m) | Lease liabilities (£m) | Total (£m) | |||||||||||||||||||||||||
| Balance, 1 January 2020 | 530.3 | 1.0 | 4.7 | 1.1 | 9.3 | 10.0 | 22.7 | 579.1 | ||||||||||||||||||||||||
| Cash flows | (40.3 | ) | (21.8 | ) | (4.7 | ) | (0.9 | ) | (2.3 | ) | — | (5.9 | ) | (75.9 | ) | |||||||||||||||||
| Non-cash flows: | ||||||||||||||||||||||||||||||||
| Fair value adjustments | — | — | — | 1.6 | (2.0 | ) | — | — | (0.4 | ) | ||||||||||||||||||||||
| Interest expense | — | 22.9 | — | — | — | — | 1.2 | 24.1 | ||||||||||||||||||||||||
| Lease liabilities recognised | — | — | — | — | — | — | 4.6 | 4.6 | ||||||||||||||||||||||||
| Accretion | 1.2 | — | — | — | — | — | — | 1.2 | ||||||||||||||||||||||||
| Foreign exchange translation | 16.9 | (0.2 | ) | — | — | — | — | 0.1 | 16.8 | |||||||||||||||||||||||
| Balance, 31 December 2020 | 508.1 | 1.9 | — | 1.8 | 5.0 | 10.0 | 22.7 | 549.5 | ||||||||||||||||||||||||
| Cash flows | — | (4.7 | ) | — | (0.2 | ) | (0.5 | ) | — | (1.5 | ) | (6.9 | ) | |||||||||||||||||||
| Non-cash flows: | ||||||||||||||||||||||||||||||||
| Fair value adjustments | — | — | — | (0.3 | ) | 4.7 | — | — | 4.4 | |||||||||||||||||||||||
| Interest expense | — | 4.7 | — | — | — | — | 0.3 | 5.0 | ||||||||||||||||||||||||
| Lease liabilities recognised | — | — | — | — | — | — | 0.9 | 0.9 | ||||||||||||||||||||||||
| Accretion | 0.3 | — | — | — | — | — | — | 0.3 | ||||||||||||||||||||||||
| Foreign exchange translation | (16.4 | ) | — | — | — | — | — | (0.2 | ) | (16.6 | ) | |||||||||||||||||||||
| Balance, 31 March 2021 | 492.0 | 1.9 | — | 1.3 | 9.2 | 10.0 | 22.2 | 536.6 | ||||||||||||||||||||||||
12
| 10. | Intangible assets and goodwill |
As at 31 March 2021
| Player relationships | Software | Brand | Partnership agreements | Goodwill | Total | |||||||||||||||||||
| (£m) | (£m) | (£m) | (£m) | (£m) | (£m) | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Balance, 1 January 2021 | 516.2 | 142.0 | 68.5 | 17.8 | 545.7 | 1,290.2 | ||||||||||||||||||
| Additions | — | 4.7 | — | — | — | 4.7 | ||||||||||||||||||
| Translation | (1.2 | ) | (2.6 | ) | (0.5 | ) | (0.3 | ) | (2.7 | ) | (7.3 | ) | ||||||||||||
| Balance, 31 March 2021 | 515.0 | 144.1 | 68.0 | 17.5 | 543.0 | 1,287.6 | ||||||||||||||||||
| Accumulated amortisation/impairment | ||||||||||||||||||||||||
| Balance, 1 January 2021 | 262.0 | 38.7 | 20.0 | 16.2 | 19.5 | 356.4 | ||||||||||||||||||
| Amortisation | 17.6 | 3.3 | 0.9 | 0.5 | — | 22.3 | ||||||||||||||||||
| Translation | (1.0 | ) | (2.1 | ) | (0.2 | ) | (0.1 | ) | (0.3 | ) | (3.7 | ) | ||||||||||||
| Balance, 31 March 2021 | 278.6 | 39.9 | 20.7 | 16.6 | 19.2 | 375.0 | ||||||||||||||||||
| Carrying value | ||||||||||||||||||||||||
| Balance, 31 March 2021 | 236.4 | 104.2 | 47.3 | 0.9 | 523.8 | 912.6 | ||||||||||||||||||
As at 31 December 2020
| Player relationships | Software | Brand | Partnership agreements | Goodwill | Total | |||||||||||||||||||
| (£m) | (£m) | (£m) | (£m) | (£m) | (£m) | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Balance, 1 January 2020 | 515.0 | 123.0 | 68.2 | 17.5 | 544.4 | 1,268.1 | ||||||||||||||||||
| Additions | — | 16.8 | — | — | — | 16.8 | ||||||||||||||||||
| Translation | 1.2 | 2.2 | 0.3 | 0.3 | 1.3 | 5.3 | ||||||||||||||||||
| Balance, 31 December 2020 | 516.2 | 142.0 | 68.5 | 17.8 | 545.7 | 1,290.2 | ||||||||||||||||||
| Accumulated amortisation/impairment | ||||||||||||||||||||||||
| Balance, 1 January 2020 | 188.4 | 25.6 | 16.5 | 8.7 | 20.2 | 259.4 | ||||||||||||||||||
| Amortisation | 72.4 | 12.0 | 3.4 | 3.4 | — | 91.2 | ||||||||||||||||||
| Impairment1 | — | — | — | 4.1 | — | 4.1 | ||||||||||||||||||
| Translation | 1.2 | 1.1 | 0.1 | — | (0.7 | ) | 1.7 | |||||||||||||||||
| Balance, 31 December 2020 | 262.0 | 38.7 | 20.0 | 16.2 | 19.5 | 356.4 | ||||||||||||||||||
| Carrying value | ||||||||||||||||||||||||
| Balance, 31 December 2020 | 254.2 | 103.3 | 48.5 | 1.6 | 526.2 | 933.8 | ||||||||||||||||||
1During the year ended 31 December 2020, a number of the Group’s purchase price partnership agreements have either expired or have been terminated. As a result, the Group recognised a £4.1 million impairment for the unamortised portion of the relevant contracts.
13
| 11. | Other long-term receivables |
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Secured convertible loan | 3.9 | 3.9 | ||||||
| Long-term loan receivable (net of ECL provision discussed in note 13) | 0.9 | 1.0 | ||||||
| Other | 0.2 | 0.2 | ||||||
| 5.0 | 5.1 | |||||||
| 12. | Cash, restricted cash and player deposits |
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Cash | 250.9 | 212.6 | ||||||
| Player deposits – restricted cash1 | 29.0 | 29.6 | ||||||
1Player deposits – restricted cash consists of cash held by the Group in relation to amounts payable to players.
| 13. | Trade and other receivables |
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Trade receivables | 8.4 | 8.4 | ||||||
| Due from payment service providers (‘PSPs’) | 19.7 | 20.4 | ||||||
| Prepaid expenses | 11.1 | 12.4 | ||||||
| Sales tax receivable | 5.4 | 4.7 | ||||||
| Other receivables | 3.3 | 3.5 | ||||||
| ECL on above balances | (9.3 | ) | (9.5 | ) | ||||
| 38.6 | 39.9 | |||||||
The following table summarises the movement of the Group’s expected credit loss provision on trade and other receivables:
| (£m) | ||||
| Balance, 1 January 2020 | 4.5 | |||
| ECL on certain balances held with PSPs | 5.0 | |||
| Balance, 31 December 2020 | 9.5 | |||
| ECL on certain balances held with PSPs | — | |||
| Foreign exchange translation | (0.2 | ) | ||
| Balance, 31 March 2021 | 9.3 | |||
The following table summarises the Group’s expected credit loss on its trade and other receivables and other long-term receivables at 31 March 2021:
| 0-30 days (£m) | 31-60 days (£m) | 61-90 days (£m) | 90 days + (£m) | Total (£m) | ||||||||||||||||
| Trade and other receivables | 0.1 | — | 0.3 | 0.5 | 0.9 | |||||||||||||||
| Other long-term receivables (note 11) | — | — | — | 0.4 | 0.4 | |||||||||||||||
| 0.1 | — | 0.3 | 0.9 | 1.3 | ||||||||||||||||
14
The following table summarises the Group’s expected credit loss on its trade and other receivables and other long-term receivables at 31 December 2020:
| 0-30 days (£m) | 31-60 days (£m) | 61-90 days (£m) | 90 days + (£m) | Total (£m) | ||||||||||||||||
| Trade and other receivables | 0.1 | — | 0.1 | 0.7 | 0.9 | |||||||||||||||
| Other long-term receivables (note 11) | — | — | — | 0.4 | 0.4 | |||||||||||||||
| 0.1 | — | 0.1 | 1.1 | 1.3 | ||||||||||||||||
| 14. | Currency swap and interest rate swap |
Currency swap
As at 31 March 2021, the fair value of the Currency Swap was a £9.2 million payable (31 December 2020 – £5.0 million). The Group has included £6.1 million of this amount in current liabilities (31 December 2020 – £2.9 million), with the remaining balance included in other long-term payables, as discussed in note 20. For the three months ended 31 March 2021, the Group recognised a loss of £4.7 million in other comprehensive income (three months ended 31 March 2020 – gain of £2.8 million).
| (£m) | ||||
| Balance, 1 January 2020 | 9.3 | |||
| FVOCI1 | (4.3 | ) | ||
| Balance, 31 December 2020 | 5.0 | |||
| FVOCI1 | 4.2 | |||
| Balance, 31 March 2021 | 9.2 | |||
1The difference between the total gain/(loss) on the Currency Swap and the portion connected to fair value revaluations relates to cash payments made on the Currency Swap.
Interest rate swap
As at 31 March 2021, the fair value of the Interest Rate Swap was a £1.3 million payable (31 December 2020 – £1.8 million). The Group has included £0.7 million of this payable in current liabilities (31 December 2020 – £0.8 million), with the value of the remaining balance included in other long-term payables, as discussed in note 20. For the three months ended 31 March 2021, the Group recognised a gain of £0.3 million in other comprehensive income (three months ended 31 March 2020 – loss of £1.0 million).
| (£m) | ||||
| Balance, 1 January 2020 | 1.1 | |||
| FVOCI1 | 0.7 | |||
| Balance, 31 December 2020 | 1.8 | |||
| FVOCI1 | (0.5 | ) | ||
| Balance, 31 March 2021 | 1.3 | |||
1The difference between the total gain/(loss) on the Interest Rate Swap and the portion connected to fair value revaluations relates to cash payments made on the Interest Rate Swap.
| 15. | Leases |
The Group’s leasing activity consists solely of leases of property. As at 31 March 2021, the carrying value of the right-of-use assets amounted to £21.2 million and the carrying value of lease liabilities amounted to £22.2 million, with £5.9 million (year ended 31 December 2020 – £6.1 million) of this balance shown in current liabilities and the remaining portion of £16.3 million (year ended 31 December 2020 – £16.6 million) reflected under non-current liabilities.
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Right-of-use assets
| (£m) | ||||
| Balance, 1 January 2020 | 22.2 | |||
| Additions | 4.2 | |||
| Depreciation | (5.3 | ) | ||
| Effect of modification of lease terms | 0.4 | |||
| Foreign exchange movements | 0.4 | |||
| Balance, 31 December 2020 | 21.9 | |||
| Additions | 0.9 | |||
| Depreciation | (1.3 | ) | ||
| Effect of modification of lease terms | — | |||
| Foreign exchange movements | (0.3 | ) | ||
| Balance, 31 March 2021 | 21.2 | |||
The lease liabilities balances were calculated using an incremental borrowing rate range of 2.0% - 5.0%.
Lease liabilities
| (£m) | ||||
| Balance, 1 January 2020 | 22.7 | |||
| Additions | 4.2 | |||
| Interest expense | 1.2 | |||
| Effect of modification of lease terms | 0.4 | |||
| Lease payments | (5.9 | ) | ||
| Foreign exchange movements | 0.1 | |||
| Balance, 31 December 2020 | 22.7 | |||
| Additions | 0.9 | |||
| Interest expense | 0.3 | |||
| Effect of modification of lease terms | — | |||
| Lease payments | (1.5 | ) | ||
| Foreign exchange movements | (0.2 | ) | ||
| Balance, 31 March 2021 | 22.2 | |||
| 16. | Accounts payable and accrued liabilities |
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Trade payables | 11.9 | 12.2 | ||||||
| Accruals | 52.1 | 52.3 | ||||||
| Gaming taxes, social security and other taxes | 34.7 | 34.1 | ||||||
| 98.7 | 98.6 | |||||||
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| 17. | Provisions |
| (£m) | ||||
| Balance, 1 January 2020 | 9.8 | |||
| Transfer to taxes payable | (3.8 | ) | ||
| Release of provisions in the year | (6.0 | ) | ||
| Provisions in the year | 6.8 | |||
| Balance, 31 December 2020 | 6.8 | |||
| Release of provisions in the period | (0.4 | ) | ||
| Foreign exchange translation | (0.3 | ) | ||
| Balance, 31 March 2021 | 6.1 | |||
| 18. | Long term debt |
| EUR Term Facility (£m) | GBP Term Facility (£m) | Total (£m) | ||||||||||
| Balance, 1 January 2020 | 282.9 | 247.4 | 530.3 | |||||||||
| Accretion1 | 0.7 | 0.5 | 1.2 | |||||||||
| Repayment | — | (40.0 | ) | (40.0 | ) | |||||||
| Debt repricing costs | — | (0.3 | ) | (0.3 | ) | |||||||
| Foreign exchange translation | 16.9 | — | 16.9 | |||||||||
| Balance, 31 December 2020 | 300.5 | 207.6 | 508.1 | |||||||||
| Accretion1 | 0.2 | 0.1 | 0.3 | |||||||||
| Foreign exchange translation | (16.4 | ) | — | (16.4 | ) | |||||||
| Balance, 31 March 2021 | 284.3 | 207.7 | 492.0 | |||||||||
| Current portion | — | — | — | |||||||||
| Non-current portion | 284.3 | 207.7 | 492.0 | |||||||||
1Effective interest rates are as follows: EUR Term Facility – 3.51% (2020 – 3.51%), GBP Term Facility – 4.56% (2020 – 4.56%).
| 19. | Financial instruments |
The principal financial instruments used by the Group are summarised below:
Financial assets
| Financial assets as
subsequently measured at amortised cost | ||||||||
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Cash | 250.9 | 212.6 | ||||||
| Player deposits | 29.0 | 29.6 | ||||||
| Trade and other receivables | 33.2 | 35.2 | ||||||
| Other long-term receivables | 1.1 | 1.2 | ||||||
| 314.2 | 278.6 | |||||||
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Financial liabilities
| Financial liabilities
as subsequently measured at amortised cost | ||||||||
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Accounts payable and accrued liabilities | 64.0 | 64.5 | ||||||
| Other short-term payables | 0.9 | 0.3 | ||||||
| Interest payable | 1.9 | 1.9 | ||||||
| Payable to players | 29.0 | 29.6 | ||||||
| Deferred consideration payable | 10.0 | 10.0 | ||||||
| Lease liabilities | 22.2 | 22.7 | ||||||
| Long-term debt | 492.0 | 508.1 | ||||||
| 620.0 | 637.1 | |||||||
The carrying values of the financial instruments noted above approximate their fair values.
Other financial instruments
| Financial instruments at fair value – assets/(liabilities) | ||||||||
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Interest Rate Swap – through other comprehensive income | (1.3 | ) | (1.8 | ) | ||||
| Currency Swap – through other comprehensive income | (9.2 | ) | (5.0 | ) | ||||
| Other long-term receivables – through profit or loss | 3.9 | 3.9 | ||||||
| (6.6 | ) | (2.9 | ) | |||||
Fair value hierarchy
All of the Group’s financial instruments carried at fair value are classified in level 2 of the hierarchy.
The Interest Rate Swap and Currency Swap balances represent the fair values of expected cash flows under the Interest Rate Swap and Currency Swap agreements. Counterparty valuation reports are used as the basis of fair values of these instruments.
Other long-term receivables represent the fair value of the loan receivable from Gaming Realms. The key inputs into the fair value estimation of this balance include the share price of Gaming Realms on the date of cash transfer, a 2-year risk-free interest rate of 0.0278%, and an estimated share price return volatility rate of Gaming Realms of 73.0%.
| 20. | Other long-term payables |
| 31 March
2021 (£m) | 31 December 2020 (£m) | |||||||
| Deferred consideration payable | 10.0 | 10.0 | ||||||
| Interest Rate Swap (note 14) | 0.6 | 1.0 | ||||||
| Currency Swap (note 14) | 3.1 | 2.1 | ||||||
| 13.7 | 13.1 | |||||||
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| 21. | Share capital |
| Ordinary
shares of 10p | ||||||||
| (£m) | # | |||||||
| Balance, 1 January 2020 | 10.9 | 108,665,248 | ||||||
| Exercise of options | 0.1 | 630,000 | ||||||
| Issue of shares under the G MINE SIP | — | 27,066 | ||||||
| Balance, 31 December 2020 | 11.0 | 109,322,314 | ||||||
| Exercise of options | — | 150,000 | ||||||
| Issue of shares under the G MINE SIP | — | 8,316 | ||||||
| Balance, 31 March 2021 | 11.0 | 109,480,630 | ||||||
Ordinary shares
During the three months ended 31 March 2021, Gamesys Group plc did not issue any additional ordinary shares, except as described below. The issued share capital is fully paid up.
Long-term incentive plan
During the three months ended 31 March 2021, the Group recorded £0.5 million (three months ended 31 March 2020 – £0.2 million) in share-based compensation expense relating to its long-term incentive plans with a corresponding increase in share-based payment reserve.
Employee share incentive plan
During the three months ended 31 March 2021, the Group recorded £0.1 million (three months ended 31 March 2020 – £nil) in share-based compensation expense relating to its G MINE SIP with a corresponding increase in share-based payment reserve.
Additionally, during the three months ended 31 March 2021, the Group made a cash payment of £1.6 million (three months ended 31 March 2020 – £nil) to acquire the Group’s ordinary shares to be distributed to its employee base to satisfy the Group’s obligation in respect of the one-time employee incentive, as discussed in the Annual Financial Statements.
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| 22. | Cash generated from operations |
The following table provides a reconciliation of net income for the period to cash generated from operations:
| Three months ended | Three months ended | |||||||
| 31 March 2021 | 31 March 2020 | |||||||
| (£m) | (£m) | |||||||
| Net income for the period | 23.8 | 4.1 | ||||||
| Adjustments for: | ||||||||
| Share-based compensation expense | 0.6 | 0.2 | ||||||
| Amortisation and depreciation | 24.5 | 22.8 | ||||||
| Tax expense | 4.5 | 1.2 | ||||||
| Interest expense, net | 5.3 | 6.7 | ||||||
| Foreign exchange (gain)/loss | (4.2 | ) | 4.0 | |||||
| Restriction of cash balances | — | (0.5 | ) | |||||
| Increase in trade and other receivables | — | (1.3 | ) | |||||
| Increase in other long-term receivables | — | 0.1 | ||||||
| Increase/(decrease) in accounts payable and accrued liabilities | 1.7 | (0.6 | ) | |||||
| Increase in other short-term payables | 0.7 | 0.1 | ||||||
| Reduction in provisions | (0.4 | ) | — | |||||
| Cash generated from operations | 56.5 | 36.8 | ||||||
| 23. | Contingent liabilities |
Indirect taxation
Gamesys Group plc subsidiaries may be subject to indirect taxation on transactions, including those that have been treated as exempt supplies of gambling, or on supplies that have been zero rated where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Revenue earned from players located in any particular jurisdiction may give rise to further taxes in that jurisdiction for example, by way of gaming taxes levied on the Group’s revenue. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position.
Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered less than probable the contingency is not recognised as a liability at the balance sheet date.
Regulatory
As the Group operates real-money gaming activities through various gambling licences, compliant anti-money laundering, anti-terrorism, safer gambling, fraud detection, risk management and other regulatory policies, procedures, and controls to mitigate and effectively manage these risks must be maintained. If the Group fails to do so, enforcement action by gambling regulators, or other governmental agencies or private action by affected third parties could occur. Enforcement actions could include financial penalties or regulatory settlements, public warnings, the imposition of special operating conditions, and the suspension or revocation of gambling licences. At any given point in time, the Group's operating practices are typically under review by one or more regulatory authorities whose ongoing reporting of findings will often be outstanding and as such the outcomes can be uncertain.
Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Such provision is recorded when three criteria are met: (1) a present obligation from a past event exists, (2) it is probable that an outflow of resources will be required to settle the obligation, and (3) a reliable estimate can be made. Where these three criteria are not met no liability is recognised on the balance sheet date. At 31 March 2021, the Company has not recognised any such provision. (31 December 2020: £nil)
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