Attached files
file | filename |
---|---|
8-K/A - 8-K/A - BALLY TECHNOLOGIES, INC. | a14-5395_18ka.htm |
EX-23.1 - EX-23.1 - BALLY TECHNOLOGIES, INC. | a14-5395_1ex23d1.htm |
EX-99.1 - EX-99.1 - BALLY TECHNOLOGIES, INC. | a14-5395_1ex99d1.htm |
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements (the pro forma financial statements) present the pro forma financial position as of September 30, 2013 and the results of operations for the three months ended September 30, 2013 and for the year ended June 30, 2013 based upon the consolidated historical financial statements of Bally Technologies, Inc. (the Company) and SHFL entertainment, Inc. (SHFL) after giving effect to the acquisition of SHFL and related financing transaction (the Transaction) as further described under Note 1, Description of Transaction. The unaudited pro forma condensed combined statements of operations for the three months ended September 30, 2013 and the year ended June 30, 2013 (the pro forma statements of operations) give effect to the Transaction as if it had been completed on July 1, 2012. The unaudited pro forma condensed combined balance sheet as of September 30, 2013 (the pro forma balance sheet) gives effect to the Transaction as if it had been completed on September 30, 2013.
The pro forma adjustments reflected in the pro forma financial statements are based on items that are (1) directly attributable to the Transaction, (2) factually supportable, and (3) with respect to the pro forma statements of operations, expected to have a continuing impact on the combined results. The pro forma financial statements reflect certain adjustments and reclassifications to the historical financial statements of SHFL to conform to the Companys accounting policies and financial statement presentation. The adjustments reflect the Companys best estimates based upon the information currently available. The reclassifications were determined based upon the information currently available and additional reclassifications may be necessary once the accounting for the Transaction is completed and additional information becomes available.
In accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), the Transaction will be accounted for under the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the date of the Transaction. The pro forma financial statements reflect a preliminary allocation of the purchase price based on assumptions and estimates with respect to fair value that are subject to change when the Company finalizes its valuation analyses. Any such changes to the preliminary allocation may be material.
The pro forma financial statements are presented for illustrative purposes only and are based on the estimates and assumptions set forth in the accompanying notes. The pro forma financial statements are not necessarily indicative of what the operating results or financial position actually would have been had the Transaction been completed as of the dates indicated. In addition, the pro forma financial statements do not purport to project the future operating results or financial position of the Company. The pro forma statements of operations do not include: (1) any revenue or cost saving synergies that may be achieved subsequent to the completion of the Transaction; or (2) the impact of non-recurring items directly related to the Transaction. The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the pro forma financial statements and the separate historical financial statements and accompanying notes of the Company and SHFL.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended September 30, 2013
(Unaudited, in 000s, except per share amounts)
|
|
Historical |
|
|
|
|
|
|
| ||||||
|
|
Bally Technologies, Inc. |
|
SHFL entertainment, Inc. |
|
Pro Forma Adjustments |
|
Notes |
|
Pro Forma Combined |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
Gaming equipment and systems |
|
$ |
147,387 |
|
$ |
51,481 |
|
$ |
|
|
|
|
$ |
198,868 |
|
Product lease, operation and royalty |
|
101,902 |
|
30,296 |
|
|
|
|
|
132,198 |
| ||||
|
|
249,289 |
|
81,777 |
|
|
|
|
|
331,066 |
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of gaming equipment and systems (1) |
|
54,506 |
|
18,636 |
|
(239 |
) |
A |
|
72,903 |
| ||||
Cost of product lease, operation and royalty (1) |
|
30,619 |
|
11,126 |
|
184 |
|
C |
|
40,957 |
| ||||
|
|
|
|
|
|
(972 |
) |
A |
|
|
| ||||
Selling, general and administrative |
|
72,427 |
|
26,218 |
|
(1,709 |
) |
A |
|
90,128 |
| ||||
|
|
|
|
|
|
1,728 |
|
A |
|
|
| ||||
|
|
|
|
|
|
(8,536 |
) |
B |
|
|
| ||||
Research and development costs |
|
29,504 |
|
10,093 |
|
(109 |
) |
A |
|
37,760 |
| ||||
|
|
|
|
|
|
(1,728 |
) |
A |
|
|
| ||||
Depreciation and amortization |
|
5,265 |
|
|
|
3,029 |
|
A |
|
19,757 |
| ||||
|
|
|
|
|
|
11,463 |
|
C |
|
|
| ||||
|
|
192,321 |
|
66,073 |
|
3,111 |
|
|
|
261,505 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
56,968 |
|
15,704 |
|
(3,111 |
) |
|
|
69,561 |
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
2,481 |
|
243 |
|
|
|
|
|
2,724 |
| ||||
Interest expense |
|
(4,427 |
) |
(288 |
) |
(16,707 |
) |
F |
|
(21,169 |
) | ||||
|
|
|
|
|
|
253 |
|
E |
|
|
| ||||
Other, net |
|
(900 |
) |
1,411 |
|
|
|
|
|
511 |
| ||||
Income from continuing operations before income taxes |
|
54,122 |
|
17,070 |
|
(19,565 |
) |
|
|
51,627 |
| ||||
Income tax (expense) benefit |
|
(16,172 |
) |
(6,320 |
) |
6,864 |
|
G |
|
(15,628 |
) | ||||
Net income |
|
37,950 |
|
10,750 |
|
(12,701 |
) |
|
|
35,999 |
| ||||
Less net loss attributable to noncontrolling interests |
|
166 |
|
|
|
|
|
|
|
166 |
| ||||
Net income attributable to Bally Technologies, Inc. |
|
$ |
37,784 |
|
$ |
10,750 |
|
$ |
(12,701 |
) |
|
|
$ |
35,833 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
0.98 |
|
$ |
0.19 |
|
|
|
|
|
$ |
0.93 |
| |
Diluted earnings per share |
|
$ |
0.97 |
|
$ |
0.19 |
|
|
|
|
|
$ |
0.92 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
38,381 |
|
57,258 |
|
|
|
|
|
38,381 |
| ||||
Diluted |
|
39,091 |
|
58,053 |
|
|
|
|
|
39,091 |
|
(1) Cost of gaming equipment and systems and product lease, operation and royalty exclude amortization related to intangible assets which are included in depreciation and amortization.
See accompanying notes to the pro forma combined financial statements, which are an integral part of these statements.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended June 30, 2013
(Unaudited, in 000s, except per share amounts)
|
|
Historical |
|
|
|
|
|
|
| ||||||
|
|
Bally Technologies, Inc. |
|
SHFL entertainment, Inc. |
|
Pro Forma Adjustments |
|
Notes |
|
Pro Forma Combined |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
Gaming equipment and systems |
|
$ |
592,061 |
|
$ |
165,796 |
|
$ |
|
|
|
|
$ |
757,857 |
|
Product lease, operation and royalty |
|
404,978 |
|
117,490 |
|
|
|
|
|
522,468 |
| ||||
|
|
997,039 |
|
283,286 |
|
|
|
|
|
1,280,325 |
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of gaming equipment and systems (1) |
|
228,805 |
|
61,938 |
|
7,856 |
|
D |
|
297,621 |
| ||||
|
|
|
|
|
|
(978 |
) |
A |
|
|
| ||||
Cost of product lease, operation and royalty (1) |
|
122,188 |
|
40,798 |
|
737 |
|
C |
|
159,592 |
| ||||
|
|
|
|
|
|
(4,131 |
) |
A |
|
|
| ||||
Selling, general and administrative |
|
276,685 |
|
92,617 |
|
(7,059 |
) |
A |
|
363,597 |
| ||||
|
|
|
|
|
|
6,364 |
|
A |
|
|
| ||||
|
|
|
|
|
|
(5,010 |
) |
B |
|
|
| ||||
Research and development costs |
|
111,118 |
|
36,506 |
|
(339 |
) |
A |
|
140,921 |
| ||||
|
|
|
|
|
|
(6,364 |
) |
A |
|
|
| ||||
Depreciation and amortization |
|
22,733 |
|
|
|
12,507 |
|
A |
|
81,090 |
| ||||
|
|
|
|
|
|
45,850 |
|
C |
|
|
| ||||
|
|
761,529 |
|
231,859 |
|
49,433 |
|
|
|
1,042,821 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
235,510 |
|
51,427 |
|
(49,433 |
) |
|
|
237,504 |
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
5,328 |
|
697 |
|
|
|
|
|
6,025 |
| ||||
Interest expense |
|
(18,120 |
) |
(1,086 |
) |
(66,827 |
) |
F |
|
(85,002 |
) | ||||
|
|
|
|
|
|
1,031 |
|
E |
|
|
| ||||
Other, net |
|
(6,443 |
) |
174 |
|
|
|
|
|
(6,269 |
) | ||||
Income from continuing operations before income taxes |
|
216,275 |
|
51,212 |
|
(115,229 |
) |
|
|
152,258 |
| ||||
Income tax (expense) benefit |
|
(76,574 |
) |
(15,101 |
) |
40,737 |
|
G |
|
(50,938 |
) | ||||
Net income |
|
139,701 |
|
36,111 |
|
(74,492 |
) |
|
|
101,320 |
| ||||
Less net loss attributable to noncontrolling interests |
|
(1,743 |
) |
|
|
|
|
|
|
(1,743 |
) | ||||
Net income attributable to Bally Technologies, Inc. |
|
$ |
141,444 |
|
$ |
36,111 |
|
$ |
(74,492 |
) |
|
|
$ |
103,063 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
3.53 |
|
$ |
0.64 |
|
|
|
|
|
$ |
2.57 |
| |
Diluted earnings per share |
|
$ |
3.45 |
|
$ |
0.63 |
|
|
|
|
|
$ |
2.51 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
40,120 |
|
56,806 |
|
|
|
|
|
40,120 |
| ||||
Diluted |
|
40,992 |
|
57,514 |
|
|
|
|
|
40,992 |
|
(1) Cost of gaming equipment and systems and product lease, operation and royalty exclude amortization related to intangible assets which are included in depreciation and amortization.
See accompanying notes to the pro forma combined financial statements, which are an integral part of these statements.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2013
(Unaudited, in 000s)
|
|
Historical |
|
|
|
|
|
|
| ||||||
|
|
Bally Technologies, Inc. |
|
SHFL entertainment, Inc. |
|
Pro Forma Adjustments |
|
Notes |
|
Pro Forma Combined |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
66,216 |
|
$ |
43,031 |
|
$ |
1,430,000 |
|
B |
|
$ |
131,826 |
|
|
|
|
|
|
|
(1,362,653 |
) |
C |
|
|
| ||||
|
|
|
|
|
|
(33,016 |
) |
D |
|
|
| ||||
|
|
|
|
|
|
(11,752 |
) |
E |
|
|
| ||||
Restricted cash |
|
13,422 |
|
|
|
|
|
|
|
13,422 |
| ||||
Accounts and notes receivable, net of allowance |
|
258,743 |
|
57,140 |
|
2,151 |
|
A |
|
317,090 |
| ||||
|
|
|
|
|
|
(944 |
) |
F |
|
|
| ||||
Inventories |
|
66,097 |
|
34,140 |
|
7,856 |
|
G |
|
107,409 |
| ||||
|
|
|
|
|
|
(684 |
) |
A |
|
|
| ||||
Prepaid and refundable income tax |
|
13,249 |
|
8,579 |
|
|
|
|
|
21,828 |
| ||||
Deferred income tax assets |
|
38,659 |
|
3,417 |
|
(11,688 |
) |
L |
|
30,388 |
| ||||
Deferred cost of revenue |
|
21,505 |
|
|
|
|
|
|
|
21,505 |
| ||||
Prepaid assets |
|
18,526 |
|
|
|
4,929 |
|
A |
|
23,455 |
| ||||
Other current assets |
|
2,691 |
|
8,076 |
|
(4,929 |
) |
A |
|
3,892 |
| ||||
|
|
|
|
|
|
684 |
|
A |
|
|
| ||||
|
|
|
|
|
|
(2,151 |
) |
A |
|
|
| ||||
|
|
|
|
|
|
(479 |
) |
F |
|
|
| ||||
Total current assets |
|
499,108 |
|
154,383 |
|
17,324 |
|
|
|
670,815 |
| ||||
Restricted long-term investments |
|
14,952 |
|
|
|
|
|
|
|
14,952 |
| ||||
Long-term accounts and notes receivable, net of allowance |
|
61,862 |
|
9,668 |
|
|
|
|
|
71,530 |
| ||||
Property, plant and equipment, net |
|
36,709 |
|
35,010 |
|
586 |
|
H |
|
68,118 |
| ||||
|
|
|
|
|
|
(4,187 |
) |
A |
|
|
| ||||
Leased gaming equipment, net |
|
109,028 |
|
32,840 |
|
1,807 |
|
I |
|
143,675 |
| ||||
Goodwill |
|
172,386 |
|
87,602 |
|
745,549 |
|
K |
|
1,005,537 |
| ||||
Intangible assets, net |
|
23,829 |
|
57,529 |
|
448,911 |
|
J |
|
534,456 |
| ||||
|
|
|
|
|
|
4,187 |
|
A |
|
|
| ||||
Deferred income tax assets |
|
17,481 |
|
4,330 |
|
(17,229 |
) |
L |
|
4,582 |
| ||||
Income tax receivable |
|
1,837 |
|
|
|
. |
|
|
|
1,837 |
| ||||
Deferred cost of revenue |
|
13,182 |
|
|
|
|
|
|
|
13,182 |
| ||||
Other assets, net |
|
31,635 |
|
2,412 |
|
22,551 |
|
D |
|
55,645 |
| ||||
|
|
|
|
|
|
(953 |
) |
F |
|
|
| ||||
Total assets |
|
$ |
982,009 |
|
$ |
383,774 |
|
$ |
1,218,546 |
|
|
|
$ |
2,584,329 |
|
See accompanying notes to the pro forma combined financial statements, which are an integral part of these statements.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2013
(Unaudited, in 000s)
(Continued)
|
|
Historical |
|
|
|
|
|
|
| ||||||
|
|
Bally Technologies, Inc. |
|
SHFL entertainment, Inc. |
|
Pro Forma Adjustments |
|
Notes |
|
Pro Forma Combined |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
|
$ |
33,954 |
|
$ |
10,437 |
|
$ |
|
|
|
|
$ |
44,391 |
|
Accrued and other liabilities |
|
86,547 |
|
29,390 |
|
9,752 |
|
N |
|
126,428 |
| ||||
|
|
|
|
|
|
739 |
|
L |
|
|
| ||||
Jackpot liabilities |
|
11,012 |
|
|
|
|
|
|
|
11,012 |
| ||||
Deferred revenue |
|
54,757 |
|
4,508 |
|
(944 |
) |
F |
|
58,321 |
| ||||
Income tax payable |
|
12,957 |
|
5,732 |
|
|
|
|
|
18,689 |
| ||||
Current maturities of long-term debt |
|
26,447 |
|
|
|
11,000 |
|
B |
|
37,447 |
| ||||
Total current liabilities |
|
225,674 |
|
50,067 |
|
20,547 |
|
|
|
296,288 |
| ||||
Long-term debt, net of current maturities |
|
527,500 |
|
3,294 |
|
(2,000 |
) |
E |
|
1,937,329 |
| ||||
|
|
|
|
|
|
1,419,000 |
|
B |
|
|
| ||||
|
|
|
|
|
|
(10,465 |
) |
D |
|
|
| ||||
Deferred revenue |
|
30,647 |
|
|
|
|
|
|
|
30,647 |
| ||||
Deferred income tax liabilities |
|
177 |
|
3,366 |
|
126,685 |
|
L |
|
130,228 |
| ||||
Other income tax liability |
|
9,489 |
|
|
|
332 |
|
A |
|
9,821 |
| ||||
Other liabilities |
|
21,540 |
|
1,578 |
|
(332 |
) |
A |
|
22,786 |
| ||||
Total liabilities |
|
815,027 |
|
58,305 |
|
1,553,767 |
|
|
|
2,427,099 |
| ||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
| ||||
Special stock |
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock |
|
6,539 |
|
567 |
|
(567 |
) |
M |
|
6,539 |
| ||||
Treasury stock at cost |
|
(1,081,949 |
) |
|
|
|
|
|
|
(1,081,949 |
) | ||||
Additional paid-in capital |
|
569,212 |
|
147,185 |
|
(147,185 |
) |
M |
|
569,212 |
| ||||
Accumulated other comprehensive income (loss) |
|
(10,733 |
) |
22,210 |
|
(22,210 |
) |
M |
|
(10,733 |
) | ||||
Retained earnings |
|
684,123 |
|
155,507 |
|
(155,507 |
) |
M |
|
674,371 |
| ||||
|
|
|
|
|
|
(9,752 |
) |
N |
|
|
| ||||
Total Bally Technologies, Inc. stockholders equity |
|
167,192 |
|
325,469 |
|
(335,221 |
) |
|
|
157,440 |
| ||||
Noncontrolling interests |
|
(210 |
) |
|
|
|
|
|
|
(210 |
) | ||||
Total stockholders equity |
|
166,982 |
|
325,469 |
|
(335,221 |
) |
|
|
157,230 |
| ||||
Total liabilities and stockholders equity |
|
$ |
982,009 |
|
$ |
383,774 |
|
$ |
1,218,546 |
|
|
|
$ |
2,584,329 |
|
See accompanying notes to the pro forma combined financial statements, which are an integral part of these statements.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of the Transaction
On November 25, 2013, Bally Technologies, Inc. (the Company) completed the acquisition of SHFL entertainment, Inc. (SHFL). In connection with the closing of the Transaction, on November 25, 2013, the Company entered into the Incremental Joinder Agreement (the Joinder) among the Company, certain subsidiaries of the Company, Bank of America, N.A., as administrative agent (the Agent), and the other lenders party thereto. The Joinder provides for a term loan B facility (the Term Loan B) of $1.1 billion, the proceeds of which were used to finance the acquisition of SHFL. The Term Loan B has a 7-year maturity, and bears interest at a rate equal to either the applicable base rate plus 2.25%, or LIBOR plus 3.25%. The Term Loan B is subject to amortization of 0.25% per quarter. The Company also drew $330.0 million on its existing revolving credit facility in connection with the Transaction.
At the effective time of the Transaction, pursuant to the terms of the agreement and plan of merger: (i) each share of SHFL common stock, par value $0.01 (SHFL Common Stock) issued and outstanding immediately prior to such time, other than shares of SHFL Common Stock owned by the Company or SHFL (which were cancelled) and shares of SHFL Common Stock with respect to which dissenters rights were properly exercised and not withdrawn under Minnesota law, was automatically cancelled and converted into the right to receive $23.25 in cash, without interest (the Acquisition Consideration); (ii) each SHFL stock option outstanding as of July 15, 2013 was cancelled in exchange for the right of the holder to receive a lump sum cash payment equal to the number of shares of SHFL Common Stock underlying the SHFL stock option multiplied by the excess, if any, of the Acquisition Consideration over the exercise price of such SHFL stock option (the Option Payment); (iii) each award of SHFL restricted shares or restricted stock units outstanding as of July 15, 2013 was cancelled in exchange for the right of the holder to receive a lump-sum cash payment equal to the Acquisition Consideration multiplied by the number of shares of SHFL Common Stock underlying each award (the Restricted Shares Payment); and (iv) each award of SHFL performance units outstanding as of July 15, 2013 was cancelled in exchange for the right of the holder to receive a lump-sum cash payment equal to the Acquisition Consideration multiplied by the number of shares of SHFL Common Stock underlying the performance units at the applicable payout percentage (the Performance Unit Payment). The aggregate amount paid by the Company in respect of all Acquisition Consideration, Option Payments, Restricted Shares Payments, and Performance Unit Payments was approximately $1.4 billion, which was funded pursuant to the Joinder and the Companys existing revolving credit facility.
In connection with the transaction SHFL recorded approximately $12.0 million in accelerated share based compensation expense as a result of preexisting conditions in the terms of the original award agreements.
The foregoing description is not complete, and is subject to, and qualified in its entirety by reference to the complete text of the agreement and plan of merger which was filed as Exhibit 2.1 to the Current Report on Form 8-K with the Securities and Exchange Commission (the SEC) on July 18, 2013 and the complete text of the Joinder which was filed as Exhibit 10.1 to Current Report on Form 8-K on November 29, 2013.
Note 2. Basis of Pro Forma Presentation
The pro forma statements of operations for the three months ended September 30, 2013 and the year ended June 30, 2013 give effect to the Transaction as if it had been completed on July 1, 2012. The pro forma balance sheet as of September 30, 2013 gives effect to the Transaction as if it had been completed on September 30, 2013. The historical financial statements have been adjusted to give pro forma effect to events that are (i) directly attributable to the Transaction and related transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The pro forma financial statements are presented for illustrative purposes only and are based on the estimates and assumptions set forth in these notes. The pro forma financial statements are not necessarily indicative of what the operating results or financial position actually would have been had the Transaction been completed as of the dates indicated. In addition, the pro forma financial statements do not purport to project the future operating results or financial position of the Company. The pro forma statements of operations do not include: (1) any revenue or cost saving synergies that may be achieved subsequent to the completion of the Transaction; or (2) the impact of non-recurring items directly related to the Transaction.
The pro forma financial statements have been derived from the historical consolidated financial statements of the Company and SHFL after giving effect to the Transaction. The pro forma financial statements reflect certain adjustments and reclassifications to the historical financial statements of SHFL to conform to the Companys accounting policies and financial statement presentation. The adjustments reflect the Companys best estimates based upon the information currently available. The reclassifications were determined based upon the information currently available and additional reclassifications may be necessary once the accounting for the Transaction is completed and additional information becomes available.
The Company prepares its consolidated financial statements on the basis of a fiscal year ending June 30. The consolidated financial statements of SHFL have historically been prepared on the basis of a fiscal year ending October 31. In accordance with applicable SEC rules, if the fiscal year end of an acquired entity differs from the acquirers fiscal year end by more than 93 days, the acquired entitys income statement must be brought within 93 days of the acquirers fiscal year end. Consequently, the pro forma statement of operations for the year ended June 30, 2013 includes the historical financial results of SHFL for the four quarters ended July 31, 2013, which is the aggregation of the nine months ended July 31, 2013 and the three months ended October 31, 2012. The pro forma statement of operations for the three months ended September 30, 2013 includes the historical financial results of SHFL for the quarter ended October 31, 2013.
In accordance with U.S. GAAP, the Transaction will be accounted for under the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values and the preliminary allocation below has been prepared to illustrate the estimated effect of the transaction as of it had taken place on September 30, 2013. The information given below reflects a preliminary allocation of the purchase price based on assumptions and estimates with respect to fair value that are subject to change once the Company has completed its detailed valuation analyses. Specifically, the Company is still evaluating the value of intangible assets and finalizing the accounting for taxes.
Note 3. Preliminary Purchase Price and Allocation
The pro forma purchase price allocation is subject to further adjustments as additional information becomes available and additional analysis and final valuations are conducted. There can be no assurance that these additional analyses and final valuations will not result in significant changes to the estimate of fair value set forth below.
Total purchase consideration was as follows (in 000s except per share amounts):
Purchase price for SHFL common stock (56,626 shares at $23.25 per share) |
|
$ |
1,316,554 |
|
Payments in respect of SHFL stock options, restricted shares, restricted share units, and performance units |
|
46,099 |
| |
Repayment of SHFL debt and other obligations |
|
11,752 |
| |
Total purchase price |
|
$ |
1,374,405 |
|
The following table reflects the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on assumptions and estimates with respect to fair value that are subject to change as additional information may become available during the measurement period (up to one year from the acquisition date):
|
|
(in 000s) |
| |
Current assets |
|
$ |
149,128 |
|
Property, plant and equipment |
|
31,409 |
| |
Leased gaming equipment |
|
34,647 |
| |
Goodwill |
|
833,151 |
| |
Intangible assets |
|
510,627 |
| |
Other long-term assets |
|
11,353 |
| |
Total assets |
|
1,570,315 |
| |
|
|
|
| |
Current liabilities |
|
(49,862 |
) | |
Deferred tax liabilities |
|
(143,176 |
) | |
Other long-term liabilities |
|
(2,872 |
) | |
Total liabilities |
|
(195,910 |
) | |
Net assets acquired |
|
$ |
1,374,405 |
|
Note 4. Adjustments to Pro Forma Financial Statements
The pro forma adjustments included in the pro forma financial statements are as follows:
Adjustments to Pro Forma Statements of Operations
A Reclassification adjustment to conform the presentation of SHFL to the Companys presentation. Specific SHFL balances have been reclassified as follows (in 000s):
For the three months ended September 30, 2013
Amount |
|
Description |
|
Reclassification description | |
$ |
239 |
|
Amortization of intangible assets |
|
From cost of gaming equipment and systems to depreciation and amortization |
972 |
|
Amortization of intangible assets |
|
From cost of product lease, operation and royalty to depreciation and amortization | |
1,709 |
|
Depreciation of property, plant and equipment |
|
From selling, general and administrative to depreciation and amortization | |
109 |
|
Depreciation of property, plant and equipment |
|
From research and development to depreciation and amortization | |
$ |
3,029 |
|
Total of amounts above reclassified to depreciation and amortization | ||
|
|
|
|
| |
$ |
1,728 |
|
Regulatory product approval expenses |
|
From research and development to selling, general and administrative |
For the year ended June 30, 2013
Amount |
|
Description |
|
Reclassification description | |
$ |
978 |
|
Amortization of intangible assets |
|
From cost of gaming equipment and systems to depreciation and amortization |
4,131 |
|
Amortization of intangible assets |
|
From cost of product lease, operation and royalty to depreciation and amortization | |
7,059 |
|
Depreciation of property, plant and equipment |
|
From selling, general and administrative to depreciation and amortization | |
339 |
|
Depreciation of property, plant and equipment |
|
From research and development to depreciation and amortization | |
$ |
12,507 |
|
Total of amounts above reclassified to depreciation and amortization | ||
|
|
|
|
| |
$ |
6,364 |
|
Regulatory product approval expenses |
|
From research and development to selling, general and administrative |
B Adjustment to remove Transaction-related fees and expenses of $5.2 million and $3.3 million for the Company and SHFL, respectively, for the three months ended September 30, 2013 and $1.0 million and $4.0 million for the Company and SHFL, respectively, for the year ended June 30, 2013, as such amounts are non-recurring costs directly related to the Transaction.
C Adjustment to recognize increased depreciation and amortization expense related to the increased carrying values of SHFLs tangible and intangible assets, which were adjusted to their estimated fair values. The estimated useful lives for each identified asset are consistent with their estimated economic benefit. The estimated fair values of tangible and intangible assets acquired and their estimated useful lives are in the table below.
Property, plant and equipment |
|
Useful |
|
Estimated |
| |
Land |
|
Indefinite |
|
$ |
3,965 |
|
Buildings and leasehold improvements |
|
5 - 40 |
|
14,294 |
| |
Furniture, fixtures and equipment |
|
3 - 7 |
|
13,150 |
| |
Property, plant and equipment |
|
|
|
$ |
31,409 |
|
|
|
|
|
|
| |
Leased gaming equipment |
|
|
|
|
| |
Leased gaming equipment |
|
3 - 5 |
|
$ |
34,647 |
|
|
|
|
|
|
| |
Intangible assets |
|
|
|
|
| |
Computer Software |
|
2 - 3 |
|
$ |
2,669 |
|
License Rights |
|
12 |
|
1,958 |
| |
Core technology and content (1) |
|
4 18 |
|
456,000 |
| |
Customer relationships |
|
7 |
|
43,000 |
| |
Trademark |
|
5 |
|
7,000 |
| |
Intangible assets |
|
|
|
$ |
510,627 |
|
(1) Includes $46 million of in-process research and development assets that are not yet subject to amortization until they reach commercial feasibility.
D Adjustment to recognize the increased value of inventory as an increase to cost of gaming equipment sold. The increase in the recorded value of inventory related primarily to finished goods, which the Company assumed would be sold within the first year of operations, which is consistent with SHFLs historical inventory turnover.
E Adjustment reflects the reversal of SHFLs interest expense and amortization of debt issuance costs related to its revolving credit facility, which was repaid in connection with the Transaction.
F Adjustment to record the additional interest expense that would have been incurred during the historical periods presented assuming the Term Loan B was in place and additional borrowings were made on the Companys existing revolving credit facility as of July 1, 2012. The additional interest expense related to (1) the Term Loan B interest computed using the LIBOR rate (taking into account the 1% floor) plus 3.25% applied to the new debt of $1.1 billion, (2) the additional $330.0 million of borrowings under the Companys existing revolving credit facility taking into consideration an increased interest rate differential, and (3) the amortization of debt issuance costs and original issue discount over the term of the Term Loan B.
G Adjustment reflects the tax effects of the pro forma adjustments made to the pro forma statement of operations calculated at the statutory rates in effect in each significant jurisdiction for the time periods presented.
Adjustments to Pro Forma Balance Sheet
A Reclassification adjustment to conform the presentation of SHFL to the Companys presentation. Specific SHFL balances have been reclassified as follows (in 000s):
Amount |
|
Description |
|
Reclassification description | |
$ |
2,151 |
|
Goods and services tax and value added tax receivables |
|
From other current assets to accounts and notes receivable |
684 |
|
Inventory on trial with customers |
|
From inventory to other current assets | |
4,929 |
|
Prepaid expenses |
|
From other current assets to prepaid assets | |
4,187 |
|
Capitalized software costs |
|
From property, plant and equipment to intangible assets | |
332 |
|
Unrecognized tax benefits |
|
From other liabilities to other income tax liability | |
B Adjustment to record the cash received and related current and long-term debt obligations of $1.1 billion under the Term Loan B and $330.0 under the Companys existing revolving credit facility.
C Adjustment reflects the cash used to purchase the outstanding SHFL common stock and payment to the holders of SHFL employee equity awards, which is summarized in Note 3.
D Adjustment includes cash paid for debt issuance costs as well as the original issue discount related to the Term Loan B.
E Adjustment reflects cash used and the related reduction of debt associated with the retirement of SHFLs existing revolving credit facility of $2.0 million as of the date of the pro forma balance sheet and other Transaction-related obligations of SHFL paid by the Company.
F Adjustment to current assets and liabilities to record items at their estimated fair value such as follows (in 000s):
Adjustment |
|
Description | |
$ |
944 |
|
Adjustment to accounts and notes receivable |
479 |
|
Adjustment to deferred cost of goods sold | |
953 |
|
Adjustment to SHFL debt issuance costs | |
944 |
|
Adjustment to deferred revenue | |
G Adjustment to record SHFL inventory at its estimated fair value. The adjustment related primarily to finished goods.
H Adjustment to record property, plant and equipment at its estimated fair value. See a detail of such assets by type in note C to the pro forma statements of operations above.
I Adjustment to record leased gaming equipment at its estimated fair value.
J Adjustments to record identifiable intangible assets at their estimated fair value. See a detail of such assets by type in note C to the pro forma statements of operations above.
K Adjustment represents the elimination of the historical goodwill of SHFL and the addition of the estimated fair value of the goodwill recognized in connection with the Transaction.
L Adjustment to deferred income tax assets and liabilities to reflect the effect recording the assets and liabilities of SHFL at their estimated fair values without a related step-up in basis for tax purposes.
M Adjustment represents the elimination of historical equity balances of SHFL.
N Adjustment to record Transaction-related fees and expenses paid upon completion of the Transaction.