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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 Company’s accounting policies and financial statement presentation. The adjustments reflect the Company’s 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 Company’s 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 Company’s accounting policies and financial statement presentation. The adjustments reflect the Company’s 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 acquirer’s fiscal year end by more than 93 days, the acquired entity’s income statement must be brought within 93 days of the acquirer’s 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 Company’s 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 SHFL’s 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
Life
(Years)

 

Estimated
fair value

(in 000s)

 

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 SHFL’s historical inventory turnover.

 

E — Adjustment reflects the reversal of SHFL’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 SHFL’s 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.