PENN NATIONAL GAMING INC - FORM 8-K/A - EX-99.3 - December 21, 2018

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Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated combined financial statements give effect to (i) Penn National Gaming, Inc.’s (“Penn” or “the Company”) acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”) (defined herein as the “merger”) which closed on October 15, 2018, (ii) divestitures of the membership interests of certain Pinnacle subsidiaries which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar Casino Hotel Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd Gaming Corporation (herein defined as ‘Boyd Divestitures’), (iii) the sale of Penn’s Plainridge real estate assets to Gaming and Leisure Properties Inc. “GLPI” of which was subsequently leased back to a Penn subsidiary, (iv) the acquisition of the Belterra Park Real Estate by GLPI and (v) Penn’s financing obligation to GLPI related to the leaseback of the Plainridge real estate assets (collectively, the “transactions”). For purposes of the unaudited pro forma condensed consolidated combined financial statements, the Boyd divestitures, the sale of Penn’s Plainridge real estate assets to GLPI of which was subsequently leased back to a Penn subsidiary and the related financing obligation to GLPI related to the leaseback of the Plainridge real estate assets are assumed to be completed simultaneously with the merger. The unaudited pro forma condensed consolidated combined balance sheet gives effect to the transactions as if they had occurred on June 30, 2018, and the unaudited pro forma condensed consolidated statements of combined operations for the six months ended June 30, 2018, and the year ended December 31, 2017, give effect to the transactions as if they had occurred on January 1, 2017, the beginning of the earliest period presented. The following unaudited pro forma condensed consolidated combined financial information is based on the historical consolidated financial statements of Penn and Pinnacle, and the assumptions and adjustments set forth in the accompanying explanatory notes. The Boyd divestitures are presented from the historical perspective of Pinnacle and are not intended to be indicative of how the transferred assets would operate on a stand-alone basis.

 

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated combined financial statements to give effect to pro forma events that are: (1) directly attributable to the transactions; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated statements of combined operations, expected to have a continuing impact on the combined results of Penn and Pinnacle. The unaudited pro forma condensed consolidated combined financial information for the transactions have been developed from and should be read in conjunction with Penn’s and Pinnacle’s unaudited interim condensed consolidated financial statements contained in Penn and Pinnacle’s Quarterly Reports on Form 10-Q for the quarterly period ended June 30, 2018, respectively, and the Penn audited consolidated financial statements contained in Penn’s Annual Report on Form 10-K for the year ended December 31, 2017, and Pinnacle’s audited consolidated financial statements contained in Pinnacle’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

The unaudited pro forma condensed consolidated combined financial information has been prepared by Penn using the acquisition method of accounting in accordance with U.S. generally accepted accounting principles, referred to as GAAP. Penn has been treated as the acquirer in the merger for accounting purposes. The acquisition accounting is dependent upon certain valuation and other studies and is in process of being finalized. The assets and liabilities of Pinnacle have been measured based on various preliminary estimates using assumptions that Penn believes are reasonable based on information that is currently available. Differences between these preliminary estimates and the final acquisition accounting will occur, and those differences could have a material impact on the accompanying unaudited pro forma condensed consolidated combined financial statements and the combined company’s future results of operations and financial position. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed consolidated combined financial statements prepared in accordance with the rules and regulations of the SEC.

 

Penn intends to finalize the necessary valuation and other studies required to finalize the acquisition accounting as soon as practicable within the required measurement period, but in no event later than one year following completion of the merger.

 

The unaudited pro forma condensed consolidated statements of combined operations also do not reflect any cost savings from potential operating efficiencies or associated costs to achieve such savings or synergies that are expected to result from the transactions nor does it include any costs associated with severance, restructuring or integration activities resulting from the transactions. However, such costs will affect the combined company following the transactions in the period the costs are incurred.

 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET AS OF JUNE 30, 2018

(Amounts in Thousands, Except for Share Price and Per Share Data)

 

 

 

Penn

 

Pinnacle

 

Reclassification
Adjustments (Note 4)

 

 

Divestiture (Note 5)

 

Combined Balance
Sheet Excluding
Divestiture

 

Merger Related Pro
Forma Adjustments
(Note 3)

 

 

Pro Forma for
Merger Excluding
Divestiture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

200,151

 

148,558

 

—

 

 

$

(41,515

)

$

307,194

 

$

(520,942

)

(2)

$

356,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

569,900

 

(1)

 

 

Receivables, net of allowance for doubtful accounts

 

54,969

 

46,492

 

—

 

 

(9,067

)

92,394

 

—

 

 

92,394

 

Prepaid expenses and other assets

 

—

 

35,941

 

(35,941

)

(a)

—

 

—

 

—

 

 

—

 

Prepaid expenses

 

37,321

 

—

 

34,191

 

(a)

(7,739

)

63,773

 

—

 

 

63,773

 

Inventories

 

—

 

10,644

 

(10,644

)

(a)

—

 

—

 

—

 

 

—

 

Other current assets

 

16,064

 

—

 

11,415

 

(a)

(3,294

)

24,185

 

—

 

 

24,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

308,505

 

241,635

 

(979

)

 

(61,615

)

487,546

 

48,958

 

 

536,504

 

Property and equipment, net

 

2,680,565

 

—

 

2,567,506

 

(a)

(938,220

)

4,309,851

 

2,609,414

 

(3)

6,919,265

 

Land, buildings, vessels and equipment, net

 

—

 

2,567,506

 

(2,567,506

)

(a)

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale

 

—

 

—

 

—

 

 

—

 

—

 

569,900

 

(1)

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(569,900

)

(1)

 

 

Investment in and advances to unconsolidated affiliates

 

146,593

 

—

 

—

 

 

—

 

146,593

 

—

 

 

146,593

 

Goodwill

 

1,008,891

 

610,889

 

—

 

 

(159,783

)

1,459,997

 

(238,342

)

(5)

1,221,655

 

Other intangible assets, net

 

475,317

 

380,351

 

—

 

 

(195,600

)

660,068

 

1,563,349

 

(5)

2,223,417

 

Deferred income taxes

 

384,777

 

1,117

 

—

 

 

—

 

385,894

 

365,015

 

(15)

750,909

 

Other assets

 

87,182

 

57,521

 

(3,407

)

(b), (c)

(123

)

141,173

 

—

 

 

141,173

 

Total other assets

 

2,102,760

 

1,049,878

 

(3,407

)

 

(355,506

)

2,793,725

 

1,690,022

 

 

4,483,747

 

Total assets

 

$

5,091,830

 

$

3,859,019

 

$

(4,386

)

 

$

(1,355,341

)

$

7,591,122

 

$

4,348,394

 

 

$

11,939,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of financing obligation to GLPI

 

34,329

 

$

11,003

 

$

—

 

 

$

—

 

$

45,332

 

$

38,097

 

(4)

$

83,429

 

Current maturities of long-term debt

 

37,087

 

—

 

—

 

 

—

 

37,087

 

—

 

 

37,087

 

Accounts payable

 

24,131

 

55,182

 

(26,372

)

(c)

(6,588

)

46,353

 

—

 

 

46,353

 

Accrued expenses

 

132,589

 

—

 

112,038

 

(c)

(24,577

)

220,050

 

—

 

 

220,050

 

Accrued interest

 

12,513

 

6,482

 

—

 

 

—

 

18,995

 

(6,482

)

(6)

12,513

 

Accrued compensation

 

—

 

56,392

 

(56,392

)

(c)

—

 

—

 

—

 

 

—

 

Accrued salaries and wages

 

90,767

 

—

 

48,212

 

(c)

(7,550

)

131,429

 

—

 

 

131,429

 

Accrued taxes

 

—

 

56,063

 

(56,063

)

(c)

—

 

—

 

—

 

 

—

 

Gaming, pari-mutuel, property, and other taxes

 

63,074

 

—

 

54,318

 

(c)

(13,768

)

103,624

 

—

 

 

103,624

 

Income taxes

 

2,451

 

—

 

—

 

 

—

 

2,451

 

 

 

 

2,451

 

Insurance financing

 

3,131

 

—

 

—

 

 

—

 

3,131

 

 

 

 

3,131

 

Other accrued liabilities

 

—

 

90,133

 

(90,133

)

(c)

—

 

—

 

—

 

 

—

 

Other current liabilities

 

89,272

 

—

 

14,392

 

(c)

(3,366

)

100,298

 

—

 

 

100,298

 

Total current liabilities

 

489,344

 

275,255

 

—

 

 

(55,849

)

708,750

 

31,615

 

 

740,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term financing obligation to GLPI, net of current portion

 

3,471,726

 

3,083,272

 

—

 

 

—

 

6,554,998

 

544,644

 

(4)

7,099,642

 

Long-term debt, net of current maturities and debt issuance costs

 

1,041,368

 

749,221

 

(4,386

)

(b)

—

 

1,786,203

 

(749,221

)

(6)

2,303,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,266,424

 

(6)

 

 

Deferred income taxes

 

—

 

—

 

—

 

 

—

 

—

 

921,605

 

(14)

921,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent tax liabilities

 

36,421

 

—

 

144

 

(c)

—

 

36,565

 

—

 

 

36,565

 

Other noncurrent liabilities

 

25,215

 

32,732

 

(144

)

(c)

(208

)

57,595

 

—

 

 

57,595

 

Total long-term liabilities

 

4,574,730

 

3,865,225

 

(4,386

)

 

(208

)

8,435,361

 

1,983,452

 

 

10,418,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity (deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

943

 

663

 

—

 

 

—

 

1,606

 

(663

)

(9)

1,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

263

 

(10)

 

 

Treasury stock, at cost

 

(28,414

)

(92,511

)

—

 

 

—

 

(120,925

)

92,511

 

(9)

(28,414

)

Additional paid-in-capital

 

1,018,723

 

931,467

 

—

 

 

—

 

1,950,190

 

(931,467

)

(9)

1,768,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

749,436

 

(11)

 

 

Retained deficit

 

(962,043

)

(1,130,159

)

—

 

 

(1,299,284

)

(3,391,486

)

(27,187

)

(7)

(968,239

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,400

)

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,458,834

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

 

 

 

Accumulated other comprehensive loss

 

(1,453

)

264

 

—

 

 

—

 

(1,189

)

—

 

 

(1,189

)

Shareholders’ equity (deficit)

 

27,756

 

(290,276

)

—

 

 

(1,299,284

)

(1,561,804

)

2,333,327

 

 

771,523

 

Non-controlling interest

 

—

 

8,815

 

—

 

 

—

 

8,815

 

—

 

 

8,815

 

Total shareholders’ equity (deficit)

 

27,756

 

(281,461

)

—

 

 

(1,299,284

)

(1,552,989

)

2,333,327

 

 

780,338

 

Total liabilities and shareholders’ equity (deficit)

 

$

5,091,830

 

$

3,859,019

 

$

(4,386

)

 

$

(1,355,341

)

$

7,591,122

 

$

4,348,394

 

 

$

11,939,516

 

 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF COMBINED OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018

(Amounts in Thousands, Except for Share Price and Per Share Data)

 

 

 

Penn

 

Pinnacle

 

Reclassification
Adjustments (Note 4)

 

 

Divestiture (Note 5)

 

Combined Income
Statement Excluding
Divestiture

 

Merger Related Pro
Forma Adjustments
(Note 3)

 

 

Pro Forma for
Merger Excluding
Divestiture

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

1,319,588

 

$

1,005,166

 

$

—

 

 

$

(260,682

)

$

2,064,072

 

$

—

 

 

$

2,064,072

 

Food, beverage, hotel and other

 

264,633

 

—

 

270,863

 

(d)

(71,915

)

463,581

 

—

 

 

463,581

 

Food and beverage

 

—

 

142,088

 

(142,088

)

(d)

—

 

—

 

—

 

 

—

 

Lodging

 

—

 

80,371

 

(80,371

)

(d)

—

 

—

 

—

 

 

—

 

Retail, entertaining and other

 

—

 

48,404

 

(48,404

)

(d)

—

 

—

 

—

 

 

—

 

Management service fees

 

5,406

 

—

 

—

 

 

—

 

5,406

 

—

 

 

5,406

 

Reimbursable management costs

 

53,371

 

—

 

—

 

 

—

 

53,371

 

—

 

 

53,371

 

Net Revenues

 

1,642,998

 

1,276,029

 

—

 

 

(332,597

)

2,586,430

 

—

 

 

2,586,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

Gaming

 

691,210

 

524,718

 

—

 

 

(132,956

)

1,082,972

 

—

 

 

1,082,972

 

Food, beverage, hotel and other

 

188,092

 

—

 

180,988

 

(d)

(51,791

)

317,289

 

—

 

 

317,289

 

Food and beverage

 

—

 

126,459

 

(126,459

)

(d)

—

 

—

 

—

 

 

—

 

Lodging

 

—

 

29,797

 

(29,797

)

(d)

—

 

—

 

—

 

 

—

 

Retail, entertainment and other

 

—

 

24,732

 

(24,732

)

(d)

—

 

—

 

—

 

 

—

 

General and administrative

 

253,922

 

227,850

 

2,525

 

(f)

(61,365

)

422,932

 

(13,312

)

(12)

409,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursable management costs

 

53,371

 

—

 

—

 

 

—

 

53,371

 

—

 

 

53,371

 

Pre-opening, development and other costs

 

—

 

2,525

 

(2,525

)

(f)

—

 

—

 

—

 

 

—

 

Write-downs, reserves and recoveries, net

 

—

 

4,998

 

(4,998

)

(f)

—

 

—

 

—

 

 

—

 

Impairment losses

 

—

 

—

 

4,998

 

(f)

(1,185

)

3,813

 

—

 

 

3,813

 

Depreciation and amortization

 

118,949

 

99,664

 

 

 

 

(35,947

)

182,666

 

5,775

 

(5)

179,215

 

 

 

 

 

 

 

 

 

 

 

 

—

 

(9,226

)

(3)

—

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

 

—

 

(Recovery) provision for loan loss and unfunded loan commitments to the JIDVC and impairment losses

 

(16,367

)

—

 

—

 

 

—

 

(16,367

)

—

 

 

—

 

Insurance recoveries

 

(68

)

—

 

—

 

 

—

 

(68

)

—

 

 

—

 

Total operating expenses

 

1,289,109

 

1,040,743

 

—

 

 

(283,244

)

2,046,608

 

(16,763

)

 

2,046,280

 

Income from operations

 

353,889

 

235,286

 

—

 

 

(49,353

)

539,822

 

16,763

 

 

540,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(231,613

)

(193,482

)

—

 

 

7

 

(425,088

)

(4,878

)

(6)

(403,104

)

 

 

 

 

 

 

 

 

 

 

 

—

 

26,862

 

(4)

 

 

Interest income

 

490

 

—

 

—

 

 

(33

)

457

 

—

 

 

457

 

Income (loss) from unconsolidated affiliates

 

11,095

 

(89

)

—

 

 

—

 

11,006

 

—

 

 

11,006

 

Loss on early extinguishment of debt and modification costs

 

(3,461

)

—

 

—

 

 

—

 

(3,461

)

—

 

 

(3,461

)

Other

 

(44

)

—

 

—

 

 

—

 

(44

)

—

 

 

(44

)

Total other expenses

 

(223,533

)

(193,571

)

—

 

 

(26

)

(417,130

)

21,984

 

 

(395,146

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations before income taxes

 

130,356

 

41,715

 

—

 

 

(49,379

)

122,692

 

38,747

 

 

145,004

 

Income tax (benefit) provision

 

30,931

 

(1,845

)

—

 

 

(11,851

)

29,446

 

9,299

 

 

34,801

 

Net income

 

99,425

 

43,560

 

—

 

 

(37,528

)

93,246

 

29,448

 

 

110,203

 

Less: Net loss attributable to non-controlling interest

 

—

 

280

 

—

 

 

—

 

280

 

—

 

 

280

 

Net income attributable to shareholders

 

$

99,425

 

$

43,840

 

$

—

 

 

$

(37,528

)

$

93,526

 

$

29,448

 

 

$

110,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

1.09

 

$

0.77

 

 

 

 

 

 

 

 

 

 

 

$

0.94

(13)

Diluted earnings per common share

 

$

1.05

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

$

0.91

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

91,330

 

57,225

 

 

 

 

 

 

 

 

 

 

 

117,626

(13)

Weighted average diluted shares outstanding

 

94,834

 

62,255

 

 

 

 

 

 

 

 

 

 

 

121,130

(13)

 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF COMBINED OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017

(Amounts in Thousands, Except for Share Price and Per Share Data)

 

 

 

Penn

 

Pinnacle

 

Reclassification
Adjustments (Note 4)

 

 

Divestiture (Note 5)

 

Combined Income
Statement Excluding
Divestiture

 

Merger Related Pro
Forma Adjustments
(Note 3)

 

 

Pro Forma for
Merger Excluding
Divestiture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

2,692,021

 

$

2,286,881

 

$

—

 

 

$

(589,282

)

$

4,389,620

 

$

—

 

 

$

4,389,620

 

Food, beverage, hotel and other

 

601,731

 

—

 

495,767

 

(d), (e)

(132,776

)

964,722

 

—

 

 

964,722

 

Food and beverage

 

—

 

133,082

 

(133,082

)

(d)

—

 

—

 

—

 

 

—

 

Lodging

 

—

 

51,671

 

(51,671

)

(d)

—

 

—

 

—

 

 

—

 

Retail, entertaining and other

 

—

 

90,214

 

(90,214

)

(d)

—

 

—

 

—

 

 

—

 

Management service and licensing fees

 

11,654

 

—

 

—

 

 

—

 

11,654

 

—

 

 

11,654

 

Reimbursable management costs

 

26,060

 

—

 

—

 

 

—

 

26,060

 

—

 

 

26,060

 

Revenues

 

3,331,466

 

2,561,848

 

220,800

 

 

(722,058

)

5,392,056

 

—

 

 

5,392,056

 

Less promotional allowances

 

(183,496

)

—

 

(220,800

)

(e)

48,799

 

(355,497

)

—

 

 

(355,497

)

Net revenues

 

3,147,970

 

2,561,848

 

—

 

 

(673,259

)

5,036,559

 

—

 

 

5,036,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

1,364,989

 

1,243,187

 

—

 

 

(323,196

)

2,284,980

 

—

 

 

$

2,284,980

 

Food, beverage, hotel and other

 

421,848

 

—

 

192,263

 

(d)

(59,232

)

554,879

 

—

 

 

554,879

 

Food and beverage

 

—

 

126,506

 

(126,506

)

(d)

—

 

—

 

—

 

 

—

 

Lodging

 

—

 

25,430

 

(25,430

)

(d)

—

 

—

 

—

 

 

—

 

Retail, entertainment and other

 

—

 

40,327

 

(40,327

)

(d)

—

 

—

 

—

 

 

—

 

General and administrative

 

514,776

 

455,525

 

—

 

 

(122,196

)

848,105

 

(19,209

)

(12)

828,896

 

Pre-opening, development and other costs

 

—

 

9,478

 

—

 

 

—

 

9,478

 

—

 

 

9,478

 

Reimbursable management costs

 

26,060

 

—

 

—

 

 

—

 

26,060

 

—

 

 

26,060

 

Depreciation and amortization

 

267,062

 

217,025

 

—

 

 

(73,094

)

410,993

 

11,550

 

(5)

390,003

 

 

 

 

 

 

 

 

 

 

 

 

—

 

(32,540

)

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment losses, provisions for loan loss and unfunded loan commitments to JIVDC

 

107,810

 

—

 

15,750

 

(f)

(2,290

)

121,270

 

—

 

 

121,270

 

Impairment of goodwill

 

—

 

—

 

—

 

(f)

—

 

—

 

—

 

 

—

 

Impairment of other intangible assets

 

—

 

—

 

—

 

(f)

—

 

—

 

—

 

 

—

 

Write-downs, reserves and recoveries, net

 

—

 

15,750

 

(15,750

)

(f)

—

 

—

 

—

 

 

—

 

Insurance recoveries

 

(289

)

—

 

—

 

 

—

 

(289

)

—

 

 

(289

)

Total operating expenses

 

2,702,256

 

2,133,228

 

—

 

 

(580,008

)

4,255,476

 

(40,199

)

 

4,215,277

 

Income from operations

 

445,714

 

428,620

 

—

 

 

(93,251

)

781,083

 

40,199

 

 

821,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(466,761

)

(380,859

)

—

 

 

(33

)

(847,653

)

(4,455

)

(6)

(812,218

)

 

 

 

 

 

 

 

 

 

 

 

 

 

39,890

 

(4)

 

 

Interest income

 

3,552

 

—

 

—

 

 

17

 

3,569

 

—

 

 

3,569

 

Income from unconsolidated affiliates

 

18,671

 

(90

)

—

 

 

—

 

18,581

 

—

 

 

18,581

 

Loss on early extinguishment of debt

 

(23,963

)

(516

)

—

 

 

—

 

(24,479

)

—

 

 

(24,479

)

Other

 

(2,257

)

—

 

—

 

 

—

 

(2,257

)

—

 

 

(2,257

)

Total other expenses

 

(470,758

)

(381,465

)

—

 

 

(16

)

(852,239

)

35,435

 

 

(816,804

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from operations before income taxes

 

(25,044

)

47,155

 

—

 

 

(93,267

)

(71,156

)

75,634

 

 

4,478

 

Income tax (benefit) provision

 

(498,507

)

(14,603

)

—

 

 

(38,239

)

(29,174

)

31,010

 

 

1,836

 

Net income

 

473,463

 

61,758

 

—

 

 

(55,028

)

(41,982

)

44,624

 

 

2,642

 

Less: Net loss attributable to non-controlling interest

 

—

 

1,346

 

—

 

 

—

 

1,346

 

—

 

 

1,346

 

Net income attributable to shareholders

 

$

(473,463

)

$

63,104

 

$

—

 

 

$

(55,028

)

$

(40,636

)

$

44,624

 

 

$

3,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

5.21

 

$

1.12

 

 

 

 

 

 

 

 

 

 

 

$

0.03

(13)

Diluted earnings per common share

 

$

5.07

 

$

1.02

 

 

 

 

 

 

 

 

 

 

 

$

0.03

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

90,854

 

56,518

 

 

 

 

 

 

 

 

 

 

 

117,150

(13)

Weighted average diluted shares outstanding

 

93,378

 

61,911

 

 

 

 

 

 

 

 

 

 

 

119,674

(13)

 

 

PENN NATIONAL GAMING, INC.

 

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED
FINANCIAL STATEMENTS

 

(Dollars In Thousands, Except For Share Price and Per Share Data)

 

Note 1—Basis of Presentation

 

The accompanying unaudited pro forma condensed consolidated combined financial information is intended to reflect the impact of the merger on Penn’s consolidated financial statements and presents the pro forma financial position and results of operations of Penn based on the historical financial statements and accounting records of Penn and Pinnacle after giving effect to the transactions.

 

Merger-related pro forma adjustments are included only to the extent they are directly attributable to the transactions, factually supportable and with respect to the unaudited pro forma condensed consolidated statement of combined operations, expected to have a continuing impact on the results of the combined company. The accompanying unaudited pro forma condensed consolidated combined financial information is presented for illustrative purposes only.

 

The merger will be accounted for using the acquisition method of accounting with Penn considered the acquirer. The unaudited pro forma condensed consolidated combined financial information reflects the preliminary assessment of fair values and useful lives assigned to the assets acquired and liabilities assumed. The detailed valuation studies necessary to arrive at required estimates of fair values of the assets acquired and liabilities assumed from Pinnacle in the merger have not been completed. Significant assets and liabilities that are subject to preparation and completion of valuation studies to determine appropriate fair value adjustments include property and equipment, intangible assets and the financing obligation associated with the Pinnacle master lease. Changes to the fair values of these assets and liabilities will also result in changes to goodwill and deferred income taxes.

 

Coincident with the closing of the merger, Penn completed the Boyd divestitures by divesting the membership interests of certain Pinnacle subsidiaries which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar Casino Hotel Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd. Additionally, at the closing of the merger, (i) GLPI acquired the real estate associated with the Plainridge Park Casino for $250 million, and concurrently leased back to Penn pursuant to the amended Pinnacle master lease for a fixed annual rent of $25 million and (ii) GLPI acquired the real estate assets of Belterra Park from Penn for approximately $58 million.

 

The unaudited pro forma condensed consolidated combined balance sheet gives effect to the transactions as if they had occurred on June 30, 2018, and the unaudited pro forma condensed consolidated statements of combined operations for the six months ended June 30, 2018 and the year ended December 31, 2017 give effect to the transactions as if they had occurred on January 1, 2017, the beginning of the earliest period presented.

 

Items Not Adjusted in the Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed consolidated combined financial information does not include any adjustment for liabilities or related costs that may result from integration activities at this time, since management has not completed the process of making these assessments. Significant liabilities and related costs may ultimately be recorded for employee severance, exit or integration activities following the merger. The unaudited pro forma condensed consolidated combined balance sheet only includes adjustments for transaction-related costs that are directly attributable to the transactions and are factually supportable.

 

Penn anticipates that the merger will result in significant annual operating synergies that would be unachievable without completing the transactions. Penn currently expects that approximately $100 million of annual cost savings

 

 

and synergies will be realized within two years of completion of the merger. No assurance can be made that Penn will be able to achieve these synergies or when they will be realized, and no such synergies have been reflected in the unaudited pro forma condensed consolidated combined financial information.

 

Financing Agreement

 

In connection with the transactions, Penn entered into an Incremental Joinder dated October 15, 2018 among Penn, certain subsidiaries of Penn as grantors, Bank of America, N.A. as administrative agent, and a lending party group.  The Incremental Joinder provides Penn with (i) $430.2 million of incremental borrowings of senior secured term loan A facility; and (ii) $836.3 of incremental borrowings of senior secured term loan B facility.

 

The interest rates per annum applicable to the loans are, at Penn’s option, equal to either a LIBOR rate or a base rate, plus an applicable margin. The applicable margin for the Term Loan A Facility ranges from 1.25% to 3.00% per annum for LIBOR loans and 0.25% to 2.00% per annum for base rate loans, in each case depending on Penn’s total net leverage ratio. The applicable margin for the Term Loan B Facility is 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. The Term Loan B Facility is subject to a LIBOR “floor” of zero. The loans under the Term Loan A Facility were issued with an upfront fee of 0.50% on the amount of such loans, and the loans under the Term Loan B Facility were issued with an upfront fee of 0.25% of the amount of such loans.  The interest rate at the closing for the Term Loan A Facility was 3.83% and the Term Loan B Facility had a rate of 4.58%.

 

Note 2—The Merger

 

On the closing date of October 15, 2018, Merger Sub, a wholly owned subsidiary of Penn formed for the purpose of effecting the merger, merged with and into Pinnacle.  At closing, each share of Pinnacle common stock issued and outstanding immediately prior to the effective time (other than excluded shares) was converted into the right to receive 0.420 of a share of Penn common stock, with cash paid in lieu of the issuance of fractional shares of Penn common stock, and $20.00 in cash without interest and subject to applicable withholding taxes.

 

Merger Purchase Price

 

The unaudited pro forma condensed consolidated combined balance sheet has been adjusted to reflect the estimated fair values of the identifiable assets acquired and liabilities assumed in the merger and the excess of the consideration over these fair values is recorded to goodwill. The fair value of the merger consideration, or the purchase price, in the unaudited pro forma condensed consolidated combined financial information is preliminarily valued to be approximately $2.8 billion.  At the October 15, 2018 closing date, each share of Pinnacle common stock (other than treasury shares held by Pinnacle) automatically converted into the right to receive the merger consideration, consisting of (1) 0.420 of a fully paid and nonassessable share of Penn common stock plus (2) $20.00 in cash. The stock price used to determine the value of the stock portion of the merger consideration, for purposes of the unaudited pro forma condensed consolidated combined financial information, was the Company’s closing stock price on the October 15, 2018.

 

The table below presents the preliminary purchase price as if the merger had closed on June 30, 2018, along with a preliminary allocation of the purchase price to the assets acquired and liabilities assumed.

 

Preliminary Purchase Price

 

Shares issued in conjunction with transaction

 

62,610

 

Share exchange ratio

 

0.42

 

Shares of Penn common stock to be issued to Pinnacle shareholders

 

26,296

 

Price per share of Penn common stock (i)

 

$

28.51

 

Fair value of Penn common stock to be issued

 

$

749,699

 

Cash paid to Pinnacle shareholders at $20.00 per share

 

1,252,200

 

Cash paid by Penn to retire Pinnacle’s debt, inclusive of accrued interest (ii)

 

783,663

 

Preliminary purchase price

 

$

2,785,562

 

 

 

(i)            The stock price used to determine the value of the stock portion of the merger consideration was the Company’s closing stock price on October 15, 2018.

(ii)                                  Amount includes contractual call premium payment on Pinnacle Notes of approximately $28 million.

 

Preliminary Allocation of Purchase Price

 

Current assets

 

$

179,041

 

Property and equipment

 

4,238,700

 

Intangible assets(i)

 

1,748,100

 

Goodwill(ii)

 

212,764

 

Deferred tax assets

 

366,132

 

Assets held for sale

 

569,900

 

Other assets

 

53,991

 

Total assets

 

7,368,628

 

Current liabilities

 

201,921

 

Deferred income taxes

 

921,605

 

Financing obligation to GLPI

 

3,427,016

 

Other liabilities

 

32,524

 

Total liabilities

 

4,583,066

 

Net assets acquired

 

$

2,785,562

 

 

(i)                                     Intangible assets consist of gaming licenses, trade names, and player relationships.

(ii)           Goodwill is calculated as the difference between the acquisition date fair value of the total consideration expected to be transferred and the aggregate values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized.

 

Upon completion of the fair value assessment following the merger, Penn anticipates the finalized fair values of the net assets acquired will differ from the preliminary assessment outlined above. Generally, changes to the initial estimates of fair value of the assets acquired and the liabilities assumed will be recorded to those assets and liabilities with offsetting adjustments recorded to deferred taxes and goodwill.

 

The tax impacts of the merger was estimated based on applicable law as in effect on June 30, 2018. Penn assumed a 24% statutory income tax rate when estimating the deferred tax impacts of the merger which was the statutory tax rate in effect at June 30, 2018.

 

Note 3—Merger-Related Pro Forma Adjustments

 

The unaudited pro forma condensed consolidated combined financial information reflects the following adjustments related to the transactions.

 

(1)         Fair value of the assets held for sale was determined to be $569,900, which represents the net proceeds from the sale of the divestiture membership interests to Boyd Gaming (See Note 5 for further details).

 

The proceeds from the sale of the divestiture membership interests to Boyd Gaming are reflected as a pro forma adjustment to (i) cash and cash equivalents and (ii) assets held for sale to give effect to the divestiture transaction as if it had occurred on June 30, 2018.

 

 

(2)         The following table illustrates the pro forma adjustment to cash and cash equivalents, excluding the sale of the divestiture membership interests to Boyd:

 

 

 

June 30, 2018

 

Cash proceeds of new debt

 

$

1,266,424

 

After tax proceeds from the sale of the Belterra Park real estate assets(i)

 

57,684

 

After tax proceeds from the sale lease back of Penn’s existing Plainridge real estate assets to GLPI(ii)

 

218,000

 

Cash paid to Pinnacle shareholders

 

(1,252,200

)

Cash paid by Penn to retire Pinnacle’s debt, inclusive of accrued interest (iii)

 

(783,663

)

Penn transaction costs(iv)

 

(27,187

)

Net cash outflow

 

$

(520,942

)

 

(i)            Penn received proceeds from the sale of Belterra Park’s real estate based on the product of nine multiplied by the annual rent obligation to be paid by Boyd Gaming or $57,684.

(ii)           Penn received gross proceeds of $250 million from the sale of Penn’s existing Plainridge real estate assets to GLPI which was subsequently leased back to a subsidiary of Penn pursuant to the Pinnacle master lease amendment for $25 million in fixed annual rent. The tax liability associated with this transaction was determined using the statutory tax rates in effect as of June 30, 2018.

(iii)          Amount includes contractual call premium payment on Pinnacle Notes of approximately $28 million.

(iv)                              Represents transaction costs incurred as part of the merger.

 

(3)         The preliminary fair value of acquired property and equipment was determined to be $4,238,700. The following table illustrates the pro forma adjustment to property and equipment at the June 30, 2018 balance sheet date:

 

 

 

June 30, 2018

 

Preliminary fair value of acquired property and equipment (excluding divestitures)

 

$

4,238,700

 

Pinnacle historical net book value

 

 

 

Net book value of property and equipment

 

2,567,506

 

Less: Net book value of divestitures property and equipment

 

(938,220

)

Pinnacle property and equipment (excluding divestitures)

 

1,629,286

 

To record increase to property and equipment

 

$

2,609,414

 

 

The following table illustrates pro forma adjustments to depreciation expense for the six months ended June 30, 2018 and the year ended December 31, 2017:

 

Pinnacle historical depreciation and amortization expense

 

Six months
ended
June 30,
2018

 

Year ended
December 31,
2017

 

Depreciation and amortization expense

 

$

99,664

 

$

217,025

 

Less: Amortization expense

 

(3,172

)

(8,753

)

Pinnacle depreciation expense

 

96,492

 

208,272

 

Less: Depreciation expense related to divestitures

 

(35,947

)

(73,094

)

Pinnacle depreciation expense (inclusive of reclassification adjustment and excluding divestitures)

 

60,545

 

135,178

 

Depreciation expense associated with the preliminary fair value of acquired property and equipment (excluding divestitures)

 

51,319

 

102,638

 

To record decrease to depreciation and amortization expense

 

$

(9,226

)

$

(32,540

)

 

Depreciation expense of the acquired property and equipment is reflected on a straight line basis over the following estimated useful lines:

 

 

 

Years

 

Land

 

5 to 20

 

Building and Improvements

 

10 to 35

 

Vessels

 

10 to 35

 

Furniture, fixtures and equipment

 

3 to 20

 

 

 

(4)         Financing obligation to GLPI and interest expense—The preliminary fair value of the financing obligation to GLPI associated with the Pinnacle master lease excluding divestitures was determined to be $3,427,016 which was calculated based on the future minimum lease payments discounted at 7.84%.  This rate was estimated as Penn’s incremental borrowing rate for the remaining lease term at the acquisition date. In conjunction with the merger, the Pinnacle master lease was amended to reflect, among other things, the inclusion of the Plainridge real estate assets and subsequently leased back to a subsidiary of Penn. The following table illustrates pro forma adjustments to the financing obligation to GLPI at the June 30, 2018 balance sheet date:

 

 

 

June 30, 2018

 

Preliminary fair value of the financing obligation to GLPI associated with the Pinnacle master lease excluding divestitures

 

$

3,427,016

 

Financing obligation associated with Plainridge Park Casino sale leaseback transaction with GLPI

 

250,000

 

Total financing obligation to GLPI

 

3,677,016

 

Pinnacle historical net book value

 

 

 

Current portion of financing obligation to GLPI (inclusive of divestitures)(i)

 

11,003

 

Long-term financing obligation to GLPI, net of current portion (inclusive of divestitures)(i)

 

3,083,272

 

Pinnacle’s financing obligation to GLPI

 

3,094,275

 

Adjustment to financing obligation to GLPI

 

$

582,741

 

To record increase to current portion of financing obligation to GLPI

 

$

38,097

 

To record increase to long-term financing obligation to GLPI, net of current portion

 

544,644

 

Total

 

$

582,741

 

 

(i)            The Pinnacle master lease financing obligation is a liability of a subsidiary of the Parent Company. It is not an obligation of the individual properties whose real estate has been leased back from GLPI. Thus, the amounts reflected above are inclusive of all Pinnacle properties that are contained within its GLPI master lease.

 

The following table illustrates pro forma adjustments related to interest expense associated with the financing obligation to GLPI for the six months ended June 30, 2018 and the year ended December 31, 2017:

 

 

 

Six months
ended
June 30,
2018

 

Year ended
December 31,
2017

 

Interest expense associated with the amended Pinnacle master lease, inclusive of the Plainridge real estate assets

 

$

(144,492

)

$

(291,216

)

Removal of Pinnacle’s historical interest expense related to the Pinnacle master lease, inclusive of divestitures

 

171,354

 

331,106

 

Total adjustments to interest expense

 

$

26,862

 

$

39,890

 

 

(5)         Other intangible assets, net, goodwill and amortization expense—The preliminary fair value of the acquired intangibles assets was determined to be $1,748,100 and is subject to change. Preliminary identifiable intangible assets consists of and results in the following pro forma adjustment to other intangible assets, net at June 30, 2018:

 

 

 

 

June 30, 2018

 

Useful
Life

 

Fair Value of intangible assets, net:

 

 

 

 

 

Trade Names

 

$

363,500

 

Indefinite

 

Gaming Licenses

 

1,361,500

 

Indefinite

 

Player Relationships

 

23,100

 

2 years

 

Total Value of Intangible Assets

 

1,748,100

 

 

 

Pinnacle historical net book value

 

 

 

 

 

Net book value of other intangible assets, net

 

380,351

 

 

 

Less: Net book value of divestures other intangible assets, net

 

(195,600

)

 

 

Pinnacle other intangible assets, net (excluding divestitures)

 

184,751

 

 

 

To record increase to other intangible assets, net

 

$

1,563,349

 

 

 

 

Penn assessed the fair value of Pinnacle’s gaming licenses assets using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing facility. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the following items:

 

· Projected revenues and operating cash flows (including an allocation of Pinnacle’s projected financing payments);

· Theoretical construction costs and duration;

· Pre-opening expenses; and

· Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.

 

Penn has preliminarily assigned an indefinite useful life to the gaming licenses, in accordance with its review of the applicable guidance of ASC 350. The standard required Penn to consider, among other things, the expected use of the asset, the expected useful life of other related asset or asset group, any legal, regulatory, or contractual provisions that may limit the useful life, Penn’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, Penn determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets. Pinnacle currently has licenses in Pennsylvania, Iowa, Mississippi, Missouri, Louisiana, Colorado, Indiana, and Nevada. The renewal of each state’s gaming license depends on a number of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, Penn’s historical experience has not indicated, nor does Penn expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful lives of these assets. Accordingly, Penn has preliminarily concluded that the useful lives of these licenses are indefinite.

 

Trade Names are valued using the relief from royalty method, which presumes that without ownership of such trademarks, Penn would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, Penn avoids any such payments and records the related intangible value of Penn’s ownership of the brand name. The primary assumptions in the valuation included revenue, pre-tax royalty rate, and tax expense.

 

The player relationships asset represents the estimated value of the acquired customer database. The Company used a replacement cost method to estimate the fair value for this intangible asset and is amortizing the asset over two years in the unaudited pro forma statements of combined operations.

 

Adjustments to amortization expense for definite-lived intangibles were based on comparing the historical amortization recorded during the periods presented to the revised amortization. The revised amortization was based on the estimated fair value amortized over the respective useful lives of the intangible assets. The following table illustrates pro forma adjustments to amortization expense.

 

 

 

 

Six
months
ended
June 30,
2018

 

Year ended
December 31,
2017

 

Removal of Pinnacle’s historical amortization expense related to non-indefinite lived intangible assets (excluding divestitures)

 

$

—

 

$

—

 

To record new amortization expense of non-indefinite lived intangible assets related to the fair value adjustments

 

5,775

 

11,550

 

To record increase to depreciation and amortization expense

 

$

5,775

 

$

11,550

 

 

The following table illustrates the pro forma adjustment to goodwill.

 

 

 

June 30,
2018

 

Pinnacle historical net book value

 

 

 

Net book value of goodwill

 

610,889

 

Less: Net book value of divestitures goodwill

 

(159,783

)

Pinnacle acquired goodwill (excluding divestitures)

 

451,106

 

To record preliminary goodwill for the purchase consideration in excess of the fair value of net assets acquired in connection with the merger

 

$

(212,764

)

To record decrease to goodwill

 

$

238,342

 

 

(6)         Current maturities of long-term debt, long-term debt, net of current maturities and debt issuance costs, accrued interest and interest expense—The below table reflects pro forma adjustments to current maturities of long-term debt, long-term debt, net of current maturities and debt issuance costs and accrued interest for anticipated borrowings to fund the merger.

 

 

 

June 30, 2018

 

Pinnacle historical net book value

 

 

 

Existing long-term debt

 

$

757,621

 

Unamortized deferred financing costs

 

(8,400

)

Book value of Pinnacle’s long-term debt, net of current maturities and debt issuance costs

 

749,221

 

Book value of Pinnacle’s accrued interest

 

6,482

 

 

 

 

 

To record anticipated new borrowings

 

$

1,266,424

 

To record decrease to long-term debt, net of current maturities and debt issuance costs

 

(749,221

)

To record decrease to accrued interest

 

(6,482

)

To record write-off of deferred financing costs

 

(8,400

)

Cash paid by Penn to retire Pinnacle’s debt, inclusive of accrued interest(i)

 

$

764,103

 

 

(i)                                     Reflects cash outflow to retire the Pinnacle debt which excludes the $8,400 of unamortized deferred financing costs.

 

The following table illustrates pro forma adjustments to interest expense related to the debt financing for the six months ended June 30, 2018 and the year ended December 31, 2017.

 

 

 

Six months ended June 30, 2018

 

Year ended December 31, 2017

 

Interest expense on debt financing

 

$

27,378

 

$

54,755

 

Removal of Pinnacle’s historical net interest expense

 

22,500

 

50,300

 

To record increase to interest expense

 

$

4,878

 

$

4,455

 

 

 

The amounts above were based on new borrowings of $1,266,424 and for purposes of the pro forma adjustments, a blended interest rate of 4.33% was utilized which was the interest rate in effect at the October 15, 2018 merger date on the amounts borrowed.

 

(7)         Penn had a contractual commitment to pay investment banking fees of $27.2 million upon closing of merger. This amount is shown as a pro forma adjustment reducing retained earnings and is not reflected in the unaudited pro forma condensed consolidated statements of combined operations because they are directly related to the transactions.

 

(8)         Reflects the elimination of Pinnacle retained earnings after pro forma adjustments.

 

(9)         Reflects the elimination of Pinnacle’s historical common stock, paid-in capital, and treasury stock.

 

(10)  To record the issuance of common shares, at $0.01 par value, related to the merger consolidation.

 

(11)  To record additional paid in capital associated with the issuance of common shares.

 

(12)  Reflects the elimination of transaction costs incurred by Penn and Pinnacle regarding the merger during the six months ended June 30, 2018 and the year ended December 31, 2017.

 

 

 

Six months
ended
June 30, 2018

 

Removal of Penn’s incurred transaction costs related to the merger

 

$

10,915

 

Removal of Pinnacle’s incurred transaction costs related to the merger

 

2,397

 

To record decrease to general and administrative expense

 

$

13,312

 

 

 

 

Year ended December 31, 2017

 

Removal of Penn’s incurred transaction costs related to the merger

 

$

9,732

 

Removal of Pinnacle’s incurred transaction costs related to the merger

 

9,477

 

To record decrease to general and administrative expense

 

$

19,209

 

 

(13)  Earnings per share—Represents earnings per share, taking into consideration the pro forma weighted average shares outstanding calculated including the issuance of Penn common stock assuming the shares were outstanding for the six months ended June 30, 2018 and the year ended December 31, 2017.

 

 

 

Six months ended June 30, 2018

 

Year ended December 31, 2017

 

Pro Forma Basic Weighted Average Shares

 

 

 

 

 

Historical Penn weighted average shares outstanding

 

91,330

 

90,854

 

Issuance of shares to Pinnacle common stock shareholders

 

26,296

 

26,296

 

Pro forma weighted average shares (basic)

 

117,626

 

117,150

 

 

 

 

 

 

 

Pro Forma Diluted Weighted Average Shares

 

 

 

 

 

Historical Penn weighted average shares outstanding

 

94,834

 

93,378

 

Issuance of shares to Pinnacle common stock shareholders

 

26,296

 

26,296

 

Pro forma weighted average shares (diluted)

 

121,130

 

119,674

 

Net income attributable to shareholders

 

$

110,483

 

$

3,988

 

Basic earnings per common share

 

$

0.94

 

$

0.03

 

Diluted earnings per common share

 

$

0.91

 

$

0.03

 

 

 

(14)  Deferred income taxes—Pro forma adjustment representing the deferred tax impact associated with the incremental differences in book and tax basis created from the preliminary purchase price allocation, primarily resulting from the acquisition date value of property and equipment, intangibles and the financing obligation with GLPI. Deferred taxes were established based on a statutory tax rate of 24%, based on jurisdictions where income has historically been generated. This estimate of deferred tax is preliminary and is subject to change based on Penn’s final determination of the fair value of assets acquired and liabilities assumed by jurisdiction.

 

The effective income tax rate of the combined company could be significantly different (either higher or lower) depending on post-acquisition activities including geographical mix of income, among other factors.

 

Other intangible assets, net

 

 

 

Preliminary fair value of other intangibles resulting from merger

 

$

1,748,100

 

Pinnacle historical net book value

 

 

 

Net book value of other intangible assets, net

 

380,351

 

Less: Net book value of divestitures other intangible assets, net

 

(195,600

)

Pinnacle other intangible assets, net (excluding divestitures)

 

184,751

 

Preliminary pro forma adjustment—other intangible assets

 

$

1,563,349

 

 

 

 

 

Property and equipment

 

 

 

Preliminary fair value of acquired property and equipment (excluding divestitures)

 

$

4,238,700

 

Pinnacle historical net book value

 

 

 

Net book value of property and equipment

 

2,567,506

 

Less: Net book value of divestitures property and equipment

 

(938,220

)

Pinnacle property and equipment (inclusive of the reclassification adjustment and excluding divestitures)

 

1,629,286

 

Preliminary pro forma adjustment—property and equipment

 

$

2,609,414

 

 

 

 

 

Financing obligation with GLPI

 

 

 

Preliminary fair value of the financing obligation to GLPI associated with the Pinnacle master lease (excluding divestitures and the impact of the Plainridge real estate transaction)

 

$

3,427,016

 

Pinnacle historical net book value

 

 

 

Current portion of financing obligation to GLPI (inclusive of divestitures)

 

11,003

 

Long-term financing obligation to GLPI, net of current portion (inclusive of divestitures)

 

3,083,272

 

Pinnacle’s financing obligation to GLPI

 

3,094,275

 

Adjustment—financing obligation to GLPI (including the Plainridge real estate transaction)

 

332,741

 

Total preliminary adjustments

 

$

3,840,022

 

Statutory tax rate

 

24

%

Deferred tax impact

 

$

921,605

 

 

Additionally, the pro forma adjustments contained within the unaudited pro forma condensed consolidated statements of combined operations were tax-effected at a statutory rate of 24%.

 

(15)  Reversal of Valuation Allowance—Pro forma adjustment to reflect the utilization of the Pinnacle’s previously established valuation allowance based on the projected earnings of the combined Company.

 

 

Note 4—Unaudited Pro Forma Condensed Combined Financial Statement Reclassification Adjustments

 

Certain reclassifications have been recorded to the historical financial statements of Pinnacle to provide comparability and consistency for the anticipated post-combined company presentation.

 

(a)         Reclassifications were made between certain Pinnacle current assets and long term assets to provide consistency in presentation.

 

(b)         Reclassifications were made between Pinnacle’s (i) other assets and (ii) long-term debt, net of current maturities and debt issuance costs related to certain deferred financing costs to provide consistency in presentation.

 

(c)          Reclassifications were made between certain Pinnacle current and long-term liabilities and current assets to provide consistency in presentation.

 

(d)         Reclassifications were made between revenue components to reclassify certain revenue streams consistently between the two companies. These included combining Pinnacle’s (i) food and beverage revenue, (ii) lodging revenue and (iii) retail, entertaining and other revenue into one revenue financial statement line item to provide consistency in presentation.

 

Reclassifications were also made among expense components to reclassify certain expenses consistently between the two companies. These included combining Pinnacle’s (i) food and beverage expense, (ii) lodging expense and (iii) retail, entertaining and other expense into one expense financial statement line item to provide consistency in presentation.

 

(e)          Reclassifications were made with respect to Pinnacle’s (i) food, beverage, hotel and other revenue and (ii) promotional allowances to arrive at net revenues to provide consistency in presentation.

 

(f)           Reclassifications were made between certain (i) goodwill and intangible impairment charges; and (ii) pre-opening, development and other costs and general and administrative expense.

 

Further review may identify additional reclassifications that when conformed could have a material impact on the unaudited pro forma condensed consolidated combined financial information of the combined company. At this time, Penn is not aware of any reclassifications that would have a material impact on the unaudited pro forma condensed consolidated combined financial information that are not reflected as pro forma adjustments.

 

Note 5—The Boyd Divestitures

 

The divestiture agreement provides that, upon the terms and subject to the conditions of the divestiture agreement, Boyd Purchaser acquired the outstanding membership interests of the divestiture subsidiaries and certain other assets primarily related to the business of the divestiture subsidiaries and assume certain other liabilities related to the business of the divestiture subsidiaries. Immediately following the Boyd divestitures, Boyd owns 100% of the outstanding membership interests of the divestiture subsidiaries which own and operate Ameristar St. Charles, Ameristar Kansas City, Belterra, and Belterra Park. The net proceeds for the Boyd divestitures is $569.9 million, which represents the divestiture subsidiaries’ EBITDA for the twelve-months period ending on December 30, 2017 multiplied by 6.25, net of certain working capital adjustments and tax liabilities associated with the divesture.

 

The unaudited financial condensed consolidated combined information reflects the preliminary allocations of assets, liabilities, revenues and expenses directly attributable to the divestiture properties and includes the necessary reclassifications to conform to Penn historical presentation, where applicable.

 

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PENN NATIONAL GAMING INC Reports