Attached files
file | filename |
---|---|
8-K - 8-K - DFC GLOBAL CORP. | w82160e8vk.htm |
EX-2.1 - SHARE PURCHASE AGREEMENT - DFC GLOBAL CORP. | w82160exv2w1.htm |
EX-23.1 - CONSENT OF KPMG - DFC GLOBAL CORP. | w82160exv23w1.htm |
EX-99.1 - EXHIBIT 99.1 - DFC GLOBAL CORP. | w82160exv99w1.htm |
Exhibit
99.2
Unless the context otherwise requires, as used in this Exhibit 99.2, (i) the terms Dollar,
DFC, the Company, we, us, our and similar names refer to Dollar Financial Corp. and its
subsidiaries, (ii) the term Dollar Financial UK refers to Dollar Financial U.K. Limited, a
wholly-owned subsidiary of Dollar Financial Corp., (iii) Sefina refers to Sefina Finance AB and
its subsidiaries, (iv) MEM refers to Purpose UK Holdings Limited and its subsidiaries, and (v)
fiscal year and fiscal refer to the twelve-month period ended on June 30 of the specified year.
On January 10, 2011, Dollar Financial Corp. announced a three-for-two stock split on all shares of
its common stock. The stock split was distributed on February 4, 2011 in the form of a stock
dividend to all stockholders of record on January 20, 2011. Except where otherwise indicated, all
share and per share amounts presented in this Exhibit 99.1 have been retroactively adjusted to give
effect to the stock split. References to $ refer to the lawful currency of the United States of
America.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On December 31, 2010, our wholly-owned subsidiary, Dollar
Financial U.K. Limited, completed its acquisition of all of the
outstanding capital stock of Sefina Finance AB, pursuant to a share purchase agreement
dated December 2, 2010 with NSF Nordic Special Finance AB.
The total cash consideration for our acquisition of Sefina was
approximately $91.2 million, of which approximately
$59.1 million was paid in cash at closing. Approximately
$14.9 million of additional cash, excluding accrued
interest, is payable to the seller in equal installments. We
paid the first installment on March 31, 2011, and the two
remaining installments are due on June 30, 2011 and
September 30, 2011. Furthermore, we are obligated to pay
the seller additional contingent consideration based on the
financial performance of Sefina during each of the two
successive 12 month periods following the closing of the
transaction, the aggregate amount of which we currently estimate
to be approximately $17.2 million. As a part of the Sefina
acquisition, we also assumed Sefinas existing working
capital lines of credit. These credit lines had an aggregate
outstanding balance as of the closing of the transaction of
$61.8 million, are secured primarily by the value of
Sefinas pawn pledge stock, and have average interest rates
of approximately 4%.
On April 1, 2011, Dollar Financial UK completed its
acquisition of all of the outstanding capital stock of Purpose
UK Holdings Limited (MEM), pursuant
to a share purchase agreement dated December 31, 2010 with
CCRT International Holdings B.V. and CompuCredit Holdings
Corporation. The purchase price for MEM was $195.0 million,
subject to a post-closing adjustment to reflect the working
capital of MEM and its subsidiaries as of the closing of the
transaction.
The following unaudited pro forma condensed consolidating
financial statements are based on our historical financial
statements and those of Sefina and MEM after giving effect to
our acquisition of each of these businesses. These pro forma
financial statements give effect to the closing date borrowing
and this offering, but do not give effect to any permanent debt
financing that we may undertake in the future to finance the
acquisition of MEM. These pro forma financial statements have
been prepared applying the assumptions and adjustments described
in the accompanying notes.
The unaudited pro forma condensed consolidating statements of
operations data for the periods presented give effect to our
acquisitions of Sefina and MEM as if they had been consummated
on July 1, 2009. The unaudited condensed consolidating
balance sheet of Dollar Financial Corp. as of December 31,
2010 includes the effect of our acquisition of Sefina as
presented in our Quarterly Report on
Form 10-Q
for the period ended December 31, 2010 filed with the SEC
on February 9, 2011. Accordingly, the accompanying
unaudited pro forma combined condensed financial data should be
read in conjunction with our historical financial statements and
the accompanying disclosures for the six months ended
December 31, 2010, which include a discussion of the
preliminary purchase price allocation related to our acquisition
of Sefina. We describe the assumptions underlying the pro forma
adjustments in the accompanying notes, which should also be read
in conjunction with these unaudited pro forma condensed
consolidating financial statements. You should also read the
following information in conjunction with the unaudited pro
forma condensed consolidating financial statements:
| separate unaudited historical consolidated financial statements of Dollar Financial Corp. as of and for the six month period ended December 31, 2010, included in our Quarterly Report on Form 10-Q for the six months ended December 31, 2010 filed with the SEC on February 9, 2011; | |
| separate audited historical consolidated financial statements of Dollar Financial Corp. as of and for the fiscal year ended June 30, 2010, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 filed with the SEC on August 28, 2010; | |
| separate audited historical consolidated financial statements of Sefina as of and for the year ended December 31, 2010, included in our Current Report on Form 8-K/A filed with the SEC on March 14, 2011; and |
1
| separate audited consolidated balance sheets of MEM as of December 31, 2010 and December 31, 2009 and the consolidated statements of operations, changes in stockholders equity and cash flows for each of the three years in the period ended December 31, 2010, and the notes related thereto, included as Exhibit 99.1 to the Current Report on Form 8-K of which this Exhibit 99.2 is a part. |
The pro forma adjustments related to the purchase price
allocation for our acquisitions of Sefina and MEM are
preliminary and based on information obtained to date by
management, and are subject to revision as additional
information becomes available as to, among other things, the
fair value of acquired assets and liabilities as well as any
pre-acquisition contingencies. Since these unaudited pro forma
combined condensed financial statements have been prepared based
on preliminary estimates of purchase consideration and fair
values attributable to such acquisitions, the actual amounts
recorded for these acquisition may differ from the information
presented. The estimation and allocations of purchase
consideration are subject to change pending further review of
the fair value of the assets acquired and liabilities assumed.
Revisions to the preliminary purchase price allocations may have
a significant impact on the pro forma amounts of total assets,
total liabilities and stockholders equity, operating
expense and costs, depreciation and amortization and interest
expense.
The unaudited pro forma condensed consolidating financial
statements should not be considered indicative of actual results
that would have been achieved had our acquisitions of Sefina and
MEM been consummated on the date or for the periods indicated,
and do not purport to indicate consolidated balance sheet data
or results of operations as of any future date or any future
period.
2
Dollar
Financial Corp.
Unaudited Pro Forma Condensed Consolidating Balance Sheet
December 31, 2010
(Dollars in millions)
Unaudited Pro Forma Condensed Consolidating Balance Sheet
December 31, 2010
(Dollars in millions)
Dollar |
Purpose UK |
Pro Forma |
Pro Forma |
|||||||||||||
Financial Corp. |
Holdings Limited |
Acquisition |
Dollar |
|||||||||||||
Historical | (MEM) Consolidated | (Note 3) | Financial Corp. | |||||||||||||
Assets
|
||||||||||||||||
Cash and cash equivalents
|
$ | 170.4 | $ | 17.8 | $ | (45.0 | )A | $ | 143.2 | |||||||
Consumer loans, net
|
122.0 | 33.0 | 155.0 | |||||||||||||
Pawn loans
|
113.4 | 0.0 | 113.4 | |||||||||||||
Loans in default, net
|
12.0 | 0.0 | 12.0 | |||||||||||||
Other receivables
|
36.0 | 0.0 | 36.0 | |||||||||||||
Prepaid expenses and other current assets
|
31.7 | 2.3 | 34.0 | |||||||||||||
Total current assets
|
485.5 | 53.1 | (45.0 | ) | 493.6 | |||||||||||
Deferred tax asset, net
|
19.2 | 0.0 | 19.2 | |||||||||||||
Property and equipment, net
|
81.5 | 4.5 | 86.0 | |||||||||||||
Goodwill and other intangibles
|
716.8 | 25.3 | 55.8 | B | 880.6 | |||||||||||
82.7 | C | |||||||||||||||
Debt issuance costs, net
|
18.1 | 0.0 | 18.1 | |||||||||||||
Other
|
18.6 | 0.0 | 18.6 | |||||||||||||
Total Assets
|
$ | 1,339.7 | $ | 82.9 | $ | 93.5 | $ | 1,516.1 | ||||||||
Liabilities and Stockholders Equity
|
||||||||||||||||
Accounts payable
|
$ | 32.7 | $ | 3.4 | $ | | $ | 36.1 | ||||||||
Accrued expenses and other liabilities
|
90.8 | 1.3 | 3.0 | D | 95.1 | |||||||||||
Income taxes payable
|
6.8 | 6.4 | 13.2 | |||||||||||||
Debt due within one year
|
7.8 | 19.6 | (19.6 | )E | 7.8 | |||||||||||
Total current liabilities
|
138.1 | 30.7 | (16.6 | ) | 152.2 | |||||||||||
Fair value of derivatives
|
66.8 | 0.0 | 66.8 | |||||||||||||
Long-term deferred tax liability
|
29.2 | 0.0 | 15.3 | F | 44.5 | |||||||||||
Long-term debt
|
787.2 | 0.0 | 150.0 | A | 833.2 | |||||||||||
(104.0 | )G | |||||||||||||||
Other non-current liabilities
|
66.5 | 0.0 | 66.5 | |||||||||||||
Stockholders Equity
|
||||||||||||||||
Common stock
|
0.0 | 0.0 | 0.0 | |||||||||||||
Preferred stock
|
23.5 | (23.5 | )H | 0.0 | ||||||||||||
Additional paid in capital
|
334.6 | 0.2 | (0.2 | )H | 438.6 | |||||||||||
104.0 | G | |||||||||||||||
Accumulated (deficit) earnings
|
(83.2 | ) | 18.3 | (18.3 | )H | (86.2 | ) | |||||||||
(3.0 | )D | |||||||||||||||
Accumulated other comprehensive income
|
0.9 | 0.0 | 0.9 | |||||||||||||
252.3 | 42.0 | 59.0 | 353.3 | |||||||||||||
Non-controlling interest
|
(0.4 | ) | 10.2 | (10.2 | )I | (0.4 | ) | |||||||||
Total Liabilities and Stockholders Equity
|
$ | 1,339.7 | $ | 82.9 | $ | 93.5 | $ | 1,516.1 | ||||||||
3
Dollar
Financial Corp.
Unaudited Pro Forma Condensed Consolidating Statement of Operations
For the Year Ended June 30, 2010
(Dollars in millions)
Unaudited Pro Forma Condensed Consolidating Statement of Operations
For the Year Ended June 30, 2010
(Dollars in millions)
Dollar |
Purpose UK |
Pro Forma |
Pro Forma |
|||||||||||||||||
Financial Corp. |
Sefina |
Holdings Limited |
Acquisition |
Dollar |
||||||||||||||||
Historical(1) | Finance AB | (MEM) Consolidated | (Note 3) | Financial Corp. | ||||||||||||||||
Revenues:
|
||||||||||||||||||||
Fees from consumer lending
|
$ | 319.5 | $ | | $ | 77.5 | $ | | $ | 397.0 | ||||||||||
Check cashing
|
149.5 | 0.0 | 0.0 | 149.5 | ||||||||||||||||
Pawn service fees and sales
|
19.9 | 29.2 | 0.0 | 49.1 | ||||||||||||||||
Other
|
144.3 | 0.0 | 0.0 | 144.3 | ||||||||||||||||
Total revenues
|
633.2 | 29.2 | 77.5 | 0.0 | 739.9 | |||||||||||||||
Operating expenses:
|
||||||||||||||||||||
Salaries and benefits
|
154.0 | 9.2 | 10.3 | 173.5 | ||||||||||||||||
Provision for loan losses
|
45.9 | 0.0 | 22.3 | 68.2 | ||||||||||||||||
Occupancy
|
43.3 | 2.8 | 1.6 | 47.7 | ||||||||||||||||
Returned checks, net and cash shortages
|
9.0 | 0.0 | 0.0 | 9.0 | ||||||||||||||||
Bank charges and armored carrier service
|
13.9 | 0.0 | 1.8 | 15.7 | ||||||||||||||||
Depreciation
|
14.3 | 0.5 | 1.3 | 16.1 | ||||||||||||||||
Other
|
106.5 | 4.9 | 19.7 | 131.1 | ||||||||||||||||
Total operating expenses
|
386.9 | 17.4 | 57.0 | 0.0 | 461.3 | |||||||||||||||
Operating margin
|
246.3 | 11.8 | 20.5 | 0.0 | 278.6 | |||||||||||||||
Corporate and other expenses:
|
||||||||||||||||||||
Corporate expenses
|
86.8 | 0.0 | 0.0 | 86.8 | ||||||||||||||||
Other depreciation and amortization
|
7.3 | 2.0 | 0.0 | 8.7 | J | 18.0 | ||||||||||||||
Interest expense, net
|
68.9 | 3.4 | 2.6 | (2.9 | )K | 72.0 | ||||||||||||||
Provision for litigation settlements
|
29.1 | 0.0 | 0.0 | 29.1 | ||||||||||||||||
Loss on extinguishment of debt
|
9.5 | 0.0 | 0.0 | 9.5 | ||||||||||||||||
Unrealized foreign exchange loss
|
10.2 | 0.0 | 0.0 | 10.2 | ||||||||||||||||
Loss on derivatives not designated as hedges
|
12.9 | 0.0 | 0.0 | 12.9 | ||||||||||||||||
Loss on store closings
|
3.3 | 0.0 | 0.0 | 3.3 | ||||||||||||||||
Other expense (income), net
|
2.1 | 0.0 | 0.3 | 2.4 | ||||||||||||||||
Income before income taxes
|
16.2 | 6.4 | 17.6 | (5.8 | ) | 34.4 | ||||||||||||||
Income tax provision
|
21.4 | 1.7 | 6.0 | (1.7 | )M | 27.4 | ||||||||||||||
Net (loss) income
|
$ | (5.2 | ) | $ | 4.7 | $ | 11.6 | $ | (4.1 | ) | $ | 7.0 | ||||||||
Less: Net loss attributable to non-controlling interests
|
(0.3 | ) | 0.0 | 2.9 | (2.9 | )N | (0.3 | ) | ||||||||||||
Net income attributable to parent companies
|
$ | (4.9 | ) | $ | 4.7 | $ | 8.7 | $ | (1.2 | ) | $ | 7.3 | ||||||||
Net (loss) income per share:
|
||||||||||||||||||||
Basic
|
$ | (0.14 | ) | $ | 0.18 | |||||||||||||||
Diluted
|
$ | (0.14 | ) | $ | 0.17 | |||||||||||||||
Weighed average shares outstanding
|
||||||||||||||||||||
Basic
|
36,159,848 | 5,000,000 | 41,159,848 | |||||||||||||||||
Diluted
|
36,159,848 | 5,000,000 | 42,244,438 |
(1) | For the year ended June 30, 2010, the previously reported amounts of other revenue and other operating expenses have been revised to correct certain immaterial classification errors. Specifically, charges previously netted in calculating total revenues of $2.3 million have been reclassified to operating expenses. Accordingly, this reclassification increased other revenue, total revenue, other operating expense, and total operating expense by $22.3 million for the year ended June 30, 2010. This reclassification did not affect the previously reported amounts of operating margin for any period. |
4
Dollar
Financial Corp.
Unaudited
Pro Forma Condensed Consolidating Statement of Operations
For the
Six Months Ended December 31, 2010
Dollar |
Purpose UK |
Pro Forma |
Pro Forma |
|||||||||||||||||
Financial Corp. |
Sefina |
Holdings Limited |
Acquisition |
Dollar |
||||||||||||||||
Historical | Finance AB | (MEM) Consolidated | (Note 3) | Financial Corp. | ||||||||||||||||
Revenues:
|
||||||||||||||||||||
Fees from consumer lending
|
$ | 191.3 | $ | | $ | 53.4 | $ | | $ | 244.7 | ||||||||||
Check cashing
|
72.0 | 0.0 | 0.0 | 72.0 | ||||||||||||||||
Pawn service fees and sales
|
13.5 | 15.9 | 0.0 | 29.4 | ||||||||||||||||
Other
|
79.9 | 0.0 | 0.0 | 79.9 | ||||||||||||||||
Total revenues
|
356.7 | 15.9 | 53.4 | 0.0 | 426.0 | |||||||||||||||
Operating expenses:
|
||||||||||||||||||||
Salaries and benefits
|
83.5 | 5.5 | 7.1 | 96.1 | ||||||||||||||||
Provision for loan losses
|
30.4 | 0.0 | 13.7 | 44.1 | ||||||||||||||||
Occupancy
|
23.6 | 1.4 | 1.2 | 26.2 | ||||||||||||||||
Returned checks, net and cash shortages
|
3.9 | 0.0 | 0.0 | 3.9 | ||||||||||||||||
Bank charges and armored carrier service
|
7.7 | 0.0 | 1.1 | 8.8 | ||||||||||||||||
Depreciation
|
7.5 | 0.4 | 0.9 | 8.8 | ||||||||||||||||
Other
|
61.8 | 2.4 | 11.3 | 75.5 | ||||||||||||||||
Total operating expenses
|
218.4 | 9.7 | 35.3 | 0.0 | 263.4 | |||||||||||||||
Operating margin
|
138.3 | 6.2 | 18.1 | 0.0 | 162.6 | |||||||||||||||
Corporate and other expenses:
|
||||||||||||||||||||
Corporate expenses
|
49.4 | 0.0 | 0.0 | 49.4 | ||||||||||||||||
Other depreciation and amortization
|
5.5 | 1.0 | 0.0 | 4.4 | J | 10.9 | ||||||||||||||
Interest expense, net
|
43.5 | 1.8 | 1.1 | (1.4 | )K | 45.0 | ||||||||||||||
Proceeds from litigation settlements
|
(3.9 | ) | 0.0 | 0.0 | (3.9 | ) | ||||||||||||||
Loss on extinguishment of debt
|
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||
Unrealized foreign exchange gain
|
(32.4 | ) | 0.0 | 0.0 | (32.4 | ) | ||||||||||||||
Loss on derivatives not designated as hedges
|
24.6 | 0.0 | 0.0 | 24.6 | ||||||||||||||||
Loss on store closings
|
0.5 | 0.0 | 0.0 | 0.5 | ||||||||||||||||
Other expense (income), net
|
2.6 | (0.1 | ) | 0.1 | (2.2 | )L | 0.4 | |||||||||||||
Income before income taxes
|
48.5 | 3.5 | 16.9 | (0.8 | ) | 68.1 | ||||||||||||||
Income tax provision
|
16.6 | 0.9 | 4.8 | (0.3 | )M | 22.0 | ||||||||||||||
Net income
|
$ | 31.9 | $ | 2.6 | $ | 12.1 | $ | (0.5 | ) | $ | 46.1 | |||||||||
Less: Net loss attributable to non-controlling interests
|
(0.4 | ) | 0.0 | 2.2 | (2.2 | )N | (0.4 | ) | ||||||||||||
Net income attributable to parent companies
|
$ | 32.3 | $ | 2.6 | $ | 9.9 | $ | 1.7 | $ | 46.5 | ||||||||||
Net income per share:
|
||||||||||||||||||||
Basic
|
$ | 0.89 | $ | 1.12 | ||||||||||||||||
Diluted
|
$ | 0.86 | $ | 1.09 | ||||||||||||||||
Weighed average shares outstanding
|
||||||||||||||||||||
Basic
|
36,440,562 | 5,000,000 | 41,440,562 | |||||||||||||||||
Diluted
|
37,628,431 | 5,000,000 | 42,628,431 |
5
NOTES TO
UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS
Note 1. | Basis of Pro Forma Presentation |
The unaudited pro forma condensed consolidating financial
statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and
Exchange Commission.
Certain information and certain disclosures normally included in
financial statements prepared in accordance with
U.S. generally accepted accounting principles (GAAP) have
been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures
provided herein are adequate to make the information presented
not misleading.
The information concerning Dollar Financial Corp. has been
derived from our audited consolidated financial statements as of
and for the year ended June 30, 2010, as included in our
Annual Report on
Form 10-K
for the fiscal year ended June 30, 2010, and from our
consolidated financial statements as of and for the six months
ended December 31, 2010, as included in our Quarterly
Report on
Form 10-Q
for the six months ended December 31, 2010. The information
concerning Sefina and MEM has been derived from the internally
prepared financial statements of Sefina and MEM for the twelve
months ended June 30, 2010 and as of and for the six months
ended December 31, 2010. Both Sefinas fiscal year and
MEMs fiscal year end on December 31. Sefinas
and MEMs historical statement of operations for the twelve
months ended June 30, 2010 represent a compilation of their
quarterly periods during the twelve month period ended
June 30, 2010. As a result, such statement of operations
includes estimates inherent in preparing interim financial
statements, such estimates were based on Sefinas and
MEMs actual fiscal years. The financial statements of
Sefina and MEM have been translated into U.S. dollars in
accordance with GAAP. All balance sheet accounts are translated
at the current exchange rate at each period end and income
statement items are translated at the average exchange rate for
the period. Certain reclassifications have been made to
Sefinas and MEMs historical statements of operations
to conform to Dollars presentation.
Article 11 of
Regulation S-X
requires that pro forma adjustments reflected in the unaudited
pro forma condensed consolidated statements of operations are
directly related to the transaction for which the pro forma
financial information is presented and have a continuing impact
on the results of operations. Certain charges have been excluded
in the unaudited pro forma condensed consolidating statements of
operations as such charges were incurred in direct connection
with the acquisitions and are not expected to have an on-going
impact on the results of operations after the closings.
The unaudited pro forma condensed consolidating statements of
operations for the year ended June 30, 2010 and the six
months ended December 31, 2010 give effect to the
acquisition of MEM and Sefina as if the acquisitions had
occurred on July 1, 2009 and July 1, 2010,
respectively. The unaudited pro forma condensed consolidating
balance sheet as of December 31, 2010 gives effect to the
acquisition of MEM as if it occurred on December 31, 2010.
Note 2. | Purchase Price Allocation |
The unaudited pro forma consolidated financial statements have
been prepared to give effect to the acquisition of MEM, which
will be accounted for as a purchase business combination in
accordance with ASC 805. For purposes of the following, we
have used a total estimated cash purchase price of approximately
$195.0 million.
Under the purchase method of accounting, the total estimated
purchase price is allocated to MEMs net tangible and
intangible assets based on their current estimated fair values
on the date of the acquisition. Based
6
on managements preliminary valuation of the fair value of
tangible and intangible assets acquired and liabilities assumed,
which are based on estimates and assumptions that are subject to
change, and other factors as described in the introduction to
these unaudited pro forma consolidating financial statements,
the preliminary purchase price for the MEM acquisition is
allocated as follows (in millions):
Cash
|
$ | 17.8 | ||
Consumer loans
|
33.0 | |||
Prepaid expenses and other current assets
|
2.3 | |||
Property and equipment
|
4.5 | |||
Accounts payable
|
(3.4 | ) | ||
Accrued expenses and other liabilities
|
(7.7 | ) | ||
Long-term deferred tax liability
|
(15.3 | ) | ||
Net tangible assets acquired
|
31.2 | |||
Definite-lived intangible assets acquired
|
54.8 | |||
Indefinite-lived intangible assets acquired
|
3.1 | |||
Goodwill
|
105.9 | |||
Total estimated purchase price
|
$ | 195.0 | ||
Prior to the end of the measurement period for finalizing the
purchase price allocation, if information becomes available
which would indicate adjustments are required to the purchase
price allocation, such adjustments will be included in the
purchase price allocation retrospectively.
Of the total estimated purchase price, an estimate of
$31.2 million has been allocated to net tangible assets
acquired, $54.8 million has been allocated to
definite-lived intangible assets acquired and $3.1 million
has been allocated to indefinite-lived intangible assets. The
remaining purchase price has been allocated to goodwill.
The components of the estimated fair value of the acquired
identifiable intangible assets are as follows:
Estimated |
||||||||
Estimated Fair |
Useful Lives |
|||||||
Value | (Years) | |||||||
Purchased technology
|
$ | 44.8 | 7 | |||||
Customer relationships
|
5.3 | 2 | ||||||
Channel relationships
|
4.4 | 3 | ||||||
Non-compete contracts
|
0.3 | 3 | ||||||
Tradename
|
3.1 | Indefinite | ||||||
Total identifiable intangible assets
|
$ | 57.9 | ||||||
MEMs principal business consists of marketing, servicing
and/or
originating small-balance, short-term loans (up to £750 for
less than 40 days) via the Internet, which we refer to as
Internet micro-loans. The main trading entity in the group is
MEM Consumer Finance Limited. This entity controls the Internet
operations and is referred to as our MEM operations.
Internet micro-loans are predominantly made by directing the
customer to the MEM website generally through direct marketing.
Once at the website, the customer completes an online
application for a loan by providing his or her name, address,
employment information, desired loan amount and bank account
information. This information is automatically screened for
fraud and other indicators and based on this information an
application is immediately approved or declined. In some cases,
additional information may be required from the applicant prior
to making a loan decision. Once a loan is approved, the customer
agrees to the terms of the loan and the amount borrowed is
directly deposited onto a customers debit card. At the
agreed upon repayment date, the customers debit card is
automatically charged for the full amount of the loan plus
applicable fees. If repayment is not made at the
agreed-upon
repayment date, it is considered delinquent and MEM will
continually seek to contact the customer in order to collect the
amount due. We will either seek full repayment or by agreement
with the customer collect the amount under a repayment schedule
of up to six
7
months (depending on the amount due). After 90 days of
in-house collection activity, the account will be transferred to
a third-party collection agency with an aim of maximizing
recovery of the charged-off debt.
The fair value of the purchased technology is determined using
the income method, which starts with a forecast of
all the expected future net cash flows. Some of the more
significant assumptions inherent in the development of
intangible asset values, from the perspective of the market
participant, include: the amount and timing of the projected
future cash flows (including revenue, cost of sales, operating
expenses and working capital/contributory asset charges); the
discount rate selected to measure the risks inherent in the
future cash flows; and the assessment of the assets life
cycle and the competitive trends impacting the asset, as well as
other factors. The fair value of the other identifiable assets
is primarily determined using the replacement cost approach.
The definite-lived intangible assets acquired will result in
approximately the following annual amortization expense (in
thousands):
Fiscal Year 2011
|
$ | 2.7 | ||
Fiscal Year 2012
|
10.7 | |||
Fiscal Year 2013
|
9.9 | |||
Fiscal Year 2014
|
7.5 | |||
Fiscal Year 2015
|
6.4 | |||
Thereafter
|
17.6 | |||
$ | 54.8 | |||
Of the total estimated purchase price, approximately
$105.9 million has been allocated to goodwill. Goodwill
represents the excess of the purchase price of an acquired
business over the fair value of the net tangible and intangible
assets acquired. In accordance with ASC 350,
Intangibles-Goodwill and Other goodwill will
not be amortized but instead will be tested for impairment at
least annually or more frequently if indicators of impairment
arise. In the event that management determines that the goodwill
has become impaired, we will incur an accounting charge for the
amount of the impairment during the fiscal quarter in which the
determination is made.
Note 3. | Pro Forma Acquisition Adjustments |
Pro forma adjustments are made to reflect the estimated purchase
price of MEM, to adjust amounts related to MEMs net
tangible and intangible assets to a preliminary estimate of the
fair values of those assets and to reflect the amortization
expense related to the estimated amortizable intangible assets.
The specific pro forma adjustments included in the unaudited pro
forma condensed consolidating financial statements are as
follows:
A Reflects the closing of the MEM purchase and the
total consideration paid using $45.0 million of existing
cash and the initial borrowing by Dollar Financial UK
of $150.0 million on our global revolving credit facility.
B To adjust intangible assets to an estimate of fair
value, as follows (in millions):
Eliminate MEMs historical intangible assets
|
$ | (2.1 | ) | |
Estimated fair value of intangible assets acquired (see
Note 2)
|
57.9 | |||
$ | 55.8 | |||
C To adjust goodwill to an estimate of
acquisition-date goodwill, as follows (in millions):
Eliminate MEMs historical goodwill
|
$ | (23.2 | ) | |
Estimated transaction goodwill (see Note 2)
|
105.9 | |||
$ | 82.7 | |||
D To reflect estimated remaining
transactional-related costs associated with our acquisitions of
Sefina and MEM.
8
E Elimination of pre-existing MEM intercompany debt.
F Deferred tax liabilities related to the identified
intangible assets as disclosed in Note B.
G To reflect anticipated impact of equity offering
based on $110.8 million in gross proceeds with estimated fees and
expenses of $6.8 million. We intend to loan the net
proceeds of this offering to Dollar Financial UK to enable it to
repay a portion of the amounts it initially borrowed under our
global revolving credit facility in connection with the closing
of the MEM acquisition. We intend to seek permanent financing
for the MEM acquisition after the completion of this offering,
although, there can be no assurance that such financing will be
available or as to its terms.
H To eliminate pre-existing MEM shareholders
equity.
I In the historical financial statements of MEM,
there were non-controlling interests representing minority
ownerships in various majority-owned subsidiaries that were
included as a component of total equity. As of December 31,
2010, those non-controlling interests represented an aggregate
ownership of 18%. As part of our acquisition of MEM, these
minority ownership positions will be eliminated and MEM will be
the 100% owner of all subsidiaries. This pro forma adjustment
reflects the elimination of the minority owned interests.
J To adjust amortization expense as follows (in
millions):
Year Ended |
Six |
|||||||
June 30, |
Months Ended |
|||||||
2010 | December 31, 2010 | |||||||
Eliminate Sefina historical intangible asset amortization expense
|
$ | (2.0 | ) | $ | (1.0 | ) | ||
Estimated amortization expense for MEM intangibles:
|
||||||||
Technology intangible
|
6.4 | 3.2 | ||||||
Customer relationships
|
2.7 | 1.4 | ||||||
Channel relationships
|
1.5 | 0.8 | ||||||
Non-compete contracts
|
0.1 | 0.0 | ||||||
Totals
|
$ | 8.7 | $ | 4.4 | ||||
K To adjust historical interest expense as follows
(in millions):
Year Ended |
Six |
|||||||
June 30, |
Months Ended |
|||||||
2010 | December 31, 2010 | |||||||
Eliminate Sefina historical intercompany interest expense
|
$ | (1.9 | ) | $ | (0.9 | ) | ||
Eliminate MEM historical intercompany interest expense
|
(2.6 | ) | (1.1 | ) | ||||
Recognize additional DFC interest expense on net revolver
borrowing
|
1.6 | 0.6 | ||||||
Totals
|
$ | (2.9 | ) | $ | (1.4 | ) | ||
L To reflect the elimination of nonrecurring
acquisition-related advisory and legal fees incurred by us
during the six months ended December 31, 2010. Nonrecurring
charges that do not have a continuing impact on operations are
excluded in the pro forma presentation of the condensed
consolidated statement of operations.
M To adjust tax provision expense for all income
statement impacts using a tax rate of 26.3% for Sefinas
adjustments and 28.0% for MEM adjustments.
N As disclosed in Note I, all MEM non-controlling
interest partners will be eliminated as of closing date. This
adjustment reflects the elimination of the net income attributed
to non-controlling interests.
9