Exhibit 99.4

 

As used in this Exhibit 99.4, unless the context otherwise requires, the terms (i) “we,” “our” and “the Company” refer to Dollar Financial Corp. and its subsidiaries, including National Money Mart Company, (ii) “Issuer” refers solely to National Money Mart Company, (iii) “Parent” refers solely to Dollar Financial Corp., (iv) “DFG” refers solely to Dollar Financial Group, Inc., (v) “Dollar Financial U.K.” refers solely to Dollar Financial U.K. Limited, (vi) “MFS” refers to Military Financial Services, LLC and its wholly-owned subsidiaries, Dealers’ Financial Services, LLC and Dealers’ Financial Services Reinsurance Ltd., and (vii) “DFS” refers solely to Dealers’ Financial Services, LLC. Unless the context otherwise requires, the term “fiscal year” and “fiscal” refer to (a) the twelve-month period ended on June 30 of that year with respect to the Company and (b) the twelve-month period ended on December 31 of that year with respect to MFS. References to “$” refer to the lawful currency of the United States of America.

 

On October 28, 2009, DFG entered into a purchase agreement with all of the members of MFS pursuant to which on December 23, 2009, DFG purchased all of the outstanding membership interests of MFS, and, as a result of such purchase, MFS became a wholly owned subsidiary of DFG. We refer to this business combination as the DFS acquisition. The consummation of the DFS acquisition was contingent on Parent obtaining acceptable financing for the acquisition, which in addition to the completion of the offering by Issuer of the Senior Notes, defined below, required an amendment to certain aspects of our senior secured credit facility, for which we received the necessary consents on November 20, 2009 and which become effective on December 23, 2009. We refer to the following events as the Transactions:

 

 

The following unaudited pro forma condensed consolidating financial statements are based on our historical financial statements and those of MFS incorporated by reference in this report after giving effect to the Transactions. 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 the Transactions as if they had been consummated on July 1, 2008. The unaudited pro forma condensed consolidating balance sheet data give effect to the Transactions as if they had occurred on September 30, 2009. 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 this information in conjunction with the:

 

 

The pro forma adjustments related to the purchase price allocation and financing of the DFS acquisition 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 and finalization of acquisition-related costs. The actual adjustments described in the accompanying notes will be made as of the closing date of the DFS acquisition and may differ from those reflected in these unaudited pro forma condensed consolidating financial statements. Revisions to the preliminary purchase price allocation and financing of the DFS acquisition 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 the Transactions 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.

Dollar Financial Corp.

 

Unaudited Pro Forma Condensed Consolidating Balance Sheet

September 30, 2009

 

Dollar Financial Corp.

 

Unaudited Pro Forma Condensed Consolidating Statement of Operations

For the Year Ended June 30, 2009

 

Dollar Financial Corp.

 

Unaudited Pro Forma Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2009

 

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

 

 

The unaudited pro forma consolidated 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 DFC has been derived from the audited consolidated financial statements of the Company for the year ended June 30, 2009 as included in the Company’s Current Report on Form 8-K, filed on November 20, 2009 for the year ended June 30, 2009 and from the consolidated financial statements of the Company as of and for the three months ended September 30, 2009 as included in the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2009. The information concerning DFS has been derived from the internally prepared financial statements of DFS for the twelve months ended June 30, 2009 and as of and for the three months ended September 30, 2009. DFS’ fiscal year ends on December 31. DFS’ historical statement of operations for the twelve months ended June 30, 2009 represent a compilation of their quarterly periods during the twelve month period ended June 30, 2009. As a result, such statement of operations include estimates inherent in preparing interim financial statements, which estimates were based on DFS’ actual fiscal years.

 

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 or at the time of the Transactions and are not expected to have an on-going impact on the results of operations after the closings.

 

On December 21, 2009, Dollar Financial Corp. commenced the closing of an exchange offer with several holders of its 2.875% Senior Convertible Notes due 2027 pursuant to the terms of its previously announced exchange agreements. Pursuant to the exchange agreements, $110.8 million in aggregate principal amount of the existing convertible notes were exchanged for an equal principal amount of new 3.00% Senior Convertible Notes of the Company due 2028. The new convertible notes issued in the transaction have substantially the same terms as the existing convertible notes, other than (i) the maturity of the new convertible notes is April 1, 2028, (ii) the conversion price of the new convertible notes is $28.956 per share, (iii) holders of the new convertible notes will have the right to require Parent to repurchase their new convertible notes on each of April 1, 2015, April 1, 2018 and April 1, 2023, for a purchase price payable in cash equal to 100% of the principal amount of the new convertible notes to be purchased plus any accrued and unpaid interest, and (iv) the Company will have the right to redeem the new convertible notes on and after April 5, 2015, for a payment in cash equal to 100% of the principal amount of the new convertible notes to be redeemed, plus accrued and unpaid interest. Because this transaction is not directly connected to the Transactions, the impact of the exchange is not reflected in the unaudited pro forma condensed consolidating financial statements presented herein.

 

 

The unaudited pro forma consolidated financial statements have been prepared to give effect to the presumed acquisition of DFS, 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 $117.8 million (subject to adjustment for the working capital of MFS and its subsidiaries as of the closing date, which we currently estimate will result in an additional $1.2 million payment to the sellers).

 

Under the purchase method of accounting, the total estimated purchase price is allocated to DFS’ net tangible and intangible assets based on their current estimated fair values as if the acquisition occurred on September 30, 2009. Based on management’s 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

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)

 

described in the introduction to these unaudited pro forma consolidating financial statements, the preliminary purchase price is allocated as follows (in thousands):

 

 

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 $2.7 million has been allocated to net tangible assets acquired, $31.1 million has been allocated to definite-lived intangible assets acquired and $35.5 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:

 

 

DFS provides services to enlisted military personnel seeking to purchase new and used vehicles. Through its branded Military Installment Loan and Education Services, or “MILES” program, DFS provides services to enlisted military personnel who make applications for auto loans funded under an exclusive agreement with a major third-party national bank. Additionally, DFS provides ancillary services such as service contracts and guaranteed asset protection, or GAP, insurance, along with consultations regarding new and used automotive purchasing, budgeting and credit and ownership training. DFS’ revenue comes from fees which are paid by the third-party national bank and fees from the sale of ancillary products such as warranty service contracts and GAP insurance coverage. DFS operates through an established network of arrangements with more than 545 franchised and independent new and

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)

 

used car dealerships, according to underwriting protocols specified by the third-party national bank. DFS has contracts with the third-party national bank as well as the provider of service contracts and GAP insurance contracts and each of these contracts have been identified by the Company as having value in connection with the acquisition. In addition, DFS has a contract with a third party that processes the military service members’ loan payment to the bank, through an allotment from the service members’ pay check. We refer to this contract as the Payment Processing contract.

 

The fair value of identifiable intangible assets is determined primarily 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 asset’s life cycle and the competitive trends impacting the asset, as well as other factors.

 

The definite-lived intangible assets acquired will result in approximately the following annual amortization expense (in thousands):

 

 

Of the total estimated purchase price, approximately $49.7 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, the Company will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made.

 

 

In connection with the Transactions, the Company has negotiated an amendment to its senior secured credit facility, which we refer to as the Amendment, with the following changes:

 

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)

 

 

 

As more fully described in Note 20 to our year ended June 30, 2009 financial statements, we have hedged our senior secured credit facility with cross currency interest rate swaps in order to protect the company against changes in the variable index associated with the senior credit facility (LIBOR, or in the case of a portion of the U.K. facility, EURIBOR) and changes to foreign currency exchange rates. For purposes of the pro forma presentation, we have not reflected any actions that may be taken, or any related accounting implications regarding these cross currency swaps, including the dedesignation of the interest rate swaps due to ineffectiveness that may result; the potential for a partial or complete termination of these swaps upon finalization of the Amendment, or the impact to historical interest expense had the aforementioned actions or derivations of the aforementioned actions had been taken.

 

During fiscal 2009 and the quarter ended September 30, 2009, the impact to the interest expense related to our interest rate swaps was an increase in expense of $5.6 million and $3.1 million, respectively. These amounts are included in both our historical and pro forma interest expense for the year ended June 30, 2009 and three month period ended September 30, 2009.

 

Had we completely dedesignated these interest rate swaps as of July 1, 2008 but did not terminate them, interest expense would have been reduced by $5.6 million and $3.1 million for the year ended June 30, 2009 and the three month period ended September 30, 2009, respectively; however, upon dedesignation, GAAP would require that the change in fair value associated with these swaps would have been recorded through the income statement instead of other comprehensive income, which would have decreased net income by $8.2 million for the year ended June 30, 2009 and $0.4 million for the three month period ended September 30, 2009.

 

Also as part of the Transactions, the Company’s Canadian subsidiary is issuing $596.4 million of senior notes, net of a $3.6 million issuance discount, with a coupon of 10.375% and an effective annual interest rate of 10.5% with a maturity of December 2016, which we refer to as the Offering. The specific pro forma adjustments related to the Amendment and Offering included in the unaudited pro forma consolidated financial statements are as follows:

 

A — To reflect the gross proceeds raised from the Offering of the senior notes.

 

B — To reflect the anticipated $350 million prepayment of the Company’s Canadian and U.K. term loans.

 

C — In connection with both the Amendment and the Offering, the Company will incur additional fees that will be deferred and amortized over the respective terms of the debt. The estimated fees related to each transaction are as follows (in thousands):

 

 

D — The Amendment will be deemed to be an extinguishment of the term loan balances under generally accepted accounting principles and therefore all associated unamortized pre-existing deferred debt costs will be written off. In connection with the Amendment and immediate repayment of $350.0 million of the senior secured credit facility, we will pay $627,000 in transactional costs that will also be written off. Under the guidelines for pro forma adjustments, the elimination of these deferred costs is reflected in the pro forma balance sheet, but is not reflected in the pro forma income statements.

 

E — When the Company executed an early settlement of its U.K. cross-currency interest rate swaps, the cumulative net loss related to the discontinued cash flow hedge was reported in other comprehensive income and was being amortized over the remaining life of the U.K. term loan debt. With the partial repayment of the U.K. debt, the proportional amount of the cumulative net loss related to retired swap will be reclassified from

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)

 

other comprehensive income to earnings. This amount is reflected as a reclassification between accumulated other comprehensive income and retained earnings on the unaudited pro forma balance sheet.

 

F — To reflect the net reduction in interest expense, adjusted for the repayment of the $350.0 million of principal, resulting from the Amendment of the Company’s senior secured credit facility and not the additional interest expense resulting from the offering of the Senior Notes.

 

G — To adjust interest expense related to the amortization of deferred debt costs of both the amended senior secured credit facility and the senior notes, as follows (in thousands):

 

 

H — To reflect additional cash interest expense and the amortization of the related issuance discount related to the issuance of the senior notes issued in connection with the offering of the Senior Notes.

 

I — To reflect the related tax impacts on interest expense adjustments in both Canada and the United Kingdom.

 

 

Pro forma adjustments are made to reflect the estimated purchase price of DFS, to adjust amounts related to DFS’ net tangible and intangible assets to a preliminary estimate of the fair values to those assets, to reflect the amortization expense related to the estimated amortizable intangible assets and to reclassify certain DFS’ amounts to conform to the Company’s financial statement presentation.

 

The specific pro forma adjustments included in the unaudited pro forma condensed consolidating financial statements are as follows:

 

A — As provided for in the sales purchase agreement, sellers are entitled to a cash distribution immediately prior to closing based upon a pre-determined cash balance.

 

B — To reflect the consideration to be paid (including estimated working capital adjustment, see Note 4-A) by DFG to purchase the membership interests of MFS.

 

C — In February 2007, Automotive Professionals, Inc., or API, DFS’ then insurance provider of vehicle service contracts, filed for a voluntary bankruptcy petition. In connection with the bankruptcy settlement of API, DFS was granted a certain amount of restricted cash to be applied against all remaining API service contract liabilities and DFS assumed all remaining obligations under related service contracts. This adjustment is to reflect the estimated fair values of the remaining API related balances for previously recognized revenues and the remaining service contract liabilities.

 

D — To adjust intangible assets to an estimate of fair value, as follows (in thousands):

 

 

NOTES TO UNAUDITED PRO FORMA

 

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)

 

E — To adjust goodwill to an estimate of acquisition-date goodwill, as follows (in thousands):

 

 

F — Concurrent with the closing of the acquisition, a portion of the purchase price will be utilized by DFS to repay all outstanding debt and related liabilities. This adjustment eliminates all pre-existing balances related to DFS outstanding debt (accrued interest and all debt balances). This adjustment also reflects the elimination of unamortized deferred debt costs associated with the DFS debt.

 

G — Certain service contracts sold by DFS are transferred to a captive reinsurance company that is owned and consolidated by DFS instead of being transferred to the third-party service contract provider. The initial payments (for both DFS and the reinsurance entity) made by the customer were recorded as deferred revenue by DFS and recognized as revenues over the life of the service contract. For purchase accounting purposes, all deferred revenue balances for both entities have been eliminated (see Note I).

 

H — To reflect estimated DFC transactional related costs associated with the DFS acquisition.

 

I — To record an estimate of the value of the captive reinsurance company’s service contract liabilities associated with all open service contracts.

 

J — As provided in the sales purchase agreement, upon expiration of the API bankruptcy settlement agreement (in February 2011), the sellers are entitled to receive one half of the then remaining restricted cash balance that has not been utilized in the payment of API claims. This amount reflects management’s estimate of the expected payment.

 

K — To eliminate MFS membership equity.

 

L — To adjust amortization expense to an estimate of intangible asset amortization, as follows (in thousands):

 

 

M — The previous owners of DFS charged a management fee and related expenses in connection with their over-sight and involvement with DFS. This adjustment eliminates those expenses from the historical operating results of DFS.

 

N — To eliminate DFS interest expense related to pre-existing debt balances extinguished upon consummation of the acquisition.

 

O — Since DFC is in a net operating loss position for tax purposes, the DFS historical tax expense is being eliminated.