SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 333-18221
DOLLAR FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 13-2997911
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
1436 LANCASTER AVENUE, SUITE 210
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant's Telephone Number, Including Area Code)
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check X whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes[ ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 100
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
-------
Item 1. Financial Statements................................................. 3
Interim Consolidated Balance Sheets as of September 30, 1997, and
June 30, 1997........................................................ 3
Interim Unaudited Consolidated Statements of Operations for the Three
Months Ended September 30, 1997 and 1996............................. 4
Interim Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1997 and 1996............................. 5
Notes to Interim Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk....................................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................22
Item 2. Changes in Securities................................................22
Item 3. Defaults Upon Senior Securities......................................22
Item 4. Submission of Matters to a Vote of Security Holders..................22
Item 5. Other Information....................................................22
Item 6. Exhibits and Reports on Form 8-K.....................................22
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLLAR FINANCIAL GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $50,015 $55,205
Accounts receivable ........................................ 5,121 8,101
Prepaid expenses .................................... 2,251 1,647
Deferred income taxes .................................... 857 805
Note receivable -- officer.................................. 200 200
Properties and equipment, net of accumulated depreciation
of $4,217 and $3,686.................................. 7,738 7,934
Cost assigned to contracts acquired, net of accumulated
amortization of $304 and $235......................... 388 457
Cost in excess of net assets acquired, net of accumulated
amortization of $5,668 and $4,754.................... 102,643 103,313
Covenants not to compete, net of accumulated amortization
of $546 and $418 1,180 1,558
Debt issuance costs, net of accumulated amortization of
$437 and $306........................................... 5,239 5,370
Other....................................................... 1,681 1,398
----------------- -----------------
$177,313 $185,988
================= =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable .......................................... $12,957 $14,130
Advance from money transfer agent.......................... 3,000 3,000
Accrued expenses .......................................... 4,517 3,365
Accrued interest payable................................... 4,995 1,942
Revolving credit facilities................................ -- 12,187
Long-term debt and subordinated notes payable.............. 2,680 2,804
10-7/8 % Senior Notes due 2006............................. 110,000 110,000
Shareholder's equity:
Common stock, $1 par value: 20,000 shares
authorized; 100 shares issued and outstanding at
September 30, 1997 and June 30, 1997.................. --- ---
Additional paid-in capital................................. 40,941 40,941
Accumulated deficit ....................................... (1,460) (2,078)
Foreign currency translation............................... (317) (303)
----------------- -----------------
Total shareholder's equity............................ 39,164 38,560
----------------- -----------------
$177,313 $185,988
================= =================
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1996
------------ ----------------
Revenues ........................... $26,144 $13,645
Store and regional expenses:
Salaries and benefits............... 8,458 4,691
Occupancy........................... 2,457 1,395
Depreciation........................ 439 243
Other............................... 6,507 3,648
------------ ----------------
Total store and regional expenses...... 17,861 9,977
Corporate expenses .................... 2,642 1,371
Gain on store closings and sales....... (40) (18)
Other depreciation and amortization.... 1,203 659
Interest expense........................ 3,219 1,358
-------------- ----------------
Income before taxes..................... 1,259 298
Income tax provision ................... 641 246
--------------- ----------------
Net income............................. $618 $52
=============== ================
See notes to interim consolidated financial statements.
4
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 618 $ 52
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 1,779 988
Gains on store closings and sales...................................... (40) (18)
Deferred tax provision................................................. (52) 253
Change in assets and liabilities (net of effect of acquisitions):
Decrease (increase) in accounts receivable.......................... 2,980 (352)
(Increase) decrease in prepaid expenses and other assets............ (887) 321
Increase in accounts payable and accrued expenses................... 2,972 2,746
----------- ------------
Net cash provided by operating activities.................................... 7,370 3,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........................................... -- (35,394)
Gross proceeds from sale of fixed assets..................................... 150 --
Additions to properties and equipment........................................ (385) (229)
----------- ------------
Net cash used in investing activities........................................ (235) (35,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................................... -- (1,510)
Payments on subordinated notes payable....................................... (124) (102)
Net decrease (increase) in revolving credit facilities....................... (12,187) (1,661)
Proceeds from long-term debt................................................. -- 35,000
Payments of debt issuance costs.............................................. -- (2,507)
Proceeds from equity contribution from parent................................ -- 21,652
----------- ------------
Net cash (used in) provided by financing activities.......................... (12,311) 50,872
----------- ------------
Effect of exchange rate changes on cash...................................... (14) --
----------- ------------
Net increase (decrease) in cash and cash equivalents........................ (5,190) 19,239
Cash and cash equivalents at beginning of period............................ 55,205 22,545
=========== ============
Cash and cash equivalents at end of period................................. $50,015 $ 41,784
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.............................................................. $ 166 $ 1,313
Income taxes paid.......................................................... $ 119 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital contribution from parent in connection with acquisition of
AnyKind Check Cashing Centers, Inc...................................... $ -- $ 2,000
Financing provided for insurance premiums.................................. $ -- $ 166
See notes to interim consolidated financial statements.
5
</TABLE>
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial statements
of Dollar Financial Group, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the rules and regulations of the Securities and Exchange Commission. They do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. Although management
believes that the disclosure is adequate to prevent the information from being
misleading, it is suggested that the interim consolidated financial statements
be read in conjunction with the Company's audited financial statements in its
Annual Report on Form 10-K for the fiscal year ended June 30, 1997 filed with
the Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
OPERATIONS
Dollar Financial Group, Inc., organized in 1979 under the laws of the State of
New York, is a wholly owned subsidiary of DFG Holdings, Inc. ("Holdings"). The
activities of Holdings consist primarily of its investment in the Company and
there are no differences between the consolidated results of operations of
Holdings and those of the Company. Holdings has no employees or operating
activities. The Company, through its subsidiaries, provides retail financial and
government contractual services to the general public through a network of
approximately 417 (of which 347 are company owned) locations operating as Check
Mart(R), Money Mart, Loan Mart, Chex$Cashed, QwiCash(R), Almost-A-Banc,
Financial Exchange Company(R), ABC Check Cashing, AnyKind Check Cashing Centers,
C&C Check Cashing, Cash-N-Dash Check Cashing, Quikcash and The Service Centers
in fourteen states, the District of Columbia and Canada. The services provided
at the Company's retail locations include check cashing, sale of money orders,
money transfer services, issuance of food stamps and other welfare benefits, and
various other related services. Additionally, the Company, through its merchant
services division, maintains and services a network of electronic government
benefits distribution to more than 1200 retail locations throughout the State of
New York.
The Company has contracts with various governmental agencies for benefits
distributions and retail merchant services which contributed 15.0% and 27.0% of
consolidated gross revenues for the three months ended September 30, 1997 and
1996, respectively. The Company's contracts with the Commonwealth of
Pennsylvania, which are included in this amount, contributed 6.6% and 13.7% of
consolidated gross revenues for the three months ended September 30, 1997 and
1996, respectively. The Company has received correspondence from the
Commonwealth of Pennsylvania outlining their proposed implementation of an
electronic benefit transfer system. Based on this correspondence and other
communication with the Commonwealth, implementation could start as soon as
6
<PAGE>
January 1998 and take a year to fully implement. If implemented, this plan would
result in the termination of all of the Company's contracts with the
Commonwealth of Pennsylvania. There can be no assurance when or if this will
happen. In the event that the contracts are terminated, the Company intends to
operate many of these locations as stand-alone check cashing sites. However
there can be no assurance that the installation of such systems will not have a
material adverse affect on the Company's results of operations or financial
condition.
2. ACQUISITIONS
During 1997, the Company acquired the entities described below (collectively
referred to as the "Acquisitions"), which were accounted for by the purchase
method of accounting. The results of operations of the acquired companies are
included in the Company's statements of operations for the periods in which they
were owned by the Company. The total purchase price for each acquisition has
been allocated to assets acquired and liabilities assumed based on the estimated
fair values.
In August 1996, the Company purchased all of the outstanding capital stock of
Any Kind Check Cashing Centers, Inc. ("Any Kind") for an aggregate purchase
price of $31.0 million consisting of $29.0 million in cash and $2.0 million in
Holdings' common stock. Any Kind operated 63 check cashing stores in seven
states and the District of Columbia.
In August 1996, the Company purchased certain assets and liabilities of ABC
Check Cashing Inc. ("ABC") for a purchase price of $6.0 million in cash. ABC
operated 15 check cashing stores in Cleveland, Ohio.
In November 1996, the Company acquired all of the outstanding capital stock of
Money Mart for approximately $17.7 million (of which approximately $500,000 was
in the form of Holdings' common stock). Money Mart owns 36 check cashing stores
and franchises 107 check cashing stores, all of which operate in Canada under
the "Money Mart" name.
In November 1996, the Company acquired substantially all of the assets of
Cash-N-Dash Check Cashing, Inc. ("Cash-N-Dash") for approximately $7.3 million,
consisting of $6.0 million in cash, the issuance to the seller of $500,000 of
Holdings' common stock, and a revenue-based earn-out of up to $750,000 payable
over four years. Cash-N-Dash operated 32 check cashing stores in northern
California under the "Cash-N-Dash" name.
In November 1996, the Company acquired C&C Check Cashing, Inc. ("C&C") pursuant
to a stock purchase agreement for approximately $3.8 million, consisting of $3.5
million in cash and a revenue-based earn-out of up to $300,000 payable over
three years. C&C operated 22 check cashing stores in northern California under
the "C&C Check Cashing" name.
In April 1997, the Company acquired all of the outstanding stock of a company
which owned all of the operating assets of Canadian Capital Corporation
("Canadian Capital"). Canadian Capital was the largest Money Mart franchisee and
operated 43 check cashing retail stores in Ontario, Canada under the name "Money
Mart." Total consideration for the purchase was $13.3 million.
The following unaudited pro forma information presents the results of operations
as if the Acquisitions had occurred on July 1, 1996. The pro forma operating
results include the results of operations for these acquisitions for the
indicated periods and reflect the amortization of intangible assets arising from
the acquisitions and increased interest expense on acquisition debt. Pro forma
results of operations are not necessarily indicative of the results of
operations that would have occurred had the purchase been made on the date above
or the results which may occur in the future.
7
<PAGE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
------------------------------------------
1996 1997
------------------- ------------------
(DOLLARS IN THOUSANDS)
Total revenues ....... $24,913 $26,144
Net Income............ $ 341 $ 618
3. SUBSIDIARY GUARANTOR CONDENSED FINANCIAL INFORMATION
In November 1996, the Company raised approximately $110 million of gross
proceeds by issuing 10 7/8% Senior Notes due in November 2006 (the "Notes"). The
Company's payment obligations under the Notes are jointly and severally
guaranteed on a full and unconditional basis by all of the Company's existing
and future subsidiaries. The subsidiaries' guarantees rank pari passu in right
of payment with all existing and future senior indebtedness of the Guarantors,
including the obligations of the Guarantors under the Company's existing credit
facilities and any successor credit facility. Pursuant to the indenture of the
Senior Notes, every direct and indirect subsidiary of the Company, each of which
is wholly owned, serves as a guarantor of the notes, including the Company's
Canadian subsidiary formed in fiscal year 1997.
The Company is a holding company with no assets, independent operations, or cash
flows other than its investment in its subsidiaries. There are no restrictions
on the Company's and the Guarantors' ability to obtain funds from their
subsidiaries by dividend or by loan. Separate financial statements of each
Guarantor have not been presented because management has determined that they
would not be material to investors. The accompanying tables set forth the
condensed consolidating balance sheet at September 30, 1997, and the
consolidating statements of operations and cash flows for the three month period
ended September 30, 1997 of the Company (on a parent-company basis), combined
domestic Guarantors, Canadian subsidiary Guarantor, and the consolidated
Company.
8
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
At September 30, 1997: Dollar Domestic Canadian
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantor Eliminations Consolidated
--------------- -------------- -------------- -------------- ---------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash................................................ $339 $37,113 $12,563 $--- $50,015
Accounts receivable................................. 1,759 3,886 673 (1,197) 5,121
Prepaid expenses.................................... 358 1,686 207 --- 2,251
Deferred income taxes............................... 795 62 --- --- 857
Note receivable-Officer............................. 200 --- --- --- 200
Due from affiliates................................. 78,032 --- --- (78,032) ---
Properties and equipment, net....................... 888 4,874 1,976 --- 7,738
Costs assigned to contracts acquired, net........... --- 388 --- --- 388
Costs in excess of net assets acquired, net......... --- 74,588 29,235 --- 103,823
Debt issuance costs, net............................ 5,239 --- --- --- 5,239
Investment in subsidiaries.......................... 69,290 --- --- (69,290) ---
Other............................................... 1,060 500 121 --- 1,681
----------- -------------- ------------- ------------------ ---------------
$157,960 $123,097 $44,775 ($148,519) $177,313
=========== ============== ============== ================== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued expenses............... $8,700 $13,255 $4,711 ($1,197) $25,469
Due to affiliates................................... --- 49,834 28,198 (78,032) ---
Revolving credit facility........................... --- --- --- --- ---
Long term debt and subordinated notes payable....... 110,000 2,680 --- --- 112,680
----------- -------------- -------------- ----------------- ---------------
118,700 65,769 32,909 (79,229) 138,149
Shareholder's equity:
Common Stock........................................ --- --- --- --- ---
Foreign currency translation........................ (221) --- (96) --- (317)
Additional paid-in capital.......................... 40,941 46,613 10,797 (57,410) 40,941
Retained earnings (accumulated deficit)............. (1,460) 10,715 1,165 (11,880) (1,460)
----------- -------------- -------------- ------------------ ---------------
Total shareholder's equity.......................... 39,260 57,328 11,866 (69,290) 39,164
=========== ============== ============== ================== ===============
$157,960 $123,097 $44,775 ($148,519) $177,313
=========== ============== ============== ================== ===============
</TABLE>
9
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997: Dollar Domestic Canadian
Financial Subsidiary Subsidiary
Group, Inc. Guarantor Guarantor Eliminations Consolidated
---------------- ---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $1 $20,205 $5,938 $--- $26,144
Store and regional expenses:
Salaries and benefits.................................. --- 6,781 1,677 --- 8,458
Occupancy.............................................. --- 1,948 509 --- 2,457
Depreciation........................................... --- 341 98 --- 439
Other.................................................. --- 5,528 979 --- 6,507
----------- ------------ ----------- --------- ----------
Total store and regional expenses......................... --- 14,598 3,263 --- 17,861
Corporate expenses........................................ 2,116 --- 526 --- 2,642
(Gain) loss on store closings and sales................... 30 (72) 2 --- (40)
Other depreciation and amortization....................... 70 838 295 --- 1,203
Interest expense.......................................... 2,372 63 784 --- 3,219
-----------
------------ ----------- --------- ----------
Income (loss) before taxes................................ (4,587) 4,778 1,068 --- 1,259
Income taxes provision (benefit).......................... (432) 688 385 --- 641
----------- ------------ ----------- --------- ----------
Income (loss) before equity in net income (loss) of
subsidiaries........................................... (4,155) 4,090 683 --- 618
Domestic subsidiary guarantors............................ 4,090 --- --- (4,090) ---
Canadian subsidiary guarantor............................. 683 --- --- (683) ---
=========== ============ =========== ========= ==========
Net income................................................ $618 $4,090 $683 ($4,773) $618
=========== ============ =========== ========= ==========
10
</TABLE>
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997: Dollar Domestic Canadian
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantor Eliminations Consolidated
---------- ---------- -------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)................................................. $618 $4,090 $683 ($4,773) $618
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Undistributed income of subsidiaries........................ (4,773) --- --- 4,773 ---
Depreciation and amortization............................... 205 1,175 399 --- 1,779
Gains on store closings and sales........................... 30 (72) 2 --- (40)
Deferred tax benefit (52) --- --- --- (52)
Change in assets and liabilities (net of effect of
acquisitions):
Decrease in accounts receivable....................... 755 2,296 2 (73) 2,980
(Increase) decrease in prepaid expenses and
other assets...................................... (413) (514) 40 --- (887)
Increase (decrease) in accounts payable and
accrued expenses.................................. 1,029 181 1,689 73 2,972
---------- ---------- -------- ---------- ----------
Net cash provided by (used in) operating activities............... (2,601) 7,156 2,815 --- 7,370
Cash flows from investing activities:
Gross proceeds from sale of fixed assets.................... --- 150 --- --- 150
Additions to properties and equipment....................... (62) (198) (125) --- (385)
Net decrease in due from affiliates......................... 14,860 --- --- (14,860) ---
---------- ---------- -------- ---------- ----------
Net cash provided by (used in) investing activities............... 14,798 (48) (125) (14,860) (235)
Cash flows from financing activities:
Payments on long term debt.................................. --- --- --- --- ---
Payments on subordinated notes payable...................... (120) (4) --- --- (124)
Net decrease in revolving credit facilities................. (11,733) --- (454) --- (12,187)
Net increase (decrease) in due to parent and affiliates..... --- (14,051) (809) 14,860 ---
---------- ---------- -------- ---------- ----------
Net cash (used in) provided by financing activities............... (11,853) (14,055) (1,263) 14,860 (12,311)
Effect of exchange rate on cash................................... (8) --- (6) --- (14)
---------- ---------- -------- ---------- ----------
Net increase (decrease) in cash................................... 336 (6,947) 1,421 --- (5,190)
Cash at beginning of period....................................... 3 44,060 11,142 --- 55,205
========== ========== ======== ========== ==========
Cash at end of period............................................. $339 $37,113 $12,563 --- $50,015
========== ========== ======== ========== ==========
11
</TABLE>
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
4. STORE CLOSINGS AND SALES
During the three month period ended September 30, 1997, the Company sold all of
its stores in Michigan and sold or closed five locations in southern California
whose primary business was to provide services for the distribution of public
assistance benefits under existing contracts with state and local
municipalities. As a result of declining caseloads and increasing costs, the
Company determined that these locations could not provide acceptable levels of
profitability. Included in the accompanying consolidated statements of
operations for the three months ended September 30, 1997 and 1996, are revenues
of $429,000 and $587,000 respectively, and store expenses of $451,000 and
$650,000 respectively, related to these stores. The gain recognized in the three
months ended September 30, 1997 related to the sale and closure of these stores
was not material.
12
<PAGE>
SUPPLEMENTAL STATISTICAL DATA
September 30,
COMPANY OPERATING DATA: 1997 1996
---- ----
Stores in operation:
Company-Owned.................................... 347 228
Franchised Stores................................ 70 ---
-- ---
Total............................................... 417 228
=== ===
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
--------------------------
OPERATING DATA: 1997 1996
---- ----
Face amount of checks cashed (in millions) ........ $ 564 $ 313
Face amount of average check....................... $ 265 $ 288
Face amount of average check (excluding Canada).... $ 290 $ 288
Average fee per check.............................. $ 7.80 $ 7.10
Number of checks cashed (in thousands)............. 2,130 1,090
Adjusted EBITDA1................................... $ 6,079 $ 2,540
Adjusted EBITDA Margin1............................ 23.3% 18.6%
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
-------------------------
COLLECTIONS DATA: 1997 1996
---- ----
Face amount of returned checks (in thousands).... $3,395 $1,645
Collections (in thousands)........................ 2,384 1,071
--------- ---------
Net write-offs (in thousands).................... $1,011 $ 574
========= =========
Collections as a percentage of
returned checks............................... 70.2% 65.1%
Net write-offs as a percentage of
check cashing revenues........................ 6.1% 7.4%
Net write-offs as a percentage of the
face amount of checks cashed.................. 0.2% 0.2%
- --------
1 Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization, noncash charges to earnings associated with foreign currency
translations, and loss on store closings and sales. Adjusted EBITDA does not
represent cash flows as defined by generally accepted accounting principles and
does not necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. Adjusted EBITDA should not be considered in isolation or
as a substitute for net income (loss), cash flows from operating activities, or
other measures of liquidity determined in accordance with generally accepted
accounting principles. The Adjusted EBITDA margin represents Adjusted EBITDA as
a percentage of revenues. Management believes that these ratios should be
reviewed by prospective investors because the Company uses them as one means of
analyzing its ability to service its debt, the Company's lenders use them for
the purpose of analyzing the Company's performance with respect to the Company's
new revolving credit facility and the Indenture, and the Company understands
that they are used by certain investors as one measure of a company's historical
ability to service its debt. Not all companies calculate EBITDA in the same
fashion and therefore these ratios as presented may not be comparable to other
similarly titled measures of other companies.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a consumer financial services company operating the second
largest check cashing store network in the United States and the largest such
network in Canada. The Company provides a diverse range of consumer financial
products and services primarily consisting of check cashing, money orders, money
transfers, consumer loans, bill payment and distribution of public assistance
benefits.
The Company, in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of its financial
position at September 30, 1997 and the results of operations for the three
months ended September 30, 1997 and 1996. The results for the three months ended
September 30, 1997 are not necessarily indicative of the results for the full
fiscal year.
The Company's revenues from government services decreased for the three months
ended September 30, 1997 as compared to the three months ended September 30,
1996. The Company expects that its revenues from the distribution of public
assistance benefits will continue to decline due to a number of factors. A
number of state and local governmental agencies have initiated processes to
install electronic benefits transfer systems designed to disburse public
assistance benefits directly to individuals (sometimes referred to as "EBT"
systems). The Company has received correspondence from the Commonwealth of
Pennsylvania outlining their proposed implementation of an electronic benefit
transfer system. Based on this correspondence and other communications with the
Commonwealth, implementation could start as soon as January 1998 and take a year
to fully implement. If implemented, this plan would result in the termination of
all of the Company's contracts in the Commonwealth of Pennsylvania. There can be
no assurance when or if this will happen. In the event that the contracts are
terminated, the Company intends to continue to operate many of these locations
as stand alone check cashing sites. However, there can be no assurance that the
installation of such systems will not have a material adverse effect on the
Company's results of operations or financial condition. The Company's contracts
with the Commonwealth of Pennsylvania contributed 6.6% and 13.7% respectively of
consolidated gross revenues for the three months ended September 30, 1997 and
1996, respectively.
ACQUISITIONS
The Company completed six major acquisitions during the fiscal year ended June
30, 1997:
AnyKind Check Cashing Centers On August 8, 1996, the Company purchased all of
the outstanding capital stock of AnyKind Check Cashing Centers, Inc. ("AnyKind")
for an aggregate purchase price of $31.0 million plus initial working capital of
approximately $6.0 million. AnyKind operated 63 check cashing stores in seven
states and the District of Columbia and had revenues for the twelve-month period
ended June 30, 1996 of $22.7 million.
ABC Check Cashing Inc. On August 28, 1996, the Company purchased certain assets
and liabilities of ABC Check Cashing Inc. ("ABC") for a purchase price of $6.0
million plus initial working capital of approximately $1.5 million. ABC operated
15 check cashing stores in Cleveland, Ohio and had revenues for the twelve-month
period ended June 30, 1996 of $4.8 million.
National Money Mart, Inc. On November 15, 1996, the Company acquired all of the
outstanding capital stock of National Money Mart, Inc. ("Money Mart") for
approximately $17.7 million (of which approximately $500,000 was in the form of
Holdings common stock ("Holdings Common Stock")) plus initial working capital of
approximately $900,000. Money Mart owns 36 check cashing stores and franchises
107 check cashing stores, all of which operate in Canada under the "Money Mart"
name, and had revenues for the twelve-month period ended June 30, 1996 of $9.4
million.
14
<PAGE>
Cash-N-Dash Check Cashing, Inc. On November 15, 1996, the Company acquired
substantially all of the assets of Cash-N-Dash Check Cashing, Inc.
("Cash-N-Dash") for approximately $7.3 million (of which approximately $500,000
was in the form of Holdings Common Stock) which includes a revenue-based
earn-out of up to $750,000 payable over four years. Cash-N-Dash operated 32
check cashing stores in northern California under the "Cash-N-Dash" name and had
revenues for the twelve-month period ended June 30, 1996 of $6.2 million.
C&C Check Cashing, Inc. On November 22, 1996, the Company acquired substantially
all of the assets of C&C Check Cashing, Inc. ("C&C") for approximately $3.8
million which includes a revenue-based earn-out of up to $300,000 payable over
three years, plus initial working capital of approximately $500,000. C&C
operated 22 check cashing stores in northern California under the "C&C Check
Cashing" name and had revenues for the twelve-month period ended June 30, 1996
of $4.8 million.
Canadian Capital Corporation On April 18, 1997, the Company acquired all of the
outstanding stock of a company which owned all of the operating assets of
Canadian Capital Corporation ("Canadian Capital") for approximately $13.3
million plus initial working capital of $1.8 million. Canadian Capital was the
largest Money Mart franchisee and operated 43 check cashing retail stores in
Ontario, Canada under the name "Money Mart", and had revenues for the twelve
month period ended June 30, 1996 of $11.0 million.
The comparability of the historical financial data and the comparisons in
Management's Discussion and Analysis is significantly impacted by the timing of
the acquisitions described above (collectively, the "Acquisitions").
All of the Acquisitions have been accounted for under the purchase method of
accounting. Therefore, the historical results of operations include the revenues
and expenses of all of the acquired companies since their respective dates of
acquisition.
15
<PAGE>
RESULTS OF OPERATIONS
REVENUE ANALYSIS
<TABLE>
<CAPTION>
Three Months Ended September 30,
- ------------------------------- -------------------------------------------------------------------------------
(Percentage of
(In thousands) total revenue)
--------------------------------- --------------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Check Cashing................ $16,611 $7,733 63.5% 56.7%
Government Services.......... 3,933 3,684 15.0 27.0
Other Revenue................ 5,600 2,228 21.5 16.3
============== ============== ============== =================
Total Revenue............... $26,144 $13,645 100.0% 100.0%
============== ============== ============== =================
</TABLE>
Total revenues were $26.1 million for the three months ended September 30, 1997
compared to $13.6 million for the three months ended September 30, 1996, an
increase of $12.5 million or 91.9%. The Acquisitions accounted for an increase
of $11.9 million.
Comparable retail store sales at those locations owned by the Company for the
entire period increased $0.9 million or 10.7%. Check cashing revenue increased
12.1% and other revenues increased 29.1%, primarily as a result of increased
revenues from the Cash `Til Payday loan product. Partially offsetting these
increases, however, was a 6.0% decline in revenues from government services
resulting from a decrease in the volume of benefits distributed by the Company.
Government services revenues accounted for 15.0% of total revenues for the three
months ended September 30, 1997, a decrease from 27.0% of total revenues for the
three months ended September 30, 1996.
16
<PAGE>
STORE AND REGIONAL EXPENSE ANALYSIS
<TABLE>
<CAPTION>
Three Months Ended September 30,
- --------------------------------------------------------------------------------
(Percentage of
(In thousands) total revenue)
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Salaries and benefits $8,458 $4,691 32.3% 34.4%
Occupancy 2,457 1,395 9.4 10.2
Depreciation................. 439 243 1.7 1.8
Other........................ 6,507 3,648 24.9 26.7
============ ============= ============ =============
Total store and regional
expenses $17,861 $9,977 68.3% 73.1%
============ ============= ============ =============
</TABLE>
Store and regional expenses were $17.9 million for the three months ended
September 30, 1997 compared to $10.0 million for the three months ended
September 30, 1996, an increase of $7.9 million or 79.0%. The Acquisitions
accounted for an increase of $7.9 million. Total store and regional expenses for
the three months ended September 30, 1997 declined to 68.3% of total revenue
compared to 73.1% of total revenue for the three months ended September 30, 1996
due to an improvement in store level profitability.
17
<PAGE>
OTHER EXPENSE ANALYSIS
Three Months Ended September 30,
- --------------------------------------------------------------------------------
(Percentage of
(In thousands) total revenue)
--------------------- ---------------------
1997 1996 1997 1996
------------ ------- ----------- ---------
Corporate expenses.................. $2,642 $1,371 10.1% 10.0%
Gain on store closings and sales.... (40) (18) (.2) (.1)
Other depreciation and amortization. 1,203 659 4.6 4.8
Interest expense.................... 3,219 1,358 12.3 10.0
Income taxes........................ 641 246 .2 .2
Corporate Expense
Corporate expenses were $2.6 million for the three months ended September 30,
1997 compared to $1.4 million for the three months ended September 30, 1996, an
increase of $1.2 million or 85.7%. This increase resulted from the additional
corporate costs, primarily salaries and benefits, associated with the
establishment of a national collections department and the Acquisitions
completed during fiscal 1996 and 1997. Corporate expenses as a percent of
revenues remained stable between the 1997 and 1996 periods.
Gain on Store Closings and Sales
During the three months ended September 30, 1997 the Company sold all of its
stores in Michigan and sold or closed five locations in southern California
whose primary business was to provide services for the distribution of public
assistance benefits under existing contracts with state and local
municipalities.
Other Depreciation and Amortization
Other depreciation and amortization expenses were $1.2 million for the three
months ended September 30, 1997 compared to $0.7 million for the three months
ended September 30, 1996, an increase of $0.5 million or 71.4%. This increase
resulted primarily from the amortization expense associated with the goodwill
and other intangibles recognized as part of the Acquisitions.
Interest Expense
Interest expense was $3.2 million for the three months ended September 30, 1997
compared to $1.4 million for the three months ended September 30, 1996, an
increase of $1.8 million or 128.6%. This increase was primarily attributable to
increased average outstanding indebtedness to finance the Acquisitions.
Income Taxes
The provision for income taxes was $0.6 million for the three months ended
September 30, 1997 compared to $0.2 million for the three months ended September
30, 1996, an increase of $0.4 million. The Company's effective tax rate is
significantly greater than the federal statutory rate of 34% due to
non-deductible goodwill amortization, state taxes and foreign taxes.
18
<PAGE>
CHANGES IN FINANCIAL CONDITION
Cash balances and the revolving credit facility balance fluctuate significantly
as a result of seasonal, monthly and day-to-day requirements for funding check
cashing and other operating activities. For the three months ended September 30,
1997, cash decreased by $5.2 million and the revolving credit facility balance
decreased by $12.2 million.
Accrued interest increased due to the timing of the semi-annual interest payment
on the senior notes.
LIQUIDITY AND CAPITAL RESOURCES
In November 1996, the Company raised approximately $110 million of gross
proceeds by issuing 10 7/8% Senior Notes due in November 2006 (the "Notes"). The
Notes require semi-annual cash interest payments due in November and May.
Simultaneously with the offering of the Notes (the "Offering"), the Company
entered into a revolving credit facility (the "New Revolving Credit Facility")
which allows borrowings in an amount not to exceed the lesser of $25.0 million
or a borrowing base as set forth in the new revolving credit facility agreement.
The Offering generated gross proceeds of $110.0 million which were used to repay
all of the Company's existing indebtedness, (including indebtedness incurred to
finance the August 1996 acquisitions of Any Kind and ABC) and to fund the
November 1996 acquisitions of Money Mart, Cash-N-Dash and C&C and to pay fees
and expenses. The remaining proceeds from the Offering were used to fund the
April 1997 acquisition of Canadian Capital Corporation. Availability under the
New Revolving Credit Facility is subject to certain restrictions. There were no
borrowings under the New Credit Facility as of September 30, 1997. The New
Revolving Credit Facility and the indenture governing the Notes contain certain
covenants and restrictions relating to, among other things, future acquisitions,
dividend payments, maintenance of certain financial ratios and the incurrence of
additional indebtedness. In connection with the Money Mart acquisition in
November 1996, the Company established an overdraft credit facility to fund peak
working capital needs for its Canadian operation, which provides for borrowings
up to $5.0 million.
The Company's principal sources of cash are from operations, borrowings under
its credit facilities and sales of Holdings Common Stock. The Company
anticipates its principal uses of cash will be to provide working capital,
finance capital expenditures, meet debt service requirements and finance
acquisitions. For the three months ended September 30, 1997 and 1996, the
Company had net cash provided by operating activities of $7.4 million and $4.0
million, respectively, which cash was used for purchases of property and
equipment related to existing stores, recently acquired stores, investments in
technology, and acquisitions. The Company's total budgeted capital expenditures,
excluding acquisitions, are currently anticipated to aggregate approximately
$3.0 million during its fiscal year ending June 30, 1998. As of September 30,
1997, the Company had made capital expenditures of $0.4 million. The actual
amount of capital expenditures will depend in part upon the number of new stores
acquired and the number of stores remodeled. In addition, the Company intends to
spend up to $2.0 million over the next two years to purchase the equipment
necessary to implement a point-of-sale system.
The Company is highly leveraged and borrowings under the New Revolving Credit
Facility will increase the Company's debt service requirements. Management
believes that, based on current levels of operations and anticipated
improvements in operating results, cash flows from operations and borrowings
available under the New Revolving Credit Facility will enable the Company to
fund its liquidity and capital expenditure requirements for the foreseeable
future, including scheduled payments of interest on the Notes and payment of
interest and principal on the Company's other indebtedness. The Company's belief
that it will be able to fund its liquidity and capital expenditure requirements
for the foreseeable future is based upon the historical growth rate of the
Company, including the operations acquired in the Acquisitions, and the
anticipated benefits resulting from operating efficiencies due to the
Acquisitions. Additional revenue growth is expected to be generated by increased
check cashing revenues (consistent with historical growth), and an expansion of
the Company's Cash `Til Payday Loan Program. The Company also expects operating
expenses to increase, although the rate of increase is expected to be less than
the rate of revenue growth. Furthermore, the Company does not believe that
additional acquisitions or expansion are necessary in order for it to be able to
cover its fixed expenses, including debt service. As a result of the foregoing
assumptions, which the Company believes to be reasonable, the Company expects to
19
<PAGE>
be able to fund its liquidity and capital expenditure requirements for the
foreseeable future, including scheduled payments on the Notes and payments of
interest and principal on other indebtedness. There can be no assurance,
however, that the Company's business will generate sufficient cash flow from
operations or that future borrowings will be available under the New Revolving
Credit Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to make anticipated capital expenditures.
It may be necessary for the Company to refinance all or a portion of the
principal of the Notes on or prior to maturity, under certain circumstances, but
there can be no assurance that the Company will be able to effect such
refinancing on commercially reasonable terms or at all.
IMPACT OF INFLATION
The Company believes that the results of its operations are not dependent upon
the levels of inflation.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is seasonal due to the impact of tax-related services,
including cashing tax refund checks. Historically, the Company has generally
experienced its highest revenues and earnings during its third fiscal quarter
ending March 31 when revenues from these tax-related services peak. Due to the
seasonality of the Company's business, therefore, results of operations for any
fiscal quarter are not necessarily indicative of the results that may be
achieved for the full fiscal year. In addition to seasonal fluctuations,
quarterly results of operations depend significantly upon the timing and amount
of revenues and expenses associated with acquisitions and the addition of new
stores.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and
For Long-Lived Assets to be Disposed Of" for the fiscal year ended June 30,
1997. The adoption of this standard has not had a material impact on the
Company's financial statements.
The Financial Accounting Standards Board ("FASB") has issued Statement No. 129,
"Disclosure of Information about Capital Structure," which is applicable to all
companies. Statement No. 129 consolidates the existing guidance in authoritative
literature relating to a company's capital structure. The Statement is effective
for financial statements for periods ending after December 15, 1997. The Company
does not believe the adoption of this standard will have any impact on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Both Statements become effective for fiscal periods
beginning after December 15, 1997 with early adoption permitted. The Company is
evaluating the effects these Statements will have on its financial statements
and disclosures. The Statements are expected to have no effect on the Company's
results of operations, financial position, capital resources, or liquidity.
FORWARD-LOOKING STATEMENTS
This report may contain certain forward-looking statements regarding the
Company's expected performance for future periods, and actual results for such
periods may materially differ. Such forward-looking statements involve risks and
uncertainties, including risks of changing market conditions in the overall
economy and the industry, consumer demand, the success of the Company's
acquisition strategy and other factors detailed from time to time in the
Company's annual and other reports filed with the Securities and Exchange
Commission.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Item 3. Legal Proceedings in the Company's audited financial
statements in its Annual Report of Form 10-K for the fiscal year
ended June 30, 1997.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K dated July 23, 1997 was filed,
reporting an Item 5 (Other Events) and an Item 7 event
(Exhibits).
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DOLLAR FINANCIAL GROUP, INC.
Dated: November 14, 1997 *By: /s/ Richard S. Dorfman
--------------------------
Name: Richard S. Dorfman
Title: Executive Vice President
and Chief Financial
Officer,
(principal financial and
chief accounting officer
* The signatory hereto is the principal
financial and chief accounting officer
and has been duly authorized to sign
on behalf of the registrant.
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from
the financial statements contained in the body of the accompanying Form
10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,015
<SECURITIES> 0
<RECEIVABLES> 5,121
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,387
<PP&E> 11,955
<DEPRECIATION> 4,217
<TOTAL-ASSETS> 177,313
<CURRENT-LIABILITIES> 22,469
<BONDS> 115,680
0
0
<COMMON> 0
<OTHER-SE> 39,614
<TOTAL-LIABILITY-AND-EQUITY> 177,313
<SALES> 0
<TOTAL-REVENUES> 26,144
<CGS> 0
<TOTAL-COSTS> 20,503
<OTHER-EXPENSES> 1,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,219
<INCOME-PRETAX> 1,259
<INCOME-TAX> 641
<INCOME-CONTINUING> 618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 618
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
