SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2997911
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1436 LANCASTER AVENUE, SUITE 210
BERWYN, PENNSYLVANIA 19312-1288
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (610) 296-3400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities 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[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [X]
There is no market for the common stock of Dollar Financial Group, Inc. and all
of such stock is held by the registrant's parent, DFG Holdings, Inc. See "Item
12 - Security Ownership of Certain Beneficial Owners and Management."
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APPLICABLE ONLY TO REGISTRANTS 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
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of September 28,
1998, 100 shares of the registrant's common stock, par value $1.00 per share,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part IV is incorporated by reference to
the Registrants' Registration Statement on Form S-4 (Registration No. 333-18221)
declared effective March 11, 1997.
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DOLLAR FINANCIAL GROUP, INC.
TABLE OF CONTENTS
1998 REPORT ON FORM 10-K
<TABLE>
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PART I
<S> <C> <C>
Item 1. Business.................................................................................. 4
Item 2. Properties................................................................................ 18
Item 3. Legal Proceedings......................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders....................................... 19
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters..................... 20
Item 6. Selected Financial Data................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 36
Item 8. Financial Statements and Supplementary Data............................................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 65
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 65
Item 11. Executive Compensation.................................................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 70
Item 13. Certain Relationships and Related Transactions............................................ 71
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 74
</TABLE>
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ITEM 1. BUSINESS
GENERAL
Dollar Financial Group, Inc., a New York corporation (the "Company" or "DFG"),
was organized in 1979 under the name Monetary Management Corporation. 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, and various other related services. Certain stores also serve as
distribution centers for public assistance benefits and food stamps under
government contracts. As of June 30, 1998, the Company has a total network of
416 stores in 13 states, the District of Columbia, and Canada, including 343
Company-owned stores with revenues for the fiscal year ended June 30, 1998 of
$111.2 million, and with earnings before interest, taxes, depreciation,
amortization, noncash charges to earnings associated with foreign currency
translations, writedown of goodwill and loss on store closings and sales
("Adjusted EBITDA") for the fiscal year ended June 30, 1998 of $31.5 million.
The Company's primary customers are working, lower-income individuals and
families who require basic consumer financial services and are underserved by
traditional retail banking networks. The increased expense and decreased
availability of traditional retail banking services have left an increasing
number of individuals and families (estimated at 13% of the adult population)
without banking relationships. Management believes that growth in the
lower-income segment of the population combined with the decreasing availability
of traditional retail banking services provides the Company with significant
growth opportunities.
The Company's stores currently operate under the following locally established
brand names: ABC Check Cashing(TM), Almost-A-Banc(R), Any Kind Check Cashing
Centers(R), C&C Check Cashing(TM), Cash-N-Dash Check Cashing(TM), Check Mart(R),
Chex$Cashed(R), Financial Exchange Company(R), Money Mart, Quikcash, QwiCash(R),
The Service Centers and Loan Mart(TM).
INDUSTRY OVERVIEW
United States
The check cashing industry in the United States is highly fragmented, consisting
of approximately 7,200 stores as of May 1998, an increase from the approximately
1,350 national listings in 1986 according to American Business Information, Inc.
The Company believes it is one of only seven U.S. check cashing store networks
that have more than 100 locations, the remaining being local store networks and
single-unit operators. The Company believes that industry growth has been fueled
by several demographic and socioeconomic trends, including a decline in the
number of households with bank deposit accounts, an increase in the number of
low-paying service sector jobs, and an overall increase in the lower-income
population.
The number of families and individuals that hold bank, thrift, or savings and
loan deposit accounts has declined dramatically over the past fifteen years. In
a recent study, a leading consumer magazine estimated that approximately 13% of
the adult population does not maintain a banking relationship. The study
attributes this decline to a number of factors, including the inability of many
families and individuals to maintain the minimum account balance required by
many banks and thrifts, an increase in fees on deposit accounts with small
balances, and an increase in bank branch closings in lower-income population
areas.
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The increase in the fees charged by banks on deposit accounts over time has
contributed to the decline in the number of families and individuals holding
such accounts. The U.S. Public Interest Research Group has conducted a national
study which shows that, from 1993 to 1995, the annual cost to maintain a regular
checking account grew by 10% to $202, monthly maintenance fees increased 22% to
$7.11, average monthly balance requirements to avoid regular checking fees rose
30% to $1,242, and the minimum opening balance required for accounts rose 37% to
$69. The report states that these increased costs keep accounts out of reach of
many fixed- and lower-income consumers. In general, the findings indicate that
banks have increased their fees significantly on a real and inflation-adjusted
basis.
Many banks have elected over time to close their less profitable or
lower-traffic locations. These closings have tended to occur in lower-income,
urban, and minority neighborhoods. As banks continue this trend, wage earners in
these lower-income areas will have fewer, if any, convenient alternatives other
than local check cashing stores to perform basic financial transactions.
Lower-income individuals represent a large segment of the U.S. population. A
1998 Industry Report revealed that over 40 million U.S. households have income
less than $30,000 a year. This low-wage population, from which the Company draws
most of its customers, is the fastest-growing segment of the workforce. As the
low-wage population continues to grow, the Company believes that this population
will increasingly rely on the check cashing industry as the primary source for
their consumer financial products and services.
Canada
In contrast to the domestic market, the Canadian check cashing market is
significantly more concentrated, with Money Mart's 156 owned and franchised
stores accounting for 60% of the total number of check cashing stores in Canada.
A survey conducted for Money Mart shows that a significant number of Money Mart
customers choose to patronize Money Mart's locations because of the convenient
operating hours, fast and courteous service, and broad product offerings.
Growth and Consolidation
Management believes that significant opportunities for growth exist in the check
cashing industry as a result of (i) the growth of the lower-income population
sector, (ii) the failure of commercial banks and other traditional financial
service providers to address the needs of lower-income individuals, and (iii)
the trend toward consolidation in the check cashing industry. Management
believes that as the lower-income population segment increases, and as trends
within the retail banking industry create a less accessible environment for
these members of society, the check cashing industry will realize a significant
increase in demand for its products and services. However, despite these growth
dynamics, the Company believes that the industry is entering a period of
consolidation. The Company believes that this consolidation trend has resulted
from a number of factors, including (i) the economies of scale available to
larger operators, (ii) the use of technology as a means to better serve
customers and control large store networks, (iii) the inability of smaller
operators to form the alliances necessary to deliver new products, and (iv)
increased licensing and regulatory burdens. This trend toward consolidation
should provide the Company, as one of the largest store networks, with
opportunities for continued growth through selective acquisitions.
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COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
Store locations in favorable demographic areas. The Company has carefully chosen
states and metropolitan areas within those states with growing low-income
populations. Within the markets served by the Company, the Company's stores are
located in desirable locations near its targeted customer base. Management
adheres to a strict set of market survey and location guidelines when selecting
acquisition targets and new store sites. The Company's store base is a mix of
urban sites, which are located in high-traffic shopping areas, and suburban
sites, which are located in strip malls near multi-family housing complexes. In
the future, the Company plans to emphasize suburban strip mall locations,
particularly in the southeastern and western parts of the United States.
High-quality customer service. As part of its retail and customer-driven
strategy, the Company focuses on providing friendly customer service in a clean
and attractive environment. Operating hours vary by location, but are typically
extended and designed to cater to those customers who, due to work schedules,
cannot make use of "normal" banking hours. As part of its employee training
program, the Company's employees are encouraged and instructed to treat
customers in a friendly and courteous manner, which management believes results
in repeat business.
Broad offering of products and services. All Company stores offer a wide range
of consumer financial products and services to meet the demands of their locale,
including check cashing, money orders, money transfers, short-term consumer
loans and various other related services. The Company also offers a variety of
ancillary products, including photo ID, lottery tickets, electronic tax filing,
pagers, long-distance cards, as well as photocopy and fax services.
Economies of scale. As the second largest check cashing store network in the
United States and the largest such network in Canada, the Company has reached a
size that enables it to benefit from economies of scale and to negotiate more
favorable contracts with its suppliers. In addition, the Company's market
position enables it to enter into favorable relationships with strategic
partners like Western Union. Management believes that the Company's size also
allows it to gain greater access to capital than its smaller competitors.
Management expertise. The regional managers of the Company have extensive
experience and expertise in the check cashing industry, which the Company
believes provides it with a competitive advantage. Furthermore, the Company has
been largely successful in retaining the operational managers employed by the
companies acquired in acquisitions. The Company's senior management has
extensive experience in banking, retailing and financial services. In addition,
the Company's management has significant experience in acquiring and integrating
businesses into the Company, and employs a disciplined approach to making such
acquisitions.
Well-diversified credit risk. For the twelve months ended June 30, 1998, the
Company cashed 8.0 million checks totaling $2.3 billion with an average face
value of $288. The Company actively manages its customer risk profile and
collection efforts in order to maximize check cashing revenues while maintaining
losses within a targeted range. Management has instituted control mechanisms
that it believes have been effective in managing risk, including: (i) check
verification procedures; (ii) customer identification cards; (iii) customer
files, including customer photographs, addresses, employment information and
transaction history; (iv) point-of-sale database systems; and (v) background
checks, among others. As a result, management believes that the Company is
unlikely to sustain a material credit loss from a single transaction or series
of transactions.
Although the Company believes that these competitive strengths will enable it to
achieve its strategic objectives, the Company may not be able to capitalize on
them. Changing demographics in areas surrounding the Company's stores could
negatively impact the quality of the store base. Regulatory and technological
changes could affect the products offered or the prices charged for such
products. The Company provides an extensive training program for all of its
employees, however, as the Company continues to grow, an inability to attract,
6
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train, and recruit talented field personnel and corporate management could
negatively impact Company performance.
STRATEGY
The Company's business strategy is to capitalize on its competitive strengths by
increasing the revenues and profitability of its existing operations and by
continuing to grow through the acquisition of check cashing store networks and
the development of alternative store formats. Key elements of the Company's
business strategy include the following:
Maintaining and instilling a customer-driven retail philosophy. The Company has
focused on increasing its customer base through a service-oriented approach
designed to meet the needs of working, lower-income individuals and families in
need of basic consumer financial services. The Company believes it has
differentiated itself from its competitors by focusing on customer service. The
Company offers extended operating hours in clean, well-lit, and convenient store
locations to enhance appeal and stimulate store traffic. The Company's research
indicates that, although approximately 30% of its customers have bank accounts,
its customers prefer immediate access to cash without waiting for check
clearance. In addition, the Company believes that many of its customers find
great value in their ability to cash a payroll or government check immediately,
for a fee, at a location within close proximity to their home or workplace at
nearly any time of day. The Company's surveys have indicated that over 90% of
its customers are repeat users of its services. The surveys also indicated that
the widespread availability of ATM machines does not alter a customer's decision
to "bank" at Company locations. The Company uses locally targeted advertising,
including television and radio, to promote awareness of its products and its
customer service. The Company will continue to develop ways to improve service
to its customers.
Introducing new products and services. The Company has developed a "one-stop
shop" concept to offer many consumer financial products and services to its
targeted customer base. The Company believes that its check cashing customers
enjoy the convenience of other services offered by the Company, such as the sale
of money orders, money transfer services, short-term consumer loans, issuance of
food stamps and other welfare benefits. As it has completed acquisitions, the
Company has expanded the product and services offerings of its newly acquired
check cashing store networks and intends to continue this strategy with future
acquisitions. In particular, the Company has continued to expand its successful
Cash `Til Payday(R) short-term loan program by adding this service to newly
acquired or opened stores.
Growing through targeted acquisitions. Acquisitions have played an integral role
in the Company's growth. Since June 1994, the Company has acquired an aggregate
of over 350 owned or franchised stores. As a result of increasing industry
consolidation, the Company may be required to shift its acquisition strategy to
smaller check cashing store networks. Management will continue to seek
opportunistic acquisitions of well-managed check cashing store networks located
in areas with favorable demographics, including the southeastern and western
parts of the United States as well as profitable check cashing stores in areas
that complement the Company's existing geographic markets.
Developing alternative retailing platforms. In an effort to capitalize more
fully on the success of its Cash `Til Payday(R) product, in September 1997 the
Company began opening stores under the name Loan Mart(TM), which offer only Cash
`Til Payday(R) unsecured short-term loans in a friendly office-like environment.
The Company's management believes the Loan Mart stores appeal to a broader
market segment than that which currently utilizes the Company's check cashing
stores. The Company currently operates 13 Loan Mart(TM) stores in the Seattle,
Fresno, and Albuquerque areas and may develop stores in additional geographic
areas. Management believes that, if successful, a network of Loan Mart Stores
will allow the Company to access new customers and significantly increase the
Company's revenues and profitability. While there can be no assurance that this
new format will be successful, management believes that this and other platforms
being explored by the Company complement the strategy and operations of the
existing check cashing stores.
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Capitalizing on economies of scale. Because of the scale of its operation in an
otherwise highly fragmented industry, the Company is well positioned to take
advantage of the current trend toward consolidation in the check cashing
industry. The Company believes it is able to operate more profitably than
smaller competitors as a result of its broader product offerings, greater
purchasing power, improved operating efficiencies and greater access to capital.
Managing credit risk. The Company's check cashing service consists of high
volumes of small individual transactions requiring credit risk decisions on
individual checks and customers. During the fiscal year ended June 30, 1998, the
Company cashed 8.0 million checks totaling $2.3 billion with an average face
amount of $288. The Company actively manages its customer risk profile and
collection efforts in order to maximize check cashing and Cash `Til Payday(R)
revenues while maintaining losses within a targeted range. Management has
instituted control mechanisms that it believes have been effective in managing
risk, including: (i) check verification procedures; (ii) customer identification
cards; (iii) customer files, including customer photographs, addresses,
employment information and transaction history; (iv) point-of -sale database
systems; and (v) background checks, among others. As a result, management
believes that the Company is unlikely to sustain a material credit loss from a
single transaction or series of transactions. The Company has experienced
relatively low net write-offs as a percentage of the face amount of checks
cashed. For the fiscal year ended June 30, 1998, net write-offs as a percentage
of face amount of checks cashed were 0.17%.
While the Company intends to continue to distribute public assistance benefits
pursuant to existing government contracts, management has no plans to expand
this service and expects revenues from this channel as a percentage of total
revenue to continue to decline in the future.
CUSTOMERS
Based upon a 1997 consumer survey conducted in several of the Company's markets
and the Company's operating experience, the Company believes that its core
customer group is comprised of individuals between the ages of 18 and 49. The
majority of these individuals rent their home, are employed and have annual
household incomes between $10,000 and $35,000 with a median income of $22,500.
Operating experience indicates that over 90% of the customers were repeat
patrons and that over 50% use the Company's services more than 10 times. The
Company believes that consumers value attention to customer service, and their
choice of check cashing stores is influenced by the Company's convenient
locations and extended operating hours.
Based on a customer survey performed for the Company's Canadian subsidiary,
Money Mart, in 1995, the Company believes that the demographics of Money Mart
customers are similar to those of the Company's existing U.S. customers. The
survey found that approximately 80% of Money Mart's customers have annual
incomes below $30,000 and 75% are under the age of 35. Although 65% of the
surveyed customers have a bank account, these consumers continue to use Money
Mart due to the fast and courteous service and the stores' extended operating
hours.
The Company believes that many of its customers are unskilled workers or
independent contractors who receive payment on an irregular basis and generally
in the form of a check. The Company's core customer group lacks sufficient
income to accumulate assets or to build savings. These customers rely on their
current income to cover immediate living expenses and cannot afford the delays
inherent in waiting for checks to clear through the commercial banking system.
Furthermore, the Company believes that many of its customers use its check
cashing services in order to gain immediate access to cash without having to
maintain a minimum balance in a checking account and incur the cost of
maintaining a checking account. In addition, although research conducted for the
Company indicates that approximately 30% of its customers do have bank accounts,
these customers use check cashing stores because they find the locations and
extended business hours of the Company's stores more convenient than those of
banks and value the ability to receive cash immediately, without waiting for a
check to clear.
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PRODUCTS AND SERVICES
The Company's Retail Stores Division is responsible for DFG's check cashing
store networks; the Merchant Services Division manages an electronic benefits
distribution network in New York State.
RETAIL STORES DIVISION
DFG's check cashing stores provide a broad range of consumer financial products
and services to its customers at convenient locations with extended operating
hours. Customers typically use DFG's stores to cash checks (payroll, government,
and personal), receive government benefits, and utilize one or more of the
additional financial services available at most locations. In addition,
customers use a variety of ancillary products, including Cash 'Til Payday(R)
loans, lottery tickets, electronic tax filing, pagers, long-distance cards,
photocopy and fax services.
Check Cashing
Customers may cash all types of checks at any DFG location, including payroll
checks, government checks, and personal checks. In exchange for a verified
check, DFG customers receive cash immediately, for a fee, and are not required
to wait several days for the check to clear. Both the customer's identification
and the validity of the check are verified by multiple sources pursuant to the
Company's standard verification procedures before any cash is distributed.
Customers are charged a fee for this service (typically a small percentage of
the face value of the check) which varies depending upon the type of check
cashed and whether or not the customer has a previous record of cashing checks
at that location. For the twelve months ended June 30, 1998, check cashing fees
averaged approximately 3.1% of the face value of checks cashed.
The following chart presents a summary of check cashing data for the periods
indicated below:
CHECK CASHING FEE SUMMARY
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YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE
DECEMBER 31, JUNE 30, 30,
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1993 1994 1995
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Face amount of checks cashed....................... $307,523,000 $160,681,000 $510,771,000
Number of checks cashed............................ 1,307,768 662,855 2,132,006
Average face amount per check...................... $235.15 $242.41 $239.57
Average fee per check.............................. $6.53 $6.78 $6.45
Average fees as a % of face amount................. 2.78% 2.80% 2.69%
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1997 1998
----------------------------------------------------
Face amount of checks cashed....................... $728,123,000 $1,878,587,000 $2,301,861,000
Number of checks cashed............................ 3,051,037 6,492,495 7,991,128
Average face amount per check...................... $238.65 $289.35 $288.05
Average fee per check.............................. $6.65 $8.00 $8.80
Average fees as a % of face amount................. 2.79% 2.76% 3.05%
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If a check cashed by the Company is not paid for any reason, the full face value
of the check is recorded as a loss in the period during which the check was
returned. The check is then sent to the store for collection and, if it remains
uncollected, then it is sent to the Company's internal collections department,
which contacts the maker and/or payee of each returned check and, if necessary,
commences legal action. During fiscal 1998, approximately 71.7% of the face
value of checks returned during that year was ultimately collected by the
Company.
The following chart presents a summary of the Company's returned check
experience for the periods indicated below:
RETURNED CHECK EXPERIENCE
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YEAR ENDED SIX MONTHS YEAR ENDED
DECEMBER 31, ENDED JUNE 30, JUNE 30,
--------------------------------------------------
1993 1994 1995
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Face amount of returned checks..................... $1,085,000 $621,000 $2,006,000
Collections on returned checks..................... 723,000 365,000 1,203,000
Net write-offs of returned checks.................. 362,000 256,000 803,000
Collections as a percentage of returned checks..... 66.6% 58.8% 60.0%
Net write-offs as a percentage of check
cashing revenues................................ 4.2% 5.7% 5.8%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.12% 0.16% 0.16%
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1996 1997 1998
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<S> <C> <C> <C>
Face amount of returned checks..................... $3,763,000 $9,618,000 $13,823,000
Collections on returned checks..................... 2,598,000 6,411,000 9,908,000
Net write-offs of returned checks.................. 1,165,000 3,207,000 3,915,000
Collections as a percentage of returned checks..... 69.0% 66.7% 71.7%
Net write-offs as a percentage of check
cashing revenues................................ 5.7% 6.2% 5.6%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.16% 0.17% 0.17%
</TABLE>
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Other Services and Product Extensions
In addition to check cashing, DFG customers are able to choose from a variety of
products and services when conducting business at the Company's check cashing
locations. These services include lottery ticket sales, electronic tax filing
(primarily used by customers to secure a "refund anticipation loan" from the
Company), phone cards, transportation passes, and utility bill payment services.
A survey of the Company's customers by an independent third party revealed that
over 50% of customers use other services in addition to check cashing.
Management believes that providing these services helps to implement the
Company's customer-driven strategy by creating a "one-stop shop" atmosphere for
its customers.
Among the products and services other than check cashing offered by the Company
are the following:
o Money Orders--DFG's check cashing stores exchange money orders for cash
and/or checks for a minimal fee, with an average fee and face amount of
$0.58 and $111, respectively, for the fiscal year ended June 30, 1998.
Money orders are typically used as a means of payment of rent and utility
bills for customers who do not have checking accounts. For the twelve
months ended June 30, 1998, DFG's check cashing stores sold a total of 4.9
million money orders, generating total money order revenues of $2.9
million.
o Money Transfers--Through a strategic alliance with Western Union at DFG's
check cashing stores, customers can transfer funds to any location
providing Western Union money transfer services. Western Union currently
has 23,000 agents in more than 130 countries throughout the world. DFG
receives a percentage of the fee charged by Western Union for the transfer
as its commission. For the twelve months ended June 30, 1998, the Company's
check cashing stores performed 900,000 wire transfers generating total wire
transfer fees of $5.9 million.
o Cash 'Til Payday(R) Loan Program--DFG acts as an agent to offer unsecured
short-term loans to customers with established bank accounts and verifiable
employment. Loans are made for amounts up to $500, with terms of no longer
than 14 days.
Kiosks
The Company operates twenty 80 to 100 square-foot kiosks within the Southland
Corporation's 7-Eleven(R) convenience stores. DFG's management considers the key
advantages of the kiosk format to include: shared overhead costs, pooled
advertising and signage costs, and access to high-traffic areas and a
potentially expanded market.
Loan Stores
The Company currently operates 13 stores, operating under the Loan Mart(TM)
name, which offer only Cash `Til Payday(R) unsecured short-term loans. The
Company's management believes the stores appeal to a broader market segment than
that which currently utilizes the Company's check cashing stores. Unlike many of
the Company's check cashing customers, the Company's targeted Loan Mart(TM)
customer has, and is required to have, a bank account but experiences temporary
shortages in cash from time to time. By offering this service on a stand-alone
basis in Loan Mart(TM), the Company hopes to attract this target customer who
might not otherwise utilize check cashing services. The Company acts as agent
for a national bank in administering the Cash `Til Payday(R) short-term loan
program and earns origination and service fees from such loans. These loans
usually have a maturity of two weeks. The first Loan Mart(TM) stores were opened
in late September 1997 and since then an additional eight stores have been
opened. All of these stores are located in Seattle, Washington, Fresno,
California, or Albuquerque, New Mexico. Management is currently evaluating the
performance of these stores.
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Government Benefits Distribution
In addition to the other consumer financial products and services offered by the
Company, DFG stores in California, Washington, and Ohio provide for the
distribution of food coupons. The Company believes that many state and local
governments have elected to employ this method of distribution as a means of
reducing administrative overhead and fraud which is often prevalent when
benefits are issued through the mail. DFG's government contracts require the
Company to provide continuous, uninterrupted operation of a benefits transfer
system during normal business hours in its check cashing locations. The Company
is paid on a per-transaction basis by the contracting governmental agency. The
initial terms of these contracts range from one to five years and, in some
cases, provide the government agencies the opportunity to extend the contract
for additional periods.
A number of state and local government 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 Commonwealth of Pennsylvania initiated the implementation of an
EBT system in January 1998 which was fully implemented during fiscal 1998. As a
result, all of the Company's contracts with the Commonwealth of Pennsylvania
were terminated during fiscal 1998. Revenue from these contracts included in
total revenues for the fiscal years ended June 30, 1998, 1997 and 1996 were $6.8
million, $7.3 million and $7.8 million, respectively. During the fiscal year
ended June 30, 1998, the Company signed an agreement with the Commonwealth of
Pennsylvania which provided for a payment of $2.5 million to compensate the
Company for the decline in transactional revenues during the implementation
period and to offset additional costs incurred by the Company. Management
believes the installation of such systems will not have a material adverse
effect on the Company's results of operations or financial condition.
MERCHANT SERVICES DIVISION
The Company's Merchant Services Division provides support and operating services
for the distribution of public assistance benefits through a contract with New
York State. EBT systems equip participating merchants with point-of-sale ("POS")
devices that are on-line with the contracting agency's recipient database. DFG
acts as a subcontractor to Citibank, N.A. ("Citibank") to maintain and service
Citibank's network of electronic government benefits distribution to several
hundred merchants throughout the state.
In 1988, the State of New York began issuing food stamp benefits through its
Electronic Benefits Issuance and Control System to 330,000 recipients on a
monthly basis through grocery stores and other merchants in 57 counties outside
of New York City. This package of benefits is currently distributed
electronically through POS devices located in approximately 1,200 grocery,
convenience, and check cashing stores. These devices are directly connected to
the state's welfare recipient database and operate in a manner similar to ATM
machines by providing immediate verification when a recipient's magnetically
encoded card is scanned through the system.
Although Citibank provides the POS devices to the merchants, it has little
direct follow-up contact with either the distribution points or the benefits
recipients. DFG operates as a subcontractor to Citibank and is responsible for
monitoring and maintaining the network. The Company employs field agents and
administrative personnel headquartered in Albany, New York to train merchants in
the use of Citibank's POS terminals, monitor merchants for security compliance
and quality control, and maintain accounting procedures to reconcile benefit
transactions at each site. The Company is paid on a fee-per-transaction basis
for its services. The Company's revenues under this contract were approximately
$3.9 million, $4.2 million, and $4.7 million for the years ended June 30, 1998,
1997 and 1996, respectively.
The Company's contract with Citibank expires December 31, 1998 and the Company
is currently negotiating an extension to the contract. The Company has received
information from the state of New York pertaining to a statewide implementation
of EBT which contemplates completion by May 2000. Upon successful implementation
of the EBT program, the Company's existing contract with Citibank would be
terminated.
12
<PAGE>
STORE OPERATIONS
Locations
The following chart sets forth the number of stores in operation as of the dates
indicated:
JUNE 30,
------------------------------------------
MARKETS 1994 1995 1996 1997 1998
-------
------------------------------------------
CA
Southern......................... 20 19 27 49 41
Northern......................... 0 13 13 73 77
PA
Philadelphia..................... 22 41 20 26 11
Pittsburgh....................... 12 14 11 11 10
OH
Cleveland........................ 13 11 11 26 24
Other Ohio Cities (1)............ 8 8 9 8 8
Phoenix, AZ...................... 0 0 8 17 16
TX
Dallas........................... 0 0 6 23 23
Austin........................... 0 0 5 5 0
Detroit, MI (2).................. 15 14 13 12 0
Norfolk, VA...................... 19 14 14 14 14
Seattle, WA...................... 0 9 9 9 15
Salt Lake City, UT............... 0 4 4 3 3
MD/DC............................ 0 0 0 4 4
Albuquerque, NM.................. 0 3 3 3 4
New Orleans, LA.................. 0 0 0 3 3
HI............................... 0 0 0 3 3
WI............................... 0 0 1 1 1
Franchised locations............. 0 0 0 3 3
CANADA........................... 0 0 0 76 86
Franchised locations............. 0 0 0 67 70
==========================================
Total Stores..................... 109 150 154 436 416
==========================================
- --------------------
(1) These other cities include Akron, Canton, Youngstown, and Cincinnati, Ohio.
(2) Includes a single store located in Kalamazoo, Michigan.
Management adheres to a strict set of market survey and location guidelines when
selecting acquisition targets and new store sites. The Company's store base is a
mix of urban sites, which are located in high-traffic shopping areas, and
suburban locations, which are in strip malls near multi-family housing
complexes. In the future, the Company plans to emphasize suburban strip mall
locations, particularly in the southeastern and western parts of the United
States.
13
<PAGE>
Layout and Facilities
As part of its retail and customer-driven strategy, the Company presents a clean
and attractive environment and an appealing format for its check cashing stores.
Size varies by location, but the stores are generally 1,000 to 1,400 square feet
with approximately half of that space allocated to the teller and back office
areas. There are typically three to five teller lanes available for customer
transactions.
Operating hours vary by location, but are typically extended and designed to
cater to those customers who, due to work schedules, cannot make use of "normal"
banking hours. A typical store operates from 8:00 A.M. to 8:00 P.M. during
weekdays and Saturdays and 10:00 A.M. to 5:00 P.M. on Sundays. In certain
locations, the Company operates stores on a 24-hour, seven-days-per-week basis.
Except for three owned stores, all of the Company's individual stores are
leased, generally under leases providing for an initial multi-year term and
renewal terms from one to five years. The Company generally assumes the
responsibility for required leasehold improvements, including signage, teller
partitions, alarm systems, computers, time-delayed safes, and other office
equipment. The leases relating to stores that provide government benefits
distribution typically allow for the termination of a store's lease in the event
of the loss of a material government contract.
Technology
The Company currently has an enterprise-wide transaction processing computer
network. The Company believes that this system has improved customer service by
reducing transaction time and enabling the Company to better manage returned
check losses and comply with regulatory recordkeeping and reporting
requirements.
The Company is currently implementing a Point-of-Sale ("POS") transaction
processing system comprised of a networked hardware and software package with
integrated database and reporting capabilities. Management believes that the POS
system will provide its stores with instantaneous customer information, thereby
reducing transaction time and improving the efficiency of the Company's credit
verification process. The POS system is expected to enhance the Company's
ability to offer new products and services and to improve its customer service.
The Company intends to spend up to $2.4 million during fiscal 1999 to purchase
the necessary equipment and implement the POS system.
Security
All check cashing operations are exposed to two major classes of theft: robbery
and internal theft. DFG management has implemented extensive security systems,
dedicated security personnel, and management information systems which address
both areas of potential loss. Management believes that its systems are among the
most effective in the industry. Total net security losses represented less than
0.75% of both total revenues and total check volume for the twelve months ended
June 30, 1998.
All store employees operate behind bullet-resistant glass and steel partitions
and the back office, safe, and computer areas are locked and closed to
customers. Each store's security measures include safes, electronic alarm
systems monitored by third parties, control over entry to teller areas,
detection of entry through perimeter openings, walls, and ceilings, and the
tracking of all employee movement in and out of secured areas. In addition, as
security contracts expire and as new stores are opened, the Company is
centralizing its security measures to strengthen and improve its control over
the secured areas. This centralized system includes the following security
measures in addition to those mentioned above: identical alarm systems in all
stores, remote control over alarm systems, arming/disarming and changing user
codes, and mechanically and electronically controlled time-delay safes.
14
<PAGE>
Due to the high volumes of cash, food stamps, and negotiable instruments handled
at the Company's locations, daily monitoring, unannounced audits, and immediate
response to irregularities are critical in combating theft and fraud. The
Company has an internal auditing program which includes periodic unannounced
store audits at randomly selected locations.
ADVERTISING AND MARKETING
The Company is continually surveying and researching its customer trends and
purchasing patterns in order to place the most effective advertising for each
market. The Company's corporate marketing department's promotions typically
include point-of-sale materials, advertising support, and store personnel
instructions on the use of the materials. The Company also arranges cooperative
advertising for its products and services. For example, the Company does
cooperative advertising with Western Union. Store managers are also provided
with local store marketing training that sets standards for promotions and
marketing their store on a local level. A national yellow page company is
utilized to place all yellow page advertising as effectively and prominently as
possible. The Company does research into directory selection to assure effective
communication to its target customers.
COMPETITION
The check cashing industry in the United States is highly competitive and will
become even more so as the industry consolidates. American Business Information,
Inc. has reported that as of May 1998, a total of approximately 7,200 check
cashing stores were operating in the United States.
DFG, with 416 stores, is the second largest check cashing store network in the
United States and the largest such network in Canada. ACE Cash Express, Inc.
operates the largest check cashing store network in the United States, operating
more than 683 stores in 29 states as of June 30, 1998. The ten largest chains
control less than 30% of the total stores which reflects the fragmented nature
of the check cashing industry.
In addition to other check cashing stores in the U.S. and Canada, DFG competes
with banks and other financial services entities, and retail businesses, such as
grocery and liquor stores, which will cash checks for their customers. Some
competitors, primarily grocery stores, do not charge a fee to cash a check.
However, these merchants provide this service to a limited number of customers
with superior credit ratings, and will typically only cash "first party" checks,
or those written on the customer's account and made payable to the store.
The Company also competes with companies that offer automated check cashing
machines, franchised kiosk units that provide check-cashing and money order
services to customers, that can be located at places such as convenience stores,
bank lobbies, grocery stores, discount retailers and shopping malls.
REGULATION
The Company is subject to regulation in several of the jurisdictions in which it
operates, including jurisdictions that regulate check cashing fees, require
prompt remittance of money order proceeds to money order suppliers, or require
the registration of check cashing companies. In addition, the Company is subject
to federal and state regulation which requires the reporting and recording of
certain currency transactions and certain of the Company's operations are also
subject to federal and state regulations governing consumer protection and
lending practices.
State Regulation
To date, the regulation of check cashing fees has been restricted to the state
level. The Company is currently subject to fee regulation in three states,
Pennsylvania, Ohio and California, where regulations set maximum fees for
various types of checks in an attempt to prevent usurious pricing practices. The
Company's fees comply with all state regulations.
15
<PAGE>
The following chart presents a summary of current state fee regulations for
check cashing operations in those states where the Company's check cashing
stores are currently located:
CURRENT CHECK CASHING FEE REGULATIONS
California: Maximum of 3.0% fee for government and payroll checks (3.5%
without specified identification) or $3.00, whichever is greater.
Permits one-time $10.00 fee to issue identification. Ceiling fees
set in 1992.
Ohio: Maximum of 3.0% fee for government checks. Ceiling fees set in
1993.
Pennsylvania: Maximum of 2.5% for government checks, 3% for payroll checks and
10% for personal checks. Ceiling fees set in 1998.
The Company operates a total of 119 stores in California and Maryland. These
states are among those that have so-called "prompt remittance" statutes. Such
statutes specify a maximum time for the payment of proceeds from the sale of
money orders to the issuer of such money orders thereby limiting the number of
days or "float" which the Company has use of the money from the sale of such
money orders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
In addition, certain states, including California, Ohio, Arizona, Pennsylvania,
Wisconsin and the District of Columbia, have enacted licensing requirements for
check cashing stores. Other states, including Ohio, require the conspicuous
posting of the fees charged by each store. A number of states, including Ohio,
also have imposed recordkeeping requirements while others require check cashing
stores to file fee schedules with the state.
The adoption of check cashing fee regulations and prompt remittance statutes in
additional jurisdictions or the reduction of maximum allowable fees in the
jurisdictions currently regulating check cashing could have an adverse effect on
the Company's business and could restrict the ability of the Company to expand
its operations into certain states. As the Company develops new products and
services in the consumer finance areas, it may become subject to additional
federal and state regulations governing those areas.
In addition to fee regulations and prompt remittance statutes, certain
jurisdictions have also (i) placed limitations on the commingling of money order
proceeds and (ii) established minimum bonding or capital requirements. The
Company's consumer lending activities are subject to certain state and federal
regulations, including, but not limited to, regulations governing lending
practices and terms, such as truth in lending and usury laws.
There can be no assurance that the Company will not be materially adversely
affected by legislation or regulations enacted in the future or that existing
regulations will not restrict the ability of the Company to continue its current
methods of operations or to expand its operations.
Federal Regulation
Pursuant to regulations promulgated under the Bank Secrecy Act by the U.S.
Treasury Department, transactions involving currency in an amount greater than
$10,000 or the purchase of monetary instruments for cash in amounts from $3,000
to $10,000 must be recorded. In general, every financial institution, including
the Company, must report each deposit, withdrawal, exchange of currency or other
payment or transfer, whether by, through, or to the financial institution that
involves currency in an amount greater than $10,000. In addition, multiple
currency transactions must be treated as single transactions if the financial
institution has knowledge that the transactions are by, or on behalf of, any one
person and result in either cash-in or cash-out totaling more than $10,000
during any one business day. Management believes that the Company's POS system
and employee training programs are essential to the Company's compliance with
these regulatory requirements.
16
<PAGE>
From time to time, legislation is introduced at the state or federal level which
could have a broad impact on the Company's business. During 1995, a bill was
introduced in the U.S. House of Representatives which would, in part, require
states to license check cashers. In the opinion of management, the passage of
this bill in its current form would not materially impact the Company's
operations.
In 1994, Congress passed a bill which suggests, but does not require, that check
cashers disclose their fees to both customers and state regulators and suggests
that the states establish uniform laws for licensing and regulating check
cashers. In addition, the bill requires check cashers to register with the U.S.
Treasury Department. Specific regulations governing these registration
requirements have not yet been issued. The provisions of the bill have not
materially impacted the Company's operations.
In Canada, the federal government does not directly regulate the check cashing
industry nor do provincial governments impose any regulations specific to the
industry. The exception is in the Province of Quebec where check cashing stores
are not permitted to charge a fee to cash government checks.
PROPRIETARY RIGHTS
The Company has the rights to a variety of service marks relating to products or
services it provides in its stores. In addition, the Company has trademarks
relating to the various names under which the Company's stores operate. The
Company does not believe that any of its service marks or trademarks are
material to its business.
INSURANCE COVERAGE
The Company is required to maintain insurance coverage against loss, including
theft, pursuant to its contracts with several state agencies. In addition, the
Company maintains insurance coverage against criminal acts, which coverage has a
$25,000 per occurrence deductible.
EMPLOYEES
As of June 30, 1998, the Company employed 1,884 persons, comprised of: (i) 112
persons employed in the Company's accounting, MIS, legal, and administrative
departments, (ii) 1,737 persons employed by the Retail Stores Division,
including tellers, store managers, regional supervisors, operations directors,
and administrative personnel, and (iii) 35 persons employed by the Merchant
Services Division who oversee operations, coordinate the activities of field
personnel, and manage the benefits distribution system in New York State.
None of the Company's employees is represented by labor unions, and management
believes that its relations with its employees are good.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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.
17
<PAGE>
ITEM 2. PROPERTIES
The Company leases all store premises, with the exception of 3 stores, which the
Company owns. Typically, store leases have initial terms of 5 to 20 years and
contain provisions for renewal options; additional rental charges based on
revenue, and payment of real estate taxes and common area charges. With respect
to leased stores open as of June 30, 1998, the following table shows the number
of store leases expiring during the periods indicated, assuming the exercise of
the Company's renewal options:
NUMBER OF
PERIOD LEASES EXPIRING
------ ---------------
1999 29
2000 - 2003 143
2004 - 2008 122
2009 - 2013 24
2014 - 2018 2
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In May 1996, a complaint was filed against the Company and one of its
subsidiaries (in the case styled Adrian Rubin v. Monetary Management Corp.,
Monetary Management Corporation, Monetary Management Holdings, Inc., Jeffrey A.
Weiss, and Donald F. Gayhardt, Phila. Co. CCP, May Term, 1996, Civil Action No.
888) relating to the acquisition in February 1995 of the assets of 19 check
cashing stores from ARI, Inc. for consideration consisting, in part, of a $2.7
million note issued by such subsidiary (which note is not guaranteed by the
Company). The seller has sued for breach of contract, breach of oral guaranty,
fraudulent inducement, negligent misrepresentation and fraudulent
misrepresentation, for which he contends he is entitled to in excess of $2.7
million, plus punitive damages and attorney's fees. The Company intends to
actively contest each of the causes of action asserted in the complaint.
The Company is not a party to any other material litigation and is not aware of
any pending or threatened litigation, other than routine litigation and
administrative proceedings arising in the ordinary course of business, that
would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common stock.
DFG Holdings, Inc. is the sole owner of record as well as the beneficial owner
of all of the Company's outstanding common stock.
The Company has not declared or paid dividends since 1994. The Indenture dated
November 15, 1996 between the Company and State Street Bank and Trust Company,
as trustee (the "Indenture"), relating to the Senior Notes as well as the
Company's credit agreement contain restrictions as to the declaration and
payment of dividends. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the notes to consolidated
financial statements included elsewhere in this report.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial information below should be read
in conjunction with the consolidated financial statements and notes thereto and
the information contained in "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report. The balance sheet and statement of operations data of the Company as of
and for the year ended December 31, 1993 and as of and for the six months ended
June 30, 1993 and 1994 (the "Predecessor") and as of and for the years ended
June 30, 1995, 1996, 1997 and 1998 (the "Successor") have been derived from
historical consolidated financial statements of the Company.
20
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1)
------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ------------------------------
1993 1993 1994
----------------- ------------------------------
(DOLLARS IN THOUSANDS, EXCEPT CHECK CASHING
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Revenues from check cashing........ $ 8,538 $ 4,338 $ 4,496
Revenues from government services.. 16,689 8,265 8,537
Other revenues..................... 3,507 1,770 1,643
----------------- ------------------------------
Total revenues........................ 28,734 14,373 14,676
Store and regional expenses:
Salaries and benefits.............. 8,354 4,242 4,266
Occupancy.......................... 2,578 1,317 1,313
Depreciation....................... 1,102 579 483
Other.............................. 8,139 4,000 4,132
----------------- ------------------------------
Total store and regional expenses..... 20,173 10,138 10,194
Corporate expenses.................... 4,414 2,358 2,321
Loss on store closings and sales...... 110 - 36
Other depreciation and amortization... 1,183 752 319
Interest expense...................... 1,597 847 721
----------------- ------------------------------
Income (loss) before taxes and
extraordinary item................. 1,257 278 1,085
Income tax provision.................. 205 78 174
----------------- ------------------------------
Net income (loss)..................... $ 1,052 $ 200 $ 911
================= ==============================
OPERATING AND OTHER DATA:
Adjusted EBITDA (5)................... $ 5,249 $ 2,456 $ 2,644
Adjusted EBITDA margin (5)............ 18.3% 17.1% 18.0%
Net cash provided (used) by:
Operating activities............... 2,617 (429) 1,612
Investing activities............... (622) (382) (756)
Financing activities............... (1,401) (653) (807)
Stores in operation at end of period.. 108 108 109
CHECK CASHING DATA:
Face amount of checks cashed.......... $307,523,000 $157,219,000 $160,681,000
Number of checks cashed............... 1,307,768 648,549 662,855
Average face amount per check cashed.. $235.15 $242.42 $242.41
Average fee per check................. $6.53 $6.69 $6.78
Average fee as a % of face amount..... 2.78% 2.76% 2.80%
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.................................. $ 10,974 $ 8,916 $ 11,023
Total assets.......................... 29,681 28,013 28,607
Total indebtedness.................... 16,639 16,634 15,832
Shareholder's equity.................. 5,708 6,238 6,309
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR COMPANY (1)
----------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
1995 (2) 1996 (3) 1997 (4) 1998
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT CHECK CASHING DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Revenues from check cashing........ $ 13,747 $ 20,290 $ 51,928 $ 70,306
Revenues from government services.. 16,966 15,936 16,141 14,311
Other revenues..................... 4,121 6,204 14,943 26,568
-----------------------------------------------------------------------
Total revenues........................ 34,834 42,430 83,012 111,185
Store and regional expenses:
Salaries and benefits.............. 11,042 13,975 26,817 33,670
Occupancy.......................... 3,122 4,031 7,951 9,656
Depreciation....................... 894 893 1,446 2,018
Other.............................. 9,577 11,709 20,452 24,002
-----------------------------------------------------------------------
Total store and regional expenses..... 24,635 30,608 56,666 69,346
Corporate expenses.................... 4,414 5,360 8,175 12,462
Loss on store closings and sales...... 93 4,501 381 45
Other depreciation and amortization... 1,630 1,858 3,905 4,776
Interest expense...................... 2,480 3,385 10,007 12,945
Writedown of goodwill................. - - - 12,870
-----------------------------------------------------------------------
Income (loss) before taxes and
extraordinary item................. 1,582 (3,282) 3,878 (1,259)
Income tax provision (benefit)........ 1,022 (1,214) 2,425 5,538
-----------------------------------------------------------------------
Income (loss) before extraordinary item 560 (2,068) 1,453 (6,797)
Extraordinary loss on debt extinguishment
(net of income tax benefit of
$1,042)........................... - - (2,023) -
-----------------------------------------------------------------------
Net income (loss)..................... $ 560 $ (2,068) $ (570) $ (6,797)
=======================================================================
OPERATING AND OTHER DATA:
Adjusted EBITDA (5)................... $ 6,679 $ 7,355 $ 19,724 $ 31,526
Adjusted EBITDA margin (5)............ 19.2% 17.3% 23.8% 28.4%
Net cash provided (used) by:
Operating activities............... 4,350 3,669 9,319 18,003
Investing activities............... (9,615) (8,146) (75,674) (4,237)
Financing activities............... 11,081 7,244 99,120 (12,699)
Stores in operation at end of period.. 150 154 436 416
CHECK CASHING DATA:
Face amount of checks cashed.......... $ 510,771,000 $ 728,123,000 $1,878,587,000 $2,301,861,000
Number of checks cashed............... 2,132,006 3,051,037 6,492,495 7,991,128
Average face amount per check cashed.. $239.57 $238.65 $289.35 $288.05
Average fee per check................. $6.45 $6.65 $8.00 $8.80
Average fee as a % of face amount..... 2.69% 2.79% 2.76% 3.05%
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.................................. $ 19,778 $ 22,545 $ 55,205 $ 55,501
Total assets.......................... 60,687 67,444 185,988 165,850
Total indebtedness.................... 35,496 42,530 124,991 112,675
Shareholder's equity.................. 15,775 13,707 38,560 29,454
</TABLE>
22
<PAGE>
- ---------------------------
(1) On June 30, 1994, MMH Transit Co. ("MMHT"), a Delaware corporation, was
formed principally by two private equity funds sponsored by Weiss, Peck and
Greer, through the issuance of 15,000 shares of common stock at $1,010.67
per share. Total consideration was $15.2 million. Pursuant to an Agreement
and Plan of Merger dated as of June 30, 1994 among MMHT, Bear Stearns
Acquisition XII, Inc. (the predecessor majority shareholder of Holdings)
and Holdings, Holdings and MMHT consummated a merger whereby MMHT acquired
all of the outstanding common stock and warrants of Holdings for $10.5
million. MMHT was merged with and into Holdings and the separate corporate
existence of MMHT ceased and Holdings was the surviving corporation in the
merger. The acquisition of Holdings on June 30, 1994 was accounted for
under the purchase method of accounting and, accordingly, the acquisition
cost was allocated to the fair value of net assets acquired. The cost of
acquiring Holdings has, in turn, been allocated to the Company and used to
establish a new accounting basis in the Company's financial statements.
Approximately $20.9 million, the acquisition cost in excess of the fair
market value of net assets acquired, was recorded as goodwill. References
to the Successor refer to the Company for the periods subsequent to the
acquisition on June 30, 1994 and references to the Predecessor refer to the
Company for the periods prior to the acquisition on June 30, 1994. Prior to
the acquisition, the Company maintained a December 31 fiscal year.
Effective with the acquisition, the Company changed its fiscal year to June
30.
(2) On September 29, 1994, the Company purchased substantially all of the
assets of the check cashing operations of a company operating under the
name "Check Mart, Inc." with 24 locations in Washington, Utah, California,
and New Mexico. Total consideration for the purchase was $7.8 million,
which was funded by borrowings under the Company's existing credit facility
and a $720,000 subordinated note payable. Results of operations and cash
flows for the period from September 30, 1994 to June 30, 1995 and for the
years ended June 30, 1996 and 1997 are included in the Company's
consolidated financial statements. Approximately $6.7 million, the
acquisition cost in excess of the fair market value of the net assets
acquired, was recorded as goodwill.
(3) On September 18, 1995, the Company purchased all of the outstanding stock
or certain assets of several entities which operated 19 check cashing
stores in California, Arizona, Ohio, and Wisconsin and operated under the
name "Chex$Cashed." Total consideration for the purchase was $7.4 million,
which was funded through borrowings under the Company's existing credit
facility. Approximately $6.7 million, the excess of the purchase price over
the fair market value of identifiable net assets, was recorded as goodwill.
(4) On August 8, 1996, the Company purchased all of the outstanding common
stock of Any Kind Check Cashing Centers, Inc. and all the partnership
interests in U.S. Check Exchange Limited Partnership which together
operated 63 check cashing stores in seven states and the District of
Columbia. Total consideration for the purchase was $31.0 million, of which
$2.0 million was in the form of Holdings' common stock, plus initial
working capital of approximately $6.0 million. On August 28, 1996, the
Company acquired the assets associated with the operations of "ABC Check
Cashing" for $6.0 million in cash. ABC operated 15 check cashing centers
within the Cleveland, Ohio area. On November 15, 1996, the Company
purchased all of the outstanding common stock of National Money Mart, Inc.
which owned and operated 36 check cashing stores and franchised 107 check
cashing stores, all of which operate in Canada under the name "Money Mart."
Total consideration for the purchase was $17.7 million, of which
approximately $500,000 was in the form of Holdings' common stock, plus
initial working capital of approximately $900,000. On November 15, 1996,
the Company acquired the assets associated with the operations of
Cash-N-Dash Check Cashing, Inc. which operated 32 check cashing stores in
northern California under the name "Cash-N-Dash." Total consideration for
the purchase was $7.3 million. On November 21, 1996, the Company purchased
all the outstanding stock of C&C Check Cashing, Inc. which operated 22
check cashing stores in northern California under the name "C&C Check
Cashing." Total consideration for the purchase was $3.8 million plus
initial working capital of approximately $500,000. On April 18, 1997, the
Company purchased all of the outstanding common stock of Canadian Capital
Corporation which operated 43 check cashing stores in Canada under a
franchise agreement with Money Mart. Total consideration for the purchase
was $13.3 million plus initial working capital of approximately $1.8
million. Each of the acquisitions described above was accounted for under
the purchase method of accounting. Approximately $74.3 million, the
acquisition costs in excess of the fair market values of the net assets
acquired, was recorded as goodwill. The acquisitions were funded through
borrowings, issuance of Holdings Common Stock and revenue-based earn-outs
totaling $1.1 million which are payable over a period of up to four years.
(5) Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization, noncash charges to earnings associated with foreign currency
translations, writedown of goodwill 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
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<PAGE>
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.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company has historically derived its revenues primarily from providing check
cashing services and distributing public assistance benefits and food coupons.
In addition, the Company provides other consumer financial products and services
including money orders, money transfers, loans, and bill payment. For the years
ended June 30, 1996, 1997 and 1998, check cashing revenues as a percentage of
total revenues approximated 47.8%, 62.6%, and 63.2%, respectively.
The check cashing industry in the United States is highly fragmented, and has
experienced considerable growth as store locations have increased from
approximately 1,350 in 1986 to approximately 7,200 as of May 1998. The Company
believes it is one of only seven domestic check cashing store networks with more
than 100 locations. The industry is comprised of mostly local chains and
single-unit operators. The Company believes that industry growth has been fueled
by several demographic and socioeconomic trends, including a decline in the
number of households with bank deposit accounts, an increase in low-paying
service sector jobs, and an overall increase in the lower-income population.
All of the Company's acquisitions have been accounted for under the purchase
method of accounting. Therefore, the historical consolidated results of
operations include the revenues and expenses of all of the acquired companies
since their respective dates of acquisition. The comparability of the historical
financial data is significantly impacted by the timing of the Company's
acquisitions. The following table sets forth information with respect to major
acquisitions completed by the Company during the periods discussed below:
<TABLE>
<CAPTION>
NUMBER OF
COMPANY STORES MONTH ACQUIRED PURCHASE PRICE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chex$Cashed............................... 19 September 1995 $ 7.4 million
Southland kiosks--Texas................... 11 May 1996 0.5 million
Any Kind.................................. 63 August 1996 31.0 million
ABC....................................... 15 August 1996 6.0 million
Money Mart................................ 143 (1) November 1996 17.7 million
Cash-N-Dash............................... 32 November 1996 7.3 million
C&C....................................... 22 November 1996 3.8 million
Canadian Capital Corporation.............. 43 April 1997 13.3 million
</TABLE>
- ------------------
(1) Includes 107 franchised stores, of which 43 were owned by Canadian Capital
Corporation.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations solely reflects the historical results of the Company. The
aforementioned purchase price amounts do not reflect borrowings to provide for
the working capital needs of the acquired entities. The purchase prices
including working capital were as follows: $9.1 million for Chex$Cashed, $37.0
million for Any Kind, $7.5 million for ABC, $18.6 million for Money Mart, $7.3
million for Cash-N-Dash, $4.3 million for C&C and $15.1 million for Canadian
Capital Corporation. The aforementioned purchase prices for Cash-N-Dash and C&C
include estimated contingent payments to the sellers of $750,000 for Cash-N-Dash
(payable over four years) and $300,000 for C&C (payable over three years) based
on future revenues. Any amounts paid under the revenue-based earn-out
contingencies for Cash-N-Dash and C&C will be recorded as additional
consideration of the acquisition when the contingency is resolved, and during
the twelve months ended June 30, 1998, $287,000 in additional consideration was
earned and recorded as additional purchase price.
In November 1996, the Company issued 10-7/8% senior notes due 2006 in a private
placement (collectively referred to as the "Offering"). The Company has
exchanged substantially all of the senior notes for $110.0 million 10-7/8%
Series A notes due 2006 (collectively referred to as the "Notes"), which were
registered under the Securities Act of 1933, as amended.
25
<PAGE>
The Offering generated gross proceeds of $110.0 million which were used to repay
all of the Company's existing indebtedness under its existing credit facility,
to fund the Money Mart, Cash-N-Dash, C&C, and Canadian Capital Corporation
acquisitions, and to pay related fees and expenses. The repayment of
substantially all of the Company's existing indebtedness resulted in an
extraordinary loss, net of taxes, in the second quarter of fiscal year 1997 of
approximately $2.0 million. This loss resulted from the write-off of the
deferred financing costs associated with the Company's existing credit facility.
Due to the rapid growth of the Company, period-to-period comparisons of
financial data are not necessarily indicative of the results for subsequent
periods and should not be relied upon as an indicator of the future performance
of the Company.
The Company's revenues from government services as a percentage of total
revenues decreased for the years ended June 30, 1998 and June 30, 1997 due in
large part to the acquisitions made by the Company during those periods. The
Company expects that its revenues from the distribution of public assistance
benefits will continue to decline due to a number of factors, including a
continued reduction in the number of recipients eligible for benefits.
Additionally, 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 Commonwealth of Pennsylvania initiated an EBT system in
January 1998 which was fully implemented during fiscal 1998. As a result, all of
the Company's contracts with the Commonwealth of Pennsylvania were terminated
during fiscal 1998. For the years ended June 30, 1996, 1997 and 1998, these
contracts contributed 18%, 9% and 6%, respectively, of total revenues.
Management believes the installation of such systems will not have a material
adverse effect on the Company's results of operations or financial condition.
See "Government Benefits Distribution" on page 12.
Results of Operations
The following table sets forth the Company's results of operations as a
percentage of revenues for the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1997 1998
--------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Revenues from check cashing........................................... 47.8% 62.6% 63.2%
Revenues from government services..................................... 37.6 19.4 12.9
Other revenues........................................................ 14.6 18.0 23.9
--------------------------------
Total revenues............................................................ 100.0 100.0 100.0
Store and regional expenses:
Salaries and benefits................................................. 32.9 32.3 30.3
Occupancy............................................................. 9.5 9.6 8.7
Depreciation.......................................................... 2.1 1.7 1.8
Other................................................................. 27.6 24.7 21.6
--------------------------------
Total store and regional expenses......................................... 72.1 68.3 62.4
Corporate expenses........................................................ 12.6 9.8 11.2
Loss on store closings and sales.......................................... 10.6 .5 .1
Other depreciation and amortization....................................... 4.4 4.7 4.2
Interest expense.......................................................... 8.0 12.1 11.6
Writedown of goodwill..................................................... - - 11.6
--------------------------------
Income (loss) before taxes and extraordinary item......................... (7.7) 4.6 (1.1)
Income tax provision (benefit)............................................ (2.9) 2.9 5.0
--------------------------------
Income (loss) before extraordinary item................................... (4.8) 1.7 (6.1)
Extraordinary loss on debt extinguishment (net of income tax benefit)..... - (2.4) -
--------------------------------
Net (loss)................................................................ (4.8)% (.7)% (6.1)%
================================
</TABLE>
26
<PAGE>
YEAR ENDED JUNE 30, 1998 COMPARED TO THE YEAR ENDED JUNE 30, 1997
Total revenues were $111.2 million for the year ended June 30, 1998 as compared
to $83.0 million for the year ended June 30, 1997, an increase of $28.2 million,
or 34.0%. Of this increase, $26.5 million resulted from the inclusion of the
results of operations of the entities acquired during fiscal 1997, (collectively
referred to hereafter as the "Acquisitions"). The increase was offset in part by
revenues related to the sale or closing of 22 stores in Michigan, California and
Texas during fiscal 1998 which generated a decrease in revenue of $2.5 million.
For stores that were opened and owned by the Company during the entire period
from July 1, 1996 through June 30, 1998, revenues increased by 15.3%. This
increase resulted from an increase in other revenues of 48.6% primarily as a
result of increased revenue from the Cash `Til Payday(R) program and an increase
in revenues from check cashing of 12.6%, offset in part by a decrease in
revenues from government services of 25.2%. Government services revenues
accounted for 12.9% of total revenues for the year ended June 30, 1998, a
decrease from 19.4% of total revenues for the year ended June 30, 1997. The
decrease in revenues from government services resulted primarily from the
reduction in the number of individuals receiving benefits under government
programs and the closure and/or sale of the stores in Michigan and California.
The Company receives revenue on its government contracts based primarily on the
number of transactions it executes. As state and local government agencies
implement EBT systems, the Company expects a continuing decline in the Company's
government services revenue.
Store and regional expenses were $69.3 million for the year ended June 30, 1998
as compared to $56.7 million for the year ended June 30, 1997, an increase of
$12.6 million, or 22.2%. The Acquisitions resulted in an increase in store and
regional expenses of $13.3 million, while the 22 stores closed in fiscal 1998
resulted in a decrease in store expenses of approximately $2.3 million. Store
and regional expenses as a percentage of revenues decreased from 68.3% in the
year ended June 30, 1997 to 62.4% in the year ended June 30, 1998. This decrease
was due primarily to the continued improvement in store level profitability.
Salaries and benefits were $33.7 million for the year ended June 30, 1998 as
compared to $26.8 million for the year ended June 30, 1997, an increase of $6.9
million, or 25.7%. The Acquisitions accounted for an increase in salaries and
benefits of $6.4 million. Salaries and benefits expenses as a percentage of
revenue decreased from 32.3% for the year ended June 30, 1997 to 30.3% for the
year ended June 30, 1998, as a result of increases in revenues from the Cash
`Til Payday(R) program and revenues from check cashing.
Occupancy expense was $9.7 million for the year ended June 30, 1998 as compared
to $8.0 million for the year ended June 30, 1997, an increase of $1.7 million,
or 21.3%. The Acquisitions accounted for an increase of $2.2 million and the
sale or closing of 22 stores in Michigan, California, and Texas accounted for a
decrease of $348,000 million. Occupancy expense as a percentage of revenues
decreased from 9.6% for the year ended June 30, 1997 to 8.7% for the year ended
June 30, 1998, due to an increase in same store revenues.
Depreciation expense was $2.0 million for the year ended June 30, 1998 as
compared to $1.4 million for the year ended June 30, 1997 an increase of
$600,000, or 42.9%. The Acquisitions accounted for an increase of $600,000.
Depreciation expense as a percentage of revenues increased from 1.7% for the
year ended June 30, 1997 to 1.8% for the year ended June 30, 1998.
Other store and regional expenses were $24.0 million for the year ended June 30,
1998 as compared to $20.5 million for the year ended June 30, 1997, an increase
of $3.5 million, or 17.1%. The Acquisitions accounted for an increase in other
store and regional expenses of $4.2 million while store closings and sales
resulted in a decrease of $1.0 million. Other store and regional expenses
consist of bank charges, armored security costs, net returned checks, cash and
food stamp shortages, insurance, and other costs incurred by the stores.
Corporate expenses were $12.5 million for the year ended June 30, 1998 as
compared to $8.2 million for the year ended June 30, 1997, an increase of $4.3
million, or 52.4%. This increase resulted from the additional corporate costs,
primarily salaries and benefits, associated with the acquisitions completed
during fiscal 1996 and fiscal 1997. Corporate expenses as a percentage of
revenues increased from 9.8% for the year ended June 30, 1997 to 11.2% for the
27
<PAGE>
year ended June 30, 1998, due primarily to expenses incurred on new business
research and development. (See footnote 15 in the attached consolidated
financial statements.)
Loss on store closings and sales was $45,000 for the year ended June 30, 1998 as
compared to $381,000 for the year ended June 30, 1997, a decrease of $336,000,
or 88.2%.
Other depreciation and amortization expenses were $4.8 million for the year
ended June 30, 1998 as compared to $3.9 million for the year ended June 30,
1997, an increase of $900,000, or 23.1%. This increase is due to the recognition
of a full year of amortization on the goodwill associated with the Acquisitions.
Interest expense was $12.9 million for the year ended June 30, 1998 as compared
to $10.0 million for the year ended June 30, 1997, an increase of $2.9 million,
or 29.0%. This increase was primarily attributable to increased average
outstanding indebtedness to finance the Acquisitions.
For the year ended June 30, 1998, the Company recorded a $12.9 million writedown
of goodwill related to the government services business. See page 32.
YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED JUNE 30, 1996
Total revenues were $83.0 million for the year ended June 30, 1997 as compared
to $42.4 million for the year ended June 30, 1996, an increase of $40.6 million,
or 95.8%. Of this increase, $42.0 million resulted from the inclusion of the
results of operations of the entities acquired during fiscal 1996 and 1997,
(collectively referred to hereafter as the "Acquisitions"). The increase was
offset in part by revenues related to the 19 stores acquired from ARI, Inc.,
which were closed in December 1995 and which generated $1.5 million in revenue
for the year ended June 30, 1996. For stores that were opened and owned by the
Company during the entire period from July 1, 1995 through June 30, 1997,
revenues increased by 4.1%. This increase resulted from an increase in other
revenues of 19.7% and an increase in revenues from check cashing of 6.8%, offset
in part by a decrease in revenues from government services of 6.7%. Government
services revenues accounted for 19.4% of total revenues for the year ended June
30, 1997, a decrease from 37.6% of total revenues for the year ended June 30,
1996. The decrease in revenues from government services resulted from the
reduction in the number of individuals receiving benefits under government
programs. The Company receives revenue on its government contracts based
primarily on the number of transactions it executes. The Company expects that
the number of benefits recipients will continue to decrease, which would result
in a continuing decline in the Company's government services revenue.
Store and regional expenses were $56.7 million for the year ended June 30, 1997
as compared to $30.6 million for the year ended June 30, 1996, an increase of
$26.1 million, or 85.3%. The Acquisitions resulted in an increase in store and
regional expenses of $28.7 million, while the 19 stores closed in December 1995
resulted in a decrease in store expenses of $2.4 million. Store and regional
expenses as a percentage of revenues decreased from 72.2% in the year ended June
30, 1996 to 68.3% in the year ended June 30, 1997. This decrease was due
primarily to operating losses of the stores acquired from ARI, Inc., in February
1995. During December 1995, the Company decided to close or sell all of the
stores acquired from ARI, Inc. and recognized a pretax charge of approximately
$4.4 million relating thereto. Excluding the results of operations of the ARI,
Inc. stores, store and regional expenses as a percentage of revenues were 69.1%
for the year ended June 30, 1996.
Salaries and benefits were $26.8 million for the year ended June 30, 1997 as
compared to $14.0 million for the year ended June 30, 1996, an increase of $12.8
million, or 91.4%. The Acquisitions accounted for an increase of salaries and
benefits of $13.9 million while the 19 stores closed in December 1995 resulted
in a decrease in salaries and benefits of $700,000.
Occupancy expense was $8.0 million for the year ended June 30, 1997 as compared
to $4.0 million for the year ended June 30, 1996, an increase of $4.0 million,
or 100%. The Acquisitions accounted for an increase of $4.2 million, while the
19 stores closed in December 1995 resulted in a decrease of $300,000. Occupancy
28
<PAGE>
expense as a percentage of revenues increased from 9.5% for the year ended June
30, 1996 to 9.6% for the year ended June 30, 1997.
29
<PAGE>
Depreciation expense was $1.4 million for the year ended June 30, 1997 as
compared to $900,000 for the year ended June 30, 1996, an increase of $500,000,
or 55.6%. The Acquisitions accounted for an increase of $700,000. Depreciation
expense as a percentage of revenues decreased from 2.1% for the year ended June
30, 1996 to 1.7% for the year ended June 30, 1997.
Other store and regional expenses were $20.5 million for the year ended June 30,
1997 as compared to $11.7 million for the year ended June 30, 1996, an increase
of $8.8 million, or 75.2%. The Acquisitions accounted for an increase in other
store and regional expenses of $9.9 million, while the 19 stores closed in
December 1995 resulted in a decrease in other store and regional expenses of
$1.1 million. Other store and regional expenses consist of bank charges, armored
security costs, net returned checks, cash and food stamp shortages, insurance,
and other costs incurred by the stores.
Corporate expenses were $8.2 million for the year ended June 30, 1997 as
compared to $5.4 million for the year ended June 30, 1996, an increase of $2.8
million, or 51.9%. This increase resulted from the additional corporate costs,
primarily salaries and benefits, associated with the acquisitions completed
during fiscal 1996 and fiscal 1997. Corporate expense as a percentage of
revenues decreased from 12.6% for the year ended June 30, 1996 to 9.8% for the
year ended June 30, 1997.
Loss on store closings and sales was $381,000 for the year ended June 30, 1997
as compared to $4.5 million for the year ended June 30, 1996, a decrease of $4.1
million, or 91.5%, due primarily to the 19 stores acquired from ARI, Inc., which
were closed or sold in fiscal year 1996.
Other depreciation and amortization expenses were $3.9 million for the year
ended June 30, 1997 as compared to $1.9 million for the year ended June 30,
1996, an increase of $2.0 million, or 105.3%. This increase resulted primarily
from the amortization expense associated with the goodwill and other intangibles
recognized as part of the Acquisitions.
Interest expense was $10.0 million for the year ended June 30, 1997 as compared
to $3.4 million for the year ended June 30, 1996, an increase of $6.6 million,
or 194.1%. This increase was primarily attributable to increased average
outstanding indebtedness to finance the Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
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, finance
acquisitions, and finance loan store expansion. For the years ended June 30,
1998, 1997, and 1996, the Company had net cash provided by operating activities
of $18.0 million, $9.3 million, and $3.7 million, respectively, for purchases of
property and equipment related to existing stores, recently acquired stores,
investments in technology, and acquisitions. The Company's budgeted capital
expenditures, excluding acquisitions, are currently anticipated to aggregate
approximately $2.7 million during its fiscal year ending June 30, 1999, for
remodeling and relocation of certain existing stores and for opening loan
stores. The actual amount of capital expenditures will depend in part on the
number of new stores acquired and the number of stores remodeled. In addition,
the Company intends to spend up to $2.4 million during fiscal 1999 to purchase
the equipment necessary to implement a POS system.
The Company has historically financed its acquisitions and other capital
requirements through bank debt, seller subordinated debt, and proceeds from the
sale of Holdings' common stock.
In November 1996, the Company issued 10-7/8% senior notes due 2006 in a private
placement (collectively referred to as the "Offering"). The Company has
exchanged substantially all of the senior notes for $110.0 million 10-7/8%
Series A notes due 2006 (collectively referred to as the "Notes"), which were
registered under the Securities Act of 1933, as amended.
30
<PAGE>
The Offering generated gross proceeds of $110.0 million which were used to repay
all of the Company's then-existing indebtedness under its then-existing credit
facility, to fund the Money Mart, Cash-N-Dash, C&C, and Canadian Capital
Corporation acquisitions, and to pay related fees and expenses. The repayment of
substantially all of the Company's existing indebtedness resulted in an
extraordinary loss, net of taxes, of approximately $2.0 million. This loss
results from the write-off of the deferred financing costs associated with the
Company's existing credit facility.
On June 30, 1998, the Notes, seller subordinated notes, and other indebtedness
aggregating $112.7 million were outstanding. The Company's indebtedness includes
a seller subordinated note of $2.6 million from the acquisition of ARI, Inc. See
"Dollar Financial Group, Inc.--Notes to Consolidated Financial Statements--Loss
on Store Closings and Sales." The Company is seeking to restructure its
obligations under the original subordinated note issued to the seller as part of
the acquisition, and has ceased making principal and interest payments. As a
result, the seller has filed a complaint against the Company alleging, among
other things, breach of contract, and is seeking payment of the balance of the
note. Depending on the outcome of the complaint filed by the seller, the Company
could be required to pay the balance of the note. See "Item 3--Legal
Proceedings." The Company does not believe this would have a material impact on
its liquidity.
Simultaneously with the consummation of the Offering, the Company entered into a
new revolving credit facility, which the Company uses primarily for working
capital needs. The new revolving credit facility 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 with a commitment of an additional
$10.0 million for the period January 1, 1998 to June 30, 1998. Amounts
outstanding under the New Revolving Credit Facility bear interest at either (i)
the higher of (a) the federal funds rate plus 0.50% per annum and (b) the rate
publicly announced by Bank of America NT&SA, as its "reference rate", (ii) the
Eurodollar Rate (as defined therein) plus 1.75% or (iii) the one day Eurodollar
Rate (as defined therein) plus 2.00%, determined at the Company's option.
Amounts outstanding under the New Revolving Credit Facility are secured by a
first priority lien on substantially all properties and assets of the Company
and its current and future subsidiaries. The Company's obligations under the New
Revolving Credit Facility are guaranteed by Holdings and each of the Company's
direct and indirect subsidiaries. The Company had $25.0 million of unborrowed
availability under the new revolving credit facility at June 30, 1998.
The Senior Notes and the New Revolving Credit Facility contain certain financial
and other restrictive covenants, which, among other things, require the Company
to maintain minimum amounts of net worth, achieve certain financial ratios,
limit capital expenditures, restrict payment of dividends, and require certain
approvals in the event the Company wants to increase the borrowings. As a
result of the write down of goodwill, at June 30, 1998, the Company did not meet
the net worth covenant in the new Revolving Credit Facility. This condition was
waived through December 31, 1998. In the event the Company fails to meet the
net worth covenant at March 31, 1999 (the date of the next covenant calculation
following December 31, 1998) the Company would seek to obtain a waiver through
June 30, 1999 and obtain an amendment to the new Revolving Credit Facility
agreement, so that the Company would meet the net worth covenant prospectively.
Should the Company not obtain a waiver or an amendment following a violation at
March 31, 1999, the Company would seek to obtain a credit facility from other
lenders. Finally if these two remedies were not available, the Company
believes that cash flow from operations would provide sufficient short-term
liquidity for the Company's operations and pay down amounts outstanding, if any,
under the New Revolving Credit Facility.
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 operations. The overdraft credit facility provides for a commitment
of up to $4.8 million. Amounts outstanding under the facility bear interest at
Canadian prime plus 0.50% and are secured by the pledge of a cash collateral
account of an equivalent balance.
The Company is highly leveraged, and borrowings under the new revolving credit
facility and the overdraft 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 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, including with respect to
the operations acquired in the Acquisitions, is based upon the historical growth
rate of the Company 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 Cash 'Til Payday Loan(R) Program. The Company
also expects operating expenses to increase, although the rate of increase is
31
<PAGE>
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
discussed earlier within this Management's Discussion and Analysis, the
Commonwealth of Pennsylvania initiated an EBT system in January 1998 which was
fully implemented during fiscal 1998. As a result, all of the Company's
contracts with the Commonwealth of Pennsylvania were terminated during fiscal
1998. The Company believes this outcome will not have a material impact on the
Company's liquidity or capital resources. As a result of the foregoing
assumptions, which the Company believes to be reasonable, the Company expects to
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.
WRITEDOWN OF GOODWILL
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. In accordance with SFAS 121, the Company reviews
for impairment of long-lived assets and related goodwill whenever events or
changes in circumstances occur which indicate that the carrying amount of an
asset may not be recoverable.
If an event or change in circumstance is present or an event or change in
circumstance indicates that the carrying amount of an asset that the Company
expects to hold and use may not be recoverable, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset, the Company recognizes an impairment loss
for the difference between the carrying amount of the asset and the estimated
fair value of the asset. The Company determines the estimated fair value of the
asset by discounting the estimated future cash flows using a discount rate
commensurate with the risks involved in the use of such asset. In estimating
future cash flows, the Company groups assets at the lowest level for which there
are identifiable cash flows. The Company groups assets between its two primary
lines of business that generate independent cash flows: check cashing and
government services.
During the fourth quarter of fiscal year 1998, the Commonwealth of Pennsylvania
informed the Company that all of the Commonwealth's government services
contracts would be terminated at June 30, 1998 as a result of the successful
implementation of an Electronic Benefit Transfer (EBT) system in Pennsylvania.
Additionally, during the fourth quarter of fiscal year 1998, the State of New
York presented the Company with an EBT implementation plan, which contemplates
the successful implementation of EBT within the State of New York by May 2000.
This implementation plan does not include the Company providing additional
services after May 2000. Also, during the fourth quarter of fiscal year 1998,
management of the Company concluded that the Company would not have the
opportunity to provide similar government services for the newly installed EBT
systems in either Pennsylvania or New York. Upon the occurrence of these events,
the Company determined that an impairment indicator was present. Accordingly,
the Company estimated future cash flows for the remaining government services
business and compared the undiscounted cash flows to the carrying amount of
assets and related goodwill separately identifiable with the government services
line of business. This analysis indicated that the goodwill related to the
government services business was impaired. As a result, the Company measured the
amount of impairment to be recorded by comparing the fair value of the assets
and related goodwill to the carrying value of the assets and related goodwill.
This analysis indicated that the fair value of the assets and related goodwill
was less than the carrying value by $12.9 million. Therefore, the Company has
written down the carrying value of the related goodwill by a charge to income of
$12.9 million. This charge relates to goodwill as the fixed assets associated
with the government services line of business have been fully depreciated. The
remaining unamortized goodwill of approximately $3.0 million related to the
government services business will be amortized over the estimated remaining life
of the future undiscounted cash flows associated with the government services
business which is May 2000 for substantially all of the remaining goodwill.
32
<PAGE>
INCOME TAXES
The Company's effective tax rates for fiscal 1996, 1997, and 1998 were (37.0)%,
62.5%, and (439.9)%, respectively. The effective rate differs from the federal
statutory rate of 34% due to state taxes and nondeductible goodwill amortization
which resulted from the June 30, 1994 acquisition of the Company and several
subsequent acquisitions. The Company had no valuation allowance recorded against
deferred tax assets at June 30, 1997 or 1998. The fiscal 1996 effective tax rate
is less than the fiscal 1997 effective tax rate due to the reversal of the
valuation allowance on the Company's gross deferred tax asset during fiscal
1996. The fiscal 1998 effective tax rate is less than the fiscal 1997 effective
tax rate primarily due to the writedown of goodwill in 1998. Realization of the
gross deferred tax asset is dependent on generating sufficient taxable income
prior to the expiration of the loss carryforwards. Although realization is not
assured, management has determined, based on the Company's history of earnings
and its expectations for the future, that taxable income of the Company will
more likely than not be sufficient to fully utilize its deferred income tax
assets. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
33
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is seasonal due to the impact of several 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, results of operations for any
fiscal quarter are not necessarily indicative of the results of operations that
may be achieved for the full fiscal year. In addition, quarterly results of
operations depend significantly upon the timing and amount of revenues and
expenses associated with the addition of new stores.
IMPACT OF INFLATION
The Company believes that the results of its operations are not dependent upon
the levels of inflation.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
The Company has evaluated all tools, resources, databases, operating systems,
and appropriate hardware used by the Company and its subsidiaries. As a result,
management has defined what it believes to be the appropriate structure to
execute all necessary Year 2000 projects which include, but are not limited to,
improvements, replacement applications and conversions.
The Company's store operations, which are not significantly dependent on
technology, will not be significantly affected by the Year 2000 Issue, however,
the Company has identified external systems that are currently not Year 2000
compliant and has initiated communication with the vendors of such systems
regarding their plans to remedy the Year 2000 issues. Although the Company
believes these vendors will conform on a timely basis, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
converted in a timely manner and would not have an adverse effect on the
Company's systems. Because the Company's store operations are not heavily
dependent on technology, an inability to convert external or internal systems
timely would not have an adverse impact on store operations.
The Company expects the Year 2000 projects to be complete by early 1999 and does
not expect the costs to be material. The Company does not expect the projects to
have a significant effect on operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board, "FASB" issued Statement
No. 130, "Reporting Comprehensive Income." This Statement will become effective
for fiscal periods beginning after December 15, 1997 with early adoption
permitted. This Statement is expected to have no effect on the Company's results
of operations, financial position, capital resources, or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt its
requirements in connection with its annual reporting for the year ending June
30, 1999.
34
<PAGE>
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to record derivatives on the balance sheet as assets or
liabilities at fair value. It is effective for financial statements for fiscal
years beginning after June 15, 1999. The Company is evaluating the impact of
SFAS 133 on the Company's future earnings and financial position, but does not
expect it to be material.
35
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERALLY
In the operations of its subsidiaries and the reporting of its consolidated
financial results, the Company is affected by changes in interest rates and
currency exchange rates. The principal risks of loss arising from adverse
changes in market rates and prices to which the Company and its subsidiaries are
exposed relate to:
o interest rates on debt
o foreign exchange rates generating translation gains and losses
Changes in interest rates and/or exchange rates have not, and are not expected
to, materially impact the consolidated financial position, results of operations
or cash flows of the Company.
The Company and its subsidiaries have no market risk sensitive instruments
entered into for "trading purposes," as such term is defined by generally
accepted accounting principles. Information contained herein relates only to
instruments entered into for purposes other than trading.
INTEREST RATES
The Company's outstanding indebtedness, and related interest rate risk, is
managed centrally by the office of the Chief Financial Officer of the Company by
implementing the financing strategies approved by the Company's Board of
Directors. The Company's debt consists of fixed-rate senior notes, a revolving
credit facility, an overdraft credit facility and a subordinated promissory
note. The Company's revolving credit facility, overdraft credit facility and
subordinated promissory note carry a variable rate of interest. As most of the
Company's average outstanding indebtedness carries a fixed rate of interest, a
change in interest rates is not expected to materially impact the Company's
consolidated pre-tax earnings.
FOREIGN EXCHANGE RATES
The operation of the Company's subsidiary in Canada provides exposure to
volatile movements in the currency exchange rate of the Canadian dollar. The
Canadian operations constituted approximately 25% of the Company's fiscal year
1998 consolidated pre-tax earnings. As currency exchange rates change,
translation of the financial results of the Canadian operations into U.S.
dollars will be impacted. However, this impact has not historically been
material to the consolidated financial results of the Company, although such
changes do affect the year-to-year comparability of the operating results of the
international businesses.
The Company does not hedge translation risks because (1) cash flows from
international operations are generally reinvested locally and (2) the minimal
exposure to material volatility to reported earnings does not justify the cost.
The Company estimated that a 10% change in foreign exchange rates by itself
would impact reported pre-tax earnings from continuing operations by
approximately $267,000. Such impact represents nearly 10% of the pre-tax
earnings of the Canadian operations for fiscal year 1998 and (21)% of the
Company's consolidated pre-tax earnings for such year.
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
DFG Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Dollar Financial
Group, Inc. as of June 30, 1998 and 1997, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
three years in the period ended June 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dollar Financial
Group, Inc. at June 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 21, 1998
37
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------
1997 1998
-----------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 55,205 $ 55,501
Accounts receivable.................................................. 8,101 5,726
Prepaid expenses..................................................... 1,647 1,814
Deferred income taxes................................................ 805 1,070
Note receivable--officer............................................. 200 200
Property and equipment, net of accumulated
depreciation of $3,686 and $4,616................................ 7,934 7,820
Cost assigned to contracts acquired, net of accumulated
amortization of $235 and $461.................................... 457 231
Cost in excess of net assets acquired, net of accumulated
amortization of $4,754 and $6,559................................ 103,313 87,036
Covenants not to compete, net of accumulated
amortization of $418 and $917.................................... 1,558 786
Debt issuance costs, less accumulated
amortization of $306 and $885.................................... 5,370 4,856
Other................................................................ 1,398 810
-----------------------------------
$ 185,988 $ 165,850
===================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable..................................................... $ 12,837 $ 12,806
Income taxes payable................................................. 778 2,002
Advance from money transfer agent.................................... 3,000 3,000
Accrued expenses..................................................... 3,880 3,722
Accrued interest payable............................................. 1,942 2,191
Revolving credit facilities.......................................... 12,187 -
Long-term debt and subordinated notes payable........................ 2,804 2,675
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 June 30, 1997
and 1998...................................................... - -
Additional paid-in capital....................................... 40,941 40,941
Accumulated deficit.............................................. (2,078) (8,875)
Foreign currency translation..................................... (303) (2,612)
-----------------------------------
Total shareholder's equity........................................... 38,560 29,454
-----------------------------------
$ 185,988 $ 165,850
===================================
</TABLE>
See accompanying notes.
38
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1997 1998
----------------------------------------------------
<S> <C> <C> <C>
Revenues........................................... $ 42,430 $ 83,012 $ 111,185
Store and regional expenses:
Salaries and benefits.......................... 13,975 26,817 33,670
Occupancy 4,031 7,951 9,656
Depreciation................................... 893 1,446 2,018
Other.......................................... 11,709 20,452 24,002
----------------------------------------------------
Total store and regional expenses.................. 30,608 56,666 69,346
Corporate expenses................................. 5,360 8,175 12,462
Loss on store closings and sales................... 4,501 381 45
Other depreciation and amortization................ 1,858 3,905 4,776
Interest expense, net of interest income
in 1998 of $128................................ 3,385 10,007 12,945
Writedown of goodwill.............................. - - 12,870
----------------------------------------------------
Income (loss) before taxes and extraordinary item.. (3,282) 3,878 (1,259)
Income tax provision (benefit)..................... (1,214) 2,425 5,538
----------------------------------------------------
Income (loss) before extraordinary item............ (2,068) 1,453 (6,797)
Extraordinary loss on debt extinguishment
(net of income tax benefit of $1,042).......... - (2,023) -
----------------------------------------------------
Net loss........................................... $ (2,068) $ (570) $ (6,797)
====================================================
</TABLE>
See accompanying notes.
39
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED FOREIGN
COMMON STOCK ADDITIONAL EARNINGS CURRENCY TOTAL
------------------------- PAID-IN (ACCUMULATED) TRANSLATION SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995... 100 $ - $15,215 $ 560 $ - $15,775
Net loss for the year
ended June 30, 1996. (2,068) (2,068)
------------------------------------------------------------------------------------
Balance, June 30, 1996... 100 - 15,215 (1,508) - 13,707
Capital contribution
from parent......... 25,726 25,726
Translation adjustment
for the year ended
June 30, 1997....... (303) (303)
Net loss for the year
ended June 30, 1997. (570) (570)
------------------------------------------------------------------------------------
Balance, June 30, 1997... 100 - 40,941 (2,078) (303) 38,560
------------------------------------------------------------------------------------
Translation adjustment
for the year ended
June 30, 1998....... (2,309) (2,309)
Net loss for the year
ended June 30, 1998. (6,797) (6,797)
------------------------------------------------------------------------------------
Balance, June 30, 1998... 100 $ - $ 40,941 $ (8,875) $ (2,612) $ 29,454
====================================================================================
</TABLE>
See accompanying notes.
40
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1996 1997 1998
---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (2,068) $ (570) $ (6,797)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................................... 2,751 5,626 7,374
Loss on store closings and sales.................................. 4,501 381 45
Writedown of goodwill............................................. - - 12,870
Extraordinary loss on debt extinguishment, net of income
tax benefit.................................................... - 2,023 -
Deferred tax provision (benefit).................................. (1,282) 735 (265)
Change in assets and liabilities (net of effect of acquisitions):
Decrease (increase) in accounts receivable..................... (696) (1,717) 2,343
(Increase) decrease in prepaid expenses and other assets....... (661) 612 753
Increase in accounts payable, income taxes payable, ...........
accrued expenses and accrued interest payable............................ 1,124 2,229 1,680
---------------------------------------
Net cash provided by operating activities................................ 3,669 9,319 18,003
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired....................................... (7,269) (73,048) (1,870)
Gross proceeds from sales of property and equipment...................... - - 202
Additions to property and equipment...................................... (877) (2,626) (2,569)
---------------------------------------
Net cash used in investing activities.................................... (8,146) (75,674) (4,237)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt............................................... (3,336) (66,788) -
Proceeds from advance from money transfer agent.......................... - 3,000 -
Payments on subordinated notes payable................................... (342) (200) (129)
Net increase (decrease) in revolving credit facilities................... 1,530 4,449 (12,187)
Proceeds from long-term debt............................................. 9,182 145,000 -
Payments of debt issuance costs.......................................... - (7,993) (66)
Payments of financed insurance premiums.................................. - - (317)
Proceeds from equity contribution from parent............................ 210 21,652 -
---------------------------------------
Net cash provided by (used in) financing activities...................... 7,244 99,120 (12,699)
Effect of exchange rate changes on cash and cash equivalents............. - (105) (771)
---------------------------------------
Net increase in cash and cash equivalents................................ 2,767 32,660 296
Cash and cash equivalents at beginning of year........................... 19,778 22,545 55,205
---------------------------------------
Cash and cash equivalents at end of year................................. $ 22,545 $ 55,205 $ 55,501
=======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................................ $ 3,226 $ 8,383 $ 12,250
Income taxes paid........................................................ $ 21 $ 936 $ 4,314
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital contribution from parent in connection with
acquisition of Any Kind Check Cashing Centers, Inc................... $ - $ 2,000 $ -
Capital contribution from parent in connection with
acquisition of Cash-N-Dash Check Cashing, Inc........................ $ - $ 500 $ -
Capital contribution from parent in connection with
acquisition of National Money Mart, Inc.............................. $ - $ 520 $ -
Receivable for exercise of stock options................................. $ - $ 875 $ -
Tax benefit from exercise of stock options............................... $ - $ 179 $ -
</TABLE>
See accompanying notes.
41
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements are those of Dollar Financial
Group, Inc. (the "Company") and its wholly-owned subsidiaries. The Company is a
wholly-owned subsidiary of DFG Holdings, Inc. ("Holdings"). The activities of
Holdings consist solely of its investment in 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 416 locations
(of which 343 are Company-owned) operating as Money Mart, Any Kind Check Cashing
Centers(R), ABC Check Cashing(TM), Cash-N-Dash Check Cashing(TM), C&C Check
Cashing(TM), Check Mart(R), The Service Centers, Chex$Cashed(R), QwiCash(R),
Quikcash, Almost-A-Banc(R), Financial Exchange Company(R) and Loan Mart(TM) in
thirteen 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 the network of electronic government
benefits distribution in approximately 1,200 merchant locations throughout the
State of New York.
2. SIGNIFICANT ACCOUNTING POLICIES
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 accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassification
Certain prior-year amounts have been reclassified to conform to the current
presentation.
Property and Equipment
Office properties and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which vary from five to fifteen years.
Cash and Cash Equivalents
Cash includes cash in stores and demand deposits with financial institutions.
Cash equivalents are defined as short-term, highly liquid investments both
readily convertible to known amounts of cash and so near maturity that there is
insignificant risk of changes in value because of changes in interest rates.
42
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
The cost in excess of net assets acquired or goodwill is amortized using the
straight-line method over a useful life of thirty years. The carrying value of
goodwill is reviewed annually to determine whether the facts and circumstances
suggest that the value may be impaired. If this review indicates that the value
will not be recoverable, as determined based on undiscounted cash flows from
operations before interest, the carrying value will be reduced to an amount
determined on the basis of such undiscounted cash flows. The cost assigned to
acquired individual contracts with various governmental agencies is being
amortized over the remaining contractual lives of the individual contracts which
expire on various dates through June 30, 2001.
Debt Issuance Costs
Debt issuance costs are amortized using the straight-line method over the
remaining term of the related debt (see Note 7).
Store and Regional Expenses
The direct costs incurred in operating the Company's stores and providing
services under the Company's merchant services contracts have been classified as
store expenses. Store expenses include salaries and benefits of store and
regional employees, rent and other occupancy costs, depreciation of property and
equipment, bank charges, armored security costs, net returned checks, cash and
food stamp shortages, and other costs incurred by the stores. Excluded from
store operations are the corporate expenses of the Company which include
salaries and benefits of corporate employees, professional fees, and travel
costs.
Returned Checks
The Company charges operations for losses on returned checks in the period such
checks are returned, since ultimate collection of these items is uncertain.
Recoveries on returned checks are credited in the period when the recovery is
received. The net expense for bad checks included in other store expenses in the
accompanying consolidated statements of operations was $1,165,000, $3,207,000,
and $3,915,000 for the years ended June 30, 1996, 1997, and 1998, respectively.
Income Taxes
The Company uses the liability method to account for income taxes. Accordingly,
deferred income taxes have been determined by applying current tax rates to
temporary differences between the amount of assets and liabilities determined
for income tax and financial reporting purposes.
The Company and its subsidiaries file a consolidated federal income tax return
with Holdings.
43
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employees' Retirement Plan
Retirement benefits are provided to substantially all full-time employees who
have completed 1,000 hours of service through a defined contribution retirement
plan. The Company will match 50% of each employee's contribution, up to 4% of
the employee's annual salary. In addition, a discretionary contribution may be
made if the Company meets its financial objectives. The amount of contributions
charged to expense was $129,000, $246,000, and $368,000, for the years ended
June 30, 1996, 1997, and 1998, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs charged to
expense were $705,000, $1,278,000, and $2,078,000, for the years ended June 30,
1996, 1997, and 1998, respectively.
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of this
standard in 1997 did not have a material impact on the Company's financial
statements.
Fair Value of Financial Instruments
The carrying values of subordinated notes payable and the revolving credit
facility approximate fair values, as these obligations carry a variable interest
rate. The fair value of the Company's Senior Notes is based on quoted market
prices (see Note 7).
Foreign Currency Translation and Transactions
National Money Mart Company ("Money Mart"), the Company's Canadian subsidiary,
operates check cashing and financial services outlets in Canada. The financial
statements of this foreign subsidiary have been translated into U.S. dollars in
accordance with generally accepted accounting principles. All balance sheet
accounts are translated at the current exchange rate and income statement items
are translated at the average exchange rate for the period; resulting
translation adjustments are made directly to a separate component of
shareholder's equity. Gains or losses resulting from foreign currency
transactions are included in results of operations and have been insignificant.
44
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Franchise Fees and Royalties
The Company recognizes initial franchise fees upon fulfillment of all
significant obligations to the franchisee. Royalties from franchisees are
accrued as earned. At June 30, 1998 and 1997, 70 and 67 Money Mart stores were
operated by a total of 14 and 16 different franchisees, respectively. The
standard franchise agreements grant to the franchisee the right to develop and
operate a store and use the associated trade names, trademarks, and service
marks within the standards and guidelines established by the Company. Initial
franchise fees included in revenues were approximately $177,000 for the year
ended June 30, 1998 and $42,000 for the year ended June 30, 1997.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income." This Statement will become effective
for fiscal periods beginning after December 15, 1997 with early adoption
permitted. This Statement is expected to have no effect on the Company's results
of operations, financial position, capital resources, or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt its
requirements in connection with its annual reporting for the year ending June
30, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative and Hedging Activities" ("SFAS 133"). SFAS 133
requires companies to record derivatives on the balance sheet as assets or
liabilities at fair value. It is effective for financial statements for fiscal
years beginning after June 15, 1999. The Company is evaluating the impact of
SFAS 133 on the Company's future earnings and financial position, but does not
expect it to be material.
45
<PAGE>
3. DFG HOLDINGS, INC.
As discussed in Note 1, the Company is a wholly-owned subsidiary of DFG
Holdings, Inc. ("Holdings"). The activities of Holdings consist solely of its
investment in the Company, and there are no significant differences between the
consolidated results of operations of Holdings and those of the Company.
The components of Holdings' shareholders' equity are as follows:
Common Stock
Holdings issued 15,000 shares for $1,010.67 per share on June 30, 1994. Of the
20,000 shares authorized, 15,054 shares were issued and outstanding at June 30,
1996. In connection with the August 1996 acquisitions of Any Kind Check Cashing
Centers, Inc. and ABC Check Cashing (discussed in Note 4), Holdings increased
the number of authorized shares to 50,000 and issued 13,750 additional shares of
common stock, resulting in gross proceeds of $22.0 million which were
contributed to the Company.
Dividends
Under the terms of the Company's New Revolving Credit Facility discussed in Note
7, the Company is not permitted to declare, pay, or make any cash dividends to
Holdings.
Stock Options
Holdings has granted nonqualified common stock options (the "options") to
certain executives to acquire up to 3,500 shares of common stock at a price of
$1,000 per share, the estimated fair market value of the common stock at date of
grant, of which 2,625 shares under option were outstanding at June 30, 1998. The
options have a term of ten years from the date of issuance (June 30, 1994), and
vest in equal monthly increments over three years. The options will terminate if
the employee terminates employment unless the vested options are exercised
within 60 days following the date on which termination occurs. All shares
issuable upon the exercise of the options are subject to the shareholders
agreement discussed below. On June 30, 1997, upon resignation, an executive
exercised options to purchase 875 shares of Holdings' common stock. The exercise
of the options, along with the related tax benefit to Holdings, resulted in a
capital contribution of $1,053,500 from Holdings to the Company.
In addition to the options noted above, these executives were granted additional
options on June 30, 1994 (the "additional options") to acquire up to 1,500
shares of the common stock of Holdings of which 1,125 shares under option were
outstanding at June 30, 1998. The initial exercise price of these additional
options was $1,000 per share, with the exercise price increasing by 40% over the
exercise price for the prior year applicable on each anniversary date. From and
after the fifth anniversary date (June 30, 1999), the exercise price will be
$5,000 per share. These additional options have a term of ten years provided
that Holdings does not have a change of control or an initial public offering of
its common stock. The additional options are fully vested but are exercisable
only in the event of a change in control or an initial public offering of its
shares of common stock. The shares subject to the additional options are not
subject to the shareholders agreement described below. A shareholders agreement
exists which provides for the mandatory repurchase at fair value of all shares
owned by certain members of executive management in the event of death or
termination of the executive. Upon resignation of an executive and pursuant to a
Termination Agreement (the "Termination Agreement") with an executive dated June
30, 1997, additional options to acquire 375 shares of the common stock of
Holdings were canceled.
46
<PAGE>
3. DFG HOLDINGS, INC. (CONTINUED)
In connection with the issuance of 13,750 shares of Holdings' common stock in
August 1996, the number of shares under option was increased by 2,100 shares
under option of which 1,725 shares under option were outstanding at June 30,
1998, with an exercise price of $1,600 per share, the estimated fair market
value of the common stock at date of grant (the "Supplemental Options"). The
shareholders agreement was revised to give effect to the transactions discussed
herein. Upon resignation of an executive and pursuant to the Termination
Agreement, 375 of the Supplemental Options were canceled. The supplemental
options are exercisable only in the event that, at the time of exercise, the
majority shareholder has realized an internal rate of return of 35% or more on
its equity investment in Holdings made in August 1996.
On April 2, 1997, Holdings adopted the DFG Holdings, Inc. Stock Incentive Plan
(the "Plan") whereby 500 shares of Holdings' common stock may be awarded to
employees or consultants of the Company. The Board of Directors of Holdings
subsequently approved an increase of 1000 shares to the number of shares of
Holdings' common stock that may be awarded. The awards, at the discretion of
Holdings' Board of Directors, may be issued as nonqualified stock options or
incentive stock options. Stock appreciation rights ("SAR") may also be granted
in tandem with the nonqualified stock options or the incentive stock options.
Exercise of the SARs cancels the option for an equal number of shares and
exercise of the nonqualified stock options or incentive stock options cancels
the SARs for an equal number of shares. The number of shares issued under the
Plan shall be subject to adjustment as specified in the Plan provisions. No
options may be granted after April 1, 2007. During the year ended June 30, 1997,
300 nonqualified stock options were granted under the Plan at an exercise price
of $1,600 per share, the estimated fair market value of the common stock at date
of grant. The options are exercisable in 33% increments annually on the first,
second, and third anniversary of the grant date and have a term of ten years
from the date of issuance. During the year ended June 30, 1998, 200 nonqualified
stock options were granted under the Plan at an exercise price of $1,900 per
share and 100 nonqualified stock options were granted under the Plan at an
exercise price of $1,600 per share, the estimated fair market value of the
common stock at the dates of grant. The options are exercisable in 33%
increments annually on the first, second, and third anniversary of the grant
date and have a term of ten years from the date of issuance. No options under
the Plan were exercised during fiscal 1997 or during fiscal 1998.
In July 1997, Holdings granted nonqualified options to an executive to purchase
200 shares of Holdings' common stock at an exercise price of $1,600 per share,
the estimated fair market value of the common stock at date of grant. The
options have a term of ten years and vest in equal monthly increments over four
years beginning in August 1997. All options become immediately vested upon
termination of the executive's employment without cause, change of control of
Holdings, sale by Holdings of substantially all of the assets or stock of
Holdings or death or disability of the executive. None of these options were
exercised during fiscal 1998.
Holdings has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the estimated market price of the underlying stock on the date of grant,
no compensation expense is recognized.
47
<PAGE>
Pro forma information regarding net income and earnings per share is required by
Statement 123, however, the effect of applying Statement 123 to Holdings'
stock-based awards results in net income that is not materially different from
amounts reported.
4. ACQUISITIONS
During 1996, 1997, and 1998, 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 estimated fair values.
In September 1995, the Company purchased all of the outstanding stock and
certain assets of several entities which operate 19 check cashing retail sites
located in California, Arizona, Ohio, and Wisconsin and operate under the name
"Chex$Cashed." Total consideration for this purchase was $7.4 million and was
funded from the Company's acquisition loan facility. The excess of the purchase
price over the fair value of identifiable net assets acquired was $6.7 million.
In May 1996, the Company acquired the assets of eleven check cashing kiosk
operations in Texas. The purchase price of approximately $456,000 was allocated
to the fair value of identifiable net assets acquired.
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. A value of $2.0 million was assigned to 1,250 shares of
Holdings' common stock which were issued, based on the price per share of
Holdings' common stock which was sold to other investors in connection with the
acquisition of Any Kind, plus initial working capital of approximately $6.0
million. Any Kind operates 63 check cashing stores in seven states and the
District of Columbia. The excess of the purchase price over the fair value of
identifiable net assets acquired was $30.7 million.
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 plus
initial working capital of approximately $1.5 million. ABC operates 15 check
cashing stores in Cleveland, Ohio. The excess of the purchase price over the
fair value of identifiable net assets acquired was $5.4 million.
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) 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. The excess of the purchase price over the fair value of identifiable net
assets acquired was $16.7 million.
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 operates 32 check cashing stores in northern
California under the "Cash-N-Dash" name. Any amounts paid under the
revenue-based earn-out contingency will be recorded as additional consideration
of the acquisition when the contingency is solved. The excess of the purchase
price over the fair value of identifiable net assets acquired was $5.5 million.
48
<PAGE>
4. ACQUISITIONS (CONTINUED)
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, plus initial working capital of approximately $500,000. C&C
operates 22 check cashing stores in northern California under the "C&C Check
Cashing" name. Any amounts paid under the revenue-based earn-out contingency
will be recorded as additional consideration of the acquisition when the
contingency is solved. The excess of the purchase price over the fair value of
identifiable net assets acquired was $2.7 million.
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, plus initial
working capital of approximately $1.8 million. The excess of the purchase price
over the fair value of identifiable net assets acquired was $13.3 million.
In February 1998, the Company acquired all of the outstanding stock of a company
which operated 5 Money Mart franchises in Vancouver, British Columbia. Total
consideration for the purchase was $1.0 million, plus initial working capital of
approximately $200,000. The excess of the purchase price over the fair value of
identifiable net assets acquired was $900,000.
The acquisitions of Any Kind and ABC were financed through bank borrowings of
$35.0 million under a credit facility then existing, the issuance by Holdings of
$2.0 million of common stock to the seller of Any Kind, and the sale of $22.0
million of Holdings' common stock to affiliates of Weiss, Peck & Greer, L.L.C.,
Pegasus Partners, L.P. and a Pegasus affiliate, and General Electric Capital
Corporation ("GECC"). Concurrently, with the acquisitions of Any Kind and ABC,
the Company increased and amended its Existing Credit Facility. The cash portion
of the purchase price of the Money Mart, Cash-N-Dash, C&C, and Canadian Capital
acquisitions was financed from the net proceeds of the offering of 10-7/8%
Senior Notes due 2006 (the "Offering," see Note 7). The bank borrowings entered
into in connection with the Any Kind and ABC acquisitions were repaid with the
net proceeds of the Offering.
The following unaudited pro forma information for the years ended June 30, 1996
and June 30, 1997 presents the results of operations as if the acquisitions of
"Chex$Cashed", "Any Kind," "ABC," "Money Mart," "Cash-N-Dash," "C&C," and
"Canadian Capital" had occurred on July 1, 1995. 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.
49
<PAGE>
YEAR ENDED JUNE 30,
(UNAUDITED)
-----------------------------------
1996 1997
-----------------------------------
(dollars in thousands)
Total revenue.............................. $ 101,936 $ 103,005
Income (loss) before extraordinary item.... $ (1,142) $ 3,349
Net income (loss).......................... $ (1,142) $ 1,326
The pro forma results of operations do not give effect to the acquisition of the
check cashing kiosks in Texas, or the five stores acquired in Vancouver, Canada
in February 1998, since the pro forma results would not be materially different.
5. WRITEDOWN OF GOODWILL
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. In accordance with SFAS 121, the Company reviews
for impairment of long-lived assets and related goodwill whenever events or
changes in circumstances occur which indicate that the carrying amount of an
asset may not be recoverable.
If an event or change in circumstance is present or an event or change in
circumstance indicates that the carrying amount of an asset that the Company
expects to hold and use may not be recoverable, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset, the Company recognizes an impairment loss
for the difference between the carrying amount of the asset and the estimated
fair value of the asset. The Company determines the estimated fair value of the
asset by discounting the estimated future cash flows using a discount rate
commensurate with the risks involved in the use of such asset. In estimating
future cash flows, the Company groups assets at the lowest level for which there
are identifiable cash flows. The Company groups assets between its two primary
lines of business that generate independent cash flows: check cashing and
government services.
During the fourth quarter of fiscal year 1998, the Commonwealth of Pennsylvania
informed the Company that all of the Commonwealth's government services
contracts would be terminated at June 30, 1998 as a result of the successful
implementation of an Electronic Benefit Transfer (EBT) system in Pennsylvania.
Additionally, during the fourth quarter of fiscal year 1998, the State of New
York presented the Company with an EBT implementation plan, which contemplates
the successful implementation of EBT within the State of New York by May 2000.
This implementation plan does not include the Company providing additional
services after May 2000. Also, during the fourth quarter of fiscal year 1998,
management of the Company concluded that the Company would not have the
opportunity to provide similar government services for the newly-installed EBT
systems in either Pennsylvania or New York. Upon the occurrence of these events,
the Company determined that an impairment indicator was present. Accordingly,
the Company estimated future cash flows for the remaining government services
business and compared the undiscounted cash flows to the carrying amount of
assets and related goodwill separately identifiable with the government services
line of business. This analysis indicated that the goodwill related to the
government services business was impaired. As a result, the Company measured the
50
<PAGE>
amount of impairment to be recorded by comparing the fair value of the assets
and related goodwill to the carrying value of the assets and related goodwill.
This analysis indicated that the fair value of the assets and related goodwill
was less than the carrying value by $12.9 million. Therefore, the Company has
written down the carrying value of the related goodwill by a charge to income of
$12.9 million. This charge relates to goodwill as the fixed assets associated
with the government services line of business have been fully depreciated. The
remaining unamortized goodwill of approximately $3.0 million related to the
government services business will be amortized over the estimated remaining life
of the future undiscounted cash flows associated with the government services
business which is May 2000 for substantially all of the remaining goodwill.
51
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1998 consist of (in thousands):
JUNE 30,
-------------------------------
1997 1998
-------------------------------
Land..................................... $ 55 $ 55
Buildings................................ 111 111
Leasehold improvements................... 4,792 4,995
Equipment and furniture.................. 6,662 7,275
-------------------------------
11,620 12,436
Less accumulated depreciation............ 3,686 4,616
-------------------------------
Total property and equipment............. $ 7,934 $ 7,820
===============================
52
<PAGE>
7. SENIOR NOTES, REVOLVING CREDIT, LONG-TERM DEBT, AND SUBORDINATED NOTES
PAYABLE
The Company has debt obligations at June 30, 1997 and 1998 as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1997 1998
----------------------------
<S> <C> <C>
Revolving credit facility; interest at prime, as
defined, plus 0.50% at June 30, 1997, amended
to one-day Eurodollar, as defined, plus 2.00%
at June 30, 1998 (9.00% and 8.375% at June 30,
1997 and 1998) of the outstanding daily balances
payable quarterly; principal due in full on
December 31, 2000; weighted average interest
rate of 9.26% and 8.60% for the years ended June
30, 1997 and 1998, respectively........................ $ 11,733 $ -
Overdraft credit facility; interest at Canadian
prime, as defined, plus 0.50% (5.25% and 7.00%
at June 30, 1997 and 1998) of the outstanding
daily balances payable monthly; weighted average
interest rate of 5.25% and 6.30% for the years
ended June 30, 1997 and 1998........................... 454 -
10-7/8% Senior notes due November 15, 2006; interest
payable semiannually on May 15 and November 15,
commencing May 15, 1997................................ 110,000 110,000
Subordinated promissory note payable; interest at
bank's Reference Rate, as defined, plus 1% (9.50%
at June 30, 1997) payable quarterly; principal
repayments of $60,000 made quarterly until
September 30, 1997; weighted average interest rate
of 9.28% and 9.50% for the years ended June 30,
1997 and 1998, respectively............................ $ 120 $ -
Subordinated promissory note payable; interest at bank's
Reference Rate, as defined, plus 1% (9.50% at June 30,
1997 and 1998) subject to a ceiling of 10.50% and a
floor of 8.50% payable monthly; principal repayments
of $8,333 per month through February 1996; $83,333
per month through February 1997, and $66,667 per month
from March 1997 through February 1999; weighted average
interest rate of 9.25% and 9.50% for the years ended
June 30, 1997 and 1998, respectively................... 2,642 2,642
Other..................................................... 42 33
----------------------------
$ 124,991 $112,675
============================
</TABLE>
53
<PAGE>
7. REVOLVING CREDIT, LONG-TERM DEBT, AND SUBORDINATED NOTES PAYABLE (CONTINUED)
In November 1996, the Company implemented a financing plan which included the
issuance of $110.0 million of 10-7/8% senior notes due 2006 in a private
placement. The Company has exchanged substantially all of the senior notes for
$110.0 million 10-7/8% Series A senior notes due 2006 (collectively referred to
as the "Senior Notes"), which were registered under the Securities Act of 1933,
as amended. The payment obligations under the Senior Notes are jointly and
severally guaranteed, on a full and unconditional basis, by each of the
Company's existing subsidiaries (the "Guarantors"). The Company is a holding
company with no assets, independent operations, or cash flows other than its
investments in subsidiaries. There are no restrictions on the Company's and the
guarantor subsidiaries' ability to obtain funds from their subsidiaries by
dividend or by loan. Separate financial statements of each guarantor subsidiary
have not been presented because management has determined that they would not be
material to investors.
Subject to restrictions under the Second Amended and Restated Credit Agreement
discussed below, the Senior Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after November 15, 2001, at the following
redemption prices (plus accrued and unpaid interest thereon, if any, to the date
of redemption): during the twelve-month period beginning November 2001 -
105.438%; 2002 - 103.625%; 2003 - 101.813%; and 2004 - 100.000%. In addition,
prior to November 15, 1999, the Company may on any one or more occasions redeem
up to 30% of the originally issued principal amount of Senior Notes at a
redemption price equal to 110-7/8% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption, with the net
proceeds of any initial public offering of common stock of the Company or of
Holdings (to the extent that the proceeds thereof are contributed to the Company
as common equity), provided that at least 70% of the originally issued principal
amount of Senior Notes remains outstanding immediately after the occurrence of
such redemption. Upon the occurrence of a change of control, as defined, each
holder of Notes will have the right to require the Company to repurchase all or
any part of such holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of purchase.
In connection with the offering of the Senior Notes, the Company also amended
and restated its Credit Agreement (the "Second Amended and Restated Credit
Agreement") which, among other things, established a new revolving credit
facility of $25.0 million (the "New Revolving Credit Facility"). The proceeds of
the Senior Notes were used to repay all of the Company's existing Indebtedness
under its First Amended and Restated Credit Agreement and to fund the November
1996 acquisitions of Money Mart, Cash-N-Dash, and C&C, and the April 1997
acquisition of Canadian Capital. The repayment of substantially all of the
Company's existing indebtedness resulted in an extraordinary loss, net of taxes,
of approximately $2.0 million during the year ended June 30, 1997. The loss
resulted from the write-off of the deferred financing costs associated with the
Company's former credit agreement.
The New Revolving Credit Facility will mature on December 31, 2000 and provides
for an aggregate commitment of up to $25.0 million with a commitment of an
additional $10.0 million for the period January 1, 1998 to June 30, 1998. All
borrowings under this facility are subject to a borrowing base limitation based
on the aggregate of certain percentages of the cash and checks held by the
Company's stores, or for their account, and eligible government receivables. The
facility has a commitment fee of 3/8 of 1% on the unused portion of the
commitment.
54
<PAGE>
7. REVOLVING CREDIT, LONG-TERM DEBT, AND SUBORDINATED NOTES PAYABLE (CONTINUED)
Amounts outstanding under the New Revolving Credit Facility bear interest at
either (i) the higher of (a) the federal funds rate plus 0.50% per annum and (b)
the rate publicly announced by Bank of America NT&SA, as its "reference rate,"
(ii) the Eurodollar Rate (as defined therein) plus 1.75%, or (iii) the one day
Eurodollar Rate (as defined therein) plus 2.00%, determined at the Company's
option. Amounts outstanding under the New Revolving Credit Facility are secured
by a first priority lien on substantially all properties and assets of the
Company and its current and future subsidiaries. The Company's obligations under
the New Revolving Credit Facility are guaranteed by Holdings and each of the
Company's direct and indirect subsidiaries.
The Senior Notes and the New Revolving Credit Facility contain certain financial
and other restrictive covenants, which, among other things, require the Company
to maintain minimum amounts of net worth, achieve certain financial ratios,
limit capital expenditures, restrict payment of dividends, and require certain
approvals in the event the Company wants to increase the borrowings. As a
result of the write down of goodwill, at June 30, 1998, the Company did not meet
the net worth covenant in the new Revolving Credit Facility. This condition was
waived through December 31, 1998. In the event the Company fails to meet the
net worth covenant at March 31, 1999 (the date of the next covenant calculation
following December 31, 1998) the Company would seek to obtain a waiver through
June 30, 1999 and obtain an amendment to the new Revolving Credit Facility
agreement, so that the Company would meet the net worth covenant prospectively.
Should the Company not obtain a waiver or an amendment following a violation at
March 31, 1999, the Company would seek to obtain a credit facility from other
lenders. Finally if these two remedies were not available, the Company
believes that cash flow from operations would provide sufficient short-term
liquidity for the Company's operations and pay down amounts outstanding, if any,
under the New Revolving Credit Facility.
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 operations. The overdraft credit facility provides for a commitment
of up to $4.8 million. Amounts outstanding under the facility bear interest at
Canadian prime plus 0.50% and are secured by the pledge of a cash collateral
account of an equivalent balance.
The fair market value of the Senior Notes at June 30, 1998 and June 30, 1997 was
approximately $118,800,000 and $117,700,000, respectively, based on quoted
market prices.
Interest of $3,226,000, $8,383,000, and $12,250,000 was paid for the years ended
June 30, 1996, 1997 and 1998, respectively.
55
<PAGE>
8. INCOME TAXES
The provision for income taxes for the years ended June 30, 1996, 1997, and 1998
consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1996 1997 1998
-----------------------------------------------------
<S> <C> <C> <C>
Federal:
Current......................... $ - $ 801 $ 2,989
Deferred........................ (1,181) 757 32
-----------------------------------------------------
(1,181) 1,558 3,021
Foreign taxes:
Current......................... - 808 2,172
Deferred........................ - 9 14
-----------------------------------------------------
- 817 2,186
State:
Current......................... 68 81 306
Deferred........................ (101) (31) 25
-----------------------------------------------------
(33) 50 331
-----------------------------------------------------
$ (1,214) $ 2,425 $ 5,538
=====================================================
</TABLE>
The significant components of the Company's deferred tax assets and liabilities
at June 30, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------
1997 1998
-----------------------------------
<S> <C> <C>
Deferred tax assets:
Depreciation........................................ $390 $443
Accrued compensation................................ 120 105
Reserve for store closings.......................... 70 199
Foreign Tax Credit.................................. - 230
Other............................................... 225 93
-----------------------------------
805 1,070
Deferred tax liabilities:
Amortization and other temporary differences........ 368 532
-----------------------------------
Net deferred tax asset................................. $ 437 $ 538
===================================
</TABLE>
56
<PAGE>
8. INCOME TAXES (CONTINUED)
The Company did not record any valuation allowances against deferred tax assets
at June 30, 1997 or 1998. Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management has determined, based on the Company's
history of earnings and its expectation for the future, that taxable income of
the Company will more likely than not be sufficient to fully utilize its
deferred income tax assets. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
A reconciliation of the (benefit) provision for income taxes with amounts
determined by applying the federal statutory tax rate to income (loss) before
income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1997 1998
-------------------------------------------
<S> <C> <C> <C>
Tax (benefit) provision at federal statutory rate..... $ (1,116) $ 1,319 $ (441)
Add (deduct):
State tax (benefit) provision, net of federal tax
(provision) benefit............................ (22) 33 147
Foreign taxes..................................... - 159 552
Writedown of goodwill............................. - - 4,505
Amortization of nondeductible intangible assets... 350 737 826
Change in valuation allowance..................... (456) - -
Other permanent differences....................... 30 177 (51)
-------------------------------------------
Tax (benefit) provision at effective tax rate......... $ (1,214) $ 2,425 $ 5,538
===========================================
</TABLE>
Foreign, federal, and state income taxes of approximately $21,000, $936,000, and
$4,314,000, were paid during the years ended June 30, 1996, 1997, and 1998,
respectively.
57
<PAGE>
9. COMMITMENTS
The Company occupies office and retail space and uses certain equipment under
operating lease agreements. Rent expense amounted to $2,935,000, $6,239,000, and
$7,837,000, for the years ended June 30, 1996, 1997, and 1998, respectively.
Most leases contain standard renewal clauses.
Minimum obligations under noncancelable operating leases for the year ended June
30 are as follows (in thousands):
YEAR AMOUNT
----------------
1999............................. $ 7,351
2000............................. 5,939
2001............................. 3,993
2002............................. 2,427
2003............................. 1,111
Thereafter....................... 39
----------------
$ 20,860
================
The Company has entered into employment agreements with certain key employees
which have terms of three and four years and call for aggregate minimum annual
base salaries. The agreements also provide for annual incentive cash bonuses
which are primarily based on revenues and earnings from operations.
The Company, through its agency agreement with its money transfer vendor, has
received an advance of $3.0 million against future commissions. This advance is
included in Advance from Money Transfer Agent in the accompanying consolidated
balance sheet as of June 30, 1998 and June 30, 1997. Repayment of the advance is
to begin on January 1, 1999 with the full advance to be paid on or before
January 31, 2001.
10. CONTINGENT LIABILITIES
In the ordinary course of business, the Company is involved in certain
litigation. In the opinion of management, the ultimate resolution of such
litigation will not have a material effect on the financial condition of the
Company.
11. CONTRACTUAL AGREEMENTS
The Company has contracts with various governmental agencies for benefits
distribution and retail merchant services which contributed 38%, 19%, and 13% of
consolidated gross revenues for the years ended June 30, 1996, 1997, and 1998,
respectively. The Company's contracts with the Commonwealth of Pennsylvania,
which are included in this amount, contributed 18%, 9%, and 6% of the revenues
for the years ended June 30, 1996, 1997, and 1998, respectively. The
Commonwealth of Pennsylvania initiated the implementation of an electronic
benefit transfer system in January 1998 which was fully implemented during
fiscal 1998. As a result, all of the Company's contracts with the Commonwealth
of Pennsylvania were terminated during fiscal 1998. The Company's contract with
the State of New York contributed 11%, 5%, and 4% of revenues for the years
ended June 30, 1996, 1997, and 1998, respectively. Accounts receivable at June
30, 1997 and 1998 include $3,732,000 and $2,074,000, respectively, of amounts
due from various governmental agencies. The Company does not require any
collateral on these receivables nor are these agencies considered a credit risk.
The Company's contracts for governmental benefits distribution and merchant
58
<PAGE>
services distribution with state and local governments generally have initial
terms of five years and currently expire on various dates through June 30, 2001.
The contracts provide the governmental agencies the opportunity to extend the
contract for additional periods and contain clauses which allow the governmental
agencies to cancel the contract at any time, subject to 30 to 60 days' written
advance notice.
12. CREDIT RISK
At June 30, 1997 and 1998, the Company had twenty bank accounts, in major
financial institutions in the aggregate amount of $15,011,000 and $16,625,000,
respectively, which exceeded Federal Deposit Insurance Corporation limits. The
Canadian Federal Banking system provides depositors with similar insurance
through the Canadian Deposit Insurance Corporation, "CDIC". At June 30, 1997 and
1998, the Company's Canadian subsidiary had eighteen and twenty-two bank
accounts, respectively, totaling $5,629,000 and $7,123,000, respectively, which
exceeded CDIC limits. These financial institutions have strong credit ratings
and management believes credit risk relating to these deposits is minimal.
The Company acts as agent for a national bank in administering a consumer loan
program through certain of the Company's store locations. The loans offered
under this program have a two-week maturity and are generally referred to as
"payday" loans. Under this program, the Company earns origination and servicing
fees. The national bank originated or extended approximately $13.4 and $57.0
million of loans through the Company's locations during the fiscal years ended
June 30, 1997 and 1998, respectively. Prior to July 1, 1998, the Company
indemnified the bank for certain excess credit losses, and the Company's
origination and servicing revenues were reduced by approximately $250,000 (1.9%
of originations and extensions by the bank) and $500,000 (0.9% of originations
and extensions by the bank) in 1998 and 1997, respectively, for such excess
losses. The net amount of outstanding consumer loans with respect to which the
bank had recourse to the company, which is not included in the accompanying
consolidated balance sheet, was approximately $3.5 million and $1.2 million at
June 30, 1998 and 1997, respectively. Effective July 1, 1998, the bank's
recourse to the Company for excess credit losses was eliminated.
13. LOSS ON STORE CLOSINGS AND SALES
In December 1995, the Company decided to sell or close 19 store locations
purchased in February 1995. The decision resulted in a pretax charge of
approximately $4,400,000, which includes $3,300,000 for the write-off of the
goodwill associated with the original acquisition of these stores, $600,000 for
the write-off of store fixtures and equipment, $350,000 for the early
termination of store leases, and $150,000 for the accrual for other costs
related to closing these locations. As of June 30, 1997 and 1998, accrued
expenses include approximately $107,000, and $23,000, respectively, related to
future costs associated with these store locations. Included in the accompanying
consolidated statements of income for the year ended June 30, 1996, are revenues
of $1,470,000, store expenses of $2,352,000, and amortization expense of
$56,000, related to these stores. The Company is seeking to restructure its
obligations under the original subordinated note issued to the seller as part of
the acquisition, and has ceased making principal and interest payments. As a
result, the seller has filed a complaint against the Company alleging, among
other things, breach of contract, and is seeking payment of the balance of the
note of $2,642,000, plus accrued interest, punitive damages, and legal fees. As
the outcome of this matter cannot be determined at present, no reduction in the
note payable to the seller or any additional costs to the Company have been
recorded.
59
<PAGE>
13. LOSS ON STORE CLOSINGS AND SALES (CONTINUED)
During fiscal year ended June 30, 1998, the Company decided to sell all of its
stores in Michigan and sell or close 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. The Company also closed five kiosks in Texas due to contractual
requirements with the Southland Corporation. Included in the accompanying
consolidated statements of operations for the years ended June 30, 1996, 1997,
and 1998, are revenues of $2,951,000, $3,196,000, and $733,000, respectively,
and store expenses of $2,652,000, $2,972,000, and $710,000, respectively,
related to these stores. The gain related to the sale and closure of these
stores was not material.
14. GEOGRAPHIC SEGMENT INFORMATION
All operations for which geographic data is presented below are in one principal
industry (check cashing and ancillary services) (in thousands).
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers from:
United States...................... $ 42,430 $ 74,114 $ 86,304
Canadian operations................ - 8,898 24,881
-----------------------------------------------------
$ 42,430 $ 83,012 $ 111,185
=====================================================
Income (loss) before taxes and
extraordinary item:
United States................... $ (3,282) $ 3,001 $ (3,925)
Canadian operations............. - 877 2,666
-----------------------------------------------------
$ (3,282) $ 3,878 $ (1,259)
=====================================================
Identifiable assets:
United States...................... $ 67,444 $ 142,318 $ 120,100
Canadian operations................ - 43,670 45,750
-----------------------------------------------------
$ 67,444 $ 185,988 $ 165,850
=====================================================
</TABLE>
60
<PAGE>
15. RELATED PARTY TRANSACTIONS
Under the terms of an employment contract, an officer received a loan in the
amount of $200,000. Interest accrues on the unpaid balance at a fixed rate of
9.25%. The advance was payable on the first occurrence of (i) June 30, 1997,
(ii) 90 days following the voluntary resignation of the officer or the
termination of the officer's employment for cause, or (iii) one year following
the termination of the employment relationship between the officer and the
Company for any other reason. On June 30, 1997, the note was extended and the
extension provides for repayment upon the occurrence of the earlier of a change
in control of Holdings or the termination of the officer's employment for any
reason.
The Company leases administrative and retail office space at seven locations
from shareholders of Holdings. The amounts paid under these lease agreements
were $216,000 and $159,000 for the years ended June 30, 1998 and 1997,
respectively.
Included in other assets in the accompanying consolidated balance sheet at June
30, 1997 were capitalized expenditures of approximately $550,000, and during
fiscal 1998 an additional $363,000 was incurred on behalf of certain existing
shareholders of Holdings related to the initial activities of a company expected
to be formed ("NEWCO") by these certain Holdings' shareholders. Pursuant to a
Memorandum of Understanding between the Company and these certain Holdings'
shareholders, these expenditures would have been converted into shares of common
stock of NEWCO on a basis pari passu with the investment by NEWCO's equity
investors, which were to include these certain shareholders. During fiscal 1998,
it was determined that NEWCO would not be formed and the Company recognized
$913,000 in expense in the accompanying consolidated statement of operations for
the year ended June 30, 1998. Such expense is included in corporate expenses in
the accompanying consolidated statement of operations.
16. SUBSIDIARY GUARANTOR CONDENSED FINANCIAL INFORMATION
As discussed in Note 7, 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 "Guarantors"). 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 New Revolving Credit Facility and any successor credit
facility. Pursuant to the indenture or 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 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 June 30, 1998, and the consolidating
statements of operations and cash flows for the fiscal year ended June 30, 1998
of the Company (on a parent-company basis), combined domestic Guarantors,
Canadian subsidiary, and the consolidated Company.
61
<PAGE>
16. SUBSIDIARY GUARANTOR CONDENSED FINANCIAL INFORMATION (CONTINUED)
Consolidating Balance Sheet
June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
DOLLAR DOMESTIC CANADIAN
FINANCIAL SUBSIDIARY SUBSIDIARY
GROUP, INC. GUARANTORS GUARANTOR ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ 1,933 $ 39,695 $ 13,873 $ 0 $ 55,501
Accounts receivable............. 3,394 4,086 1,251 (3,005) 5,726
Prepaid expenses................ 379 1,047 388 0 1,814
Deferred income taxes........... 1,008 62 0 0 1,070
Note receivable--Officer......... 200 0 0 0 200
Due from affiliates............. 77,391 0 0 (77,391) 0
Property and equipment, net..... 960 4,801 2,059 0 7,820
Costs in excess of net assets
acquired, net................... 0 59,220 27,816 0 87,036
Costs assigned to contracts
acquired, net................... 0 231 0 0 231
Covenants not to compete........ 0 625 161 0 786
Debt issuance costs, net........ 4,856 0 0 0 4,856
Investment in subsidiaries...... 54,733 0 0 (54,733) 0
Other........................... 163 445 202 0 810
--------------------------------------------------------------------------------
$ 145,017 $ 110,212 $ 45,750 $ (135,129) $ 165,850
================================================================================
LIABILITIES AND SHAREHOLDER'S
EQUITY
Accounts payable................ $ 56 $ 10,209 $ 2,541 $ 0 $ 12,806
Income taxes payable............ (1,123) 211 2,914 0 2,002
Advance from money market
transfer agent.................. 3,000 0 0 0 3,000
Accrued expenses................ 1,271 1,595 856 0 3,722
Accrued interest payable........ 1,497 694 3,005 (3,005) 2,191
Due to affiliates............... 0 51,149 26,242 (77,391) 0
Long-term debt and subordinated
notes payable................ 110,010 2,665 0 0 112,675
--------------------------------------------------------------------------------
114,711 66,523 35,558 (80,396) 136,396
Shareholder's equity:
Common stock................. 0 0 0 0 0
Additional paid-in capital... 40,941 46,613 10,797 (57,410) 40,941
Retained earnings ........... (8,875) (2,924) 247 2,677 (8,875)
Foreign currency translation. (1,760) 0 (852) 0 (2,612)
--------------------------------------------------------------------------------
Total shareholder's equity...... 30,306 43,689 10,192 (54,733) 29,454
--------------------------------------------------------------------------------
$ 145,017 $ 110,212 $ 45,750 $ (135,129) $ 165,850
================================================================================
</TABLE>
62
<PAGE>
16. SUBSIDIARY GUARANTOR CONDENSED FINANCIAL INFORMATION (CONTINUED)
Consolidating Statement of Operations
Year ended June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
DOLLAR DOMESTIC CANADIAN
FINANCIAL SUBSIDIARY SUBSIDIARY
GROUP, INC. GUARANTORS GUARANTOR ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4 $ 86,300 $ 24,881 $ 0 $ 111,185
Store and regional expenses:
Salaries and benefits............ 0 26,604 7,066 0 33,670
Occupancy........................ 0 7,546 2,110 0 9,656
Depreciation..................... 0 1,397 621 0 2,018
Other............................ 0 20,274 3,728 0 24,002
---------------------------------------------------------------------------------
Total store and regional expenses... 0 55,821 13,525 0 69,346
Corporate expenses.................. 10,220 0 2,242 0 12,462
Management fee...................... (10,084) 8,795 1,289 0 0
(Gain) loss on store closings and
..sales 120 (77) 2 0 45
Other depreciation and amortization 306 3,278 1,192 0 4,776
Interest expense.................... 1,942 7,038 3,965 0 12,945
Writedown of goodwill............... 0 12,870 0 0 12,870
---------------------------------------------------------------------------------
Income (loss) before taxes ......... (2,500) (1,425) 2,666 0 (1,259)
Income taxes provision (benefit).... (2,786) 5,423 2,901 0 5,538
---------------------------------------------------------------------------------
Income (loss) before equity in net
income (loss) of subsidiaries.... 286 (6,848) (235) 0 (6,797)
Equity in net loss of
Subsidiaries:
Domestic subsidiary guarantors... (6,848) 0 0 6,848 0
Canadian subsidiary guarantor.... (235) 0 0 235 0
---------------------------------------------------------------------------------
Net loss .......................... $ (6,797) $ (6,848) $ (235) $ 7,083 $ (6,797)
=================================================================================
</TABLE>
63
<PAGE>
16. SUBSIDIARY GUARANTOR CONDENSED FINANCIAL INFORMATION (CONTINUED)
Consolidating Statement of Cash Flows
Year ended June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
DOLLAR DOMESTIC CANADIAN
FINANCIAL SUBSIDIARY SUBSIDIARY
GROUP, INC. GUARANTORS GUARANTOR ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................... $ (6,797) $ (6,848) $ (235) $ 7,083 $ (6,797)
Adjustments to reconcile net loss to net
cash provided by (used in )operating
activities:
Undistributed income of subsidiaries... 7,083 0 0 (7,083) 0
Depreciation and amortization.......... 886 4,675 1,813 7,374
Loss on store closings and sales....... 120 (77) 2 45
Writedown of goodwill.................. 0 12,870 0 12,870
Deferred tax benefit................... (265) 0 0 (265)
Changes in assets and liabilities (net
of effect of acquisitions):
(Increase) decrease in accounts
Receivable....................... (880) 2,096 (608) 1,735 2,343
(Increase) decrease in prepaid
expenses and other............... 805 193 (245) 753
Increase (decrease) in accounts
payable, income
taxes payable, accrued expenses
and accrued interest
payable, (3,054) (228) 6,697 (1,735) 1,680
other............................
------------------------------------------------------------------------------
Net cash (used in) provided by operating
Activities............................... (2,102) 12,681 7,424 0 18,003
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired.......... 0 (399) (1,471) (1,870)
Gross proceeds from sales of fixed assets... 0 202 0 202
Additions to property and equipment......... (383) (1,395) (791) (2,569)
Net decrease in due from affiliates......... 16,641 0 0 (16,641) 0
------------------------------------------------------------------------------
Net cash (used in) provided by investing
Activities............................... 16,258 (1,592) (2,262) (16,641) (4,237)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on subordinated notes payable...... (110) (19) 0 (129)
Net decrease in revolving credit
facilities............................... (11,733) 0 (454) (12,187)
Payment of debt issuance costs.............. (66) 0 0 (66)
Payments of financed insurance premiums..... (317) 0 0 (317)
Net increase in due to parent and
affiliates............................... 0 (15,435) (1,206) 16,641 0
------------------------------------------------------------------------------
Net cash used in financing activities....... (12,226) (15,454) (1,660) 16,641 (12,699)
Effect of exchange rate on cash ............ 0 0 (771) 0 (771)
------------------------------------------------------------------------------
Net increase (decrease) in cash............. 1,930 (4,365) 2,731 0 296
Cash at beginning of year................... 3 44,060 11,142 0 55,205
------------------------------------------------------------------------------
Cash at end of year......................... $ 1,933 $ 39,695 $ 13,873 $ 0 $ 55,501
==============================================================================
</TABLE>
64
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND OFFICERS
The directors and officers of Holdings and their respective ages and positions
with Holdings are set forth below:
NAME AGE POSITION
---- --- --------
Jeffrey Weiss...................... 55 Chairman of the Board of
Directors, President, and Chief
Executive Officer
Nora Kerppola...................... 33 Director
Wesley Lang, Jr.................... 41 Director
Paul Gelburd....................... 41 Director
Joshua Brain....................... 43 Director
The directors and officers of DFG and their respective ages and positions with
DFG are set forth below:
NAME AGE POSITION
---- --- --------
Jeffrey Weiss...................... 55 Chairman of the Board of
Directors, President, and Chief
Executive Officer
Richard Dorfman.................... 54 Executive Vice President and
Chief Financial Officer
Bernard Flaherty................... 48 Senior Vice President and Chief
Operating Officer
Peter Sokolowski................... 37 Vice President--Finance
Michael Marcus..................... 37 Vice President--Information
Systems
Jeffrey Weiss has served as the Chairman, President, and Chief Executive Officer
of DFG and Holdings since the Company's acquisition by an affiliate of Bear
Stearns in May 1990. Until June 1992, Mr. Weiss was also a Managing Director at
Bear Stearns & Co. Inc. ("Bear Stearns") with primary responsibility for the
firm's investments in small to mid-sized companies, in addition to serving as
Chairman and Chief Executive Officer for several of these companies. Mr. Weiss
is the author of several popular financial guides.
Richard Dorfman has served as Executive Vice President and Chief Financial
Officer since July 1997. Prior to joining the Company, Mr. Dorfman served as
Chief Financial Officer of American Appliance for eight years. Prior to joining
American Appliance, Mr. Dorfman had twenty years of experience in financial
management within the retail industry.
Bernard Flaherty joined DFG in May 1995 as Vice President--Store Operations. Mr.
Flaherty's 24 years of multi-unit retail experience includes both operations and
marketing responsibilities. Prior to joining the Company, Mr. Flaherty served as
Vice President of Sales/Marketing for Coastal Mart, Inc. for two years. Prior to
that, Mr. Flaherty had an extensive 20-year career with The Southland
Corporation.
Peter Sokolowski has been Vice President--Finance of DFG since June 1991 and has
overall responsibility for the Company's accounting systems and controls, as
well as financial management. Prior to joining the Company, Mr. Sokolowski
worked in various financial positions in the commercial banking industry.
65
<PAGE>
Michael Marcus has been Vice President--Information Systems of DFG since 1992.
Mr. Marcus is responsible for the data processing and information technology
functions and has developed an enterprise-wide store management system which
includes financial reporting and inventory control. Prior to joining DFG, Mr.
Marcus was employed in artificial intelligence programming with E.I. du Pont de
Nemours and Company.
Nora Kerppola has been a director of Holdings since January 1995. She is a
General Partner of WPG Private Equity Partners, L.P., the general partner of WPG
Corporate Development Associates IV, L.P., a shareholder of Holdings. Prior to
joining WPG in 1994, she worked as a private equity investor for four years with
Investor International (U.S.), a subsidiary of Sweden's Wallenberg Group. Ms.
Kerppola began her career at CS First Boston Corporation, where she was an
Associate in the Investment Banking Department.
Wesley Lang, Jr. has been a director of Holdings since June 1994. He has been a
principal of WPG since 1987, and was elected to that firm's Executive Committee
in 1994. Mr. Lang is currently a Managing General Partner of WPG Private Equity
Partners, L.P., the general partner of WPG Corporate Development Associates IV,
L.P. Prior to joining WPG in 1985, he specialized in acquisition financing at
Manufacturers Hanover Trust Company. He also serves as a director of Durakon
Industries, Inc. and Chyron Corporation.
Paul Gelburd is a Senior Vice President in the Equity Capital Group of GECC
specializing in strategic investments. Mr. Gelburd has been a director of
Holdings since August 1996. He joined GECC in 1995 from Columbia Financial
Partners, a private equity investment firm, where he was a partner since 1992.
Prior to Columbia Financial Partners, Mr. Gelburd was a partner at Putnam,
Lovell & Co., a boutique investment advisory firm specializing in the money
management industry. From 1984 to 1990, Mr. Gelburd was a member of the Mergers
and Acquisitions group at Morgan Stanley, where he specialized in financial
institutions. Prior to Morgan Stanley, Mr. Gelburd was a member of the energy
and technology practice at Booz, Allen & Hamilton.
Joshua Brain has been a director of Holdings since September 1996, the month in
which he joined Pegasus Financial LLC as a principal. Prior to joining Pegasus
Financial LLC, Mr. Brain was a Managing Director and a member of the management
committee at Financial Security Assurance Inc., a New York monoline financial
guaranty company which he joined in 1989. From 1983 to 1989, Mr. Brain practiced
law with Cleary, Gottlieb, Steen & Hamilton in New York.
66
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation of
the Chief Executive Officer and each of the other executive officers of the
Company who had annual compensation in fiscal year 1998 in excess of $100,000
(the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (#)(3) COMPENSATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Weiss............ 1998 $ 400,000 $ 400,000 $ 105,122 - $ 8,356
Chairman, President, 1997 400,000 200,000 139,651 1,575 6,344
and Chief Executive
Officer 1996 350,000 231,272 - - 4,750
Richard Dorfman(2)....... 1998 156,116 25,000 - 200 6,500
Executive Vice 1997 - - - - -
President and Chief
Financial Officer 1996 - - - - -
Bernard Flaherty......... 1998 140,000 53,200 - 100 4,758
Senior Vice President 1997 109,616 10,000 - 100 2,990
and Chief Operating
Officer 1996 105,000 10,000 - - 1,987
</TABLE>
- ------------------
(1) For 1998 and 1997, amounts include $43,224 and $44,706, respectively, paid
for life insurance premiums on policies where the Company was not the named
beneficiary. Perquisites and other personal benefits provided to each other
Named Executive Officer did not exceed the lesser of $50,000 or 10% of the
total salary and bonus for such Named Executive Officer.
(2) Mr. Dorfman joined the Company in July 1997.
(3) The amounts shown in this column represent stock options with respect to
shares of Holdings' common stock which were issued in each fiscal year.
The following table sets forth information concerning options to purchase
Holdings' common stock held by each of the Named Executive Officers as of the
fiscal year ended June 30, 1998.
67
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
ALTERNATIVE
POTENTIAL REALIZABLE VALUE AT ASSUMED TO 5($)
ANNUAL RATES OF STOCK PRICE AND 10($)
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM GRANT DATE
VALUE
- -------------------------------------------------------------------------------------------------- ------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($) VALUE $
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard Dorfman 200 40.00% $1,600 July 2007 $521,250 $830,000 $-
Bernard Flaherty 100 20.00% $1,900 September $309,500 $493,000 $-
2007
</TABLE>
- ---------------------
(1) No SARs were granted in the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NAME ON EXERCISE REALIZED OPTIONS AT FISCAL YEAR END FISCAL YEAR END (2)
- ---- ----------------------------------------------------------------------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Jeffrey Weiss.... - $ - 2,625/2,700 $1,575,000/$0
Richard Dorfman.. - - 0/200 $0/$0
Bernard Flaherty. - - 0/200 $0/$0
</TABLE>
- -----------------------
(1) No options were exercised in the last fiscal year.
(2) An assumed fair market value of $1,600 per share was used to calculate the
value of the options. As the shares are not traded in an established public
market, the value assigned is based on the price received in the most
recent equity transaction among shareholders.
68
<PAGE>
EMPLOYMENT AGREEMENTS
Jeffrey Weiss
Mr. Weiss, Chairman, President, and Chief Executive Officer of Holdings and DFG,
is employed pursuant to an Employment Agreement (the "Weiss Agreement") dated as
of August 8, 1996, between Mr. Weiss, DFG, and Holdings (DFG and Holdings being
collectively referred to herein as the "Employer"). The Weiss Agreement provides
for an annual base salary of $400,000, to be adjusted upward annually at the
discretion of the Board of Directors of Holdings. In addition, Mr. Weiss is
eligible to receive an annual bonus in an amount equal to 60% of his base
salary, contingent upon the Employer achieving 100% of its targeted results
(with certain adjustments to the extent the Employer achieves results short of
or in excess of its targeted results). Under certain circumstances, Mr. Weiss is
entitled to the payment of a severance benefit equal to the sum of two years'
base salary and the cash bonus received for the most recently completed two
fiscal years.
The Weiss Agreement also provides for a three-year term, terminating on the
later of August 8, 1999 and the first anniversary of the date on which the
Employer gives Mr. Weiss written notice of termination, unless the Weiss
Agreement is otherwise terminated pursuant to its terms. Pursuant to the Weiss
Agreement, Mr. Weiss was granted nonqualified options to acquire up to 2,625
shares of Holdings' common stock. See "Principal Shareholders." Mr. Weiss is
eligible to participate in all fringe benefit programs of the Employer offered
from time to time to its senior management employees.
Pursuant to the Weiss Agreement, Mr. Weiss has agreed that effective upon
termination, and in consideration for the payment of a severance benefit, he
will not compete with the Employer within the United States for a period of two
years.
Richard Dorfman
Mr. Dorfman, Executive Vice President and Chief Financial Officer of Holdings
and DFG, is employed pursuant to an Employment Agreement (the "Dorfman
Agreement") dated as of July 21, 1997, between Mr. Dorfman and the Employer. The
Dorfman Agreement provides for an annual base salary of $165,000, to be adjusted
upward annually at the discretion of DFG. In addition, Mr. Dorfman is eligible
to receive an annual bonus in an amount equal to $25,000 with respect to the
fiscal year ending June 30, 1998, in an amount equal to $35,000 with respect to
the fiscal year ending June 30, 1999, and in an amount equal to $45,000 with
respect to the fiscal year ending June 30, 2000, contingent upon the Employer
achieving 100% of its targeted results (with certain adjustments to the extent
the Employer achieves results short of or in excess of its targeted results).
Under certain circumstances, Mr. Dorfman is entitled to the payment of a
severance benefit equal to the sum of one year's base salary.
The Dorfman Agreement also provides for a four-year term, terminating on the
fourth anniversary of the date of the Employment Agreement. Pursuant to the
Dorfman Agreement, Mr. Dorfman was granted nonqualified options to acquire up to
200 shares of Holdings' common stock. Mr. Dorfman is eligible to participate in
all fringe benefit programs of the Employer offered from time to time to its
senior management employees.
Pursuant to the Dorfman Agreement, Mr. Dorfman has agreed that effective upon
termination, and in consideration for the payment of a severance benefit, he
will not compete with the Employer within the United States for a period of two
years.
69
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of capital stock of the Company are
owned by Holdings.
The following table sets forth as of June 30, 1998 the number of shares of
Holdings' common stock owned beneficially by (a) each person that is the
beneficial owner of more than 5% of Holdings' common stock, (b) all directors
and nominees, (c) the Named Executive Officers, and (d) all directors and
executive officers as a group. The address of each officer and director is c/o
the Company unless otherwise indicated. As of such date, there were a total of
31,566.78 shares of Holdings' common stock outstanding.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER PERCENT
---------------- ------ -------
<S> <C> <C>
WPG Corporate Development Associates IV, L.P. and
WPG Corporate Development Associates IV (Overseas), L.P.......... 17,877.74 52.29%
One New York Plaza
New York, New York 10004
PAG Dollar Investors LLC and Pegasus Partners, L.P................... 6,250.00 18.28%
591 West Putnam Avenue
Greenwich, Connecticut 06831
General Electric Capital Corporation................................. 5,289.58 15.47%
260 Long Ridge Road
Stamford, Connecticut 06927
Jeffrey Weiss (1).................................................... 2,743.73 8.02%
Wesley W. Lang, Jr. (2).............................................. 24.73 0.07%
c/o Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
Nora Kerppola (3).................................................... 14.84 0.04%
c/o Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
All directors and officers as a group (9 persons) (4)................ 2,783.30 8.1%
</TABLE>
- -------------------------
(1) Includes options to purchase an aggregate of 2,625 shares of Holdings'
common stock which are currently exercisable. Jeffrey Weiss holds options
to purchase an aggregate of 5,325 shares of Holdings' common stock,
consisting of: (i) options to purchase 2,625 shares of Holdings' common
stock at a price of $1,000 per share (such options vested in equal monthly
increments over three years, commencing in July 1994 (and all become
immediately vested upon the occurrence of certain circumstances), and have
a term of ten years from June 30, 1994); (ii) options to purchase 1,125
shares of Holdings' common stock with an initial exercise price of $1,000
per share on June 30, 1994, with the exercise price increasing by 40% on
each of June 30, 1995, 1996, 1997, 1998, and 1999, in each case over the
exercise price of the prior year, with an exercise price of $5,000 per
share from and after June 30, 1999 (such options are fully vested but are
exercisable only in the event of a change of control of Holdings or an
initial public offering of Holdings' common stock); and (iii) options to
purchase 1,575 shares of Holdings' common stock at an exercise price of
$1,600 per share (such options are exercisable only in the event that, at
the time of exercise, WPG has realized an internal rate of return of 35% or
more on its equity investment in Holdings made in August 1996).
70
<PAGE>
(2) Mr. Lang, Jr. serves as a Managing General Partner of the general partner
of WPG Corporate Development Associates IV, L.P. and as a Managing General
Partner and director of the domestic and overseas General Partners,
respectively, of WPG Corporate Development Associates IV (Overseas), L.P.
Mr. Lang, Jr. disclaims beneficial ownership of Holdings' common stock
owned by those entities.
(3) Ms. Kerppola serves as a general partner of the general partner of WPG
Corporate Development Associates IV, L.P. and of the domestic general
partner of WPG Corporate Development Associates IV (Overseas), L.P. Ms.
Kerppola disclaims beneficial ownership of Holdings' common stock owned by
those entities.
(4) Includes 2,625 shares subject to currently exercisable options or options
exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHAREHOLDERS AGREEMENT
Holdings entered into an Amended and Restated Shareholders Agreement dated
August 8, 1996 (the "Shareholders Agreement") with certain shareholders
signatory thereto (the "Shareholders"), including GECC, WPG Corporate
Development Associates IV, L.P. ("CDA IV Domestic"), WPG Corporate Development
Associates IV (Overseas), L.P. (together with CDA IV Domestic, the "CDA Funds"),
Pegasus, PAG Dollar Investors LLC (together with CDA Funds, GECC, and Pegasus,
the "Investors"), Jeffrey Weiss and Donald Gayhardt (together with Jeffrey
Weiss, each a "Management Shareholder"). The Shareholders Agreement will remain
in effect until (1) Holdings' common stock has been sold in public offerings
registered under the Securities Act with gross proceeds of not less than $35.0
million, (2) Holdings' common stock is listed on a national securities exchange,
and (3) the number of registered or beneficial holders of Holdings' common stock
exceeds 500.
Transfer Restrictions
The Shareholders Agreement provides, among other things, for certain
restrictions on the disposition of Holdings' common stock. Unless a transfer of
Holdings' common stock which is subject to the Shareholders Agreement is made in
accordance with the terms of such agreement, such transfer will be void and of
no force or effect. Subject to certain exceptions described below, Holdings'
common stock may not be transferred prior to June 30, 1999 or otherwise pledged,
assigned, or delivered as security for indebtedness.
Holdings' common stock may not be transferred unless the transferring
Shareholder first provides notice to Holdings and each of the remaining
Shareholders. Upon such notice, each Shareholder will have the right to offer to
purchase all, but not less than all, of the shares being offered by the
transferring Shareholder. Such offer may then be accepted or rejected by the
transferor. Any shares of Holdings' common stock which are subsequently
transferred to a non-Shareholder transferee will remain subject to the terms and
conditions of the Shareholders Agreement.
Repurchase of Shares
Upon the termination of employment of a Management Shareholder by reason of his
death or permanent disability, or upon the death of a Management Shareholder
following termination of his employment, Holdings must purchase all of the
shares of Holdings' common stock then owned by such Management Shareholder. Upon
the termination of employment of a Management Shareholder under any other
circumstances, Holdings will have the option to purchase all or any portion of
the shares owned by such Management Shareholder. Upon notice from Holdings, the
remaining Management Shareholder will have the right to purchase all or any
portion of the shares which were not purchased by Holdings. The purchase price
of shares purchased pursuant to both mandatory and optional repurchases will be
the fair market value of such shares as determined pursuant to the Shareholders
Agreement. Holdings will not be obligated to make any repurchase, nor will it
have the right to do so, to the extent any such repurchase would result in a
violation of applicable law or any contract to which Holdings is a party.
71
<PAGE>
Registration Rights
The Shareholders Agreement also provides for demand and incidental (or
"piggyback") registration rights. Each of the CDA Funds, Pegasus, and GECC have
demand registration rights pursuant to which, at any time after 90 days after
the first registration of shares of Holdings' common stock under the Securities
Act (other than pursuant to an employee benefit plan), each may make a written
request of Holdings to register all or part of such Shareholder's Holdings'
common stock. Each remaining Shareholder may then elect to include its shares of
Holdings' common stock in the demand registration. The CDA Funds, Pegasus, and
GECC are entitled to two demand registrations until such time that Holdings is
eligible to register its securities pursuant to a Registration Statement on Form
S-3, after which such Shareholders will be entitled to an unlimited number of
demand registrations. All demand registrations are subject to the condition that
they not adversely affect a pending underwritten offering or other significant
business transaction.
Until August 8, 2006, whenever Holdings proposes to register any equity
securities under the Securities Act (other than pursuant to an employee benefit
plan or in connection with an acquisition or similar transaction), it must
include in such registration all shares of Holdings' common stock which the
Shareholders request to have registered, subject to the condition that not all
of the shares may be registered if only a reduced number can be sold without
having a material adverse effect on the offering.
Pursuant to the Shareholders Agreement, Holdings has agreed not to grant any
other demand or piggyback registration rights with respect to Holdings' common
stock, other than piggyback registration rights that are not inconsistent with
the terms of the Shareholders Agreement.
Co-Sale and Preemptive Rights
Pursuant to the Shareholders Agreement, no Investor may accept one or more
third-party offers to transfer in excess of one-third of the aggregate number of
shares of Holdings' common stock owned by such Investor as of August 8, 1996
unless each Shareholder has been offered an equal opportunity to participate in
such transaction.
In addition, each Shareholder has the preemptive right to subscribe for its
proportional share of any class of securities which Holdings proposes to issue
or sell, other than shares issued pursuant to the exercise of options or
warrants or in connection with the acquisition of any business.
Additional Shareholder Rights
In addition to its other rights and obligations as a Shareholder, GECC has the
right to offer to purchase certain equity securities of Holdings in the event
Holdings raises capital through the issuance of equity securities not involving
a public offering. This right of GECC will apply only to the first $3.0 million
of equity securities which Holdings may issue, and Holdings will have no
obligation to accept an offer from GECC if Holdings proposes to issue shares at
a price which is less than $1,600 per share. GECC's offer is subject to certain
other limitations and may be rejected by Holdings. Furthermore, GECC has certain
preemptive rights with respect to certain transactions involving a change in
control of Holdings or the sale of all or substantially all of Holdings' and its
subsidiaries' assets.
In the event that the CDA Funds and either Pegasus or GECC desire to transfer
all or substantially all of their Holdings common stock in a single or series of
related transactions, such Shareholders have the right to require all of the
Shareholders to transfer to the purchaser an equal proportion of their shares at
the same price and on the same terms and conditions.
72
<PAGE>
Grant of Proxy
Certain shareholders of Holdings have granted to CDA IV Domestic their proxy to
vote all of their shares, which proxy is irrevocable and binding on all
transferees. In addition, the Shareholders have agreed to vote their shares so
that (1) the number of members of the Board of Directors remains at six, (2) the
Shareholders elect (a) two nominees selected by the CDA Funds, (b) one nominee
designated by Pegasus, (c) one nominee designated by GECC, and (d) two nominees
designated by the Management Shareholders (who shall be Weiss (so long as Weiss
shall remain as an employee of the Company or any of the Subsidiaries) and
Gayhardt (so long as Gayhardt remains an employee of the Company or any of the
Subsidiaries). At such time as either Weiss or Gayhardt ceases to be an employee
of the Company or any Subsidiary, the director formerly designated by such
Management Shareholder shall be appointed by the joint decision of the CDA
Funds, GECC, and Pegasus, (3) the nominating Shareholders have the right to
remove their nominees from the Board of Directors for or without cause and
replace them upon such removal, and (4) the nominating Shareholders have the
right to designate replacement directors to fill any vacancies created by their
nominees ceasing to serve as directors during such directors' terms of office.
Supermajority
The Shareholders Agreement also provides for certain supermajority requirements.
These provisions require the approval by certain Shareholders' nominees of
certain actions contemplated by Holdings or any of its subsidiaries. In
addition, if after August 8, 1999 any of the directors selected by the Investors
desire that Holdings make an initial public offering of its securities, and if
the other Investors are unwilling to approve such offering, the Investors will
take such actions as are reasonably necessary to effect a sale of Holdings and
its subsidiaries as a going concern.
LOAN TO AN OFFICER/DIRECTOR
Jeffrey Weiss received a loan on June 30, 1994 from the Company in the amount of
$200,000. Interest accrues on the unpaid principal balance at a fixed rate of
9.25%. The loan is payable on the first to occur of (i) June 30, 1997, (ii) 90
days following his voluntary resignation or the termination of his employment
for cause, and (iii) one year following the termination of his employment
relationship with the Company for any other reason. On June 30, 1997, the note
was extended and the extension provides for repayment upon the occurrence of the
earlier of a change in control of Holdings or the termination of employment for
any reason.
73
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2)....List of Financial Statements and Schedules
Financial Statements: The following consolidated financial statements are
submitted in response to Item 14(a)(1):
<TABLE>
<CAPTION>
DOLLAR FINANCIAL GROUP, INC. PAGE
---------
<S> <C>
Report of Independent Auditors................................................................ 35
Consolidated Balance Sheets, June 30, 1997 and 1998........................................... 36
Consolidated Statements of Operations, years ended June 30, 1996, 1997 and 1998............... 37
Consolidated Statements of Shareholder's Equity, years ended June 30, 1996, 1997 and 1998..... 38
Consolidated Statements of Cash Flows, years ended June 30, 1996, 1997 and 1998............... 39
Notes to Consolidated Financial Statements.................................................... 40
</TABLE>
All Financial Statement Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are omitted
because such schedules are not required under the related instructions, are
inapplicable, or the required information is given in the financial statements.
[The remainder of this page intentionally left blank.]
74
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
3.1 (a)(i) Certificate of Incorporation of Dollar Financial Group,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(a)(ii) Certificate of Change of Dollar Financial Group, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(a)(iii) Certificate of Change of Certificate of Incorporation of
Dollar Financial Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(a)(iv) Certificate of Amendment of the Certificate of Incorporation
of Dollar Financial Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(b)(i) Articles of Incorporation of Albuquerque Investments, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(c)(i) Articles of Incorporation of Any Kind Check Cashing Centers,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(c)(ii) Articles of Amendment to the Articles of Incorporation of Any
Kind Check Cashing Centers, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(d)(i) Articles of Incorporation of Check Mart of Louisiana, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(e)(i) Certificate of Incorporation of Check Mart of New Jersey, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(f)(i) Articles of Incorporation of Check Mart of New Mexico, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(f)(ii) Articles of Amendment to the Articles of Incorporation of
Check Mart of New Mexico, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(g)(i) Articles of Incorporation of Check Mart of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(h)(i) Articles of Incorporation of Check Mart of Texas, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(i) Articles of Incorporation of Check Mart of Utah, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(ii) Articles of Amendment to the Articles of Incorporation of
Check Mart of Utah, Inc. (Incorporated by reference to Exhibit
3.1 to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(j)(i) Articles of Incorporation of Check Mart of Washington, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(j)(ii) Articles of Amendment of Check Mart of Washington, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
75
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(k)(i) Articles of Incorporation of Check Mart of Washington, D.C.,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(l)(i) Articles of Incorporation of Check Mart of Wisconsin, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(m)(I) Certificate of Incorporation of DFG Warehousing Co., Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(n)(i) Articles of Incorporation of Dollar Financial Insurance Corp.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(o)(i) Certificate of Incorporation of Dollar Insurance
Administration Corp. (Incorporated by reference to Exhibit 3.1
to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(i) Articles of Incorporation of Financial Exchange Company of
Michigan, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(ii) Certificate of Amendment to the Articles of Incorporation of
Financial Exchange Company of Michigan, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(q)(i) Articles of Incorporation of Financial Exchange Company of
Ohio, Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(q)(ii) Certificate of Amendment by Incorporator (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(q)(iii) Certificate of Amendment (by Shareholders) (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(r)(i) Certificate of Incorporation of Financial Exchange Company of
Pennsylvania, Inc. (Incorporated by reference to Exhibit 3.1
to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(r)(ii) Amendment "1" to Certificate of Incorporation of Financial
Exchange Company of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(r)(iii) Amendment "2" to Certificate of Incorporation of Financial
Exchange Company of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(s)(i) Certificate of Incorporation of Financial Exchange Company of
Pittsburgh, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(t)(i) Certificate of Incorporation of Financial Exchange Company of
Virginia, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(u)(i) Articles of Incorporation of L.M.S. Development Corporation
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
76
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(v)(i) Articles of Incorporation of Monetary Management Corp.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(w)(I) Certificate of Incorporation of Monetary Management
Corporation of Pennsylvania, Inc. (Incorporated by reference
to Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(x)(i) Articles of Incorporation of Monetary Management of
California, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(y)(i) Articles of Incorporation of Monetary Management of Maryland,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(z)(i) Certificate of Incorporation of Monetary Management of New
York, Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(aa)(I) Articles of Incorporation of Pacific Ring Enterprises, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(bb)(i) Limited Partnership Certificate and Agreement of U.S. Check
Exchange Limited Partnership (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(bb)(ii) First Amendment to Certificate and Agreement of Limited
Partnership of U.S. Check Exchange Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(bb)(iii) Second Amendment Certificate of Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(cc)(I) Articles of Incorporation of QTV Holdings, Inc. (Incorporated
by reference to Exhibit 3.1 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
3.2 (a)(i) Bylaws of Dollar Financial Group, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(b)(i) Bylaws of Albuquerque Investments, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(c)(i) Bylaws of Any Kind Check Cashing Centers, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(d)(i) Bylaws of Check Mart of Louisiana, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(e)(i) Bylaws of Check Mart of New Jersey, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(f)(i) Bylaws of Check Mart of New Mexico, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(g)(i) Bylaws of Check Mart of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(h)(i) Bylaws of Check Mart of Texas, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(i)(i) Bylaws of Check Mart of Utah, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(j)(i) Bylaws of Check Mart of Washington, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(k)(i) Bylaws of Check Mart of Washington, D.C., Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
77
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(l)(i) Bylaws of Check Mart of Wisconsin, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(m)(i) Bylaws of DFG Warehousing Co., Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(n)(i) Bylaws of Dollar Financial Insurance Corp. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(o)(i) Bylaws of Dollar Insurance Administration Corp. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(p)(i) Bylaws of Financial Exchange Company of Michigan, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(q)(i) Code of Regulations of Financial Exchange Company of Ohio,
Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(r)(i) Bylaws of Financial Exchange Company of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(s)(i) Bylaws of Financial Exchange Company of Pittsburgh, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(t)(i) Bylaws of Financial Exchange Company of Virginia, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(u)(i) Bylaws of L.M.S. Development Corporation (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(v)(i) Bylaws of Monetary Management Corp. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(w)(i) Bylaws of Monetary Management Corporation of Pennsylvania,
Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(x)(i) Bylaws of Monetary Management of California, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(y)(i) Bylaws of Monetary Management of Maryland, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(y)(ii) Amended and Restated Bylaws of Monetary Management of
Maryland, Inc. (Incorporated by reference to Exhibit 3.2 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(z)(i) Bylaws of Monetary Management of New York, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(aa)(i) Bylaws of Pacific Ring Enterprises, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(bb)(i) Bylaws of QTV Holdings, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
4.1 Indenture, dated as of November 15, 1996, among the Company,
the Guarantors, and Fleet National Bank, as Trustee
(Incorporated by reference to Exhibit 4.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
4.2 Form of Notes (included in Exhibit 4.1) (Incorporated by
reference to Exhibit 4.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
4.3 A/B Exchange Registration Rights Agreement, dated as of
November 15, 1996, by and among the Company, the Guarantors,
and the Initial Purchasers (Incorporated by reference to
Exhibit 4.3 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
78
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
10.1 (a) Asset Purchase Agreement, dated January 9, 1995, by and
among the Company, Happy's Check Cashing, and Adrian Rubin
(Incorporated by reference to Exhibit 10.1(a) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(b) Amendment No. 1 to the Asset Purchase Agreement, dated
February 20, 1995, by and among the Company, Happy's Check
Cashing, Chase Money Loan, Inc., and Adrian Rubin
(Incorporated by reference to Exhibit 10.1(b) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
10.2 Purchase Agreement, dated July 28, 1995, by and among Monetary
Management Corporation, NCCI Corporation, Larry M. Senderhauf,
E. Rick Safford, and Fred T. Kampo, Jr. (Incorporated by
reference to Exhibit 10.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.3 (a) Site License and Services Agreement, dated April 30, 1996,
by and between the Company and The Southland Corporation
(Incorporated by reference to Exhibit 10.3(a) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(b) Asset Purchase Agreement, dated April 30, 1996, by and between
the Company and The Southland Corporation (Incorporated by
reference to Exhibit 10.3(b) to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.4 Employment Agreement, dated as of August 8, 1996, between the
Company, DFG Holdings, Inc., and Jeffrey Weiss (Incorporated
by reference to Exhibit 10.4 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.5 Employment Agreement, dated as of August 8, 1996, between the
Company, DFG Holdings, Inc., and Donald F. Gayhardt
(Incorporated by reference to Exhibit 10.5 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
10.6* Employment Agreement, dated as of July 21, 1997 between the
Company, DFG Holdings, Inc., and Richard S. Dorfman
10.7 Amended and Restated Shareholders Agreement, dated August 8,
1996, among WPG Corporate Development Associates IV, L.P., WPG
Corporate Development Associates IV (Overseas), L.P., the
individual fund shareholders signatory thereto, the GHB
Charitable Trust #1, Jeffrey Weiss, Donald F. Gayhardt,
Pegasus Partners L.P., PAG Dollar Investors, the warrant
holders signatory thereto, General Electric Capital
Corporation, and DFG Holdings, Inc. (Incorporated by reference
to Exhibit 10.7 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.8 Purchase Agreement, dated as of August 8, 1996, by and among
the Company, DFG Holdings, Inc., Any Kind Check Cashing
Centers, Inc., the shareholders signatory thereto, U.S. Check
Exchange Limited Partnership, the limited partners signatory
thereto, and George H. Brimhall (Incorporated by reference to
Exhibit 10.8 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.9 Asset Purchase Agreement, dated August 28, 1996, by and among
Financial Exchange Company of Ohio, Inc., ABC Check Cashing,
Inc., and the shareholder signatory thereto (Incorporated by
reference to Exhibit 10.9 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.10 Asset Purchase Agreement, dated as of October 22, 1996, by and
among the Company, Cash-N-Dash Check Cashing, Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.10 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.11 Stock Purchase Agreement, dated as of October 22, 1996, by and
among the Company, Manor Investment Co. Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.11 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
79
<PAGE>
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
10.12 Amended and Restated Purchase Agreement, dated as of October
23, 1996, by and among Dollar Financial Canada Ltd., DFG
Holdings, Inc., National Money Mart, Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.12 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.13 Second Amended and Restated Credit Agreement, dated as of
November 15, 1996, among the Company, certain commercial
lending institutions, Lehman Commercial Paper, Inc., and Bank
of America National Trust and Savings Association
(Incorporated by reference to Exhibit 10.13 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
10.14 Purchase Agreement, dated as of March 31, 1997, among Dollar
Financial Group, Inc., Dollar Financial Canada, LTD., Canadian
Capital Corporation, Dollar Ontario LTD. And Gus E. Baril,
Leslie A. Baril and the Baril Family Trust. The schedules to
the Purchase Agreement and the exhibits thereto have been
omitted. The Company will furnish supplementally to the
Commission any of the schedules or exhibits upon request***
10.15 DFG Holdings, Inc. Stock Incentive Plan****
10.16 Termination Agreement, dated June 30, 1997 re: Donald F.
Gayhardt, Jr.****
21.1 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
27.1 Financial Data Schedule for the fiscal year ended June 30,
1998, which is being submitted electronically to the
Securities and Exchange Commission for information purposes
only**
80
<PAGE>
- -----------------------------
* Management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K by Item 601 of Regulation S-K.
** Filed herewith.
*** Filed previously. Portions of this agreement have been omitted pursuant
to Rule 406 under the Securities Act of 1933, as amended, and have been
filed confidentially with the Securities and Exchange Commission.
**** Filed previously.
(B) FINANCIAL STATEMENT SCHEDULES
None.
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant named below has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Berwyn, Commonwealth of Pennsylvania on September 28, 1998.
DOLLAR FINANCIAL GROUP, INC.
By: /s/ RICHARD S. DORFMAN
--------------------------------------------
Richard S. Dorfman
Executive Vice President and Chief Financial
Officer
DOLLAR FINANCIAL GROUP, INC.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JEFFREY A. WEISS Chairman of the Board September 28, 1998
- --------------------------- of Directors, President,
JEFFREY A. WEISS and Chief Executive Officer
(principal executive officer)
/s/ RICHARD S. DORFMAN Executive Vice President and September 28, 1998
- --------------------------- Chief Financial Officer
RICHARD S. DORFMAN (principal financial and
accounting officer)
/s/ WESLEY LANG, JR. Director September 28, 1998
- ---------------------------
WESLEY LANG, JR.
/s/ NORA KERPPOLA Director September 28, 1998
- ---------------------------
NORA KERPPOLA
82
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
3.1 (a)(i) Certificate of Incorporation of Dollar Financial Group,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(a)(ii) Certificate of Change of Dollar Financial Group, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(a)(iii) Certificate of Change of Certificate of Incorporation of
Dollar Financial Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(a)(iv) Certificate of Amendment of the Certificate of Incorporation
of Dollar Financial Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(b)(i) Articles of Incorporation of Albuquerque Investments, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(c)(i) Articles of Incorporation of Any Kind Check Cashing Centers,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(c)(ii) Articles of Amendment to the Articles of Incorporation of Any
Kind Check Cashing Centers, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(d)(i) Articles of Incorporation of Check Mart of Louisiana, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(e)(i) Certificate of Incorporation of Check Mart of New Jersey, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(f)(i) Articles of Incorporation of Check Mart of New Mexico, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(f)(ii) Articles of Amendment to the Articles of Incorporation of
Check Mart of New Mexico, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(g)(i) Articles of Incorporation of Check Mart of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(h)(i) Articles of Incorporation of Check Mart of Texas, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(i) Articles of Incorporation of Check Mart of Utah, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(ii) Articles of Amendment to the Articles of Incorporation of
Check Mart of Utah, Inc. (Incorporated by reference to Exhibit
3.1 to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(j)(i) Articles of Incorporation of Check Mart of Washington, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(j)(ii) Articles of Amendment of Check Mart of Washington, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(k)(i) Articles of Incorporation of Check Mart of Washington, D.C.,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(l)(i) Articles of Incorporation of Check Mart of Wisconsin, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(m)(I) Certificate of Incorporation of DFG Warehousing Co., Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(n)(i) Articles of Incorporation of Dollar Financial Insurance Corp.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(o)(i) Certificate of Incorporation of Dollar Insurance
Administration Corp. (Incorporated by reference to Exhibit 3.1
to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(i) Articles of Incorporation of Financial Exchange Company of
Michigan, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(ii) Certificate of Amendment to the Articles of Incorporation of
Financial Exchange Company of Michigan, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(q)(i) Articles of Incorporation of Financial Exchange Company of
Ohio, Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(q)(ii) Certificate of Amendment by Incorporator (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(q)(iii) Certificate of Amendment (by Shareholders) (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(r)(i) Certificate of Incorporation of Financial Exchange Company of
Pennsylvania, Inc. (Incorporated by reference to Exhibit 3.1
to the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(r)(ii) Amendment "1" to Certificate of Incorporation of Financial
Exchange Company of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(r)(iii) Amendment "2" to Certificate of Incorporation of Financial
Exchange Company of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(s)(i) Certificate of Incorporation of Financial Exchange Company of
Pittsburgh, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(t)(i) Certificate of Incorporation of Financial Exchange Company of
Virginia, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(u)(i) Articles of Incorporation of L.M.S. Development Corporation
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(v)(i) Articles of Incorporation of Monetary Management Corp.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(w)(I) Certificate of Incorporation of Monetary Management
Corporation of Pennsylvania, Inc. (Incorporated by reference
to Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(x)(i) Articles of Incorporation of Monetary Management of
California, Inc. (Incorporated by reference to Exhibit 3.1 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(y)(i) Articles of Incorporation of Monetary Management of Maryland,
Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(z)(i) Certificate of Incorporation of Monetary Management of New
York, Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(aa)(I) Articles of Incorporation of Pacific Ring Enterprises, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(bb)(i) Limited Partnership Certificate and Agreement of U.S. Check
Exchange Limited Partnership (Incorporated by reference to
Exhibit 3.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(bb)(ii) First Amendment to Certificate and Agreement of Limited
Partnership of U.S. Check Exchange Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(bb)(iii) Second Amendment Certificate of Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(cc)(I) Articles of Incorporation of QTV Holdings, Inc. (Incorporated
by reference to Exhibit 3.1 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
3.2 (a)(i) Bylaws of Dollar Financial Group, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(b)(i) Bylaws of Albuquerque Investments, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(c)(i) Bylaws of Any Kind Check Cashing Centers, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(d)(i) Bylaws of Check Mart of Louisiana, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(e)(i) Bylaws of Check Mart of New Jersey, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(f)(i) Bylaws of Check Mart of New Mexico, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(g)(i) Bylaws of Check Mart of Pennsylvania, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(h)(i) Bylaws of Check Mart of Texas, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(i)(i) Bylaws of Check Mart of Utah, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(j)(i) Bylaws of Check Mart of Washington, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(k)(i) Bylaws of Check Mart of Washington, D.C., Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
(l)(i) Bylaws of Check Mart of Wisconsin, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(m)(i) Bylaws of DFG Warehousing Co., Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(n)(i) Bylaws of Dollar Financial Insurance Corp. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(o)(i) Bylaws of Dollar Insurance Administration Corp. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(p)(i) Bylaws of Financial Exchange Company of Michigan, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(q)(i) Code of Regulations of Financial Exchange Company of Ohio,
Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(r)(i) Bylaws of Financial Exchange Company of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(s)(i) Bylaws of Financial Exchange Company of Pittsburgh, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(t)(i) Bylaws of Financial Exchange Company of Virginia, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(u)(i) Bylaws of L.M.S. Development Corporation (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(v)(i) Bylaws of Monetary Management Corp. (Incorporated by reference
to Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(w)(i) Bylaws of Monetary Management Corporation of Pennsylvania,
Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(x)(i) Bylaws of Monetary Management of California, Inc.
(Incorporated by reference to Exhibit 3.2 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(y)(i) Bylaws of Monetary Management of Maryland, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(y)(ii) Amended and Restated Bylaws of Monetary Management of
Maryland, Inc. (Incorporated by reference to Exhibit 3.2 to
the Registrants' Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(z)(i) Bylaws of Monetary Management of New York, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(aa)(i) Bylaws of Pacific Ring Enterprises, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
(bb)(i) Bylaws of QTV Holdings, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
4.1 Indenture, dated as of November 15, 1996, among the Company,
the Guarantors, and Fleet National Bank, as Trustee
(Incorporated by reference to Exhibit 4.1 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
4.2 Form of Notes (included in Exhibit 4.1) (Incorporated by
reference to Exhibit 4.2 to the Registrants' Statement on Form
S-4 (Registration #333-18221) declared effective March 11,
1997)
4.3 A/B Exchange Registration Rights Agreement, dated as of
November 15, 1996, by and among the Company, the Guarantors,
and the Initial Purchasers (Incorporated by reference to
Exhibit 4.3 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
10.1 (a) Asset Purchase Agreement, dated January 9, 1995, by and
among the Company, Happy's Check Cashing, and Adrian Rubin
(Incorporated by reference to Exhibit 10.1(a) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(b) Amendment No. 1 to the Asset Purchase Agreement, dated
February 20, 1995, by and among the Company, Happy's Check
Cashing, Chase Money Loan, Inc., and Adrian Rubin
(Incorporated by reference to Exhibit 10.1(b) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
10.2 Purchase Agreement, dated July 28, 1995, by and among Monetary
Management Corporation, NCCI Corporation, Larry M. Senderhauf,
E. Rick Safford, and Fred T. Kampo, Jr. (Incorporated by
reference to Exhibit 10.2 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.3 (a) Site License and Services Agreement, dated April 30, 1996,
by and between the Company and The Southland Corporation
(Incorporated by reference to Exhibit 10.3(a) to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(b) Asset Purchase Agreement, dated April 30, 1996, by and between
the Company and The Southland Corporation (Incorporated by
reference to Exhibit 10.3(b) to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.4 Employment Agreement, dated as of August 8, 1996, between the
Company, DFG Holdings, Inc., and Jeffrey Weiss (Incorporated
by reference to Exhibit 10.4 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.5 Employment Agreement, dated as of August 8, 1996, between the
Company, DFG Holdings, Inc., and Donald F. Gayhardt
(Incorporated by reference to Exhibit 10.5 to the Registrants'
Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
10.6* Employment Agreement, dated as of July 21, 1997 between the
Company, DFG Holdings, Inc., and Richard S. Dorfman
10.7 Amended and Restated Shareholders Agreement, dated August 8,
1996, among WPG Corporate Development Associates IV, L.P., WPG
Corporate Development Associates IV (Overseas), L.P., the
individual fund shareholders signatory thereto, the GHB
Charitable Trust #1, Jeffrey Weiss, Donald F. Gayhardt,
Pegasus Partners L.P., PAG Dollar Investors, the warrant
holders signatory thereto, General Electric Capital
Corporation, and DFG Holdings, Inc. (Incorporated by reference
to Exhibit 10.7 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.8 Purchase Agreement, dated as of August 8, 1996, by and among
the Company, DFG Holdings, Inc., Any Kind Check Cashing
Centers, Inc., the shareholders signatory thereto, U.S. Check
Exchange Limited Partnership, the limited partners signatory
thereto, and George H. Brimhall (Incorporated by reference to
Exhibit 10.8 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.9 Asset Purchase Agreement, dated August 28, 1996, by and among
Financial Exchange Company of Ohio, Inc., ABC Check Cashing,
Inc., and the shareholder signatory thereto (Incorporated by
reference to Exhibit 10.9 to the Registrants' Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.10 Asset Purchase Agreement, dated as of October 22, 1996, by and
among the Company, Cash-N-Dash Check Cashing, Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.10 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.11 Stock Purchase Agreement, dated as of October 22, 1996, by and
among the Company, Manor Investment Co. Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.11 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
10.12 Amended and Restated Purchase Agreement, dated as of October
23, 1996, by and among Dollar Financial Canada Ltd., DFG
Holdings, Inc., National Money Mart, Inc., and the
shareholders signatory thereto (Incorporated by reference to
Exhibit 10.12 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
10.13 Second Amended and Restated Credit Agreement, dated as of
November 15, 1996, among the Company, certain commercial
lending institutions, Lehman Commercial Paper, Inc., and Bank
of America National Trust and Savings Association
(Incorporated by reference to Exhibit 10.13 to the
Registrants' Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
10.14 Purchase Agreement, dated as of March 31, 1997, among Dollar
Financial Group, Inc., Dollar Financial Canada, LTD., Canadian
Capital Corporation, Dollar Ontario LTD. And Gus E. Baril,
Leslie A. Baril and the Baril Family Trust. The schedules to
the Purchase Agreement and the exhibits thereto have been
omitted. The Company will furnish supplementally to the
Commission any of the schedules or exhibits upon request***
10.15 DFG Holdings, Inc. Stock Incentive Plan****
10.16 Termination Agreement, dated June 30, 1997 re: Donald F.
Gayhardt, Jr.****
21.1 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21.1 to the Registrants' Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
27.1 Financial Data Schedule for the fiscal year ended June 30,
1998, which is being submitted electronically to the
Securities and Exchange Commission for information purposes
only**
- -----------------------------
* Management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K by Item 601 of Regulation S-K.
** Filed herewith.
*** Filed previously. Portions of this agreement have been omitted pursuant
to Rule 406 under the Securities Act of 1933, as amended, and have been
filed confidentially with the Securities and Exchange Commission.
**** Filed previously.
<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-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 55,501
<SECURITIES> 0
<RECEIVABLES> 5,726
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,041
<PP&E> 12,436
<DEPRECIATION> 4,616
<TOTAL-ASSETS> 165,850
<CURRENT-LIABILITIES> 20,721
<BONDS> 115,675
0
0
<COMMON> 0
<OTHER-SE> 29,454
<TOTAL-LIABILITY-AND-EQUITY> 165,850
<SALES> 0
<TOTAL-REVENUES> 111,185
<CGS> 0
<TOTAL-COSTS> 81,808
<OTHER-EXPENSES> 17,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,945
<INCOME-PRETAX> (1,259)
<INCOME-TAX> 5,538
<INCOME-CONTINUING> (6,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,797)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
