<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____ to _____
Commission file number 333-18221
DOLLAR FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 13-2997911
(State or Other Jurisdiction of (I.R.S.Employer Identification No.)
Incorporation or Organization)
1436 LANCASTER AVENUE, SUITE 210
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant's Telephone Number, Including Area Code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check 3 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 ___
------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 100
-----
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 1999
and September 30, 1999 (unaudited).......................................... 3
Interim Unaudited Consolidated Statements of Operations for the Three
Months Ended September 30, 1998 and 1999.................................... 4
Interim Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1998 and 1999........................................... 5
Notes to Interim Unaudited Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 22
Item 2. Changes in Securities and Use of Proceeds................................... 22
Item 3. Defaults Upon Senior Securities............................................. 22
Item 4. Submission of Matters to a Vote of Security Holders......................... 22
Item 5. Other Information........................................................... 22
Item 6. Exhibits and Reports on Form 8-K............................................ 22
</TABLE>
2
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLLAR FINANCIAL GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------------------- -----------------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 65,782 $ 55,823
Accounts receivable................................................ 9,854 10,757
Income taxes receivable............................................ 2,587 853
Prepaid expenses................................................... 2,174 3,841
Notes receivable - officers........................................ 2,851 3,057
Due from parent.................................................... - 204
Property and equipment, net of accumulated depreciation
of $7,546 and $8,435............................................. 12,754 17,381
Cost assigned to contracts acquired, net of accumulated
amortization of $581 and $606.................................... 104 86
Cost in excess of net assets acquired, net of accumulated
amortization of $11,232 and $12,404.............................. 96,125 104,711
Covenants not to compete, net of accumulated amortization
of $1,295 and $1,366............................................. 407 336
Debt issuance costs, net of accumulated amortization of
$1,917 and $2,301................................................ 9,416 9,163
Other.............................................................. 1,655 2,017
----------------------- -----------------------
$203,709 $208,229
======================= =======================
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable................................................... $ 12,040 $ 12,595
Other payables..................................................... - 431
Income taxes payable............................................... 2,483 2,016
Advance from money transfer agent.................................. 2,000 2,000
Accrued expenses................................................... 4,868 6,016
Accrued interest payable........................................... 3,162 5,986
Deferred tax liability............................................. 78 78
Due to parent...................................................... 578 -
Revolving credit facilities........................................ 12,162 7,852
10-7/8 % Senior Notes due 2006..................................... 109,190 109,190
Long term debt and subordinated notes payable...................... 20,814 23,493
Shareholder's equity:
Common stock, $1 par value: 20,000 shares
authorized; 100 shares issued and outstanding at
June 30, 1999 and September 30, 1999............................. - -
Additional paid-in capital......................................... 50,824 50,824
Accumulated deficit................................................ (11,224) (9,600)
Accumulated other comprehensive loss............................... (3,266) (2,652)
----------------------- -----------------------
Total shareholder's equity....................................... 36,334 38,572
----------------------- -----------------------
$203,709 $208,229
======================= =======================
</TABLE>
See notes to interim unaudited consolidated financial statements.
3
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Revenues.......................................... $27,091 $34,832
Store and regional expenses:
Salaries and benefits.......................... 8,499 10,239
Occupancy...................................... 2,389 2,928
Depreciation................................... 479 884
Other.......................................... 5,927 7,229
------------------- -------------------
Total store and regional expenses................. 17,294 21,280
Corporate expenses................................ 3,247 4,540
Loss on store closings and sales.................. 25 44
Other depreciation and amortization............... 1,411 1,478
Interest expense.................................. 3,227 4,170
------------------- -------------------
Income before income taxes........................ 1,887 3,320
Income tax provision.............................. 1,107 2,108
------------------- -------------------
Net income........................................ $ 780 $ 1,212
=================== ===================
</TABLE>
See notes to interim unaudited consolidated financial statements.
4
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------------------
1998 1999
--------------------- ------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 780 $ 1,212
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization...................................... 2,046 2,747
Loss on store closings and sales................................... 25 44
Change in assets and liabilities (net of effect of acquisitions):
Decrease in accounts receivable and income taxes receivable... 1,107 3,241
Decrease (increase) in prepaid expenses and other............. 184 (431)
Increase in accounts payable, other payables, income taxes
payable, accrued expenses and accrued interest payable...... 1,494 767
--------------------- ------------------------
Net cash provided by operating activities................................ 5,636 7,580
Cash flows from investing activities:
Acquisitions, net of cash acquired..................................... (20) (10,960)
Additions to property and equipment.................................... (639) (2,519)
--------------------- ------------------------
Net cash used in investing activities.................................... (659) (13,479)
Cash flows from financing activities:
Other debt payments.................................................... (6) (838)
Net decrease in revolving credit facilities............................ - (4,508)
Proceeds from long term debt........................................... - 1,893
Payment of debt issuance costs......................................... - (131)
Payments of financed insurance premiums................................ (10) -
Net decrease in due to parent.......................................... - (782)
--------------------- ------------------------
Net cash used in financing activities.................................... (16) (4,366)
Effect of exchange rate changes on cash and cash equivalents............. (514) 306
--------------------- ------------------------
Net increase (decrease) in cash and cash equivalents..................... 4,447 (9,959)
Cash and cash equivalents at beginning of period......................... 55,501 65,782
--------------------- ------------------------
Cash and cash equivalents at end of period............................... $59,948 $ 55,823
===================== ========================
</TABLE>
See notes to interim unaudited consolidated financial statements.
5
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Dollar
Financial Group, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the Company's audited consolidated financial statements in its
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 filed with
the Securities and Exchange Commission. In the opinion of management, all
adjustments, (consisting of normal recurring adjustments), considered necessary
for a fair presentation have been included. Operating results of interim
periods are not necessarily indicative of the results that may be expected for a
full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Operations
Dollar Financial Group, Inc., organized in 1979 under the laws of the State of
New York, is a wholly owned subsidiary of DFG Holdings, Inc. ("Holdings"). The
activities of Holdings consist primarily of its investment in the Company and
additional third party debt. Holdings has no employees or operating activities
as of September 30, 1999. The Company, through its subsidiaries, provides retail
financial and government contractual services to the general public through a
network of 506 (of which 420 are company owned) locations operating as Any Kind
Check Cashing Centers(R), Cash A Cheque, Check Mart(R), Financial Exchange
Company(R), Money Mart(R), The Money Shop and Loan Mart in thirteen states, the
District of Columbia, Canada and the United Kingdom. The services provided at
the Company's retail locations include check cashing, sale of money orders,
money transfer services, consumer loans and various other related services.
Additionally, the Company, through its merchant services division, maintains and
services a network of electronic government benefits distribution to
approximately 1,200 retail locations throughout the State of New York.
6
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
2. SUBSIDIARY GUARANTOR UNAUDITED FINANCIAL INFORMATION
The Company's payment obligations under the 10 7/8% Senior Notes due November
2006 ("Senior Notes") and Senior Subordinated Notes due 2006 ("Senior
Subordinated 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 Company's new revolving
credit facility and any successor credit facilities. Pursuant to the Senior
Notes or Senior Subordinated Notes, every direct and indirect wholly owned
subsidiary of the Company serves as a guarantor of the Senior Notes and Senior
Subordinated Notes.
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 consolidating balance sheet at September 30, 1999, and the
consolidating statements of operations and cash flows for the three month period
ended September 30, 1999 of the Company (on a parent-company basis), combined
domestic Guarantors, combined foreign Guarantors and the consolidated Company.
7
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING BALANCE SHEET
September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group Inc. Guarantors Guarantors Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 1,460 $30,614 $23,749 $ 55,823
Accounts receivable.................................... 8,368 4,166 6,322 (8,099) 10,757
Income taxes receivable................................ 326 527 - 853
Prepaid expenses....................................... 259 1,526 2,056 3,841
Notes receivable-officers.............................. 2,851 - 206 3,057
Due from affiliates.................................... 72,012 - - (72,012) -
Due from parent........................................ 204 - - 204
Property and equipment, net............................ 2,230 6,961 8,190 17,381
Cost assigned to contracts acquired, net............... - 86 - 86
Cost in excess of net assets acquired, net............. - 54,964 49,747 104,711
Covenants not to compete, net.......................... - 317 19 336
Debt issuance costs, net............................... 9,163 - - 9,163
Investment in subsidiaries............................. 87,789 - - (87,789) -
Other.................................................. 523 453 1,041 2,017
---------- --------- -------- ------------ ----------
$185,185 $99,614 $91,330 $ (167,900) $208,229
========== ========= ======== ============ ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable....................................... $ - $ 6,045 $ 6,550 $ 12,595
Other payables......................................... - - 431 431
Income taxes payable................................... 24 1 1,991 2,016
Advance from money transfer agent...................... 2,000 - - 2,000
Accrued expenses....................................... 1,965 1,488 2,563 6,016
Accrued interest payable............................... 4,991 995 8,099 (8,099) 5,986
Deferred tax liability................................. 78 - - 78
Due to affiliates...................................... - 17,170 54,842 (72,012) -
Revolving credit facilities............................ 7,500 - 352 7,852
10-7/8% Senior Notes due 2006.......................... 109,190 - - 109,190
Long term debt and subordinated notes payable.......... 20,000 2,642 851 23,493
---------- --------- -------- ------------ ---------
145,748 28,341 75,679 (80,111) 169,657
Shareholder's equity:
Common stock........................................... - - - -
Additional paid-in capital............................. 50,824 46,614 10,797 (57,411) 50,824
(Accumulated deficit) retained earnings................ (9,600) 24,659 5,719 (30,378) (9,600)
Accumulated other comprehensive loss................... (1,787) - (865) (2,652)
---------- --------- -------- ------------ ----------
Total shareholder's equity............................. 39,437 71,273 15,651 (87,789) 38,572
---------- --------- -------- ------------ ----------
$185,185 $99,614 $91,330 $ (167,900) $208,229
========== ========= ======== ============ ==========
</TABLE>
8
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues..................................................... $ 2 $21,541 $13,289 $ - $34,832
Store and regional expenses:
Salaries and benefits..................................... - 6,788 3,451 - 10,239
Occupancy................................................. - 1,909 1,019 - 2,928
Depreciation.............................................. - 493 391 - 884
Other..................................................... - 4,825 2,404 - 7,229
---------- -------- ------- -------- -----------
Total store and regional expenses............................ - 14,015 7,265 - 21,280
Corporate expenses........................................... 3,218 - 1,322 - 4,540
Management fees.............................................. (303) - 303 - -
Loss on store closings and sales............................. 25 - 19 - 44
Other depreciation and amortization.......................... 154 952 372 - 1,478
Interest expense............................................. 3,148 59 963 - 4,170
---------- -------- ------- -------- -----------
(Loss) income before income taxes............................ (6,240) 6,515 3,045 - 3,320
Income tax provision......................................... 1,237 - 871 - 2,108
---------- -------- ------- -------- -----------
(Loss) income before equity in net income of subsidiaries.... (7,477) 6,515 2,174 - 1,212
Equity in net income of subsidiaries:
Domestic subsidiary guarantors............................... 6,515 - - (6,515) -
Foreign subsidiary guarantors................................ 2,174 - - (2,174) -
---------- -------- ------- -------- -----------
Net income................................................... $ 1,212 $ 6,515 $ 2,174 $ (8,689) $ 1,212
========== ======== ======= ======== ===========
</TABLE>
9
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF CASH FLOWS
Three months ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 1,212 $ 6,515 $ 2,174 $(8,689) $ 1,212
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Undistributed income of subsidiaries.................. (8,689) - - 8,689 -
Depreciation and amortization......................... 542 1,441 764 - 2,747
Loss on store closings and sales...................... 25 - 19 - 44
Change in assets and liabilities (net of effect of
acquisitions):
Decrease in accounts receivable and income taxes
receivable........................................ 1,564 79 668 930 3,241
Decrease (increase) in prepaid expenses and other... 402 (244) (589) - (431)
Increase (decrease) in accounts payable, other
payables, income taxes payable, accrued expenses
and accrued interest payable...................... 3,451 (3,413) 1,659 (930) 767
----------- --------- --------- -------- ---------
Net cash (used in) provided by operating activities.......... (1,493) 4,378 4,695 - 7,580
Cash flows from investing activities:
Acquisitions, net of cash acquired.................. - - (10,960) - (10,960)
Additions to property and equipment................. (289) (870) (1,360) - (2,519)
Net decrease in due from affiliates................. 2,128 - - (2,128) -
----------- --------- --------- -------- ---------
Net cash provided by (used in) investing activities.......... 1,839 (870) (12,320) (2,128) (13,479)
Cash flows from financing activities:
Other debt payments................................. - (3) (835) - (838)
Net decrease in revolving credit facilities......... (3,000) - (1,508) - (4,508)
Proceeds from long term debt........................ 1,893 - - - 1,893
Payments of debt issuance costs..................... (131) - - - (131)
Net decrease in due to affiliates and parent........ (782) (1,947) (181) 2,128 (782)
----------- --------- --------- -------- ---------
Net cash used in financing activities........................ (2,020) (1,950) (2,524) 2,128 (4,366)
Effect of exchange rate changes on cash and cash
equivalents......................................... - - 306 - 306
----------- --------- --------- -------- ---------
Net (decrease) increase in cash and cash equivalents......... (1,674) 1,558 (9,843) - (9,959)
Cash and cash equivalents at beginning of period............. 3,134 29,056 33,592 - 65,782
----------- --------- --------- -------- ---------
Cash and cash equivalents at end of period................... $ 1,460 $30,614 $ 23,749 $ - $ 55,823
=========== ========= ========= ======== =========
</TABLE>
10
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income is the change in equity from transactions and other
events and circumstances from non-owner sources, which includes foreign currency
translation. The following shows the comprehensive (loss) income for the
periods stated:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net income $ 780 $1,212
Foreign currency translation adjustment (1,196) 614
--------- -----------
Total comprehensive (loss) income ($416) $1,826
========= ===========
</TABLE>
4. 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>
United United
States Canada Kingdom Total
-----------------------------------------------------------------
As of and for the three months
ended September 30, 1998
<S> <C> <C> <C> <C>
Identifiable assets $122,522 $44,062 $ - $166,584
Sales to unaffiliated customers 20,346 6,745 - 27,091
Income before income taxes 194 1,693 - 1,887
Income tax provision 191 916 - 1,107
-----------------------------------------------------------------
Net income 3 777 - 780
=================================================================
As of and for the three months
ended September 30, 1999
Identifiable assets 116,899 56,200 35,130 208,229
Sales to unaffiliated customers 21,543 9,139 4,150 34,832
Income before income taxes 275 1,999 1,046 3,320
Income tax provision 1,237 571 300 2,108
-----------------------------------------------------------------
Net (loss) income $ (962) $ 1,428 $ 746 $ 1,212
=================================================================
</TABLE>
11
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
5. ACQUISITIONS
On February 10, 1999, the Company entered into an agreement to acquire all of
the outstanding shares of Instant Cash Loans Limited ("ICL") which operated
eleven stores in the United Kingdom. The aggregate purchase price for this
acquisition was $12.6 million, consisting of $9.4 million in cash and a profit-
based earn out of up to $3.2 million payable over two years, plus initial
working capital of $2.0 million. The Company issued $11.4 million of its Senior
Subordinated Notes to fund the purchase. The excess of the purchase price over
the fair value of identifiable net assets acquired was $8.3 million.
On February 17, 1999, the Company purchased the remaining 86.5% partnership
interest in its Calgary Money Mart Partnership ("Calgary"). Calgary operated six
stores in Alberta, Canada. The aggregate purchase price for this acquisition
was $5.6 million. To fund the purchase, the Company issued $5.6 million of its
Senior Subordinated Notes. The excess of the purchase price over the fair value
of identifiable net assets acquired was $5.2 million.
On July 7, 1999, the Company entered into an agreement to acquire all of the
outstanding shares of Cash A Cheque Holdings Great Britain Limited ("CAC"),
which operates 44 company owned stores in the United Kingdom. The aggregate
purchase price for this acquisition was approximately $12.5 million and was
funded through excess internal cash, the Company's revolving credit facility
and $1.9 million of the Company's Senior Subordinated Notes. The agreement also
includes a maximum potential contingent payment to the sellers of $16.6 million
based on future levels of profitability.
The following unaudited pro forma information for the three months ended
September 30, 1998 and 1999 presents the results of operations as if the
acquisitions had occurred as of the beginning of the periods presented. The pro
forma operating results include the results of these acquisitions for the
indicated period and reflect the amortization of intangible assets arising from
the acquisitions, increased interest expense on acquisition debt, the income tax
impact and other immaterial activities discontinued as of the respective
purchase dates of ICL, Calgary and CAC. 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.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(Unaudited)
-----------------------
1998 1999
------- -------
(dollars in thousands)
<S> <C> <C>
Revenues $30,709 $34,991
Net income $ 988 $ 1,245
</TABLE>
12
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
September 30,
Company Operating Data: 1998 1999
---------- ---------
<S> <C> <C>
Stores in operation:
Company-Owned................................................. 347 420
Franchised Stores............................................. 80 86
------ ------
Total............................................................ 427 506
====== ======
- -------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
----------------------------------
Operating Data: 1998 1999
---------- ------------
Face amount of checks cashed (in millions)....................... $ 552 $ 612
Face amount of average check..................................... $ 279 $ 317
Face amount of average check (excluding Canada and the United
Kingdom)........................................................ $ 292 $ 342
Average fee per check............................................ $ 8.62 $10.95
Number of checks cashed (in thousands)........................... 1,980 1,927
Adjusted EBITDA/1/............................................... $7,130 $9,831
Adjusted EBITDA Margin/1/........................................ 26.3 % 28.2 %
- -------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
----------------------------------
Collections Data: 1998 1999
---------- ------------
Face amount of returned checks (in thousands).................... $4,096 $5,054
Collections (in thousands)....................................... 2,990 3,641
------ ------
Net write-offs (in thousands).................................... $1,106 $1,413
====== ======
Collections as a percentage of
returned checks............................................... 73.0 % 72.0 %
Net write-offs as a percentage of
check cashing revenues........................................ 6.5 % 6.7 %
Net write-offs as a percentage of the
face amount of checks cashed.................................. .25% .23%
</TABLE>
/1/Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization, noncash charges 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, 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 and the Company
understands that they are used by certain investors as one measure of a
company's historical ability to service its debt. Not all companies calculate
EBITDA in the same fashion and therefore these ratios as presented may not be
comparable to other similarly titled measures of other companies.
______________________
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company is a consumer financial services company operating the second
largest check cashing store network in the United States, the largest such
network in Canada and recently acquired stores in the United Kingdom. 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.
The Company, in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of its financial
position at September 30, 1999 and the results of operations for the three
months ended September 30, 1999 and 1998. The results for the three months
ended September 30, 1999 are not necessarily indicative of the results for the
full fiscal year and should be read in conjunction with the Company's unaudited
financial statements and its Annual Report on Form 10-K for the fiscal year
ended June 30, 1999.
In fiscal year 1999, DFG Holdings Inc. ("Holdings"), entered into an agreement
and plan of merger (the "Merger Agreement") with DFG Acquisition, Inc.,
("Acquisition") controlled by Green Equity Investors II, L.P., and the
stockholders of Holdings party thereto, providing for the merger of Acquisition
with and into Holdings, with Holdings as the surviving corporation (the
"Merger"). In the Merger, the senior members of management of Holdings retained
substantially all of their stock in the surviving corporation and the other
stockholders received cash in exchange for their shares of Holdings. The Merger
was accounted for as a recapitalization of Holdings.
Acquisitions
On February 10, 1999, the Company entered into an agreement to acquire all of
the outstanding shares of Instant Cash Loans Limited ("ICL") which operated
eleven stores in the United Kingdom. The aggregate purchase price for this
acquisition was $12.6 million, consisting of $9.4 million in cash and a profit-
based earn out of up to $3.2 million payable over two years, plus initial
working capital of $2.0 million. The excess of the purchase price over the fair
value of identifiable net assets acquired was $8.3 million.
On February 17, 1999, the Company purchased the remaining 86.5% partnership
interest in its Calgary Money Mart Partnership ("Calgary"). Calgary operated six
stores in Alberta, Canada. The aggregate purchase price for this acquisition
was $5.6 million. The excess of the purchase price over the fair value of
identifiable net assets acquired was $5.2 million.
On July 7, 1999, the Company entered into an agreement to acquire all of the
outstanding shares of Cash A Cheque Holdings Great Britain Limited ("CAC"),
which operates 44 company owned stores in the United Kingdom. The aggregate
purchase price for this acquisition was approximately $12.5 million and was
funded through excess internal cash and the Company's revolving credit facility.
The agreement also includes a maximum potential contingent payment to the
sellers of $16.6 million based on future levels of profitability.
All of the acquisitions described above (collectively, the "Acquisitions") have
been accounted for under the purchase method of accounting. Therefore, the
historical results of operations include the revenues and expenses of all the
acquired companies since their respective dates of acquisition.
14
<PAGE>
RESULTS OF OPERATIONS
Revenue Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
- -----------------------------------------------------------------------------------------------------------------
(Percentage of
($ in thousands) Total Revenue)
------------------------------- ----------------------------------
1998 1999 1998 1999
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Check cashing......................... $17,063 $21,100 63.0% 60.6%
Cash 'Til Payday(R) origination fees.. 3,500 6,309 12.9 18.1
Government services................... 1,592 1,640 5.9 4.7
Other revenue......................... 4,936 5,783 18.2 16.6
------------ ------------- ------- -------
Total revenue......................... $27,091 $34,832 100.0% 100.0%
============ ============= ======= =======
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Total revenues were $34.8 million for the three months ended September 30, 1999
compared to $27.1 million for the three months ended September 30, 1998, an
increase of $7.7 million or 28.4%. The Acquisitions accounted for an increase
of $4.8 million.
Comparable retail store sales at those locations owned by the Company for the
entire period increased $2.7 million or 10.8%. Check cashing revenue increased
5.0%, Cash 'Til Payday(R) origination fees increased 54.1% and other revenues
increased 5.8%. Partially offsetting this increase, however, was a 34.3% decline
in revenues from government services. The decrease in revenues from government
services resulted primarily from the reduction in the number of individuals
receiving benefits under government programs and due to the implementation of
electronic benefits transfer systems (sometimes referred to as "EBT" systems).
The Company receives revenue on its government contracts based primarily on the
number of transactions it executes. As state and local government agencies
implement EBT systems, the Company expects a continuing decline in the Company's
government services revenue.
15
<PAGE>
Store and Regional Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
- -------------------------------------------------------------------------------------------------------------
(Percentage of
($ in thousands) total revenue)
---------------------------------- -------------------------------------
1998 1999 1998 1999
-------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Salaries and benefits........... $ 8,499 $10,239 31.4% 29.4%
Occupancy....................... 2,389 2,928 8.8 8.4
Depreciation.................... 479 884 1.8 2.5
Other........................... 5,927 7,229 21.9 20.8
------------- -------------- -------- ---------
Total store and regional
expenses..................... $17,294 $21,280 63.9% 61.1%
============== ============== ======== =========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Store and regional expenses were $21.3 million for the three months ended
September 30, 1999 compared to $17.3 million for the three months ended
September 30, 1998, an increase of $4.0 million or 23.1%. The Acquisitions
accounted for an increase of $2.9 million For the three months ended September
30, 1999 total store and regional expenses decreased to 61.1% of total revenue
compared to 63.9% of total revenue for the three months ended September 30, 1998
due to a continuous improvement in store level profitability and increased
revenues.
16
<PAGE>
Other Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
- -----------------------------------------------------------------------------------------------------------------
($ in thousands) (Percentage of revenues)
------------------------------ ---------------------------------
1998 1999 1998 1999
----------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Corporate expenses........................... $3,247 $4,540 12.0% 13.0%
Loss on store closings
and sales................................. 25 44 .1 .1
Other depreciation and amortization.......... 1,411 1,478 5.2 4.2
Interest expense............................. 3,227 4,170 11.9 12.0
Income taxes................................. 1,107 2,108 4.1 6.1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Corporate Expenses
Corporate expenses were $4.5 million for the three months ended September 30,
1999 compared to $3.2 million for the three months ended September 30, 1998, an
increase of $1.3 million. The Acquisitions accounted for $500,000 of the
increase. Additional costs, primarily salaries and benefits, have been incurred
as a result of the implementation of various strategic initiatives including
full roll-out of the Cash 'Til Payday(R) loan product and the opening of
Loan Mart(TM) stores, which offer only Cash 'Til Payday(R) unsecured short-term
loans.
Other Depreciation and Amortization
Other depreciation and amortization expenses were $1.5 million and $1.4 million
for the three months ended September 30, 1999 and 1998, respectively, an
increase of $100,000. The increase resulted primarily from the amortization
expense of goodwill associated with the Acquisitions.
Interest Expense
Interest expense was $4.2 million for the three months ended September 30, 1999
and was $3.2 million for the three months ended September 30, 1998, an increase
of $1.0 million or 31.3%. This increase is primarily attributable to the
increase in borrowings from the merger.
Income Taxes
The provision for income taxes was $2.1 million for the three months ended
September 30, 1999 compared to $1.1 million for the three months ended September
30, 1998, an increase of $1.0 million. The Company's effective tax rate is
significantly greater than the federal statutory rate of 34% due to non-
deductible goodwill amortization, state taxes and foreign taxes.
17
<PAGE>
Changes in Financial Condition
Cash and cash equivalent balances and the revolving credit facilities balance
fluctuate significantly as a result of seasonal, monthly and day-to-day
requirements for funding check cashing and other operating activities. For the
three months ended September 30, 1999, cash and cash equivalents decreased $10.0
million and the revolving credit facilities decreased $4.3 million due to the
net activity of cash generated by operations of $7.6 million and the
acquisition of CAC in the United Kingdom.
Accrued interest increased due to the timing of the semi-annual interest payment
on the 10 7/8% Senior Notes due in November 2006 (the "Senior Notes") and the
Senior Subordinated Notes due 2006 ("Senior Subordinated Notes").
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 three months ended
September 30, 1999 and 1998, the Company had net cash provided by operating
activities of $7.6 million and $5.6 million, respectively, which cash was used
for purchases of property and equipment related to existing stores, recently
acquired stores, investments in technology and acquisitions. For the three
months ended September 30, 1999, the Company had made capital expenditures of
$2.5 million. The actual amount of capital expenditures will depend in part upon
the number of new stores acquired and the number of stores remodeled. The
Company's budgeted capital expenditures, excluding acquisitions, are currently
anticipated to aggregate approximately $9.7 million during its fiscal year
ending June 30, 2000, for remodeling and relocation of certain existing stores
and for opening new stores.
The Company's credit agreement provides for a revolving credit facility of up to
$70 million. The borrowings under the revolving credit facility as of September
30, 1999 were $7.5 million. In August 1999, the Company issued the remaining
$1.9 million of its Senior Subordinated Notes to fund the acquisition of CAC.
The Senior Notes, Senior Subordinated Notes and the new revolving credit
facility contain certain financial and other restrictive covenants, which, among
other things, require the Company to 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. The Company
also has an overdraft credit facility to fund peak working capital needs for its
Canadian operation. The overdraft facility provides for borrowings up to $4.6
million, with no outstanding balance as of September 30, 1999. In conjunction
with the purchase of ICL, the Company established an overdraft credit facility
to fund working capital needs for its United Kingdom operations. The overdraft
facility provides for up to $1.6 million and had $200,000 outstanding as of
September 30, 1999. The Company also established an overdraft credit facility
of $6.6 million with its acquisition of CAC, which had no outstanding balance as
of September 30, 1999.
The Company is highly leveraged, and borrowings under the new revolving credit
facility and the overdraft facilities 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 Senior Notes
and Senior Subordinated Notes and payment of interest and principal on the
Company's other indebtedness. The Company's belief that it will be able to fund
its liquidity and capital expenditure requirements for the foreseeable future is
based upon the historical growth rate of the Company and the anticipated
benefits resulting from operating efficiencies. 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 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. 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 Senior Notes and
Senior Subordinated Notes, or to make anticipated capital expenditures. It may
be necessary for
18
<PAGE>
the Company to refinance all or a portion of its indebtedness 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.
Seasonality and Quarterly Fluctuations
The Company's business is seasonal due to the impact of tax-related services,
including cashing tax refund checks. Historically, the Company has generally
experienced its highest revenues and earnings during its third fiscal quarter
ending March 31 when revenues from these tax-related services peak. Due to the
seasonality of the Company's business, therefore, results of operations for any
fiscal quarter are not necessarily indicative of the results that may be
achieved for the full fiscal year. In addition, quarterly results of operations
depend significantly upon the timing and amount of revenues and expenses
associated with acquisitions and the addition of new stores.
Impact of Year 2000
General Description of the Year 2000 Issue and the Nature and Effect of the Year
2000 on Information Technology (IT) and Non-IT Systems
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 operation, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
Based on assessments in 1998, the Company determined that it would be required
to modify or replace portions of its software and certain hardware so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue will not have a material impact on the operations of the Company
since the Company is not significantly dependent on technology to provide
services to its customers.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. To date the
Company has fully completed its assessment of all systems that could be
significantly affected by the Year 2000. The completed assessment indicated
that hardware systems could be affected. However, the Company has determined
that these systems will not present a material exposure as it relates to the
Company's service to its customers.
Timetable for Completion of Each Remaining Phase Progress in Becoming Year 2000
Compliant
The remediation and testing of hardware systems will be completed by December
1999. Full implementation is expected to be completed by the end of December
1999.
Nature and Level of Importance of Third Parties and their Exposure to the Year
2000
To date, the Company is not aware of any external agent that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that external vendors will be Year
2000 ready. The inability of external agents to complete their Year 2000
resolution process in a timely fashion would not materially impact the Company.
Costs
The Company does not expect the costs to be material and does not expect the
projects to have a significant impact on operations.
19
<PAGE>
Risks
Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete the remaining phases, there would not be a
material impact on the Company's results of operations, liquidity, or capital
resources, since the Company is not significantly dependent on technology.
Contingency Plans
The Company has contingency plans for maintaining its store operations. These
plans do not involve any technological tools because the Company is not
significantly dependent on technology to provide services to its customers.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities" ("SFAS No. 133"). SFAS No. 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,
200. The Company does not believe the adoption of SFAS No. 133 will have a
material impact on the Company's future earnings and financial position.
Cautioning 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.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes for Quantitative and Qualitative Disclosures
About Market Risk from the Company's audited financial statements in its Annual
Report on Form 10-K for the fiscal year ended June 30, 1999.
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material changes for Legal Proceedings from the Company's
audited financial statements in its Annual Report of Form 10-K for the
fiscal year ended June 30, 1999.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ending September 30, 1999,
the Registrant filed a report on Form 8K dated July 22,
1999 with an amended Form 8K filed on September 20, 1999,
reporting an Item 2 event (Acquisition or Disposition of
Assets) and an Item 7 event (Financial Statements and
Exhibits).
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOLLAR FINANCIAL GROUP, INC.
Dated: November 15, 1999 *By: /s/ Richard S. Dorfman
----------------------------
Name: Richard S. Dorfman
Title: Executive Vice President and
Chief Financial Officer,
(principal financial and
chief accounting officer)
* The signatory hereto is the principal financial and chief accounting officer
and has been duly authorized to sign on behalf of the registrant.
23
<TABLE> <S> <C>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,823
<SECURITIES> 0
<RECEIVABLES> 11,610
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,274
<PP&E> 25,916
<DEPRECIATION> 8,435
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 27,122
<BONDS> 132,683
0
0
<COMMON> 0
<OTHER-SE> 30,572
<TOTAL-LIABILITY-AND-EQUITY> 208,229
<SALES> 0
<TOTAL-REVENUES> 34,832
<CGS> 0
<TOTAL-COSTS> 21,280
<OTHER-EXPENSES> 6,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,170
<INCOME-PRETAX> 3,320
<INCOME-TAX> 2,108
<INCOME-CONTINUING> 1,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,212
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
