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, 2000
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
Incorporation or Organization) Identification No.)
1436 LANCASTER AVENUE, SUITE 210
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant's Telephone Number, Including Area Code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check 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. As of November 14, 2000, 100
shares of the registrant's common stock, par value $1.00 per share, were
outstanding.
1
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 2000
and September 30, 2000 (unaudited).......................................................... 3
Interim Unaudited Consolidated Statements of Operations for the Three
Months Ended September 30, 1999 and 2000.................................................... 4
Interim Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1999 and 2000........................................................... 5
Notes to Interim Unaudited Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................................................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 23
Item 2. Changes in Securities and Use of Proceeds................................................... 23
Item 3. Defaults Upon Senior Securities............................................................. 23
Item 4. Submission of Matters to a Vote of Security Holders......................................... 23
Item 5. Other Information........................................................................... 23
Item 6. Exhibits and Reports on Form 8-K............................................................ 23
</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,
2000 2000
--------------------- --------------
<S> <C> <C>
ASSETS (unaudited)
Cash and cash equivalents....................................................... $ 73,288 $ 76,324
Accounts receivable............................................................. 13,134 14,966
Prepaid expenses .............................................................. 5,661 6,284
Deferred income taxes........................................................... 759 759
Notes receivable - officers..................................................... 2,920 2,920
Due from parent................................................................. 878 1,046
Property and equipment, net of accumulated depreciation
of $15,094 and $16,673...................................................... 23,625 25,207
Goodwill and other intangibles, net of accumulated amortization of
$18,897 and $20,082......................................................... 128,115 128,201
Debt issuance costs, net of accumulated amortization of $3,184 and $3,545....... 8,446 8,125
Other........................................................................... 2,888 3,818
-------------- -------------
$ 259,714 $ 267,650
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable................................................................ $ 16,331 $ 20,431
Income taxes payable............................................................ 603 1,218
Advance from money transfer agent............................................... 1,000 1,000
Accrued expenses................................................................ 21,429 6,221
Accrued interest payable........................................................ 1,610 5,024
Revolving credit facilities..................................................... 49,578 64,729
10-7/8 % Senior Notes due 2006.................................................. 109,190 109,190
Long term debt and subordinated notes payable................................... 20,378 20,285
Shareholder's equity:
Common stock, $1 par value: 20,000 shares
authorized; 100 shares issued and outstanding at
June 30, 2000 and September 30, 2000........................................ - -
Additional paid-in capital...................................................... 50,957 50,957
Accumulated deficit............................................................. (5,824) (4,777)
Accumulated other comprehensive loss............................................ (5,538) (6,628)
-------------- -------------
Total shareholder's equity.................................................. 39,595 39,552
-------------- -------------
$ 259,714 $ 267,650
============== =============
</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,
-----------------------------------
1999 2000
--------------- --------------
<S> <C> <C>
Revenues .......................................................$ 34,832 $ 45,231
Store and regional expenses:
Salaries and benefits........................................ 10,239 13,474
Occupancy.................................................... 2,928 3,980
Depreciation................................................. 884 1,369
Other........................................................ 7,229 10,561
------------- --------------
Total store and regional expenses............................... 21,280 29,384
Corporate expenses.............................................. 4,540 6,215
Loss on store closings and sales................................ 44 34
Goodwill amortization........................................... 1,176 1,080
Other depreciation and amortization............................. 302 469
Interest expense (net of interest income of $19 and $72)........ 4,170 4,961
------------- --------------
Income before income taxes...................................... 3,320 3,088
Income tax provision............................................ 2,108 2,041
------------- --------------
Net income .....................................................$ 1,212 $ 1,047
============= ==============
</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,
------------------------------------------
1999 2000
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 1,212 $ 1,047
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............................................. 2,747 3,282
Loss on store closings and sales........................................... 44 34
Change in assets and liabilities (net of effect of acquisitions):
Decrease (increase) in accounts receivable and income taxes
receivable.............................................................. 3,241 (1,597)
Increase in prepaid expenses and other................................... (431) (1,620)
Increase in accounts payable, income taxes payable, accrued
expenses and accrued interest payable................................... 767 2,910
---------------- ---------------
Net cash provided by operating activities....................................... 7,580 4,056
Cash flows from investing activities:
Acquisitions, net of cash acquired............................................ (10,960) (12,643)
Gross proceeds from sale of property and equipment............................ - 110
Additions to property and equipment........................................... (2,519) (2,994)
---------------- --------------
Net cash used in investing activities........................................... (13,479) (15,527)
Cash flows from financing activities:
Other debt payments........................................................... (838) (85)
Net (decrease) increase in revolving credit facilities........................ (4,508) 15,151
Proceeds from long term debt.................................................. 1,893 -
Payment of debt issuance costs................................................ (131) (43)
Net increase in due from parent............................................... (782) (168)
---------------- --------------
Net cash (used in) provided by financing activities............................. (4,366) 14,855
Effect of exchange rate changes on cash and cash equivalents.................... 306 (348)
---------------- --------------
Net (decrease) increase in cash and cash equivalents............................ (9,959) 3,036
Cash and cash equivalents at beginning of period................................ 65,782 73,288
---------------- --------------
Cash and cash equivalents at end of period...................................... $ 55,823 $ 76,324
================ ==============
</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
accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2000 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 accounting principles
generally accepted in the United States 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, 2000. The Company, through its subsidiaries, provides retail
financial and government contractual services to the general public through a
network of 933 (of which 594 are company owned) locations operating as Any Kind
Check Cashing Centers(R), Cash A Cheque, Cash Centres, Check Mart(R), Money
Mart(R), The Money Shop and Loan Mart(R) in 17 states, the District of Columbia,
Canada and the United Kingdom. The services provided at the Company's retail
locations include check cashing, short-term consumer loans, sale of money
orders, money transfer services and various other related services. Also,
through a relationship with a bank, the Company's subsidiary moneymart.com(TM)
originates short-term consumer loans through 381 independent agents in 20
states.
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 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, 2000, and the
consolidating statements of operations and cash flows for the three month period
ended September 30, 2000 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, 2000
(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...........................$ 2,334 $ 40,849 $ 33,141 $ - $ 76,324
Accounts receivable.................................. 12,832 6,237 7,180 (11,283) 14,966
Income taxes receivable.............................. 390 441 125 (956) -
Prepaid expenses..................................... 641 1,993 3,650 - 6,284
Deferred income taxes................................ 697 62 - - 759
Notes receivable-officers............................ 2,920 - - - 2,920
Due from affiliates.................................. 108,813 - - (108,813) -
Due from parent...................................... 1,046 - - - 1,046
Property and equipment, net.......................... 4,618 10,361 10,228 - 25,207
Goodwill and other intangibles, net.................. - 58,222 69,979 - 128,201
Debt issuance costs, net............................. 8,125 - - - 8,125
Investment in subsidiaries........................... 96,311 9,801 - (106,112) -
Other................................................ 575 626 2,617 - 3,818
------------ ------------- ------------ -------------- -------------
$ 239,302 $ 128,592 $ 126,920 $ (227,164) $ 267,650
============ ============= ============ ============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable....................................$ - $ 12,248 $ 8,183 $ - $ 20,431
Income taxes payable................................. - - 2,174 (956) 1,218
Advance from money transfer agent.................... 1,000 - - - 1,000
Accrued expenses..................................... 1,942 1,891 2,388 - 6,221
Accrued interest payable............................. 5,014 - 11,293 (11,283) 5,024
Due to affiliates.................................... - 39,567 69,241 (108,808) -
Revolving credit facilities.......................... 58,500 - 6,229 - 64,729
10-7/8% Senior Notes due 2006........................ 109,190 - - - 109,190
Long term debt and subordinated notes payable........ 20,000 - 285 - 20,285
------------ ------------- ------------ -------------- -------------
195,646 53,706 99,793 (121,047) 228,098
Shareholder's equity:
Common stock......................................... - - - - -
Additional paid-in capital........................... 50,957 40,064 20,599 (60,663) 50,957
(Accumulated deficit) retained earnings.............. (4,777) 37,554 7,900 (45,454) (4,777)
Accumulated other comprehensive loss................. (2,524) (2,732) (1,372) - (6,628)
------------ ------------- ------------ -------------- -------------
Total shareholder's equity........................... 43,656 74,886 27,127 (106,117) 39,552
------------ ------------- ------------ -------------- -------------
$ 239,302 $ 128,592 $ 126,920 $ (227,164) $ 267,650
============ ============= ============ ============== =============
</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, 2000
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group,Inc. Guarantors Guarantors Eliminations Consolidated
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ - $ 26,134 $ 19,097 $ - $ 45,231
Store and regional expenses:
Salaries and benefits............................. - 8,624 4,850 - 13,474
Occupancy......................................... - 2,564 1,416 - 3,980
Depreciation...................................... - 696 673 - 1,369
Other............................................. - 6,999 3,562 - 10,561
----------- ------------ ----------- ------------ ------------
Total store and regional expenses.................... - 18,883 10,501 - 29,384
Corporate expenses................................... 4,289 - 1,926 - 6,215
Management fees...................................... (3,722) 2,725 997 - -
Loss on store closings and sales..................... 25 - 9 - 34
Goodwill amortization................................ - 542 538 - 1,080
Other depreciation and amortization.................. 282 57 130 - 469
Interest expense..................................... 3,201 - 1,760 - 4,961
----------- ------------ ----------- ------------ ------------
(Loss) income before income taxes ................... (4,075) 3,927 3,236 - 3,088
Income tax (benefit) provision ...................... (1,417) 2,155 1,303 - 2,041
----------- ------------ ----------- ------------ ------------
(Loss) income before equity in net income of
subsidiaries......................................... (2,658) 1,772 1,933 - 1,047
Equity in net income of subsidiaries:
Domestic subsidiary guarantors....................... 1,772 - - (1,772) -
Foreign subsidiary guarantors........................ 1,933 - - (1,933) -
----------- ------------ ----------- ------------ ------------
Net income........................................... $ 1,047 $ 1,772 $ 1,933 $ (3,705) $ 1,047
=========== ============ =========== ============ ============
</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, 2000
(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........................................... $ 1,047 $ 1,772 $ 1,933 $ (3,705) $ 1,047
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Undistributed income of subsidiaries.......... (3,705) - - 3,705 -
Depreciation and amortization................. 646 1,295 1,341 - 3,282
Loss on store closings and sales.............. 25 - 9 - 34
Change in assets and liabilities (net of
effect of acquisitions):
(Increase) decrease in accounts receivable
and income taxes receivable........... (665) (2,223) 416 875 (1,597)
Decrease (increase) in prepaid expenses
and other............................. 319 (346) (1,593) - (1,620)
(Decrease) increase in accounts payable,
income taxes payable, accrued
expenses and accrued interest payable. (416) 3,294 907 (875) 2,910
----------- ----------- ----------- ------------ -------------
Net cash (used in) provided by operating activities (2,749) 3,792 3,013 - 4,056
Cash flows from investing activities:
Acquisitions, net of cash acquired.............. - (2,582) (10,061) - (12,643)
Gross proceeds from sale of property and
equipment..................................... - - 110 - 110
Additions to property and equipment............. (568) (1,538) (888) - (2,994)
Net increase in due from affiliates............. (12,650) (2,432) - 15,082 -
----------- ----------- ----------- ------------ -------------
Net cash used in investing activities................ (13,218) (6,552) (10,839) 15,082 (15,527)
Cash flows from financing activities:
Other debt payments............................. - - (85) - (85)
Net increase (decrease) in revolving credit
facilities.................................... 16,000 - (849) - 15,151
Payments of debt issuance costs................. (43) - - - (43)
Net increase in due from parent................. (168) - - - (168)
Net increase in due to affiliates............... - 4,341 10,741 (15,082) -
----------- ----------- ----------- ------------ -------------
Net cash provided by financing activities............ 15,789 4,341 9,807 (15,082) 14,855
Effect of exchange rate changes on cash and cash
equivalents..................................... - - (348) - (348)
----------- ----------- ----------- ------------ -------------
Net (decrease) increase in cash and cash equivalents. (178) 1,581 1,633 - 3,036
Cash and cash equivalents at beginning of period..... 2,512 39,268 31,508 - 73,288
----------- ----------- ----------- ------------ -------------
Cash and cash equivalents at end of period........... $ 2,334 $ 40,849 $ 33,141 $ - $ 76,324
=========== =========== =========== ============ =============
</TABLE>
10
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) 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 income (loss) for the periods
stated:
Three Months Ended
September 30,
---------------------------------
1999 2000
------------- ------------
Net income $ 1,212 $ 1,047
Foreign currency translation adjustment 614 (1,090)
------------- ------------
Total comprehensive income (loss) $ 1,826 $ (43)
============= ============
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
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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
As of and for the three months
ended September 30, 2000
Identifiable assets $ 140,730 $ 72,350 $ 54,570 $ 267,650
Sales to unaffiliated customers 26,134 12,072 7,025 45,231
(Loss) income before income taxes (148) 2,482 754 3,088
Income tax provision 738 1,147 156 2,041
Net (loss) income (886) 1,335 598 1,047
</TABLE>
11
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
5. ACQUISITIONS
The acquired entities described below (collectively referred to as the
"Acquisitions") 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.
On July 7, 1999, the Company purchased all of the outstanding shares of Cash A
Cheque Holdings Great Britain Limited ("CAC"), which operated 44 company owned
stores in the United Kingdom. The initial 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 excess of the purchase price over the fair value of
identifiable net assets acquired was $8.2 million. Additional consideration of
$9.7 million was subsequently paid based upon a profit-based earn-out agreement.
On November 18, 1999, the Company purchased all the outstanding shares of
Cheques R Us, Inc. ("CRU") and Courtenay Money Mart Ltd. ("Courtenay"), which
operated six stores in British Columbia. The aggregate purchase price for this
acquisition was $1.2 million and was funded through excess internal cash. The
excess of the purchase price over the fair value of identifiable net assets
acquired was $1.1 million.
On December 15, 1999, the Company purchased all of the outstanding shares of
Cash Centres Limited ("CCL"), which operated five company owned stores and 238
franchises in the United Kingdom. The aggregate purchase price for this
acquisition was $8.4 million and was funded through the Company's revolving
credit facility. The excess of the purchase price over the fair value of
identifiable net assets acquired was $7.7 million. The agreement also includes a
maximum potential contingent payment to the sellers of $2.7 million based on
future levels of profitability.
On February 10, 2000, the Company purchased primarily all of the assets of
CheckStop, Inc. ("CheckStop"), which was a short-term loan business operating
through 150 independent agents in 17 states. The aggregate purchase price for
this acquisition was $2.6 million and was funded through the Company's revolving
credit facility. The excess of the purchase price over the fair value of
identifiable net assets acquired was $2.4 million. The agreement also includes a
maximum potential contingent payment to the sellers of $350,000 based upon
future results of operations.
On August 1, 2000, the Company purchased all of the outstanding shares of West
Coast Chequing Centres, LTD ("WCCC") which operated six stores in British
Columbia. The aggregate purchase price for this acquisition was $1.5 million and
was funded through excess internal cash. The excess price over the fair value of
identifiable net assets acquired was $1.4 million.
On August 7, 2000, the Company purchased substantially all of the assets of Fast
`n Friendly Check Cashing ("F&F"), which operated 8 stores in Maryland. The
aggregate purchase price for this acquisition was $700,000 and was funded
through the Company's revolving credit facility. The excess purchase price over
fair value of identifiable net assets acquired was $660,000. The agreement also
includes a maximum potential contingent payment to the sellers of $150,000 based
on future revenue.
On August 28, 2000, L.M.S. Development Corporation, a subsidiary of the Company,
purchased primarily all of the assets of Ram-Dur Enterprises, Inc., d/b/a AAA
Check Cashing Centers ("AAA"), which operated five stores in Tucson, Arizona.
The aggregate purchase price for this acquisition was $1.3 million and was
funded through the
12
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
5. ACQUISITIONS (Continued)
Company's revolving credit facility. The excess purchase price over fair value
of identifiable net assets acquired was $1.2 million.
The following unaudited pro forma information for the three months ended
September 30, 1999 and 2000 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 the Acquisitions. 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.
Three Months Ended
September 30,
(Unaudited)
----------------------------
1999 2000
------------ ------------
(dollars in thousands)
Revenues $ 37,925 $ 45,469
Net income $ 1,174 $ 1,036
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Operations in the United Kingdom and Canada have exposed the Company to shifts
in currency valuations. As strategy is being finalized and policy created,
precautions have been taken should exchange rates shift. For the United Kingdom
subsidiary, put options with a notional value of 7.0 million British Pounds have
been purchased to protect quarterly earnings in the United Kingdom against
foreign exchange fluctuations. Each contract has a strike price of initially 5%
out of the money at the date of acquisition and each contract was out of the
money at September 30, 2000. The loss recognized in earnings for the three
months ended was minimal.
Out of the money put options were purchased for the following reasons: (1) lower
cost than completely averting risk and (2) maximum downside is limited to the
difference between strike price and exchange rate at date of purchase and price
of the contracts. This strategy will continually be evaluated as to its
effectiveness and suitability to the Company.
7. CONTINGENCIES AND LITIGATION
On October 23, 2000 the court approved the final settlement of a class-action
lawsuit which had been commenced in February 1999. The plaintiff, who
represented "payday loan" borrowers for purposes of the settlement, had alleged
violations of state and federal usury and consumer-protection laws by Eagle
National Bank (the lender in the plaintiff's loan transaction), the Company and
others. The final judgement expressly excludes any finding of wrongdoing by the
Company. The terms of the settlement set a maximum payout to the settlement
class of $5.5 million. During the year ended June 30, 2000, the Company recorded
its best estimate, based on the information then available, of the costs of the
settlement and of legal and administrative costs associated with the settlement.
The amount of the provision previously provided is sufficient to cover
expenditures associated with the final settlement.
13
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
September 30,
Company Operating Data: 1999 2000
------------ ---------------
<S> <C> <C>
Number of Locations:
Company-Owned............................................... 420 594
Franchised Stores and Check Cashing Agents.................. 86 339
--- ---
Total.......................................................... 506 933
=== ===
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
Operating Data: 1999 2000
------------ -----------
<S> <C> <C>
Face amount of checks cashed (in millions)..................... $612 $761
Face amount of average check................................... $317 $334
Face amount of average check (excluding Canada and the
United Kingdom)................................................ $342 $347
Average fee per check.......................................... $10.95 $11.12
Number of checks cashed (in thousands)......................... 1,927 2,279
Adjusted EBITDA1 $9,831 $11,246
Adjusted EBITDA Margin1........................................ 28.2% 24.9%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------
Collections Data: 1999 2000
------------ -------------
<S> <C> <C>
Face amount of returned checks (in thousands).................. $5,054 $6,714
Collections (in thousands)..................................... 3,641 4,870
----- -----
Net write-offs (in thousands).................................. $1,413 $1,844
====== ======
Collections as a percentage of
returned checks............................................. 72.0% 72.5%
Net write-offs as a percentage of
check cashing revenues...................................... 6.7% 7.3%
Net write-offs as a percentage of the
face amount of checks cashed................................ 0.23% 0.24%
</TABLE>
[FN]
1Adjusted 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 accounting principles generally accepted in
the United States 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 accounting principles generally accepted in the United States. 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.
</FN>
14
<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 the United Kingdom. The Company provides a diverse range
of consumer financial products and services primarily consisting of check
cashing, short-term consumer loans, money orders, money transfers 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 as of September 30, 2000 and the results of operations for the three
months ended September 30, 2000 and 1999. The results for the three months ended
September 30, 2000 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, 2000.
The Company has contracts with various governmental agencies for benefits
distribution and retail merchant services. The Company's contract expiration
date with the State of New York was December 31, 1998 but the Company negotiated
an extension to the contract through June 30, 2000 with two six-month extensions
exercisable by the state. The state has exercised both six-month extensions
extending the Company's contract to June 30, 2001. The Company has received
information from the State of New York pertaining to a statewide implementation
of an Electronic Benefit Transfer ("EBT") system which contemplates completion
by March 2001, upon successful implementation of the EBT program, the Company's
existing contract would be terminated. Management of the Company concluded that
the Company would not have the opportunity to provide similar government
services for the newly-installed EBT system in the State of New York.
Acquisitions
On July 7, 1999, the Company purchased all of the outstanding shares of Cash A
Cheque Holdings Great Britain Limited ("CAC"), which operated 44 company owned
stores in the United Kingdom. The initial 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 due 2006 ("Senior Subordinated Notes"). The excess of the
purchase price over the fair value of identifiable net assets acquired was $8.2
million. Additional consideration of $9.7 million was subsequently paid based
upon a profit-based earn-out agreement.
On November 18, 1999, the Company purchased all the outstanding shares of
Cheques R Us, Inc. ("CRU") and Courtenay Money Mart Ltd. ("Courtenay"), which
operated six stores in British Columbia. The aggregate purchase price for this
acquisition was $1.2 million and was funded through excess internal cash. The
excess of the purchase price over the fair value of identifiable net assets
acquired was $1.1 million.
On December 15, 1999, the Company purchased all of the outstanding shares of
Cash Centres Limited ("CCL"), which operated five company owned stores and 238
franchises in the United Kingdom. The aggregate purchase price for this
acquisition was $8.4 million and was funded through the Company's revolving
credit facility. The excess of the purchase price over the fair value of
identifiable net assets acquired was $7.7 million. The agreement also includes a
maximum potential contingent payment to the sellers of $2.7 million based on
future levels of profitability.
On February 10, 2000, the Company purchased primarily all of the assets of
CheckStop, Inc. ("CheckStop"), which was a short-term loan business operating
through 150 independent agents in 17 states. The aggregate purchase price for
this acquisition was $2.6 million and was funded through the Company's revolving
credit facility. The excess of the purchase price over the fair value of
identifiable net assets acquired was $2.4 million. The agreement also includes a
maximum potential contingent payment to the sellers of $350,000 based upon
future results of operations.
15
<PAGE>
On August 1, 2000, the Company purchased all of the outstanding shares of West
Coast Chequing Centres, LTD ("WCCC") which operated six stores in British
Columbia. The aggregate purchase price for this acquisition was $1.5 million and
was funded through excess internal cash. The excess price over the fair value of
identifiable net assets acquired was $1.4 million.
On August 7, 2000, the Company purchased substantially all of the assets of Fast
`n Friendly Check Cashing ("F&F"), which operated 8 stores in Maryland. The
aggregate purchase price for this acquisition was $700,000 and was funded
through the Company's revolving credit facility. The excess purchase price over
fair value of identifiable net assets acquired was $660,000. The agreement also
includes a maximum potential contingent payment to the sellers of $150,000 based
on future revenue.
On August 28, 2000, L.M.S. Development Corporation, a subsidiary of the Company,
purchased primarily all of the assets of Ram-Dur Enterprises, Inc., d/b/a AAA
Check Cashing Centers ("AAA"), which operated five stores in Tucson, Arizona.
The aggregate purchase price for this acquisition was $1.3 million and was
funded through the Company's revolving credit facility. The excess purchase
price over fair value of identifiable net assets acquired was $1.2 million.
All of the acquisitions described above (collectively, the "Acquisitions") have
been accounted for under the purchase method of accounting. Therefore, the
historical results of operations include the revenues and expenses of all the
acquired companies since their respective dates of acquisition.
16
<PAGE>
RESULTS OF OPERATIONS
Revenue Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Percentage of
($ in thousands) total revenue)
-------------------------- -----------------------------
1999 2000 1999 2000
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Check cashing............................... $21,100 $25,353 60.6% 56.1%
Cash `Til Payday(R)origination fees......... 6,309 11,680 18.1 25.8
Government services......................... 1,640 1,563 4.7 3.5
Other revenue............................... 5,783 6,635 16.6 14.6
---------- ----------- ----------- ----------
Total revenue............................... $34,832 $45,231 100.0% 100.0%
========== =========== =========== ==========
</TABLE>
QUARTER COMPARISON
Total revenues were $45.2 million for the three months ended September 30, 2000
compared to $34.8 million for the three months ended September 30, 1999, an
increase of $10.4 million or 29.9%. The Acquisitions accounted for an increase
of $4.5 million. In addition, revenues increased $3.0 million from new store
openings.
Comparable retail store sales at those locations owned by the Company for the
entire period increased $2.9 million or 9.6%. Check cashing revenue decreased
0.5%, Cash `Til Payday(R) origination fees increased 45.1% and other revenues
increased 7.4%. The increase in Cash `Til Payday(R) origination fees resulted
primarily from improvements in product design. Partially offsetting this
increase, however, was a 17.0% decline in revenues from government services.
17
<PAGE>
Store and Regional Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Percentage of
($ in thousands) total revenue)
----------------------------- --------------------------------
1999 2000 1999 2000
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Salaries and benefits............ $ 10,239 $ 13,474 29.4% 29.8%
Occupancy........................ 2,928 3,980 8.4 8.8
Depreciation..................... 884 1,369 2.5 3.0
Other............................ 7,229 10,561 20.8 23.3
------------ ------------ ------------- ----------------
Total store and regional
expenses...................... $ 21,280 $ 29,384 61.1% 64.9%
============ ============ ============= ==============
</TABLE>
QUARTER COMPARISON
Store and regional expenses were $29.4 million for the three months ended
September 30, 2000 compared to $21.3 million for the three months ended
September 30, 1999, an increase of $8.1 million or 38.0%. The Acquisitions
accounted for an increase of $3.0 million and new store openings resulted in an
increase of $3.4 million. For the three months ended September 30, 2000 total
store and regional expenses increased to 64.9% of total revenue compared to
61.1% of total revenue for the three months ended September 30, 1999 due to
increased start-up costs associated with new store openings.
18
<PAGE>
Other Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Percentage of
($ in thousands) total revenue)
-------------------------- ---------------------------
1999 2000 1999 2000
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Corporate expenses....................... $ 4,540 $ 6,215 13.0% 13.7%
Loss on store closings
and sales............................. 44 34 0.1 0.1
Goodwill amortization.................... 1,176 1,080 3.4 2.4
Other depreciation and amortization...... 302 469 0.9 1.0
Interest expense......................... 4,170 4,961 12.0 11.0
Income taxes............................. 2,108 2,041 6.1 4.5
</TABLE>
QUARTER COMPARISON
Corporate Expenses
Corporate expenses were $6.2 million for the three months ended September 30,
2000 compared to $4.5 million for the three months ended September 30, 1999, an
increase of $1.7 million. Additional costs have been incurred as a result of the
Acquisitions and the opening of new stores.
Goodwill Amortization
Goodwill amortization was $1.1 million for the three months ended September 30,
2000 and was $1.2 million for the three months ended September 30, 1999, a
decrease of $100,000. The decrease is due to the completion of the accelerated
amortization of the remaining goodwill associated with the pending expiration of
the Company's government services line of business, offset by the goodwill
associated with the Acquisitions.
Other Depreciation
Other depreciation and amortization expenses were $500,000 and $300,000 for the
three months ended September 30, 2000 and 1999, respectively, an increase of
$200,000. The increase is the result of non-store and regional depreciation
related to the Acquisitions.
Interest Expense
Interest expense was $5.0 million for the three months ended September 30, 2000
and was $4.2 million for the three months ended September 30, 1999, an increase
of $800,000 or 19.0%. This increase is primarily attributable to the increase in
borrowings under the Company's revolving credit facilities to fund acquisitions,
purchases of property and equipment related to existing stores, recently
acquired or opened stores and investments in technology and the increase in the
borrowing rates of the Company's revolving credit facilities.
Income Taxes
The provision for income taxes was $2.0 million for the three months ended
September 30, 2000 compared to $2.1 million for the three months ended September
30, 1999, a decrease of $100,000. The Company's effective tax rate is
significantly greater than the federal statutory rate of 34% due to state taxes,
foreign taxes, non-deductible goodwill amortization which resulted from the June
30, 1994 acquisition of the Company and several subsequent acquisitions.
19
<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, 2000, cash and cash equivalents increased $3.0
million. Revolving credit facilities increased $15.2 million due to the
acquisitions of F&F and AAA and the payment of additional consideration for CAC.
Net cash generated by operations totaled $4.1 million.
Accrued expenses, during the three months ended September 30, 2000, decreased
due to the payment of additional consideration for CAC, which was recorded as of
June 30, 2000. 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.
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, 2000 and 1999, the Company had net cash provided by operating
activities of $4.1 million and $7.6 million, respectively, for purchases of
property and equipment related to existing stores, recently acquired and opened
stores, investments in technology and acquisitions. For the three months ended
September 30, 2000, the Company had made capital expenditures of $3.0 million.
The actual amount of capital expenditures for the year will depend in part upon
the number of new stores acquired or opened 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, 2001, 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, 2000 were $58.5 million. The Senior Notes, Senior Subordinated Notes and the
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 $10.0 million, of which $2.0 million was
outstanding as of September 30, 2000. For the Company's United Kingdom
operations, the Company also has an overdraft facility which provides for a
commitment of up to approximately $7.4 million of which $4.2 million was
outstanding as of September 30, 2000. The overdraft facility is secured by an
$8.0 million letter of credit issued by Wells Fargo Bank under the revolving
credit facility.
The Company is highly leveraged, and borrowings under the 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 the expansion of the Cash 'Til Payday(R) loan program.
The Company also expects operating expenses to increase, although the rate of
increase is expected to be less than the rate of revenue growth. Furthermore,
the Company does not believe that additional acquisitions or expansion are
necessary in order for it to be able to cover its fixed expenses, including debt
service. 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 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
20
<PAGE>
necessary for 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.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). The SEC subsequently issued SAB 101B, which delays the effective date of
SAB101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. SAB 101 is expected to have no effect on the Company's
results of operations, financial position, capital resources or liquidity.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement was adopted effective July
1, 2000, and does not materially impact the Company's financial statements.
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.
21
<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, 2000.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 23, 2000 the court approved the final settlement of a class-action
lawsuit which had been commenced in February 1999. The plaintiff, who
represented "payday loan" borrowers for purposes of the settlement, had alleged
violations of state and federal usury and consumer-protection laws by Eagle
National Bank (the lender in the plaintiff's loan transaction), the Company and
others. The final judgement expressly excludes any finding of wrongdoing by the
Company. The terms of the settlement set a maximum payout to the settlement
class of $5.5 million. During the year ended June 30, 2000, the Company recorded
its best estimate, based on the information then available, of the costs of the
settlement and of legal and administrative costs associated with the settlement.
The amount of the provision previously provided is sufficient to cover
expenditures associated with the final settlement.
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 ended September 30, 2000, the
registrant filed one report on Form 8K dated September 12,
2000 reporting an Item 2 Event (Acquisition or Disposition of
Assets).
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOLLAR FINANCIAL GROUP, INC.
Dated: November 14, 2000 *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.
24
<PAGE>
