<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 December 31, 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 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> <C>
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 1999
and December 31, 1999 (unaudited)............................................. 3
Interim Unaudited Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 1998 and 1999....................................... 4
Interim Unaudited Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 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......................................................... 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, December 31,
1999 1999
----------------------- -----------------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 65,782 $ 68,278
Accounts receivable................................................ 9,854 12,681
Income taxes receivable............................................ 2,587 -
Prepaid expenses................................................... 2,174 4,990
Notes receivable - officers........................................ 2,851 2,921
Due from parent.................................................... - 542
Property and equipment, net of accumulated depreciation
of $7,546 and $10,843........................................... 12,754 19,691
Cost assigned to contracts acquired, net of accumulated
amortization of $581 and $618..................................... 104 74
Cost in excess of net assets acquired, net of accumulated
amortization of $11,232 and $13,947............................... 96,125 114,230
Covenants not to compete, net of accumulated amortization
of $1,295 and $1,431............................................ 407 278
Debt issuance costs, net of accumulated amortization of
$1,917 and $2,590.......................................... 9,416 9,097
Other.............................................................. 1,655 1,630
--------- ---------
$203,709 $234,412
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable................................................... $ 12,040 $ 14,001
Income taxes payable............................................... 2,483 3,296
Advance from money transfer agent.................................. 2,000 2,000
Accrued expenses................................................... 4,868 10,946
Accrued interest payable........................................... 3,162 1,518
Deferred tax liability............................................. 78 78
Due to parent...................................................... 578 -
Revolving credit facilities........................................ 12,162 32,566
10-7/8 % Senior Notes due 2006..................................... 109,190 109,190
Long term debt and subordinated notes payable...................... 20,814 20,509
Shareholder's equity:
Common stock, $1 par value: 20,000 shares
authorized; 100 shares issued and outstanding at
June 30, 1999 and December 31, 1999............................. - -
Additional paid-in capital......................................... 50,824 50,824
Accumulated deficit................................................ (11,224) (9,112)
Accumulated other comprehensive loss............................... (3,266) (1,404)
--------- ---------
Total shareholder's equity...................................... 36,334 40,308
--------- ---------
$203,709 $234,412
========= ========
</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 Six Months Ended
December 31, December 31,
-------------------------------------- --------------------------------------
1998 1999 1998 1999
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Revenues.......................................... $28,929 $39,881 $56,020 $74,713
Store and regional expenses:
Salaries and benefits.......................... 8,527 11,479 17,026 21,718
Occupancy...................................... 2,273 3,141 4,662 6,069
Depreciation................................... 526 1,068 1,005 1,952
Other.......................................... 5,917 9,246 11,844 16,475
------------ ---------- ----------- ----------
Total store and regional expenses................. 17,243 24,934 34,537 46,214
Corporate expenses................................ 3,100 4,743 6,346 9,283
Loss on store closings and sales.................. 25 27 50 71
Goodwill amortization............................. 1,135 1,483 2,282 2,659
Other depreciation and amortization............... 277 351 541 653
Recapitalization costs and other non-recurring
items............................................ 12,575 133 12,575 133
Interest expense.................................. 3,271 4,246 6,498 8,416
------------ ---------- ----------- ----------
(Loss) income before income taxes and
extraordinary item............................... (8,697) 3,964 (6,809) 7,284
Income tax (benefit) provision.................... (1,470) 3,064 (363) 5,172
------------ ---------- ----------- ----------
(Loss) income before extraordinary item........... (7,227) 900 (6,446) 2,112
Extraordinary loss on debt extinquishment (net of
income tax benefit of $45)..................... 85 - 85 -
------------ ---------- ----------- ----------
Net (loss) income................................. $(7,312) $ 900 $(6,531) $ 2,112
============ ========== =========== ==========
</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>
Six Months Ended
December 31,
-------------------------------------------
1998 1999
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income..................................................... $ (6,531) $ 2,112
Adjustments to reconcile net (loss) income to
cash provided by operating activities:
Depreciation and amortization...................................... 4,164 5,932
Loss on store closings and sales................................... 50 71
Noncash recapitalization costs..................................... 9,883 133
Extraordinary loss on debt extinguishment (net of income tax
benefit of $45).................................................. 85 -
Change in assets and liabilities (net of effect of acquisitions):
(Increase) decrease in accounts receivable and income taxes
receivable...................................................... (6,771) 1,267
Increase in prepaid expenses and other........................... (97) (479)
(Decrease) increase in accounts payable, income taxes
payable, accrued expenses and accrued interest payable.......... (15) 618
--------------- --------------
Net cash provided by operating activities............................. 768 9,654
Cash flows from investing activities:
Acquisitions, net of cash acquired................................... (55) (21,258)
Additions to property and equipment.................................. (2,356) (6,279)
--------------- --------------
Net cash used in investing activities................................. (2,411) (27,537)
Cash flows from financing activities:
Other debt payments.................................................. (9) (866)
Net increase in revolving credit facilities.......................... 18,500 20,404
Proceeds from long term debt......................................... - 1,893
Payment of debt issuance costs....................................... (7,133) (350)
Advances to officers................................................. (2,651) (64)
Payments of financed insurance premiums.............................. (10) -
Net decrease in due to parent........................................ - (1,120)
--------------- --------------
Net cash provided by financing activities............................. 8,697 19,897
Effect of exchange rate changes on cash and cash equivalents.......... (576) 482
--------------- --------------
Net increase in cash and cash equivalents............................. 6,478 2,496
Cash and cash equivalents at beginning of period...................... 55,501 65,782
--------------- --------------
Cash and cash equivalents at end of period............................ $ 61,979 $ 68,278
=============== ==============
</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.
Reclassification
Certain prior year amounts have been reclassified to the current presentation.
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 December 31, 1999. The Company, through its subsidiaries, provides retail
financial and government contractual services to the general public through a
network of 770 (of which 456 are company owned) locations operating as Any Kind
Check Cashing Centers, Cash A Cheque, Cash Centres, Check Mart(R), Financial
Exchange Company(R), Money Mart(R), The Money Shop and Loan Mart(R) 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 December 31, 1999, and the
consolidating statement of operations and cash flows for the six month period
ended December 31, 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
December 31, 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.............................. $ 5,930 $ 36,245 $ 26,103 $ 68,278
Accounts receivable.................................... 10,410 4,326 7,050 (9,105) 12,681
Income taxes receivable................................ - 531 - (531) -
Prepaid expenses....................................... 601 1,550 2,839 4,990
Notes receivable-officers.............................. 2,851 - 70 2,921
Due from affiliates.................................... 78,285 - - (78,285) -
Due from parent........................................ 542 - - 542
Property and equipment, net............................ 3,339 7,545 8,807 19,691
Cost assigned to contracts acquired, net............... - 74 - 74
Cost in excess of net assets acquired, net............. - 54,540 59,690 114,230
Covenants not to compete, net.......................... - 278 - 278
Debt issuance costs, net............................... 9,097 - - 9,097
Investment in subsidiaries............................. 98,475 - - (98,475) -
Other.................................................. 357 460 813 1,630
----------- ----------- ----------- ----------- -----------
$209,887 $105,549 $105,372 $(186,396) $234,412
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable....................................... $ - $ 8,913 $ 5,088 $ 14,001
Income taxes payable................................... 837 1 2,989 (531) 3,296
Advance from money transfer agent...................... 2,000 - - 2,000
Accrued expenses....................................... 5,023 1,924 3,999 10,946
Accrued interest payable............................... 1,518 - 9,105 (9,105) 1,518
Deferred tax liability................................. 78 - - 78
Due to parent.......................................... - - - -
Due to affiliates...................................... - 14,342 63,943 (78,285) -
Revolving credit facilities............................ 30,200 - 2,366 32,566
10-7/8% Senior Notes due 2006.......................... 109,190 - - 109,190
Long term debt and subordinated notes payable.......... 20,000 - 509 20,509
----------- ----------- ----------- ----------- -----------
168,846 25,180 87,999 (87,921) 194,104
Shareholder's equity:
Common stock........................................... - - - -
Additional paid-in capital............................. 50,824 46,614 10,797 (57,411) 50,824
(Accumulated deficit) retained earnings................ (9,112) 33,755 7,309 (41,064) (9,112)
Accumulated other comprehensive loss................... (671) - (733) (1,404)
----------- ----------- ----------- ----------- -----------
Total shareholder's equity............................. 41,041 80,369 17,373 (98,475) 40,308
----------- ----------- ----------- ----------- -----------
$209,887 $105,549 $105,372 $(186,396) $234,412
=========== =========== =========== =========== ===========
</TABLE>
8
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues..................................................... $ (164) $45,507 $29,370 $74,713
Store and regional expenses:
Salaries and benefits..................................... - 13,947 7,771 21,718
Occupancy................................................. - 3,804 2,265 6,069
Depreciation.............................................. - 1,043 909 1,952
Other..................................................... - 10,883 5,592 16,475
----------- ----------- ----------- ----------- -----------
Total store and regional expenses............................ - 29,677 16,537 46,214
Corporate expenses........................................... 6,470 - 2,813 9,283
Management fees.............................................. (909) - 909 -
Loss (gain) on store closings and sales...................... 1,844 (1,795) 22 71
Goodwill amortization........................................ - 1,785 874 2,659
Other depreciation and amortization.......................... 356 112 185 653
Recapitalization costs and other non-recurring items......... - - 133 133
Interest expense............................................. 6,306 116 1,994 8,416
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes............................ (14,231) 15,612 5,903 - 7,284
Income tax provision......................................... 3,447 - 1,725 5,172
----------- ----------- ----------- ----------- -----------
(Loss) income before equity in net income of subsidiaries.... (17,678) 15,612 4,178 - 2,112
Equity in net income of subsidiaries:
Domestic subsidiary guarantors............................... 15,612 - - (15,612) -
Foreign subsidiary guarantors................................ 4,178 - - (4,178) -
----------- ----------- ----------- ----------- -----------
Net income................................................... $ 2,112 $15,612 $ 4,178 $(19,790) $ 2,112
=========== =========== =========== =========== ===========
</TABLE>
9
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF CASH FLOWS
Six months ended December 31, 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............................................. $ 2,112 $ 15,612 $ 4,178 $ (19,790) $ 2,112
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Undistributed income of subsidiaries............ (19,790) - - 19,790 -
Depreciation and amortization................... 1,031 2,932 1,969 - 5,932
Loss (gain) on store closings and sales......... 1,844 (1,795) 22 - 71
Noncash recapitalization costs.................. - - 133 - 133
Change in assets and liabilities (net of effect
of acquisitions):
Increase in accounts receivable and income
taxes receivable........................... (152) (85) (432) 1,936 1,267
Decrease (increase) in prepaid expenses
and other................................. 226 (275) (430) - (479)
Increase (decrease) in accounts payable,
income taxes payable, accrued expenses
and accrued interest payable............... 2,033 (1,952) 2,473 (1,936) 618
----------- --------- ---------- ---------- ----------
Net cash (used in) provided by operating activities.... (12,696) 14,437 7,913 - 9,654
Cash flows from investing activities:
Acquisitions, net of cash acquired............ - (465) (20,793) - (21,258)
Additions to property and equipment........... (1,566) (2,041) (2,672) - (6,279)
Net increase in due from affiliates........... (3,065) - - 3,065 -
----------- --------- ---------- ---------- ----------
Net cash used in investing activities.................. (4,631) (2,506) (23,465) 3,065 (27,537)
Cash flows from financing activities:
Other debt payments........................... - (3) (863) - (866)
Net increase in revolving credit facilities... 19,700 - 704 - 20,404
Proceeds from long term debt.................. 1,893 - - - 1,893
Payments of debt issuance costs............... (350) - - - (350)
Advances to officers.......................... - - (64) - (64)
Net (decrease) increase in due to
affiliates and parent........................ (1,120) (4,739) 7,804 (3,065) (1,120)
----------- --------- ---------- ---------- ----------
Net cash provided by (used in) financing activities.... 20,123 (4,742) 7,581 (3,065) 19,897
Effect of exchange rate changes on cash and cash
equivalents................................... - - 482 - 482
----------- --------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents... 2,796 7,189 (7,489) - 2,496
Cash and cash equivalents at beginning of period....... 3,134 29,056 33,592 - 65,782
----------- --------- ---------- ---------- ----------
Cash and cash equivalents at end of period............. $ 5,930 $ 36,245 $ 26,103 $ - $ 68,278
=========== ========= ========== ========== ==========
</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 Six Months Ended
December 31, December 31,
---------------------------------- -----------------------------------
1998 1999 1998 1999
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net (loss) income $(7,312) $ 900 $(6,531) $2,112
Foreign currency translation adjustment (219) 1,248 (1,415) 1,862
-------------- ------------ -------------- --------------
Total comprehensive (loss) income $(7,531) $2,148 $(7,946) $3,974
============== ============ ============== ==============
</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
------------------------------------------------------
<S> <C> <C> <C> <C>
As of and for the three months
ended December 31, 1998
Identifiable assets $140,347 $45,484 $ - $185,831
Sales to unaffiliated customers 21,919 7,010 - 28,929
(Loss) income before income taxes and (9,634) 937 - (8,697)
extraordinary item
Income tax (benefit) provision (2,066) 596 - (1,470)
Extraordinary loss on debt extinquishment (net of
income tax benefit of $45) 85 - - 85
------------------------------------------------------
Net (loss) income $ (7,653) $ 341 $ - $ (7,312)
======================================================
For the six months ended December 31, 1998
Sales to unaffiliated customers $ 42,265 $13,755 $ - $ 56,020
(Loss) income before income taxes and extraordinary (9,439) 2,630 - (6,809)
item
Income tax (benefit) provision (1,875) 1,512 - (363)
Extraordinary loss on debt extinquishment (net of
income tax benefit of $45) 85 - - 85
------------------------------------------------------
Net (loss) income $ (7,649) $ 1,118 $ - $ (6,531)
=======================================================
</TABLE>
11
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
<TABLE>
<CAPTION>
United United
States Canada Kingdom Total
<S> <C> <C> <C> <C>
As of and for the three months
ended December 31, 1999
Identifiable assets $ 129,040 $ 59,837 $ 45,535 $ 234,412
Sales to unaffiliated customers 23,800 10,099 5,982 39,881
Income before income taxes 1,107 2,345 512 3,964
Income tax provision 2,210 713 141 3,064
-----------------------------------------
Net (loss) income $ (1,103) $ 1,632 $ 371 $ 900
=========================================
For the six months ended December 31, 1999
Sales to unaffiliated customers $ 45,343 $ 19,238 $ 10,132 $ 74,713
Income before income taxes 1,381 4,344 1,559 7,284
Income tax provision 3,447 1,285 440 5,172
-----------------------------------------
Net (loss) income $ (2,066) $ 3,059 $ 1,119 $ 2,112
=========================================
</TABLE>
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 operated 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 excess of the purchase price over
the fair value of identifiable net assets acquired was $8.2 million.
On November 18, 1999, the Company entered into an agreement to acquire 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 entered into an agreement to acquire all of
the outstanding shares of Cash Centres Corporation Limited ("CCCL"), 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 $7.5
million. The agreement also includes a maximum potential contingent payment to
the sellers of $2.7 million based on future levels of profitability.
12
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The following unaudited pro forma information for the three months and six
months ended December 31, 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, CAC, CRU, Courtenay and CCCL. 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 Six Months Ended
December 31, December 31,
(Unaudited) (Unaudited)
1998 1999 1998 1999
------------ ------------ -------------------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 35,407 $ 41,572 $ 67,036 $ 78,417
(Loss) income before extraordinary item (6,871) 1,262 (6,279) 2,407
Net (loss) income (6,956) 1,262 (6,364) 2,407
</TABLE>
6. CONTINGENCIES AND LITIGATION
On December 28, 1999, the Company entered into a settlement of a lawsuit which
had been commenced in February 1999. The plaintiff, who purports to represent a
class of "payday loan" borrowers, 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. In entering into the
settlement, the Company specifically denied any wrongdoing. The terms of the
settlement set a maximum payout amount of up to $5.5 million. The settlement is
awaiting final court approval. Management has determined that a minimum loss
amount can be reasonably estimated. Accordingly, during the quarter ended
December 31, 1999, the Company recorded its best estimate, based on the
information available at the time, of the cost of providing relief to class
members and for legal and administrative costs associated with the settlement.
Given the uncertainties associated with estimating the reserve, it is reasonably
possible that the final cost of the settlement could differ materially from the
amount previously provided. The Company will continue to update its estimate of
the final cost of the settlement as the settlement process continues. The range
of any additional costs related to the settlement cannot be reasonably
estimated.
In November 1999, the Company entered into a stipulation to submit to binding
arbitration, a lawsuit which commenced in May 1996, captioned Adrian Rubin v.
Monetary Management Corp., et al. Arbitration of the Plaintiff's claims and the
Company's counterclaims are scheduled to take place on March 31, 2000. Pursuant
to the terms of the stipulation, both the Company and the Plaintiff have agreed
to cap the amount of any judgment they may be awarded. The Company has reduced
its accrual for this matter to reflect the reduced exposure consistent with the
terms of the stipulation and will continue to adjust its accrual as new
information becomes available. The Company believes it has meritorious defenses
to the allegations and will actively contest the Plaintiff's claim.
The net effect of these items is immaterial and is included in recapitalization
costs and other non-recurring items.
7. SUBSEQUENT EVENTS
Effective February 10, 2000, the Company entered into an agreement to acquire
all of the assets of CheckStop, Inc. which is a payday loan business operating
through 150 independent satellite locations in 17 states. The aggregate
purchase price for this acquisition will be approximately $2.6 million and will
be funded through the Company's revolving credit facility. The agreement also
includes a maximum potential contingent payment to the sellers of $350,000 based
on future levels of profitability.
13
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
SUPPLEMENTAL STATISTICAL DATA
December 31,
Company Operating Data: 1998 1999
--------- ---------
Stores in operation:
Company-Owned....................................... 351 456
Franchised Stores................................... 83 314
------ -------
Total.................................................. 434 770
====== =======
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ---------------------
Operating Data: 1998 1999 1998 1999
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Face amount of checks cashed (in millions)....................... $ 564 $ 648 $ 1,116 $ 1,260
Face amount of average check..................................... $ 295 $ 320 $ 298 $ 319
Face amount of average check (excluding Canada and the United
Kingdom)........................................................ $ 321 $ 342 $ 306 $ 342
Average fee per check............................................ $ 9.45 $ 11.47 $ 9.03 $ 11.22
Number of checks cashed (in thousands)........................... 1,910 2,026 3,889 3,953
Adjusted EBITDA (in thousands)/1/................................ $ 9,180 $ 11,168 $ 16,310 $ 20,999
Adjusted EBITDA Margin/1/........................................ 31.7% 28.0% 29.1% 28.1%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ---------------------
Collections Data: 1998 1999 1998 1999
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Face amount of returned checks (in thousands).................... $ 4,318 $ 5,668 $ 8,414 $ 10,722
Collections (in thousands)....................................... 3,144 4,039 6,134 7,677
-------- --------- -------- --------
Net write-offs (in thousands).................................... $ 1,174 $ 1,629 $ 2,280 $ 3,045
======== ========= ======== ========
Collections as a percentage of
returned checks............................................... 72.8% 71.3% 72.9% 71.6%
Net write-offs as a percentage of
check cashing revenues........................................ 6.4% 7.0% 6.4% 6.9%
Net write-offs as a percentage of the
face amount of checks cashed.................................. .21% .18% .20% .20%
</TABLE>
/1/ Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization, gain (loss) on store closings and sales, recapitalization costs
and other non-recurring items and extraordinary items. 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.
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 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 December 31, 1999 and the results of operations for the three and
six months ended December 31, 1999 and 1998. The results for the three and six
months ended December 31, 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 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. 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 operated 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. The excess of
the purchase price over the fair value of the identifiable net assets acquired
was $8.2 million.
On November 18, 1999, the Company entered into an agreement to acquire 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 entered into an agreement to acquire all of
the outstanding shares of Cash Centres Corporation Limited ("CCCL"), 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 $7.5
million. The agreement also includes a maximum potential contingent payment to
the sellers of $2.7 million based on future levels of profitability.
15
<PAGE>
All of the acquisitions described above (collectively, the "Acquisitions") have
been accounted for under the purchase method of accounting. Therefore, the
historical results of operations include the revenues and expenses of all the
acquired companies since their respective dates of acquisition.
RESULTS OF OPERATIONS
Revenue Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
- ---------------------------------------------------------------------------------- ---------------------------------------
(Percentage of (Percentage of
($ in thousands) Total Revenue) ($ in thousands) Total Revenue)
--------------------------------------- ---------------------------------------
1998 1999 1998 1999 1998 1999 1998 1999
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Check cashing.......................... $18,371 $23,431 63.5% 58.8% $35,434 $44,531 63.3% 59.6%
Cash `Til Payday(R) origination fees... 4,488 7,720 15.5 19.4 7,988 14,029 14.3 18.8
Government services.................... 1,493 1,600 5.2 4.0 3,085 3,240 5.4 4.3
Other revenue.......................... 4,577 7,130 15.8 17.8 9,513 12,913 17.0 17.3
------- ------- ----- ----- ------- ------- ----- -----
Total revenue.......................... $28,929 $39,881 100.0% 100.0% $56,020 $74,713 100.0% 100.0%
======= ======= ===== ===== ======= ======= ===== =====
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Total revenues were $39.9 million for the three months ended December 31, 1999
compared to $28.9 million for the three months ended December 31, 1998, an
increase of $11.0 million or 38.1%. The Acquisitions accounted for an increase
of $6.8 million.
Comparable retail store sales at those locations owned by the Company for the
entire period increased $3.6 million or 13.5%. Check cashing revenue increased
5.1%, Cash `Til Payday(R) origination fees increased 47.3% and other revenues
increased 20.8%. Partially offsetting this increase, however, was a 33.7%
decline in retail store revenues from government services. The decrease in
retail store 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.
SIX MONTH COMPARISON
Total revenues were $74.7 million for the six months ended December 31, 1999
compared to $56.0 million for the six months ended December 31, 1998, an
increase of $18.7 million or 33.4%. The Acquisitions accounted for an increase
of $11.6 million.
Comparable retail store sales at those locations owned by the Company for the
entire period increased $6.1 million or 12.0%. Check cashing revenue increased
4.9%, Cash `Til Payday(R) origination fees increased 49.4% and other revenues
increased 13.0%. The increase in Cash `Til Payday(R) origination fees resulted
from the full roll-out of the Cash `Til Payday(R) loan product as well as change
in the criteria to attain a loan. Partially offsetting this increase, however,
was a 37.6% decline in retail store revenues from government services. The
decrease in retail store revenues from government services resulted primarily
from the reduction in the number of individuals receiving benefits under
government programs and due to the implementation of EBT. The Company receives
revenue on its government contracts based primarily on the number of
transactions it executes. As state and local government agencies implement EBT
systems, the Company expects a continuing decline in the Company's government
services revenue.
16
<PAGE>
Store and Regional Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) total revenue) ($ in thousands) total revenue)
------------------- ----------------- ------------------- ----------------
1998 1999 1998 1999 1998 1999 1998 1999
--------- -------- ------- ------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits................. $ 8,527 $11,479 29.5% 28.8% $17,026 $21,718 30.4% 29.1%
Occupancy............................. 2,273 3,141 7.9 7.9 4,662 6,069 8.3 8.1
Depreciation.......................... 526 1,068 1.8 2.7 1,005 1,952 1.8 2.6
Other................................. 5,917 9,246 20.5 23.2 11,844 16,475 21.1 22.1
------- ------- ---- ---- ------- ------- ---- ----
Total store and regional expenses..... $17,243 $24,934 59.7% 62.6% $34,537 $46,214 61.6% 61.9%
======= ======= ==== ==== ======= ======= ==== ====
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Store and regional expenses were $24.9 million for the three months ended
December 31, 1999 compared to $17.2 million for the three months ended December
31, 1998, an increase of $7.7 million or 44.8%. The Acquisitions accounted for
an increase of $4.4 million. For the three months ended December 31, 1999 total
store and regional expenses increased to 62.6% of total revenue compared to
59.7% of total revenue for the same period in the prior year due to increased
store openings in the three months ended December 31, 1999.
SIX MONTH COMPARISON
Store and regional expenses were $46.2 million for the six months ended December
31, 1999 compared to $34.5 million for the six months ended December 31, 1998,
an increase of $11.7 million or 33.9%. Store and regional expenses associated
with the Acquisitions were $7.3 million. For the six months ended December 31,
1999 total store and regional expenses remained relatively level at
approximately 62% of total revenue.
17
<PAGE>
Other Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
($ in thousands) (Percentage of revenues) ($ in thousands) (Percentage of revenues)
------------------ -------------------------- -------------------- --------------------------
1998 1999 1998 1999 1998 1999 1998 1999
------- ------- ----------- ------------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate expenses................. $ 3,100 $4,743 10.7% 11.9% $ 6,346 $9,283 11.3% 12.4%
Loss on store closings
and sales........................ 25 27 0.1 0.1 50 71 0.1 0.1
Goodwill amortization.............. 1,135 1,483 3.9 3.7 2,282 2,659 4.1 3.6
Other depreciation and
amortization..................... 277 351 1.0 0.9 541 653 1.0 0.9
Recapitalization costs and other
non-recurring items............... 12,575 133 43.5 0.3 12,575 133 22.4 0.2
Interest expense................... 3,271 4,246 11.3 10.6 6,498 8,416 11.6 11.3
Income tax (benefit) provision..... (1,470) 3,064 (5.1) 7.7 (363) 5,172 (0.6) 6.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTER COMPARISON
Corporate Expenses
Corporate expenses were $4.7 million for the three months ended December 31,
1999 compared to $3.1 million for the three months ended December 31, 1998, an
increase of $1.6 million or 51.6%. The Acquisitions accounted for $700,000 of
the increase. Additional costs, primarily salaries and benefits, have been
incurred as a result of the implementation of various strategic initiatives
including the opening of Loan Mart(R) stores, which offer primarily Cash `Til
Payday(R) unsecured short-term loans.
Goodwill Amortization
For the three months ended December 31, 1999, goodwill amortization was $1.5
million compared to $1.1 million for the three months ended December 31, 1998,
an increase of $400,000. The increase is due to the additional goodwill
associated with the Acquisitions.
Other Depreciation and Amortization
Other depreciation and amortization expenses were $400,000 and $300,000 for the
three months ended December 31, 1999 and 1998, respectively, an increase of
$100,000. The increase is the result of non store and regional depreciation
related to the Acquisitions.
Recapitalization Costs and Other Non-recurring Items
During the three months ended December 31, 1998, the Company incurred $12.6
million for the consummation of the merger between Holdings and Acquisition
which was accounted for as a recapitalization of Holdings. During the three
months ended December 31, 1999, the Company made a subsequent adjustment of
$133,000 for the recapitalization of Holdings.
Interest Expense
Interest expense was $4.2 million for the three months ended December 31, 1999
and $3.3 million for the three months ended December 31, 1998, an increase of
$900,000 or 27.3%. This increase is primarily attributable to the increase in
borrowings from the Merger as well as the additional Acquisitions.
Income Taxes
The provision for income taxes was $3.1 million for the three months ended
December 31, 1999 compared to a $1.5 million benefit for the three months ended
December 31, 1998, an increase of $4.6 million. This increase is primarily
attributable to the expenses related to the merger and recapitalization of
Holdings in the quarter ended December 1998. The Company's effective
18
<PAGE>
tax rate is significantly greater than the federal statutory rate of 34% due to
non-deductible goodwill amortization, state taxes and foreign taxes.
SIX MONTH COMPARISON
Corporate Expenses
Corporate expenses were $9.3 million for the six months ended December 31, 1999
compared to $6.3 million for the six months ended December 31, 1998, an increase
of $3.0 million or 47.6%. The Acquisitions accounted for $1.3 million of the
increase. Additional costs, primarily salaries and benefits, have been incurred
as a result of the implementation of various strategic initiatives including
the opening of Loan Mart(R) stores, which offer primarily Cash `Til Payday(R)
unsecured short-term loans.
Goodwill Amortization
For the six month periods ending December 31, 1999 and 1998, goodwill
amortization was $2.7 million and $2.3 million, respectively, an increase of
$400,000. The increase is due to the additional goodwill associated with the
Acquisitions.
Other Depreciation and Amortization
Other depreciation and amortization expenses were $500,000 and $700,000 for the
six months ended December 31, 1999 and 1998, respectively, an increase of
$200,000. The increase is the result of non store and regional depreciation
related to the Acquisitions.
Recapitalization Costs and Other Non-recurring Items
During the six months ended December 31, 1998, the Company incurred $12.6
million for the consummation of the merger between Holdings and Acquisition
which was accounted for as a recapitalization of Holdings. During the six
months ended December 31, 1999, the Company made a subsequent adjustment of
$133,000 for the recapitalization of Holdings.
Interest Expense
Interest expense was $8.4 million for the six months ended December 31, 1999 and
$6.5 million for the six months ended December 31, 1998. The increase is
primarily attributable to the increase in borrowings from the Merger as well as
the additional Acquisitions.
Income Taxes
The provision for income taxes was $5.2 million for the six months ended
December 31, 1999 compared to a benefit of $400,000 for the six months ended
December 31, 1998, an increase of $5.6 million. This increase is primarily
attributable to the expenses related to the merger and recapitalization of
Holdings in the six months ended December 1998. 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.
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
six months ended December 31, 1999, cash and cash equivalents increased by $2.5
million and the revolving credit facilities increased $20.4 million due to the
net activity of cash generated by operations of $9.7 million offset by the
acquisitions of CAC and CCCL in the United Kingdom and CRU in Canada, the
remodeling of certain existing stores and new store openings.
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 six months ended December
31, 1999 and 1998, the Company had net cash provided by operating activities of
$9.7 million and $800,000, 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 six months ended December
31, 1999, the Company had made capital expenditures of $6.3 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 December
31, 1999 were $30.2 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 $4.8
million, and had a $900,000 outstanding balance as of December 31, 1999. In
conjunction with the purchase of ICL, CAC and CCCL, the Company established an
overdraft credit facility to fund working capital needs for its United Kingdom
operations. The overdraft facility provides for up to $8.0 million and had $1.5
million outstanding as of December 31, 1999. 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 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 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.
20
<PAGE>
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 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,
2000. 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.
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, 1999.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On December 28, 1999, the Company entered into a settlement of a lawsuit
which had been commenced in February 1999. The plaintiff, who purports to
represent a class of "payday loan" borrowers, 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.
In entering into the settlement, the Company specifically denied any
wrongdoing. The terms of the settlement set a maximum payout amount of up
to $5.5 million. The settlement is awaiting final court approval.
Management has determined that a minimum loss amount can be reasonably
estimated. Accordingly, during the quarter ended December 31, 1999, the
Company recorded its best estimate, based on the information available at
the time, of the cost of providing relief to class members and for legal
and administrative costs associated with the settlement. Given the
uncertainties associated with estimating the reserve, it is reasonably
possible that the final cost of the settlement could differ materially from
the amount previously provided. The Company will continue to update its
estimate of the final cost of the settlement as the settlement process
continues. The range of any additional costs related to the settlement
cannot be reasonably estimated.
In November 1999, the Company entered into a stipulation to submit to
binding arbitration, a lawsuit which commenced in May 1996, captioned
Adrian Rubin v. Monetary Management Corp., et al. Arbitration of the
Plaintiff's claims and the Company's counterclaims are scheduled to take
place on March 31, 2000. Pursuant to the terms of the stipulation, both
the Company and the Plaintiff have agreed to cap the amount of any judgment
they may be awarded. The Company has reduced its accrual for this matter
to reflect the reduced exposure consistent with the terms of the
stipulation and will continue to adjust its accrual as new information
becomes available. The Company believes it has meritorious defenses to the
allegations and will actively contest the Plaintiff's claim.
The net effect of these items is immaterial and is included in
recapitalization costs and other non-recurring items.
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 December 31, 1999, the
Registrant filed two reports on Form 8K dated December 3,
and December 30, 1999.
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: February 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
<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-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 68,278
<SECURITIES> 0
<RECEIVABLES> 12,681
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 85,949
<PP&E> 30,534
<DEPRECIATION> 10,843
<TOTAL-ASSETS> 234,412
<CURRENT-LIABILITIES> 29,839
<BONDS> 129,699
0
0
<COMMON> 0
<OTHER-SE> 40,308
<TOTAL-LIABILITY-AND-EQUITY> 234,412
<SALES> 0
<TOTAL-REVENUES> 74,713
<CGS> 0
<TOTAL-COSTS> 46,214
<OTHER-EXPENSES> 12,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,416
<INCOME-PRETAX> 7,284
<INCOME-TAX> 5,172
<INCOME-CONTINUING> 2,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,112
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
