October 13, 1995
Securities & Exchange Commission
Mail Stop 0-7
SEC Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
RE: Form 10-Q
Dollar Finance, Inc.
Gentlemen:
In compliance with filing requirements, Dollar Finance, Inc. is electronically
submitting their Form 10-Q for the quarter ending August 31, 1995.
I can be reached at (412) 261-8166 if there is any problem in receiving this
transmission.
Very truly yours,
Thomas A. Kobus
Treasurer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: Commission File No:
August 31, 1995 2-96733
DOLLAR FINANCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 51-0284188
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1105 North Market Street
Box 8985
Wilmington, Delaware 19899
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (302) 427-7650
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 13, 1995
------------------------------ ----------------------------
Common Stock, $1.00 par value 60 shares
<PAGE>
DOLLAR FINANCE, INC.
FORM 10-Q
INDEX
==========================================================================
PART I - FINANCIAL INFORMATION: Page No.
______________________________ ________
Item 1 - Financial Statements
Statements of Condition 3
Statements of Earnings 4
Statements of Changes in Equity Capital 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - Other Information 17
___________________________
SIGNATURES 17
__________
<PAGE>
<TABLE>
Dollar Finance, Inc.
Statements of Condition
<CAPTION>
Aug. 31, 1995 Nov. 30, 1994
(Unaudited) *(Note)
------------ -------------
<S> <C> <C>
ASSETS:
- -------------------------
Cash $ 16,057 $ 16,578
Time Deposits 10,375,000 16,496,000
Commercial Paper 0 18,120,000
U.S. Government Agency Securities 0 54,823,179
------------ -------------
Total Cash and Cash Equivalents 10,391,057 89,455,757
Collateralized Mortgage Obligations 95,699,143 0
Mortgage-Backed Securities 20,742,419 45,071,821
Deferred Tax Asset 0 21,105
Accrued Interest Receivable 554,736 784,863
Security Receivable 0 1,231,730
------------ -----------
Total Assets $127,387,355 $136,565,276
============ ============
LIABILITIES:
- ---------------------------
Accrued Preferred Stock Dividends $ 195,250 $ 333,725
Income Taxes Payable - Dollar Bank 2,692,300 13,812,400
Deferred Income Taxes
& Other Liabilities 4,891 3,767
------------ -----------
Total Liabilities 2,892,441 14,149,892
EQUITY CAPITAL:
- ----------------------------
Preferred Stock (No par value, 750 shares
authorized, 750 shares issued and
outstanding, liquidation value per share,
$100,000) 750,000 750,000
Common Stock ($1.00 par value, 100 shares
authorized and 100 shares issued) 100 100
Additional Paid-In Capital/
Preferred Stock 74,250,000 74,250,000
Additional Paid-In Capital/Common Stock 59,385,484 59,385,484
Unrealized Gain(Loss) on Available for
Sale Securities Net of Tax 2,748 (34,138)
Retained Earnings 20,106,582 18,063,938
---------- ----------
154,494,914 152,415,384
Treasury Stock at Cost (40 shares at
August 31, 1995 and at November 30,
1994 (30,000,000) (30,000,000)
------------ ------------
Total Equity Capital 124,494,914 122,415,384
------------ ------------
Total Liability & Equity Capital $127,387,355 $136,565,276
============ ============
<FN>
* Note: The Statement of Condition at November 30, 1994 has been
derived from the audited financial statements at that date.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Dollar Finance, Inc.
Statements of Earnings (Unaudited)
<CAPTION> Nine Months Nine Months
Ended Ended
8/31/95 8/31/94
-------- -------
<S> <C> <C>
INCOME:
- ----------------------
Short Term Investments:
- ----------------------
Interest on Money Market $ 1,530 $ 0
Interest on U.S. Government Agency
Securities 266,405 0
Interest on Commercial Paper 30,510 0
Interest on Time Deposits 284,128 254,223
Interest on U.S. Treasury Securities 24,699 185,807
---------- ----------
Short Term Investments 607,272 440,030
Investment Securities:
- ----------------------
Interest on Collaterized Mortgage
Obligations 5,456,451 0
Interest on Mortgage-Backed Securities 1,405,631 3,828,584
---------- ---------
Total Interest Income 7,469,354 4,268,614
Gain(Loss) on Mortgage-Backed Securities
Available for Sale (150,503) 0
---------- ---------
Total Income 7,318,851 4,268,614
EXPENSES:
- ---------------------
Professional Fees 209,891 183,615
Other Expenses 6,411 6,306
---------- --------
Total Expenses 216,302 189,921
---------- ---------
INCOME BEFORE INCOME TAXES 7,102,549 4,078,693
Income Tax Expense - Federal 2,479,900 1,427,543
---------- ---------
NET INCOME $ 4,622,649 $ 2,651,150
=========== ===========
Net Income Per Common Share (based on
Net Income Less Preferred Stock Dividends
Paid and Accrued) $ 34,044 $ 14,226
============ ===========
Weighted Average Common Share
Outstanding 60 60
============ ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
Dollar Finance, Inc.
Statement of Changes in Equity Capital
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
================================ =============================== ===============
Additional Additional
Paid-In Paid-In Retained
Shares Amount Capital Shares Amount Capital Earnings Shares Amount Total
------ ------ ---------- ------ ------ ---------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
11/30/93 750 $750,000 $74,250,000 100 $100 $59,385,484 $18,366,727 (40) $(30,000,000) $122,752,311
Net Income 2,651,150 2,651,150
Preferred Stock
Dividends ($2,396.79
per Share) (1,797,590) (1,797,590)
Unrealized Gain on Securities
Available for Sale Net of
Federal Income Tax (496,354) (496,354)
------ -------- ----------- --- ---- ----------- ----------- ---- ------------ -------------
Balance at
8/31/94 750 $750,000 $74,250,000 100 $100 $59,385,484 $18,723,933 (40) $(30,000,000) $123,109,517
=== ======== =========== === ==== =========== =========== ==== ============= ============
Balance at
11/30/94 750 $750,000 $74,250,000 100 $100 $59,385,484 $18,029,800 (40) $(30,000,000) $122,415,384
Net Income 4,622,649 4,622,649
Preferred Stock
Dividends ($3,440.01
per Share) (2,580,005) (2,580,005)
Unrealized Gain on Securities
Available for Sale Net of Federal
Income Tax 36,886 36,886
------ -------- ----------- --- ---- ----------- ----------- ---- ------------ ------------
Balance at
8/31/95 750 $750,000 $74,250,000 100 $100 $59,385,484 $20,109,330 (40) $(30,000,000) $124,494,914
=== ======== =========== === ==== =========== =========== ==== ============= ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Dollar Finance, Inc.
Statements of Cash Flows
<CAPTION>
Nine Months Nine Months
Ended Ended
Aug. 31, 1995 Aug. 31, 1994
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,622,649 $ 2,651,150
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Amortization of Discounts &
Premiums on Investment Securities (1,851,269) 946,077
(Increase)/Decrease in
Interest Receivable 230,127 (222,114)
Increase/(Decrease)
in Income Taxes Payable (11,120,100) 1,072,314
------------ ------------
NET CASH PROVIDED/(USED) BY OPERATING
ACTIVITIES (8,118,593) 4,447,427
INVESTING ACTIVITIES
Proceeds from Sales of Investment
Securities and Other Principal
Payments 26,851,039 23,804,939
Purchase of Investment Securities (96,310,396) (23,913,908)
Decrease in
Security Receivable 1,231,730 438,072
----------- ----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (68,227,627) 329,103
FINANCING ACTIVITIES
Cash Dividends Paid on Preferred Stock (2,718,480) (1,939,195)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (2,718,480) (1,939,195)
----------- -----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (79,064,700) 2,837,335
Cash and Cash Equivalents at
Beginning of Year 89,455,757 6,301,470
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF NINE MONTH PERIOD $10,391,057 $ 9,138,805
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Dollar Finance, Inc.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
-----------------------------------------
The accounting and reporting policies and practices of Dollar Finance, Inc.,
a wholly owned subsidiary of Dollar Bank, a federal savings bank (Dollar
Bank), follow generally accepted accounting principles. The major reporting
policies and practices are summarized below.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents presented within the Statement of Cash Flows
include cash and short-term investments with original maturities of less
than 90 days.
Required Assets
---------------
Required assets may include cash, FNMA certificates, FHLMC certificates,
GNMA certificates, certain short-term money market instruments, U.S.
Treasury securities and other securities not adversely affecting the current
rating on the shares of Market Auction Preferred Stock ("MAPS") by Moody's
and Standard & Poors.
Money Market Investments
------------------------
Commercial paper is valued at cost, which is calculated as par value less
interest receivable at maturity. Cost closely approximates market value due
to the short-term nature of these instruments. Certificates of deposit and
other time deposits are recorded at their purchase price. U.S. Government
agency discount paper is recorded at cost, adjusted for accretion of
discounts.
Investment Securities
---------------------
Investment securities consist of collaterized mortgage obligations and
mortgage-backed securities which include FNMA pass-through certificates,
FHLMC participation certificates and GNMA modified pass-through
certificates. These instruments are stated at market value if classified as
available for sale, or cost, adjusted for amortization of premiums and
accretion of discounts if held to maturity. Fair values are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Payments on collateralized mortgage obligations and mortgage-backed
securities are received monthly and are applied accordingly to interest
income and principal reduction. Transactions involving collaterized
mortgage obligations and mortgage-backed securities are accounted for on the
identified certificate basis.
<PAGE>
Accrued Interest Receivable
----------------------------
Income to be received from interest payments on money market investments and
investment securities is accrued on a monthly basis.
Accrued Preferred Stock Dividends
---------------------------------
Cash dividends on the shares of MAPS outstanding are accrued on a monthly
basis and charged against retained earnings at the current applicable annual
dividend rate determined through auction procedures.
Net Income Per Common Share
---------------------------
Net income per common share is calculated by dividing (a) net income less
preferred stock dividends paid and accrued by (b) the weighted average
number of common shares outstanding during the period.
2. Accounting Changes
------------------
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109 "Accounting for Income Taxes." Dollar Finance adopted the
provisions of the standard in the 1993 financial statements.
Under Statement No 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior
to the adoption of Statement No. 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on items of
income and expense that were reported in different years in the financial
statement and tax returns and were measured at the tax rate in effect in the
year the differences originated.
In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." As
permitted under the Statement, Dollar Finance has elected to adopt the
provisions of the new standard as of November 30, 1993. In accordance with
the Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The effect as of November 30,
1994, of applying Statement No. 115 resulted in a decrease in shareholders
equity of $34,138 to reflect the net unrealized loss on securities
classified as available-for-sale and previously carried at lower of cost or
market. For the nine-month period ending August 31, 1995, the effect of
applying Statement No. 115 increased shareholders' equity by $36,886 to
reflect the change in market value of securities classified as available-
for-sale.
<PAGE>
<PAGE>
Dollar Finance, Inc.
Investments
-----------
<TABLE>
The following is a comparison of book value to market value of short-term investments and investment securities at Nov. 30, 1994:
($-In Thousands)
<CAPTION>
Amount at
Which Issue
No. Principal Gross Gross is Carried
Title of Each Issue and of Amount of Cost of Unrealized Unrealized Market Value at on the Statement
Name of Issuer: Units Each Issue Each Issue Gains Losses Nov. 30, 1994 of Condition
- ----------------------- ----- ---------- ----------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Time Deposits:
- --------------
Harris Trust Euro 2 16,496 16,496 0 0 16,496 16,496
--- -------- -------- ------ ------- -------- --------
Total Time Deposits 2 $ 16,496 $ 16,496 $ 0 $ 0 $ 16,496 $ 16,496
========
Commercial Paper:
- ----------------
GECC Commercial Paper 2 18,120 18,120 0 0 18,120 18,120
--- ------- ------- ----- ------ -------- --------
Total Commercial Paper 2 $ 18,120 $ 18,120 $ 0 $ 0 $ 18,120 $ 18,120
========
U.S. Government Agency Securities:
- ---------------------------------
Federal Home Loan Disc. Notes 2 20,000 19,925 0 (15) 19,910 19,925
FHLMC Disc. Notes 1 15,000 14,945 0 (8) 14,937 14,945
FNMA Disc. Notes 2 20,000 19,954 0 (5) 19,949 19,954
--- ------- ------- ---- ---- -------- -------
5 $ 55,000 $ 54,824 $ 0 $(28) $ 54,796 $ 54,824
========
Securities Available for Sale:
- ------------------------------
FNMA Certificates 2 4,128 4,128 0 (8) 4,120 4,120
FHLMC Certificates 6 18,093 18,093 6 (53) 18,046 18,046
--- ------- ------- --- ------ ------- -------
8 $ 22,221 $ 22,221 $ 6 $ (61) $ 22,166 $ 22,166
========
Securities Held to Maturity:
- ---------------------------
FNMA Certificates 9 3,919 3,968 6 (144) 3,830 3,968
FHLMC Certificates 32 19,287 18,936 10 (520) 18,426 18,936
--- ------- ------ -- ----- ------ ------
41 $ 23,206 $ 22,904 16 $(664) $ 22,256 $ 22,904
========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
The following is a comparison of book value to market value of short-term investments and investment securities at August 31, 1995:
($-In Thousands)
<CAPTION>
Which Issue
No. Principal Gross Gross is Carried
Title of Each Issue and of Amount of Cost of Unrealized Unrealized Market Value at on the Statement
Name of Issuer: Units Each Issue Each Issue Gains Losses August 31, 1995 of Condition
- ----------------------- ----- ---------- ----------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Time Deposits:
- --------------
Harris Trust Euro 3 10,375 10,375 0 0 10,375 10,375
--- -------- -------- ------ ------- -------- --------
3 $ 10,375 $ 10,375 $ 0 $ 0 $ 10,375 $ 10,375
========
Mortgage-Backed Securities:
- ---------------------------
FNMA Certificates 9 3,760 3,830 0 (3) 3,827 3,830
FHLMC Certificates 32 17,194 16,912 81 0 16,993 16,912
--- ------- ------- ------ ---- -------- -------
41 $ 20,954 $ 20,742 $ 81 $ (3) $ 20,820 $ 20,742
========
Collateralized Mortgage Obligations:
- -----------------------------------
FNMA Certificates 11 52,732 51,267 791 0 52,058 51,267
FHLMC Certificates 7 45,735 44,432 996 0 45,428 44,432
--- ------- ------- ----- --- ------- -------
18 $ 98,467 $ 95,699 $1,787 $ 0 $ 97,486 $ 95,699
========
PAGE
<PAGE>
<PAGE>
3. Capitalization
---------------
On March 28, 1985, Dollar Bank purchased all of the 100 authorized shares of
Registrant's $l.00 par value common stock for $10,000 in cash. Additional
capital contributions from Dollar Bank consisted of a $75,000 cash
contribution on May 13, 1985 and a required asset contribution of
approximately $59,300,000 on May 23, 1985. The proceeds from these
contributions above the total par value were credited to Additional Paid-in
Capital from Common Stock. On May 28, 1985, Registrant issued 750 shares of
MAPS at a purchase price of $100,000 per share. One thousand dollars per
share of the MAPS proceeds were credited to Registrant's Preferred Stock
account with the balance, net of underwriting costs, being credited to
Additional Paid-In Capital from Preferred Stock.
4. Common Stock and Dividend Restriction
-------------------------------------
Dollar Bank owns all 60 shares of Registrant's outstanding common stock. No
dividends may be paid on the common shares unless Registrant would have
retained earnings of at least $7,500,000 immediately after the payment of
such dividends. The common stock ranks junior to the MAPS with respect to
payment of dividends on liquidation or dissolution.
5. Market Auction Preferred Stock ("MAPS")
---------------------------------------
Description of MAPS
-------------------
The shares of MAPS have a liquidation preference of $100,000 per share plus
accrued and unpaid dividends. The MAPS shares are not convertible into
shares of common stock and have no pre-emptive rights. The holders of MAPS
are entitled to receive cumulative cash dividends on the business day
following the conclusion of each dividend period, generally consisting of 49
days. The applicable dividend rate per share for each dividend period is
determined through auction procedures.
Dividends were distributed to holders of MAPS shares during the current
quarter on June 21, 1995 at an annual per share rate of 4.559% and August 9,
1995 at an annual per share rate of 4.498%. Dividends on MAPS share are
currently being accrued at an annual rate of 4.260% per share and will be
paid on September 27, 1995.
The maximum applicable rate that results from an auction will not be greater
than 110%, or under certain circumstances, 125% of the 60-day "AA" Composite
Commercial Paper Rate in effect on the auction date.
The MAPS shares are subject to mandatory redemption if (l) the required
asset coverage is not met or restored as required or (2) any portion of the
dividend payments on MAPS during a calendar year constitutes a return of
capital for federal income tax purposes.
<PAGE>
Registrant has the option of redeeming the MAPS shares on any dividend
payment date, in whole or in part, at the applicable per share amounts
previously noted, plus an amount equal to accrued and unpaid dividends to
the redemption date. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations for disclosure of facts regarding
prospective redemption of MAPS shares).
The holders of shares of MAPS have no voting rights except during a period
that (l) the required asset coverage is not maintained or restored as
required, (2) the aggregate amount of dividends in arrears on a dividend
payment date is equal to or greater than the amount of dividends accrued
during the dividend period preceding such payment date, or if (3) Registrant
has not redeemed MAPS shares when required. Holders of shares of MAPS have
had no voting rights during the reporting period or during any prior period.
Required Asset Coverage
-----------------------
As of each Evaluation date (approximately every 25 days), Registrant must
have required assets with a market value in excess of the product of (a)
$100,000; and (b) the number of MAPS shares then outstanding. Registrant is
obligated to maintain or restore the number of MAPS shares necessary to
maintain required asset coverage as of each Evaluation date. Registrant has
maintained required asset coverage throughout the nine months ended
August 31, 1995 and for all prior periods.
Dividend Coverage
-----------------
As of each Evaluation date, the aggregate adjusted value of Registrant's
U.S. Treasury securities and short-term money market instruments maturing
before the next dividend payment date and cash must at least equal the
dividend coverage amount for 49 days of dividends at the applicable dividend
rate then in effect. Registrant has maintained adequate dividend coverage
throughout the nine months ended August 31, 1995 and for all prior periods.
6. Income Taxes
-------------
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes." The Registrant adopted the
provisions of the standard on November 30, 1993. Under Statement No. 109,
the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities are measured using the enacted tax rates and law that will be in
effect when the differences are expected to reverse.
<PAGE>
The Registrant is included in the consolidated federal income tax return of
Dollar Bank. Statement 109 specifies that the amount of current and
deferred tax expense for a group that files a consolidated tax return should
be allocated among the members of the group. The policy of the consolidated
group is to allocate its current and deferred taxes as if each member of the
group were a separate taxpayer not included in a consolidated tax return.
The provision for income taxes consists of the Registrant's net income
before taxes and intercompany securities gains at the statutory federal
income tax rates. The resulting tax expense is recorded on the Registrant's
Statement of Condition as intercompany payables to the Registrant's parent
corporation, Dollar Bank, net of amounts previously paid to the parent.
The deferred tax asset/<liability> as of August 31, 1995 and November 30,
1994 of $<1,727> and $21,105, respectively, represents the taxes to be
refunded/<paid> in future years on the temporary difference between the
financial statement and tax return values of investment securities available
for sale. For financial statement purposes these investment securities have
been recorded at market value per FASB Statement No. 115 while for tax
purposes they are carried at net book value. The deferred tax asset
reflected in fiscal 1994 is not included in the total tax provision for the
year since, in accordance with Statement 115 it is properly reflected as a
component of equity capital, and consequently has no impact on net income
for the year.
7. Security Transactions
---------------------
For the nine month period ended August 31 Registrant purchased from Dollar
Bank eighteen collaterized mortgage obligations with an aggregate book value
of $96,310,396.
Registrant sold to Dollar Bank eight adjustable rate certificates with a net
par value and book value of $21,910,343 and $22,020,256, respectively.
Proceeds from the sale amounted to $21,869,753 and resulted in a net loss of
$150,503.
Registrant also sold to Dollar Bank one FHLB discount note and three U.S.
Treasury Bills with combined net par value and book value of $76,084,000 and
$75,344,813, respectively. Proceeds from the sale amounted to $75,344,813
and there was no gain or loss on the transaction.
<PAGE>
Dollar Finance, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
For the nine month period ended August 31, 1995, Dollar Finance, Inc.
("Registrant") reported net income of $4,622,649. Net income per share for
the same period was $34,044 after deducting dividends on the shares of
Market Auction Preferred Stock ("MAPS"). Net income for the nine month
period ended August 31, 1994, was $2,651,150 or $14,226 per share after
deducting MAPS dividends. Operating income has consisted of interest earned
on required assets, which have included mortgage-backed securities,
collateralized mortgage obligations, and short-term investments.
Total interest income for the nine month period ended August 31, 1995 was
$7,469,354 while interest income for the nine month period ended August 31,
1994 was $4,268,614. The significant increase in interest income over the
same period last year is primarily due to changes in the Registrant's
investment portfolio. During the nine month period ended August 31, 1995
the Registrant disposed of adjustable rate mortgage-backed securities and
various short-term government agency securities and purchased higher
yielding collateralized mortgage obligations.
As a result of the significant increase in net income before tax for the
nine month period ended August 31, 1995, Federal income tax recorded at the
maximum Federal tax rate of 35% has increased accordingly.
Principal reduction on mortgage-backed securities tends to lower the
interest income recognized on these instruments over time, but the
Registrant has been actively investing the monthly principal and interest
payments in high-grade short-term instruments which provide liquidity, along
with rates of return sufficient to produce an excess of the required asset
value over the aggregate redemption price of the MAPS shares.
Retained earnings of Registrant were reduced during the current quarter by
the amount of MAPS dividends paid on June 21, 1995 and August 9, 1995 and by
the amount accrued through August 31, 1995, payable on September 27, 1995.
The Company also adopted FASB Statement 115 during the fiscal year ended
November 30, 1993. Retained earnings for the nine month period ended
August 31, 1995 was increased by $36,886 for the impact of applying FASB
Statement No. 115, which requires that the unrealized gains (losses) on
investment securities available for sale be recognized as a separate
component of capital. This net unrealized gain is shown net of deferred
federal income taxes.
<PAGE>
The deferred tax asset/<liability> represents the taxes to be paid in future
years on the temporary difference between the financial statement and tax
return values of investment securities available for sale as of August 31,
1995 and November 30, 1994. For financial statement purposes these
investment securities have been recorded at market value per FASB Statement
No. 115 while for tax purposes they are carried at net book value. The
deferred tax asset/<liability> is not included in the total tax provision
for the year since, in accordance with Statement 115 it is properly
reflected as a component of equity capital, and consequently has no impact
on net income for the year.
Management expects the yield recognized on the required assets of Registrant
to continue to exceed the applicable dividend rate on MAPS dividends.
Liquidity
- ---------
The principal sources of short-term liquidity are principal and interest
generated from the investment in Registrant's short-term assets and
mortgage-backed securities. The Registrant also manages its liquidity
position by maintaining adequate levels of liquid assets, such as time
deposits and securities available for sale. Additional liquidity is
available through the Registrant's ability to incur, under certain limited
circumstances, secured and unsecured indebtedness for borrowed money of an
aggregate amount not exceeding $5,000,000 and to incur additional
indebtedness in the form of reverse repurchase agreements.
For the nine month period ending August 31, 1995, the Registrant decreased
its liquid assets from $89,455,757 at November 30, 1994 to $10,391,057 at
August 31, 1995. During this period the Registrant reduced its investment
in short term time deposits, commercial paper and government agency
securities in favor of longer term, higher yielding collateralized mortgage
obligations.
Also, during the nine month period ending August 31, 1995, the Registrant
reimbursed Dollar Bank $11,120,100 for its allocable share of Federal income
taxes payable to the parent company since the adoption of FAS Statement No.
109 by the consolidated group on November 30, 1993. This transaction is
reflected on the Registrant's Statement of Cash Flow as a decrease in
liquidity due to operating activities.
The Registrant had a further reduction in liquidity for the nine month
period ending August 31, 1995, due to payment of dividends on preferred
stock. The amount paid, $2,718,480, reported as financing activities on the
Statement of Cash Flows increased significantly over the amount paid for the
same nine month period ending August 31, 1994 of $1,939,195 due to the
increased dividend rate payable to the holders of the Registrant's preferred
stock. The rate is subject to change every 49 days pursuant to the auction
procedures.
Registrant possesses dividend coverage assets consisting of short-term
investments with remaining maturities not in excess of the number of days
until the next MAPS dividend payment, and cash. As of each evaluation date,
Registrant will calculate the aggregate adjusted value of its dividend
coverage assets to assure that this value is at least equal to the required
dividend coverage
<PAGE>
amount. Registrant is required to maintain required assets with a market
value in excess of the product of the current liquidation value per share
and the number of MAPS shares outstanding. This requirement provides long-
term liquidity necessary for any future redemption of MAPS shares.
Future events will significantly effect the Registrant's liquidity as
described in the Prospective Redemption of MAPS Shares explanation that
follows.
Prospective Redemption of MAPS Shares
- -------------------------------------
Pursuant to Regulation S-K, Item 303, and specific guidance for reporting
prospective transactions provided in Financial Reporting Release No. 36,
Registrant anticipates the redemption of the MAPS shares on November 13,
1995. The total 750 shares will be redeemed at a price of $100,000 per
share as described in Section 4(a) of the Company's Certificate of
Designation which established this class of securities. In addition to the
redemption price, Registrant will pay holders of the shares accrued and
unpaid dividends of $548.04 per share on the redemption date.
In order to achieve sufficient liquidity to redeem the MAPS shares, and pay
the related accrued dividends, Registrant anticipates selling certain
mortgage-backed securities at their market value to Dollar Bank. The
specific securities to be sold have not been identified as of the date of
this filing, so no gain or loss on the sale can be anticipated. However, as
this filing indicates, the cost of investments at August 31, 1995, is
$126,816,000 (rounded to the nearest thousand) while their market value is
$128,681,000. The total net unrealized gain on all investment securities as
of August 31, 1995 is $1,865,000.
Subsequent to the redemption, the Registrant will be relieved of the
required asset and dividend coverage provisions of the MAPS agreement as
described in Item 5 of the Notes to Financial Statements. The redemption
will significantly reduce the Registrant's total assets available for
investment, and consequently, gross interest income and net income to be
reported in future Statements of Earnings.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION:
___________________________
Item 6 - Exhibits and Reports on Form 8-K:
_________________________________________
a. Exhibits - none
b. No reports on Form 8-K were filed in the quarter ended
August 31, 1995.
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 FINANCE, INC.
(Registrant)
Date: October 13, 1995 /s/ Robert P. Oeler
_____________________________
Robert P. Oeler
President
Date: October 13, 1995 /s/ Thomas A. Kobus
_____________________________
Thomas A. Kobus
Treasurer
</TABLE>
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<S> <C>
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<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 128,921,619
<INVESTMENTS-AT-VALUE> 128,680,770
<RECEIVABLES> 554,736
<ASSETS-OTHER> 16,057
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,387,355
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