-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GQFjRy6RLD0YhrXtkKDvsuIHCWxv2pf19jGH5ly3svNTVuNl67Kvh+/8JZnQna4r 7I3wNYRznlYDcBcIdGh1LQ== 0000898430-00-000467.txt : 20000215 0000898430-00-000467.hdr.sgml : 20000215 ACCESSION NUMBER: 0000898430-00-000467 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOLLAR FINANCIAL GROUP INC CENTRAL INDEX KEY: 0001028643 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 132997911 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-18221 FILM NUMBER: 542737 BUSINESS ADDRESS: STREET 1: 1436 LANCASTER AVE STREET 2: STE 210 CITY: BERWYN STATE: PA ZIP: 19312-1288 BUSINESS PHONE: 6102963400 MAIL ADDRESS: STREET 1: 1436 LANCASTER AVENUE STREET 2: STE 210 CITY: BERWYN STATE: PA ZIP: 19312-1288 10-Q 1 FORM 10-Q 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 ------ DOLLAR FINANCIAL GROUP, INC. INDEX
PART I. FINANCIAL INFORMATION Page No. -------- 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
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOLLAR FINANCIAL GROUP, INC. INTERIM CONSOLIDATED BALANCE SHEETS (In thousands except share amounts)
June 30, December 31, 1999 1999 ----------------------- ----------------------- ASSETS (unaudited) 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 ========= ========
See notes to interim unaudited consolidated financial statements. 3 DOLLAR FINANCIAL GROUP, INC. INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands)
Three Months Ended Six Months Ended December 31, December 31, -------------------------------------- -------------------------------------- 1998 1999 1998 1999 -------------------------------------- -------------------------------------- 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 ============ ========== =========== ==========
See notes to interim unaudited consolidated financial statements. 4 DOLLAR FINANCIAL GROUP, INC. INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended December 31, ------------------------------------------- 1998 1999 --------------- -------------- 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 =============== ==============
See notes to interim unaudited consolidated financial statements. 5 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 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 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) CONSOLIDATING BALANCE SHEET December 31, 1999 (In thousands)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group, Inc. Guarantors Guarantors Eliminations Consolidated ------------ ------------ ------------ -------------- ------------ ASSETS 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 =========== =========== =========== =========== ===========
8 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)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group, Inc. Guarantors Guarantors Eliminations Consolidated ------------ ----------- ----------- ------------- ------------ 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 =========== =========== =========== =========== ===========
9 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)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group, Inc. Guarantors Guarantors Eliminations Consolidated ----------- ---------- ---------- ------------ ------------ 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 =========== ========= ========== ========== ==========
10 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:
Three Months Ended Six Months Ended December 31, December 31, ---------------------------------- ----------------------------------- 1998 1999 1998 1999 -------------- ------------ -------------- -------------- 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 ============== ============ ============== ==============
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):
United United States Canada Kingdom Total ------------------------------------------------------ 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) =======================================================
11 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
United United States Canada Kingdom Total 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 =========================================
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 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.
Three Months Ended Six Months Ended December 31, December 31, (Unaudited) (Unaudited) 1998 1999 1998 1999 ------------ ------------ ------------------------------- (dollars in thousands) (dollars in thousands) 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
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 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 ====== ======= - ------------------------------------------------------------------------------
Three Months Ended Six Months Ended December 31, December 31, ------------------------- --------------------- Operating Data: 1998 1999 1998 1999 ------------ ----------- ---------- --------- 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% - ------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended December 31, December 31, ------------------------- --------------------- Collections Data: 1998 1999 1998 1999 ----------- ----------- --------- --------- 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%
/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 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 $2.7 million based on future levels of profitability. 15 All of the acquisitions described above (collectively, the "Acquisitions") have been accounted for under the purchase method of accounting. Therefore, the historical results of operations include the revenues and expenses of all the acquired companies since their respective dates of acquisition. RESULTS OF OPERATIONS Revenue Analysis
Three Months Ended December 31, Six Months Ended December 31, - ---------------------------------------------------------------------------------- --------------------------------------- (Percentage of (Percentage of ($ in thousands) Total Revenue) ($ in thousands) Total Revenue) --------------------------------------- --------------------------------------- 1998 1999 1998 1999 1998 1999 1998 1999 --------------------------------------- --------------------------------------- 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% ======= ======= ===== ===== ======= ======= ===== ===== - -----------------------------------------------------------------------------------------------------------------------------
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 $6.1 million or 12.0%. Check cashing revenue increased 4.9%, Cash `Til Payday(R) origination fees increased 49.4% and other revenues increased 13.0%. The increase in Cash `Til Payday(R) origination fees resulted from the full roll-out of the Cash `Til Payday(R) loan product as well as change in the criteria to attain a loan. Partially offsetting this increase, however, was a 37.6% decline in retail store revenues from government services. The decrease in retail store revenues from government services resulted primarily from the reduction in the number of individuals receiving benefits under government programs and due to the implementation of EBT. The Company receives revenue on its government contracts based primarily on the number of transactions it executes. As state and local government agencies implement EBT systems, the Company expects a continuing decline in the Company's government services revenue. 16 Store and Regional Expense Analysis
Three Months Ended December 31, Six Months Ended December 31, - ------------------------------------------------------------------------------------------------------------------------ (Percentage of (Percentage of ($ in thousands) total revenue) ($ in thousands) total revenue) ------------------- ----------------- ------------------- ---------------- 1998 1999 1998 1999 1998 1999 1998 1999 --------- -------- ------- ------- -------- -------- ------- ------ 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% ======= ======= ==== ==== ======= ======= ==== ==== - ------------------------------------------------------------------------------------------------------------------------
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 $7.3 million. For the six months ended December 31, 1999 total store and regional expenses remained relatively level at approximately 62% of total revenue. 17 Other Expense Analysis
Three Months Ended December 31, Six Months Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ ($ in thousands) (Percentage of revenues) ($ in thousands) (Percentage of revenues) ------------------ -------------------------- -------------------- -------------------------- 1998 1999 1998 1999 1998 1999 1998 1999 ------- ------- ----------- ------------ --------- -------- ---------- ------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------
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 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 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 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 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 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 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 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS JUN-30-1999 DEC-31-1999 68,278 0 12,681 0 0 85,949 30,534 10,843 234,412 29,839 129,699 0 0 0 40,308 234,412 0 74,713 0 46,214 12,799 0 8,416 7,284 5,172 2,112 0 0 0 2,112 0 0
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