<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c10q1201.txt
<DESCRIPTION>FY 02 DFG 2ND QTR. 10Q
<TEXT>
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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from _____ to _____
Commission file number 333-18221
DOLLAR FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 13-2997911
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1436 LANCASTER AVENUE, SUITE 210
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant's Telephone Number, Including Area Code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of February 14, 2002, 100
shares of the Registrant's common stock, par value $1.00 per share, were
outstanding.
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 2001
and December 31, 2001 (unaudited)........................................................... 3
Interim Unaudited Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2000 and 2001..................................................... 4
Interim Unaudited Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 2000 and 2001............................................................ 5
Notes to Interim Unaudited Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................................................... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 25
Item 2. Changes in Securities and Use of Proceeds................................................... 25
Item 3. Defaults Upon Senior Securities............................................................. 25
Item 4. Submission of Matters to a Vote of Security Holders......................................... 25
Item 5. Other Information........................................................................... 25
Item 6. Exhibits and Reports on Form 8-K............................................................ 25
</TABLE>
2
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLLAR FINANCIAL GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2001 2001
-------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents.......................................................$ 72,452 $ 70,282
Accounts receivable, net........................................................ 23,770 26,899
Prepaid expenses .............................................................. 6,517 6,354
Notes receivable - officers..................................................... 2,756 2,756
Due from parent ............................................................... 2,596 3,096
Property and equipment, net of accumulated depreciation
of $21,666 and $25,557..................................................... 29,140 29,331
Goodwill and other intangibles, net of accumulated
amortization of $23,863 and $23,966......................................... 129,555 128,929
Debt issuance costs, net of accumulated amortization of
$4,642 and $5,373.......................................................... 7,232 6,501
Other........................................................................... 2,154 1,984
-------------- -----------------
$ 276,172 $ 276,132
============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable ..............................................................$ 18,325 $ 15,602
Income taxes payable............................................................ 6,782 4,352
Accrued expenses................................................................ 8,804 7,740
Accrued interest payable........................................................ 1,573 1,501
Deferred tax liability.......................................................... 928 2,280
Revolving credit facilities..................................................... 67,824 71,230
10-7/8 % Senior Notes due 2006.................................................. 109,190 109,190
Subordinated notes payable and other............................................ 20,122 20,072
Shareholder's equity:
Common stock, $1 par value: 20,000 shares
authorized; 100 shares issued and outstanding at
June 30, 2001 and December 31, 2001.......................................... - -
Additional paid-in capital...................................................... 50,957 50,957
Retained earnings............................................................... 866 4,878
Accumulated other comprehensive loss............................................ (9,199) (11,670)
-------------- ----------------
Total shareholder's equity................................................... 42,624 44,165
-------------- ----------------
$ 276,172 $ 276,132
============== ================
</TABLE>
See notes to interim unaudited consolidated financial statements.
3
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- ------------------------------
2000 2001 2000 2001
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues .......................................................$ 49,256 $ 51,078 $ 94,487 $ 100,301
Store and regional expenses:
Salaries and benefits......................................... 14,513 16,348 27,985 31,392
Occupancy..................................................... 4,275 4,521 8,256 9,146
Depreciation.................................................. 1,477 1,550 2,845 3,032
Other......................................................... 13,080 12,318 23,642 24,298
------------ ------------- ------------ --------------
Total store and regional expenses............................... 33,345 34,737 62,728 67,868
Corporate expenses.............................................. 5,311 5,212 11,525 10,942
Loss on store closings and sales................................ 41 91 75 179
Goodwill amortization........................................... 1,175 - 2,256 -
Other depreciation and amortization............................. 476 542 946 1,079
Interest expense (net of interest income of $68, $53,
$142 and $149) ................................................. 5,233 4,635 10,193 9,389
------------ ------------- ------------ --------------
Income before income taxes...................................... 3,675 5,861 6,764 10,844
Income tax provision............................................ 2,152 3,693 4,194 6,832
------------ ------------- ------------ --------------
Net income ....................................................$ 1,523 $ 2,168 $ 2,570 $ 4,012
============ ============= ============ ==============
</TABLE>
See notes to interim unaudited consolidated financial statements.
4
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------------
2000 2001
---------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income...................................................................... $ 2,570 $ 4,012
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................................. 6,744 4,843
Loss on store closings and sales.......................................... 75 179
Deferred tax provision.................................................... - 1,352
Change in assets and liabilities (net of effect of acquisitions):
Increase in accounts receivable........................................ (5,868) (3,199)
Decrease in prepaid expenses and other................................. 364 348
Decrease in accounts payable, income taxes payable,
accrued expenses and accrued interest payable......................... (272) (7,170)
---------------- --------------
Net cash provided by operating activities....................................... 3,613 365
Cash flows from investing activities:
Acquisitions, net of cash acquired............................................ (17,110) (163)
Gross proceeds from sale of property and equipment............................ 110 -
Additions to property and equipment........................................... (7,168) (4,428)
---------------- --------------
Net cash used in investing activities........................................... (24,168) (4,591)
Cash flows from financing activities:
Other debt payments .......................................................... (188) (53)
Net increase in revolving credit facilities................................... 21,947 3,406
Payment of debt issuance costs................................................ (247) -
Net increase in due from parent............................................... (336) (531)
---------------- --------------
Net cash provided by financing activities....................................... 21,176 2,822
Effect of exchange rate changes on cash and cash equivalents.................... (291) (766)
---------------- --------------
Net increase (decrease) in cash and cash equivalents............................ 330 (2,170)
Cash and cash equivalents at beginning of period................................ 73,288 72,452
---------------- --------------
Cash and cash equivalents at end of period...................................... $ 73,618 $ 70,282
================ ==============
</TABLE>
See notes to interim unaudited consolidated financial statements.
5
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Dollar
Financial Group, Inc. (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements and should be read in conjunction with the
Company's audited consolidated financial statements in its Annual Report on Form
10-K for the fiscal year ended June 30, 2001 filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments, (consisting
of normal recurring adjustments), considered necessary for a fair presentation
have been included. Operating results of interim periods are not necessarily
indicative of the results that may be expected for a full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Operations
Dollar Financial Group, Inc., organized in 1979 under the laws of the State of
New York, is a wholly owned subsidiary of DFG Holdings, Inc. ("Holdings"). The
activities of Holdings consist primarily of its investment in the Company and
additional third party debt. Holdings has no employees or operating activities
as of December 31, 2001. The Company, through its subsidiaries, provides retail
financial services to the general public through a network of 1,004 locations
(of which 648 are company owned) operating as Money Mart(R), The Money Shop,
Loan Mart(R), Cash A Cheque, Fastcash and Cash Centres in seventeen states, the
District of Columbia, Canada and the United Kingdom. The services provided at
the Company's retail locations include check cashing, short-term consumer loans,
sale of money orders, money transfer services and various other related
services. Also, the Company's subsidiary moneymart.com(TM), originates payday
loans through 1,295 independent merchants in 44 states and the District of
Columbia.
6
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
2. SUBSIDIARY GUARANTOR UNAUDITED FINANCIAL INFORMATION
The Company's payment obligations under the 10 7/8% Senior Notes due November
2006 ("Senior Notes") and Senior Subordinated Notes due 2006 ("Senior
Subordinated Notes") are jointly and severally guaranteed on a full and
unconditional basis by all of the Company's existing and future subsidiaries
(the "Guarantors"). The subsidiaries' guarantees rank pari passu in right of
payment with all existing and future senior indebtedness of the Guarantors,
including the obligations of the Guarantors under the Company's revolving credit
facility and any successor credit facilities. Pursuant to the Senior Notes or
Senior Subordinated Notes, every direct and indirect wholly owned subsidiary of
the Company serves as a guarantor of the Senior Notes and Senior Subordinated
Notes.
There are no restrictions on the Company's and the Guarantors' ability to obtain
funds from their subsidiaries by dividend or by loan. Separate financial
statements of each Guarantor have not been presented because management has
determined that they would not be material to investors. The accompanying tables
set forth the condensed consolidating balance sheet at December 31, 2001, and
the consolidating statement of operations and cash flows for the six month
period ended December 31, 2001 of the Company (on a parent-company basis),
combined domestic Guarantors, combined foreign Guarantors and the consolidated
Company.
7
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING BALANCE SHEET
December 31, 2001
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------ ------------- ------------- --------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.........................$ 5,862 $ 37,328 $ 27,092 $ $ 70,282
Accounts receivable, net.......................... 11,515 12,632 12,189 (9,437) 26,899
Income taxes receivable........................... 7,222 - 17 (7,239) -
Prepaid expenses.................................. 799 2,187 3,368 6,354
Deferred income taxes............................. 1,579 - - (1,579) -
Notes receivable-officers......................... 2,756 - - 2,756
Due from affiliates............................... 46,046 19,199 - (65,245) -
Due from parent................................... 3,096 - - 3,096
Property and equipment, net....................... 5,900 11,770 11,661 29,331
Goodwill and other intangibles, net............... 230 56,567 72,132 128,929
Debt issuance costs, net.......................... 6,501 - - 6,501
Investment in subsidiaries........................ 159,887 9,801 6,705 (176,393) -
Other............................................. 410 602 972 1,984
------------ ------------- ------------- --------------- -------------
$ 251,803 $ 150,086 $ 134,136 $ (259,893) $ 276,132
============ ============= ============= =============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable..................................$ - $ 9,240 $ 6,362 $ $ 15,602
Income taxes payable.............................. - 10,149 1,442 (7,239) 4,352
Accrued expenses.................................. 2,235 1,930 3,575 7,740
Accrued interest payable.......................... 1,472 - 9,466 (9,437) 1,501
Deferred tax liability............................ - 3,859 - (1,579) 2,280
Due to affiliates................................. - - 65,245 (65,245) -
Revolving credit facilities....................... 66,800 - 4,430 71,230
10-7/8% Senior Notes due 2006..................... 109,190 - - 109,190
Subordinated notes payable and other.............. 20,000 - 72 20,072
----------- ------------- ------------- --------------- -------------
199,697 25,178 90,592 (83,500) 231,967
Shareholder's equity:
Common stock...................................... - - - -
Additional paid-in capital........................ 50,957 67,824 27,304 (95,128) 50,957
Retained earnings................................. 4,878 60,904 20,361 (81,265) 4,878
Accumulated other comprehensive loss.............. (3,729) (3,820) (4,121) (11,670)
------------ ------------- ------------- --------------- -------------
Total shareholder's equity........................ 52,106 124,908 43,544 (176,393) 44,165
------------ ------------- ------------- --------------- -------------
$ 251,803 $ 150,086 $ 134,136 $ (259,893) $ 276,132
============ ============= ============= =============== =============
</TABLE>
8
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended December 31, 2001
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ - $ 56,284 $ 44,017 $ - $ 100,301
Store and regional expenses:
Salaries and benefits............................. - 19,334 12,058 - 31,392
Occupancy......................................... - 5,889 3,257 - 9,146
Depreciation...................................... - 1,585 1,447 - 3,032
Other............................................. - 15,789 8,509 - 24,298
------------ ------------ ----------- ----------- ------------
Total store and regional expenses.................... - 42,597 25,271 - 67,868
Corporate expenses................................... 6,620 509 3,813 - 10,942
Management fees...................................... (5,547) 4,124 1,423 - -
Loss on store closings and sales..................... 120 28 31 - 179
Other depreciation and amortization.................. 708 100 271 - 1,079
Interest expense (income)............................ 8,030 (1,525) 2,884 - 9,389
------------ ------------ ----------- ----------- ------------
(Loss) income before income taxes ................... (9,931) 10,451 10,324 - 10,844
Income tax (benefit) provision ...................... (3,813) 7,648 2,997 - 6,832
------------ ------------ ----------- ----------- ------------
(Loss) income before equity in net income of (6,118) 2,803 7,327 - 4,012
subsidiaries.......................................
Equity in net income of subsidiaries:
Domestic subsidiary guarantors....................... 2,803 - - (2,803) -
Foreign subsidiary guarantors........................ 7,327 - - (7,327) -
------------ ------------ ----------- ----------- ------------
Net income........................................... $ 4,012 $ 2,803 $ 7,327 $ (10,130) $ 4,012
============ ============ =========== =========== ============
</TABLE>
9
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended December 31, 2001
(In thousands)
<TABLE>
<CAPTION>
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------ ----------- ------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income........................................... $ 4,012 $ 2,803 $ 7,327 $ (10,130) $ 4,012
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Undistributed income of subsidiaries.......... (10,130) - - 10,130 -
Depreciation and amortization................. 1,439 1,685 1,719 - 4,843
Loss on store closings and sales.............. 120 28 31 - 179
Deferred tax provision........................ - 1,352 - - 1,352
Change in assets and liabilities (net of
effect of acquisitions):
Increase in accounts receivable and
income taxes receivable..................... (1,862) (208) (43) (1,086) (3,199)
(Increase) decrease in prepaid expenses
and other................................... (179) (199) 726 - 348
Decrease in accounts payable, income
taxes payable, accrued expenses and
accrued interest payable.................... (1,573) (1,932) (4,751) 1,086 (7,170)
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by operating activities.. (8,173) 3,529 5,009 - 365
Cash flows from investing activities:
Acquisitions, net of cash acquired.............. - (54) (109) - (163)
Additions to property and equipment............. (1,192) (917) (2,319) - (4,428)
Net decrease (increase) in due from affiliates.. 9,809 (1,578) - (8,231) -
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) investing activities.. 8,617 (2,549) (2,428) (8,231) (4,591)
Cash flows from financing activities:
Other debt payments............................. - - (53) - (53)
Net increase (decrease) in revolving credit
facilities..................................... 4,500 - (1,094) - 3,406
Net increase in due from parent................. (531) - - - (531)
Net decrease in due to affiliates............... - - (8,231) 8,231 -
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) financing activities.. 3,969 - (9,378) 8,231 2,822
Effect of exchange rate changes on cash and cash
equivalents..................................... - - (766) - (766)
------------ ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents......................................... 4,413 980 (7,563) - (2,170)
Cash and cash equivalents at beginning of period..... 1,449 36,348 34,655 - 72,452
------------ ----------- ------------ ------------ ------------
Cash and cash equivalents at end of period........... $ 5,862 $ 37,328 $ 27,092 $ - $ 70,282
============ =========== ============ ============ ============
</TABLE>
10
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. AMORTIZATION OF GOODWILL
The Company has adopted SFAS No. 142 effective July 1, 2001. Under SFAS No. 142,
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. In accordance with the adoption provisions of SFAS No. 142, the
Company has completed the transitional impairment test and no impairment was
noted. The Company will be required to perform goodwill impairment tests on at
least an annual basis. There can be no assurance that future goodwill impairment
tests will not result in a charge to earnings. The Company has costs in excess
of net assets acquired, which are deemed to be an indefinite intangible asset,
and covenants not to compete, which are deemed to have a definite life and will
continue to be amortized. Amortization for these intangibles for the six months
ended December 31, 2001 was $123,000. The estimated aggregate amortization
expense for each of the five succeeding fiscal years ending June 30, is:
<TABLE>
<CAPTION>
Year Amount
-------------- ----------------
<S> <C>
2002 $207,000
2003 173,000
2004 112,000
2005 20,000
2006 -
</TABLE>
The following table reflects the components of intangible assets as of December
31, 2001 (in thousands):
<TABLE>
<CAPTION>
Gross Carrying Accumulated
Amount Amortization
-------------------- ---------------
<S> <C> <C>
Non-amortized intangible assets:
Cost in excess of net assets acquired $149,833 $21,308
Amortized intangible assets:
Covenants not to compete 2,354 1,965
</TABLE>
The following table reflects the results of operations as if SFAS No. 142 had
been adopted as of July 1, 2000 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, 2000 December 31, 2000
-------------------- -------------------
<S> <C> <C>
Reported net income $ 1,523 $ 2,570
Goodwill amortization, net of tax 271 767
----------------- ---------------
Adjusted net income $ 1,794 $ 3,337
================= ===============
</TABLE>
11
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
4. COMPREHENSIVE INCOME
Comprehensive 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 income for the periods
stated (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- ---------------------------------
2000 2001 2000 2001
-------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 1,523 $ 2,168 $ 2,570 $ 4,012
Foreign currency translation adjustment 25 (1,360) (1,065) (2,471)
-------------- --------------- ------------- ----------------
Total comprehensive income $ 1,548 $ 808 $ 1,505 $ 1,541
============== =============== ============= ================
</TABLE>
5. GEOGRAPHIC SEGMENT INFORMATION
All operations for which geographic data is presented below are in one principal
industry (check cashing and ancillary services) (in thousands):
<TABLE>
<CAPTION>
United United
States Canada Kingdom Total
----------------- ------------- -------------- ---------------
As of and for the three months
ended December 31, 2000
<S> <C> <C> <C> <C>
Identifiable assets $ 146,634 $ 68,785 $ 58,850 $ 274,269
Sales to unaffiliated customers 29,795 12,309 7,152 49,256
Income (loss) before income taxes 1,156 2,811 (292) 3,675
Income tax provision 834 1,181 137 2,152
Net income (loss) 322 1,630 (429) 1,523
For the six months
ended December 31, 2000
Sales to unaffiliated customers $ 55,928 $ 24,382 $ 14,177 $ 94,487
Income before income taxes 1,008 5,293 463 6,764
Income tax provision 1,573 2,328 293 4,194
Net (loss) income (565) 2,965 170 2,570
As of and for the three months
ended December 31, 2001
Identifiable assets $ 148,700 $ 68,574 $ 58,858 $ 276,132
Sales to unaffiliated customers 29,020 13,517 8,541 51,078
Income before income taxes 686 3,879 1,296 5,861
Income tax provision 2,238 1,329 126 3,693
Net (loss) income (1,552) 2,550 1,170 2,168
</TABLE>
12
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
5. GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
United United
States Canada Kingdom Total
For the six months ----------------- ------------- -------------- ---------------
ended December 31, 2001
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 56,284 $ 27,018 $ 16,999 $ 100,301
Income before income taxes 520 7,961 2,363 10,844
Income tax provision 3,835 2,688 309 6,832
Net (loss) income (3,315) 5,273 2,054 4,012
</TABLE>
6. ACQUISITIONS
The acquired entities described below (collectively referred to as the
"Acquisitions"), were accounted for by the purchase method of accounting. The
results of operations of the acquired companies are included in the Company's
statements of operations for the periods in which they were owned by the
Company. The total purchase price for each acquisition has been allocated to
assets acquired and liabilities assumed based on estimated fair values.
On August 1, 2000, the Company purchased all of the outstanding shares of West
Coast Chequing Centres, LTD ("WCCC") which operated six stores in British
Columbia. The aggregate purchase price for this acquisition was $1.5 million and
was funded through excess internal cash. The excess of the purchase price over
the fair value of identifiable net assets acquired was $1.4 million.
On August 7, 2000, the Company purchased substantially all of the assets of Fast
`n Friendly Check Cashing ("F&F"), which operated eight stores in Maryland. The
aggregate purchase price for this acquisition was $700,000 and was funded
through the Company's revolving credit facility. The excess of the purchase
price over fair value of identifiable net assets acquired was $660,000.
Additional consideration of $150,000 was subsequently paid based on a revenue
based earn-out agreement.
On August 28, 2000, the Company purchased primarily all of the assets of Ram-Dur
Enterprises, Inc., d/b/a AAA Check Cashing Centers ("AAA"), which operated five
stores in Tucson, Arizona. The aggregate purchase price for this acquisition was
$1.3 million and was funded through the Company's revolving credit facility. The
excess of the purchase price over fair value of identifiable net assets acquired
was $1.2 million.
On December 5, 2000, the Company purchased all of the outstanding shares of
Fastcash Ltd. ("FCL"), which operated 13 company owned stores and 27 franchises
in The United Kingdom. The aggregate purchase price for this acquisition was
$3.1 million and was funded through the Company's revolving credit facility. The
excess of the purchase price over the fair value of the identifiable assets
acquired was $2.7 million. The agreement also includes a maximum potential
contingent payment to the sellers of $2.8 million based on future levels of
profitability.
The following unaudited pro forma information for the six months ended December
31, 2000 presents the results of operations as if the Acquisitions had occurred
as of the beginning of the period presented. The pro forma operating results
include the results of these acquisitions for the indicated period and reflect
increased interest expense on acquisition debt, the income tax impact and other
immaterial activities discontinued as of the respective purchase dates of the
Acquisitions. Pro forma results of operations are not necessarily indicative of
the results of operations that would have occurred had the purchase been made on
the date above or the results which may occur in the future.
13
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
6. ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
2000 2000
(Unaudited) (Unaudited)
---------------------------- ------------------------------
(in thousands) (in thousands)
<S> <C> <C>
Revenues $ 49,761 $ 96,072
Net income $ 1,531 $ 2,573
</TABLE>
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Operations in the United Kingdom and Canada have exposed the Company to shifts
in currency valuations and precautions have been taken should exchange rates
shift. For the United Kingdom and Canada subsidiaries, put options with a
notional value of 8.0 million British Pounds and 36.0 million Canadian Dollars,
respectively, have been purchased to protect quarterly earnings in the United
Kingdom and Canada against foreign exchange fluctuations. Each contract has a
strike price of initially 5% out of the money at the date of acquisition and
each contract was out of the money at December 31, 2001.
Out of the money put options were purchased for the following reasons: (1) lower
cost than completely averting risk and (2) maximum downside is limited to the
difference between strike price and exchange rate at date of purchase and price
of the contracts. This strategy will continually be evaluated as to its
effectiveness and suitability to the Company.
8. CONTINGENT LIABILITIES
The Company is not a party to any material litigation and is not aware of any
pending or threatened litigation, other than routine litigation and
administrative proceedings arising in the ordinary course of business, that
would have a material adverse effect on the Company's Consolidated Financial
Statements. As described in Note 9, the Company or a third party designated by
the Company, may become obligated to purchase a portion of the outstanding
payday loans.
9. SUBSEQUENT EVENTS
On January 4, 2002, Dollar Financial Group, Inc. entered into a Participation
and Termination Agreement ("Agreement") with Eagle National Bank, a national
banking association; Payday Partners, L.P., a Pennsylvania limited partnership;
Merlin Holdings LLC ("Merlin"), a Pennsylvania limited liability company; S.
Marshall Gorson and John Petralia. Under this agreement, subject to certain
conditions, Eagle will discontinue the business of offering short-term consumer
loans ("payday lending") through Dollar locations by June 15, 2002.
Subject to a Consent Order dated December 18, 2001 with the Office of the
Comptroller of the Currency, the Bank's primary regulator, Eagle's continuation
of its payday lending program through June 15, 2002 is conditioned upon the
Bank's ability to reduce its exposure to payday lending by entering into
agreements to sell payday loans outstandings ("Loans") to third parties,
including Merlin.
Under the terms of the Participation and Termination Agreement, if Merlin fails
(or threatens to fail) to make any required investment in the Loans, to make any
of the required deposits or to perform any other requirement of the agreement,
the Company (or a third party designated by the Company) is obligated to make
such investment or to make any of the required deposits and the Company (or its
designee) will succeed to the rights of Merlin with respect to such investment
or requirement. The Agreement defines an investment in loans as that amount of
required ownership in the outstanding payday loan portfolio. The Agreement also
defines required deposits as the amounts deposited in a specified account used
to fund the loans. In addition, after proper written notice to the Company,
Merlin may require at any time the Company or its designee to purchase its
investment in the Loans. As of February 14, 2002, Merlin's investments in the
Loans was $6.0 million.
14
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
9. SUBSEQUENT EVENTS (Continued)
The Company is currently in negotiations to enter into replacement arrangements
with another bank. It is not presently possible to quantify the potential
financial impact of any failure to enter into such replacement arrangements. The
largest part of the Company's payday-lending activities is derived from loans to
consumers in states where payday lending is lawful under state law, and because
the Company would retain all of the compensation presently earned by Eagle if
the Company were to engage in direct lending, the Company does not presently
expect the effect of its failure to enter into such replacement arrangements to
have a material adverse effect on its revenues and earnings from payday lending.
15
<PAGE>
DOLLAR FINANCIAL GROUP, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
December 31,
Company Operating Data: 2000 2001
------------ -------------
<S> <C> <C>
Stores in operation:
Company-Owned................................. 637 648
Franchised Stores and Check Cashing Merchants. 364 356
--- ---
Total............................................ 1,001 1,004
===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
Operating Data: 2000 2001 2000 2001
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Face amount of checks cashed (in millions)......................$ 776 $ 723 $ 1,537 $ 1,444
Face amount of average check....................................$ 324 $ 333 $ 329 $ 332
Face amount of average check (excluding Canada and the United
Kingdom).....................................................$ 366 $ 354 $ 366 $ 353
Average fee per check...........................................$ 10.73 $ 11.71 $ 10.92 $ 11.63
Number of checks cashed (in thousands).......................... 2,396 2,168 4,675 4,344
Adjusted EBITDA (in thousands)1.................................$ 12,037 $ 12,837 $ 23,283 $ 25,184
Adjusted EBITDA Margin1......................................... 24.4% 25.1% 24.6% 25.1%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- -----------------------------
Collections Data: 2000 2001 2000 2001
------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
Face amount of returned checks (in thousands)...................$ 6,670 $ 7,630 $ 13,384 $ 15,459
Collections (in thousands)...................................... 4,488 5,162 9,358 10,946
------------ --------------- ------------- -------------
Net write-offs (in thousands)...................................$ 2,182 $ 2,468 $ 4,026 $ 4,513
============ =============== ============= =============
Collections as a percentage of
returned checks.............................................. 67.3% 67.6% 69.9% 70.8%
Net write-offs as a percentage of
check cashing revenues....................................... 8.5% 9.7% 7.9% 8.9%
Net write-offs as a percentage of the
face amount of checks cashed................................. 0.28% 0.34% 0.26% 0.31%
<FN>
1Adjusted EBITDA is earnings before interest, income taxes, depreciation,
amortization and loss on store closings and sales. Adjusted EBITDA does not
represent cash flows as defined by accounting principles generally accepted in
the United States and does not necessarily indicate that cash flows are
sufficient to fund all of the Company's cash needs. Adjusted EBITDA should not
be considered in isolation or as a substitute for net income, cash flows from
operating activities, or other measures of liquidity determined in accordance
with accounting principles generally accepted in the United States. The Adjusted
EBITDA margin represents Adjusted EBITDA as a percentage of revenues. Management
believes that these ratios should be reviewed by prospective investors because
the Company uses them as one means of analyzing its ability to service its debt
and the Company understands that they are used by certain investors as one
measure of a company's historical ability to service its debt. Not all companies
calculate EBITDA in the same fashion and therefore these ratios as presented may
not be comparable to other similarly titled measures of other companies.
</FN>
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company is a consumer financial services company operating the second
largest check cashing store network in the United States and the largest such
network in Canada and the United Kingdom. The Company provides a diverse range
of consumer financial products and services primarily consisting of check
cashing, short-term consumer loans, money orders, money transfers and bill
payment.
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, 2001 and the results of operations for the three and
six months ended December 31, 2001 and 2000. The results for the three and six
months ended December 31, 2001 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, 2001.
During the year ended June 30, 2001, the State of New York completed a statewide
implementation of an Electronic Benefit Transfer ("EBT") system. As a result,
the Company's contract was terminated. Management of the Company has concluded
that the termination of this contract will not have a material adverse effect on
the Company's results of operations or financial condition.
Acquisitions
On August 1, 2000, the Company purchased all of the outstanding shares of West
Coast Chequing Centres, LTD ("WCCC") which operated six stores in British
Columbia. The aggregate purchase price for this acquisition was $1.5 million and
was funded through excess internal cash. The excess of the purchase price over
the fair value of identifiable net assets acquired was $1.4 million.
On August 7, 2000, the Company purchased substantially all of the assets of Fast
`n Friendly Check Cashing ("F&F"), which operated eight stores in Maryland. The
aggregate purchase price for this acquisition was $700,000 and was funded
through the Company's revolving credit facility. The excess of the purchase
price over fair value of identifiable net assets acquired was $660,000.
Additional consideration of $150,000 was subsequently paid based on a revenue
based earn-out agreement.
On August 28, 2000, the Company purchased primarily all of the assets of Ram-Dur
Enterprises, Inc., d/b/a AAA Check Cashing Centers ("AAA"), which operated five
stores in Tucson, Arizona. The aggregate purchase price for this acquisition was
$1.3 million and was funded through the Company's revolving credit facility. The
excess of the purchase price over fair value of identifiable net assets acquired
was $1.2 million.
On December 5, 2000, the Company purchased all of the outstanding shares of
Fastcash Ltd. ("FCL"), which operated 13 company owned stores and 27 franchises
in The United Kingdom. The aggregate purchase price for this acquisition was
$3.1 million and was funded through the Company's revolving credit facility. The
excess of the purchase price over the fair value of the identifiable assets
acquired was $2.7 million. The agreement also includes a maximum potential
contingent payment to the sellers of $2.8 million based on future levels of
profitability.
All of the acquisitions described above (collectively, the "Acquisitions"), have
been accounted for under the purchase method of accounting. Therefore, the
historical results of operations include the revenues and expenses of all the
acquired companies since their respective dates of acquisition.
17
<PAGE>
RESULTS OF OPERATIONS
Revenue Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) Total Revenue) ($ in thousands) Total Revenue)
-------------------- --------------------- ---------------------- --------------------
2000 2001 2000 2001 2000 2001 2000 2001
-------- -------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Check Cashing.................... $25,715 $25,388 52.2% 49.7% $51,068 $50,512 54.0% 50.4%
Cash `Til Payday(R), net......... 15,526 18,982 31.5 37.2 27,206 36,200 28.8 36.1
Government services.............. 1,463 455 3.0 0.9 3,026 862 3.2 0.9
Money transfer fees.............. 2,274 2,494 4.6 4.9 4,451 4,954 4.7 4.9
Other revenue.................... 4,278 3,759 8.7 7.3 8,736 7,773 9.3 7.7
----------- -------- -------- --------- -------- -------- --------- -------
Total revenue.................... $49,256 $51,078 100.0% 100.0% $94,487 $100,301 100.0% 100.0%
=========== ========= ======== ========= ======== ========= ========= =======
</TABLE>
QUARTER COMPARISON
Total revenues were $51.1 million for the three months ended December 31, 2001
compared to $49.3 million for the three months ended December 31, 2000, an
increase of $1.8 million or 3.7%. Comparable store, franchised store and
merchant sales for the entire period increased $1.5 million or 3.2%. The
Acquisitions and new store openings accounted for an increase of $400,000 and
$2.0 million, respectively. Partially offsetting this increase, however, was a
decline in revenues from closed stores and the termination of the State of New
York government contract during fiscal year 2001 for $1.0 million and $1.1
million, respectively.
SIX MONTH COMPARISON
Total revenues were $100.3 million for the six months ended December 31, 2001
compared to $94.5 million for the six months ended December 31, 2000, an
increase of $5.8 million or 6.1%. The Acquisitions and new store openings
accounted for an increase of $1.5 million and $4.9 million, respectively.
Comparable store, franchised store and merchant sales for the entire period
increased $3.5 million or 4.0%. Partially offsetting this increase, however, was
a decline in revenues from closed stores and the termination of the State of New
York government contract during fiscal year 2001 for $1.7 million and $2.4
million, respectively.
18
<PAGE>
Store and Regional Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) Total Revenue) ($ in thousands) Total Revenue)
-------------------- --------------------- --------------------- -------------------
2000 2001 2000 2001 2000 2001 2000 2001
-------- -------- ------- ------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits............. $14,513 $16,348 29.5% 32.0% $27,985 $31,392 29.6% 31.3%
Occupancy......................... 4,275 4,521 8.7 8.9 8,256 9,146 8.7 9.1
Depreciation...................... 1,477 1,550 3.0 3.0 2,845 3,032 3.0 3.0
Other............................. 13,080 12,318 26.6 24.1 23,642 24,298 25.0 24.2
-------- -------- ------- ------- --------- --------- -------- --------
Total store and regional expenses. $33,345 $34,737 67.8% 68.0% $62,728 $67,868 66.3% 67.6%
======== ======== ======= ======== ========= ========= ======== ========
</TABLE>
QUARTER COMPARISON
Store and regional expenses were $34.7 million for the three months ended
December 31, 2001 compared to $33.3 million for the three months ended December
31, 2000, an increase of $1.4 million or 4.2%. The Acquisitions accounted for an
increase of $200,000 and new store openings resulted in an increase of $1.2
million. For the three months ended December 31, 2001 total store and regional
expenses increased to 68.0% of total revenue compared to 67.8% of total revenue
for the three months ended December 31, 2000 due to increased costs associated
with new store openings.
SIX MONTH COMPARISON
Store and regional expenses were $67.9 million for the six months ended December
31, 2001 compared to $62.7 million for the six months ended December 31, 2000,
an increase of $5.2 million or 8.3%. Store and regional expenses associated with
the Acquisitions were $900,000 and new store openings accounted for an increase
of $3.4 million. For the six months ended December 31, 2001 total store and
regional expenses increased to $67.6% of total revenue compared to 66.3% of
total revenue due to increased start-up costs associated with new store
openings.
19
<PAGE>
Other Expense Analysis
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) Total Revenue) ($ in thousands) Total Revenue)
-------------------- --------------------- ---------------------- --------------------
2000 2001 2000 2001 2000 2001 2000 2001
------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate expenses............... $5,311 $5,212 10.8% 10.2% $11,525 $10,942 12.2% 10.9%
Loss on store closings and sales. 41 91 0.1 0.2 75 179 0.1 0.2
Goodwill amortization............ 1,175 - 2.4 0.0 2,256 - 2.4 0.0
Other depreciation and
amortization................... 476 542 1.0 1.1 946 1,079 1.0 1.1
Interest expense................. 5,233 4,635 10.6 9.1 10,193 9,389 10.8 9.4
Income tax provision ............ 2,152 3,693 4.4 7.2 4,194 6,832 4.4 6.8
</TABLE>
QUARTER COMPARISON
Corporate Expenses
Corporate expenses were $5.2 million for the three months ended December 31,
2001 compared to $5.3 million for the three months ended December 31, 2000, a
decrease of $100,000 or 1.9%.
Goodwill Amortization
In June 2001, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other
Intangible Assets." Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment.
Interest Expense
Interest expense was $4.6 million for the three months ended December 31, 2001
and was $5.2 million for the three months ended December 31, 2000, a decrease of
$600,000 or 11.5%. This decrease is primarily attributable to the decrease in
the average borrowing rates of the Company's revolving credit facilities which
fund acquisitions, purchases of property and equipment related to existing
stores, recently acquired or opened stores and investments in technology.
Income Taxes
The provision for income taxes was $3.7 million for the three months ended
December 31, 2001 compared to $2.2 million for the three months ended December
31, 2000, an increase of $1.5 million. The Company's effective tax rate is
significantly greater than the federal statutory rate of 34% for the three
months ended December 31, 2001 due to state and foreign taxes and also due to
non-deductible goodwill amortization for the three months ended December 31,
2000.
SIX MONTH COMPARISON
Corporate Expenses
Corporate expenses were $10.9 million for the six months ended December 31, 2001
compared to $11.5 million for the six months ended December 31, 2000, an
decrease of $600,000 or 5.2% due to the reduction of head office operating
expenses initiated during the second half of last fiscal year.
Goodwill Amortization
In June 2001, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other
Intangible Assets." Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment.
20
<PAGE>
Interest Expense
Interest expense was $9.4 million for the six months ended December 31, 2001 and
was $10.2 million for the six months ended December 31, 2000, a decrease of
$800,000 or 7.8%. This decrease is primarily attributable to the decrease in the
average borrowing rates of the Company's revolving credit facilities which fund
acquisitions, purchases of property and equipment related to existing stores,
recently acquired or opened stores and investments in technology.
Income Taxes
The provision for income taxes was $6.8 million for the six months ended
December 31, 2001 compared to $4.2 million for the six months ended December 31,
2000, an increase of $2.6 million. The Company's effective tax rate is
significantly greater than the federal statutory rate of 34% for the three
months ended December 31, 2001 due to state and foreign taxes and also due to
non-deductible goodwill amortization for the three months ended December 31,
2000.
21
<PAGE>
Changes in Financial Condition
Cash and cash equivalents balances and the revolving credit facilities balances
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, 2001, cash and cash equivalents decreased $2.2
million. Net cash provided by operations was $400,000 and the Company's
revolving credit facilities increased by $3.4 million, which were used to fund
additions to property and equipment of $4.4 million.
During the six months ended December 31, 2001, accounts receivable increased by
$3.1 million. Accounts receivable is affected by the timing of settlement
payments related to the Company's Cash `Til Payday(R) product.
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 store expansion. For the six months ended December 31,
2001 and 2000, the Company had net cash provided by operating activities of
$400,000 and $3.6 million, respectively. The decrease in net cash provided by
operations was primarily the result of increases in accounts receivable due to
the timing of settlement payments related to the Company's Cash `Til Payday(R)
product. For the six months ended December 31, 2001, the Company had made
capital expenditures of $4.4 million. The actual amount of capital expenditures
for the year will depend in part upon the number of new stores acquired or
opened and the number of stores remodeled. The Company's budgeted capital
expenditures, excluding acquisitions, are currently anticipated to aggregate
approximately $8.0 million during its fiscal year ending June 30, 2002, 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
$85 million. The borrowings under the revolving credit facility as of December
31, 2001 were $66.8 million. The Senior Notes, Senior Subordinated Notes and the
revolving credit facility contain certain financial and other restrictive
covenants, which, among other things, require the Company to achieve certain
financial ratios, limit capital expenditures, restrict payment of dividends, and
require certain approvals in the event the Company wants to increase the
borrowings. The Company also has a Canadian dollar overdraft credit facility to
fund peak working capital needs for its Canadian operation. The overdraft
facility provides for borrowings up to $4.4 million, of which $2.9 million was
outstanding as of December 31, 2001. For the Company's United Kingdom
operations, the Company also has a British pound overdraft facility which
provides for a commitment of up to approximately $7.3 million of which $1.5
million was outstanding as of December 31, 2001. The overdraft facility is
secured by an $8.0 million letter of credit issued by Wells Fargo Bank under the
revolving credit facility.
The Company is highly leveraged, and borrowings under the revolving credit
facility and the overdraft facilities will increase the Company's debt service
requirements. Management believes that, based on current levels of operations
and anticipated improvements in operating results, cash flows from operations
and borrowings available under the revolving credit facility will enable the
Company to fund its liquidity and capital expenditure requirements for the
foreseeable future, including scheduled payments of interest on the Senior Notes
and 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, growth in the Cash `Til Payday(R) loan business, the
maturity of recently opened stores and the continued expansion of new stores.
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, 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.
22
<PAGE>
Seasonality and Quarterly Fluctuations
The Company's business is seasonal due to the impact of tax-related services,
including cashing tax refund checks. Historically, the Company has generally
experienced its highest revenues and earnings during its third fiscal quarter
ending March 31 when revenues from these tax-related services peak. Due to the
seasonality of the Company's business, therefore, results of operations for any
fiscal quarter are not necessarily indicative of the results that may be
achieved for the full fiscal year. In addition, quarterly results of operations
depend significantly upon the timing and amount of revenues and expenses
associated with acquisitions and the addition of new stores.
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.
23
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes for Quantitative and Qualitative Disclosures
About Market Risk from the Company's audited financial statements in its Annual
Report on Form 10-K for the fiscal year ended June 30, 2001.
24
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation and is not aware
of any pending or threatened litigation, other than routine litigation
and administrative proceedings arising in the ordinary course of
business.
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
None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOLLAR FINANCIAL GROUP, INC.
Dated: February 14, 2002 *By: /s/ DONALD GAYHARDT
-------------------------------
Name: Donald Gayhardt
Title: 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.
26
<PAGE>
</TEXT>
</DOCUMENT>