-----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, Tg6a9boFMZqR6bWgyB2naqTo5KCLSUjz8GShhZXLTxv19/e7X6g4WrrVgR88y4db Z235JFOTCc/YVmPuEoDq+w== 0001028643-03-000006.txt : 20030512 0001028643-03-000006.hdr.sgml : 20030512 20030509175658 ACCESSION NUMBER: 0001028643-03-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030512 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: 1934 Act SEC FILE NUMBER: 333-18221 FILM NUMBER: 03691346 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 a10qmarch2003.txt 10Q MARCH 2003 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 March 31, 2003 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 May 9, 2003, 100 shares of the Registrant's common stock, par value $1.00 per share, were outstanding. 1 DOLLAR FINANCIAL GROUP, INC. INDEX PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Interim Consolidated Balance Sheets as of June 30, 2002 and March 31, 2003 (unaudited).............................................................. 3 Interim Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2002 and 2003........................................................ 4 Interim Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2002 and 2003............................................................... 5 Notes to Interim Unaudited Consolidated Financial Statements................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................................... 23 Item 4. Controls and Procedures..................................................................... 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................................................... 24 Item 2. Changes in Securities and Use of Proceeds................................................... 24 Item 3. Defaults Upon Senior Securities............................................................. 24 Item 4. Submission of Matters to a Vote of Security Holders......................................... 24 Item 5. Other Information........................................................................... 24 Item 6. Exhibits and Reports on Form 8-K............................................................ 24
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOLLAR FINANCIAL GROUP, INC. INTERIM CONSOLIDATED BALANCE SHEETS (In thousands except share amounts)
June 30, March 31, 2002 2003 ---------------- ----------------- ASSETS (unaudited) Cash and cash equivalents..................................................... $ 86,633 $ 75,856 Loans and other receivables, net of reserve of $2,862 and $2,393.............. 20,542 19,155 Loans receivable pledged...................................................... - 8,000 Income taxes receivable....................................................... - 402 Prepaid expenses ............................................................ 6,745 5,877 Notes receivable - officers................................................... 2,756 2,756 Due from parent ............................................................. 3,606 4,322 Property and equipment, net of accumulated depreciation of $30,119 and $35,971................................................... 30,510 28,565 Goodwill and other intangibles, net of accumulated amortization of $21,070 and $21,217....................................... 132,264 138,065 Debt issuance costs, net of accumulated amortization of $6,153 and $7,507........................................................ 6,292 5,749 Other......................................................................... 1,964 1,677 ---------------- ----------------- $ 291,312 $ 290,424 ================ ================= LIABILITIES AND SHAREHOLDER'S EQUITY Accounts payable ............................................................ $ 18,249 $ 16,533 Income taxes payable.......................................................... 1,831 - Accrued expenses............................................................. 7,932 11,201 Accrued interest payable...................................................... 1,539 5,371 Deferred tax liability........................................................ 55 1,510 Revolving credit facilities................................................... 78,936 59,530 10-7/8 % Senior Notes due 2006................................................ 109,190 109,190 Other collateralized borrowings............................................... - 8,000 Subordinated notes payable and other.......................................... 20,065 20,105 Shareholder's equity: Common stock, $1 par value: 20,000 shares authorized; 100 shares issued and outstanding at June 30, 2002 and March 31, 2003.......................................... - - Additional paid-in capital.................................................... 50,957 50,957 Retained earnings 6,903 8,457 Accumulated other comprehensive loss.......................................... (4,345) (430) ---------------- ----------------- Total shareholder's equity................................................ 53,515 58,984 ---------------- ----------------- $ 291,312 $ 290,424 ================ =================
See notes to interim unaudited consolidated financial statements. 3 DOLLAR FINANCIAL GROUP, INC. INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands)
Three Months Ended Nine Months Ended March 31, March 31, --------------------------------------------------------------- 2002 2003 2002 2003 ------------ ------------ ------------ ------------- Revenues ........................................................ $ 49,755 $ 57,973 $ 150,056 $ 163,916 Store and regional expenses: Salaries and benefits......................................... 16,716 17,519 48,108 51,947 Occupancy..................................................... 4,442 4,683 13,588 14,155 Depreciation.................................................. 1,823 1,121 4,855 4,364 Other......................................................... 10,822 11,390 35,120 36,408 ------------ ------------ ------------ ------------- Total store and regional expenses................................ 33,803 34,713 101,671 106,874 Corporate expenses............................................... 6,564 8,711 17,506 23,697 Loss on store closings and sales and other restructuring......... 917 460 1,096 2,750 Other depreciation and amortization.............................. 683 758 1,762 2,446 Interest expense (net of interest income of $63, $61, $212 and $149)...................................................... 4,628 4,955 14,017 14,779 Establishment of reserve for legal matter........................ - - - 2,500 ------------ ------------ ------------ ------------- Income before income taxes....................................... 3,160 8,376 14,004 10,870 Income tax provision............................................. 2,168 7,383 9,000 9,316 ------------ ------------ ------------ ------------- Net income....................................................... $ 992 $ 993 $ 5,004 $ 1,554 ============ ============ ============ =============
See notes to interim unaudited consolidated financial statements. 4 DOLLAR FINANCIAL GROUP, INC. INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended March 31, ------------------------------------ 2002 2003 --------------- -------------- Cash flows from operating activities: Net income.................................................................... $ 5,004 $ 1,554 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................................... 7,608 8,165 Establishment of reserve for legal matter............................... - 2,500 Loss on store closings and sales and other restructuring................ 1,096 2,750 Deferred tax provision.................................................. 2,028 1,455 Change in assets and liabilities (net of effect of acquisitions): Decrease (increase) in loans and other receivables................... 5,341 (6,155) Increase in income taxes receivable.................................. - (2,547) Decrease in prepaid expenses and other............................... 809 1,286 (Decrease) increase in accounts payable, income taxes payable, accrued expenses and accrued interest payable...................... (4,772) 1,067 --------------- -------------- Net cash provided by operating activities..................................... 17,114 10,075 Cash flows from investing activities: Acquisitions, net of cash acquired.......................................... (206) (3,318) Additions to property and equipment......................................... (7,048) (5,482) --------------- -------------- Net cash used in investing activities......................................... (7,254) (8,800) Cash flows from financing activities: Other debt (payments) borrowings ........................................... (65) 8,001 Net increase (decrease) in revolving credit facilities...................... 1,648 (19,406) Payment of debt issuance costs.............................................. - (810) Net increase in due from parent............................................. (801) (716) --------------- -------------- Net cash provided by (used in) financing activities........................... 782 (12,931) Effect of exchange rate changes on cash and cash equivalents.................. (902) 879 --------------- -------------- Net increase (decrease) in cash and cash equivalents.......................... 9,740 (10,777) Cash and cash equivalents at beginning of period.............................. 72,452 86,633 --------------- -------------- Cash and cash equivalents at end of period.................................... $ 82,192 $ 75,856 =============== ==============
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 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, 2002 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments, (consisting of normal recurring adjustments and certain other items described below), 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 accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 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 March 31, 2003. The Company, through its subsidiaries, provides retail financial services to the general public through a network of 1,087 locations (of which 621 are Company owned) operating as Money Mart(R), The Money Shop and Loan Mart(R) 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, Money Mart(R) Express (formerly known as moneymart.com(TM)), services and originates short-term consumer loans through 490 independent document transmitters in 15 states. 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' guarantee 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, each of which is wholly-owned, 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 March 31, 2003, and the consolidating statements of operations and cash flows for the nine month period ended March 31, 2003 of the Company (on a parent-company basis), combined domestic Guarantors, combined foreign subsidiaries and the consolidated Company. 7 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) CONSOLIDATING BALANCE SHEETS March 31, 2003 (In thousands)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group, Inc. Guarantors Guarantors Eliminations Consolidated ------------- ------------- ------------- -------------- -------------- ASSETS Cash and cash equivalents....................... $ 3,466 $ 37,015 $ 35,375 $ - $ 75,856 Loans and other receivables, net................ 9,812 1,086 8,946 (689) 19,155 Loans receivable pledged........................ - - 8,000 - 8,000 Income taxes receivable......................... 16,462 - - (16,060) 402 Prepaid expenses................................ 1,364 1,253 3,260 - 5,877 Deferred income taxes........................... 936 - - (936) - Notes receivable-officers....................... 2,756 - - - 2,756 Due from affiliates............................. - 63,470 - (63,470) - Due from parent................................. 4,322 - - - 4,322 Property and equipment, net..................... 6,303 8,711 13,551 - 28,565 Goodwill and other intangibles, net............. 86 56,328 81,651 - 138,065 Debt issuance costs, net........................ 5,548 - 201 - 5,749 Investment in subsidiaries...................... 206,090 9,801 6,705 (222,596) - Other........................................... 73 598 1,006 - 1,677 ------------ ------------- ------------- --------------- ------------- $ 257,218 $ 178,262 $ 158,695 $ (303,751) $ 290,424 ============ ============= ============= =============== ============= LIABILITIES AND SHAREHOLDER'S EQUITY Accounts payable................................ $ 838 $ 7,433 $ 8,262 $ - $ 16,533 Income taxes payable............................ - 15,762 298 (16,060) - Accrued expenses................................ 5,685 709 4,807 - 11,201 Accrued interest payable........................ 4,980 27 1,053 (689) 5,371 Deferred tax liability.......................... - 2,446 - (936) 1,510 Due to affiliates............................... 373 - 63,097 (63,470) - Revolving credit facilities..................... 58,664 - 866 - 59,530 10-7/8% Senior Notes due 2006................... 109,190 - - - 109,190 Other collateralized borrowings................. - - 8,000 - 8,000 Subordinated notes payable and other............ 20,000 - 105 - 20,105 ------------ ------------- ------------- --------------- ------------- 199,730 26,377 86,488 (81,155) 231,440 Shareholder's equity: Common stock.................................... - - - - - Additional paid-in capital...................... 50,957 85,524 27,304 (112,828) 50,957 Retained earnings............................... 8,457 66,687 43,081 (109,768) 8,457 Accumulated other comprehensive (loss) income....................................... (1,926) (326) 1,822 - (430) ------------ ------------- ------------- --------------- ------------- Total shareholder's equity...................... 57,488 151,885 72,207 (222,596) 58,984 ------------ ------------- ------------- --------------- ------------- $ 257,218 $ 178,262 $ 158,695 $ (303,751) $ 290,424 ============ ============= ============= =============== =============
8 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended March 31, 2003 (In thousands)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group, Inc. Guarantors Guarantors Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ Revenues............................................. $ - $ 84,473 $ 79,443 $ - $ 163,916 Store and regional expenses: Salaries and benefits............................. - 31,386 20,561 - 51,947 Occupancy......................................... - 8,409 5,746 - 14,155 Depreciation...................................... - 2,467 1,897 - 4,364 Other............................................. - 22,682 13,726 - 36,408 ------------ ------------ ----------- ------------ ------------ Total store and regional expenses.................... - 64,944 41,930 - 106,874 Corporate expenses................................... 14,539 43 9,115 - 23,697 Management fees...................................... (8,633) 7,779 854 - - Loss on store closings and sales and other restructuring........................................ 2,235 419 96 - 2,750 Other depreciation and amortization.................. 1,520 43 883 - 2,446 Interest expense .................................... 12,996 1,558 225 - 14,779 Establishment of reserve for legal matter............ - 2,500 - - 2,500 ------------ ------------ ----------- ------------ ------------ (Loss) income before income taxes ................... (22,657) 7,187 26,340 - 10,870 Income tax (benefit) provision ...................... (7,776) 7,870 9,222 - 9,316 ------------ ------------ ----------- ------------ ------------ (Loss) income before equity in net (loss) income of subsidiaries................................. (14,881) (683) 17,118 - 1,554 Equity in net (loss) income of subsidiaries: Domestic subsidiary guarantors....................... (683) - - 683 - Foreign subsidiary guarantors........................ 17,118 - - (17,118) - ------------ ------------ ----------- ------------ ------------ Net income (loss).................................... $ 1,554 $ (683) $ 17,118 $ (16,435) $ 1,554 ============ ============ =========== ============ ============
9 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 2003 (In thousands)
Dollar Domestic Foreign Financial Subsidiary Subsidiary Group,Inc. Guarantors Guarantors Eliminations Consolidated ----------- ----------- ------------ ------------ ------------- Cash flows from operating activities: Net income (loss) .................................. $ 1,554 $ (683) $ 17,118 $ (16,435) $ 1,554 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Undistributed income of subsidiaries.......... (16,435) - - 16,435 - Depreciation and amortization................. 2,874 2,511 2,780 - 8,165 Establishment of reserves for legal matter.... - 2,500 - - 2,500 Loss on store closings and sales and other restructuring................................. 2,235 419 96 - 2,750 Deferred tax provision........................ 230 1,225 - - 1,455 Change in assets and liabilities (net of effect of acquisitions): (Increase) decrease in loans and other receivables................................. (6,051) 6,304 (2,523) (3,885) (6,155) Increase in income taxes receivable.......... (8,006) - - 5,459 (2,547) (Increase) decrease in prepaid expenses and other....................................... (480) 658 1,108 - 1,286 Increase (decrease) in accounts payable, income taxes payable, accrued expenses and accrued interest payable.................... 2,759 4,420 (4,538) (1,574) 1,067 ----------- ----------- ------------ ------------ ----------- Net cash (used in) provided by operating activities.. (21,320) 17,354 14,041 - 10,075 Cash flows from investing activities: Acquisitions, net of cash acquired.............. - - (3,318) - (3,318) Additions to property and equipment............. (780) (740) (3,962) - (5,482) Net increase in due from affiliates............. - (21,004) - 21,004 - ----------- ----------- ------------ ------------ ----------- Net cash used in investing activities................ (780) (21,744) (7,280) 21,004 (8,800) Cash flows from financing activities: Other debt borrowings........................... - - 8,001 - 8,001 Net decrease in revolving credit facilities..... (9,936) - (9,470) - (19,406) Payment of debt issuance costs.................. (610) - (200) - (810) Net increase in due from parent................. (716) - - - (716) Net increase (decrease) in due to affiliates.... 35,082 - (14,078) (21,004) - ----------- ----------- ------------ ------------ ----------- Net cash provided by (used in) financing activities.. 23,820 - (15,747) (21,004) (12,931) Effect of exchange rate changes on cash and cash equivalents..................................... - - 879 - 879 ----------- ----------- ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents. 1,720 (4,390) (8,107) - (10,777) Cash and cash equivalents at beginning of period..... 1,746 41,405 43,482 - 86,633 ----------- ----------- ------------ ------------ ----------- Cash and cash equivalents at end of period........... $ 3,466 $ 37,015 $ 35,375 $ - $ 75,856 =========== =========== ============ ============ ===========
10 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 3. GOODWILL AND OTHER INTANGIBLES In accordance with the adoption provisions of SFAS No. 142, the Company is 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. For the nine months ended March 31, 2003 the Company paid $2.0 million in additional consideration based upon a future results of operations earn-out agreement related to one of its United Kingdom acquisitions. This amount has been included as goodwill on the Interim Consolidated Balance Sheet. The Company has covenants not to compete, which are deemed to have a definite life and will continue to be amortized. Amortization for these intangibles for the nine months ended March 31, 2003 was $130,000. The estimated aggregate amortization expense for each of the five succeeding fiscal years ending June 30, is: Year Amount --------------------------------------- 2003 $ 173,000 2004 95,000 2005 19,000 2006 - 2007 - The following table reflects the components of intangible assets for the periods stated (in thousands):
June 30, 2002 March 31, 2003 --------------------------------------- --------------------------------------- Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization --------------------------------------- --------------------------------------- Non-amortized intangible assets: Cost in excess of net assets acquired $ 150,954 $ 18,977 $ 156,884 $ 18,977 Amortized intangible assets: Covenants not to compete 2,380 2,093 2,398 2,240
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):
Three Months Ended Nine Months Ended March 31, March 31, ---------------------------------- ---------------------------------- 2002 2003 2002 2003 -------------- ---------------- ------------- ------------- Net income $ 992 $ 993 $ 5,004 $ 1,554 Foreign currency translation adjustment (828) 3,257 (3,299) 3,915 -------------- ---------------- ------------- ------------- Total comprehensive income $ 164 $ 4,250 $ 1,705 $ 5,469 ============== ================ ============= =============
11 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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):
United United States Canada Kingdom Total ----------------- ------------- -------------- --------------- As of and for the three months ended March 31, 2002 Identifiable assets $ 144,362 $ 71,037 $ 62,266 $ 277,665 Sales to unaffiliated customers 28,839 13,144 7,772 49,755 (Loss) income before income taxes (1,528) 3,679 1,009 3,160 Income tax (benefit) provision (363) 1,827 704 2,168 Net (loss) income (1,165) 1,852 305 992 For the nine months ended March 31, 2002 Sales to unaffiliated customers $ 85,123 $ 40,162 $ 24,771 $ 150,056 (Loss) income before income taxes (1,008) 11,640 3,372 14,004 Income tax provision 3,472 4,515 1,013 9,000 Net (loss) income (4,480) 7,125 2,359 5,004 As of and for the three months ended March 31, 2003 Identifiable assets $ 138,434 $ 79,907 $ 72,083 $ 290,424 Sales to unaffiliated customers 31,699 16,028 10,246 57,973 Income before income taxes 853 5,243 2,280 8,376 Income tax provision 3,512 3,194 677 7,383 Net (loss) income (2,659) 2,049 1,603 993 For the nine months ended March 31, 2003 Sales to unaffiliated customers $ 84,473 $ 48,487 $ 30,956 $ 163,916 (Loss) income before income taxes (15,470) 20,220 6,120 10,870 Income tax provision 94 7,384 1,838 9,316 Net (loss) income (15,564) 12,836 4,282 1,554
12 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In fiscal year 2002, put options were purchased to protect quarterly earnings in the United Kingdom and Canada against foreign exchange fluctuations. The options expired in fiscal year 2002 and there has been no hedging activity in fiscal year 2003. The Company's revolving credit facility and overdraft credit facilities carry a variable rate of interest. Precautions have been taken should variable rates of interest fluctuate. An interest rate cap with a notional value of $20 million has been purchased to protect the Company against increases in interest rates. As most of the Company's average outstanding indebtedness carries a fixed rate of interest, a change in interest rates is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company. 7. CONTINGENT LIABILITIES In August 2000, a former employee instituted an action against the Company in the Superior Court of California, purportedly on behalf of a class of current and former salaried managers of the Company's California stores. The complaint alleges that the putative class was misclassified as "exempt" for wage-and-hour purposes and that they worked uncompensated hours since 1996 for which they were entitled to receive overtime compensation. The relief sought includes damages, interest and attorneys' fees. The Company's motion to compel arbitration of the claim was granted, and the Company has been defending the arbitration of the claim. No class has been certified in the arbitration, and the determination of whether the claim may proceed on a class basis is not expected to be made until fiscal 2004. In mid-January 2003, the Company offered to each individual member of the putative class an amount intended in good faith to settle the claims of such individuals. The Company accrued $2.5 million at December 31, 2002 related to this matter. As of May 9, 2003, 92% of these settlement offers have been accepted. It is presently undetermined whether the unsettled claims of any remaining putative class members will proceed in class form or otherwise. The Company believes it has meritorious defenses to such unsettled claims and plans to defend them vigorously. The Company believes it has adequately provided for the costs associated with this matter. On January 29, 2003, an action was commenced by a former customer of the Company against the Company's Canadian subsidiary and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, plaintiff claims, were overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. The Company believes it has meritorious defenses to the action and has engaged counsel to defend the action, which it intends to do vigorously. The action is at its earliest stages, and management of the Company is presently unable to evaluate the likelihood of any particular outcome at this date. The Company is involved in routine litigation and administrative proceedings arising in the ordinary course of business. In the opinion of management, the outcome of such litigation and proceedings will not materially affect the Company's Consolidated Financial Statements. 13 .. DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 8. LOSS ON STORE CLOSINGS AND SALES AND OTHER RESTRUCTURING For the nine months ended March 31, 2003, the Company closed 27 under performing stores and consolidated and relocated certain non-operating functions to reduce costs and increase efficiencies. The Company expects the restructuring to be completed by June 30, 2003. Costs incurred (or to be incurred) with the restructuring are comprised of severance and other retention benefits to employees who were involuntarily terminated and store closure costs related to the locations the Company will no longer utilize. During the three and nine months ended March 31, 2003, the Company recorded costs for severance and other retention benefits of $0.4 million and $0.8 million, respectively, and store closure costs of $0.0 million and $1.3 million, respectively. These charges were expensed within "Loss on store closings and sales and other restructuring" on the Interim Unaudited Consolidated Statements of Operations. The Company expects the aggregate amount of severance and other retention benefits and store closure costs, upon completion of the restructuring, to be $1.6 million and $1.7 million, respectively, or a total of $3.3 million. For the nine months ended March 31, 2003, the Company has incurred $2.1 million of the total estimated costs and expects to incur a substantial portion of the balance in the fourth quarter of this fiscal year. All of the locations that were closed and for which the workforce was reduced are included in the United States geographic segment. The Company, as required, adopted Financial Accounting Standards Board Statement No. 146, Accounting for Costs Associated with Disposal or Exit Activities, on January 1, 2003. Following is a reconciliation of the beginning and ending balances of the restructuring liability (in millions):
Severance and Other Store Closure Retention Benefits Costs Total ------------------ ----- ----- Balance at June 30, 2002 $ - $ - $ - Charge recorded in earnings 0.8 1.3 2.1 Amounts paid (0.3) (0.2) (0.5) Non-cash charges - (0.6) (0.6) ----------- --------- ---------- Balance at March 31, 2003 $ 0.5 $ 0.5 $ 1.0 =========== ========= ==========
9. DEBT OBLIGATIONS On November 15, 2002 the Company entered into a Participation and Servicing Agreement ("Agreement") with a third party to sell, without recourse subject to certain obligations, a participation interest in a portion of short-term consumer loans originated by the Company in the United Kingdom. The transfer of assets is treated as a financing under FAS 140 and is included in Other Collateralized Borrowings on the balance sheet. The Agreement gives the third party a first priority lien, charge, and security interest in the assets pledged. The Agreement provides for collateralized borrowings up to $10.0 million of which $8.0 million of the loans receivable had been pledged at March 31, 2003. Under the Agreement, the third party retains the right to reduce the amount of borrowings to no less than $4.0 million. The Company pays an annual interest rate of 15.6% on the amount borrowed which is subject to loss rates on the related loans and can increase to a maximum of 32.4% per annum. The Agreement expires on September 30, 2003, however the term of the Agreement is automatically renewed each year for a term of twelve months, unless either party terminates it. 14 DOLLAR FINANCIAL GROUP, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) SUPPLEMENTAL STATISTICAL DATA
March 31, Company Operating Data: 2002 2003 ------------- ------------ Stores in operation: Company-Owned................................. 646 621 Franchised Stores and Check Cashing Merchants. 372 466 --- --- Total............................................ 1,018 1,087 ===== =====
- ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, ---------------------------- ---------------------------- Operating Data: 2002 2003 2002 2003 ------------ ----------- ----------- ------------- Face amount of checks cashed (in millions).................... $ 769 $ 750 $ 2,213 $ 2,265 Face amount of average check.................................. $ 354 $ 361 $ 340 $ 358 Face amount of average check (excluding Canada and the United Kingdom)................................................... $ 422 $ 410 $ 376 $ 408 Average fee per check......................................... $ 12.96 $ 13.43 $ 12.07 $ 12.77 Number of checks cashed (in thousands)........................ 2,170 2,077 6,514 6,331
- ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, ---------------------------- ---------------------------- Collections Data: 2002 2003 2002 2003 ------------ ----------- ----------- ------------- Face amount of returned checks (in thousands)................. $ 6,297 $ 5,756 $ 21,755 $ 19,033 Collections (in thousands).................................... 5,319 4,420 16,265 14,234 ------------ ----------- ----------- ------------- Net write-offs (in thousands)................................. $ 978 $ 1,336 $ 5,490 $ 4,799 ============ =========== =========== ============= Collections as a percentage of returned checks............................................ 84.5% 76.6% 74.8% 74.6% Net write-offs as a percentage of check cashing revenues..................................... 3.5% 4.8% 7.0% 5.9% Net write-offs as a percentage of the face amount of checks cashed............................... 0.13% 0.18% 0.25% 0.21%
The following chart presents a summary of the Company's consumer lending revenues for the periods indicated below:
- ------------------------------------------------------------------------------------------------------------------------------ Consumer Lending Revenue (In thousands) -------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, ----------------------------- ----------------------------- 2002 2003 2002 2003 ------------- ------------ ------------ ------------- Servicing revenues.......................................... $ 8,439 $ 11,825 $ 33,424 $ 28,833 Company originated domestic revenues........................ 442 3,386 1,307 10,721 Company originated foreign revenues......................... 5,685 7,891 16,035 22,396 ------------- ------------ ------------ ------------- Total consumer lending revenues, net........................ $ 14,566 $ 23,102 $ 50,766 $ 61,950 ============= ============ ============ =============
15 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 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 March 31, 2003 and the results of operations for the three and nine months ended March 31, 2003 and 2002. The results for the three and nine months ended March 31, 2003 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, 2002. Critical Accounting Principles and Estimates The Company has identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of its financial statements. The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to revenue recognition, loss reserves, intangible assets and income taxes. The Company states these accounting policies in the notes to the financial statements and at relevant sections in this discussion and analysis. The estimates are based on the information that is currently available to the Company and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. The Company believes that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of its financial statements: Revenue Recognition Revenue generally is recognized when services for the customer have been provided which, in the case of check cashing and other retail products, is at the point of sale. For the Cash 'Til Payday(R) unsecured short-term loan service, all revenues are recognized ratably over the life of the loan offset by net writeoffs. Loss Reserves The Company acts as a servicer for County Bank of Rehoboth Beach, Delaware ("County Bank") and effective October 18, 2002, First Bank of Delaware ("First Bank"), marketing unsecured short-term loans to customers with established bank accounts and verifiable employment. Loans are made for amounts up to $500, with terms of 7 to 23 days. Under this program, the Company earns servicing fees which are subject to reduction if the related loans are not collected. The Company maintains a reserve for these estimated reductions. In addition, the Company maintains a reserve for anticipated losses for loans it makes directly. In order to estimate the appropriate level of these reserves, the Company analyzes the amount of outstanding loans owed to the Company, as well as loans owed to banks and serviced by the Company, the historical loans charged-off, current collection patterns and current economic trends. As these conditions change, additional allowances might be required in future periods. Intangible Assets The Company has significant intangible assets on its balance sheet that include goodwill and other intangibles related to acquisitions. The valuation and classification of these assets and the assignment of useful amortization lives involves significant judgments and the use of estimates. The testing of these intangibles under established accounting guidelines for impairment also requires significant use of judgment and assumptions. The Company's assets are tested and reviewed for impairment on an ongoing basis under the established accounting guidelines. Changes in business conditions could potentially require future adjustments to asset valuations. 16 Income Taxes As part of the process of preparing its consolidated financial statements the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. An assessment is then made of the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, it must establish a valuation allowance. RESULTS OF OPERATIONS Revenue Analysis
Three Months Ended March 31, Nine Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Percentage of (Percentage of ($ in thousands) total revenue) ($ in thousands) total revenue) ------------------------- -------------------- ----------------------- -------------------- 2002 2003 2002 2003 2002 2003 2002 2003 ---------- ----------- ------- -------- --------- ---------- -------- -------- Check cashing................ $ 28,133 $ 27,897 56.5% 48.1% $ 78,645 $ 80,871 52.4% 49.3% Consumer lending revenues, net.......................... 14,566 23,102 29.3 38.8 50,766 61,950 33.8 37.4 Money transfer fees.......... 2,455 2,807 4.9 4.8 7,409 8,271 4.9 5.0 Government services.......... 433 437 0.9 0.8 1,295 1,285 0.9 0.8 Other revenue................ 4,168 3,730 8.4 7.5 11,941 11,539 8.0 7.5 ---------- ----------- ------- -------- --------- ---------- -------- -------- Total revenues............... $ 49,755 $ 57,973 100.0% 100.0% $150,056 $163,916 100.0% 100.0% ========== =========== ======= ======== ========= ========== ======== ========
QUARTER COMPARISON Total revenues were $58.0 million for the three months ended March 31, 2003 compared to $49.8 million for the three months ended March 31, 2002, an increase of $8.2 million or 16.5%. Comparable retail store, franchised store and document transmitter sales for the entire period increased $8.6 million or 17.6%. The increase is primarily due to a reduction in the loan portfolio in fiscal 2002 as a result of growth limitations imposed by the Company's bank partner and increased efficiencies and effectiveness of the Company's centralized collection department in fiscal year 2003. New store openings accounted for an increase of $500,000 while closed stores accounted for a decrease of $900,000. NINE MONTH COMPARISON Total revenues were $163.9 million for the nine months ended March 31, 2003 compared to $150.1 million for the nine months ended March 31, 2002, an increase of $13.8 million or 9.2%. Comparable store, franchised store and document transmitter sales for the entire period increased $12.5 million or 8.6%. The increase is primarily due to a reduction in the loan portfolio in fiscal 2002 as a result of growth limitations imposed by the Company's bank partner and increased efficiencies and effectiveness of the Company's centralized collection department. New store openings accounted for an increase of $3.3 million while closed stores accounted for a decrease of $2.0 million. 17
Store and Regional Expense Analysis Three Months Ended March 31, Nine Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Percentage of (Percentage of ($ in thousands) total revenue) ($ in thousands) total revenue) ------------------------ -------------------- ------------------------- ------------------ 2002 2003 2002 2003 2002 2003 2002 2003 ---------- ---------- ------- -------- ----------- ---------- -------- ------- Salaries and benefits......... $ 16,716 $ 17,519 33.6% 30.2% $ 48,108 $ 51,947 32.1% 31.7% Occupancy..................... 4,442 4,683 8.9 8.1 13,588 14,155 9.1 8.6 Depreciation.................. 1,823 1,121 3.7 1.9 4,855 4,364 3.2 2.7 Other ........................ 10,822 11,390 21.8 19.6 35,120 36,408 23.4 22.2 ---------- ---------- ------- -------- ----------- ---------- -------- ------- Total store and regional expenses...................... $ 33,803 $ 34,713 68.0% 59.8% $ 101,671 $ 106,874 67.8% 65.2% ========== ========== ======= ======== =========== ========== ======== =======
QUARTER COMPARISON Store and regional expenses were $34.7 million for the three months ended March 31, 2003 compared to $33.8 million for the three months ended March 31, 2002, an increase of $0.9 million or 2.7%. New store openings accounted for an increase of $400,000 while closed stores accounted for a decrease of $900,000. Comparable retail store and franchised store expenses for the entire period increased $1.4 million. For the three months ended March 31, 2003 total store and regional expenses decreased to 59.8% of total revenue compared to 68.0% of total revenue for the three months ended March 31, 2002. NINE MONTH COMPARISON Store and regional expenses were $106.9 million for the nine months ended March 31, 2003 compared to $101.7 million for the nine months ended March 31, 2002, an increase of $5.2 million or 5.1%. New store openings accounted for an increase of $1.4 million while closed stores accounted for a decrease of $2.0 million. Comparable retail store and franchised store expenses for the entire period increased $5.1 million primarily related to foreign operations commensurate with the increase in foreign revenues. In addition, costs associated with Money Mart(R) Express' independent transmitters increased $700,000 due to growth in that business. For the nine months ended March 31, 2003 total store and regional expenses decreased to 65.2% of total revenue compared to 67.8% of total revenue for the nine months ended March 31, 2002. 18 Other Expense Analysis
Three Months Ended March 31, Nine Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Percentage of (Percentage of ($ in thousands) total revenue) ($ in thousands) total revenue) ---------------------- ------------------- ----------------------- ------------------ 2002 2003 2002 2003 2002 2003 2002 2003 -------- --------- ------- -------- --------- ---------- ------- ------- Corporate expenses.................. $ 6,564 $ 8,711 13.2% 15.0% $ 17,506 $ 23,697 11.7% 14.5% Loss on store closings and sales and other restructuring............ 917 460 1.8 0.8 1,096 2,750 0.7 1.7 Other depreciation and amortization. 683 758 1.4 1.3 1,762 2,446 1.2 1.5 Interest expense ................... 4,628 4,955 9.3 8.5 14,017 14,779 9.3 9.0 Establishment of reserve for legal matter.............................. - - - - - 2,500 - 1.5 Income tax provision................ 2,168 7,383 4.4 12.7 9,000 9,316 6.0 5.7
QUARTER COMPARISON Corporate Expenses Corporate expenses were $8.7 million for the three months ended March 31, 2003 compared to $6.6 million for the three months ended March 31, 2002, an increase of $2.1 million or 31.8%. The increase was due to costs associated with the implementation of enhanced transaction processing systems, the establishment of new business development strategies, professional fees associated with the Company's new banking relationship for its consumer lending product and increased salaries and benefits associated with the growth of foreign operations. Loss on store closings and sales and other restructuring Loss on store closings and sales and other restructuring was $500,000 for the three months ended March 31, 2003 compared to $900,000 for the three months ended March 31, 2002, a decrease of $400,000. In addition, the Company provided $400,000, consisting primarily of severance and retention bonus costs, for the consolidation and relocation of certain non-operating functions. Interest Expense Interest expense was $5.0 million for the three months ended March 31, 2003 and was $4.6 million for the three months ended March 31, 2002, an increase of $400,000 or 8.7%. This increase is attributable to the increase in the average borrowings of the Company's revolving credit facilities which fund acquisitions, purchases of property and equipment related to existing stores, recently acquired stores and investments in technology and an increase in interest rate as a result of the November 2002 amendment of the Company's Revolving Credit Facility. Income Taxes The provision for income taxes increased $5.2 million for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. The Company's effective tax rate does not reflect a normal relationship to the federal statutory rate of 35% for the three months ended March 31, 2003 due to state and foreign taxes. NINE MONTH COMPARISON Corporate Expenses Corporate expenses were $23.7 million for the nine months ended March 31, 2003 compared to $17.5 million for the nine months ended March 31, 2002, an increase of $6.2 million or 35.4%. The increase was due to costs associated with the implementation of enhanced transaction processing systems, the establishment of new business development strategies, professional fees associated with the Company's new banking relationship for its consumer lending product and increased salaries and benefits associated with the growth of foreign operations. 19 Loss on store closings and sales and other restructuring Loss on store closings and sales and other restructuring was $2.8 million for the nine months ended March 31, 2003 compared to $1.1 million for the nine months ended March 31, 2002, an increase of $1.7 million. For the nine months ended March 31, 2003, the Company provided $1.3 million for the closure costs associated with the shutdown of 27 underperforming stores. In addition, the Company provided $0.8 million, consisting primarily of severance and retention bonus costs, for the consolidation and relocation of certain non-operating functions. Interest Expense Interest expense was $14.8 million for the nine months ended March 31, 2003 and was $14.0 million for the nine months ended March 31, 2002, an increase of $800,000 or 5.7%. This increase is attributable to the increase in the average borrowings 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 and an increase in interest rate as a result of the November 2002 amendment of the Company's Revolving Credit Facility. Establishment of reserve for legal matter In August 2000, a former employee instituted an action against the Company in the Superior Court of California, purportedly on behalf of a class of current and former salaried managers of the Company's California stores. The complaint alleges that the putative class was misclassified as "exempt" for wage-and-hour purposes and that they worked uncompensated hours since 1996 for which they were entitled to receive overtime compensation. The relief sought includes damages, interest and attorneys' fees. The Company's motion to compel arbitration of the claim was granted, and the Company has been defending the arbitration of the claim. No class has been certified in the arbitration, and the determination of whether the claim may proceed on a class basis is not expected to be made until fiscal 2004. In mid-January 2003, the Company offered to each individual member of the putative class an amount intended in good faith to settle the claims of such individuals. The Company accrued $2.5 million at December 31, 2002 related to this matter. As of May 9, 2003, 92% of these settlement offers have been accepted. It is presently undetermined whether the unsettled claims of any remaining putative class members will proceed in class form or otherwise. The Company believes it has meritorious defenses to such unsettled claims and plans to defend them vigorously. Income Taxes The provision for income taxes was $9.3 million for the nine months ended March 31, 2003 compared to $9.0 million for the nine months ended March 31, 2002, an increase of $300,000. The Company's effective tax rate does not reflect a normal relationship to the federal statutory rate of 35% for the nine months ended March 31, 2003 due to state and foreign taxes. Changes in Financial Condition Cash and cash equivalent 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 nine months ended March 31, 2003, cash and cash equivalents decreased $10.8 million. Net cash provided by operations was $10.1 million which was primarily a result of the timing of settlement payments related to the Company's consumer lending product and an increase in the loans the Company makes directly. Loans and other receivables increased due to the timing of settlement payments related to the Company's consumer lending product. Accounts payable decreased due to a result of timing of settlement payments with the Company's retail vendors. 20 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 nine months ended March 31, 2003 and 2002, the Company had net cash provided by operating activities of $10.1 million and $17.1 million, respectively. The decrease in net cash provided by operations was primarily the result of increases in loans and other receivables due to the timing of settlement payments related to the Company's consumer lending product. For the nine months ended March 31, 2003, the Company had made capital expenditures of $5.5 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 $6.8 million during its fiscal year ending June 30, 2003, for remodeling and relocation of certain existing stores and for opening new stores. On November 15, 2002, the Company negotiated and executed the Second Amendment to the Amended and Restated Credit Agreement and Waiver ("Revolving Credit Facility"). This agreement modified one of its financial covenants and modified the pricing of the credit facility. The modified pricing structure increased the Company's borrowing rate under the facility from interest at one-day Eurodollar, as defined, plus 3.50% to interest at one-day Eurodollar, as defined, plus 4.00%. The Company's borrowing capacity under the Revolving Credit Facility is limited to the total commitment of $75 million less letters of credit totaling $9.0 million issued by Wells Fargo Bank, which secures certain of the Company's contractual obligations. At March 31, 2003 the Company's borrowing capacity was $66 million. The restated Revolving Credit Facility also contains a provision for further reductions of $3.0 million by June 30, 2003, $1.5 million by September 30, 2003 and an additional $1.5 million by December 31, 2003. Additionally, the restated Revolving Credit Facility contains provisions for an additional reduction in the facility of $5.0 million during the period April 1 to December 14 of any calendar year following November 15, 2002. The borrowings under the Revolving Credit Facility as of March 31, 2003 were $58.7 million. On November 15, 2002, the Company entered into a Participation and Servicing Agreement with a third party to sell, without recourse subject to certain obligations, a participation interest in a portion of short-term consumer loans originated by the Company in the United Kingdom. Pursuant to the agreement, the Company will retain servicing responsibilities and earn servicing fees which are subject to reduction if the related loans are not collected. The transfer of assets is treated as a financing under FAS 140 and is included in "Other collateralized borrowings " on the balance sheet. At March 31, 2003 the Company pledged $8.0 million of loans receivable under this agreement. 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 $4.8 million, of which there was a $0.3 million outstanding balance as of March 31, 2003. 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 $6.0 million of which there was $0.6 million outstanding at March 31, 2003. 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 it expects from operating efficiencies. Additional revenue growth is expected to be generated by increased check cashing revenues, growth in the consumer lending 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 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. 21 Contractual Obligations The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management, to fund acquisitions, and to meet required capital needs. These obligations require the Company to make cash payments over time as detailed in the table below:
Payments Due by Period - ----------------------------------------------------------------------------------------------------------------------- Less than After Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years ------------ ------------- ------------- ------------- ----------- Revolving credit facilities.......... $ 59,530 $ 866 $ 58,664 $ - $ - Long-term debt 10 7/8% Senior Notes due November 15, 2006................ 109,190 - - 109,190 - 10 7/8% Senior Subordinated Notes due December 31, 2006...... 20,000 - - 20,000 - Operating Leases..................... 41,062 3,500 21,279 7,957 8,326 Other Collateralized Borrowings[1]... 8,000 8,000 - - - Other................................ 105 105 - - - ------------ ------------- ------------- ------------- ----------- Total contractual cash obligations... $ 237,887 $ 12,471 $ 79,943 $ 137,147 $ 8,326 ============ ============= ============= ============= ===========
[1] While the other collateralized borrowings contractually expires on September 30, 2003, it is subject to automatic one-year renewals. 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, 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. Cautionary 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. 22 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, 2002. ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of filing this report, an evaluation was performed under the supervision and the participation of the Company's management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15. Based on that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the date the Company completed its evaluation. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company completed its evaluation. 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings In August 2000, a former employee instituted an action against the Company in the Superior Court of California, purportedly on behalf of a class of current and former salaried managers of the Company's California stores. The complaint alleges that the putative class was misclassified as "exempt" for wage-and-hour purposes and that they worked uncompensated hours since 1996 for which they were entitled to receive overtime compensation. The relief sought includes damages, interest and attorneys' fees. The Company's motion to compel arbitration of the claim was granted, and the Company has been defending the arbitration of the claim. No class has been certified in the arbitration, and the determination of whether the claim may proceed on a class basis is not expected to be made until fiscal 2004. In mid-January 2003, the Company offered to each individual member of the putative class an amount intended in good faith to settle the claims of such individuals. The Company accrued $2.5 million at December 31, 2002 related to this matter. As of May 9, 2003, 92% of these settlement offers have been accepted. It is presently undetermined whether the unsettled claims of any remaining putative class members will proceed in class form or otherwise. The Company believes it has meritorious defenses to such unsettled claims and plans to defend them vigorously. The Company believes it has adequately provided for the costs associated with this matter. On January 29, 2003, an action was commenced by a former customer of the Company against the Company's Canadian subsidiary and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, plaintiff claims, were overcharged in payday-loan transactions. The action, which is pending in the Supreme Court of British Columbia, alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount. The Company believes it has meritorious defenses to the action and has engaged counsel to defend the action, which it intends to do vigorously. The action is at its earliest stages, and management of the Company is presently unable to evaluate the likelihood of any particular outcome at this date. 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 99.1 Certification of Chief Executive Officer Pursuant to Title 18, United States Code, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 24 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: May 9, 2003 *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. 25 CERTIFICATIONS I, Jeffrey A. Weiss, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dollar Financial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 ------------------------ /s/ Jeffrey A. Weiss ----------------------------------------- Jeffrey A. Weiss Chairman of the Board of Directors and Chief Executive Officer 26 I, Donald Gayhardt, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dollar Financial Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 9, 2003 ------------------------- /s/ Donald Gayhardt ------------------------------------- Donald Gayhardt President and Chief Financial Officer EX-99 3 a991033103.txt EXHIBIT99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Dollar Financial Group, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey A. Weiss Jeffrey A. Weiss Chairman of the Board of Directors and Chief Executive Officer May 9, 2003 EX-99 4 a992033103.txt EXHIBIT99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Dollar Financial Group, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Donald Gayhardt Donald Gayhardt President and Chief Financial Officer May 9, 2003 -----END PRIVACY-ENHANCED MESSAGE-----