Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
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 19312-1288
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (610) 296-3400
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [ ]
There is no market for the common stock of Dollar Financial Group, Inc. and
all of such stock is held by the registrant's parent, DFG Holdings, Inc. See
"Item 12 - Security Ownership of Certain Beneficial Owners and Management."
1
APPLICABLE ONLY TO REGISTRANTS 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 REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of September 30, 2002, 100
shares of the registrant's common stock, par value $1.00 per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part IV is incorporated by reference to the
Registrant's Registration Statement on Form S-4 (Registration No. 333-18221)
declared effective March 11, 1997, Registrant's Statement on Form 10Q filed
February 16, 1999, Registrant's Statement on Form 8K/A filed April 26, 1999,
Registrant's Statement on Form 8K/A filed September 30, 1999 and Registrant's
Statement on Form 8K/A filed February 28, 2000.
2
DOLLAR FINANCIAL GROUP, INC.
Table of Contents
2002 Report on Form 10-K
PART I
Item 1. Business.................................................................................. 4
Item 2. Properties................................................................................ 21
Item 3. Legal Proceedings......................................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders....................................... 22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 23
Item 6. Selected Financial Data................................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 36
Item 8. Financial Statements and Supplementary Data............................................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 62
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 62
Item 11. Executive Compensation.................................................................... 64
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 67
Item 13. Certain Relationships and Related Transactions............................................ 67
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 70
3
Item 1. BUSINESS
General
Dollar Financial Group, Inc., a New York corporation (the "Company" or "DFG"),
was organized in 1979 under the name Monetary Management Corporation. 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
each of 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. As of June 30, 2002, the Company has a total network of 1,018
stores in 17 states, the District of Columbia, Canada and the United Kingdom,
including 641 Company-owned stores with revenues for the fiscal year ended June
30, 2002 of $202.0 million, and with earnings before interest, income taxes,
depreciation, amortization, loss on store closings and sales, other
non-recurring items and establishment of reserves for new consumer lending
arrangements ("Adjusted EBITDA") for the fiscal year ended June 30, 2002 of
$48.3 million.
The Company's primary customers are working, lower-income individuals and
families who require basic consumer financial services and who are underserved
by traditional retail banking networks. The increased expense and decreased
availability of traditional retail banking services have left an increasing
number of individuals and families (estimated at 9.5% of U.S. households)
without banking relationships. Management believes that growth in the
lower-income segment of the population, combined with decreasing availability of
traditional retail banking services, provides the Company with significant
growth opportunities.
The Company's stores currently operate under the following locally established
brand names: Money Mart(R), The Money Shop and Loan Mart(R). Through a
relationship with a bank, the Company's subsidiary Money Mart(R) Express
(formerly known as moneymart.com(TM)) services and originates short-term
consumer loans through 656 independent document transmitters in 17 states.
Industry Overview
United States
The check cashing industry in the United States is highly fragmented. A recent
independent industry report estimates the current number of check cashing
outlets at 13,000 as of March 2002, an increase from the approximately 1,350
national listings in 1986, according to a similar industry survey. The Company
believes it is one of only seven U.S. check cashing store networks that have
more than 100 locations, the remaining operations being local store networks and
single-unit operators. The Company believes that industry growth has been fueled
by several demographic and socioeconomic trends, including a decline in the
number of households with bank deposit accounts, an increase in the number of
low-paying service sector jobs and an overall increase in the lower-income
population.
A January 2000 Federal Reserve study estimated that 9.5% of families in the U.S.
in 1998 did not maintain a banking relationship. The primary reason cited for
not maintaining a checking account was that not enough checks are written to
make it beneficial. Other reasons include the inability of many families and
individuals to maintain the minimum account balances required by many banks and
thrifts, high bank service charges and general dislike of banks.
Increases in fees charged by banks on deposit accounts over time have
contributed to the decline in the number of families and individuals holding
such accounts. The U.S. Public Interest Research Group conducted a national
study in 2001 which showed that the annual cost to maintain a regular checking
account was $228 and the average monthly balance requirements to avoid regular
checking fees was $587. In general, the findings indicate that banks have
increased their fees significantly on a real and inflation-adjusted basis.
Many banks have elected over time to close their less profitable or
lower-traffic locations. These closings have tended to occur in lower-income and
urban neighborhoods. If, as management of the Company expects, banks continue
4
this trend, wage earners in these lower-income areas will have fewer, if any,
convenient alternatives to local check cashing stores to perform basic financial
transactions.
Lower-income individuals represent a large segment of the U.S. population. Data
from the 2000 U.S. Census indicate that nearly 45 million U.S. households have
income of less than $35,000 a year. This low-wage population, from which the
Company draws most of its customers, is the fastest-growing segment of the
workforce. As the low-wage population continues to grow, the Company believes
that this population will increasingly rely on the check cashing industry and
the other financial services that the Company provides as the primary source of
their consumer financial products and services.
Canada
In Canada, the Company's Money Mart subsidiary is the industry leader with a
dominant market share and 90% brand awareness. There is a Money Mart location in
every city in Canada with a population of over 50,000 (except Quebec). In
contrast to the U.S. market, 97% of Canadian consumers maintain a bank account.
Money Mart has developed the industry through convenience and service with
locations positioned to serve middle-class Canadians. A 2001 market research
report indicates that customers' primary motivation for use is fast service,
late hours and convenient location. The typical Money Mart customer is 32 years
of age (60/40, male/female), employed in the trades/labor or services sector and
earning $22,000 annually.
The Canadian business had revenues of $55.4 million and Adjusted EBITDA of $24.0
million for the fiscal year ended June 30, 2002.
United Kingdom
In the United Kingdom ("UK"), check cashing is a relatively new and highly
fragmented business that developed with the passage of the Checks Act in 1992,
which prohibits non-financial institutions from cashing checks (a check cashing
establishment is considered to be a financial institution for purposes of
compliance with the Checks Act). Traditionally, check cashing had been offered
as an "add-on" service to certain retail establishments. Management believes
that while there are approximately 2,000 listed check cashing locations in the
UK, only approximately 400 are free-standing check cashing locations. In
addition, management believes the Company's 413 owned and franchised stores
account for 40% of the total number of check cashing stores in the UK. A recent
study conducted by the New Policy Institute stated that 9 million people in the
UK, or approximately 24% of the adult population, are without a bank account.
The UK business had revenues of $33.6 million and Adjusted EBITDA of $10.2
million for the fiscal year ended June 30, 2002.
Growth and Consolidation
Management believes that significant opportunities for growth exist in the check
cashing industry as a result of: (i) growth of the lower-income population
sector; (ii) failure of commercial banks and other traditional financial service
providers to address the needs of lower-income individuals, and; (iii) the trend
toward consolidation in the check cashing industry. Management believes that, as
the lower-income population segment increases, and as trends within the retail
banking industry create a less accessible environment for these members of
society, the check cashing industry and other retail financial service providers
will realize a significant increase in demand for their products and services.
However, despite these growth dynamics, the Company believes that the industry
is undergoing a period of consolidation. The Company believes that this
consolidation trend has resulted from a number of factors, including; (i)
economies of scale available to larger operators; (ii) use of technology as a
means to serve customers better and control large store networks; (iii)
inability of smaller operators to form the alliances necessary to deliver new
products, and (iv) increased licensing and regulatory burdens. This
consolidation process should provide the Company, as one of the largest store
networks, with opportunities for continued growth through selective
acquisitions.
5
Competitive Strengths
The Company believes that it has the following competitive strengths:
Store locations in favorable demographic areas. The Company has carefully chosen
desirable locations near its targeted customer base. Management adheres to a
strict set of market survey and location guidelines when selecting acquisition
targets and new store sites. The Company's store base is a mix of urban sites,
which are located in high-traffic shopping areas, and suburban sites, which are
located in strip malls near multi-family housing complexes.
High-quality customer service. As part of its retail and customer-driven
strategy, the Company focuses on providing friendly customer service in a clean
and attractive environment. Operating hours vary by location, but are typically
extended and designed to cater to those customers who, due to their work
schedules, cannot make use of "normal" banking hours. As part of its employee
training program, the Company's customer service representatives are encouraged
and instructed to treat customers in a friendly and courteous manner, which
management believes results in repeat business. The Company sends anonymous
market researchers posing as shoppers to each of its U.S. check cashing stores
monthly to measure customer service performance. Over the course of the fiscal
year, these stores consistently scored 85% on the quality of the store
appearance and customer service provided. Recent scores have been steadily
improving and have exceeded 90%.
Broad offering of products and services. Company stores offer a wide range of
consumer financial products and services to meet the demands of their respective
locales, including check cashing, money orders, money transfers and short-term
consumer loans. The Company also offers a variety of ancillary products and
services, including photo IDs, prepaid local and long distance phone service,
lottery tickets, electronic tax filing, bill payment, photocopy and fax
services.
Economies of scale. As a result of its acquisition strategy in the United
States, Canada and the, the Company has reached a size that enables it to
benefit from economies of scale and to negotiate favorable contracts with its
suppliers. In addition, the Company's market position enables it to enter into
favorable relationships with strategic partners like Western Union. Management
believes that the Company's size also allows it to gain greater access to
capital than its smaller competitors.
Management expertise. The regional managers of the Company have extensive
experience and expertise in the check cashing industry, as well as other retail
industries, which the Company believes provides it with a competitive advantage.
Furthermore, the Company has been largely successful in retaining the
operational managers formerly employed by the targets of its acquisitions. The
Company's senior management has extensive experience in banking, retailing and
financial services. In addition, the Company's management has significant
experience in acquiring and integrating businesses into the Company, and it
employs a disciplined approach to making such acquisitions.
Well-diversified credit risk. For the twelve months ended June 30, 2002, the
Company cashed 8.7 million checks totaling $3.0 billion, with an average face
value of $342. Additionally, through its consumer lending program, the Company
originates or makes direct unsecured short-term loans up to $700. The Company
actively manages its customer risk profile and collection efforts in order to
maximize revenues while maintaining losses within a targeted range. Management
has instituted control mechanisms that it believes have been effective in
managing risk, including: (i) check verification procedures; (ii) customer
identification cards; (iii) customer files, including customer photographs,
addresses, employment information and transaction history; (iv) point-of-sale
database systems; and (v) background checks, among others. As a result,
management believes that the Company is unlikely to sustain a material credit
loss from a single transaction or series of transactions. The Company has
experienced relatively low net write-offs as a percentage of the face amount of
checks cashed. For the fiscal year ended June 30, 2002, in the Company's check
cashing business, net write-offs as a percentage of face amount of checks cashed
were 0.24%. For the fiscal year ended June 30, 2002, with respect to loans
originated by the Company, net writeoffs as a percentage of originations were
2.0%.
6
Although the Company believes that these competitive strengths will enable it to
achieve its strategic objectives, it is possible that the Company could not be
able to capitalize on them. Changing demographics in areas surrounding the
Company's stores could negatively impact the quality of the store base.
Regulatory and technological changes could affect the products offered or the
prices charged for such products. The Company provides an extensive training
program for all of its employees, however; and as the Company continues to grow,
inability to attract, train, and recruit talented field personnel and corporate
management could negatively impact Company performance.
Strategy
The Company's business strategy is to capitalize on its competitive strengths by
increasing the revenues and profitability of its existing operations, by
continuing to grow through acquisition of check cashing store networks and by
developing of alternative store formats. Key elements of the Company's business
strategy include the following:
Maintaining and instilling a customer-driven retail philosophy. The Company has
focused on increasing its customer base through a service-oriented approach
designed to meet the needs of working, lower-income individuals and families in
need of basic consumer financial services. The Company believes it has
differentiated itself from its competitors by focusing on customer service. The
Company offers extended operating hours in clean, well-lighted and convenient
store locations to enhance appeal and stimulate store traffic. The Company's
research indicates that, although approximately 49% of its customers have bank
accounts, its customers prefer immediate access to cash without waiting for
check clearance. In addition, the Company believes that many of its customers
find great value in their ability to cash a payroll or government check
immediately, for a fee, at a location within close proximity to their home or
workplace at nearly any time of day. The Company's surveys indicate that the
widespread availability of ATM machines does not alter a customer's decision to
perform financial transactions at Company locations. The Company uses locally
targeted advertising, including direct mail, outdoor and event sponsorships, to
promote awareness of its products and its customer service. The Company plans to
continue to develop ways to improve service to its customers.
Introducing new products and services. The Company has developed a "one-stop
shop" concept to offer many consumer financial products and services to its
targeted customer base. The Company believes that its check cashing customers
enjoy the convenience of other services offered by the Company, such as the sale
of money orders, money transfer services and short-term consumer loans, as well
as a variety of related products and services that assist marginally banked or
credit-impaired customers to manage their personal finances more effectively. As
it has completed acquisitions, the Company has expanded the product and services
offerings of its newly acquired check cashing store networks, and it intends to
continue this strategy with future acquisitions. In particular, the Company has
continued to expand its successful consumer lending program by adding this
service to newly acquired or opened stores.
Growing through targeted acquisitions. Acquisitions have played an integral role
in the Company's growth. Since June 1997, the Company has acquired an aggregate
of over 369 owned or franchised stores. As a result of increasing industry
consolidation, the Company may be required to shift its acquisition strategy to
smaller check cashing store networks. Management will continue to seek
opportunistic acquisitions of well-managed check cashing store networks located
in areas with favorable demographics, including the southeastern and western
parts of the United States, Canada and the UK, as well as profitable check
cashing stores in areas that complement the Company's existing geographic
markets.
Developing alternative retailing platforms. In an effort to capitalize more
fully on the success of its consumer lending product, in September 1997 the
Company began opening stores under the name Loan Mart(R), which market primarily
unsecured short-term loans in a friendly office-like environment. The Company's
management believes the Loan Mart stores appeal to a broader market segment than
that which currently utilizes the Company's check cashing stores. The Company
currently operates 103 Loan Mart stores in the Seattle, Fresno, Sacramento,
Tucson, Las Vegas, Denver, Colorado Springs, Oklahoma City, Tulsa, Portland and
Phoenix areas and may develop stores in additional geographic areas. In
addition, the Company's subsidiary Money Mart(R) Express (formerly known as
moneymart.com(TM)) services and originates short-term consumer loans through 656
independent document transmitters in 17 states. Management believes that Loan
7
Mart stores and Money Mart Express allow the Company to access new customers and
significantly increase the Company's revenues and profitability. Management
believes that this and other platforms being explored by the Company complement
the strategy and operations of the existing check cashing stores.
Capitalizing on economies of scale. Because of the scale of its operation in an
otherwise highly fragmented industry, management of the Company believes it is
well positioned to take advantage of the current trend toward consolidation in
the check cashing industry. The Company believes it is able to operate more
profitably than smaller competitors as a result of its broader product
offerings, greater purchasing power, improved operating efficiencies and greater
access to capital.
Customers
Based upon a 2001 consumer survey conducted in several of the Company's markets
and the Company's operating experience, the Company believes that its core check
cashing customer group is composed of individuals between the ages of 18 and 44.
The majority of these individuals rent their homes, are employed and have annual
household incomes of between $10,000 and $35,000, with a median income of
$22,500. The Company believes that consumers value attention to customer
service, and their choice of check cashing stores is influenced by the Company's
convenient locations and extended operating hours.
At the Company's Loan Mart(R) stores, which primarily market short-term consumer
loans, customers are composed of individuals between the ages of 18 and 49. The
majority of these individuals rent their homes and are employed in
professional/managerial positions. A survey conducted by the Credit Research
Center of Georgetown University found that 51.5% of short-term consumer loan
customers reported household incomes of between $25,000 and $50,000 with 25.4%
in excess of $50,000. The survey also found that these customers choose
short-term consumer loans because of easy and fast approval and convenient
location.
Based on a 2001 market research survey performed for the Company's Canadian
subsidiary, the Company believes that the demographics of Canadian customers are
similar to those of the Company's existing U.S. customers. The survey found that
the typical Canadian customer is 32 years of age, employed in the trades/labor
or services sector and earning $22,000 annually. Although 97% of the surveyed
customers have a bank account, these consumers continue to use the Company's
services due to the fast and courteous service, the stores' extended operating
hours and convenient locations. A study was recently conducted showing that 9
million people in the UK, or approximately 24% of the adult population, are
without a bank account. The survey also found that 89% of UK customers have
annual incomes of below $30,000, and 62% are under the age of 35.
The Company believes that many of its customers are workers or independent
contractors who receive payment on an irregular basis and generally in the form
of a check. The Company's core customer group lacks sufficient income to
accumulate assets or to build savings. These customers rely on their current
income to cover immediate living expenses and cannot afford the delays inherent
in waiting for checks to clear through the commercial banking system.
Furthermore, the Company believes that many of its customers use its check
cashing services in order to gain immediate access to cash without having to
maintain a minimum balance in a checking account and incur the cost of
maintaining a checking account. In addition, although research conducted for the
Company indicates that approximately 49% of its U.S. customers do have bank
accounts, these customers use check cashing stores because they find the
locations and extended business hours of the Company's stores more convenient
than those of banks and because they value ability to receive cash immediately,
without waiting for a check to clear.
Products and Services
The Company's check cashing stores provide a broad range of consumer financial
products and services to its customers at convenient locations with extended
operating hours. Customers typically use the Company's stores to cash checks
(payroll, government, and personal), obtain short-term consumer loans and
utilize one or more of the additional financial services available at most
locations. In addition, customers use a variety of ancillary products, including
photo ID, prepaid local and long distance phone service, lottery tickets,
electronic tax filing, bill payment, photocopy and fax services.
8
Check Cashing
Customers may cash all types of checks at DFG check cashing locations, including
payroll checks, government checks and personal checks. In exchange for a
verified check, customers receive cash immediately and are not required to wait
several days for the check to clear. Both the customer's identification and the
validity of the check are verified (occasionally employing multiple sources)
pursuant to the Company's standard verification procedures before any cash is
distributed. Customers are charged a fee for this service (typically a small
percentage of the face value of the check), which varies depending upon the type
of check cashed and whether or not the customer has a previous record of cashing
checks at that location. For the twelve months ended June 30, 2002, check
cashing fees averaged approximately 3.53% of the face value of checks cashed.
The following charts present summaries by Consolidated Company, Domestic and
Foreign Operations of check cashing data for the periods indicated below:
CHECK CASHING FEE SUMMARY
Consolidated Company:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $2,301,861,000 $2,319,847,000 $2,784,267,000
Number of checks cashed............................ 7,991,128 7,490,406 8,328,176
Average face amount per check...................... $288.05 $309.71 $334.32
Average fee per check.............................. $8.80 $10.14 $11.69
Average fee as a % of face amount.................. 3.05% 3.28% 3.50%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $3,150,350,000 $2,969,455,000
Number of checks cashed............................ 9,406,749 8,689,819
Average face amount per check...................... $334.90 $341.72
Average fee per check.............................. $11.24 $12.06
Average fee as a % of face amount.................. 3.36% 3.53%
Domestic Operations:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $1,764,397,000 $1,723,912,000 $1,712,912,000
Number of checks cashed............................ 5,851,813 5,176,483 4,654,747
Average face amount per check...................... $301.51 $333.03 $367.99
Average fee per check.............................. $8.92 $10.73 $12.17
Average fee as a % of face amount.................. 2.96% 3.22% 3.31%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $1,728,504,000 $1,636,967,000
Number of checks cashed............................ 4,485,393 4,317,534
Average face amount per check...................... $385.36 $379.14
Average fee per check.............................. $12.19 $12.41
Average fee as a % of face amount.................. 3.16% 3.27%
9
Foreign Operations:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $537,464,000 $595,935,000 $1,071,355,000
Number of checks cashed............................ 2,139,315 2,313,923 3,673,429
Average face amount per check...................... $251.23 $257.54 $291.65
Average fee per check.............................. $8.46 $8.98 $11.08
Average fee as a % of face amount.................. 3.37% 3.49% 3.80%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $1,421,846,000 $1,332,488,000
Number of checks cashed............................ 4,921,356 4,372,285
Average face amount per check...................... $288.91 $304.76
Average fee per check.............................. $10.37 $11.71
Average fee as a % of face amount.................. 3.59% 3.84%
If a check cashed by the Company is not paid for any reason, the full face value
of the check is recorded as a loss in the period during which the check was
returned unpaid. The check is then sent to the store for collection; and, if it
remains uncollected, it is then sent to the Company's internal collections
department, which contacts the maker and/or payee of each returned check and, if
necessary, commences legal action. Recoveries on returned items are credited in
the period when the recovery is received. During fiscal 2002, approximately
74.7% of the face value of checks returned were ultimately collected by the
Company.
The following charts present summaries by Consolidated Company, Domestic and
Foreign Operations of the Company's returned check experience for the periods
indicated below:
RETURNED CHECK EXPERIENCE
Consolidated Company:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $13,823,000 $16,607,000 $22,866,000
Collections on returned checks..................... 9,908,000 12,505,000 17,097,000
Net write-offs of returned checks.................. 3,915,000 4,102,000 5,769,000
Collections as a percentage of returned checks..... 71.7% 75.3% 74.7%
Net write-offs as a percentage of check
cashing revenues................................ 5.6% 5.4% 5.9%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.17% 0.18% 0.21%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $27,938,000 $27,875,000
Collections on returned checks..................... 19,752,000 20,812,000
Net write-offs of returned checks.................. 8,186,000 7,063,000
Collections as a percentage of returned checks..... 70.7% 74.7%
Net write-offs as a percentage of check
cashing revenues................................ 7.7% 6.7%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.26% 0.24%
10
Domestic Operations:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $10,161,000 $11,246,600 $12,019,000
Collections on returned checks..................... 6,755,000 7,646,040 7,808,000
Net write-offs of returned checks.................. 3,406,000 3,600,560 4,211,000
Collections as a percentage of returned checks..... 66.5% 68.0% 65.0%
Net write-offs as a percentage of check
cashing revenues................................ 6.5% 6.5% 7.4%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.19% 0.21% 0.25%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $14,519,000 $15,412,000
Collections on returned checks..................... 8,872,000 10,560,000
Net write-offs of returned checks.................. 5,647,000 4,852,000
Collections as a percentage of returned checks..... 61.1% 68.5%
Net write-offs as a percentage of check
cashing revenues................................ 10.3% 9.1%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.33% 0.30%
Foreign Operations:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $3,662,000 $5,360,400 $10,847,000
Collections on returned checks..................... 3,153,000 4,858,960 9,289,000
Net write-offs of returned checks.................. 509,000 501,440 1,558,000
Collections as a percentage of returned checks..... 86.1% 90.7% 85.6%
Net write-offs as a percentage of check
cashing revenues................................ 2.8% 2.4% 3.8%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.09% 0.08% 0.15%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $13,419,000 $12,463,000
Collections on returned checks..................... 10,880,000 10,252,000
Net write-offs of returned checks.................. 2,539,000 2,211,000
Collections as a percentage of returned checks..... 81.1% 82.3%
Net write-offs as a percentage of check
cashing revenues................................ 5.0% 4.3%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.18% 0.17%
11
Consumer Lending
Effective June 13, 2002, the Company entered into an agreement with County Bank
of Rehoboth Beach, Delaware ("County"), a federally insured depository
institution. The Company acts as a servicer for County, 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. County originated
approximately $15 million of loans through the Company's locations and document
transmitters during the fiscal year ended June 30, 2002.
During the year ended June 30, 2002 Dollar Financial Group, Inc. entered into a
Participation and Termination Agreement ("Eagle Agreement") with Eagle National
Bank ("Eagle"), a national banking association, and related entities. Under the
Eagle Agreement, Eagle discontinued the business of offering short-term consumer
loans through the Company's locations and document transmitters.
The Company had previously acted for Eagle marketing unsecured short-term loans
to customers with established bank accounts and verifiable employment. Loans
were made for amounts up to $500, with terms of 14 or 28, days which could be
refinanced a maximum of four times and two times, respectively. Under this
program, the Company earned origination and servicing fees. Eagle originated or
extended approximately $399 million and $377 million of loans through the
Company's locations and document transmitters during the fiscal year ended June
30, 2002 and 2001, respectively.
In addition to marketing the credit services of banks, the Company also acts as
a direct consumer lender on its own behalf in Canada, the UK and certain U.S.
markets. These loans are made for amounts up to $700, with terms of 7 to 28
days, which can be extended a maximum of four times. The Company bears the
entire risk of loss related to these loans. The Company made or extended
approximately $306 million of loans through the Company's locations and document
transmitters during the fiscal year ended June 30, 2002. The Company had
approximately $16 million and $10 million of consumer loans on its balance sheet
at June 30, 2002 and 2001, respectively, which is reflected in loans and other
receivables. Net writeoffs for such loans for the fiscal years ended June 30,
2002 and 2001 were $5.5 million and $4.4 million, respectively, which are
reflected in revenue on the Statements of Operations.
The Company originates its short-term loans through its check cashing store
network, its Money Mart(R) Express document transmitter locations and through
103 stores under the Loan Mart(R) name, which offer primarily unsecured
short-term loans. The Company's management believes the Loan Mart stores appeal
to a broader market segment than that which currently utilizes the Company's
check cashing stores. Unlike many of the Company's check cashing customers, the
Company's targeted Loan Mart(R) and Money Mart(R) Express (formerly known as
moneymart.com(TM)) customer has, and is required to have, a bank account but
experiences temporary shortages in cash from time to time. By offering these
services on a variety of platforms, the Company hopes to attract this target
customer who might not otherwise utilize check cashing services. The first Loan
Mart(R) stores were opened in late September 1997 and since then an additional
98 stores have been opened. These stores are located in Seattle, Fresno,
Sacramento, Phoenix, Tucson, Denver, Colorado Springs, Portland, Tulsa, Oklahoma
City, and Las Vegas.
Other Services and Product Extensions
In addition to check cashing and short-term loans, the Company's customers are
able to choose from a variety of products and services when conducting business
at the Company's check cashing or Loan Mart(R) locations. These services include
electronic tax filing, utility bill payment, prepaid local and long distance
phone service, photocopy and fax services. A survey of the Company's customers
by an independent third party revealed that over 50% of customers use other
services in addition to check cashing. Management believes that providing these
services helps to implement the Company's customer-driven strategy by creating a
convenient "one-stop" shopping atmosphere for its customers' financial service
needs.
12
Among the most significant products and services other than check cashing and
short-term loans offered by the Company are the following:
o Money Transfers--Through a strategic alliance with Western Union, customers
can transfer funds to any location providing Western Union money transfer
services. Western Union currently has 117,000 agents in more than 185
countries throughout the world. The Company receives a percentage of the
fee charged by Western Union for the transfer as its commission. For the
twelve months ended June 30, 2002, the Company generated, primarily at its
check cashing stores, total money transfer fees of $10.1 million.
o Money Orders--The Company's stores exchange money orders for cash and/or
checks for a minimal fee, with an average fee and face amount of $1.09 and
$133, respectively, for such transactions during the fiscal year ended June
30, 2002. Money orders are typically used as a means of payment of rent and
utility bills for customers who do not have checking accounts. For the
twelve months ended June 30, 2002, the Company's check cashing stores and
certain Loan Mart(R) locations sold a total of 2.7 million money orders,
generating total money order revenues of $3.0 million.
13
Store Operations
Locations
The following chart sets forth the number of stores in operation as of the dates
indicated:
June 30,
------------------------------------------
Markets 1998 1999 2000 2001 2002
-------
------------------------------------------
CALIFORNIA
Southern................................. 41 41 44 47 47
Northern................................. 77 79 92 95 93
PENNSYLVANIA
Philadelphia............................. 11 10 11 8 8
Pittsburgh............................... 10 10 10 11 11
OHIO
Cleveland................................ 24 22 21 19 19
Other Ohio cities (1).................... 8 5 7 5 4
ARIZONA
Phoenix.................................. 16 25 34 40 45
Tucson................................... 0 0 7 13 16
Texas.................................... 23 3 3 3 4
Virginia................................. 14 14 15 16 16
Washington............................... 15 15 17 21 18
Utah..................................... 3 3 7 5 5
MD/DC.................................... 4 4 4 11 10
New Mexico............................... 4 4 4 3 3
Louisiana................................ 3 3 3 4 4
Hawaii................................... 3 3 3 3 3
Wisconsin................................ 1 1 1 1 1
Colorado................................. 0 0 6 14 15
Oklahoma................................. 0 0 8 13 13
Oregon................................... 0 0 2 5 5
Nevada................................... 0 0 1 11 11
Franchised locations..................... 3 3 0 0 0
UNITED KINGDOM........................... 0 11 107 126 123
Franchised locations and check cashing agents
0 0 264 261 290
CANADA................................... 86 101 139 157 167
Franchised locations..................... 70 80 81 86 87
------------------------------------------
Total Stores............................. 416 437 891 978 1,018
==========================================
(1) These other cities include Akron, Canton, Youngstown, and Cincinnati.
Management adheres to a strict set of market survey and location guidelines when
selecting acquisition targets and new store sites. The Company's store base is a
mix of urban sites, which are located in high-traffic shopping areas, and
suburban locations, which are in strip malls near multi-family housing
complexes.
14
Layout and Facilities
As part of its retail and customer-driven strategy, the Company presents a clean
and attractive environment and an appealing format for its check cashing stores.
Size varies by location, but the stores are generally 1,000 to 1,400 square
feet, with approximately half of that space allocated to the teller and back
office areas. There are typically three to five windows available for customer
transactions.
Operating hours vary by location, but are typically extended and designed to
cater to those customers who, due to work schedules, cannot make use of "normal"
banking hours. A typical store operates from 9:00 A.M. to 9:00 P.M. during
weekdays and on Saturdays, and from 10:00 A.M. to 5:00 P.M. on Sundays. In
certain locations, the Company operates stores on a 24-hour, seven-days-per-week
basis.
All of the Company's individual stores are leased, generally under leases
providing for an initial multi-year term and renewal terms of from one to five
years. The Company generally assumes the responsibility for required leasehold
improvements, including signage, customer service representative partitions,
alarm systems, computers, time-delayed safes and other office equipment. The
leases relating to stores that provide government benefits distribution
typically allow for the termination of a store's lease in the event of the loss
of the related government contract.
Technology
The Company currently has an enterprise-wide transaction processing computer
network. The Company believes that this system has supported an improvement in
customer service by reducing transaction time and has enabled the Company to
manage returned-check losses better and to comply with regulatory record keeping
and reporting requirements.
The Company is continuing to enhance a Point-of-Sale ("POS") transaction
processing system composed of a networked hardware and software package with
integrated database and reporting capabilities. The POS system provides its
stores with instantaneous customer information, thereby reducing transaction
time and improving the efficiency of the Company's credit verification process.
Additionally, the Company has deployed an enhanced loan management system that
provides improved customer service processing and management of loan
transactions. The POS system, in conjunction with the enhanced loan management
system, has improved the Company's ability to offer new products and services,
while contributing to an improvement in customer service.
Security
The principal security risks which confront the Company's check cashing
operations are robbery and defalcation. The Company's management has implemented
extensive security systems, dedicated security personnel and management
information systems to address both areas of potential loss. Management believes
that its systems are among the most effective in the industry. Total net
security losses represented less than 1.1% of both total revenues and face value
of checks cashed for the twelve months ended June 30, 2002.
Most store employees operate behind bullet-resistant glass and steel partitions,
and the back office, safe and computer areas are locked and closed to customers.
Each store's security measures include safes, electronic alarm systems monitored
by third parties, control over entry to teller areas, detection of entry through
perimeter openings, walls, and ceilings and the tracking of all employee
movement in and out of secured areas. In addition, employees use cellular phones
to ensure safety and security of staff whenever they are outside the secure
teller area. This centralized system includes the following security measures in
addition to those mentioned above: identical alarm systems in all stores, remote
control over alarm systems, arming/disarming and changing user codes and
mechanically and electronically controlled time-delay safes.
Due to the high volumes of cash, food stamps and negotiable instruments handled
at the Company's locations, daily monitoring, unannounced audits and immediate
responses to irregularities are critical in combating defalcations. The Company
has an internal auditing program which includes periodic unannounced store
audits and cash counts at randomly selected locations.
15
Advertising and Marketing
The Company is continually surveying and researching its customer trends and
purchasing patterns in order to place the most effective advertising for each
market. The Company's U.S. marketing promotions typically include in-store
merchandising materials, advertising support, and store personnel instruction in
the use of the materials. Using statistical data from its transaction database,
the Company utilizes sophisticated direct marketing strategies to communicate
with both existing customers and prospects who have demographic characteristics
to existing customers. National television advertising promotes the Money Mart
brand in Canada. The Company also arranges cooperative advertising for its
products and services; for example, the Company does cooperative advertising
with Western Union. Store managers are also provided with local store marketing
training that sets standards for promotions and marketing their store on a local
grass-roots level including attendance and sponsorship of local community
events. A national classified telephone directory company is utilized to place
all Yellow Pages advertising as effectively and prominently as possible. The
Company does research into directory selection to assure effective communication
with its target customers.
Competition
The check cashing industry in the United States is highly competitive and is
expected to become even more so as the industry consolidates. As of March 2002,
a total of approximately 13,000 check cashing stores were operating in the
United States.
DFG, with 1,018 stores, is the second largest check cashing store network in the
United States and the largest such network in Canada and the UK. According to an
industry survey, the seven largest chains in the U.S. control less than 20% of
the total number of U.S. stores, which reflects the fragmented nature of the
check cashing industry.
In addition to other check cashing stores in the U.S., Canada and UK, DFG
competes with banks and other financial services entities, as well as with
retail businesses, such as grocery and liquor stores, which will cash checks for
their customers. Some competitors, primarily grocery stores, do not charge a fee
to cash a check. However, these merchants provide this service to a limited
number of customers with superior credit ratings, and will typically only cash
"first party" checks, or those written on the customer's account and made
payable to the store.
The Company also competes with companies that offer automated check cashing
machines, and with franchised kiosk units that provide check-cashing and money
order services to customers, which can be located at places such as convenience
stores, bank lobbies, grocery stores, discount retailers and shopping malls.
Regulation
The Company is subject to regulation in several of the jurisdictions in which it
operates, including jurisdictions that regulate consumer lending, check cashing
fees, require prompt remittance of money order proceeds to money order
suppliers, or require the registration of check cashing companies. In addition,
the Company is subject to federal and state regulation which requires the
reporting and recording of certain currency transactions; and certain of the
Company's operations are also subject to federal and state regulations governing
consumer protection and lending practices.
In the majority of the states in which the Company engages in consumer lending
activities, it acts as an agent for County, a federally insured financial
institution chartered under the laws of the state of Delaware. Pursuant to its
contractual relationship, the Company provides County with marketing, servicing
and collections services for its unsecured short-term loan product that is
offered under the Company's registered service mark Cash 'Til Payday(R). In four
states, with appropriate enabling legislation, the Company has opted to offer
unsecured short-term loans directly to consumers, also under the Company's
registered service mark Cash 'Til Payday(R). Currently, the Company offers Cash
'Til Payday(R) loans directly to consumers in California, Colorado, Oregon and
Wisconsin.
16
County is subject to federal and state banking regulations. Legislation has been
introduced at both the state and federal levels that could affect the Company's
ability to generate origination fees as an agent for a bank, as well as the
Company's ability to offer Cash 'Til Payday loans directly to consumers. While
the Company does not believe that any federal regulation will be passed, if
enacted the Company would not be able to market short-term loans as currently
structured.
State Regulation
To date, the regulation of check cashing fees has been restricted to the state
level. The Company is currently subject to fee regulation in seven states:
Pennsylvania, Ohio, California, Hawaii, Arizona, Maryland, Louisiana and the
District of Columbia, where regulations set maximum fees for cashing various
types of checks. The Company's fees comply with all state regulations.
The following chart presents a summary of current state fee regulations for
check cashing operations in those states where the Company's check cashing
stores are currently located:
CURRENT CHECK CASHING FEE REGULATIONS
California: Maximum of 3.0% fee for government and payroll checks (3.5% without specified
identification) or $3.00, whichever is greater. Permits one-time $10.00 fee to
issue identification and no more than $5.00 for identification replacement.
Ceiling fees set in 1992.
Louisiana: Maximum of 2.0% fee for government assistance checks. Ceiling fees set in 2000.
Ohio: Maximum of 3.0% fee for government checks. Ceiling fees set in 1993.
Washington, D.C.: Maximum of 5.0% fee for government and payroll
checks, 7.0% fee for an insurance check, 10.0% fee for
personal checks or money orders or $4.00, whichever is
greater. Ceiling fees set in 1998.
Hawaii: Maximum of 3.0% fee for government assistance checks,
5.0% fee for payroll checks, 10.0% fee for personal
checks or money orders or $5.00, whichever is greater.
Permits one-time $10.00 fee to issue identification and
no more than $5.00 for identification replacement.
Ceiling fees set in 1999.
Pennsylvania: Maximum of 2.5% for government checks provided that valid ID is presented, 3.0%
for payroll checks and 10.0% for personal checks. Permits one-time $10 customer
setup fee. Ceiling fees set in 1998.
Arizona: Maximum of 3.0% fee for government checks or $5.00, whichever is greater. Ceiling
fees set in 2000.
Maryland: Maximum of 2.0% fee for government checks or $3.00 whichever is greater, 10.0% fee
for personal checks, 4.0% fee for all other checks or $5.00, whichever is greater.
Permits one-time $5.00 membership fee. Ceiling fees set in 2000.
17
The Company has determined, primarily for regulatory reasons, that it should
make Cash 'Til Payday(R) loans directly to consumers in certain states where
advantageous enabling legislation exists. The Company has determined to refrain
from participating in the consumer lending business altogether in certain other
states where legislation is unfavorable or the service is not likely to be
profitable. The Company is currently able to participate in the consumer lending
business in all states in which it has a sizable presence, although there is no
guarantee that this situation will continue at the federal or state level.
The following chart presents a summary of the states where the Company makes the
Cash 'Til Payday(R) loans directly to consumers in accordance with state law.
The chart also summarizes key aspects of the state law that govern these loans:
STATES IN WHICH THE COMPANY MAKES CASH 'TIL PAYDAY(R)LOANS DIRECTLY
California: Maximum fee of 15% of the face amount of the check tendered by borrower as
security for loan.
Oregon: No maximum fee mandated by state.
Colorado: Maximum fee of 20% of first $300 borrowed, plus 7.5% fee for amounts over
$300, up to $500.
Wisconsin: No maximum fee mandated by state.
Other State Requirements
The Company operates a total of 148 stores in California and Maryland. These
states are among those that have enacted so-called "prompt remittance" statutes.
Such statutes specify a maximum time for the payment of proceeds from the sale
of money orders to the issuer of such money orders thereby limiting the number
of days or "float" which the Company has use of the money from the sale of such
money orders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
In addition, certain states, including California, Ohio, Utah, Pennsylvania,
Washington and the District of Columbia, have enacted licensing requirements for
check cashing stores. Other states, including Ohio, require the conspicuous
posting of the fees charged by each store. A number of states, including Ohio,
also have imposed recordkeeping requirements while others require check cashing
stores to file fee schedules with the state.
The adoption of check cashing fee regulations and prompt remittance statutes in
additional jurisdictions or the reduction of maximum allowable fees in the
jurisdictions currently regulating check cashing could have an adverse effect on
the Company's business and could restrict the ability of the Company to expand
its operations into certain states. As the Company develops new products and
services in the consumer finance area, it may become subject to additional
federal and state regulations governing those areas.
In addition to fee regulations and prompt remittance statutes, certain
jurisdictions have also (i) placed limitations on the commingling of money order
proceeds and (ii) established minimum bonding or capital requirements. The
Company's consumer lending activities are subject to certain state and federal
regulations, including, but not limited to, regulations governing lending
practices and terms, such as truth in lending and usury laws.
There can be no assurance that the Company will not be materially adversely
affected by legislation or regulations enacted in the future or that existing
regulations will not restrict the ability of the Company to continue its current
methods of operations or to expand its operations.
18
Federal Regulation
Pursuant to regulations promulgated under the Bank Secrecy Act ("BSA") by the
U.S. Treasury Department, transactions involving currency in an amount greater
than $10,000, or the purchase of monetary instruments for cash in amounts from
$3,000 to $10,000, must be reported. In general, every financial institution,
including the Company, must report each deposit, withdrawal, exchange of
currency or other payment or transfer, whether by, through, or to the financial
institution, that involves currency in an amount greater than $10,000. In
addition, multiple currency transactions must be treated as a single transaction
if the financial institution has knowledge that the transactions are by, or on
behalf of, any one person and result in either cash-in or cash-out totaling more
than $10,000 during any one business day. Management believes that the Company's
POS system and employee training programs are essential to the Company's
compliance with these regulatory requirements.
Also, pursuant to the BSA, non-bank financial institutions, money services
businesses ("MSB's") are required by the Money Laundering Act of 1994 to
register with the Department of Treasury. MSB's include check cashers and
sellers of money orders. Under the final rule, MSB's must renew their
registrations every two years. In addition, MSB's must maintain a list of their
agents and update the list annually with the list being made available for
examination.
In addition to the BSA, a new act was signed into law on October 26, 2001 called
the USA PATRIOT Act ("Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001"). The act is
designed to "deter and punish terrorist acts in the United States and around the
world and enhance law enforcement investigatory tools." Title III of the Act
includes numerous anti-money-laundering measures designed to assist in the
identification and seizure of terrorist funds, including provisions that will
directly impact check cashers and other MSB's.
Specifically, Section 352 of the USA PATRIOT Act requires all check cashers to
establish their own anti-money laundering programs by July 24, 2002. Such
programs must include: (i) development of internal policies, procedures and
controls; (ii) designation of an anti-money laundering compliance officer within
the company; (iii) implementation of ongoing employee training; (iv) an
independent auditing function to test the program; and (v) requirements for
responding to law enforcement. The Company believes it is in compliance with the
act.
In Canada, the federal government does not directly regulate the check cashing
or payday-loan industries, nor do provincial governments impose any regulations
specific to the industry. The exception is in the Province of Quebec, where
check cashing stores are not permitted to charge a fee to cash government
checks.
In the UK, the Office of Fair Trading ("OFT") is responsible for regulating
competition policy and consumer protection. To date, the OFT has not enacted any
regulations specific to the check cashing or "payday" loan industries.
Proprietary Rights
The Company has the rights to a variety of service marks relating to products or
services it provides in its stores. In addition, the Company has service marks
relating to the various names under which the Company's stores operate.
Insurance Coverage
The Company maintains insurance coverage against losses, including theft, to
protect its earnings and properties. In addition, the Company maintains
insurance coverage against criminal acts, which coverage has a deductible of
$50,000 per occurrence.
19
Employees
As of June 30, 2002, the Company employed 3,343 persons worldwide, composed of:
255 persons employed in the Company's accounting, management information
systems, legal, human resources, treasury, finance and administrative
departments (including Canada and the UK), and 3,088 persons employed in stores,
including customer service representatives, store managers, regional
supervisors, operations directors and administrative personnel.
None of the Company's employees is represented by labor unions, and management
believes that its relations with its employees are good.
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, regulatory factors and the success of
the Company's strategies and other factors detailed from time to time in the
Company's annual and other reports filed with the Securities and Exchange
Commission.
20
Item 2. PROPERTIES
The Company leases all store premises, which typically have initial terms of 5
to 20 years and contain provisions for renewal options; additional rental
charges based on revenue, and payment of real estate taxes and common area
charges. With respect to leased stores open as of June 30, 2002, the following
table shows the number of store leases expiring during the periods indicated,
assuming the exercise of the Company's renewal options:
Period Ending Number of
June 30, Leases Expiring
--------- ---------------
2003 76
2004 - 2007 318
2008 - 2012 196
2013 - 2017 42
2018 - 2022 9
------
641
21
Item 3. 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, that
would have a material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common stock.
DFG Holdings, Inc. is the sole record and beneficial owner of all of the
Company's outstanding common stock.
The Indenture dated November 15, 1996 between the Company and State Street Bank
and Trust Company, as trustee (the "Indenture"), relating to the 10 7/8% Senior
Notes due 2006, the agreement dated December 18, 1998 relating to the 10 7/8%
Senior Subordinated Notes due 2006 as well as the Company's credit agreement,
contain restrictions as to the declaration and payment of dividends. See "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to consolidated financial statements included
elsewhere in this report.
Item 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial information on the following page
should be read in conjunction with the consolidated financial statements and
notes thereto and the information contained in "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report. The balance sheet and statement of operations data of
the Company as of and for the years ended June 30, 1998, 1999, 2000, 2001 and
2002 have been derived from historical consolidated financial statements of the
Company.
23
Year ended June 30,
---------------------------------------------------------------------------------------
1998 1999(1), (2) 2000(3) 2001(4) 2002(5)
---------------------------------------------------------------------------------------
(dollars in thousands, except check cashing data)
Statement of Operations Data:
Revenues:
Revenues from check cashing........ $ 70,306 $ 76,304 $ 97,350 $ 105,690 $ 104,792
Revenues from consumer lending, net 7,448 18,559 34,787 58,367 69,799
Revenues from money transfer fees.. 5,910 6,687 7,881 9,444 10,098
Revenues from government services.. 14,311 6,753 6,375 4,282 1,734
Other revenues..................... 13,210 12,676 19,360 17,716 15,553
---------------------------------------------------------------------------------------
Total revenues........................ 111,185 120,979 165,753 195,499 201,976
Store and regional expenses:
Salaries and benefits.............. 33,670 35,329 47,058 57,453 65,295
Occupancy.......................... 9,656 9,609 12,800 16,881 18,087
Depreciation....................... 2,018 2,227 4,683 5,829 6,522
Other.............................. 24,002 23,764 36,503 45,321 46,238
---------------------------------------------------------------------------------------
Total store and regional expenses..... 69,346 70,929 101,044 125,484 136,142
Establishment of reserves for new
consumer lending arrangements...... - - - - 2,244
Corporate expenses.................... 12,462 13,648 20,864 22,500 24,516
Loss on store closings and sales...... 45 103 249 926 1,154
Goodwill amortization................. 3,624 4,686 5,564 4,710 -
Other depreciation and amortization... 1,152 1,020 1,620 1,952 2,709
Interest expense...................... 12,945 16,401 17,491 20,361 18,694
Recapitalization costs and other
non-recurring items................ - 12,575 1,478 - 281
Writedown of goodwill................. 12,870 - - - -
---------------------------------------------------------------------------------------
(Loss) income before income taxes and
extraordinary item................. (1,259) 1,617 17,443 19,566 16,236
Income tax provision ................. 5,538 3,881 12,043 12,876 10,199
---------------------------------------------------------------------------------------
(Loss) income before extraordinary item (6,797) (2,264) 5,400 6,690 6,037
Extraordinary loss on debt
extinguishment
(net of income tax benefit of $45). - 85 - - -
---------------------------------------------------------------------------------------
Net (loss) income .................... $ (6,797) $ (2,349) $ 5,400 $ 6,690 $ 6,037
=======================================================================================
Operating and Other Data:
Adjusted EBITDA (6)................... $ 31,526 $ 38,619 $ 48,405 $ 53,885 $ 48,314
Adjusted EBITDA margin (6)............ 28.4% 31.9% 29.2% 27.6% 23.9%
Net cash provided by (used in):
Operating activities............... 18,003 15,951 16,792 16,442 14,453
Investing activities............... (4,237) (23,471) (44,526) (32,365) (10,108)
Financing activities............... (12,699) 18,269 35,306 15,602 9,409
Stores in operation at end of period.. 416 437 891 978 1,018
Check Cashing Data:
Face amount of checks cashed.......... $2,301,861,000 $2,319,847,000 $2,784,267,000 $3,150,350,000 $2,969,455,000
Number of checks cashed............... 7,991,128 7,490,406 8,328,176 9,406,749 8,689,819
Average face amount per check cashed.. $288.05 $309.71 $334.32 $334.90 $341.72
Average fee per check................. $8.80 $10.14 $11.69 $11.24 $12.06
Average fee as a % of face amount..... 3.05% 3.28% 3.50% 3.36% 3.53%
Balance Sheet Data (at end of period):
Cash.................................. $ 55,501 $ 65,782 $ 73,288 $ 72,452 $ 86,633
Total assets.......................... 165,850 203,709 259,714 276,172 291,312
Total indebtedness.................... 112,675 142,166 179,146 197,136 208,191
Shareholder's equity.................. 29,454 36,334 39,595 42,624 53,515
24
(1) On November 13, 1998, Holdings entered into an agreement and plan of
merger (the "Merger Agreement") with DFG Acquisition, Inc.,
("Acquisition") a Delaware corporation, controlled by Green Equity
Investors II, L.P., a Delaware limited partnership ("GEI II") and the
stockholders of Holdings party thereto, providing for the merger of
Acquisition with and into Holdings, with Holdings as the surviving
corporation (the "Merger"). Holdings and Acquisition consummated the
Merger on December 18, 1998.I In the Merger, the senior members of
management of Holdings retained substantially all of their stock in the
surviving corporation, and the other stockholders received cash in
exchange for their shares of Holdings. The Merger was accounted for as
a recapitalization of Holdings.
(2) On February 10, 1999, the Company acquired all of the outstanding
shares of Instant Cash Loans Limited ("ICL"), which operated eleven
stores in the UK. The initial purchase price for this acquisition was
$9.4 million plus initial working capital of approximately $2.0 million
and was funded with the issuance of the Company's 10 7/8% Senior
Subordinated Notes Due 2006. On February 17, 1999, National Money Mart
Company, a subsidiary of the Company, acquired the remaining 86.5%
partnership interest in its Calgary Money Mart Partnership ("Calgary").
Calgary operated six stores in Alberta, Canada. The aggregate purchase
price for this acquisition was $5.6 million and was funded with the
issuance of the Company's 10 7/8% Senior Subordinated Notes Due 2006.
(3) On July 7, 1999, the Company acquired all of the outstanding shares of
Cash A Cheque Holdings Great Britain Limited ("CAC"), which operated 44
company owned stores in the UK. The initial purchase price for this
acquisition was $12.5 million and was funded through excess internal
cash, the Company's revolving credit facility and the Company's 10 7/8%
Senior Subordinated Notes Due 2006. The excess of the purchase price
over the fair value of the identifiable net assets acquired was $8.2
million. Additional consideration of $9.7 million was subsequently paid
based under the profit-based earn-out agreement. On November 18, 1999,
the Company acquired all of the outstanding shares of Cheques R Us,
Inc. ("CRU") and Courtenay Money Mart Ltd. ("Courtenay"), which
operated six stores in British Columbia. The aggregate purchase price
for this acquisition was $1.2 million and was funded through excess
internal cash. The excess of the purchase price over the fair value of
identifiable net assets acquired was $1.1 million. On December 15,
1999, the Company acquired all of the outstanding shares of Cash
Centres Corporation Limited ("CCL"), which operated five company owned
stores and 238 franchises in the UK. The aggregate purchase price for
this acquisition was $8.4 million and was funded through the Company's
revolving credit facility. The excess of the purchase price over the
fair value of identifiable net assets acquired was $7.7 million.
Additional consideration of $2.7 million was subsequently paid based
under a profit-based earn-out agreement. On February 10, 2000, the
Company acquired substantially all of the assets of CheckStop, Inc.
("CheckStop"), which is a payday-loan business operating through 150
independent document transmitters in 17 states. The aggregate purchase
price for this acquisition was $2.6 million and was funded through the
Company's revolving credit facility. The excess of the purchase price
over the fair value of identifiable net assets acquired was $2.4
million. Additional consideration of $250,000 was subsequently paid
based upon a future results of operations earn-out agreement.
(4) 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 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 8 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 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
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
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 UK. 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 levels of
profitability.
(5) On July 1, 2001 the Company adopted Financial Accounting Standards
Board Opinion No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). In accordance with the provisions of SFAS No. 142 the Company
ceased amortization of goodwill.
(6) Adjusted EBITDA is earnings before interest, income taxes,
depreciation, amortization, recapitalization costs and other
non-recurring items, writedown of goodwill, loss on store closings and
sales and establishment of reserves for new consumer lending
arrangements. 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 (loss), 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
25
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. The table below reconciles net income as
reported on the Statement of Operations to Adjusted EBITDA:
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Net (loss) income $ (6,797) $ (2,349) $ 5,400 $ 6,690 $ 6,037
Add:
Loss on store closings and sales 45 103 249 926 1,154
Goodwill amortization 3,624 4,686 5,564 4,710 -
Other depreciation and amortization 3,170 3,247 6,303 7,781 9,231
Interest expense 12,945 16,401 17,491 20,361 18,694
Other (Foreign currency loss/(gain)) 131 (10) (123) 541 474
Writedown of goodwill 12,870 - - - -
Income tax provision 5,538 3,881 12,043 12,876 10,199
Recapitalization costs - 12,575 133 - -
Non-recurring charges - - 1,345 - 281
Establishment of reserves for new
consumer lending arrangements - - - - 2,244
Extraordinary items - 85 - - -
------------ ------------ ------------- ------------ ----------
Adjusted EBITDA $31,526 $38,619 $48,405 $53,885 $48,314
============ ============ ============= ============ ==========
26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company has historically derived its revenues primarily from providing check
cashing services and other consumer financial products and services including
money orders, money transfers, short-term consumer loans and bill payment. In
addition, certain Company stores provide for the distribution of public
assistance benefits and food coupons. For the years ended June 30, 2000, 2001
and 2002, check cashing revenues as a percentage of total revenues approximated
58.7%, 54.1% and 51.9% respectively, and consumer lending revenues as a
percentage of total revenues approximated 21.0%, 29.9% and 34.6%, respectively.
The check cashing industry in the United States is highly fragmented and has
experienced considerable growth as store locations have increased from
approximately 1,350 in 1986 to approximately 13,000 as of March 2002. The
Company believes it is one of only seven domestic check cashing store networks
with more than 100 locations. The industry is composed of mostly local chains
and single-unit operators. The Company believes that industry growth has been
fueled by several demographic and socioeconomic trends, including a decline in
the number of households with bank deposit accounts, an increase in low-paying
service sector jobs and an overall increase in the lower-income population.
All of the Company's acquisitions have been accounted for under the purchase
method of accounting. Therefore, the historical consolidated results of
operations include the revenues and expenses of all of the acquired companies
since their respective dates of acquisition. The comparability of the historical
financial data is significantly impacted by the timing of the Company's
acquisitions. The following table sets forth information with respect to major
acquisitions completed by the Company during the periods discussed below:
Company Number of Stores Month Acquired Purchase Price
- -------------------------------------------------------------------------------------------------------------
Cash A Cheque Holdings Great Britain
Limited............................... 44 July 1999 $ 22.2 million
Cheques R Us, Inc......................... 6 November 1999 $ 1.2 million
Cash Centres Corporation Limited.......... 243 (1) December 1999 $ 11.1 million
CheckStop, Inc............................ N/A (2) February 2000 $ 3.0 million
West Coast Chequing Centres............... 6 August 2000 $ 1.5 million
Fast `n Friendly Check Cashing............ 8 August 2000 $ 0.9 million
Ram-Dur Enterprises....................... 5 August 2000 $ 1.3 million
Fastcash Limited.......................... 40 (3) December 2000 $ 3.1 million
(1) Includes 238 franchised stores.
(2) Operates through 150 independent document transmitters.
(3) Includes 27 franchised stores.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations solely reflects the historical results of the Company. The
aforementioned purchase price for Cash A Cheque Holdings Great Britain Limited
("CAC") and Cash Centres Corporation Limited ("CCL") includes additional amounts
paid to the sellers of $9.7 million and $2.7 million, respectively, determined
under profit-based earn-out agreements. The aforementioned purchase price for
CheckStop, Inc. ("CheckStop") and Fast `n Friendly ("F&F") includes additional
amounts paid to the sellers of $250,000 and $150,000, respectively, based upon a
future results of operations earn-out agreement and a revenue based earnout
agreement, respectively. The aforementioned purchase price for Fastcash Ltd.
("FCL") excludes potential contingent payments to the sellers of $2.8 million
based on profitability. Any amounts paid under the earn-out contingencies will
be recorded as additional consideration for the acquisition when the contingency
is resolved.
27
Due to the rapid growth of the Company, period-to-period comparisons of
financial data are not necessarily indicative of the results for subsequent
periods and should not be relied upon as an indicator of the future performance
of the Company.
Critical Accounting Principles and Estimates
In response to the SEC's Release numbers 33-8040 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies" and 33-8056, "Commission
Statement about Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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 Companyevaluates 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,
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.
28
Results of Operations
The following table sets forth the Company's results of operations as a
percentage of revenues for the indicated periods:
Year ended June 30,
----------------------------
2000 2001 2002
----------------------------
Statement of Operations Data:
Revenues:
Revenues from check cashing........................................... 58.7% 54.1% 51.9%
Revenues from consumer lending, net................................... 21.0 29.9 34.6
Revenues from money transfer fees..................................... 4.8 4.8 5.0
Revenues from government services..................................... 3.8 2.2 0.9
Other revenues........................................................ 11.7 9.0 7.6
----------------------------
Total revenues............................................................ 100.0 100.0 100.0
Store and regional expenses:
Salaries and benefits................................................. 28.4 29.4 32.3
Occupancy............................................................. 7.7 8.6 9.0
Depreciation.......................................................... 2.8 3.0 3.2
Other................................................................. 22.0 23.2 22.9
----------------------------
Total store and regional expenses......................................... 60.9 64.2 67.4
Establishment of reserves for new consumer lending arrangements........... - - 1.1
Corporate expenses........................................................ 12.6 11.5 12.1
Loss on store closings and sales.......................................... 0.2 0.5 0.6
Goodwill amortization..................................................... 3.3 2.4 -
Other depreciation and amortization....................................... 1.0 1.0 1.3
Interest expense.......................................................... 10.5 10.4 9.3
Other non-recurring items................................................. 0.9 - 0.2
----------------------------
Income before income taxes................................................ 10.6 10.0 8.0
Income tax provision...................................................... 7.3 6.6 5.0
----------------------------
Net income................................................................ 3.3% 3.4% 3.0%
============================
The following chart presents a summary of the Company's consumer lending
revenues for the periods indicated below:
Consumer Lending Revenue
-------------------------------------------------------------------
For the Years Ended June 30,
-------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------------------------------------------------------------
(in thousands)
Servicing revenues........................... $5,489 $13,814 $22,692 $41,920 $44,765
Company originated domestic revenues......... 738 824 905 1,513 2,282
Company originated foreign revenues.......... 1,221 3,921 11,190 14,934 22,752
-------------------------------------------------------------------
Total consumer lending revenues, net......... $7,448 $18,559 $34,787 $58,367 $69,799
===================================================================
29
Year Ended June 30, 2002 Compared to the Year Ended June 30, 2001
Total revenues were $202.0 million for the year ended June 30, 2002, as compared
to $195.5 million for the year ended June 30, 2001, an increase of $6.5 million,
or 3.3%. Comparable retail store, franchised store and document transmitter
sales increased $2.4 million, or 1.3%. The entities acquired during fiscal 2001
(collectively referred to hereafter as the "Acquisitions") and new store
openings accounted for an increase of $10.0 million. 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 $3.1 million and $2.8 million, respectively.
The increase in total revenues resulted from an increase in consumer lending
revenues of $11.4 million, or 19.5%. The increase in consumer lending revenues
was primarily a result of a $7.9 million, or 53%, increase in foreign operations
and a $2.2 million revenue increase in the Company's subsidiary Money Mart(R)
Express (formerly known as moneymart.com(TM)). The balance of the increase in
consumer lending revenues, $1.3 million, is attributed to other domestic
operations. These increases were partially offset by a $2.5 million decrease in
revenues from government services as a result of the termination of the
distribution of government benefits in the State of New York and a $2.4 million
decrease in other revenues.
During fiscal 2002, the Company provided for the establishment of reserves for
new consumer lending arrangements of $2.2 million. Effective June 13, 2002, the
Company entered into an agreement with County Bank of Rehoboth Beach, Delaware
("County"), a federally insured depository institution. The Company acts as a
servicer for County, 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 bank originated approximately $15 million of loans through the
Company's locations and document transmitters during the fiscal year ended June
30, 2002. In addition, the Company provided additional reserves for the loans it
originates due to the expansion of the program.
Store and regional expenses were $136.1 million for the year ended June 30, 2002
as compared to $125.5 million for the year ended June 30, 2001, an increase of
$10.6 million, or 8.4%. The full year effect of the Acquisitions in fiscal year
2001 resulted in an increase in store and regional expenses of $1.0 million and
new store openings accounted for an increase of $6.0 million. Also, store and
regional expenses increased $1.3 million due to salaries and benefits from the
foreign subsidiaries, commensurate with the growth in those operations. In
addition, $2.5 million of the increase in store and regional expenses resulted
from an increase in salaries and benefits due to the continued growth of the
Money Mart(R) Express business and the centralized collection division in fiscal
year 2002. Store and regional expenses as a percentage of revenues increased
from 64.2% in the year ended June 30, 2001 to 67.4% in the year ended June 30,
2002. Store and regional expenses as a percentage of revenues from the Company's
foreign subsidiaries were 57.5% and 55.7% for 2001 and 2002, respectively.
Salaries and benefits were $65.3 million for the year ended June 30, 2002 as
compared to $57.5 million for the year ended June 30, 2001, an increase of $7.8
million, or 13.6%. The Acquisitions accounted for an increase in salaries and
benefits of $500,000 and new store openings accounted for $2.8 million. The
Company's foreign subsidiaries accounted for an increase of $1.3 million in
salaries and benefits. In addition, Money Mart(R) Express and centralized
collection divisions accounted for an increase of $2.5 million due to increased
growth. Salaries and benefits expenses as a percentage of revenues increased
from 29.4% for the year ended June 30, 2001 to 32.3% for the year ended June 30,
2002.
Occupancy expense was $18.1 million for the year ended June 30, 2002 as compared
to $16.9 million for the year ended June 30, 2001, an increase of $1.2 million,
or 7.1%. The Acquisitions accounted for an increase of $200,000. In addition,
occupancy expenses increased $1.1 million from new store openings during the
year ended June 30, 2002. Occupancy expense as a percentage of revenues
increased from 8.6% for the year ended June 30, 2001 to 9.0% for the year ended
June 30, 2002.
Depreciation expense was $6.5 million for the year ended June 30, 2002, as
compared to $5.8 million for the year ended June 30, 2001 an increase of
$700,000, or 12.1%. The Acquisitions accounted for an increase of $100,000 and
new store openings accounted for an increase of $500,000. Depreciation expense
as a percentage of revenues increased to 3.2% for the year ended June 30, 2002
from 3.0% for the year ended June 30, 2001.
30
Other store and regional expenses were $46.2 million for the year ended June 30,
2002 as compared to $45.3 million for the year ended June 30, 2001, an increase
of $900,000, or 2.0%. The Acquisitions and new store openings accounted for an
increase in other store and regional expenses of $200,000 and $1.6 million
respectively. In addition, costs associated with Money Mart(R) Express's
independent document transmitters, increased during the fiscal year, due to the
growth in that business. Stores closed during the fiscal year partially offset
these increases. Other store and regional expenses consist of bank charges,
armored security costs, net returned third party checks, cash shortages, cost of
goods sold, advertising and other costs incurred by the stores.
Corporate expenses were $24.5 million for the year ended June 30, 2002 as
compared to $22.5 million for the year ended June 30, 2001, an increase of $2.0
million, or 8.9%. This increase resulted from additional salaries and benefits
associated with the growth of the foreign operations during fiscal year 2002.
Corporate expenses as a percentage of revenues increased to 12.1% for the year
ended June 30, 2002 from 11.5% for the year ended June 30, 2001.
Loss on store closings and sales were $1.2 million for the year ended June 30,
2002 compared to $900,000 for the year ended June 30, 2001. During fiscal year
2002, the Company decided to close certain underperforming stores. The Company
anticipates closing certain of its unprofitable stores in fiscal 2003 and is
currently evaluating the locations to be closed.
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. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
Company applied the new accounting rules beginning July 1, 2001.
Other depreciation and amortization expenses were $2.7 million for the year
ended June 30, 2002, as compared to $2.0 million for the year ended June 30,
2001, an increase of $700,000, or 35%. This increase is attributable to
additional capital expenditures made by the corporate office during fiscal year
2002. Other depreciation and amortization as a percentage of revenues increased
to 1.3% for the year ended June 30, 2002 from 1.0% for the year ended June 30,
2001.
Interest expense was $18.7 million for the year ended June 30, 2002 as compared
to $20.4 million for the year ended June 30, 2001, a decrease of $1.7 million,
or 8.3%. This decrease was 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 stores and investments in technology.
During fiscal 2002, the Company expensed $0.3 million for planned acquisitions
that were not consummated.
Year Ended June 30, 2001 Compared to the Year Ended June 30, 2000
Total revenues were $195.5 million for the year ended June 30, 2001 as compared
to $165.8 million for the year ended June 30, 2000, an increase of $29.7
million, or 17.9%. Of this increase, $5.8 million resulted from the results of
operations from the Acquisitions. In addition, revenues increased $5.7 million
as a result of new store openings during fiscal 2001. Also, revenues from
acquired stores and new stores opened during fiscal year 2000, which had a full
year of revenues in fiscal year 2001, increased $9.3 million and $10.8 million,
respectively. The change in foreign exchange rates accounted for a decrease of
$5.4 million in total foreign revenue. For stores that were opened and owned by
the Company during the entire period from July 1, 1999 through June 30, 2001,
revenues increased by 2.8% or $3.6 million. After eliminating the impact in the
devaluation of the foreign currencies, the comparable retail store sales
increased $6.4 million or 4.9%. As a result of continued expansion of Loan
Mart(R) stores, the addition of Money Mart(R) Express (formerly known as
moneymart.com(TM)) agency locations and increased originations of Cash `Til
Payday(R) loans, Cash `Til Payday(R) revenues, increased as a percentage of
total revenues.
Store and regional expenses were $125.5 million for the year ended June 30, 2001
as compared to $101.0 million for the year ended June 30, 2000, an increase of
$24.5 million, or 24.3%. The Acquisitions resulted in an increase in store and
regional expenses of $4.3 million and new store openings accounted for an
increase of $8.0 million. Also, store and regional expenses from acquired stores
and new stores opened during fiscal year 2000, which incurred a full year of
expenses in fiscal year 2001, increased $9.5 million and $6.4 million,
respectively. Store and regional expenses as a percentage of revenues increased
from 60.9% in the year ended June 30, 2000 to 64.2% in the year ended June 30,
2001 due to increased costs associated with new store openings during the year
ended June 30, 2001.
31
Salaries and benefits were $57.5 million for the year ended June 30, 2001 as
compared to $47.1 million for the year ended June 30, 2000, an increase of $10.4
million, or 22.1%. The Acquisitions accounted for an increase in salaries and
benefits of $1.9 million and new store openings accounted for $3.3 million.
Also, salaries and benefits from acquired stores and new stores opened during
fiscal year 2000, which incurred a full year of expenses in fiscal year 2001,
increased $3.9 million and $2.9 million, respectively. Salaries and benefits
expenses as a percentage of revenues increased from 28.4% for the year ended
June 30, 2000 to 29.4% for the year ended June 30, 2001 due to increased costs
associated with new store openings during the year ended June 30, 2001.
Occupancy expense was $16.9 million for the year ended June 30, 2001 as compared
to $12.8 million for the year ended June 30, 2000, an increase of $4.1 million,
or 32.0%. The Acquisitions accounted for an increase of $600,000. In addition,
occupancy expenses increased $1.8 million from new store openings during the
year ended June 30, 2000. Also, occupancy expenses from acquired stores and new
stores opened during fiscal year 2000, which incurred a full year of expenses in
fiscal year 2001, increased $400,000 and $1.5 million, respectively. Occupancy
expense as a percentage of revenues increased from 7.7% for the year ended June
30, 2000 to 8.6% for the year ended June 30, 2001 due to increased costs
associated with new store openings during the year ended June 30, 2001.
Depreciation expense was $5.8 million for the year ended June 30, 2001 as
compared to $4.7 million for the year ended June 30, 2000 an increase of $1.1
million, or 23.4%. The Acquisitions accounted for an increase of $100,000 and
new store openings accounted for an increase of $500,000. Also, depreciation
expenses from acquired stores and new stores opened during fiscal year 2000,
which incurred a full year of expenses in fiscal year 2001, increased $100,000
and $500,000, respectively. Depreciation expense as a percentage of revenues
increased to 3.0% for the year ended June 30, 2001 from 2.8% for the year ended
June 30, 2000.
Other store and regional expenses were $45.3 million for the year ended June 30,
2001 as compared to $36.5 million for the year ended June 30, 2000, an increase
of $8.8 million, or 24.1%. The Acquisitions and new store openings accounted for
an increase in other store and regional expenses of $1.6 million and $2.4
million respectively. Also, other store and regional expenses from acquired
stores and new stores opened during fiscal year 2000, which incurred a full year
of expenses in fiscal year 2001, increased $5.1 million and $1.5 million,
respectively. Other store and regional expenses consist of bank charges, armored
security costs, net returned checks, cash shortages, cost of goods sold,
insurance, advertising and other costs incurred by the stores.
Corporate expenses were $22.5 million for the year ended June 30, 2001 as
compared to $20.9 million for the year ended June 30, 2000, an increase of $1.6
million, or 7.7%. This increase resulted from the additional corporate costs
associated with the Acquisitions and new store openings during fiscal 2001.
Corporate expenses as a percentage of revenues decreased to 11.5% for the year
ended June 30, 2001 from 12.6% for the year ended June 30, 2000.
Loss on store closings and sales were $900,000 for the year ended June 30, 2001
compared to $200,000 for the year ended June 30, 2000. In the third quarter of
fiscal year 2001 the Company closed certain underperforming stores. As a result,
$530,000 was accrued for closure costs.
Goodwill amortization was $4.7 million for the year ended June 30, 2001 as
compared to $5.6 million for the year ended June 30, 2000, a decrease of
$900,000, or 16.1%. The decrease is due to the completion of the accelerated
amortization of the remaining goodwill associated with the pending expiration of
the Company's government services lines of business, partially offset by the
goodwill associated with the Acquisitions.
Other depreciation and amortization expenses were $2.0 million for the year
ended June 30, 2001 as compared to $1.6 million for the year ended June 30,
2000, an increase of $400,000, or 25.0%. Of this increase, the Acquisitions
accounted for $100,000. Other depreciation and amortization as a percentage of
revenues remained constant at 1.0% for the years ended June 30, 2001 and 2000.
Interest expense was $20.4 million for the year ended June 30, 2001 as compared
to $17.5 million for the year ended June 30, 2000, an increase of $2.9 million,
or 16.6%. This increase was primarily attributable to the increase of borrowings
under the Company's credit facilities to fund acquisitions, purchases of
property and equipment related to existing stores, recently acquired stores and
investments in technology.
32
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, fund Company originated short-term consumer loans and finance loan
store expansion. For the years ended June 30, 2000, 2001 and 2002, the Company
had net cash provided by operating activities of $16.8 million, $16.4 million
and $14.5 million, respectively, for purchases of property and equipment related
to existing stores, recently acquired stores, investments in technology and
acquisitions. 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.
The Company has $109.2 million of 10-7/8% senior notes due 2006 ("Notes")
outstanding, which are registered under the Securities Act of 1933, as amended.
The payment obligations under the Notes are jointly and severally guaranteed, on
a full and unconditional basis, by each of the Company's existing subsidiaries
(the "Guarantors"). There are no restrictions on the Company's and the guarantor
subsidiaries' ability to obtain funds from their subsidiaries by dividend or by
loan.
Subject to restrictions under the Company's existing credit facility ("Revolving
Credit Facility") discussed below, the Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001, at the
following redemption prices (plus accrued and unpaid interest thereon, if any,
to the date of redemption): during the twelve-month period beginning November
2001 - 105.438%; 2002 - 103.625%; 2003 - 101.813%; and 2004 - 100.000%. Upon the
occurrence of a change of control, as defined, each holder of Notes has the
right to require the Company to repurchase all or any part of such holder's
Notes at 101% of the aggregate principal amount thereof, plus accrued interest.
On May 31, 2002, the Company negotiated and executed an amendment and
restatement to the Company's Revolving Credit Facility reducing the facility
from $85 million to $80 million. The Company's borrowing capacity under the
Revolving Credit Facility is limited to the total commitment less the letter of
credit of $8 million, which secures the United Kingdom overdraft facility. At
June 30, 2002 the Company's borrowing capacity was $72 million. The Company's
restated Revolving Credit Facility also contains provisions for further
reductions in the facility of $5 million within the earlier of (i) 180 days of
the effective date of the agreement or (ii) the sale of certain assets.
Additionally, the restated Revolving Credit Facility contains provisions for an
additional reduction in the facility of $5 million during the period April 1 to
December 14 of any calendar year following the (i) earlier of 180 days of the
effective date of the agreement or (ii) the sale of certain assets. The
borrowings under the Revolving Credit Facility were $62.3 million and $68.6
million as of June 30, 2001 and 2002, respectively. Issuance costs associated
with the Revolving Credit Facility paid during fiscal 2001 and 2002 were
$200,000 and $600,000, respectively.
At June 30, 2002 the Company's amended Revolving Credit Facility contained other
provisions limiting the total outstanding short-term loans made by the Company
to $15 million. At June 30, 2002 the Company had short-term loans outstanding in
excess of the maximum amount. The Company's lenders waived that requirement as
of June 30, 2002 and increased the allowable short-term loans to $19 million
through the earlier of (i) November 29, 2002 or (ii) the sale of certain assets.
If the sale of these certain assets is consummated prior to November 29, 2002,
the total outstanding short-term loans is limited to $12 million for 30 calendar
days upon which the limit is lowered to $10 million thereafter. The Company
believes that through the sale of loans and management of originations and
extensions, it will reduce short-term loans outstanding to the required amounts
within the period specified and will remain in compliance with its debt
covenants throughout fiscal 2003.
Amounts outstanding under the Revolving Credit Facility bear interest at either
(i) the higher of (a) the federal funds rate plus 0.50% per annum and (b) the
rate publicly announced by Wells Fargo, San Francisco, as its "prime rate," plus
2.25% at June 30, 2002, (ii) the LIBOR Rate (as defined therein) plus 3.50% at
June 30, 2002, or (iii) the one day Eurodollar Rate (as defined therein) plus
3.50% at June 30, 2002, determined at the Company's option. Amounts outstanding
under the Revolving Credit Facility are secured by a first priority lien on
substantially all properties and assets of the Company and its current and
future subsidiaries. The Company's obligations under the Revolving Credit
Facility are guaranteed by each of the Company's direct and indirect
subsidiaries.
33
Also, the Company has $20 million aggregate principal amount of its 10 7/8%
Senior Subordinated Notes Due 2006 (the "Senior Subordinated Notes"), which were
used to (i) fund the Company's repurchase obligations in connection with its
Notes, and (ii) to finance acquisitions of the Company.
The Company has a Canadian dollar overdraft credit facility to fund peak working
capital needs for its Canadian operations. The overdraft credit facility
provides for a commitment of up to approximately $4.8 million, of which $200,000
and $4.8 million were outstanding as of June 30, 2001 and 2002, respectively.
Amounts outstanding under the facility bear interest at a rate of Canadian prime
plus 0.50% and are secured by the pledge of a cash collateral account of an
equivalent balance. For the Company's UK operations, the Company also has a
British pound overdraft facility which provides for a commitment of up to
approximately $7.7 million, of which $5.3 million and $5.5 million was
outstanding as of June 30, 2001 and June 30, 2002, respectively. Amounts
outstanding under the facility bear interest at a rate of the LIBOR Rate plus
1.25% and 1.00% at June 30, 2001 and 2002, respectively. The overdraft facility
is secured by an $8.0 million letter of credit issued by Wells Fargo Bank under
the revolving credit facility.
The Senior Notes, Revolving Credit Facility and the Senior Subordinated Notes
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.
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 (for
further information regarding the Company's contractual obligations refer to
Footnotes 6 and 9 of the Consolidated Financial Statements, herein.):
Payments Due by Period
-------------------------------------------------------------------------------
Less than After
Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years
------------ ------------- ------------- ------------- -----------
Revolving credit facilities.......... $ 78,936 $ 10,336 $ 68,600 $ - $ -
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..................... 51,397 14,492 20,999 7,800 8,106
Other................................ 65 65 - - -
------------ ------------- ------------- ------------- -----------
Total contractual cash obligations... $ 259,588 $ 24,893 $ 89,599 $ 136,990 $ 8,106
============ ============= ============= ============= ===========
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, the anticipated benefits it expects from operating
efficiencies and sales of certain assets. 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
34
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.
Income Taxes
The Company's effective tax rates for fiscal 2000, 2001 and 2002 were 69.0%,
65.8% and 62.8%, respectively. The effective rate differs from the federal
statutory rate of 35% due to state taxes, foreign taxes and for fiscal 2000 and
2001 nondeductible goodwill amortization which resulted from the June 30, 1994
acquisition of the Company and several subsequent acquisitions.
Seasonality and Quarterly Fluctuations
The Company's business is seasonal due to the impact of several 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 of operations 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 the addition of new stores.
Impact of Inflation
The Company believes that the results of its operations are not dependent upon
the levels of inflation.
Pending Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS 144 will be effective for the Company on July 1, 2002, and
management is currently reviewing and evaluating the effects this statement will
have, if any, on the Company's financial position and results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB No. 4, 44, and
64, Amendment of FASB Statement No. 13 and Technical Corrections," which
updates, clarifies and simplifies existing accounting pronouncements. In part,
this statement rescinds SFAS No. 4 "Reporting Gains and Losses for
Extinguishment of Debt. SFAS No. 145 will be effective for fiscal years
beginning after May 15, 2002. The effect of this statement on the Company's
financial statements would be the reclassification of extraordinary loss on
early extinguishment of debt to continuing operations; however, this will have
no effect on the Company's net income. The Company will adopt this provision as
of July 1, 2003.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity. SFAS No. 146 is
effective prospectively for exit and disposal activities initiated after
December 31, 2002, with earlier adoption encouraged. As the provisions of SFAS
No. 146 are required to be applied prospectively after the adoption date,
management cannot determine the potential effects that adoption of SFAS No. 146
will have on the Company's consolidated financial statements.
35
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Generally
In the operations of its subsidiaries and the reporting of its consolidated
financial results, the Company is affected by changes in interest rates and
currency exchange rates. The principal risks of loss arising from adverse
changes in market rates and prices to which the Company and its subsidiaries are
exposed relate to:
o interest rates on debt
o foreign exchange rates generating translation gains and losses.
The Company and its subsidiaries have no market risk sensitive instruments
entered into for "trading purposes," as such term is defined by generally
accepted accounting principles. Information contained herein relates only to
instruments entered into for purposes other than trading.
Interest Rates
The Company's outstanding indebtedness, and related interest rate risk, is
managed centrally by the office of the Chief Financial Officer of the Company by
implementing the financing strategies approved by the Company's Board of
Directors. The Company's debt consists of fixed-rate senior notes and senior
subordinated notes. 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.
Foreign Exchange Rates
Operations in the UK and Canada have exposed the Company to shifts in currency
valuations and precautions have been taken should exchange rates shift. For the
UK and Canada subsidiaries, put options with a notional value of 8.0 million
British Pounds and 36.0 million Canadian Dollars, respectively, were purchased
to protect quarterly earnings in the UK and Canada against foreign exchange
fluctuations. Each contract had a strike price of initially 5% out of the money
at the date of acquisition, and each contract expired at June 28, 2002. 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. The Company has evaluated the effectiveness and suitability of
the strategy and has temporarily suspended purchasing additional contracts.
The Canadian and the UK operations constitute approximately 108.8% and 31.4%,
respectively of the Company's fiscal year 2002 consolidated pre-tax earnings. As
currency exchange rates change, translation of the financial results of the
Canadian and United Kingdom operations into U.S. dollars will be impacted.
Changes in exchange rates have resulted in cumulative translation adjustments
decreasing the Company's net assets by $4.3 million.
The Company estimated that a 10% change in foreign exchange rates by itself
would impact reported pre-tax earnings from continuing operations by
approximately $2.3 million and $1.4 million for the years ended June 30, 2002
and 2001, respectively. Such impact represents nearly 14.0% and 7.1% of the
Company's consolidated pre-tax earnings for fiscal years 2002 and 2001,
respectively.
36
Item 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
DFG Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Dollar Financial
Group, Inc. as of June 30, 2002 and 2001, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
three years in the period ended June 30, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 14 (a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dollar Financial
Group, Inc. at June 30, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2002, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 30, 2002
37
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
June 30,
------------------------------------------
2001 2002
------------------------------------------
Assets
Cash and cash equivalents.............................................. $ 72,452 $ 86,633
Loans and other receivables, net....................................... 23,770 20,542
Prepaid expenses....................................................... 6,517 6,745
Notes receivable--officers.............................................. 2,756 2,756
Due from parent........................................................ 2,596 3,606
Property and equipment, net of accumulated
depreciation of $21,666 and $30,119 ............................... 29,140 30,510
Goodwill and other intangibles, net of accumulated
amortization of $23,863 and $21,070................................ 129,555 132,264
Debt issuance costs, net of accumulated
amortization of $4,642 and $6,153.................................. 7,232 6,292
Other.................................................................. 2,154 1,964
------------------------------------
$ 276,172 $ 291,312
====================================
Liabilities and shareholder's equity
Accounts payable....................................................... $ 18,325 $ 18,249
Income taxes payable................................................... 6,782 1,831
Accrued expenses....................................................... 8,804 7,932
Accrued interest payable............................................... 1,573 1,539
Deferred tax liability................................................. 928 55
Revolving credit facilities............................................ 67,824 78,936
10-7/8% Senior Notes due 2006.......................................... 109,190 109,190
Subordinated notes payable and other................................... 20,122 20,065
Shareholder's equity:
Common stock, $1 par value: 20,000 shares authorized;
100 shares issued and outstanding at June 30, 2001
and 2002........................................................ - -
Additional paid-in capital......................................... 50,957 50,957
Retained earnings.................................................. 866 6,903
Accumulated other comprehensive loss............................... (9,199) (4,345)
------------------------------------
Total shareholder's equity............................................. 42,624 53,515
------------------------------------
$ 276,172 $ 291,312
====================================
See accompanying notes.
38
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year ended June 30,
-----------------------------------------------
2000 2001 2002
-----------------------------------------------
Revenues..................................................... $ 165,753 $ 195,499 $ 201,976
Store and regional expenses:
Salaries and benefits.................................... 47,058 57,453 65,295
Occupancy................................................ 12,800 16,881 18,087
Depreciation............................................. 4,683 5,829 6,522
Other.................................................... 36,503 45,321 46,238
-----------------------------------------------
Total store and regional expenses............................ 101,044 125,484 136,142
Establishment of reserves for new consumer lending
arrangements............................................ - - 2,244
Corporate expenses........................................... 20,864 22,500 24,516
Loss on store closings and sales............................. 249 926 1,154
Goodwill amortization........................................ 5,564 4,710 -
Other depreciation and amortization.......................... 1,620 1,952 2,709
Interest expense, net of interest income of $374,
$470 and $254............................................ 17,491 20,361 18,694
Other non-recurring items.................................... 1,478 - 281
-----------------------------------------------
Income before income taxes................................... 17,443 19,566 16,236
Income tax provision......................................... 12,043 12,876 10,199
-----------------------------------------------
Net income................................................... $ 5,400 $ 6,690 $ 6,037
===============================================
See accompanying notes.
39
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands, except share data)
(Accumulated Accumulated
Common Stock Additional Deficit) Other Total
---------------------- Paid-in Retained Comprehensive Shareholder's
Shares Amount Capital Earnings Loss Equity
----------------------------------------------------------------------------------
Balance, June 30, 1999........ 100 $ - $ 50,824 $ (11,224) $ (3,266) $ 36,334
Comprehensive income
Translation adjustment
for the year ended
June 30, 2000........ (2,272) (2,272)
Net income for the
year ended June 30, 2000...... 5,400 5,400
---------------
Total comprehensive income.... 3,128
Noncash compensation..... 133 133
----------------------------------------------------------------------------------
Balance, June 30, 2000........ 100 - 50,957 (5,824) (5,538) 39,595
----------------------------------------------------------------------------------
Comprehensive income..........
Translation adjustment
for the year ended
June 30, 2001........ (3,661) (3,661)
Net income for the
year ended June 30, 2001...... 6,690 6,690
---------------
Total comprehensive income.... 3,029
----------------------------------------------------------------------------------
Balance, June 30, 2001........ 100 - 50,957 866 (9,199) 42,624
----------------------------------------------------------------------------------
Comprehensive income.......
Translation adjustment
for the year ended
June 30, 2002........ 4,854 4,854
Net income for the
year ended June 30, 2002...... 6,037 6,037
---------------
Total comprehensive income.... 10,891
----------------------------------------------------------------------------------
Balance, June 30, 2002........ 100 $ - $ 50,957 $ 6,903 $ (4,345) $ 53,515
==================================================================================
See accompanying notes.
40
DOLLAR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended June 30,
------------------------------------------
2000 2001 2002
------------------------------------------
Cash flows from operating activities:
Net income............................................................... $ 5,400 $ 6,690 $ 6,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................................... 13,120 13,948 10,740
Loss on store closings and sales.................................. 249 926 1,154
Establishment of reserves for new consumer lending arrangements... - - 2,244
Noncash recapitalization costs.................................... 133 - -
Deferred tax (benefit) provision.................................. (837) 1,687 (873)
Change in assets and liabilities (net of effect of acquisitions):
(Increase) decrease in loans and other receivables............. (417) (10,665) 1,587
(Increase) decrease in prepaid expenses and other.............. (2,760) (338) 260
Increase (decrease) in accounts payable, income taxes payable,
accrued expenses and accrued interest payable............... 1,904 4,194 (6,696)
------------------------------------------
Net cash provided by operating activities................................ 16,792 16,442 14,453
Cash flows from investing activities:
Acquisitions, net of cash acquired....................................... (30,586) (20,346) (45)
Gross proceeds from sales of property and equipment...................... - 110 -
Additions to property and equipment...................................... (13,940) (12,129) (10,063)
------------------------------------------
Net cash used in investing activities.................................... (44,526) (32,365) (10,108)
Cash flows from financing activities:
Other debt payments...................................................... (1,020) (284) (64)
Repayment of advance from money transfer agent........................... (1,000) (1,000) -
Net increase in revolving credit facilities.............................. 37,416 18,246 11,112
Proceeds from long-term debt............................................. 1,893 - -
Payments of debt issuance costs.......................................... (463) (244) (571)
Advances to officers..................................................... (64) - -
Net increase in due from parent.......................................... (1,456) (1,116) (1,068)
------------------------------------------
Net cash provided by financing activities................................ 35,306 15,602 9,409
Effect of exchange rate changes on cash and cash equivalents............. (66) (515) 427
------------------------------------------
Net increase (decrease) in cash and cash equivalents..................... 7,506 (836) 14,181
Cash and cash equivalents at beginning of year........................... 65,782 73,288 72,452
------------------------------------------
Cash and cash equivalents at end of year................................. $ 73,288 $ 72,452 $ 86,633
==========================================
Supplemental disclosures of cash flow information
Interest paid............................................................ $ 18,031 $ 19,410 $ 17,472
Income taxes paid........................................................ $ 12,957 $ 4,800 $ 16,035
Supplemental schedule of noncash investing and financial activities:
Noncash recapitalization costs........................................... $ 133 $ - $ -
See accompanying notes.
41
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
1. Organization and Business
The accompanying consolidated financial statements are those of Dollar Financial
Group, Inc. (the "Company") and its wholly-owned subsidiaries. The Company is a
wholly-owned subsidiary of DFG Holdings, Inc. ("Holdings"). The activities of
Holdings consist primarily of its investment in the Company. Holdings has no
employees or operating activities.
The Company, through its subsidiaries, provides retail financial services to the
general public through a network of 1,018 locations (of which 641 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 656 independent document transmitters in 17
states.
2. Significant Accounting Policies
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.
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 loans,
origination and servicing fees are recognized ratably over the life of the loan
offset by net writeoffs.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using either the straight-line or double declining
balance method over the estimated useful lives of the assets, which vary from
three to fifteen years.
Cash and Cash Equivalents
Cash includes cash in stores and demand deposits with financial institutions.
Cash equivalents are defined as short-term, highly liquid investments both
readily convertible to known amounts of cash and so near maturity that there is
insignificant risk of changes in value because of changes in interest rates.
42
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies (continued)
Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets"
effective July 1, 2001 and as a result has not amortized goodwill for the twelve
month period ended June 30, 2002. SFAS 142 changes the accounting for certain
intangibles, including goodwill, from an amortization method to an
impairment-only approach. Under the provisions of SFAS 142, intangible assets,
including goodwill, that are not subject to amortization will be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired, using a two-step impairment
assessment. The first step of the goodwill impairment test, used to identify
potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired, and the second step of the impairment test is not necessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss if any (see Note 8). The Company has completed the transitional goodwill
impairment test and the annual impairment test and determined that a charge was
not required.
Debt Issuance Costs
Debt issuance costs are amortized using the straight-line method over the
remaining term of the related debt (see Note 6).
Store and Regional Expenses
The direct costs incurred in operating the Company's stores have been classified
as store expenses. Store expenses include salaries and benefits of store and
regional employees, rent and other occupancy costs, depreciation of property and
equipment, bank charges, armored security costs, net returned checks, cash
shortages, cost of goods sold and other costs incurred by the stores. Excluded
from store operations are the corporate expenses of the Company, which include
salaries and benefits of corporate employees, professional fees and travel
costs.
Loss Reserves
The Company acts as a servicer for County Bank of Rehoboth Beach, Delaware,
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 originates. In order to
estimate the appropriate level of these reserves, the Company analyzes the
amount of outstanding loans serviced and originated 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.
Returned Checks
The Company charges operations for losses on returned checks in the period such
checks are returned, since ultimate collection of these items is uncertain.
Recoveries on returned checks are credited in the period when the recovery is
received. The net expense for bad checks included in other store expenses in the
accompanying consolidated statements of operations was $5,769,000, $8,186,000
and $7,063,000 for the years ended June 30, 2000, 2001 and 2002, respectively.
43
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies (continued)
Income Taxes
The Company uses the liability method to account for income taxes. Accordingly,
deferred income taxes have been determined by applying current tax rates to
temporary differences between the amount of assets and liabilities determined
for income tax and financial reporting purposes.
The Company and its subsidiaries file a consolidated federal income tax return
with Holdings but calculate its tax provision as if it were on a stand-alone
basis.
Deferred Acquisition Costs
The Company defers certain costs incurred associated with potential
acquisitions. In the event that the acquisition is not consummated, these costs
are expensed directly. Deferred acquisition costs charged to expense were $1.4
million, $0 and $0.3 million for the years ended June 30, 2000, 2001 and 2002,
respectively and are included under the caption other non-recurring items on the
Statements of Operations. The costs associated with completed acquisitions are
capitalized as part of the purchase price.
Employees' Retirement Plan
Retirement benefits are provided to substantially all full-time employees who
have completed 1,000 hours of service through a defined contribution retirement
plan. The Company will match 50% of each employee's contribution, up to 8% of
the employee's compensation. In addition, a discretionary contribution may be
made if the Company meets its financial objectives. The amount of contributions
charged to expense was $420,000, $545,000 and $614,000 for the years ended June
30, 2000, 2001 and 2002, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs charged to
expense were $4,842,000, $6,061,000 and $5,844,000 for the years ended June 30,
2000, 2001 and 2002, respectively.
Fair Value of Financial Instruments
The carrying values of the revolving credit facilities approximate fair values,
as these obligations carry a variable interest rate. The fair value of the
Company's Senior Notes is based on quoted market prices and the fair value of
the Senior Subordinated Notes is based on the value of the Senior Notes (see
Note 6). The Company's other financial instruments consist of cash and cash
equivalents, loan and other receivables and notes receivable. Because these are
short term in nature, their fair value approximates their carrying value.
Foreign Currency Translation and Transactions
The Company operates check cashing and financial services outlets in Canada and
the United Kingdom. The financial statements of these foreign businesses have
been translated into U.S. dollars in accordance with accounting principles
generally accepted in the United States. All balance sheet accounts are
translated at the current exchange rate and income statement items are
translated at the average exchange rate for the period; resulting translation
adjustments are made directly to a separate component of shareholder's equity.
Gains or losses resulting from foreign currency transactions are included in
results of operations.
44
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies (continued)
Franchise Fees and Royalties
The Company recognizes initial franchise fees upon fulfillment of all
significant obligations to the franchisee. Royalties from franchisees are
accrued as earned. The standard franchise agreements grant to the franchisee the
right to develop and operate a store and use the associated trade names,
trademarks, and service marks within the standards and guidelines established by
the Company. Initial franchise fees included in revenues were $195,000, $216,000
and $59,000 for the years ended June 30, 2000, 2001 and 2002, respectively.
Pending Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS 144 became effective for the Company on July 1, 2002, and
management is currently reviewing and evaluating the effects this statement will
have, if any, on the Company's financial position and results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB No. 4, 44, and
64, Amendment of FASB Statement No. 13 and Technical Corrections" which updates,
clarifies and simplifies existing accounting pronouncements. In part, this
statement rescinds SFAS No. 4 "Reporting Gains and Losses for Extinguishment of
Debt. SFAS No. 145 will be effective for fiscal years beginning after May 15,
2002. The effect of this statement on the Company's financial statements would
be the reclassification of extraordinary loss on early extinguishment of debt to
continuing operations; however, this will have no effect on the Company's net
income. The Company will adopt this provision as of July 1, 2003.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity. SFAS No. 146 is
effective prospectively for exit and disposal activities initiated after
December 31, 2002, with earlier adoption encouraged. As the provisions of SFAS
No. 146 are required to be applied prospectively after the adoption date,
management cannot determine the potential effects that adoption of SFAS No. 146
will have on the Company's consolidated financial statements.
3. DFG Holdings, Inc.
As discussed in Note 1, the Company is a wholly-owned subsidiary of Holdings.
The activities of Holdings consist primarily of its investment in the Company
and the issuance of $120.6 million aggregate principal amount of 13% Senior
Discount Notes.
Common Stock
Holdings has 100,000 shares authorized; of which 19,864.93 shares were issued
and outstanding (106.71 are held in treasury) at June 30, 2002.
45
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. DFG Holdings, Inc. (continued)
Dividends
Under the terms of the Company's Revolving Credit Facility discussed in Note 6,
the Company is permitted to declare, pay, or make cash dividends to Holdings
under certain circumstances. The Revolving Credit Facility permits the Company
to remit cash to Holdings for the payment of certain of Holdings' expenses. At
June 30, 2001 and 2002 Holdings owed the Company $2.6 million and $3.6 million,
respectively for such advances.
Stock Options
Holdings Stock Incentive Plan (the "Plan") states that 1,413.32 shares of
Holdings' common stock may be awarded to employees or consultants of the
Company. The awards, at the discretion of Holdings' Board of Directors, may be
issued as nonqualified stock options or incentive stock options. Stock
appreciation rights ("SAR") may also be granted in tandem with the nonqualified
stock options or the incentive stock options. Exercise of the SARs cancels the
option for an equal number of shares and exercise of the nonqualified stock
options or incentive stock options cancels the SARs for an equal number of
shares. The number of shares issued under the Plan shall be subject to
adjustment as specified in the Plan provisions. No options may be granted after
February 15, 2009. No options were granted under the Plan during the year ended
June 30, 2000. During the year ended June 30, 2001, 218 nonqualified stock
options were granted under the plan at an exercise price of $7,250, the
estimated fair market value of the common stock on the date of grant. Forty-five
options with an exercise price of $3,225 were forfeited during the year ended
June 30, 2001. No options were granted during the fiscal year ended June 30,
2002. The options are exercisable in 20% increments annually on the first,
second, third, fourth and fifth anniversary of the grant date and have a term of
ten years from the date of issuance. At June 30, 2002 there were 1,082 options
outstanding, of which 628.03 were exercisable.
Holdings has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the estimated
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, however, the effect of applying Statement No. 123 to
Holdings' stock-based awards results in net income that is not materially
different from amounts reported.
4. Acquisitions
The acquired entities described below ("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 July 7, 1999, the Company purchased all of the outstanding shares of Cash A
Cheque Holdings Great Britain Limited ("CAC"), which operated 44 company owned
stores in the United Kingdom. The initial purchase price for this acquisition
was approximately $12.5 million and was funded through excess internal cash, the
Company's revolving credit facility and $1.9 million of the Company's Senior
Subordinated Notes. The excess of the purchase price over the fair value of
identifiable net assets acquired was $8.2 million. Additional consideration of
$9.7 million was paid in fiscal 2001 based upon a profit-based earn-out
agreement.
46
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Acquisitions (continued)
On November 18, 1999, the Company purchased all the outstanding shares of
Cheques R Us, Inc. ("CRU") and Courtenay Money Mart Ltd. ("Courtenay"), which
operated six stores in British Columbia. The aggregate purchase price for this
acquisition was $1.2 million and was funded through excess internal cash. The
excess of the purchase price over the fair value of identifiable net assets
acquired was $1.1 million.
On December 15, 1999, the Company purchased all of the outstanding shares of
Cash Centres Limited ("CCL"), which operated five company owned stores and 238
franchises in the United Kingdom. The aggregate purchase price for this
acquisition was $8.4 million and was funded through the Company's revolving
credit facility. The excess of the purchase price over the fair value of
identifiable net assets acquired was $7.7 million. Additional consideration of
$2.7 million was subsequently paid based under a profit-based earn-out
agreement.
On February 10, 2000, the Company purchased substantially all of the assets of
CheckStop, Inc. ("CheckStop"), which was a short-term loan business operating
through 150 independent document transmitters in 17 states. The aggregate
purchase price for this acquisition was $2.6 million and was funded through the
Company's revolving credit facility. The excess of the purchase price over the
fair value of identifiable net assets acquired was $2.4 million. Additional
consideration of $250,000 was subsequently paid based upon a future results of
operations earn-out agreement.
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 8 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 substantially 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 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 levels of
profitability.
47
The following unaudited pro forma information for the year ended 2001 presents
the results of operations as if the Acquisitions had occurred on July 1, 2000.
The pro forma operating results include the results of operations for these
acquisitions for the indicated periods and reflect the amortization of
intangible assets arising from the acquisitions and increased interest expense
on acquisition debt. 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.
Year ended June 30,
(Unaudited)
--------------------------
2001
--------------------------
(dollars in thousands)
Total revenue............................. $ 197,084
Net income................................ $ 6,874
During fiscal year 2000, the Company was in negotiations to acquire Direct
General Corporation. Upon receipt of Direct General's June 30, 2000 results, the
planned acquisition was terminated. As a result, the Company incurred a charge
of $1.4 million for previously deferred costs associated with the acquisition.
5. Property and Equipment
Property and equipment at June 30, 2001 and 2002 consist of (in thousands):
June 30,
--------------------------------
2001 2002
--------------------------------
Land and buildings....................... $ 135 $ 146
Leasehold improvements................... 14,953 17,874
Equipment and furniture.................. 35,718 42,609
--------------------------------
50,806 60,629
Less accumulated depreciation............ 21,666 30,119
--------------------------------
Total property and equipment............. $ 29,140 $ 30,510
================================
Depreciation expense amounted to $5,898,000, $7,497,000 and $8,835,000 for the
years ended June 30, 2000, 2001 and 2002, respectively.
48
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt
The Company has debt obligations at June 30, 2001 and 2002 as follows (in
thousands):
June 30,
---------------------------
2001 2002
---------------------------
Revolving credit facility; interest at one-day Eurodollar, as
defined, plus 2.75% and 3.50% at June 30, 2001 and 2002,
respectively (6.56% and 5.31% at June 30, 2001 and 2002,
respectively) of the outstanding daily balances payable
monthly; principal due in full on June 30, 2004; weighted
average interest rate of 8.55% and 5.14% for the years ended
June 30, 2001 and 2002, respectively........................ $ 62,300 $ 68,600
Canadian overdraft credit facility; interest at Canadian prime,
as defined, plus 0.50% (6.25% and 4.25% at June 30, 2001 and
2002, respectively) of the outstanding daily balances payable
monthly; weighted average interest rate of 7.18% and 4.56%
for the years ended June 30, 2001 and 2002, respectively.... 249 4,791
United Kingdom overdraft facility; interest at the LIBOR Rate,
as defined, plus 1.25% and 1.00% at June 30, 2001 and 2002,
respectively (7.25% and 5.00% at June 30, 2001 and 2002,
respectively) of the outstanding daily balances payable
quarterly; weighted average interest rate of 6.82% and 5.32%
for the years ended June 30, 2001 and 2002, respectively.... 5,275 5,545
10-7/8% Senior Notes due November 15, 2006; interest payable
semiannually on May 15 and November 15, commencing May 15,
1997........................................................ 109,190 109,190
10-7/8% Senior Subordinated Notes due December 31, 2006;
interest payable semiannually on June 30 and December 30,
commencing June 30, 1999................................... 20,000 20,000
Other.......................................................... 122 65
----------------------------
$ 197,136 $ 208,191
============================
49
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (continued)
The Company has $109.2 million of 10-7/8% senior notes due 2006 (the "Notes"),
which are registered under the Securities Act of 1933, as amended. The payment
obligations under the Notes are jointly and severally guaranteed, on a full and
unconditional basis, by each of the Company's existing subsidiaries (the
"Guarantors"). There are no restrictions on the Company's and the guarantor
subsidiaries' ability to obtain funds from their subsidiaries by dividend or by
loan. Separate financial statements of each guarantor subsidiary have not been
presented because management has determined that they would not be material to
investors.
Subject to restrictions under the Company's existing credit facility ("Revolving
Credit Facility") discussed below, the Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001, at the
following redemption prices (plus accrued and unpaid interest thereon, if any,
to the date of redemption): during the twelve-month period beginning November
2001 - 105.438%; 2002 - 103.625%; 2003 - 101.813%; and 2004 - 100.000%. Upon the
occurrence of a change of control, as defined, each holder of Notes has the
right to require the Company to repurchase all or any part of such holder's
Notes at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase.
On May 31, 2002, the Company negotiated and executed an amendment and
restatement to the Company's Revolving Credit Facility reducing the facility
from $85 million to $80 million. The Company's borrowing capacity under the
Revolving Credit Facility is limited to the total commitment less the letter of
credit of $8 million, which secures the United Kingdom overdraft facility. At
June 30, 2002 the Company's borrowing capacity was $72 million. The Company's
restated Revolving Credit Facility also contains provisions for further
reductions in the facility of $5 million within the earlier of (i) 180 days of
the effective date of the agreement or (ii) the sale of certain assets.
Additionally, the restated Revolving Credit Facility contains provisions for an
additional reduction in the facility of $5 million during the period April 1 to
December 14 of any calendar year following the (i) earlier of 180 days of the
effective date of the agreement or (ii) the sale of certain assets. The
borrowings under the Revolving Credit Facility were $62.3 million and $68.6
million as of June 30, 2001 and 2002, respectively. Issuance costs associated
with the Revolving Credit Facility paid during fiscal 2001 and 2002 were
$200,000 and $600,000, respectively.
At June 30, 2002 the Company's amended Revolving Credit Facility contained other
provisions limiting the total outstanding short-term loans made by the Company
to $15 million. At June 30, 2002 the Company had short-term loans outstanding in
excess of the maximum amount. The Company's lenders waived that requirement as
of June 30, 2002 and increased the allowable short-term loans to $19 million
through the earlier of (i) November 29, 2002 or (ii) the sale of certain assets.
If the sale of these certain assets is consummated prior to November 29, 2002,
the total outstanding short-term loans is limited to $12 million for 30 calendar
days upon which the limit is lowered to $10 million thereafter. The Company
believes that through the sale of loans and management of originations and
extensions, it will reduce short-term loans outstanding to the required amounts
within the period specified and will remain in compliance with its debt
covenants throughout fiscal 2003.
Amounts outstanding under the Revolving Credit Facility bear interest at either
(i) the higher of (a) the federal funds rate plus 0.50% per annum and (b) the
rate publicly announced by Wells Fargo, San Francisco, as its "prime rate," plus
2.25% at June 30, 2002, (ii) the LIBOR Rate (as defined therein) plus 3.50% at
June 30, 2002, or (iii) the one day Eurodollar Rate (as defined therein) plus
3.50% at June 30, 2002, determined at the Company's option. Amounts outstanding
under the Revolving Credit Facility are secured by a first priority lien on
substantially all properties and assets of the Company and its current and
future subsidiaries. The Company's obligations under the Revolving Credit
Facility are guaranteed by each of the Company's direct and indirect
subsidiaries.
Also, the Company has $20 million aggregate principal amount of its 10 7/8%
Senior Subordinated Notes Due 2006 (the "Senior Subordinated Notes").
50
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (continued)
The Notes, the Revolving Credit Facility and the Senior Subordinated Notes
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.
In connection with the Company's Canadian subsidiary, the Company established a
Canadian dollar overdraft credit facility to fund peak working capital needs for
its Canadian operations. The overdraft credit facility, which has no stated
maturity date, provides for a commitment of up to approximately $4.8 million of
which $200,000 and $4.8 million were outstanding as of June 30, 2001 and 2002,
respectively. Amounts outstanding under the facility bear interest at Canadian
prime plus 0.50% and are secured by the pledge of a cash collateral account of
an equivalent balance. The Company's United Kingdom operations also has a
British pound overdraft facility that bears interest at 1.25% and 1.00% for the
years ended June 30, 2001 an 2002, respectively, over the LIBOR Rate and which
provides for a commitment of approximately $7.7 million of which $5.3 million
and $5.5 million was outstanding as of June 30, 2001 and June 30, 2002,
respectively. The overdraft facility is secured by an $8.0 million letter of
credit issued by Wells Fargo Bank under the Revolving Credit Facility.
The fair market value of the Company's 10 7/8% Senior Notes and the Company's 10
7/8% Senior Subordinated Notes due 2006 at June 30, 2001 and 2002 was
approximately $125,314,300 and $113,687,200 based on quoted market prices.
Interest of $19,410,000 and $17,472,000 was paid for the years ended June 30,
2001 and 2002, respectively.
51
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes
The provision for income taxes for the years ended June 30, 2000, 2001 and 2002
consists of the following (in thousands):
Year ended June 30,
--------------------------------------------------
2000 2001 2002
--------------------------------------------------
Federal:
Current......................... $ 7,048 $ 3,620 $ 694
Deferred........................ (540) 1,125 (430)
--------------------------------------------------
6,508 4,745 264
Foreign taxes:
Current......................... 4,797 7,557 9,550
Deferred........................ - (192) (74)
--------------------------------------------------
4,797 7,365 9,476
State:
Current......................... 833 721 386
Deferred........................ (95) 45 73
--------------------------------------------------
738 766 459
--------------------------------------------------
$ 12,043 $ 12,876 $ 10,199
==================================================
The significant components of the Company's deferred tax assets and liabilities
at June 30, 2001 and 2002 are as follows (in thousands):
June 30,
-----------------------------------
2001 2002
------------------------------------
Deferred tax assets:
Loss reserves....................................... $ - $ 995
Foreign withholding taxes........................... 605 94
Depreciation........................................ 1,243 1,914
Accrued compensation................................ 361 328
Reserve for store closings.......................... 299 122
Foreign tax credits................................. 230 230
Other accrued expenses.............................. 180 535
Other............................................... 179 36
----------------------------------
3,097 4,254
Deferred tax liabilities:
Amortization and other temporary differences........ 4,025 4,309
----------------------------------
Net deferred tax asset (liability)..................... $ (928) $ (55)
==================================
52
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes (continued)
The Company did not record any valuation allowances against deferred tax assets
at June 30, 2001 or June 30, 2002. Although realization is not assured,
management has determined, based on the Company's history of earnings and its
expectation for the future, that taxable income of the Company will more likely
than not be sufficient to fully utilize its deferred tax assets.
A reconciliation of the provision for income taxes with amounts determined by
applying the federal statutory tax rate to income (loss) before income taxes is
as follows (in thousands):
Year ended June 30,
------------------------------------------
2000 2001 2002
------------------------------------------
Tax provision at federal statutory rate............... $ 6,105 $ 6,848 $ 5,682
Add (deduct):
State tax provision, net of federal tax benefit... 655 498 299
Foreign taxes..................................... 2,304 2,323 1,673
US tax on foreign earnings........................ 1,745 3,189 2,370
Amortization of nondeductible intangible assets... 1,062 93 -
Other permanent differences....................... 172 (75) 175
------------------------------------------
Tax provision at effective tax rate................... $ 12,043 $12,876 $10,199
==========================================
Foreign, federal and state income taxes of approximately $12,957,000, $4,800,000
and $16,035,000 were paid during the years ended June 30, 2000, 2001 and 2002,
respectively.
53
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. GOODWILL AND OTHER INTANGIBLES
The Company has adopted SFAS No. 142 effective July 1, 2001. Under SFAS No. 142,
goodwill is no longer amortized but is 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
and annual impairment tests in fiscal 2002 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 covenants not to
compete, which are deemed to have a definite life and will continue to be
amortized. Amortization for these intangibles for the year ended June 30, 2002
was $221,000. 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 (in thousands):
June 30, 2001 June 30, 2002
------------------------------ ---------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------------- ---------------- --------------- ------------------
Non-amortized intangible assets:
Cost in excess of net assets acquired $ 150,574 $ 21,303 $ 150,954 $ 18,977
Amortized intangible assets:
Covenants not to compete 2,152 1,872 2,380 2,093
Costs of contracts acquired 692 688 - -
The following table reflects the results of operations as if SFAS No. 142 had
been adopted as of July 1, 1999 (in thousands):
Year Ended Year Ended
June 30, 2000 June 30, 2001
--------------------- ------------------
Reported net income $ 5,400 $ 6,690
Goodwill amortization, net of tax 5,027 3,947
--------------- -----------------
Adjusted net income $ 10,427 $ 10,637
=============== =================
54
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Commitments
The Company occupies office and retail space and uses certain equipment under
operating lease agreements. Rent expense amounted to $11,034,000, $14,320,000
and $15,265,000 for the years ended June 30, 2000, 2001 and 2002, respectively.
Most leases contain standard renewal clauses.
Minimum obligations under noncancellable operating leases for the year ended
June 30 are as follows (in thousands):
Year Amount
---------------
2003............................. $ 14,492
2004............................. 12,225
2005............................. 8,774
2006............................. 4,817
2007............................. 2,983
Thereafter....................... 8,106
---------------
$ 51,397
===============
The Company anticipates closing certain of its unprofitable stores in fiscal
2003 and is currently evaluating the locations to be closed.
10. Contingent Liabilities
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.
11. Contractual Agreements
The Company has contracts with various governmental agencies for benefits
distribution and retail merchant services which contributed 4%, 2% and 1% of
consolidated gross revenues for the years ended June 30, 2000, 2001 and 2002,
respectively. The Company's contract with the State of New York contributed 3%
and 1% of revenues for the years ended June 30, 2000 and 2001, respectively.
During the year ended June 30, 2001, the State of New York completed a statewide
implementation of an Electronic Benefit Transfer System ("EBT"). As a result,
the Company's contract was terminated. The Company's contracts for governmental
benefits distribution and merchant services distribution with state and local
governments generally have initial terms of five years and currently expire on
various dates through December 31, 2004. The contracts provide the governmental
agencies the opportunity to extend the contract for additional periods and
contain clauses which allow the governmental agencies to cancel the contract at
any time, subject to 30 to 60 days' written advance notice.
55
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Credit Risk
At June 30, 2001 and 2002, the Company had twenty-two bank accounts in major
U.S. financial institutions in the aggregate amount of $7,091,000 and
$5,652,000, respectively, which exceeded Federal Deposit Insurance Corporation
deposit protection limits. The Canadian Federal Banking system provides
customers with similar deposit insurance through the Canadian Deposit Insurance
Corporation ("CDIC"). At June 30, 2001 and 2002, the Company's Canadian
subsidiary had thirteen bank accounts totaling $20,070,000 and $22,545,000,
respectively, which exceeded CDIC limits. At June 30, 2001 and 2002 the
Company's United Kingdom operations had eighty four and thirty six bank
accounts, respectively, totaling $5,702,000 and $6,251,000. These financial
institutions have strong credit ratings, and management believes credit risk
relating to these deposits is minimal.
Effective June 13, 2002, the Company entered into an agreement with County Bank
of Rehoboth Beach, Delaware ("County"), a federally insured institution. The
Company acts as a servicer for County, 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 adjustment if the related
loans are not collected. The Company maintains a reserve for these estimated
adjustments. County originated approximately $15 million of loans through the
Company's locations and document transmitters during the fiscal year ended June
30, 2002.
During the year ended June 30, 2002 Dollar Financial Group, Inc. entered into a
Participation and Termination Agreement ("Eagle Agreement") with Eagle National
Bank ("Eagle"), a national banking association and certain of its related
entities. Under the agreement, Eagle discontinued the business of offering
short-term consumer loans through the Company's locations and document
transmitters.
The Company had previously acted for Eagle marketing unsecured short-term loans
to customers with established bank accounts and verifiable employment. Loans
were made for amounts up to $500, with terms of 14 or 28 days which could be
refinanced a maximum of four times and two times, respectively. Under this
program, the Company earned origination and servicing fees. Eagle originated or
extended approximately $377 million and $399 million of loans through the
Company's locations and document transmitters during the fiscal years ended June
30, 2001 and 2002.
The Company also originates unsecured short-term loans to customers on its own
behalf in Canada, the United Kingdom and certain U.S. markets. These loans are
made for amounts up to $700, with terms of 7 to 28 days which can be extended a
maximum of four times. The Company bears the entire risk of loss related to
these loans. The Company originated or extended approximately $306 million of
the loans through the Company's locations and document transmitters during
fiscal year ended June 30, 2002. The Company had approximately $16 million and
$10 million of loans on its balance sheet at June 30, 2002 and 2001,
respectively, which is reflected in loans and other receivables. Net writeoffs
for Company originated loans which are netted against revenues on the Statements
of Operations for the fiscal years ended June 30, 2002, 2001 and 2000 were $5.5
million, $4.4 million and $2.3 million, respectively. As a result of the changes
in its lending program, the Company recorded a charge of $2.2 million to
increase its loss reserves. Loans and other receivables at June 30, 2002 are
reported net of a reserve of $2.9 million related to consumer lending.
56
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. 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
2000 States Canada Kingdom Total
------------------------------------------------------------
Identifiable assets $ 133,887 $ 70,477 $ 55,350 $ 259,714
Sales to unaffiliated customers 102,073 39,897 23,783 165,753
Interest revenue 287 54 33 374
Interest expense 11,717 3,913 2,235 17,865
Depreciation and amortization 6,983 2,392 2,492 11,867
Income before income taxes 9,796 6,738 909 17,443
Income tax provision 7,246 4,103 694 12,043
Other non-recurring items 1,345 133 - 1,478
2001
Identifiable assets 140,024 74,054 62,094 276,172
Sales to unaffiliated customers 116,504 49,635 29,360 195,499
Interest revenue 398 69 3 470
Interest expense 13,994 3,922 2,915 20,831
Depreciation and amortization 6,707 2,867 2,917 12,491
Income before income taxes 5,636 12,927 1,003 19,566
Income tax provision 6,016 6,258 602 12,876
2002
Identifiable assets 140,813 82,860 67,639 291,312
Sales to unaffiliated customers 112,934 55,469 33,573 201,976
Establishment of reserves for new consumer
lending arrangements 2,244 - - 2,244
Interest revenue 168 83 3 254
Interest expense 13,808 2,552 2,588 18,948
Depreciation and amortization 5,330 1,874 2,027 9,231
Other non-recurring items 281 - - 281
(Loss) income before income taxes (6,537) 17,672 5,101 16,236
Income tax provision 353 8,105 1,741 10,199
14. Related Party Transactions
During fiscal 1999, certain members of management received loans aggregating
$2.9 million, of which $200,000 was repaid during the fiscal year ended June 30,
2001, which are secured by shares of Holdings stock. The loans accrue interest
at a rate of 6% per year and are due and payable in full on December 18, 2004
and December 31, 2005. In addition, as part of an employment agreement, the
Chief Executive Officer was issued a loan in the amount of $4.3 million to
purchase additional shares of Holdings stock. The loan accrues interest at a
rate of 6% per year and is due and payable in full on December 18, 2004. The
loan is secured by a pledge of shares in Holdings stock.
57
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Subsidiary Guarantor Financial Information
As discussed in Note 6, the Company's payment obligations under the Senior 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 Revolving Credit Facility and any successor credit
facility. Pursuant to the Senior Notes or Senior Subordinated Notes, every
direct and indirect subsidiary of the Company, each of which is wholly owned,
serves as a guarantor of the Senior 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 June 30, 2002, and the
consolidating statements of operations and cash flows for the fiscal year ended
June 30, 2002 of the Company (on a parent-company basis), combined domestic
Guarantors, combined foreign subsidiaries and the consolidated Company.
58
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Subsidiary Guarantor Financial Information (continued)
Consolidating Balance Sheets
June 30, 2002
(In thousands)
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------------------------------------------------------------------------
Assets
Cash and cash equivalents................... $ 1,746 $ 41,405 $ 43,482 $ - $ 86,633
Loans and other receivables, net............ 3,761 7,389 13,965 (4,573) 20,542
Income taxes receivable..................... 8,456 1 - (8,457) -
Prepaid expenses............................ 850 1,898 3,997 - 6,745
Deferred income taxes....................... 1,166 - - (1,166) -
Notes receivable--officers................... 2,756 - - - 2,756
Due from affiliates......................... 51,323 23,990 - (75,313) -
Due from parent............................. 3,606 - - - 3,606
Property and equipment, net................. 6,867 11,554 12,089 - 30,510
Goodwill and other intangibles, net......... 172 56,372 75,720 - 132,264
Debt issuance costs, net.................... 6,292 - - - 6,292
Investment in subsidiaries.................. 172,581 9,801 6,705 (189,087) -
Other....................................... 106 612 1,246 - 1,964
------------------------------------------------------------------------------
$ 259,682 $ 153,022 $ 157,204 $ (278,596) $ 291,312
==============================================================================
Liabilities and shareholder's equity
Accounts payable............................ $ 2,234 $ 7,752 $ 8,263 $ - $ 18,249
Income taxes payable........................ - 8,714 1,574 (8,457) 1,831
Accrued expenses............................ 2,764 1,152 4,016 - 7,932
Accrued interest payable.................... 1,511 - 4,601 (4,573) 1,539
Deferred tax liability...................... - 1,221 - (1,166) 55
Due to affiliates........................... - - 75,313 (75,313) -
Revolving credit facilities................. 68,600 - 10,336 - 78,936
10 7/8% Senior Notes due 2006............... 109,190 - - - 109,190
Subordinated notes payable and other........ 20,000 - 65 - 20,065
------------------------------------------------------------------------------
204,299 18,839 104,168 (89,509) 237,797
Shareholder's equity:
Common stock............................. - - - - -
Additional paid-in capital............... 50,957 71,305 27,304 (98,609) 50,957
Retained earnings ....................... 6,903 64,515 25,963 (90,478) 6,903
Accumulated other comprehensive loss..... (2,477) (1,637) (231) - (4,345)
------------------------------------------------------------------------------
Total shareholder's equity.................. 55,383 134,183 53,036 (189,087) 53,515
------------------------------------------------------------------------------
$ 259,682 $ 153,022 $ 157,204 $ (278,596) $ 291,312
==============================================================================
59
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Subsidiary Guarantor Financial Information (continued)
Consolidating Statements of Operations
Year ended June 30, 2002
(In thousands)
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
------------------------------------------------------------------------------
Revenues.................................. $ - $ 112,934 $ 89,042 $ - $ 201,976
Store and regional expenses:
Salaries and benefits.................. - 40,985 24,310 - 65,295
Occupancy.............................. - 11,540 6,547 - 18,087
Depreciation........................... - 3,431 3,091 - 6,522
Other.................................. - 30,549 15,689 - 46,238
------------------------------------------------------------------------------
Total store and regional expenses......... - 86,505 49,637 - 136,142
Establishment of reserves for new consumer
lending arrangements................... - 2,244 - - 2,244
Corporate expenses........................ 15,952 226 8,338 - 24,516
Management fee............................ (12,226) 9,855 2,371 - -
Loss on store closings and sales.......... 125 970 59 - 1,154
Other depreciation and amortization....... 1,601 298 810 - 2,709
Interest expense (income)................. 16,167 (2,527) 5,054 - 18,694
Other non-recurring items................. 281 - - - 281
------------------------------------------------------------------------------
(Loss) income before income taxes ........ (21,900) 15,363 22,773 - 16,236
Income tax (benefit) provision ........... (7,846) 8,199 9,846 - 10,199
------------------------------------------------------------------------------
(Loss) income before equity in net income
of subsidiaries.......................... (14,054) 7,164 12,927 - 6,037
Equity in net income of subsidiaries:
Domestic subsidiary guarantors......... 7,164 - - (7,164) -
Foreign subsidiary guarantors.......... 12,927 - - (12,927) -
------------------------------------------------------------------------------
Net income .............................. $ 6,037 $ 7,164 $ 12,927 $ (20,091) $ 6,037
==============================================================================
60
DOLLAR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Subsidiary Guarantor Financial Information (continued)
Consolidating Statements of Cash Flows
Year ended June 30, 2002
(In thousands)
Dollar Domestic Foreign
Financial Subsidiary Subsidiary
Group, Inc. Guarantors Guarantors Eliminations Consolidated
-----------------------------------------------------------------------------
Cash flows from operating activities
Net income........................................... $ 6,037 $ 7,164 $ 12,927 $ (20,091) $ 6,037
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Undistributed income of subsidiaries............ (20,091) - - 20,091 -
Depreciation and amortization................... 3,111 3,727 3,902 - 10,740
Loss on store closings and sales................ 125 970 59 - 1,154
Establishment of reserves for new consumer
lending arrangements.......................... - 2,244 - - 2,244
Deferred tax provision (benefit).............. 413 (1,286) - - (873)
Changes in assets and liabilities
(net of effect of acquisitions):
Decrease (increase) in loans
and other receivables and income taxes
receivable......................... 4,658 2,790 (1,146) (4,715) 1,587
Decrease in prepaid expenses
and other................................. 87 108 65 - 260
Increase (decrease) in accounts payable,
income taxes payable,
accrued expenses and accrued
interest payable ......................... 1,251 (6,452) (6,210) 4,715 (6,696)
-----------------------------------------------------------------------------
Net cash (used in) provided by operating
activities....................................... (4,409) 9,265 9,597 - 14,453
Cash flows from investing activities:
Acquisitions, net of cash acquired................... - (59) 14 - (45)
Additions to property and equipment.................. (3,203) (2,499) (4,361) - (10,063)
Net decrease (increase) in due from affiliates....... 3,248 (1,650) - (1,598) -
-----------------------------------------------------------------------------
Net cash provided by (used in) investing activities. 45 (4,208) (4,347) (1,598) (10,108)
Cash flows from financing activities
Other debt payments.................................. - - (64) - (64)
Net increase in revolving credit facilities.......... 6,300 - 4,812 - 11,112
Payment of debt issuance costs....................... (571) - - - (571)
Net increase in due from parent...................... (1,068) - - - (1,068)
Net decrease in due to affiliates.................... - - (1,598) 1,598 -
-----------------------------------------------------------------------------
Net cash provided by financing activities............ 4,661 - 3,150 1,598 9,409
Effect of exchange rate changes on cash
and cash equivalents.............................. - - 427 - 427
-----------------------------------------------------------------------------
Net increase in cash and cash equivalents............ 297 5,057 8,827 - 14,181
Cash and cash equivalents at beginning of year....... 1,449 36,348 34,655 - 72,452
-----------------------------------------------------------------------------
Cash and cash equivalents at end of year............. $ 1,746 $ 41,405 $ 43,482 $ - $ 86,633
=============================================================================
61
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Officers
The directors and officers of Holdings and their respective ages and positions
with Holdings are set forth below:
Name Age Position
Jeffrey Weiss...................... 59 Chairman of the Board of Directors and Chief Executive
Officer
Donald Gayhardt.................... 38 President, Chief Financial Officer and Director
Leonard Green...................... 68 Director
Jonathan Sokoloff.................. 45 Director
Muneer Satter...................... 41 Director
Jonathan Seiffer................... 30 Director
The directors and officers of DFG and their respective ages and positions with
DFG are set forth below:
Name Age Position
Jeffrey Weiss...................... 59 Chairman of the Board of Directors and
Chief Executive Officer
Donald Gayhardt.................... 38 President and Chief Financial Officer
Dennis Roberts..................... 53 Executive Vice President and Chief Operating Officer
Peter Sokolowski................... 41 Vice President Finance
Jeffrey Weiss has served as the Chairman and Chief Executive Officer of DFG and
Holdings since the Company's acquisition by an affiliate of Bear Stearns & Co.,
Inc. ("Bear Stearns") in May 1990. Until June 1992, Mr. Weiss was also a
Managing Director at Bear Stearns with primary responsibility for the firm's
investments in small to mid-sized companies, in addition to serving as Chairman
and Chief Executive Officer for several of these companies. Mr. Weiss is the
author of several popular financial guides.
Donald Gayhardt has served as President of DFG and Holdings since December 1998
and Chief Financial Officer since April 2001. He also served as Executive Vice
President and Chief Financial Officer of DFG and Holdings from 1992 to 1997.
Prior to joining the company, Mr. Gayhardt was employed by Bear Stearns from
1988 to 1993, most recently as an Associate Director in the Principal Activities
Group, where he had oversight responsibility for the financial and accounting
functions at a number of manufacturing, distribution and retailing firms,
including DFG. Prior to joining Bear Stearns, Mr. Gayhardt held positions in the
mergers and acquisitions advisory and accounting fields.
Dennis Roberts' background encompasses 35 years of retail operations experience,
formerly holding the positions of Executive Vice President and Chief Operating
Officer for Uno Restaurant Corporation and Senior Vice President - Restaurant
and Franchise Operations, for Friendly Ice Cream Corporation.
Peter Sokolowski has been Vice President--Finance of DFG since June 1991 and has
overall responsibility for the Company's accounting systems and controls, as
well as financial management. Prior to joining the Company, Mr. Sokolowski
worked in various financial positions in the commercial banking industry.
62
Leonard Green has been a director of Holdings since December 1998. He has been
an executive officer of Leonard Green & Partners, L.P. ("LGP"), a merchant
banking firm that manages Green Equity Investors II, L.P. ("GEI"), since the
formation of LGP and GEI in 1994. Since 1989, Mr. Green has been, individually
or through a corporation, a partner in a merchant banking firm affiliated with
LGP. Prior to 1989, Mr. Green had been a partner of Gibbons, Green, van
Amerongen for more than five years. Mr. Green is also a director of several
private companies.
Jonathan Sokoloff has been a director of Holdings since December 1998. Mr.
Sokoloff has been an executive officer of LGP since its formation in 1994. Since
1990, Mr. Sokoloff has been a partner in a merchant banking firm affiliated with
LGP. Mr. Sokoloff was previously a Managing Director at Drexel Burnham Lambert
Incorporated. Mr. Sokoloff is also a director of Twinlab Corporation, Gart
Sports Company and several private companies.
Muneer Satter has been a director of Holdings since December 1998. He is a
Managing Director in Goldman Sachs' Principal Investment Area (PIA) in New York.
Prior to this assignment, he was head of PIA in Europe and was based in London.
He joined the firm in 1988 and became a managing director in 1996.
Jonathan Seiffer has been a director of Holdings since October 2001. He has been
a partner of Leonard Green & Partners, L.P. since January 1999. From December
1997 to January 1999 he was a vice president of Leonard Green & Partners, L.P.
From October 1994 until December 1997, Mr. Seiffer was an associate of Leonard
Green & Partners, L.P. Prior to October 1994, Mr. Seiffer was a member of the
corporate finance department of Donaldson, Lufkin & Jenrette Securities
Corporation. He is also a director of Diamond Triumph Glass, Inc., Gart Sports
Company, Liberty Group Publishing, Inc. and several private companies.
63
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation of
the Chief Executive Officer and each of the other executive officers of the
Company who had annual compensation in fiscal year 2002 in excess of $100,000
(the "Named Executive Officers"):
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------------------------
Other Annual Securities
Name and Compensation Underlying All Other
Principal Position Year Salary Bonus Options (#) Compensation
- ---------------------------------------------------------------------------------------------------------------------
Jeffrey Weiss............ 2002 650,000 - 122,417(1) - 5,625
Chairman and 2001 600,000 100,000 162,873(1) - 6,000
Chief Executive Officer 2000 500,000 700,000 170,601(1) - 5,288
Donald Gayhardt.......... 2002 350,000 - - - 3,990
President and Chief 2001 300,000 50,000 - - 6,187
Financial Officer 2000 225,000 270,000 - - 4,327
Dennis Roberts (2)....... 2002 121,000 - - - -
Executive Vice President
and Chief Operating Officer
(1) During the years ended June 30, 2002, 2001 and 2000, amounts include
$62,314, $70,581 and $64,618, respectively, paid for life insurance premiums on
policies where the Company was not the named beneficiary. Perquisites and other
personal benefits provided to each other Named Executive Officer did not exceed
the lesser of $50,000 or 10% of the total salary and bonus for such Named
Executive Officer.
(2) Mr. Roberts joined the Company in December 2001.
The following table sets forth information concerning options to purchase
Holdings' common stock held by each of the Named Executive Officers as of the
fiscal year ended June 30, 2002.
64
Option/SAR Grants in Last Fiscal Year (1)
(1) No options or SARs were granted in the last fiscal year.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at
Name on Exercise Realized Options at Fiscal Year End Fiscal Year End (1)
- ----
---------------------------------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
Jeffrey Weiss...... 0 $ 0 0/0 $0/$0
Donald Gayhardt.... 0 0 283/116 $1,139,075/$466,900
(1) An assumed fair market value of $7,250 per share was used to calculate the
value of the options. As the shares are not traded in an established public
market, the value assigned is based on the last strike price options were
granted.
65
Employment Agreements
Jeffrey Weiss
Mr. Weiss, Chairman and Chief Executive Officer of Holdings and DFG, is employed
pursuant to an Employment Agreement (the "Weiss Agreement") dated as of November
13, 1998 among Mr. Weiss, DFG and Holdings (DFG and Holdings being collectively
referred to herein as the "Employer"). The Weiss Agreement provides for an
annual base salary of $500,000, to be reviewed bi-annually and may be increased
at the discretion of the Board of Directors of Holdings. In addition, Mr. Weiss
is eligible to receive an annual bonus and incentive compensation, contingent
upon the Employer achieving 100% of its targeted results (with certain
adjustments to the extent the Employer achieves results short of or in excess of
its targeted results). The total compensation paid or caused to be paid to Mr.
Weiss with respect to any fiscal year, including salary, bonuses and annual
incentive compensation shall not exceed $1,200,000. Under certain circumstances,
Mr. Weiss is entitled to the payment of a severance benefit equal to the
discounted value of any unpaid base salary for the term of the agreement.
The Weiss Agreement also provides for a five-year term, commencing on December
19, 1998, unless it is otherwise terminated pursuant to its terms. Mr. Weiss is
eligible to participate in all fringe benefit programs of the Employer offered
from time to time to its senior management employees.
Pursuant to the Weiss Agreement, Mr. Weiss has agreed that effective upon
termination, and in consideration of the payment of the compensation and other
benefits paid pursuant to the agreement, he will not compete with the Employer
within the United States, Canada or any other country in which the Company now
or hereafter conducts business for a period of two years.
66
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of capital stock of the Company are
owned by Holdings.
The following table sets forth as of June 30, 2002 the number of shares of
Holdings' common stock owned beneficially by (a) each person that is the
beneficial owner of more than 5% of Holdings' common stock, (b) all directors
and nominees, (c) the Named Executive Officers, and (d) all directors and
executive officers as a group. The address of each officer and director is c/o
the Company unless otherwise indicated. As of such date, there were a total of
19,864.93 shares of Holdings' common stock issued (106.71 are held in treasury).
Beneficial Owner Number Percent
Green Equity Investors II, L.P. ............................. 13,014.94 63.84%
11111 Santa Monica Boulevard
Los Angeles, California 90025
Jeffrey Weiss................................................ 3,058.99 15.01
GS Mezzanine Partners, L.P. and
GS Mezzanine Partners Offshore, L.P. and associates..... 2,150.46 10.55
85 Broad Street
New York, New York 10004
Donald Gayhardt (1) ......................................... 447.19 2.19
All directors and officers as a group (3 persons) (2)........ 3,574.53 17.54
(1) Includes options to purchase 282.63 shares of Holdings' common stock
which are currently exercisable.
(2) Includes options to purchase 297.63 shares of Holdings' common stock
which are currently exercisable.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement
Holdings entered into a Stockholders Agreement dated November 13, 1998 (the
"Stockholders Agreement") with certain stockholders signatory thereto (the
"Stockholders"), including Green Equity Investors II, L.P. (the "Purchaser"),
certain Executives of the Company (individually, the "Executive Stockholder",
and collectively, the "Executive Stockholders"), GS Mezzanine Partners, L.P. and
GS Mezzanine Partners Offshore, L.P (collectively, "GS Mezzanine"). Subsequent
to November 13, 1998 certain additional stockholders including Ares Leveraged
Investment Fund, L.P. and Ares Leveraged Investment Fund II, L.P. (collectively
"Ares"), C.L. and Sheila Jeffrey, Bridge Street Fund 1998, L.P. and Stone Street
Fund 1998, L.P. (collectively the "Additional Stockholders") agreed to be bound
by the terms of the Stockholders Agreement. The Stockholders Agreement shall
terminate ten (10) years from the date of the Stockholders Agreement (the
"Termination Date") with certain provisions terminating on the date of a Public
Offering Event which occurs prior to the Termination Date.
Transfer Restrictions
The Stockholders Agreement provides, among other things, for certain
restrictions on the disposition of Holdings' common stock. Unless a transfer of
Holdings' common stock which is subject to the Stockholders Agreement is made in
accordance with the terms of such agreement, such transfer will be void and of
no force or effect.
Holdings' common stock may be transferred subject to the terms and conditions of
the Stockholders Agreement. Any shares of Holdings' common stock which are
subsequently transferred to a non-Stockholder transferee will remain subject to
the terms and conditions of the Stockholders Agreement.
67
Tag-Along and First Option Rights
If, at any time, the Purchaser proposes to enter into an agreement to sell or
otherwise dispose of for value shares of Holdings in excess of at least twenty
percent (20%) of the then outstanding shares (the "Tag-Along Sale") then the
Executives shall be afforded the opportunity to participate proportionately in
such Tag-Along Sale. This provision does not apply to certain transactions as
defined in the Stockholders Agreement. If, at any time, any Executive desires to
sell for cash all or any part of such shares held by such Executive, the Selling
Executive shall provide notice to each of (i) the Purchaser or its assigns and
(ii) Holdings (the "Potential Buyer") of the desire to sell for cash such
shares. Upon receiving notice, each Potential Buyer shall have the option to
purchase all, but not less than all, of such shares on the same terms and
conditions. If more than one Potential Buyer has exercised their option, the
priority shall first fall to the Purchaser.
Repurchase of Shares
Upon the termination of employment of an Executive Stockholder by reason of his
death or permanent disability (an "Option Event"), Holdings and the Purchaser
(with priority to Holdings) shall have the right and option to repurchase all of
the shares then owned by the Executive Shareholder. The price shall be at the
fair market value of the shares at the time of the Option Event as determined
pursuant to the terms of the Stockholders Agreement.
Registration Rights
The Stockholders Agreement also provides for demand and incidental (or
"piggyback") registration rights. The Purchaser has demand registration rights
pursuant to which on the earlier of (i) the date that is 90 days after the first
registration of shares of Holdings' common stock under the Securities Act and
(ii) the second anniversary of the Stockholders Agreement the Purchaser may make
a written request of Holdings to register all or part of such Purchaser's
Holdings' common stock. Each remaining Stockholder may then elect to include its
shares of Holdings' common stock in the demand registration. The Purchaser is
entitled to three demand registrations.
If Holdings proposes to register any equity securities under the Securities Act,
it must include in such registration all shares of Holdings' common stock which
the Stockholders request to have registered, subject to the condition that not
all of the shares may be registered if only a reduced number can be sold without
having a material adverse effect on the offering.
Additional Shareholder Rights
If the Purchaser agrees to sell all or substantially all of its shares to a
third party, then the Purchaser may demand that the Executive Stockholders sell
all, but not less than all, of Holdings' shares held by them at the same price
and on the same terms and conditions.
Grant of Proxy
Each Stockholder has agreed to vote their shares so that (1) so long as Jeffrey
Weiss is the Chief Executive Officer of Holdings , he is elected to the board of
directors of Holdings and (2) so long as Purchaser owns, directly or indirectly,
twenty percent (20%) or more of the then outstanding stock of Holdings, the
Purchaser shall be entitled to elect the remaining members of the boards of
directors.
Loan to an Officer/Director
During fiscal 1999, certain members of management received loans aggregating
$2.9 million (of which, during the fiscal year ended June 30, 2001, $200,000 was
repaid), which are secured by shares of Holdings stock. The loans accrue
interest at a rate of 6% per year and are due and payable in full on December
18, 2004 and December 31, 2005. In addition, as part of an employment agreement,
Jeffrey Weiss was issued a loan in the amount of $4.3 million to purchase
additional shares of Holdings stock. The loan accrues interest at a rate of 6%
per year and is due and payable in full on December 18, 2004. The loan is
secured by a pledge of shares in Holdings stock.
68
Management Agreement
Pursuant to the terms of a Management Services Agreement among the Purchaser,
Holdings and the Company, Holdings has agreed to pay the Purchaser an annual
management fee equal to 2.4% of the total sum invested by the Purchaser in
Holdings and reimbursement of any out-of-pocket expenses incurred.
69
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2)....List of Financial Statements and Schedules
Financial Statements: The following consolidated financial statements are
submitted in response to Item 14(a)(1) and (2):
Dollar Financial Group, Inc. Page
---------
Report of Independent Auditors................................................................ 37
Consolidated Balance Sheets, June 30, 2001 and 2002........................................... 38
Consolidated Statements of Operations, years ended June 30, 2000, 2001 and 2002............... 39
Consolidated Statements of Shareholder's Equity, years ended June 30, 2000, 2001 and 2002..... 40
Consolidated Statements of Cash Flows, years ended June 30, 2000, 2001 and 2002............... 41
Notes to Consolidated Financial Statements.................................................... 42
Schedule II - Valuation and Qualifying Accounts............................................... 80
All other Financial Statement Schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
omitted because such schedules are not required under the related instructions,
are inapplicable, or the required information is given in the financial
statements.
[The remainder of this page intentionally left blank.]
70
(a)(3) Exhibits
Exhibit No. Description of Document
3.1 (a)(i) Certificate of Incorporation of Dollar Financial Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(a)(ii) Certificate of Change of Dollar Financial Group, Inc. (Incorporated by reference to Exhibit
3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(a)(iii) Certificate of Change of Certificate of Incorporation of Dollar Financial Group, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(a)(iv) Certificate of Amendment of the Certificate of Incorporation of Dollar Financial Group,
Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(b)(i) Articles of Incorporation of Albuquerque Investments, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(c)(i) Articles of Incorporation of Any Kind Check Cashing Centers, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(c)(ii) Articles of Amendment to the Articles of Incorporation of Any Kind Check Cashing Centers,
Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(d)(i) Articles of Incorporation of Check Mart of Louisiana, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(e)(i) Certificate of Incorporation of Check Mart of New Jersey, Inc. (Incorporated by reference
to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(f)(i) Articles of Incorporation of Check Mart of New Mexico, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(f)(ii) Articles of Amendment to the Articles of Incorporation of Check Mart of New Mexico, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(g)(i) Articles of Incorporation of Check Mart of Pennsylvania, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(h)(i) Articles of Incorporation of Check Mart of Texas, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(i) Articles of Incorporation of Check Mart of Utah, Inc. (Incorporated by reference to Exhibit
3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(i)(ii) Articles of Amendment to the Articles of Incorporation of Check Mart of Utah, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(j)(i) Articles of Incorporation of Check Mart of Washington, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(j)(ii) Articles of Amendment of Check Mart of Washington, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
71
(a)(3) Exhibits
Exhibit No. Description of Document
(k)(i) Articles of Incorporation of Check Mart of Washington, D.C., Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(l)(i) Articles of Incorporation of Check Mart of Wisconsin, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(m)(I) Certificate of Incorporation of DFG Warehousing Co., Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(n)(i) Articles of Incorporation of Dollar Financial Insurance Corp. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(o)(i) Certificate of Incorporation of Dollar Insurance Administration Corp. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(i) Articles of Incorporation of Financial Exchange Company of Michigan, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(p)(ii) Certificate of Amendment to the Articles of Incorporation of Financial Exchange Company of
Michigan, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's Statement
on Form S-4 (Registration #333-18221) declared effective March 11, 1997)
(q)(i) Articles of Incorporation of Financial Exchange Company of Ohio, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(q)(ii) Certificate of Amendment by Incorporator (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(q)(iii) Certificate of Amendment (by Shareholders) (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(r)(i) Certificate of Incorporation of Financial Exchange Company of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(r)(ii) Amendment "1" to Certificate of Incorporation of Financial Exchange Company of
Pennsylvania, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's
Statement on Form S-4 (Registration #333-18221) declared effective March 11, 1997)
(r)(iii) Amendment "2" to Certificate of Incorporation of Financial Exchange Company of
Pennsylvania, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's
Statement on Form S-4 (Registration #333-18221) declared effective March 11, 1997)
(s)(i) Certificate of Incorporation of Financial Exchange Company of Pittsburgh, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(t)(i) Certificate of Incorporation of Financial Exchange Company of Virginia, Inc. (Incorporated
by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(u)(i) Articles of Incorporation of L.M.S. Development Corporation (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(v)(i) Articles of Incorporation of Monetary Management Corp. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
72
(a)(3) Exhibits
Exhibit No. Description of Document
(w)(I) Certificate of Incorporation of Monetary Management Corporation of Pennsylvania, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(x)(i) Articles of Incorporation of Monetary Management of California, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(y)(i) Articles of Incorporation of Monetary Management of Maryland, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(z)(i) Certificate of Incorporation of Monetary Management of New York, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(aa)(I) Articles of Incorporation of Pacific Ring Enterprises, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(bb)(i) Limited Partnership Certificate and Agreement of U.S. Check
Exchange Limited Partnership (Incorporated by reference to
Exhibit 3.1 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
(bb)(ii) First Amendment to Certificate and Agreement of Limited
Partnership of U.S. Check Exchange Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(bb)(iii) Second Amendment Certificate of Limited Partnership
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(cc)(I) Articles of Incorporation of QTV Holdings, Inc.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
3.2 (a)(i) Bylaws of Dollar Financial Group, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(b)(i) Bylaws of Albuquerque Investments, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(c)(i) Bylaws of Any Kind Check Cashing Centers, Inc. (Incorporated by reference to Exhibit 3.2 to
the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(d)(i) Bylaws of Check Mart of Louisiana, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(e)(i) Bylaws of Check Mart of New Jersey, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(f)(i) Bylaws of Check Mart of New Mexico, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(g)(i) Bylaws of Check Mart of Pennsylvania, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(h)(i) Bylaws of Check Mart of Texas, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(i)(i) Bylaws of Check Mart of Utah, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(j)(i) Bylaws of Check Mart of Washington, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(k)(i) Bylaws of Check Mart of Washington, D.C., Inc. (Incorporated by reference to Exhibit 3.2 to
the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(l)(i) Bylaws of Check Mart of Wisconsin, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
73
(a)(3) Exhibits
Exhibit No. Description of Document
(m)(i) Bylaws of DFG Warehousing Co., Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(n)(i) Bylaws of Dollar Financial Insurance Corp. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(o)(i) Bylaws of Dollar Insurance Administration Corp. (Incorporated by reference to Exhibit 3.2
to the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(p)(i) Bylaws of Financial Exchange Company of Michigan, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(q)(i) Code of Regulations of Financial Exchange Company of Ohio, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(r)(i) Bylaws of Financial Exchange Company of Pennsylvania, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(s)(i) Bylaws of Financial Exchange Company of Pittsburgh, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(t)(i) Bylaws of Financial Exchange Company of Virginia, Inc. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221) declared
effective March 11, 1997)
(u)(i) Bylaws of L.M.S. Development Corporation (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(v)(i) Bylaws of Monetary Management Corp. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(w)(i) Bylaws of Monetary Management Corporation of Pennsylvania, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(x)(i) Bylaws of Monetary Management of California, Inc. (Incorporated by reference to Exhibit 3.2
to the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(y)(i) Bylaws of Monetary Management of Maryland, Inc. (Incorporated by reference to Exhibit 3.2
to the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(y)(ii) Amended and Restated Bylaws of Monetary Management of Maryland, Inc. (Incorporated by
reference to Exhibit 3.2 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(z)(i) Bylaws of Monetary Management of New York, Inc. (Incorporated by reference to Exhibit 3.2
to the Registrant's Statement on Form S-4 (Registration #333-18221) declared effective
March 11, 1997)
(aa)(i) Bylaws of Pacific Ring Enterprises, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
(bb)(i) Bylaws of QTV Holdings, Inc. (Incorporated by reference to Exhibit 3.2 to the Registrant's
Statement on Form S-4 (Registration #333-18221) declared effective March 11, 1997)
4.1 Indenture, dated as of November 15, 1996, among the Company,
the Guarantors, and Fleet National Bank, as Trustee
(Incorporated by reference to Exhibit 4.1 to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
4.2 Form of Notes (included in Exhibit 4.1) (Incorporated by reference to Exhibit 4.2 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
4.3 A/B Exchange Registration Rights Agreement, dated as of
November 15, 1996, by and among the Company, the Guarantors,
and the Initial Purchasers (Incorporated by reference to
Exhibit 4.3 to the Registrant's Statement on Form S-4
(Registration #333-18221) declared effective March 11, 1997)
74
(a)(3) Exhibits
Exhibit No. Description of Document
10.1 (a) Asset Purchase Agreement, dated January 9, 1995, by and
among the Company, Happy's Check Cashing, and Adrian Rubin
(Incorporated by reference to Exhibit 10.1(a) to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
(b) Amendment No. 1 to the Asset Purchase Agreement, dated February 20, 1995, by and among the
Company, Happy's Check Cashing, Chase Money Loan, Inc., and Adrian Rubin (Incorporated
by reference to Exhibit 10.1(b) to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
10.2 Purchase Agreement, dated July 28, 1995, by and among Monetary Management Corporation, NCCI
Corporation, Larry M. Senderhauf, E. Rick Safford, and Fred T. Kampo, Jr. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
10.3 (a) Site License and Services Agreement, dated April 30,
1996, by and between the Company and The Southland
Corporation (Incorporated by reference to Exhibit 10.3(a) to
the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
(b) Asset Purchase Agreement, dated April 30, 1996, by and
between the Company and The Southland Corporation
(Incorporated by reference to Exhibit 10.3(b) to the
Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
10.4 Employment Agreement, dated as of November 13, 1998, between
the Company, DFG Holdings, Inc., and Jeffrey Weiss
(Incorporated by reference to Exhibit 10.4 to the
Registrant's Statement on Form 10Q (Registration #333-18221)
declared effective December 31, 1998)
10.5 Employment Agreement, dated as of December 18, 1998, between the Company, DFG Holdings,
Inc., and Donald F. Gayhardt (Incorporated by reference to Exhibit 10.5 to the
Registrant's Statement on Form 10Q (Registration #333-18221) declared effective December
31, 1998)
10.6* Employment Agreement, dated as of July 21, 1997 between the Company, DFG Holdings, Inc.,
and Richard S. Dorfman
10.7 Amended and Restated Shareholders Agreement, dated August 8,
1996, among WPG Corporate Development Associates IV, L.P.,
WPG Corporate Development Associates IV (Overseas), L.P.,
the individual fund shareholders signatory thereto, the GHB
Charitable Trust #1, Jeffrey Weiss, Donald F. Gayhardt,
Pegasus Partners L.P., PAG Dollar Investors, the warrant
holders signatory thereto, General Electric Capital
Corporation, and DFG Holdings, Inc. (Incorporated by
reference to Exhibit 10.7 to the Registrant's Statement on
Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.8 Purchase Agreement, dated as of August 8, 1996, by and among the Company, DFG Holdings,
Inc., Any Kind Check Cashing Centers, Inc., the shareholders signatory thereto, U.S.
Check Exchange Limited Partnership, the limited partners signatory thereto, and George
H. Brimhall (Incorporated by reference to Exhibit 10.8 to the Registrant's Statement on
Form S-4 (Registration #333-18221) declared effective March 11, 1997)
10.9 Asset Purchase Agreement, dated August 28, 1996, by and among Financial Exchange Company of
Ohio, Inc., ABC Check Cashing, Inc., and the shareholder signatory thereto (Incorporated
by reference to Exhibit 10.9 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
10.10 Asset Purchase Agreement, dated as of October 22, 1996, by and among the Company,
Cash-N-Dash Check Cashing, Inc., and the shareholders signatory thereto (Incorporated by
reference to Exhibit 10.10 to the Registrant's Statement on Form S-4 (Registration
#333-18221) declared effective March 11, 1997)
10.11 Stock Purchase Agreement, dated as of October 22, 1996, by and among the Company, Manor
Investment Co. Inc., and the shareholders signatory thereto (Incorporated by reference
to Exhibit 10.11 to the Registrant's Statement on Form S-4 (Registration #333-18221)
declared effective March 11, 1997)
75
(a)(3) Exhibits
Exhibit No. Description of Document
10.12 Amended and Restated Purchase Agreement, dated as of October 23, 1996, by and among Dollar
Financial Canada Ltd., DFG Holdings, Inc., National Money Mart, Inc., and the
shareholders signatory thereto (Incorporated by reference to Exhibit 10.12 to the
Registrant's Statement on Form S-4 (Registration #333-18221) declared effective March
11, 1997)
10.13 Credit Agreement, dated as of December 18, 1998, among the
Company, DFG Holdings, Inc. the lenders from time to time
party thereto, Wells Fargo Bank, National Association, as
administrative agent, First Union Capital Markets and Wells
Fargo as arrangers, First Union National Bank, as
syndication agent, and U.S. Bank National Association, as
documentation agent (Incorporated by reference to Exhibit
10.13 to the Registrant's Statement on Form 10Q
(Registration #333-18221) declared effective December 31,
1998)
10.14 Purchase Agreement, dated as of March 31, 1997, among Dollar Financial Group, Inc., Dollar
Financial Canada, LTD., Canadian Capital Corporation, Dollar Ontario LTD. And Gus E.
Baril, Leslie A. Baril and the Baril Family Trust. The schedules to the Purchase
Agreement and the exhibits thereto have been omitted. The Company will furnish
supplementally to the Commission any of the schedules or exhibits upon request
10.15 DFG Holdings, Inc. Stock Incentive Plan
10.16 Termination Agreement, dated June 30, 1997 re: Donald F. Gayhardt, Jr.
10.17 Pledge and Security Agreement, dated as of December 18, 1998, among the Company, Wells
Fargo Bank, National Association, as administrative agent
for itself and the Lenders under the Credit Agreement
(Incorporated by reference to Exhibit 10.17 to the
Registrant's Statement on Form 10Q (Registration #333-18221)
declared effective December 31, 1998)
10.18 Subordination Agreement, dated as of December 18, 1998, among the Company, DFG Holdings,
Inc., and Wells Fargo Bank, National Association, as administrative agent for itself and
the Lenders under the Credit Agreement (Incorporated by reference to Exhibit 10.18 to
the Registrant's Statement on Form 10Q (Registration #333-18221) declared effective
December 31, 1998)
10.19 Supplemental Security Agreement (Trademarks), dated as of
December 18, 1998, among the Company and Wells Fargo Bank,
National Association, as administrative agent for itself and
the Lenders under the Credit Agreement (Incorporated by
reference to Exhibit 10.19 to the Registrant's Statement on
Form 10Q (Registration #333-18221) declared effective
December 31, 1998)
10.20 Purchase Agreement, dated as of December 18, 1998, among the Company, GS Mezzanine
Partners, L.P., GS Mezzanine Partners Offshore, L.P., Stone Street Fund 1998, L.P.
Bridge Street Fund 1998, L.P., Ares Leveraged Investment Fund, L.P., and Ares Leveraged
Investment Fund II, L.P., relating the the $20,000,000 aggregate principal amount of 10
7/8% Senior Subordinated Notes Due 2006 (Incorporated by reference to Exhibit 10.20 to
the Registrant's Statement on Form 10Q (Registration #333-18221) declared effective
December 31, 1998)
10.21 Exchange and Registration Rights Agreement, dated as of December 18, 1998, among the
Company, GS Mezzanine Partners, L.P., GS Mezzanine Partners, L.P., GS Mezzanine Partners
Offshore, L.P., Stone Street Fund 1998, L.P., Bridge Street Fund 1998, L.P., Ares
Leveraged Investment Fund, L.P., and Ares Leveraged Investment Fund II, L.P., relating
to the $20,000,000 aggregate principal amount of 10 7/8% Senior Subordinated Notes Due
2006 (Incorporated by reference to Exhibit 10.21 to the Registrant's Statement on Form
10Q (Registration #333-18221) declared effective December 31, 1998)
10.22 Secured Note, dated December 18, 1998, made by Jeffrey Weiss in favor of the Company
(Incorporated by reference to Exhibit 10.22 to the Registrant's Statement on Form 10Q
(Registration #333-18221) declared effective December 31, 1998)
10.23 Pledge Agreement, dated December 18, 1998, between the Company and Jeffrey Weiss
(Incorporated by reference to Exhibit 10.23 to the Registrant's Statement on Form 10Q
(Registration #333-18221) declared effective December 31, 1998)
10.24 Agreement for the sale and purchase of shares of Instant Cash Loans, LTD. dated February
10, 1999 with Dollar Financial Group, Inc., DFG Acquisition, LTD., Henry Hallam, Rachel
Hallam and shareholders signatory thereto (Incorporated by reference to Exhibit 10.24 of
the Registrant's Form 8K/A filed April 26, 1999, declared effective February 25, 1999)
76
(a)(3) Exhibits
Exhibit No. Description of Document
10.25 Purchase Agreement dated February 17, 1999 by and among
National Money Mart Company (a subsidiary of Dollar
Financial Group, Inc.), King Mortgage LTD. and Denis Wilner
to purchase the remaining 86.5% partnership interest in
Calgary Money Mart Partnership (Incorporated by reference to
Exhibit 10.25 of the Registrant's Form 8K/A filed April 26,
1999, declared effective February 25, 1999)
10.26 Agreement for the sale and purchase of shares in Cash A
Cheque Holdings Great Britain Limited between Luke Johnson
and others, Dollar Financial UK Limited and Dollar Financial
Group, Inc. (Incorporated by referenced to Exhibit 10.26 of
the Registrant's Form 8K/A filed September 20, 1999,
declared effective July 22, 1999)
10.27 Agreement for the sale and purchase of shares in Cash
Centres Corporation Limited between Edward Ford and others,
Dollar Financial UK Limited and Dollar Financial Group, Inc.
(Incorporated by reference to Exhibit 10.27 of the
Registrant's Form 8K/A filed February 28, 2000, declared
effective December 30, 1999)
10.28 Amended and Restated Nonexclusive Servicing and Indemnification Agreement between County
Bank and Dollar Financial Group, Inc.**
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 to the
Registrant's Statement on Form 10Q (Registration #333-18221) declared effective December
31, 1998)
99.1 Certifications of Chief Executive Officer and 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.
77
* Management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K by Item 601 of Regulation S-K.
** Confidential treatment has been requested for certain confidential
portions of this exhibit; these confidential portions have been omitted
from this exhibit and filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant named below has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Berwyn, Commonwealth of Pennsylvania on September 30, 2002.
DOLLAR FINANCIAL GROUP, INC.
By: /s/ DONALD GAYHARDT
-----------------------------------------
Donald Gayhardt
President and Chief Financial Officer
DOLLAR FINANCIAL GROUP, INC.
Signature Title Date
/s/ JEFFREY A. WEISS Chairman of the Board of Directors September 30, 2002
- ------------------------------------- and Chief Executive Officer
Jeffrey A. Weiss (principal executive officer)
/s/ DONALD GAYHARDT President and Chief Financial Officer September 30, 2002
- -------------------------------------(principal financial and accounting officer)
Donald Gayhardt
79
DOLLAR FINANCIAL GROUP, INC. (a)
Schedule II - Valuation and Qualifying Accounts
Additions
----------------------------------------------
Balance Charged
at to costs Foreign Charged
beginning and currency to other Balance at
Description of period expenses translation accounts Deductions end of period
------------------------- ------------ -------------- ----------- ---------------- ------------ ---------------
Year ended June 30, 2002:
Loan loss provision $ 600 $2,244 $ 18 $ - $ - $ 2,862
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
80