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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2004
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 333-111473-02
DOLLAR FINANCIAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-2636866
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1436 LANCASTER AVENUE,
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)
610-296-3400
(Registrant's Telephone Number, Including Area Code)
DFG Holdings, Inc.
1436 Lancaster Avenue,
Berwyn, Pennsylvania 19312
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of March 31, 2004, 19,758 shares of the Registrants common stock, par value
$0.001 per share, were outstanding.
1
DOLLAR FINANCIAL CORP.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of June 30, 2003
and March 31, 2004 (unaudited).............................................................. 3
Interim Unaudited Consolidated Statements of Operations for the Three and Nine
Months Ended March 31, 2003 and 2004........................................................ 4
Interim Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2003 and 2004............................................................... 5
Notes to Interim Unaudited Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 22
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................................................... 33
Item 4. Controls and Procedures..................................................................... 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 34
Item 6. Exhibits and Reports on Form 8-K............................................................ 35
Signature ........................................................................................... 36
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DOLLAR FINANCIAL CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
June 30, March 31
----------------- ----------------
2003 2004
----------------- ----------------
Assets (unaudited)
Cash and cash equivalents............................................... $ 71,809 $ 79,901
Loans and other consumer lending receivables, net of reserve
of $2,437 and $2,611............................................... 17,465 19,129
Loans receivable pledged................................................ 8,000 8,000
Other receivables....................................................... 4,500 5,638
Income taxes receivable................................................. 2,939 7,085
Prepaid expenses........................................................ 6,358 8,457
Deferred income taxes, net of valuation allowance of $0 and $17,611..... 15,610 -
Notes and interest receivable--officers................................. 4,642 4,951
Property and equipment, net of accumulated
depreciation of $39,309 and $47,492................................. 29,209 27,898
Goodwill and other intangibles, net of accumulated
amortization of $22,017 and $22,615................................. 143,416 150,058
Debt issuance costs, net of accumulated
amortization of $9,201 and $575..................................... 6,737 10,881
Other................................................................... 1,833 2,011
-----------------------------------
$ 312,518 $ 324,009
===================================
Liabilities and shareholders' deficit
Accounts payable........................................................ $ 17,245 $ 12,686
Accrued expenses........................................................ 9,593 12,185
Foreign income taxes payable............................................ 1,380 6,805
Accrued interest payable................................................ 1,656 14,142
Other collateralized borrowings......................................... 8,000 8,000
Revolving credit facilities............................................. 61,699 -
Long term debt:
10.875% Senior Notes due 2006...................................... 109,190 -
13.0% Senior Discount Notes due 2006............................... 112,644 -
9.75% Senior Notes due 2011........................................ - 220,000
16.0% Senior Notes due 2012........................................ - 47,871
13.95% Senior Subordinated Notes due 2012.......................... - 47,871
Subordinated notes payable and other............................... 20,081 206
-----------------------------------
Total long term debt.................................................... 241,915 315,948
Shareholders' deficit:
Common stock, $.001 par value: 100,000 shares authorized;
19,865 shares issued at June 30, 2003 and March 31, 2004............ - -
Additional paid-in capital.......................................... 61,481 61,481
Accumulated deficit................................................. (92,883) (118,854)
Accumulated other comprehensive income.............................. 7,697 16,881
Treasury stock at cost; 107 shares at June 30, 2003 and
March 31, 2004................................................... (956) (956)
Management equity loan............................................. (4,309) (4,309)
-----------------------------------
Total shareholders' deficit............................................. (28,970) (45,757)
-----------------------------------
$ 312,518 $ 324,009
===================================
See notes to interim unaudited consolidated financial statements.
3
DOLLAR FINANCIAL CORP.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- -- -------------------------------
2003 2004 2003 2004
------------ ------------ ------------ --------------
Revenues:
Check cashing................................................ $ 27,897 $ 30,398 $ 80,871 $ 87,939
Consumer lending, net........................................ 22,483 25,795 61,329 70,673
Money transfer fees.......................................... 2,807 3,250 8,271 9,584
Other........................................................ 4,787 6,183 13,445 15,182
------------ ------------ ------------- -------------
Total revenues.................................................. 57,974 65,626 163,916 183,378
Store and regional expenses:
Salaries and benefits........................................ 17,519 19,397 51,947 56,881
Occupancy.................................................... 4,686 5,019 14,155 14,768
Depreciation................................................. 1,122 1,533 4,364 4,471
Returned checks, net and cash shortages...................... 1,762 2,052 6,256 6,938
Telephone and telecommunication.............................. 1,429 1,336 4,225 4,328
Advertising.................................................. 1,571 1,735 5,049 5,277
Bank charges................................................. 736 887 2,344 2,777
Armored carrier expenses..................................... 753 785 2,123 2,266
Other........................................................ 5,139 5,773 16,411 18,615
------------ ------------ ------------- -------------
Total store and regional expenses............................... 34,717 38,517 106,874 116,321
Corporate expenses.............................................. 8,708 8,360 23,697 22,727
Management fee.................................................. 180 249 702 786
Loss on store closings and sales and other restructuring........ 460 157 2,750 278
Other depreciation and amortization............................. 759 800 2,446 2,672
Interest expense (net of interest income of $109, $103, $326
and $397)..................................................... 8,628 10,151 25,429 29,585
Loss on extinguishment of debt.................................. - - - 8,855
Establishment of reserve for legal matter....................... - - 2,500 -
------------ ------------ ------------- -------------
Income (loss) before income taxes............................... 4,522 7,392 (482) 2,154
Income tax provision............................................ 1,304 5,789 5,772 28,125
------------ ------------ ------------- -------------
Net income (loss)............................................... $ 3,218 1,603 $ (6,254) $ (25,971)
============ ============ ============= =============
See notes to interim unaudited consolidated financial statements.
4
DOLLAR FINANCIAL CORP.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
March 31,
------------------------------------
2003 2004
--------------- --------------
Cash flows from operating activities:
Net loss........................................................................ $ (6,254) $ (25,971)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Interest expense from Senior Discount Notes............................... 10,593 5,827
Depreciation and amortization............................................. 8,415 8,657
Establishment of reserve for legal matter................................. 2,500 -
Loss on extinguishment of debt............................................ - 8,855
Loss on store closings and sales and other restructuring.................. 2,750 278
Foreign currency gain on revaluation of other
collateralized borrowings................................................ - (899)
Deferred tax benefit...................................................... (1,748) 15,610
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables................................ (6,348) (2,809)
Increase in income taxes receivable.................................... (2,372) (4,134)
(Increase) decrease in prepaid expenses and other...................... 1,286 (1,735)
Increase in accounts payable, income taxes payable,
accrued expenses and accrued interest payable........................ 537 13,461
--------------- --------------
Net cash provided by operating activities....................................... 9,359 17,140
Cash flows from investing activities:
Acquisitions, net of cash acquired............................................ (3,318) -
Gross proceeds from sale of fixed assets...................................... - 41
Additions to property and equipment........................................... (5,482) (5,080)
--------------- --------------
Net cash used in investing activities........................................... (8,800) (5,039)
Cash flows from financing activities:
Redemption of subordinated notes.............................................. - (20,734)
Redemption of Senior Discount notes........................................... - (22,962)
Other debt borrowings ........................................................ 1 109
Other collateralized borrowings............................................... 8,000 -
Issuance of 9.75% Senior Notes due 2011...................................... - 220,000
Redemption of 10.875% Senior Notes due 2006.................................. - (111,170)
Net decrease in revolving credit facilities................................... (19,406) (61,699)
Payment of debt issuance costs................................................ (810) (10,445)
--------------- --------------
Net cash used in financing activities........................................... (12,215) (6,901)
Effect of exchange rate changes on cash and cash equivalents.................... 879 2,892
--------------- --------------
Net (decrease) increase in cash and cash equivalents............................ (10,777) 8,092
Cash and cash equivalents at beginning of period................................ 86,637 71,809
--------------- --------------
Cash and cash equivalents at end of period...................................... $ 75,860 $ 79,901
=============== ==============
Supplemental disclosure of non-cash transactions: On November 13, 2003, Dollar
Financial Corp. exchanged $49.4 million, or 50% of the accreted value of its 13%
Senior Discount Notes for 16.0% Senior Notes due 2012 and $49.4 million, or 50%
of the accreted value of its 13% Senior Discount Notes for 13.95% Senior Notes
due 2012.
See notes to interim unaudited consolidated financial statements.
5
DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements are of
Dollar Financial Corp. (the "Company") and its wholly owned subsidiaries. The
Company is the parent company of Dollar Financial Group, Inc. ("OPCO") and its
wholly owned subsidiaries. The activities of the Company consist primarily of
its investment in OPCO. The Company's unaudited interim consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements and
should be read in conjunction with the Company's audited consolidated financial
statements included in the amended Registration Statement on Form S-4 (File No.
333-111473-02) filed with the Securities and Exchange Commission on January 14,
2004. In the opinion of management, all adjustments, (consisting of normal
recurring adjustments), considered necessary for a fair presentation have been
included. Operating results of interim periods are not necessarily indicative of
the results that may be expected for a full fiscal year.
On November 13, 2003, OPCO issued $220.0 million principal amount of 9.75%
Senior Notes due 2011 under Rule 144A and Regulation S of the Securities Act of
1933. OPCO's senior notes are guaranteed by the Company and every direct and
indirect wholly owned domestic subsidiary of OPCO. The proceeds from the
issuance of OPCO's senior notes were used, among other things, to redeem OPCO's
10.875% Senior Notes due 2006, which were not guaranteed by the Company. On
January 20, 2004, OPCO commenced an offer to exchange its senior notes for 9.75%
Senior Notes due 2011 registered under the Securities Act of 1933. On January
20, 2004, the Registration Statement on Form S-4 (File No. 333-111473-02) with
respect to OPCO's registered senior notes and the Company's guarantee of such
notes became effective. Prior to the effective date, the Company did not file
periodic reports under the Securities Exchange Act of 1934. Subsequent to the
effective date, the Company will file such reports, including this quarterly
report on Form 10-Q. OPCO has also filed a quarterly report on Form 10-Q (File
No. 333-18221) for the period ended March 31, 2004.
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.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Operations
The Company was organized in 1990 under the laws of the State of Delaware. The
activities of the Company consist primarily of its investment in OPCO. The
Company has no employees or operating activities as of March 31, 2004. OPCO,
through its subsidiaries, provides retail financial services to the general
public through a network of 1,106 locations (of which 630 are company-operated)
operating as Money Mart(R), The Money Shop, Loan Mart(R) and Insta-Cheques in 17
states, the District of Columbia, Canada and the United Kingdom. The services
provided at OPCO's retail locations include check cashing, short-term consumer
loans, sale of money orders, money transfer services and various other related
services. Also, OPCO's subsidiary, Money Mart Express(R) (formerly known as
moneymart.com(TM)), services and originates short-term consumer loans through
471 independent document transmitters in 15 states.
6
DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
2. SUBSIDIARY GUARANTOR UNAUDITED FINANCIAL INFORMATION
OPCO's payment obligations under its 9.75% Senior Notes due 2011 are jointly and
severally guaranteed (such guarantees, the "Guarantees") on a full and
unconditional basis by the Company and by OPCO's existing and future domestic
subsidiaries (the "Guarantors"). Guarantees of the notes by Guarantors directly
owning, now or in the future, capital stock of foreign subsidiaries will be
secured by second priority liens on 65% of the capital stock of such foreign
subsidiaries. In the event OPCO directly owns a foreign subsidiary in the
future, the notes will be secured by a second priority lien on 65% of the
capital stock of any such foreign subsidiary (such capital stock of foreign
subsidiaries referenced in this paragraph collectively, the "Collateral").
The Guarantees of the notes:
o rank equal in right of payment with all existing and future unsubordinated
indebtedness of the Guarantors;
o rank senior in right of payment to all existing and future subordinated
indebtedness of the Guarantors; and
o are effectively junior to any indebtedness of OPCO, including indebtedness
under OPCO's senior secured reducing revolving credit facility, that is
either (1) secured by a lien on the Collateral that is senior or prior to the
second priority liens securing the Guarantees of the notes or (2) secured by
assets that are not part of the Collateral to the extent of the value of the
assets securing such indebtedness.
Separate financial statements of each Guarantor that is a subsidiary of OPCO
have not been presented because they are not required by securities laws and
management has determined that they would not be material to investors. The
accompanying tables set forth the condensed consolidating balance sheets at
March 31, 2004 and June 30, 2003, and the condensed consolidating statements of
operations and cash flows for the nine month periods ended March 31, 2004 and
2003 of the Company, OPCO, the combined Guarantor subsidiaries, the combined
non-Guarantor subsidiaries and the consolidated Company.
7
CONSOLIDATING BALANCE SHEETS
March 31, 2004
(In thousands)
Dollar Financial
Group, Inc. Subsidiary
Dollar and Subsidiary Non-
Financial Corp. Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------------------
Assets
Cash and cash equivalents.......................... $ 4 $ 41,410 $ 38,487 $ - $ 79,901
Loans and other consumer lending receivables, net.. - 8,263 10,866 - 19,129
Loans receivable pledged........................... - - 8,000 - 8,000
Other receivables.................................. - 2,323 3,623 (308) 5,638
Income taxes receivable............................ 1,302 - 6,206 (423) 7,085
Prepaid expenses................................... - 2,761 5,696 - 8,457
Deferred income taxes.............................. 1,679 - - (1,679) -
Notes and interest receivable--officers............ 1,368 3,583 - - 4,951
Due from affiliates................................ - 60,901 - (60,901) -
Due from parent.................................... - 6,607 - (6,607) -
Property and equipment, net........................ - 11,521 16,377 - 27,898
Goodwill and other intangibles, net................ - 56,522 93,536 - 150,058
Debt issuance costs, net........................... 277 10,604 - - 10,881
Investment in subsidiaries......................... 57,935 245,309 6,705 (309,949) -
Other assets....................................... - 679 1,332 - 2,011
-------------------------------------------------------------------------------
$ 62,565 $ 450,483 $ 190,828 $ (379,867) $ 324,009
===============================================================================
Liabilities and shareholders' equity
Accounts payable................................... $ - $ 6,470 $ 6,216 $ - $ 12,686
Income taxes payable............................... - 423 - (423) -
Foreign income taxes payable....................... - - 6,805 - 6,805
Accrued expenses................................... 330 4,370 7,485 - 12,185
Accrued interest payable........................... 5,643 8,308 499 (308) 14,142
Deferred tax liability............................. - 1,679 - (1,679) -
Due to affiliates.................................. 6,607 - 60,901 (67,508) -
Other collateralized borrowings.................... - - 8,000 - 8,000
9.75% Senior Notes due 2011........................ - 220,000 - - 220,000
16.0% Senior Notes due 2012........................ 47,871 - - - 47,871
13.95% Senior Subordinated Notes due 2012.......... 47,871 - - - 47,871
Subordinated notes payable and other............... - 128 78 - 206
-------------------------------------------------------------------------------
108,322 241,378 89,984 (69,918) 369,766
Shareholders' equity:
Common stock.................................... - - - - -
Additional paid-in capital...................... 50,384 136,481 27,304 (152,688) 61,481
(Accumulated deficit) retained earnings......... (107,757) 86,764 62,519 (160,380) (118,854)
Dividend paid to parent......................... - (20,000) - 20,000 -
Accumulated other comprehensive income.......... 16,881 5,860 11,021 (16,881) 16,881
Treasury stock.................................. (956) - - - (956)
Management equity loan.......................... (4,309) - - - (4,309)
-------------------------------------------------------------------------------
Total shareholders' (deficit) equity............... (45,757) 209,105 100,844 (309,949) (45,757)
-------------------------------------------------------------------------------
$ 62,565 $ 450,483 $ 190,828 $ (379,867) $ 324,009
===============================================================================
8
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 2004
(In thousands)
Dollar Financial
Group, Inc. Subsidiary
Dollar and Subsidiary Non-
Financial Corp. Guarantors Guarantors Eliminations Consolidated
-------------------------------------------------------------------------------------
Revenues.....................................$ - $ 83,657 $ 99,721 $ - $ 183,378
Store and regional expenses:
Salaries and benefits..................... - 31,320 25,561 - 56,881
Occupancy................................. - 8,280 6,488 - 14,768
Depreciation.............................. - 2,382 2,089 - 4,471
Other..................................... - 21,153 19,048 - 40,201
-------------------------------------------------------------------------------------
Total store and regional expenses............ - 63,135 53,186 - 116,321
Corporate expenses........................... - 11,143 11,584 - 22,727
Management fee............................... 786 (1,739) 1,739 - 786
Loss on store closings and sales............. - 241 37 - 278
Other depreciation and amortization.......... - 1,625 1,047 - 2,672
Interest expense, net........................ 11,413 13,305 4,867 - 29,585
Loss on extinguishment of debt............... 1,646 7,209 - - 8,855
Equity in subsidiary......................... (1,063) - - 1,063 -
-------------------------------------------------------------------------------------
(Loss) income before income taxes ........... (12,782) (11,262) 27,261 (1,063) 2,154
Income tax provision......................... 13,189 4,675 10,261 - 28,125
-------------------------------------------------------------------------------------
Net (loss) income ..........................$ (25,971) $ (15,937) $ 17,000 $ (1,063) $ (25,971)
=====================================================================================
9
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2004
(In thousands)
Dollar Financial
Group, Inc. Subsidiary
Dollar and Subsidiary Non-
Financial Corp. Guarantors Guarantors Eliminations Consolidated
---------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income....................................... $ (25,971) $ (15,937) $ 17,000 $ (1,063) $ (25,971)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Undistributed income of subsidiaries............... (1,063) - - 1,063 -
Accretion of interest expense from 13.0% Senior
Discount Notes................................... 5,827 - - - 5,827
Depreciation and amortization...................... 134 5,155 3,368 - 8,657
Loss on extinguishment of debt..................... 1,646 7,209 - - 8,855
Loss on store closings and sales and other
restructuring.............................. - 241 37 - 278
Foreign currency gain on revaluation of other
collateralized borrowings.................. - - (899) - (899)
Deferred tax provision............................. 14,769 841 - - 15,610
Changes in assets and liabilities:
(Increase) decrease in loans and other
receivables.................................. (194) 545 (3,144) (16) (2,809)
Decrease (increase) in income taxes receivable.. 268 (11,677) (5,924) 13,199 (4,134)
Decrease (increase)in prepaid expenses and other 2 (868) (869) - (1,735)
Increase in accounts payable, income taxes
payable, accrued expenses and accrued
interest payable ............................. 5,799 17,050 3,795 (13,183) 13,461
---------------------------------------------------------------------------
Net cash (used in) provided by operating activities..... 1,217 2,559 13,364 - 17,140
Cash flows from investing activities:
Gross proceeds from sale of fixed assets................ - - 41 - 41
Additions to property and equipment..................... - (1,326) (3,754) - (5,080)
Net increase in due from affiliates..................... - (22,383) - 22,383 -
---------------------------------------------------------------------------
Net cash used in investing activities................... - (23,709) (3,713) 22,383 (5,039)
Cash flows from financing activities:
Redemption of 10.875% Senior Subordinated Notes due 2006 - (20,734) - - (20,734)
Redemption of Senior Discount Notes due 2006............ (22,962) - - - (22,962)
Other debt borrowings (payments)........................ - 128 (19) - 109
Issuance of 9.75% Senior Notes due 2011................. - 220,000 - - 220,000
Redemption of 10.875% Senior Notes due 2006............. - (111,170) - - (111,170)
Net decrease in revolving credit facilities............. - (60,764) (935) - (61,699)
Payment of debt issuance costs.......................... (289) (10,156) - - (10,445)
Net increase (decrease) in due to affiliates and due
from parent.......................................... 2,034 31,062 (10,713) (22,383) -
Dividend paid to parent................................. 20,000 (20,000) - - -
---------------------------------------------------------------------------
Net cash (used in) provided by financing activities..... (1,217) 28,366 (11,667) (22,383) (6,901)
Effect of exchange rate changes on cash and cash
equivalents............................................. - - 2,892 - 2,892
---------------------------------------------------------------------------
Net increase in cash and cash equivalents............... - 7,216 876 - 8,092
Cash and cash equivalents at beginning of period........ 4 34,194 37,611 - 71,809
---------------------------------------------------------------------------
Cash and cash equivalents at end of period.............. $ 4 $ 41,410 $ 38,487 $ - $ 79,901
===========================================================================
10
CONSOLIDATING BALANCE SHEETS
June 30, 2003
(In thousands)
Dollar Financial
Group Inc. and
Dollar Subsidiary
Financial Corp. Guarantors Eliminations Consolidated
----------------------------------------------------------------------------
Assets
Cash and cash equivalents........................... $ 4 $ 71,805 $ - $ 71,809
Loans and other consumer lending receivables, net... - 17,465 - 17,465
Loans receivable pledged............................ - 8,000 - 8,000
Other receivables................................... - 4,500 - 4,500
Income taxes receivable............................. 1,570 1,369 - 2,939
Prepaid expenses.................................... - 6,358 - 6,358
Deferred income taxes............................... 16,448 - (838) 15,610
Notes and interest receivable--officers............. 1,174 3,468 - 4,642
Due from parent..................................... - 4,573 (4,573) -
Property and equipment, net......................... - 29,209 - 29,209
Goodwill and other intangibles, net................. - 143,416 - 143,416
Debt issuance costs, net............................ 1,537 5,200 - 6,737
Investment in subsidiaries.......................... 67,688 - (67,688) -
Other............................................... - 1,833 - 1,833
-----------------------------------------------------------------------------
$ 88,421 $ 297,196 $ (73,099) $ 312,518
=============================================================================
Liabilities and shareholders' (deficit) equity
Accounts payable.................................... $ - $ 17,245 $ - $ 17,245
Foreign income taxes payable........................ - 1,380 - 1,380
Accrued expenses.................................... 174 9,419 - 9,593
Accrued interest payable............................ - 1,656 - 1,656
Deferred tax liability.............................. - 838 (838) -
Due to affiliates................................... 4,573 - (4,573) -
Other collateralized borrowing...................... - 8,000 - 8,000
Revolving credit facilities......................... - 61,699 - 61,699
10 7/8% Senior Notes due 2006....................... - 109,190 - 109,190
Subordinated notes payable and other................ - 20,081 - 20,081
13% Senior Discount Notes due 2006.................. 112,644 - - 112,644
-----------------------------------------------------------------------------
117,391 229,508 (5,411) 341,488
Shareholders' (deficit) equity:
Common stock..................................... - - - -
Additional paid-in capital....................... 50,384 50,957 (39,860) 61,481
(Accumulated deficit) retained earnings ......... (81,786) 9,034 (20,131) (92,883)
Accumulated other comprehensive income........... 7,697 7,697 (7,697) 7,697
Treasury stock................................... (956) - - (956)
Management equity loan........................... (4,309) - - (4,309)
-----------------------------------------------------------------------------
Total shareholders' (deficit) equity................ (28,970) 67,688 (67,688) (28,970)
-----------------------------------------------------------------------------
$ 88,421 $ 297,196 $ (73,099) $ 312,518
=============================================================================
11
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 2003
(In thousands)
Dollar Financial
Group, Inc.
Dollar and Subsidiary
Financial Corp. Guarantors Eliminations Consolidated
----------------------------------------------------------------------
Revenues...................................... $ - $ 163,916 $ - $ 163,916
Store and regional expenses:..................
Salaries and benefits...................... - 51,947 - 51,947
Occupancy.................................. - 14,155 - 14,155
Depreciation............................... - 4,364 - 4,364
Other...................................... - 36,408 - 36,408
----------------------------------------------------------------------
Total store and regional expenses............. - 106,874 - 106,874
Corporate expenses............................ - 23,697 - 23,697
Management fee................................ 702 - - 702
Loss on store closings and sales
and other restructuring.................... - 2,750 - 2,750
Other depreciation and amortization........... - 2,446 - 2,446
Interest expense, net......................... 10,650 14,779 - 25,429
Establishment of reserve for legal matter..... - 2,500 - 2,500
Equity in subsidiary......................... 1,554 - (1,554) -
----------------------------------------------------------------------
(Loss) income before income taxes ............ (12,906) 10,870 1,554 (482)
Income tax (benefit) provision ............... (3,544) 9,316 - 5,772
----------------------------------------------------------------------
Net (loss) income ........................... $ (9,362) $ 1,554 $ 1,554 $ (6,254)
======================================================================
12
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2003
(In thousands)
Dollar Financial
Group, Inc.
Dollar and Subsidiary
Financial Corp. Guarantors Eliminations Consolidated
----------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income.........................................$ (6,254) $ 1,554 $ (1,554) $ (6,254)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Undistributed income of subsidiaries................. (1,554) - 1,554 -
Accretion of interest expense from 13.0% Senior
Discount Notes..................................... 10,593 - - 10,593
Depreciation and amortization........................ 250 8,165 - 8,415
Establishment of reserves for legal matter........... - 2,500 - 2,500
Loss on store closings and sales and other
restructuring.................................... - 2,750 - 2,750
Deferred tax provision............................... (3,203) 1,455 - (1,748)
Changes in assets and liabilities:
Increase in loans and other receivables.......... (194) (6,154) - (6,348)
Increase in income taxes receivable.............. (341) (2,031) - (2,372)
Decrease in prepaid expenses and other........... - 1,286 - 1,286
(Decrease) increase in accounts payable, income
taxes payable, accrued expenses and accrued
interest payable .............................. (13) 550 - 537
----------------------------------------------------------------
Net cash (used in) provided by operating activities....... (716) 10,075 - 9,359
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ - (3,318) - (3,318)
Additional to property and equipment...................... - (5,482) - (5,482)
----------------------------------------------------------------
Net cash used in investing activities..................... - (8,800) - (8,800)
Cash flows from financing activities:
Other debt borrowings .................................... - 8,001 - 8,001
Net decrease in revolving credit facilities............... - (19,406) - (19,406)
Payment of debt issuance costs............................ - (810) - (810)
Net increase in due to affiliates and due from parent..... 716 (716) - -
----------------------------------------------------------------
Net cash provided by (used in) financing activities....... 716 (12,931) - (12,215)
Effect of exchange rate changes on cash and cash
equivalents - 879 - 879
----------------------------------------------------------------
Net decrease in cash and cash equivalents................. - (10,777) - (10,777)
Cash and cash equivalents at beginning of period.......... 4 86,633 - 86,637
----------------------------------------------------------------
Cash and cash equivalents at end of period................$ 4 $ 75,856 $ - $ 75,860
================================================================
13
3. GOODWILL AND OTHER INTANGIBLES
In accordance with the adoption provisions of SFAS No. 142, the Company is
required to perform goodwill impairment tests on at least an annual basis. The
Company performs its annual impairment test as of June 30. There can be no
assurance that future goodwill impairment tests will not result in a charge to
earnings. The Company has a covenant not to compete, which is deemed to have a
definite life of two years and will continue to be amortized through January
2005. Amortization for this covenant not to compete for the nine months ended
March 31, 2004 was $86,000. The amortization expense for the covenant not to
compete will be as follows:
Year Amount
(in thousands)
--------------------------------------------
2004 $ 95.0
2005 20.0
The following table reflects the components of intangible assets (in thousands):
June 30, 2003 March 31, 2004
------------------------------------------ ----------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------------------------------------------ ----------------------------------------
Non-amortized intangible assets:
Cost in excess of net assets acquired $ 162,987 $ 19,686 $ 170,207 $ 20,176
Amortized intangible assets:
Covenants not to compete 2,446 2,331 2,466 2,439
4. COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income is the change in equity from transactions and other
events and circumstances from non-owner sources, which includes foreign currency
translation. The following shows the comprehensive (loss) income for the periods
stated:
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------- ----------------------------------
2003 2004 2003 2004
-------------- ---------------- ------------- -------------
Net income (loss) $ 3,218 $ 1,603 $ (6,254) $ (25,971)
Foreign currency translation adjustment 3,257 1,017 3,915 9,184
-------------- ---------------- ------------- -------------
Total comprehensive income (loss) $ 6,475 $ 2,620 $ (2,339) $ (16,787)
============== ================ ============= =============
14
5. Loss on Store Closings and Sales and Other Restructuring
During the fiscal year ended June 30, 2003, OPCO closed 27 stores and
consolidated and relocated certain non-operating functions to reduce costs and
increase efficiencies. Costs incurred with that restructuring were comprised of
severance and other retention benefits to employees who were involuntarily
terminated and closure costs related to the locations OPCO will no longer
utilize. The restructuring was completed by June 30, 2003. All of the locations
that were closed and for which the workforce was reduced are included in the
United States geographic segment. The Company, as required, adopted Financial
Accounting Standards Board Statement No. 146, Accounting for Costs Associated
with Disposal or Exit Activities, on January 1, 2003. During the first quarter
of fiscal 2004, charges previously accrued for severance and other retention
benefits were reclassed to store closure costs.
Following is a reconciliation of the beginning and ending balances of the
restructuring liability (in millions):
Severance and
Other Store Closure
Retention Benefits Costs Total
------------------ ------------- -----
Balance at June 30, 2003 $ 1.2 $ 0.2 $ 1.4
Reclassification (0.7) 0.7 -
Amounts paid (0.5) (0.5) (1.0)
-------------- ------------ -----------
Balance at March 31, 2004 $ - $ 0.4 $ 0.4
============== ============ ===========
OPCO also expenses costs related to the closure of stores in the normal course
of its business. Costs directly expensed for the three months ended March 31,
2004 and 2003 were $157,000 and $60,000, respectively and for the nine months
ended March 31, 2004 and 2003 were $278,000 and $675,000, respectively.
6. LOSS ON EXTINGUISHMENT OF DEBT
On November 13, 2003, OPCO issued $220 million principal amount of 9.75% Senior
Notes due 2011. The proceeds from this offering were used to redeem all of
OPCO's outstanding senior notes and OPCO's outstanding senior subordinated
notes, to refinance OPCO's credit facility, to distribute a portion of the
proceeds to the Company to redeem an equal amount of the Company's senior
discount notes and to pay fees and expenses with respect to these transactions
and a related note exchange transaction involving the Company's senior discount
notes.
The loss incurred on the extinguishment of debt is as follows ($ in millions):
Call Premium:
OPCO 10.875% Senior notes $ 1.98
OPCO 10.875% Senior Subordinated notes 0.73
Write-off of previously capitalized
deferred issuance costs, net 6.14
-----------
Loss on extinguishment of debt $ 8.85
===========
15
7. GEOGRAPHIC SEGMENT INFORMATION
All operations for which geographic data is presented below are in one
principal industry (check cashing and ancillary services) (in thousands):
As of and for the three months United
ended March 31, 2003 United States Canada Kingdom Total
----------------- ------------- -------------- ---------------
Identifiable assets $ 152,127 $ 79,907 $ 72,083 $ 304,117
Goodwill and other intangibles, net 56,414 35,517 46,134 138,065
Sales to unaffiliated customers
Check cashing 14,159 7,686 6,052 27,897
Consumer lending, net 14,591 4,838 3,054 22,483
Money transfer fees 1,107 1,216 484 2,807
Other 1,843 2,288 656 4,787
(Loss) income before income taxes (3,001) 5,243 2,280 4,522
Income tax (benefit) provision (2,567) 3,194 677 1,304
Net (loss) income (434) 2,049 1,603 3,218
For the nine months
ended March 31, 2003
Sales to unaffiliated customers
Check cashing $ 37,633 $ 24,157 $ 19,081 $ 80,871
Consumer lending, net 38,932 13,706 8,691 61,329
Money transfer fees 3,439 3,584 1,248 8,271
Other 4,469 7,040 1,936 13,445
(Loss) income before income taxes (26,822) 20,220 6,120 (482)
Income tax (benefit) provision (3,450) 7,384 1,838 5,772
Net (loss) income (23,372) 12,836 4,282 (6,254)
As of and for the three months
ended March 31, 2004
Identifiable assets $ 139,886 $ 93,426 $ 90,697 $ 324,009
Goodwill and other intangibles, net 56,522 39,711 53,825 150,058
Sales to unaffiliated customers
Check cashing 13,824 8,913 7,661 30,398
Consumer lending, net 14,855 7,502 3,438 25,795
Money transfer fees 1,147 1,418 685 3,250
Other 1,070 3,912 1,201 6,183
(Loss) income before income taxes (2,372) 7,117 2,647 7,392
Income tax provision 3,390 1,811 588 5,789
Net (loss) income (5,762) 5,306 2,059 1,603
For the nine months
ended March 31, 2004
Sales to unaffiliated customers
Check cashing $ 36,632 $ 28,726 $ 22,581 $ 87,939
Consumer lending, net 40,811 20,291 9,571 70,673
Money transfer fees 3,362 4,288 1,934 9,584
Other 2,852 8,995 3,335 15,182
(Loss) income before income taxes (25,106) 18,992 8,268 2,154
Income tax provision 17,863 7,223 3,039 28,125
Net (loss) income (42,969) 11,769 5,229 (25,971)
16
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Operations in the United Kingdom and Canada have exposed the Company to shifts
in currency valuations. From time to time, the Company may elect to purchase put
options in order to protect earnings in the United Kingdom and Canada against
foreign currency fluctuations. Out of the money put options may be purchased
because they cost less than completely averting risk, and the maximum downside
is limited to the difference between the strike price and exchange rate at the
date of purchase and the price of the contracts. At March 31, 2004, the Company
held put options with an aggregate notional value of $(CAN) 36.0 million and
(GBP) 9.0 million to protect the currency exposure in Canada and the United
Kingdom throughout the remainder of the fiscal year and the first half of fiscal
2005. The cost of these put options is included in prepaid expenses on the
consolidated balance sheet. The cost of the options are amortized over the
period in which the options are exercisable. Changes in the fair value of the
put options are recorded through the statement of operations in corporate
expenses and were not significant. All put options for the three and nine months
ended March 31, 2004 expired out of the money at a cost of $69,000 and $190,000,
respectively, which is included in corporate expenses in the consolidated
statement of earnings. There were no put options held for the same period in
fiscal 2003.
Although OPCO's revolving credit facility and overdraft credit facilities carry
variable rates of interest, most of the Company's and OPCO'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.
9. CONTINGENT LIABILITIES
On October 21, 2003, a former customer, Kenneth D. Mortillaro, commenced an
action against the Company's Canadian subsidiary on behalf of a purported class
of Canadian borrowers (except those residing in British Columbia and Quebec)
who, Mortillaro claims, were subjected to usurious charges in payday-loan
transactions. The action, which is pending in the Ontario Superior Court of
Justice, alleges violations of a Canadian federal law proscribing usury and
seeks restitution and damages in an unspecified amount, including punitive
damages. On November 6, 2003, the Company learned of substantially similar
claims asserted on behalf of a purported class of Alberta borrowers by Gareth
Young, a former customer of the Company's Canadian subsidiary. The Young action
is pending in the Court of Queens Bench of Alberta and seeks an unspecified
amount of damages and other relief. On December 23, 2003, the Company was served
with the statement of claim in an action brought in the Ontario Superior Court
of Justice by another former customer, Margaret Smith. The allegations and
putative class in the Smith action are substantially the same as those in the
Mortillaro action. Like the plaintiff in the MacKinnon action referred to below,
Mortillaro, Smith and Young have agreed to arbitrate all disputes with us. On
January 29, 2003, a former customer, Kurt MacKinnon, commenced an action against
the Company's Canadian subsidiary and 26 other Canadian lenders on behalf of a
purported class of British Columbia residents who, MacKinnon claims, were
overcharged in payday-loan transactions. The action, which is pending in the
Supreme Court of British Columbia, alleges violations of laws proscribing usury
and unconscionable trade practices and seeks restitution and damages, including
punitive damages, in an unknown amount. On February 3, 2004, the Company's
motion to stay the action and to compel arbitration of MacKinnon's claims, as
required by his agreement with us, was denied; the Company is appealing this
ruling. The Company believes it has meritorious defenses to each of these
actions and intend to defend them vigorously. Similar class actions have been
threatened against the Company in other provinces of Canada, but the Company has
not been served with the statements of claim in any such actions to date. The
Company believes that any possible claims in these actions, if they are served,
will likely be substantially similar to those of the Ontario actions referred to
above.
The Company is a defendant in four putative class-action lawsuits, all of which
were commenced by the same plaintiffs' law firm, alleging violations of
California's wage-and-hour laws. The named plaintiffs in these suits, which are
pending in the Superior Court of the State of California, are the Company's
former employees Vernell Woods (commenced August 22, 2000), Juan Castillo
(commenced May 1, 2003), Stanley Chin (commenced May 7, 2003) and Kenneth
Williams (commenced June 3, 2003). Each of these suits seeks an unspecified
amount of damages and other relief in connection with allegations that the
Company misclassified California store (Woods) and regional (Castillo) managers
as "exempt" from a state law requiring the payment of overtime compensation,
that the Company failed to provide employees with meal and rest breaks required
under a new state law (Chin) and that the Company computed bonuses payable to
the Company's store managers using an impermissible profit-sharing formula
(Williams). In January 2003, without admitting liability, the Company sought to
settle the Woods case, which the Company believes to be the most significant of
these suits, by offering each individual putative class member an amount
intended in good faith to settle his or her claim. These settlement offers have
been accepted by 92% of the members of the putative class. The Company recorded
a charge of $2.8 million related to this matter during fiscal 2003. Woods'
counsel is presently disputing through arbitration the validity of the
settlements accepted by the individual putative class members. The Company
believes it has meritorious defenses to the challenge and to the claims of the
non-settling putative Woods class members and plan to defend them vigorously.
The Company believes it has adequately provided for the costs associated with
this matter. The Company is vigorously defending the Castillo, Chin and Williams
lawsuits and believes it has meritorious defenses to the claims asserted in
those matters.
17
In addition to the litigation discussed above, the Company is involved in
routine litigation and administrative proceedings arising in the ordinary course
of business.
The Company does not believe that the outcome of any of the matters referred to
in the preceding paragraphs will materially affect its financial condition,
results of operations or cash flows in future periods.
10. DEBT
On November 13, 2003, OPCO issued $220.0 million principal amount of 9.75%
Senior Notes due 2011 under Rule 144A and Regulation S of the Securities Act of
1933 and entered into a new $55.0 million Senior Secured Reducing Revolving
Credit Facility ("New Credit Facility"). The proceeds from these transactions
were used to repay, in full, all borrowings outstanding under OPCO's existing
credit facility, redeem the entire $109.2 million principal amount of OPCO's
10.875% Senior Notes due 2006, redeem the entire $20.0 million principal amount
of OPCO's 10.875% Senior Subordinated Notes due 2006, distribute to the Company
$20.0 million to redeem an equal amount of the Company's 13.0% Senior Discount
Notes due 2006 ("Existing Notes"), and pay all related fees, expenses and
redemption premiums with respect to these transactions. In addition, $49.4
million, or 50% of the accreted value, of the Existing Notes were exchanged for
16% Senior Notes due 2012 ("Replacement Senior Notes") and $49.4 million, or 50%
of the accreted value, of the Existing Notes were exchanged for 13.95% Senior
Subordinated Notes due 2012 ("Replacement Senior Subordinated Notes").
The New Credit Facility consists of a $55.0 million senior secured reducing
revolving credit facility. The commitment under the New Credit Facility was
reduced by $750,000 on January 2, 2004 and on the first business day of each
calendar quarter thereafter, and is subject to additional reductions based on
excess cash flow up to a maximum reduction, including quarterly reductions, of
$15.0 million. The commitment may be subject to further reductions in the event
the Company engages in certain issuances of securities or asset disposals. Under
the New Credit Facility, up to $20.0 million may be used in connection with
letters of credit. Amounts outstanding under the New Credit Facility bear
interest at either (i) the higher of (a) the federal funds rate plus 0.50% per
annum or (b) the rate publicly announced by Wells Fargo, San Francisco, as its
"prime rate," plus 3.25% at March 31, 2004, (ii) the LIBOR Rate (as defined
therein) plus 4.50% at March 31, 2004, or (iii) the one day Eurodollar Rate (as
defined therein) plus 4.50% at March 31, 2004, determined at the Company's
option.
Interest on the Replacement Senior Notes and Replacement Senior Subordinated
Notes will be payable semi-annually in arrears. On any semi-annual interest
payment date on or prior to November 15, 2008, the Company has the option to pay
all or any portion of the interest payable on the relevant interest payment date
by increasing the principal amount of the Replacement Senior Notes or
Replacement Senior Subordinated Notes, as applicable, in a principal amount
equal to the interest that the Company chooses not to pay in cash. On any
semi-annual payment date on or after May 15, 2009, all interest due on the
Replacement Senior Notes and the Replacement Senior Subordinated Notes is
payable in cash semi-annually, in arrears.
The Replacement Senior Notes and the Replacement Senior Subordinated Notes are
redeemable, in whole or in part, at the Company's option, at any time.
The Replacement Senior Notes will be redeemable at the following redemption
prices if redeemed during the indicated calendar year (or on any earlier date,
in the case of 2004), expressed as percentages of the principal amount, plus
accrued interest, if any, to the date of redemption:
Year Percentage
---- ----------
2004 .............................112.5%
2005..............................110.0%
2006..............................107.5%
2007..............................105.0%
2008..............................102.5%
2009 and thereafter.............. 100.0%
18
The Replacement Senior Subordinated Notes will be redeemable at the following
redemption prices if redeemed during the indicated calendar year (or on any
earlier date, in the case of 2005), expressed as percentages of the principal
amount, plus accrued interest, if any, to the date of redemption:
Year Percentage
---- ----------
2005 or prior...................... 100.0%
2006............................... 112.5%
2007............................... 110.0%
2008............................... 107.5%
2009............................... 105.0%
2010............................... 102.5%
2011 and thereafter................ 100.0%
19
SUPPLEMENTAL STATISTICAL DATA
March 31,
Company Operating Data: 2003 2004
------------- -------------
Stores in operation:
Company-Owned................................. 621 630
Franchised Stores and Check Cashing Merchants. 466 476
--- ---
Total............................................ 1,087 1,106
===== =====
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
Operating Data: 2003 2004 2003 2004
------------ ----------- ----------- -------------
Face amount of checks cashed (in millions)..................... $ 731 $ 801 $ 2,190 $ 2,375
Face amount of average check................................... $ 354 $ 388 $ 339 $ 376
Face amount of average check (excluding Canada and the United
Kingdom).................................................... $ 398 $ 414 $ 360 $ 375
Average fee per check.......................................... $ 13.52 $ 14.73 $ 12.53 $ 13.91
Number of checks cashed (in thousands)......................... 2,063 2,064 6,453 6,323
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
Collections Data: 2003 2004 2003 2004
------------ ----------- ----------- -------------
Face amount of returned checks (in thousands).................. $ 5,756 $ 7,208 $ 19,033 $ 22,159
Collections (in thousands)..................................... 4,420 5,562 14,234 16,383
------------ ----------- ----------- -------------
Net write-offs (in thousands).................................. $ 1,336 $ 1,646 $ 4,799 $ 5,776
============ =========== =========== =============
Collections as a percentage of
returned checks............................................. 76.8% 77.2% 74.8% 73.9%
Net write-offs as a percentage of
check cashing revenues...................................... 4.8% 5.4% 5.9% 6.6%
Net write-offs as a percentage of the
face amount of checks cashed................................ 0.18% 0.21% 0.22% 0.24%
20
The following table presents a summary of the Company's consumer lending
originations, which includes loan extensions and revenues for the following
periods (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- -------------------------------
2003 2004 2003 2004
--------------------------------- -------------------------------
U.S. company funded originations.................... $ 14,714 $ 17,443 $ 68,051 $ 47,638
Canadian company funded originations................ 60,053 75,791 177,519 231,729
U.K. company funded originations.................... 25,606 28,675 73,451 80,279
--------------------------------- -------------------------------
Total company funded originations................ $ 100,373 $ 121,909 $ 319,021 $ 359,646
================================= ===============================
Servicing revenues, net............................. $ 11,507 $ 12,094 $ 32,019 $ 35,413
Company funded domestic loan revenues............... 2,616 2,666 11,884 7,137
Company funded foreign loan revenues................ 8,951 12,161 25,984 34,423
Net write-offs on company funded loans.............. (591) (1,126) (8,558) (6,300)
--------------------------------- -------------------------------
Total consumer lending revenues, net............. $ 22,483 $ 25,795 $ 61,329 $ 70,673
================================= ===============================
Net write-offs as a percentage of total
company funded originations....................... 0.6% 0.9% 2.7% 1.8%
21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is a discussion and analysis of the financial condition and
results of operations for Dollar Financial Corp. for the three month and nine
month periods ended March 31, 2003 and 2004. References in this section to "we,"
"our," "ours," or "us" are to Dollar Financial Corp. and its wholly owned
subsidiaries, except as the context otherwise requires. References to"OPCO" are
to our wholly owned operating subsidiary, Dollar Financial Group, Inc. For a
separate discussion and analysis of the financial condition and results of
operations of OPCO, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations included in OPCO's quarterly report on Form
10-Q (File No. 333-18221) for the period ended March 31, 2004.
General
Dollar Financial Corp. is the parent company of Dollar Financial Group, Inc. and
its wholly owned subsidiaries. We are a leading international financial services
company serving under-banked consumers. Our customers are typically lower- and
middle-income working-class individuals who require basic financial services
but, for reasons of convenience and accessibility, purchase some or all of their
financial services from us rather than banks and other financial institutions.
To serve this market, we have a network of 1,106 stores, including 630
company-operated stores, in 17 states, the District of Columbia, Canada and the
United Kingdom. Our store network represents the second-largest network of its
kind in the United States and the largest network of its kind in each of Canada
and the United Kingdom. We provide a diverse range of consumer financial
products and services primarily consisting of check cashing, short-term consumer
loans, money orders and money transfers. For the three months ended March 31,
2004, we generated revenue of $65.6 million, an increase of 13.2% over the same
period in the prior year. For the nine months ended March 31, 2004, we generated
revenue of $183.4 million, an increase of 11.9% over the same period in the
prior year.
In our opinion, we have included all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of our financial position
at March 31, 2004 and the results of operations for the three and nine months
ended March 31, 2004 and 2003. The results for the three and nine months ended
March 31, 2004 are not necessarily indicative of the results for the full fiscal
year and should be read in conjunction with the unaudited financial statements
included in this filing and our audited consolidated financial statements
included in the amended Registration Statement on Form S-4 (File No.
333-111473-02) filed with the Securities and Exchange Commission on January 14,
2004 and declared effective January 20, 2004.
Discussion of Critical Accounting Policies
In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States. We evaluate these
estimates on an ongoing basis, including those related to revenue recognition,
loss reserves and intangible assets. We base these estimates on the information
currently available to us and on various other assumptions that we believe are
reasonable under the circumstances. Actual results could vary from these
estimates under different assumptions or conditions.
We believe that the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our financial
statements:
Revenue Recognition
Generally, revenue is recognized when services for the customer have been
provided which, in the case of check cashing, money order sales, money transfer
services, bill payment services and other miscellaneous services, is at the
point-of-sale in our company-owned locations.
The Company originates unsecured short-term loans on its own behalf or acts as a
servicer for two banks marketing unsecured short-term loans for which the
Company earns a fee. Revenues from loan fees and interest are recognized ratably
over the life of each loan.
In our franchised locations, we recognize initial franchise fees upon
fulfillment of all significant obligations to the franchisee. In addition,
royalties from the franchisees are accrued as earned.
22
Consumer Loan Loss Reserves Policy
We maintain a loan loss reserve for anticipated losses for loans we make
directly as well as for fee adjustments for losses on loans we originate and
service for others. To estimate the appropriate level of loan loss reserves,
including the reserve for estimated reductions to loan servicing fees, we
consider the amount of outstanding loans owed to us, as well as loans owed to
banks and serviced by us, historical loans charged off, current collection
patterns and current economic trends. Our current loan loss reserve is based on
our net loss rate, expressed as a percentage of loans originated for the last
twelve months, applied against the total amount of outstanding loans that we
make directly and outstanding loans we originate and service for others. As
these conditions change, we may need to make additional allowances in future
periods.
A loss on consumer loans is charged against the reserve during the period in
which the loss occurred. A recovery is credited to the reserve during the period
in which the recovery is made. Any additional provisions to the loan loss
reserve as a result of the calculation in the preceding paragraph are charged
against revenues.
Check Cashing Returned Item Policy
We charge operating expense for losses on returned checks during the period in
which such checks are returned. Recoveries on returned checks are credited to
operating expense during the period in which recovery is made. This direct
method for recording returned check losses and recoveries eliminates the need
for an allowance for returned checks. These net losses are charged to other
store and regional expenses in the consolidated statements of operations.
Goodwill
We have significant goodwill on our balance sheet. The testing of goodwill for
impairment under established accounting guidelines also requires significant use
of judgment and assumptions. In accordance with accounting guidelines, we
determine the fair value of our goodwill using multiples of earnings of other
companies. Goodwill is tested and reviewed for impairment on an ongoing basis
under established accounting guidelines. However, changes in business conditions
may require future adjustments to asset valuations.
Income Taxes
As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating the actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within the consolidated balance
sheet. An assessment is then made of the likelihood that the deferred tax assets
will be recovered from future taxable income and to the extent we believe that
recovery is not likely, we must establish a valuation allowance.
Results of Operations
Revenue Analysis
Three Months Ended March 31, Nine Months Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) total revenue) ($ in thousands) total revenue)
-------------------------- ----------------- --------------------------- ----------------
2003 2004 2003 2004 2003 2004 2003 2004
------------ ----------- ------ ------ ----------- ------------ ------ -------
Check cashing............... $ 27,897 $ 30,398 48.1% 46.3% $ 80,871 $ 87,939 49.3% 48.0%
Consumer lending revenues,
net......................... 22,483 25,795 38.8 39.3 61,329 70,673 37.5 38.5
Money transfer fees......... 2,807 3,250 4.8 5.0 8,271 9,584 5.0 5.2
Other revenue............... 4,787 6,183 8.3 9.4 13,445 15,182 8.2 8.3
------------ ----------- ------- ------- ----------- ----------- ------- -------
Total revenue............... $ 57,974 $ 65,626 100.0% 100.0% $163,916 $ 183,378 100.0% 100.0%
============ =========== ======= ======= =========== =========== ======= =======
23
THREE MONTH COMPARISON
Total revenues were $65.6 million for the three months ended March 31, 2004
compared to $58.0 million for the three months ended March 31, 2003, an increase
of $7.6 million or 13.2%. Comparable retail store, franchised store and document
transmitter sales for the entire period increased $7.1 million or 12.4%. New
store openings accounted for an increase of $733,000 while closed stores
accounted for a decrease of $241,000.
A stronger British pound and Canadian dollar positively impacted revenue by $3.9
million for the quarter. In addition to the currency benefit, revenues in the
United Kingdom for the quarter increased by $1.2 million primarily related to
revenues from check cashing and the impact of the new installment loan product.
Revenues from our Canadian subsidiary for the quarter increased $3.4 million
after adjusting for the favorable exchange rate. Higher short term consumer loan
volume and pricing, slightly offset by lower check cashing revenues, accounted
for the increase. For the three months ended March 31, 2004, our Canadian
subsidiary rolled out, to all its locations, a new tax product offering refund
anticipation loans and electronic Canadian tax filing. This product, which was
only tested in a limited number of locations in the prior year, added $521,000
in revenue for the current quarter which is included in other revenues. In the
U.S., food stamp revenues declined $773,000 for the three months ended March 31,
2004, primarily due to the decline in our distribution of government assistance
food coupons. California, the last state in which we offer food coupons, is
implementing an electronic benefits transfer system designed to disburse public
assistance benefits directly to individuals. We expect to generate only minimal
revenues from this product for the remainder of the fiscal year.
NINE MONTH COMPARISON
Total revenues were $183.4 million for the nine months ended March 31, 2004
compared to $163.9 million for the nine months ended March 31, 2003, an increase
of $19.5 million or 11.9%. Comparable store, franchised store and document
transmitter sales for the entire period increased $18.4 million or 11.4%. New
store openings accounted for an increase of $2.4 million while closed stores
accounted for a decrease of $1.5 million.
Favorable foreign currency rates attributed to $10.5 million of the increase for
the nine months. In addition to the currency benefit, revenues in the United
Kingdom for the nine months increased by $3.6 million primarily related to
revenues from check cashing and the impact of the new installment loan product.
Revenues from our Canadian subsidiary for the nine months increased $6.2 million
after adjusting for the favorable exchange rate. Higher short term consumer loan
volume and pricing, slightly offset by lower check cashing revenues, accounted
for the increase. In addition, our Canadian subsidiary rolled out, to all its
locations, a new tax product offering refund anticipation loans and electronic
Canadian tax filing. This product, which was only tested in a limited number of
locations in the third quarter of the prior year, added $521,000 in revenue for
the current quarter which is included in other revenues. In the U.S., food stamp
revenues declined $1.6 million for the nine months ended March 31, 2004,
primarily due to the decline in our distribution of government assistance food
coupons. California, the last state in which we offer food coupons, is
implementing an electronic benefits transfer system designed to disburse public
assistance benefits directly to individuals. We expect to generate only minimal
revenues from this product for the remainder of the fiscal year.
Store and Regional Expense Analysis
Three Months Ended March 31, Nine Months Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) total revenue) ($ in thousands) total revenue)
--------------------------- ------------------ -------------------------- ----------------
2003 2004 2003 2004 2003 2004 2003 2004
----------- ------------ ------- ------- ----------- ----------- ------ ------
Salaries and benefits.......... $ 17,519 $ 19,397 30.2% 29.6% $ 51,947 $ 56,881 31.7% 31.0%
Occupancy...................... 4,686 5,019 8.1 7.6 14,155 14,768 8.6 8.1
Depreciation................... 1,122 1,533 1.9 2.3 4,364 4,471 2.7 2.4
Returned checks, net and
cash shortages.............. 1,762 2,052 3.0 3.1 6,256 6,938 3.8 3.8
Telephone and
telecommunications.......... 1,429 1,336 2.5 2.0 4,225 4,328 2.6 2.4
Advertising.................... 1,571 1,735 2.7 2.6 5,049 5,277 3.1 2.9
Bank charges................... 736 887 1.3 1.4 2,344 2,777 1.4 1.5
Armored carrier service........ 753 785 1.3 1.2 2,123 2,266 1.3 1.2
Other.......................... 5,139 5,773 8.9 8.8 16,411 18,615 10.0 10.2
----------- ------------ ------- ------- ----------- ----------- ------ ------
Total store and regional
expenses ................... $ 34,717 $ 38,517 59.9% 58.6% $ 106,874 $ 116,321 65.2% 63.5%
=========== ============ ======= ======= =========== =========== ====== ======
24
THREE MONTH COMPARISON
Store and regional expenses were $38.5 million for the three months ended March
31, 2004 compared to $34.7 million for the three months ended March 31, 2003, an
increase of $3.8 million or 11.0%. The impact of foreign currencies accounted
for $2.0 million of this increase. New store openings accounted for an increase
of $434,000 while closed stores accounted for a decrease of $135,000. Comparable
retail store and franchised store expenses for the entire period increased $4.3
million. For the three months ended March 31, 2004 total store and regional
expenses decreased to 58.6% of total revenue compared to 59.9% of total revenue
for the three months ended March 31, 2003. After adjusting for the impact of the
changes in exchange rates, store and regional expenses increased $1.7 million in
Canada, $358,000 in the U.K. and declined $270,000 in the U.S. The increase in
Canada was primarily due to increases of $362,000 in salaries, $245,000 in
returned checks, net and cash shortages and $181,000 in advertising, all of
which are commensurate with the overall growth in Canadian revenues.
NINE MONTH COMPARISON
Store and regional expenses were $116.3 million for the nine months ended March
31, 2004 compared to $106.9 million for the nine months ended March 31, 2003, an
increase of $9.4 million or 8.8%. The impact of foreign currencies accounted for
$5.5 million of this increase. New store openings accounted for an increase of
$1.3 million while closed stores accounted for a decrease of $1.4 million.
Comparable retail store and franchised store expenses for the entire period
increased $12.4 million. For the nine months ended March 31, 2004 total store
and regional expenses decreased to 63.5% of total revenue compared to 65.2% of
total revenue for the nine months ended March 31, 2003. After adjusting for the
impact of the changes in exchange rates, store and regional expenses increased
$4.4 million in Canada, $1.3 million in the U.K. and declined $1.8 million in
the U.S. The increase in Canada was primarily due to increases of $737,000 in
salaries, $600,000 in returned checks, net and cash shortages, $335,000 in
advertising and $273,000 in occupancy costs. These costs in addition to the
aggregate of other operating costs are commensurate with overall growth in
Canadian revenues. The increase in the U.K. is almost entirely associated with
increased salary expense which is also commensurate with the revenue growth in
that business segment. The decline in store and regional expenses in the U.S. is
primarily due to the impact of stores closed in the second quarter of fiscal
2003.
Other Expense Analysis
Three Months Ended March 31, Nine Months Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Percentage of (Percentage of
($ in thousands) total revenue) ($ in thousands) total revenue)
---------------------- ------------------- ----------------------- ------------------
2003 2004 2003 2004 2003 2004 2003 2004
-------- --------- ------- -------- --------- ---------- ------- -------
Corporate expenses.................. $ 8,708 $ 8,360 15.0% 12.7% $ 23,697 $ 22,727 14.5% 12.4%
Management fee...................... 180 249 0.3 0.4 702 786 0.4 0.4
Loss on store closings and sales.... 460 157 0.8 0.2 2,750 278 1.7 0.2
Other depreciation and amortization. 759 800 1.3 1.2 2,446 2,672 1.5 1.5
Interest expense.................... 8,628 10,151 14.9 15.5 25,429 29,585 15.5 16.1
Loss on extinguishment of debt...... - - - - - 8,855 - 4.8
Establishment of reserve for
legal matter...................... - - - - 2,500 - 1.5 -
Income tax provision................ 1,304 5,789 2.2 8.8 5,772 28,125 3.5 15.3
THREE MONTH COMPARISON
Corporate Expenses
Corporate expenses were $8.4 million for the three months ended March 31, 2004
compared to $8.7 million for the three months ended March 31, 2003. For the
three months ended March 31, 2004, corporate expenses decreased to 12.7% of
total revenue compared to 15.0% of total revenue for the three months ended
March 31, 2003. The decline reflects the cost reductions related to the
rationalization of our store support functions for our North American operations
offset somewhat by increased accrued expenses for incentive compensation and
legal and professional fees.
25
Management Fees
Management fees were $249,000 for the three months ended March 31, 2004,
compared to $180,000 for the three months ended March 31, 2003. Under an amended
and restated management services agreement among Leonard Green & Partners, L.P.,
OPCO and us, we have agreed to pay Leonard Green & Partners, L.P., our largest
shareholder, an annual management fee equal to $1.0 million, reasonable and
customary fees for financial advisory and investment banking services in
connection with major financial transactions that we may undertake in the future
and reimbursement of any out-of-pocket expenses incurred. Under our new Senior
Notes due 2012 and our new Senior Subordinated Notes due 2012, management fees
may not be paid to Leonard Green & Partners, L.P. until the first cash interest
payments are made on our new notes. During this period, no interest will accrue
on the unpaid management fees. In addition, OPCO's replacement credit facility
and OPCO's new Senior Notes due 2011will restrict OPCO from making distributions
to us to allow us to pay interest on our new notes on or prior to the fifth
anniversary of their issuance. As a result of these restrictions, we will likely
exercise our option under our new notes to capitalize interest due on or prior
to the fifth anniversary of their issuance. Consequently, management fees
payable to Leonard Green & Partners, L.P. will likely be accrued, without
interest, and not paid until after the fifth anniversary of the issuance of our
notes.
Loss on Store Closings and Sales
Loss on store closings and sales was $157,000 for the three months ended March
31, 2004 compared to $460,000 for the three months ended March 31, 2003. For the
three months ended March 31, 2003, we provided $400,000 of severance and
retention bonus costs for the consolidation and relocation of certain
non-operating functions.
Interest Expense
Interest expense was $10.2 million for the three months ended March 31, 2004
compared to $8.6 million for the three months ended March 31, 2003, an increase
of $1.6 million or 18.6%. The increased interest on the incremental long-term
debt outstanding after the refinancing accounted for $1.9 million of the
increase in total interest expense. Offsetting these increases was a decline of
$800,000 in interest on OPCO's revolving credit facility. This decline is a
result of OPCO using a portion of the proceeds from the issuance of the new
notes to repay the entire outstanding revolving credit balance on November 13,
2003. As a result of the refinancing, our effective annual interest rate has
declined.
Loss on Extinguishment of Debt
On November 13, 2003, OPCO issued $220 million principal amount of 9.75% Senior
Notes due 2011. The proceeds from this offering were used to redeem all of
OPCO's outstanding 10.875% senior notes and OPCO's outstanding 10.875% senior
subordinated notes, to refinance OPCO's credit facility, to distribute a portion
of the proceeds to us to redeem an equal amount of our senior discount notes and
to pay fees and expenses with respect to these transactions and a related note
exchange transaction involving our senior discount notes.
The loss incurred on the extinguishment of debt is as follows (in millions):
Call Premium:
OPCO 10.875% Senior notes $ 1.98
OPCO 10.875% Senior Subordinated notes 0.73
Write-off of previously capitalized
Deferred issuance costs, net 6.14
----------
Loss on extinguishment of debt $ 8.85
==========
Income Tax Provision
The provision for income taxes was $5.8 million for the three months ended March
31, 2004 compared to a provision of $1.3 million for the three months ended
March 31, 2003, an increase of $4.5 million. Our effective income tax rate was
78.3% for the three months ended March 31, 2004 and 28.9% for the three months
ended March 31, 2003. Following our refinancing in November 2003, we no longer
accrue U.S. tax on our foreign earnings. As a result, we expect our effective
tax rate to approximate 42% in future quarters after fiscal 2004.
The Company's effective tax rate does not reflect a normal relationship to the
federal statutory rate of 35% for the nine months ended March 31, 2004 due to
the valuation allowance for deferred tax assets in addition to state and foreign
taxes.
26
NINE MONTH COMPARISON
Corporate Expenses
Corporate expenses were $22.7 million for the nine months ended March 31, 2004
compared to $23.7 million for the nine months ended March 31, 2003, a decrease
of $1.0 million or 4.2%. The decline reflects the cost reductions related to the
rationalization of our store support functions for our North American operations
offset somewhat by increased accrued expenses for incentive compensation and
legal and professional fees.
Management Fees
Management fees were $786,000 for the nine months ended March 31, 2004, compared
to $702,000 for the six months ended March 31, 2003. Under an amended and
restated management services agreement among Leonard Green & Partners, L.P.,
Dollar Financial Group, Inc. and us, we have agreed to pay Leonard Green &
Partners, L.P., our largest shareholder, an annual management fee equal to $1.0
million, reasonable and customary fees for financial advisory and investment
banking services in connection with major financial transactions that we may
undertake in the future and reimbursement of any out-of-pocket expenses
incurred. Under our new Senior Notes due 2012 and our new Senior Subordinated
Notes due 2012, management fees may not be paid to Leonard Green & Partners,
L.P. until the first cash interest payments are made on our new notes. During
this period, no interest will accrue on the unpaid management fees. In addition,
OPCO's replacement credit facility and OPCO's new Senior Notes due 2011will
restrict OPCO from making distributions to us to allow us to pay interest on our
new notes on or prior to the fifth anniversary of their issuance. As a result of
these restrictions, we will likely exercise our option under our new notes to
capitalize interest due on or prior to the fifth anniversary of their issuance.
Consequently, management fees payable to Leonard Green & Partners, L.P. will
likely be accrued, without interest, and not paid until after the fifth
anniversary of the issuance of our notes.
Loss on store closings and sales and other restructuring
Loss on store closings and sales and other restructuring was $278,000 for the
nine months ended March 31, 2004 compared to $2.8 million for the nine months
ended March 31, 2003, a decrease of $2.5 million. For the nine months ended
March 31, 2003, we provided $1.3 million for the closure costs associated with
the shutdown of 27 underperforming stores. In addition, we provided $800,000,
consisting primarily of severance and retention bonus costs, for the
consolidation and relocation of certain non-operating functions.
Interest Expense
Interest expense was $29.6 million for the nine months ended March 31, 2004 and
was $25.4 million for the nine months ended March 31, 2003, an increase of $4.2
million or 16.5%. A portion of the increase is attributable to $990,000 of
interest paid on OPCO's old 10.875% senior notes for the 30 day period
subsequent to OPCO's issuance on November 13, 2003 of $220 million principal
amount of new 9.75% senior notes. OPCO elected to effect covenant defeasance on
old notes by depositing with the trustee funds sufficient to satisfy the old
notes together with the call premium and accrued interest to the December 13,
2003 redemption date. Additionally, the increased interest on the incremental
long-term debt outstanding after the refinancing accounted for $3.2 million of
the increase in total interest expense. Offsetting these increases was a decline
of $1.4 million in interest on OPCO's revolving credit facility. This decline is
a result of OPCO using a portion of the proceeds from the issuance of the new
notes to repay the entire outstanding revolving credit balance on November 13,
2003. As a result of the refinancing, our effective annual interest rate has
declined.
Loss on Extinguishment of Debt
On November 13, 2003, OPCO issued $220 million principal amount of 9.75% Senior
Notes due 2011. The proceeds from this offering were used to redeem all of
OPCO's outstanding 10.875% senior notes and OPCO's outstanding 10.875% senior
subordinated notes, to refinance OPCO's credit facility, to distribute a portion
of the proceeds to us to redeem an equal amount of our senior discount notes and
to pay fees and expenses with respect to these transactions and a related note
exchange transaction involving our senior discount notes.
27
The loss incurred on the extinguishment of debt is as follows (in millions):
Call Premium:
OPCO 10.875% Senior notes $ 1.98
OPCO 10.875% Senior Subordinated notes 0.73
Write-off of previously capitalized
deferred issuance costs, net 6.14
-----------
Loss on extinguishment of debt $ 8.85
===========
Establishment of reserve for legal matter
In August 2000, a former employee instituted an action against the Company in
the Superior Court of California, purportedly on behalf of a class of current
and former salaried managers of the Company's California stores. The complaint
alleges that the putative class was misclassified as "exempt" for wage-and-hour
purposes and that they worked uncompensated hours since 1996 for which they were
entitled to receive overtime compensation. The relief sought includes damages,
interest and attorneys' fees. The Company's motion to compel arbitration of the
claim was granted, and the Company has been defending the arbitration of the
claim. No class has been certified in the arbitration, and the determination of
whether the claim may proceed on a class basis is not expected to be made until
fiscal 2004. In mid-January 2003, the Company offered to each individual member
of the putative class an amount intended in good faith to settle the claims of
such individuals. The Company accrued $2.5 million at December 31, 2002 related
to this matter. As of March 31, 2004, 92% of these settlement offers have been
accepted. It is presently undetermined whether the unsettled claims of any
remaining putative class members will proceed in class form or otherwise. The
Company believes it has meritorious defenses to such unsettled claims and plans
to defend them vigorously.
Income Taxes
The provision for income taxes was $28.1 million for the nine months ended March
31, 2004 compared to $5.8 million for the nine months ended March 31, 2003, an
increase of $22.3 million. Due to the restructuring of our debt, significant
deferred tax assets have been generated and recorded in accordance with SFAS
109. Because realization is not assured, the deferred tax assets recorded were
reduced by a valuation allowance of $17.6 million at March 31, 2004. Our
effective income tax rate was 1,305.7% for the nine months ended March 31, 2004
and (1,197.5)% for the nine months ended March 31, 2003. Following our
refinancing in November 2003, we no longer accrue U.S. tax on our foreign
earnings. The amount of such tax was $1.9 million for the nine months ended
March 31, 2004 and $5.2 million for the nine months ended March 31, 2003. As a
result, we expect our effective tax rate to approximate 42% in future quarters
after fiscal 2004.
The Company's effective tax rate does not reflect a normal relationship to the
federal statutory rate of 35% for the nine months ended March 31, 2004 due to
the valuation allowance for deferred tax assets in addition to state and foreign
taxes.
Changes in Financial Condition
Cash and cash equivalent balances and the revolving credit facilities balances
fluctuate significantly as a result of seasonal, monthly and day-to-day
requirements for funding check cashing and other operating activities. For the
nine months ended March 31, 2004, cash and cash equivalents increased $8.1
million. Net cash provided by operations was $17.1 million. The increase in net
cash provided by operations was primarily the result of improved operating
results and the impact of the timing of settlements in fiscal 2003 related to
our loan servicing arrangements with County Bank and First Bank of Delaware.
Accrued interest increased $12.5 million due to the timing of the semi-annual
interest payments on OPCO's 9.75% Senior Notes due 2011 and our 16.0% Senior
Notes due 2012 and 13.95% Senior Subordinated Notes due 2012.
Liquidity and Capital Resources
On November 13, 2003, OPCO issued $220.0 million principal amount of 9.75%
Senior Notes due 2011 under Rule 144A and Regulation S of the Securities Act of
1933. The proceeds of this offering were used to redeem the entire $109.2
million principal amount of OPCO's 10.875% Senior Notes due 2006, the entire
$20.0 million principal amount of OPCO's 10.875% Senior Subordinated Notes due
2006, to repay in full $40.6 million outstanding under OPCO's revolving credit
facility, to redeem $20.0 million of our 13.0% Senior Discount Notes and to pay
all related fees, expenses, accrued interest and redemption premiums with
respect to these transactions and a related note exchange transaction involving
our senior discount notes. Simultaneously with the issuance of OPCO's new senior
28
notes, $49.4 million, or 50% of the accreted value, of our senior discount notes
were exchanged for 16.0% Senior Notes due 2012 and $49.4 million, or 50% of the
accreted value, of our senior discount notes were exchanged for 13.95% Senior
Subordinated notes due 2012. In addition, OPCO entered into a new $55.0 million
Senior Secured Reducing Revolving Credit Facility.
Our principal sources of cash are from operations and borrowings under our
credit facilities. We anticipate that our primary uses of cash will be to
provide working capital, finance capital expenditures, meet debt service
requirements, finance acquisitions, and finance store expansion.
Net cash provided by operating activities was $17.1 million for the nine months
ended March 31, 2004 compared to net cash provided by operating activities of
$9.4 million for the nine months ended March 31, 2003. The increase in net cash
provided by operations was primarily the result of improved operating results
and the impact of the timing of settlements in fiscal 2003 related to our loan
servicing arrangements with County Bank and First Bank of Delaware.
Net cash used for investing activities for the nine months ended March 31, 2004
was $5.0 million compared to a usage of $8.8 million for the nine months ended
March 31, 2003. The decrease of $3.8 million is attributable to earn-out
payments made during the first nine months of fiscal 2003 on acquisitions
completed during a previous year. For the nine months ended March 31, 2004 we
made capital expenditures of $5.1 million. The actual amount of capital
expenditures for the year will depend in part upon the number of new stores
acquired or opened and the number of stores remodeled. Our budgeted capital
expenditures, excluding acquisitions, are currently anticipated to aggregate
approximately $8.0 million during our fiscal year ending June 30, 2004, for
remodeling and relocation of certain existing stores and for opening new stores.
Net cash used for financing activities for the nine months ended March 31, 2004
was $6.9 million compared to a usage of $12.2 million for the nine months ended
March 31, 2003. The decline in the nine months ended March 31, 2004 was a result
of a decrease in the borrowings under our revolving credit facilities of $61.7
million from $61.7 million at June 30, 2003 to $0.0 million at March 31, 2004
offset somewhat by net cash from the refinancing activities discussed above.
Revolving Credit Facilities. We have three revolving credit facilities: a
domestic revolving credit facility, a Canadian overdraft facility and a United
Kingdom overdraft facility.
Domestic Revolving Credit Facility. On November 13, 2003, OPCO repaid in
full all borrowings outstanding under its previously existing credit
facility using a portion of the proceeds from the issuance of $220.0
million principal amount of 9.75% Senior Notes due 2011 and
simultaneously entered into a new $55.0 million Senior Secured Reducing
Revolving Credit Facility. The commitment under the new facility was
reduced by $750,000 on January 2, 2004 and on the first business day of
each calendar quarter thereafter, and is subject to additional
reductions based on excess cash flow up to a maximum reduction,
including quarterly reductions, of $15.0 million. The commitment may be
subject to further reductions in the event we engage in certain
issuances of securities or asset disposals. Under the new facility, up
to $20.0 million may be used in connection with letters of credit.
OPCO's borrowing capacity under the new facility is limited to the total
commitment of $54.25 million less letters of credit totaling $19.0
million issued by Wells Fargo Bank, which guarantee the performance of
certain of OPCO's contractual obligations. At March 31, 2004, OPCO's
borrowing capacity was $35.25 million and the amount outstanding was $0.
Consequently, we had $16.7 million cash in excess of our short-term
borrowing needs.
Canadian Overdraft Facility. Our Canadian operating subsidiary has a
Canadian overdraft facility to fund peak working capital needs for our
Canadian operations. The Canadian overdraft facility provides for a
commitment of up to approximately $10.0 million, of which there was no
outstanding balance on March 31, 2004. Amounts outstanding under the
Canadian overdraft facility bear interest at a rate of Canadian prime
and is secured by a $10 million letter of credit issued by Wells Fargo
Bank under our domestic revolving credit facility.
United Kingdom Overdraft Facility. For our U.K. operations, our U.K.
operating subsidiary has an overdraft facility which provides for a
commitment of up to approximately $6.9 million, of which there was no
outstanding balance on March 31, 2004. Amounts outstanding under the
United Kingdom overdraft facility bear interest of the bank base rate
plus 1.00%. The United Kingdom overdraft facility is secured by a $6.0
million letter of credit issued by Wells Fargo Bank under our domestic
revolving credit facility. The U.K. overdraft facility expired on March
31, 2004 and we elected not to extend.
Long-Term Debt. As of March 31, 2004, long term debt consisted of $220 million
principal amount of OPCO's 9.75% Senior Notes due November 15, 2011, $49.4
million principal amount of our 16.0% Senior Notes due May 15, 2012 and $49.4
million principal amount of our 13.95% Senior Subordinated Notes due May 15,
2012. Interest on Senior Notes and Senior Subordinated Notes will be payable
semi-annually in arrears. On any semi-annual interest payment date on or prior
to November 15, 2008, the Company has the option to pay all or any portion of
the interest payable on the relevant interest payment date by increasing the
29
principal amount of the Senior Notes or Senior Subordinated Notes, as
applicable, in a principal amount equal to the interest that the Company chooses
not to pay in cash. On any semi-annual payment date on or after May 15, 2009,
all interest due on the Senior Notes and the Senior Subordinated Notes is
payable in cash semi-annually, in arrears.
The Senior Notes and the Senior Subordinated Notes are redeemable, in whole or
in part, at the Company's option, at any time.
The Senior Notes will be redeemable at the following redemption prices if
redeemed during the indicated calendar year (or on any earlier date, in the case
of 2004), expressed as percentages of the principal amount, plus accrued
interest, if any, to the date of redemption:
Year Percentage
---- ----------
2004 ............................. 112.5%
2005.............................. 110.0%
2006.............................. 107.5%
2007.............................. 105.0%
2008.............................. 102.5%
2009 and thereafter............... 100.0%
The Senior Subordinated Notes will be redeemable at the following redemption
prices if redeemed during the indicated calendar year (or on any earlier date,
in the case of 2005), expressed as percentages of the principal amount, plus
accrued interest, if any, to the date of redemption:
Year Percentage
---- ----------
2005 or prior...................... 100.0%
2006............................... 112.5%
2007............................... 110.0%
2008............................... 107.5%
2009............................... 105.0%
2010............................... 102.5%
2011 and thereafter................ 100.0%
Operating Leases. Operating leases are scheduled payments on existing store and
other administrative leases. These leases typically have initial terms of 5
years and may contain provisions for renewal options, additional rental charges
based on revenue and payment of real estate taxes and common area charges.
Other Collateralized Borrowings. On November 15, 2002, we entered into an
agreement with a third party to sell, without recourse subject to certain
obligations, a participation interest in a portion of the short-term consumer
loans originated by us in the United Kingdom. Pursuant to the agreement, we will
retain servicing responsibilities and earn servicing fees, which are subject to
reduction if the related loans are not collected. March 31, 2004, we had $8.0
million of loans receivable pledged under this agreement. The agreement expires
on September 30, 2004; however the term of the agreement is automatically
renewed each year for a term of twelve months, unless either party terminates
it.
We entered into the commitments described above and other contractual
obligations in the ordinary course of business as a source of funds for asset
growth and asset/liability management and to meet required capital needs. Our
principal future obligations and commitments as of March 31, 2004, excluding
periodic interest payments, include the following:
Payments Due by Period (in thousands)
---------------------------------------------------------------------------------
Total Less than 1 - 3 Years 4 - 5 Years After 5 Years
1 Year
-------------- ------------ ------------ ------------ --------------
Long-term debt:
OPCO 9.75% Senior Notes due 2011..... $ 220,000 $ - $ - $ - $ 220,000
16.0% Senior notes due 2012.......... 47,871 - - - 47,871
13.95% Senior Subordinated notes due
2012................................. 47,871 - - - 47,871
Operating leases.......................... 52,384 16,153 20,373 9,798 6,060
Other collateralized borrowings........... 8,000 8,000 - - -
Other..................................... 206 206 - - -
-------------- ------------ ------------ ------------ --------------
Total contractual cash obligations........ $ 376,332 $ 24,359 $ 20,373 $ 9,798 $ 321,802
============== ============ ============ ============ ==============
- ------------------------------------------------------------------------------------------------------------------------------------
30
We are highly leveraged, and borrowings under the credit facilities will
increase our debt service requirements. We believe that, based on current levels
of operations and anticipated improvements in operating results, cash flows from
operations and borrowings available under our credit facilities will allow us to
fund our liquidity and capital expenditure requirements for the foreseeable
future, including payment of interest and principal on our indebtedness. This
belief is based upon our historical growth rate and the anticipated benefits we
expect from operating efficiencies. We expect additional revenue growth to be
generated by increased check cashing revenues, growth in the consumer lending
business, the maturity of recently opened stores and the continued expansion of
new stores. We also expect operating expenses to increase, although the rate of
increase is expected to be less than the rate of revenue growth. Furthermore, we
do not believe that additional acquisitions or expansion are necessary to cover
our fixed expenses, including debt service. However, we cannot assure you that
we will generate sufficient cash flow from operations or that future borrowings
will be available under our credit facilities in an amount sufficient to meet
our debt service requirements or to make anticipated capital expenditures. We
may need to refinance all or a portion of our indebtedness on or prior to
maturity, under certain circumstances, and we cannot assure you that we will be
able to effect such refinancing on commercially reasonable terms or at all.
Balance Sheet Variations
March 31, 2004 compared to June 30, 2003
Cash and cash equivalents increased to $79.9 million at March 31, 2004 from
$71.8 million at June 30, 2003. Cash and cash equivalent balances fluctuate
significantly as a result of seasonal, monthly and day-to-day requirements for
funding check cashing and other operating activities.
Income taxes receivable increased to $7.1 million at March 31, 2004 from $2.9
million related primarily to U.S. carryback losses and the prepayment of taxes
in our Canadian subsidiary.
Deferred income taxes decreased from $15.6 million at June 30, 2003 to $0 at
March 31, 2004 as we recorded a full valuation allowance against deferred taxes
of $17.6 million at March 31, 2004.
Goodwill and other intangibles increased $6.7 million from $143.4 million at
June 30, 2003 to $150.1 million at March 31, 2004 due to foreign currency
translation adjustments.
Debt issuance costs increased from $6.7 million at June 30, 2003 to $10.9
million at March 31, 2004 due to the refinancing of our debt.
Accounts payable decreased $4.6 million from $17.2 million at June 30, 2003 to
$12.6 million at March 31, 2004 due to the timing of settlements with third
party vendors and our franchisees.
Accrued expenses increased to $12.2 million at March 31, 2004 from $9.6 million
at June 30, 2003 due to professional fees associated with legal matters
associated with our Canadian subsidiary and the timing of our salary accrual.
Foreign income taxes payable increased from $1.4 million at June 30, 2003 to
$6.8 million at March 31, 2004 due primarily to accrued Canadian income taxes.
Revolving credit facilities and long-term debt increased $12.3 million from
$303.6 million at June 30, 2003 to $315.9 million at March 31, 2004. On November
13, 2003, we issued $220.0 million principal amount of $9.75% Senior Notes due
2011 under Rule 144A and Regulation S of the Securities Act of 1933 and entered
into a new $55.0 million Senior Secured Reducing Revolving Credit Facility. The
proceeds from these transactions were used to repay, in full, all borrowings
outstanding under our existing credit facility, redeem the entire $109.2 million
principal amount of our 10.875% Senior Notes due 2006, redeem the entire $20.0
million principal amount of our 10.875% Senior Subordinated Notes due 2006,
redeem $20.0 million of our 13.0% Senior Discount Notes due 2006, and pay all
related fees, expenses and redemption premiums with respect to these
transactions. In addition, $49.4 million, or 50% of the accreted value, of the
13.0% Senior Discount Notes due 2006 were exchanged for 16.0% Senior Noted due
2012 and $49.4 million, or 50% of the accreted value, of the 13.0% Senior
Discount Notes due 2006 were exchanged for 13.95% Senior Subordinated Notes due
2012.
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Total shareholders' deficit increased $16.8 million to $45.8 million from $29.0
million due to our net loss for the nine months ended March 31, 2004 offset by
foreign translation adjustments.
Dollar Financial Corp. has filed a registration statement on Form S-1 with the
Securities and Exchange Commission for a proposed initial public offering of
common stock. In addition to the proposed sale of common stock by the company,
certain stockholders intend to sell common stock in the offering and intend to
grant the underwriters an option to purchase common stock to cover
over-allotments. The company will not receive any proceeds from the sale of
shares by the selling stockholders. A copy of the prospectus relating to these
securities may be obtained when available from Citigroup, Brooklyn Army
Terminal, 140 58th Street, 8th floor, Brooklyn, NY 11220 (tel: 718-765-6732).
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold and offers to buy may not be accepted prior to the
time the registration statement becomes effective. This Form 10-Q shall not
constitute an offer to sell or a solicitation of an offer to buy, and there
shall not be any sale of these securities in any state or jurisdiction in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state or jurisdiction.
Seasonality and Quarterly Fluctuations
Our business is seasonal due to the impact of tax-related services, including
cashing tax refund checks, making electronic tax filings and processing
applications for refund anticipation loans. Historically, we have generally
experienced our highest revenues and earnings during our third fiscal quarter
ending March 31, when revenues from these tax-related services peak. Due to the
seasonality of our business, results of operations for any fiscal quarter are
not necessarily indicative of the results that may be achieved for the full
fiscal year. In addition, quarterly results of operations depend significantly
upon the timing and amount of revenues and expenses associated with acquisitions
and the addition of new stores.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements regarding our 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 in which we operate, weakening consumer demand and
other factors detailed from time to time in our annual and other reports filed
with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Generally
In the operations of our subsidiaries and the reporting of our consolidated
financial results, we are 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 we and our subsidiaries are exposed relate to:
o. interest rates on debt; and
o. foreign exchange rates generating translation gains and losses.
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We and our subsidiaries have no market risk sensitive instruments entered into
for trading purposes, as defined by GAAP. Information contained in this section
relates only to instruments entered into for purposes other than trading.
Interest Rates
Our outstanding indebtedness, and related interest rate risk, is managed
centrally by our finance department by implementing the financing strategies
approved by our board of directors. Although our revolving credit facilities
carry variable rates of interest, our debt consists primarily of fixed-rate
senior notes and senior subordinated notes. Because most of our average
outstanding indebtedness carries a fixed rate of interest, a change in interest
rates is not expected to have a significant impact on our consolidated financial
position, results of operations or cash flows.
Foreign Exchange Rates
Operations in the United Kingdom and Canada have exposed the Company to shifts
in currency valuations. From time to time, the Company may elect to purchase put
options in order to protect earnings in the United Kingdom and Canada against
foreign currency fluctuations. Out of the money put options may be purchased
because they cost less than completely averting risk, and the maximum downside
is limited to the difference between the strike price and exchange rate at the
date of purchase and the price of the contracts. At March 31, 2004, the Company
held put options with an aggregate notional value of $(CAN) 12.0 million and
(GBP) 3.0 million to protect the currency exposure in Canada and the United
Kingdom throughout the remainder of the fiscal year. The cost of these put
options is included in prepaid expenses on the consolidated balance sheet. The
cost of the options are amortized over the period in which the options are
exercisable. Changes in the fair value of the put options are recorded through
the statement of operations in corporate expenses and were not significant. All
put options for the three and nine months ended March 31, 2004 expired out of
the money at a cost of $69,000 and $190,000, respectively, which is included in
corporate expenses in the consolidated statement of earnings. There were no put
options held for the same period in fiscal 2003.
Canadian operations accounted for approximately 881.7% of consolidated pre-tax
earnings for the nine months ended March 31, 2004. U.K. operations accounted for
approximately 383.8% of consolidated pre-tax earnings for the nine months ended
March 31, 2004. For the nine months ended March 31, 2003, Canadian operations
accounted for approximately (4,195.0)% of our pre-tax loss and U.K operations
accounted for (127.0)% of our pre-tax loss. As currency exchange rates change,
translation of the financial results of the Canadian and U.K. operations into
U.S. dollars will be impacted. Changes in exchange rates have resulted in
cumulative translation adjustments increasing our net assets by $16.9 million.
Our U.K. subsidiaries have collateralized borrowings denominated in U.S. dollars
that are subject to foreign currency transaction gains and losses. These gains
and losses are included in corporate expenses.
We estimate that a 10.0% change in foreign exchange rates by itself would have
impacted reported pre-tax earnings from continuing operations by approximately
$2.7 million for the nine months ended March 31, 2004 and $2.6 million for the
nine months ended March 31, 2003. This impact represents nearly 126.6% of our
consolidated pre-tax earnings for the nine months ended March 31, 2004 and
(546.7)% of our consolidated pre-tax loss for the nine months ended March 31,
2003.
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Item 4. Controls and procedures
Evaluation of Disclosure Control and Procedures
As of the end of the period covered by this report, our management conducted an
evaluation, with the participation of our chief executive officer and chief
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, our chief
executive officer and chief financial officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to management, including our chief
executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during our
fiscal quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 21, 2003, a former customer, Kenneth D. Mortillaro, commenced an
action against our Canadian subsidiary on behalf of a purported class of
Canadian borrowers (except those residing in British Columbia and Quebec) who,
Mortillaro claims, were subjected to usurious charges in payday-loan
transactions. The action, which is pending in the Ontario Superior Court of
Justice, alleges violations of a Canadian federal law proscribing usury and
seeks restitution and damages in an unspecified amount, including punitive
damages. On November 6, 2003, we learned of substantially similar claims
asserted on behalf of a purported class of Alberta borrowers by Gareth Young, a
former customer of our Canadian subsidiary. The Young action is pending in the
Court of Queens Bench of Alberta and seeks an unspecified amount of damages and
other relief. On December 23, 2003, we were served with the statement of claim
in an action brought in the Ontario Superior Court of Justice by another former
customer, Margaret Smith. The allegations and putative class in the Smith action
are substantially the same as those in the Mortillaro action. Like the plaintiff
in the MacKinnon action referred to below, Mortillaro, Smith and Young have
agreed to arbitrate all disputes with us. On January 29, 2003, a former
customer, Kurt MacKinnon, commenced an action against our Canadian subsidiary
and 26 other Canadian lenders on behalf of a purported class of British Columbia
residents who, MacKinnon claims, were overcharged in payday-loan transactions.
The action, which is pending in the Supreme Court of British Columbia, alleges
violations of laws proscribing usury and unconscionable trade practices and
seeks restitution and damages, including punitive damages, in an unknown amount.
On February 3, 2004, our motion to stay the action and to compel arbitration of
MacKinnon's claims, as required by his agreement with us, was denied; we are
appealing this ruling. We believe we have meritorious defenses to each of these
actions and intend to defend them vigorously. Similar class actions have been
threatened against us in other provinces of Canada, but we have not been served
with the statements of claim in any such actions to date. We believe that any
possible claims in these actions, if they are served, will likely be
substantially similar to those of the Ontario actions referred to above.
We are a defendant in four putative class-action lawsuits, all of which were
commenced by the same plaintiffs' law firm, alleging violations of California's
wage-and-hour laws. The named plaintiffs in these suits, which are pending in
the Superior Court of the State of California, are our former employees Vernell
Woods (commenced August 22, 2000), Juan Castillo (commenced May 1, 2003),
Stanley Chin (commenced May 7, 2003) and Kenneth Williams (commenced June 3,
2003). Each of these suits seeks an unspecified amount of damages and other
relief in connection with allegations that we misclassified California store
(Woods) and regional (Castillo) managers as "exempt" from a state law requiring
the payment of overtime compensation, that we failed to provide employees with
meal and rest breaks required under a new state law (Chin) and that we computed
bonuses payable to our store managers using an impermissible profit-sharing
formula (Williams). In January 2003, without admitting liability, we sought to
settle the Woods case, which we believe to be the most significant of these
suits, by offering each individual putative class member an amount intended in
good faith to settle his or her claim. These settlement offers have been
accepted by 92% of the members of the putative class. We recorded a charge of
$2.8 million related to this matter during fiscal 2003. Woods' counsel is
presently disputing through arbitration the validity of the settlements accepted
by the individual putative class members. We believe we have meritorious
defenses to the challenge and to the claims of the non-settling putative Woods
class members and plan to defend them vigorously. We believe we have adequately
provided for the costs associated with this matter. We are vigorously defending
the Castillo, Chin and Williams lawsuits and believe we have meritorious
defenses to the claims asserted in those matters.
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In addition to the litigation discussed above, we are involved in routine
litigation and administrative proceedings arising in the ordinary course of
business.
We do not believe that the outcome of any of the matters referred to in the
preceding paragraphs will materially affect our financial condition, results of
operations or cash flows in future periods.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Document
10.1 Amendment No. 1 to Second Amended and Restated Stockholders
Agreement. dated as of March 11, 2004, by and among Dollar
Financial Corp., Green Equity Investors II, 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., Ares Leveraged Investment Fund
II, L.P. and Jeffrey Weiss.(2)
10.2 Employment Agreement, dated as of December 13, 2003, by and
among Dollar Financial Group, Inc., Dollar Financial Corp. and
Jeffrey Weiss.(1)
10.3 Employment Agreement, dated as of December 13, 2003, by and
among Dollar Financial Group, Inc., Dollar Financial Corp. and
Donald Gayhardt.(1)
10.4 Employment Agreement, dated as of April 30, 2002, by and
between Dollar Financial Group, Inc. and Cameron
Hetherington.(2)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
(1) Incorporated by reference to the Registration Statement on Form S-1
filed by Dollar Financial Corp. on March 12, 2004 (File No.
333-113570).
(2) Filed herewith.
(b) Reports on Form 8-K
On February 4, 2004, OPCO furnished on Form 8-K a press release
announcing its earnings for the fiscal quarter ended December 31, 2003.
On February 12, 2004, OPCO furnished on Form 8-K a transcript of its
February 12, 2004 investor conference call.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOLLAR FINANCIAL CORP.
Date: April 23, 2004 *By: /s/ DONALD GAYHARDT
---------------- -------------------------------
Name: Donald Gayhardt
Title: President and Chief Financial Officer
(principal financial and
chief accounting officer)
* The signatory hereto is the principal financial and chief accounting
officer and has been duly authorized to sign on behalf of the registrant.
36