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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 333-18221
DOLLAR FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 13-2997911
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1436 Lancaster Avenue, Suite 210
Berwyn, Pennsylvania 19312-1288
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (610) 296-3400
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [ ]
There is no market for the common stock of Dollar Financial Group, Inc. and
all of such stock is held by the registrant's parent, DFG Holdings, Inc. See
"Item 12 - Security Ownership of Certain Beneficial Owners and Management."
1
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--------- ---------
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of September 30, 2002, 100
shares of the registrant's common stock, par value $1.00 per share, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part IV is incorporated by reference to the
Registrant's Registration Statement on Form S-4 (Registration No. 333-18221)
declared effective March 11, 1997, Registrant's Statement on Form 10Q filed
February 16, 1999, Registrant's Statement on Form 8K/A filed April 26, 1999,
Registrant's Statement on Form 8K/A filed September 30, 1999 and Registrant's
Statement on Form 8K/A filed February 28, 2000.
2
DOLLAR FINANCIAL GROUP, INC.
Table of Contents
2002 Report on Form 10-K
PART I
Item 1. Business.................................................................................. 4
Item 2. Properties................................................................................ 21
Item 3. Legal Proceedings......................................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders....................................... 22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 23
Item 6. Selected Financial Data................................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 36
Item 8. Financial Statements and Supplementary Data............................................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 62
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 62
Item 11. Executive Compensation.................................................................... 64
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 67
Item 13. Certain Relationships and Related Transactions............................................ 67
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 70
3
Item 1. BUSINESS
General
Dollar Financial Group, Inc., a New York corporation (the "Company" or "DFG"),
was organized in 1979 under the name Monetary Management Corporation. The
Company is a consumer financial services company operating the second largest
check cashing store network in the United States and the largest such network in
each of Canada and the United Kingdom. The Company provides a diverse range of
consumer financial products and services primarily consisting of check cashing,
short-term consumer loans, money orders, money transfers and various other
related services. As of June 30, 2002, the Company has a total network of 1,018
stores in 17 states, the District of Columbia, Canada and the United Kingdom,
including 641 Company-owned stores with revenues for the fiscal year ended June
30, 2002 of $202.0 million, and with earnings before interest, income taxes,
depreciation, amortization, loss on store closings and sales, other
non-recurring items and establishment of reserves for new consumer lending
arrangements ("Adjusted EBITDA") for the fiscal year ended June 30, 2002 of
$48.3 million.
The Company's primary customers are working, lower-income individuals and
families who require basic consumer financial services and who are underserved
by traditional retail banking networks. The increased expense and decreased
availability of traditional retail banking services have left an increasing
number of individuals and families (estimated at 9.5% of U.S. households)
without banking relationships. Management believes that growth in the
lower-income segment of the population, combined with decreasing availability of
traditional retail banking services, provides the Company with significant
growth opportunities.
The Company's stores currently operate under the following locally established
brand names: Money Mart(R), The Money Shop and Loan Mart(R). Through a
relationship with a bank, the Company's subsidiary Money Mart(R) Express
(formerly known as moneymart.com(TM)) services and originates short-term
consumer loans through 656 independent document transmitters in 17 states.
Industry Overview
United States
The check cashing industry in the United States is highly fragmented. A recent
independent industry report estimates the current number of check cashing
outlets at 13,000 as of March 2002, an increase from the approximately 1,350
national listings in 1986, according to a similar industry survey. The Company
believes it is one of only seven U.S. check cashing store networks that have
more than 100 locations, the remaining operations being local store networks and
single-unit operators. The Company believes that industry growth has been fueled
by several demographic and socioeconomic trends, including a decline in the
number of households with bank deposit accounts, an increase in the number of
low-paying service sector jobs and an overall increase in the lower-income
population.
A January 2000 Federal Reserve study estimated that 9.5% of families in the U.S.
in 1998 did not maintain a banking relationship. The primary reason cited for
not maintaining a checking account was that not enough checks are written to
make it beneficial. Other reasons include the inability of many families and
individuals to maintain the minimum account balances required by many banks and
thrifts, high bank service charges and general dislike of banks.
Increases in fees charged by banks on deposit accounts over time have
contributed to the decline in the number of families and individuals holding
such accounts. The U.S. Public Interest Research Group conducted a national
study in 2001 which showed that the annual cost to maintain a regular checking
account was $228 and the average monthly balance requirements to avoid regular
checking fees was $587. In general, the findings indicate that banks have
increased their fees significantly on a real and inflation-adjusted basis.
Many banks have elected over time to close their less profitable or
lower-traffic locations. These closings have tended to occur in lower-income and
urban neighborhoods. If, as management of the Company expects, banks continue
4
this trend, wage earners in these lower-income areas will have fewer, if any,
convenient alternatives to local check cashing stores to perform basic financial
transactions.
Lower-income individuals represent a large segment of the U.S. population. Data
from the 2000 U.S. Census indicate that nearly 45 million U.S. households have
income of less than $35,000 a year. This low-wage population, from which the
Company draws most of its customers, is the fastest-growing segment of the
workforce. As the low-wage population continues to grow, the Company believes
that this population will increasingly rely on the check cashing industry and
the other financial services that the Company provides as the primary source of
their consumer financial products and services.
Canada
In Canada, the Company's Money Mart subsidiary is the industry leader with a
dominant market share and 90% brand awareness. There is a Money Mart location in
every city in Canada with a population of over 50,000 (except Quebec). In
contrast to the U.S. market, 97% of Canadian consumers maintain a bank account.
Money Mart has developed the industry through convenience and service with
locations positioned to serve middle-class Canadians. A 2001 market research
report indicates that customers' primary motivation for use is fast service,
late hours and convenient location. The typical Money Mart customer is 32 years
of age (60/40, male/female), employed in the trades/labor or services sector and
earning $22,000 annually.
The Canadian business had revenues of $55.4 million and Adjusted EBITDA of $24.0
million for the fiscal year ended June 30, 2002.
United Kingdom
In the United Kingdom ("UK"), check cashing is a relatively new and highly
fragmented business that developed with the passage of the Checks Act in 1992,
which prohibits non-financial institutions from cashing checks (a check cashing
establishment is considered to be a financial institution for purposes of
compliance with the Checks Act). Traditionally, check cashing had been offered
as an "add-on" service to certain retail establishments. Management believes
that while there are approximately 2,000 listed check cashing locations in the
UK, only approximately 400 are free-standing check cashing locations. In
addition, management believes the Company's 413 owned and franchised stores
account for 40% of the total number of check cashing stores in the UK. A recent
study conducted by the New Policy Institute stated that 9 million people in the
UK, or approximately 24% of the adult population, are without a bank account.
The UK business had revenues of $33.6 million and Adjusted EBITDA of $10.2
million for the fiscal year ended June 30, 2002.
Growth and Consolidation
Management believes that significant opportunities for growth exist in the check
cashing industry as a result of: (i) growth of the lower-income population
sector; (ii) failure of commercial banks and other traditional financial service
providers to address the needs of lower-income individuals, and; (iii) the trend
toward consolidation in the check cashing industry. Management believes that, as
the lower-income population segment increases, and as trends within the retail
banking industry create a less accessible environment for these members of
society, the check cashing industry and other retail financial service providers
will realize a significant increase in demand for their products and services.
However, despite these growth dynamics, the Company believes that the industry
is undergoing a period of consolidation. The Company believes that this
consolidation trend has resulted from a number of factors, including; (i)
economies of scale available to larger operators; (ii) use of technology as a
means to serve customers better and control large store networks; (iii)
inability of smaller operators to form the alliances necessary to deliver new
products, and (iv) increased licensing and regulatory burdens. This
consolidation process should provide the Company, as one of the largest store
networks, with opportunities for continued growth through selective
acquisitions.
5
Competitive Strengths
The Company believes that it has the following competitive strengths:
Store locations in favorable demographic areas. The Company has carefully chosen
desirable locations near its targeted customer base. Management adheres to a
strict set of market survey and location guidelines when selecting acquisition
targets and new store sites. The Company's store base is a mix of urban sites,
which are located in high-traffic shopping areas, and suburban sites, which are
located in strip malls near multi-family housing complexes.
High-quality customer service. As part of its retail and customer-driven
strategy, the Company focuses on providing friendly customer service in a clean
and attractive environment. Operating hours vary by location, but are typically
extended and designed to cater to those customers who, due to their work
schedules, cannot make use of "normal" banking hours. As part of its employee
training program, the Company's customer service representatives are encouraged
and instructed to treat customers in a friendly and courteous manner, which
management believes results in repeat business. The Company sends anonymous
market researchers posing as shoppers to each of its U.S. check cashing stores
monthly to measure customer service performance. Over the course of the fiscal
year, these stores consistently scored 85% on the quality of the store
appearance and customer service provided. Recent scores have been steadily
improving and have exceeded 90%.
Broad offering of products and services. Company stores offer a wide range of
consumer financial products and services to meet the demands of their respective
locales, including check cashing, money orders, money transfers and short-term
consumer loans. The Company also offers a variety of ancillary products and
services, including photo IDs, prepaid local and long distance phone service,
lottery tickets, electronic tax filing, bill payment, photocopy and fax
services.
Economies of scale. As a result of its acquisition strategy in the United
States, Canada and the, the Company has reached a size that enables it to
benefit from economies of scale and to negotiate favorable contracts with its
suppliers. In addition, the Company's market position enables it to enter into
favorable relationships with strategic partners like Western Union. Management
believes that the Company's size also allows it to gain greater access to
capital than its smaller competitors.
Management expertise. The regional managers of the Company have extensive
experience and expertise in the check cashing industry, as well as other retail
industries, which the Company believes provides it with a competitive advantage.
Furthermore, the Company has been largely successful in retaining the
operational managers formerly employed by the targets of its acquisitions. The
Company's senior management has extensive experience in banking, retailing and
financial services. In addition, the Company's management has significant
experience in acquiring and integrating businesses into the Company, and it
employs a disciplined approach to making such acquisitions.
Well-diversified credit risk. For the twelve months ended June 30, 2002, the
Company cashed 8.7 million checks totaling $3.0 billion, with an average face
value of $342. Additionally, through its consumer lending program, the Company
originates or makes direct unsecured short-term loans up to $700. The Company
actively manages its customer risk profile and collection efforts in order to
maximize revenues while maintaining losses within a targeted range. Management
has instituted control mechanisms that it believes have been effective in
managing risk, including: (i) check verification procedures; (ii) customer
identification cards; (iii) customer files, including customer photographs,
addresses, employment information and transaction history; (iv) point-of-sale
database systems; and (v) background checks, among others. As a result,
management believes that the Company is unlikely to sustain a material credit
loss from a single transaction or series of transactions. The Company has
experienced relatively low net write-offs as a percentage of the face amount of
checks cashed. For the fiscal year ended June 30, 2002, in the Company's check
cashing business, net write-offs as a percentage of face amount of checks cashed
were 0.24%. For the fiscal year ended June 30, 2002, with respect to loans
originated by the Company, net writeoffs as a percentage of originations were
2.0%.
6
Although the Company believes that these competitive strengths will enable it to
achieve its strategic objectives, it is possible that the Company could not be
able to capitalize on them. Changing demographics in areas surrounding the
Company's stores could negatively impact the quality of the store base.
Regulatory and technological changes could affect the products offered or the
prices charged for such products. The Company provides an extensive training
program for all of its employees, however; and as the Company continues to grow,
inability to attract, train, and recruit talented field personnel and corporate
management could negatively impact Company performance.
Strategy
The Company's business strategy is to capitalize on its competitive strengths by
increasing the revenues and profitability of its existing operations, by
continuing to grow through acquisition of check cashing store networks and by
developing of alternative store formats. Key elements of the Company's business
strategy include the following:
Maintaining and instilling a customer-driven retail philosophy. The Company has
focused on increasing its customer base through a service-oriented approach
designed to meet the needs of working, lower-income individuals and families in
need of basic consumer financial services. The Company believes it has
differentiated itself from its competitors by focusing on customer service. The
Company offers extended operating hours in clean, well-lighted and convenient
store locations to enhance appeal and stimulate store traffic. The Company's
research indicates that, although approximately 49% of its customers have bank
accounts, its customers prefer immediate access to cash without waiting for
check clearance. In addition, the Company believes that many of its customers
find great value in their ability to cash a payroll or government check
immediately, for a fee, at a location within close proximity to their home or
workplace at nearly any time of day. The Company's surveys indicate that the
widespread availability of ATM machines does not alter a customer's decision to
perform financial transactions at Company locations. The Company uses locally
targeted advertising, including direct mail, outdoor and event sponsorships, to
promote awareness of its products and its customer service. The Company plans to
continue to develop ways to improve service to its customers.
Introducing new products and services. The Company has developed a "one-stop
shop" concept to offer many consumer financial products and services to its
targeted customer base. The Company believes that its check cashing customers
enjoy the convenience of other services offered by the Company, such as the sale
of money orders, money transfer services and short-term consumer loans, as well
as a variety of related products and services that assist marginally banked or
credit-impaired customers to manage their personal finances more effectively. As
it has completed acquisitions, the Company has expanded the product and services
offerings of its newly acquired check cashing store networks, and it intends to
continue this strategy with future acquisitions. In particular, the Company has
continued to expand its successful consumer lending program by adding this
service to newly acquired or opened stores.
Growing through targeted acquisitions. Acquisitions have played an integral role
in the Company's growth. Since June 1997, the Company has acquired an aggregate
of over 369 owned or franchised stores. As a result of increasing industry
consolidation, the Company may be required to shift its acquisition strategy to
smaller check cashing store networks. Management will continue to seek
opportunistic acquisitions of well-managed check cashing store networks located
in areas with favorable demographics, including the southeastern and western
parts of the United States, Canada and the UK, as well as profitable check
cashing stores in areas that complement the Company's existing geographic
markets.
Developing alternative retailing platforms. In an effort to capitalize more
fully on the success of its consumer lending product, in September 1997 the
Company began opening stores under the name Loan Mart(R), which market primarily
unsecured short-term loans in a friendly office-like environment. The Company's
management believes the Loan Mart stores appeal to a broader market segment than
that which currently utilizes the Company's check cashing stores. The Company
currently operates 103 Loan Mart stores in the Seattle, Fresno, Sacramento,
Tucson, Las Vegas, Denver, Colorado Springs, Oklahoma City, Tulsa, Portland and
Phoenix areas and may develop stores in additional geographic areas. In
addition, the Company's subsidiary Money Mart(R) Express (formerly known as
moneymart.com(TM)) services and originates short-term consumer loans through 656
independent document transmitters in 17 states. Management believes that Loan
7
Mart stores and Money Mart Express allow the Company to access new customers and
significantly increase the Company's revenues and profitability. Management
believes that this and other platforms being explored by the Company complement
the strategy and operations of the existing check cashing stores.
Capitalizing on economies of scale. Because of the scale of its operation in an
otherwise highly fragmented industry, management of the Company believes it is
well positioned to take advantage of the current trend toward consolidation in
the check cashing industry. The Company believes it is able to operate more
profitably than smaller competitors as a result of its broader product
offerings, greater purchasing power, improved operating efficiencies and greater
access to capital.
Customers
Based upon a 2001 consumer survey conducted in several of the Company's markets
and the Company's operating experience, the Company believes that its core check
cashing customer group is composed of individuals between the ages of 18 and 44.
The majority of these individuals rent their homes, are employed and have annual
household incomes of between $10,000 and $35,000, with a median income of
$22,500. The Company believes that consumers value attention to customer
service, and their choice of check cashing stores is influenced by the Company's
convenient locations and extended operating hours.
At the Company's Loan Mart(R) stores, which primarily market short-term consumer
loans, customers are composed of individuals between the ages of 18 and 49. The
majority of these individuals rent their homes and are employed in
professional/managerial positions. A survey conducted by the Credit Research
Center of Georgetown University found that 51.5% of short-term consumer loan
customers reported household incomes of between $25,000 and $50,000 with 25.4%
in excess of $50,000. The survey also found that these customers choose
short-term consumer loans because of easy and fast approval and convenient
location.
Based on a 2001 market research survey performed for the Company's Canadian
subsidiary, the Company believes that the demographics of Canadian customers are
similar to those of the Company's existing U.S. customers. The survey found that
the typical Canadian customer is 32 years of age, employed in the trades/labor
or services sector and earning $22,000 annually. Although 97% of the surveyed
customers have a bank account, these consumers continue to use the Company's
services due to the fast and courteous service, the stores' extended operating
hours and convenient locations. A study was recently conducted showing that 9
million people in the UK, or approximately 24% of the adult population, are
without a bank account. The survey also found that 89% of UK customers have
annual incomes of below $30,000, and 62% are under the age of 35.
The Company believes that many of its customers are workers or independent
contractors who receive payment on an irregular basis and generally in the form
of a check. The Company's core customer group lacks sufficient income to
accumulate assets or to build savings. These customers rely on their current
income to cover immediate living expenses and cannot afford the delays inherent
in waiting for checks to clear through the commercial banking system.
Furthermore, the Company believes that many of its customers use its check
cashing services in order to gain immediate access to cash without having to
maintain a minimum balance in a checking account and incur the cost of
maintaining a checking account. In addition, although research conducted for the
Company indicates that approximately 49% of its U.S. customers do have bank
accounts, these customers use check cashing stores because they find the
locations and extended business hours of the Company's stores more convenient
than those of banks and because they value ability to receive cash immediately,
without waiting for a check to clear.
Products and Services
The Company's check cashing stores provide a broad range of consumer financial
products and services to its customers at convenient locations with extended
operating hours. Customers typically use the Company's stores to cash checks
(payroll, government, and personal), obtain short-term consumer loans and
utilize one or more of the additional financial services available at most
locations. In addition, customers use a variety of ancillary products, including
photo ID, prepaid local and long distance phone service, lottery tickets,
electronic tax filing, bill payment, photocopy and fax services.
8
Check Cashing
Customers may cash all types of checks at DFG check cashing locations, including
payroll checks, government checks and personal checks. In exchange for a
verified check, customers receive cash immediately and are not required to wait
several days for the check to clear. Both the customer's identification and the
validity of the check are verified (occasionally employing multiple sources)
pursuant to the Company's standard verification procedures before any cash is
distributed. Customers are charged a fee for this service (typically a small
percentage of the face value of the check), which varies depending upon the type
of check cashed and whether or not the customer has a previous record of cashing
checks at that location. For the twelve months ended June 30, 2002, check
cashing fees averaged approximately 3.53% of the face value of checks cashed.
The following charts present summaries by Consolidated Company, Domestic and
Foreign Operations of check cashing data for the periods indicated below:
CHECK CASHING FEE SUMMARY
Consolidated Company:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $2,301,861,000 $2,319,847,000 $2,784,267,000
Number of checks cashed............................ 7,991,128 7,490,406 8,328,176
Average face amount per check...................... $288.05 $309.71 $334.32
Average fee per check.............................. $8.80 $10.14 $11.69
Average fee as a % of face amount.................. 3.05% 3.28% 3.50%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $3,150,350,000 $2,969,455,000
Number of checks cashed............................ 9,406,749 8,689,819
Average face amount per check...................... $334.90 $341.72
Average fee per check.............................. $11.24 $12.06
Average fee as a % of face amount.................. 3.36% 3.53%
Domestic Operations:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $1,764,397,000 $1,723,912,000 $1,712,912,000
Number of checks cashed............................ 5,851,813 5,176,483 4,654,747
Average face amount per check...................... $301.51 $333.03 $367.99
Average fee per check.............................. $8.92 $10.73 $12.17
Average fee as a % of face amount.................. 2.96% 3.22% 3.31%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $1,728,504,000 $1,636,967,000
Number of checks cashed............................ 4,485,393 4,317,534
Average face amount per check...................... $385.36 $379.14
Average fee per check.............................. $12.19 $12.41
Average fee as a % of face amount.................. 3.16% 3.27%
9
Foreign Operations:
-----------------------------------------------------
For the Years Ended June 30,
-----------------------------------------------------
1998 1999 2000
-----------------------------------------------------
Face amount of checks cashed....................... $537,464,000 $595,935,000 $1,071,355,000
Number of checks cashed............................ 2,139,315 2,313,923 3,673,429
Average face amount per check...................... $251.23 $257.54 $291.65
Average fee per check.............................. $8.46 $8.98 $11.08
Average fee as a % of face amount.................. 3.37% 3.49% 3.80%
For the Years Ended June 30,
-------------------------------------
2001 2002
-------------------------------------
Face amount of checks cashed....................... $1,421,846,000 $1,332,488,000
Number of checks cashed............................ 4,921,356 4,372,285
Average face amount per check...................... $288.91 $304.76
Average fee per check.............................. $10.37 $11.71
Average fee as a % of face amount.................. 3.59% 3.84%
If a check cashed by the Company is not paid for any reason, the full face value
of the check is recorded as a loss in the period during which the check was
returned unpaid. The check is then sent to the store for collection; and, if it
remains uncollected, it is then sent to the Company's internal collections
department, which contacts the maker and/or payee of each returned check and, if
necessary, commences legal action. Recoveries on returned items are credited in
the period when the recovery is received. During fiscal 2002, approximately
74.7% of the face value of checks returned were ultimately collected by the
Company.
The following charts present summaries by Consolidated Company, Domestic and
Foreign Operations of the Company's returned check experience for the periods
indicated below:
RETURNED CHECK EXPERIENCE
Consolidated Company:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $13,823,000 $16,607,000 $22,866,000
Collections on returned checks..................... 9,908,000 12,505,000 17,097,000
Net write-offs of returned checks.................. 3,915,000 4,102,000 5,769,000
Collections as a percentage of returned checks..... 71.7% 75.3% 74.7%
Net write-offs as a percentage of check
cashing revenues................................ 5.6% 5.4% 5.9%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.17% 0.18% 0.21%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $27,938,000 $27,875,000
Collections on returned checks..................... 19,752,000 20,812,000
Net write-offs of returned checks.................. 8,186,000 7,063,000
Collections as a percentage of returned checks..... 70.7% 74.7%
Net write-offs as a percentage of check
cashing revenues................................ 7.7% 6.7%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.26% 0.24%
10
Domestic Operations:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $10,161,000 $11,246,600 $12,019,000
Collections on returned checks..................... 6,755,000 7,646,040 7,808,000
Net write-offs of returned checks.................. 3,406,000 3,600,560 4,211,000
Collections as a percentage of returned checks..... 66.5% 68.0% 65.0%
Net write-offs as a percentage of check
cashing revenues................................ 6.5% 6.5% 7.4%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.19% 0.21% 0.25%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $14,519,000 $15,412,000
Collections on returned checks..................... 8,872,000 10,560,000
Net write-offs of returned checks.................. 5,647,000 4,852,000
Collections as a percentage of returned checks..... 61.1% 68.5%
Net write-offs as a percentage of check
cashing revenues................................ 10.3% 9.1%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.33% 0.30%
Foreign Operations:
--------------------------------------------------
For the Years Ended June 30,
--------------------------------------------------
1998 1999 2000
--------------------------------------------------
Face amount of returned checks..................... $3,662,000 $5,360,400 $10,847,000
Collections on returned checks..................... 3,153,000 4,858,960 9,289,000
Net write-offs of returned checks.................. 509,000 501,440 1,558,000
Collections as a percentage of returned checks..... 86.1% 90.7% 85.6%
Net write-offs as a percentage of check
cashing revenues................................ 2.8% 2.4% 3.8%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.09% 0.08% 0.15%
For the Years Ended June 30,
---------------------------------
2001 2002
---------------------------------
Face amount of returned checks..................... $13,419,000 $12,463,000
Collections on returned checks..................... 10,880,000 10,252,000
Net write-offs of returned checks.................. 2,539,000 2,211,000
Collections as a percentage of returned checks..... 81.1% 82.3%
Net write-offs as a percentage of check
cashing revenues................................ 5.0% 4.3%
Net write-offs as a percentage of face amount
of checks cashed................................ 0.18% 0.17%
11
Consumer Lending
Effective June 13, 2002, the Company entered into an agreement with County Bank
of Rehoboth Beach, Delaware ("County"), a federally insured depository
institution. The Company acts as a servicer for County, marketing unsecured
short-term loans to customers with established bank accounts and verifiable
employment. Loans are made for amounts up to $500, with terms of 7 to 23 days.
Under this program, the Company earns servicing fees which are subject to
reduction if the related loans are not collected. County originated
approximately $15 million of loans through the Company's locations and document
transmitters during the fiscal year ended June 30, 2002.
During the year ended June 30, 2002 Dollar Financial Group, Inc. entered into a
Participation and Termination Agreement ("Eagle Agreement") with Eagle National
Bank ("Eagle"), a national banking association, and related entities. Under the
Eagle Agreement, Eagle discontinued the business of offering short-term consumer
loans through the Company's locations and document transmitters.
The Company had previously acted for Eagle marketing unsecured short-term loans
to customers with established bank accounts and verifiable employment. Loans
were made for amounts up to $500, with terms of 14 or 28, days which could be
refinanced a maximum of four times and two times, respectively. Under this
program, the Company earned origination and servicing fees. Eagle originated or
extended approximately $399 million and $377 million of loans through the
Company's locations and document transmitters during the fiscal year ended June
30, 2002 and 2001, respectively.
In addition to marketing the credit services of banks, the Company also acts as
a direct consumer lender on its own behalf in Canada, the UK and certain U.S.
markets. These loans are made for amounts up to $700, with terms of 7 to 28
days, which can be extended a maximum of four times. The Company bears the
entire risk of loss related to these loans. The Company made or extended
approximately $306 million of loans through the Company's locations and document
transmitters during the fiscal year ended June 30, 2002. The Company had
approximately $16 million and $10 million of consumer loans on its balance sheet
at June 30, 2002 and 2001, respectively, which is reflected in loans and other
receivables. Net writeoffs for such loans for the fiscal years ended June 30,
2002 and 2001 were $5.5 million and $4.4 million, respectively, which are
reflected in revenue on the Statements of Operations.
The Company originates its short-term loans through its check cashing store
network, its Money Mart(R) Express document transmitter locations and through
103 stores under the Loan Mart(R) name, which offer primarily unsecured
short-term loans. The Company's management believes the Loan Mart stores appeal
to a broader market segment than that which currently utilizes the Company's
check cashing stores. Unlike many of the Company's check cashing customers, the
Company's targeted Loan Mart(R) and Money Mart(R) Express (formerly known as
moneymart.com(TM)) customer has, and is required to have, a bank account but
experiences temporary shortages in cash from time to time. By offering these
services on a variety of platforms, the Company hopes to attract this target
customer who might not otherwise utilize check cashing services. The first Loan
Mart(R) stores were opened in late September 1997 and since then an additional
98 stores have been opened. These stores are located in Seattle, Fresno,
Sacramento, Phoenix, Tucson, Denver, Colorado Springs, Portland, Tulsa, Oklahoma
City, and Las Vegas.
Other Services and Product Extensions
In addition to check cashing and short-term loans, the Company's customers are
able to choose from a variety of products and services when conducting business
at the Company's check cashing or Loan Mart(R) locations. These services include
electronic tax filing, utility bill payment, prepaid local and long distance
phone service, photocopy and fax services. A survey of the Company's customers
by an independent third party revealed that over 50% of customers use other
services in addition to check cashing. Management believes that providing these
services helps to implement the Company's customer-driven strategy by creating a
convenient "one-stop" shopping atmosphere for its customers' financial service
needs.
12
Among the most significant products and services other than check cashing and
short-term loans offered by the Company are the following:
o Money Transfers--Through a strategic alliance with Western Union, customers
can transfer funds to any location providing Western Union money transfer
services. Western Union currently has 117,000 agents in more than 185
countries throughout the world. The Company receives a percentage of the
fee charged by Western Union for the transfer as its commission. For the
twelve months ended June 30, 2002, the Company generated, primarily at its
check cashing stores, total money transfer fees of $10.1 million.
o Money Orders--The Company's stores exchange money orders for cash and/or
checks for a minimal fee, with an average fee and face amount of $1.09 and
$133, respectively, for such transactions during the fiscal year ended June
30, 2002. Money orders are typically used as a means of payment of rent and
utility bills for customers who do not have checking accounts. For the
twelve months ended June 30, 2002, the Company's check cashing stores and
certain Loan Mart(R) locations sold a total of 2.7 million money orders,
generating total money order revenues of $3.0 million.
13
Store Operations
Locations
The following chart sets forth the number of stores in operation as of the dates
indicated:
June 30,
------------------------------------------
Markets 1998 1999 2000 2001 2002
-------
------------------------------------------
CALIFORNIA
Southern................................. 41 41 44 47 47
Northern................................. 77 79 92 95 93
PENNSYLVANIA
Philadelphia............................. 11 10 11 8 8
Pittsburgh............................... 10 10 10 11 11
OHIO
Cleveland................................ 24 22 21 19 19
Other Ohio cities (1).................... 8 5 7 5 4
ARIZONA
Phoenix.................................. 16 25 34 40 45
Tucson................................... 0 0 7 13 16
Texas.................................... 23 3 3 3 4
Virginia................................. 14 14 15 16 16
Washington............................... 15 15 17 21 18
Utah..................................... 3 3 7 5 5
MD/DC.................................... 4 4 4 11 10
New Mexico............................... 4 4 4 3 3
Louisiana................................ 3 3 3 4 4
Hawaii................................... 3 3 3 3 3
Wisconsin................................ 1 1 1 1 1
Colorado................................. 0 0 6 14 15
Oklahoma................................. 0 0 8 13 13
Oregon................................... 0 0 2 5 5
Nevada................................... 0 0 1 11 11
Franchised locations..................... 3 3 0 0 0
UNITED KINGDOM........................... 0 11 107 126 123
Franchised locations and check cashing agents
0 0 264 261 290
CANADA................................... 86 101 139 157 167
Franchised locations..................... 70 80 81 86 87
------------------------------------------
Total Stores............................. 416 437 891 978 1,018
==========================================
(1) These other cities include Akron, Canton, Youngstown, and Cincinnati.
Management adheres to a strict set of market survey and location guidelines when
selecting acquisition targets and new store sites. The Company's store base is a
mix of urban sites, which are located in high-traffic shopping areas, and
suburban locations, which are in strip malls near multi-family housing
complexes.
14
Layout and Facilities
As part of its retail and customer-driven strategy, the Company presents a clean
and attractive environment and an appealing format for its check cashing stores.
Size varies by location, but the stores are generally 1,000 to 1,400 square
feet, with approximately half of that space allocated to the teller and back
office areas. There are typically three to five windows available for customer
transactions.
Operating hours vary by location, but are typically extended and designed to
cater to those customers who, due to work schedules, cannot make use of "normal"
banking hours. A typical store operates from 9:00 A.M. to 9:00 P.M. during
weekdays and on Saturdays, and from 10:00 A.M. to 5:00 P.M. on Sundays. In
certain locations, the Company operates stores on a 24-hour, seven-days-per-week
basis.
All of the Company's individual stores are leased, generally under leases
providing for an initial multi-year term and renewal terms of from one to five
years. The Company generally assumes the responsibility for required leasehold
improvements, including signage, customer service representative partitions,
alarm systems, computers, time-delayed safes and other office equipment. The
leases relating to stores that provide government benefits distribution
typically allow for the termination of a store's lease in the event of the loss
of the related government contract.
Technology
The Company currently has an enterprise-wide transaction processing computer
network. The Company believes that this system has supported an improvement in
customer service by reducing transaction time and has enabled the Company to
manage returned-check losses better and to comply with regulatory record keeping
and reporting requirements.
The Company is continuing to enhance a Point-of-Sale ("POS") transaction
processing system composed of a networked hardware and software package with
integrated database and reporting capabilities. The POS system provides its
stores with instantaneous customer information, thereby reducing transaction
time and improving the efficiency of the Company's credit verification process.
Additionally, the Company has deployed an enhanced loan management system that
provides improved customer service processing and management of loan
transactions. The POS system, in conjunction with the enhanced loan management
system, has improved the Company's ability to offer new products and services,
while contributing to an improvement in customer service.
Security
The principal security risks which confront the Company's check cashing
operations are robbery and defalcation. The Company's management has implemented
extensive security systems, dedicated security personnel and management
information systems to address both areas of potential loss. Management believes
that its systems are among the most effective in the industry. Total net
security losses represented less than 1.1% of both total revenues and face value
of checks cashed for the twelve months ended June 30, 2002.
Most store employees operate behind bullet-resistant glass and steel partitions,
and the back office, safe and computer areas are locked and closed to customers.
Each store's security measures include safes, electronic alarm systems monitored
by third parties, control over entry to teller areas, detection of entry through
perimeter openings, walls, and ceilings and the tracking of all employee
movement in and out of secured areas. In addition, employees use cellular phones
to ensure safety and security of staff whenever they are outside the secure
teller area. This centralized system includes the following security measures in
addition to those mentioned above: identical alarm systems in all stores, remote
control over alarm systems, arming/disarming and changing user codes and
mechanically and electronically controlled time-delay safes.
Due to the high volumes of cash, food stamps and negotiable instruments handled
at the Company's locations, daily monitoring, unannounced audits and immediate
responses to irregularities are critical in combating defalcations. The Company
has an internal auditing program which includes periodic unannounced store
audits and cash counts at randomly selected locations.
15
Advertising and Marketing
The Company is continually surveying and researching its customer trends and
purchasing patterns in order to place the most effective advertising for each
market. The Company's U.S. marketing promotions typically include in-store
merchandising materials, advertising support, and store personnel instruction in
the use of the materials. Using statistical data from its transaction database,
the Company utilizes sophisticated direct marketing strategies to communicate
with both existing customers and prospects who have demographic characteristics
to existing customers. National television advertising promotes the Money Mart
brand in Canada. The Company also arranges cooperative advertising for its
products and services; for example, the Company does cooperative advertising
with Western Union. Store managers are also provided with local store marketing
training that sets standards for promotions and marketing their store on a local
grass-roots level including attendance and sponsorship of local community
events. A national classified telephone directory company is utilized to place
all Yellow Pages advertising as effectively and prominently as possible. The
Company does research into directory selection to assure effective communication
with its target customers.
Competition
The check cashing industry in the United States is highly competitive and is
expected to become even more so as the industry consolidates. As of March 2002,
a total of approximately 13,000 check cashing stores were operating in the
United States.
DFG, with 1,018 stores, is the second largest check cashing store network in the
United States and the largest such network in Canada and the UK. According to an
industry survey, the seven largest chains in the U.S. control less than 20% of
the total number of U.S. stores, which reflects the fragmented nature of the
check cashing industry.
In addition to other check cashing stores in the U.S., Canada and UK, DFG
competes with banks and other financial services entities, as well as with
retail businesses, such as grocery and liquor stores, which will cash checks for
their customers. Some competitors, primarily grocery stores, do not charge a fee
to cash a check. However, these merchants provide this service to a limited
number of customers with superior credit ratings, and will typically only cash
"first party" checks, or those written on the customer's account and made
payable to the store.
The Company also competes with companies that offer automated check cashing
machines, and with franchised kiosk units that provide check-cashing and money
order services to customers, which can be located at places such as convenience
stores, bank lobbies, grocery stores, discount retailers and shopping malls.
Regulation
The Company is subject to regulation in several of the jurisdictions in which it
operates, including jurisdictions that regulate consumer lending, check cashing
fees, require prompt remittance of money order proceeds to money order
suppliers, or require the registration of check cashing companies. In addition,
the Company is subject to federal and state regulation which requires the
reporting and recording of certain currency transactions; and certain of the
Company's operations are also subject to federal and state regulations governing
consumer protection and lending practices.
In the majority of the states in which the Company engages in consumer lending
activities, it acts as an agent for County, a federally insured financial
institution chartered under the laws of the state of Delaware. Pursuant to its
contractual relationship, the Company provides County with marketing, servicing
and collections services for its unsecured short-term loan product that is
offered under the Company's registered service mark Cash 'Til Payday(R). In four
states, with appropriate enabling legislation, the Company has opted to offer
unsecured short-term loans directly to consumers, also under the Company's
registered service mark Cash 'Til Payday(R). Currently, the Company offers Cash
'Til Payday(R) loans directly to consumers in California, Colorado, Oregon and
Wisconsin.
16
County is subject to federal and state banking regulations. Legislation has been
introduced at both the state and federal levels that could affect the Company's
ability to generate origination fees as an agent for a bank, as well as the
Company's ability to offer Cash 'Til Payday loans directly to consumers. While
the Company does not believe that any federal regulation will be passed, if
enacted the Company would not be able to market short-term loans as currently
structured.
State Regulation
To date, the regulation of check cashing fees has been restricted to the state
level. The Company is currently subject to fee regulation in seven states:
Pennsylvania, Ohio, California, Hawaii, Arizona, Maryland, Louisiana and the
District of Columbia, where regulations set maximum fees for cashing various
types of checks. The Company's fees comply with all state regulations.
The following chart presents a summary of current state fee regulations for
check cashing operations in those states where the Company's check cashing
stores are currently located:
CURRENT CHECK CASHING FEE REGULATIONS
California: Maximum of 3.0% fee for government and payroll checks (3.5% without specified
identification) or $3.00, whichever is greater. Permits one-time $10.00 fee to
issue identification and no more than $5.00 for identification replacement.
Ceiling fees set in 1992.
Louisiana: Maximum of 2.0% fee for government assistance checks. Ceiling fees set in 2000.
Ohio: Maximum of 3.0% fee for government checks. Ceiling fees set in 1993.
Washington, D.C.: Maximum of 5.0% fee for government and payroll
checks, 7.0% fee for an insurance check, 10.0% fee for
personal checks or money orders or $4.00, whichever is
greater. Ceiling fees set in 1998.
Hawaii: Maximum of 3.0% fee for government assistance checks,
5.0% fee for payroll checks, 10.0% fee for personal
checks or money orders or $5.00, whichever is greater.
Permits one-time $10.00 fee to issue identification and
no more than $5.00 for identification replacement.
Ceiling fees set in 1999.
Pennsylvania: Maximum of 2.5% for government checks provided that valid ID is presented, 3.0%
for payroll checks and 10.0% for personal checks. Permits one-time $10 customer
setup fee. Ceiling fees set in 1998.
Arizona: Maximum of 3.0% fee for government checks or $5.00, whichever is greater. Ceiling
fees set in 2000.
Maryland: Maximum of 2.0% fee for government checks or $3.00 whichever is greater, 10.0% fee
for personal checks, 4.0% fee for all other checks or $5.00, whichever is greater.
Permits one-time $5.00 membership fee. Ceiling fees set in 2000.
17
The Company has determined, primarily for regulatory reasons, that it should
make Cash 'Til Payday(R) loans directly to consumers in certain states where
advantageous enabling legislation exists. The Company has determined to refrain
from participating in the consumer lending business altogether in certain other
states where legislation is unfavorable or the service is not likely to be
profitable. The Company is currently able to participate in the consumer lending
business in all states in which it has a sizable presence, although there is no
guarantee that this situation will continue at the federal or state level.
The following chart presents a summary of the states where the Company makes the
Cash 'Til Payday(R) loans directly to consumers in accordance with state law.
The chart also summarizes key aspects of the state law that govern these loans:
STATES IN WHICH THE COMPANY MAKES CASH 'TIL PAYDAY(R)LOANS DIRECTLY
California: Maximum fee of 15% of the face amount of the check tendered by borrower as
security for loan.
Oregon: No maximum fee mandated by state.
Colorado: Maximum fee of 20% of first $300 borrowed, plus 7.5% fee for amounts over
$300, up to $500.
Wisconsin: No maximum fee mandated by state.
Other State Requirements
The Company operates a total of 148 stores in California and Maryland. These
states are among those that have enacted so-called "prompt remittance" statutes.
Such statutes specify a maximum time for the payment of proceeds from the sale
of money orders to the issuer of such money orders thereby limiting the number
of days or "float" which the Company has use of the money from the sale of such
money orders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
In addition, certain states, including California, Ohio, Utah, Pennsylvania,
Washington and the District of Columbia, have enacted licensing requirements for
check cashing stores. Other states, including Ohio, require the conspicuous
posting of the fees charged by each store. A number of states, including Ohio,
also have imposed recordkeeping requirements while others require check cashing
stores to file fee schedules with the state.
The adoption of check cashing fee regulations and prompt remittance statutes in
additional jurisdictions or the reduction of maximum allowable fees in the
jurisdictions currently regulating check cashing could have an adverse effect on
the Company's business and could restrict the ability of the Company to expand
its operations into certain states. As the Company develops new products and
services in the consumer finance area, it may become subject to additional
federal and state regulations governing those areas.
In addition to fee regulations and prompt remittance statutes, certain
jurisdictions have also (i) placed limitations on the commingling of money order
proceeds and (ii) established minimum bonding or capital requirements. The
Company's consumer lending activities are subject to certain state and federal
regulations, including, but not limited to, regulations governing lending
practices and terms, such as truth in lending and usury laws.
There can be no assurance that the Company will not be materially adversely
affected by legislation or regulations enacted in the future or that existing
regulations will not restrict the ability of the Company to continue its current
methods of operations or to expand its operations.
18
Federal Regulation
Pursuant to regulations promulgated under the Bank Secrecy Act ("BSA") by the
U.S. Treasury Department, transactions involving currency in an amount greater
than $10,000, or the purchase of monetary instruments for cash in amounts from
$3,000 to $10,000, must be reported. In general, every financial institution,
including the Company, must report each deposit, withdrawal, exchange of
currency or other payment or transfer, whether by, through, or to the financial
institution, that involves currency in an amount greater than $10,000. In
addition, multiple currency transactions must be treated as a single transaction
if the financial institution has knowledge that the transactions are by, or on
behalf of, any one person and result in either cash-in or cash-out totaling more
than $10,000 during any one business day. Management believes that the Company's
POS system and employee training programs are essential to the Company's
compliance with these regulatory requirements.
Also, pursuant to the BSA, non-bank financial institutions, money services
businesses ("MSB's") are required by the Money Laundering Act of 1994 to
register with the Department of Treasury. MSB's include check cashers and
sellers of money orders. Under the final rule, MSB's must renew their
registrations every two years. In addition, MSB's must maintain a list of their
agents and update the list annually with the list being made available for
examination.
In addition to the BSA, a new act was signed into law on October 26, 2001 called
the USA PATRIOT Act ("Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001"). The act is
designed to "deter and punish terrorist acts in the United States and around the
world and enhance law enforcement investigatory tools." Title III of the Act
includes numerous anti-money-laundering measures designed to assist in the
identification and seizure of terrorist funds, including provisions that will
directly impact check cashers and other MSB's.
Specifically, Section 352 of the USA PATRIOT Act requires all check cashers to
establish their own anti-money laundering programs by July 24, 2002. Such
programs must include: (i) development of internal policies, procedures and
controls; (ii) designation of an anti-money laundering compliance officer within
the company; (iii) implementation of ongoing employee training; (iv) an
independent auditing function to test the program; and (v) requirements for
responding to law enforcement. The Company believes it is in compliance with the
act.
In Canada, the federal government does not directly regulate the check cashing
or payday-loan industries, nor do provincial governments impose any regulations
specific to the industry. The exception is in the Province of Quebec, where
check cashing stores are not permitted to charge a fee to cash government
checks.
In the UK, the Office of Fair Trading ("OFT") is responsible for regulating
competition policy and consumer protection. To date, the OFT has not enacted any
regulations specific to the check cashing or "payday" loan industries.
Proprietary Rights
The Company has the rights to a variety of service marks relating to products or
services it provides in its stores. In addition, the Company has service marks
relating to the various names under which the Company's stores operate.
Insurance Coverage
The Company maintains insurance coverage against losses, including theft, to
protect its earnings and properties. In addition, the Company maintains
insurance coverage against criminal acts, which coverage has a deductible of
$50,000 per occurrence.
19
Employees
As of June 30, 2002, the Company employed 3,343 persons worldwide, composed of:
255 persons employed in the Company's accounting, management information
systems, legal, human resources, treasury, finance and administrative
departments (including Canada and the UK), and 3,088 persons employed in stores,
including customer service representatives, store managers, regional
supervisors, operations directors and administrative personnel.
None of the Company's employees is represented by labor unions, and management
believes that its relations with its employees are good.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
This report may contain certain forward-looking statements regarding the
Company's expected performance for future periods, and actual results for such
periods may materially differ. Such forward-looking statements involve risks and
uncertainties, including risks of changing market conditions in the overall
economy and the industry, consumer demand, regulatory factors and the success of
the Company's strategies and other factors detailed from time to time in the
Company's annual and other reports filed with the Securities and Exchange
Commission.
20
Item 2. PROPERTIES
The Company leases all store premises, which typically have initial terms of 5
to 20 years and contain provisions for renewal options; additional rental
charges based on revenue, and payment of real estate taxes and common area
charges. With respect to leased stores open as of June 30, 2002, the following
table shows the number of store leases expiring during the periods indicated,
assuming the exercise of the Company's renewal options:
Period Ending Number of
June 30, Leases Expiring
--------- ---------------
2003 76
2004 - 2007 318
2008 - 2012 196
2013 - 2017 42
2018 - 2022 9
------
641
21
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
pending or threatened litigation, other than routine litigation and
administrative proceedings arising in the ordinary course of business, that
would have a material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common stock.
DFG Holdings, Inc. is the sole record and beneficial owner of all of the
Company's outstanding common stock.
The Indenture dated November 15, 1996 between the Company and State Street Bank
and Trust Company, as trustee (the "Indenture"), relating to the 10 7/8% Senior
Notes due 2006, the agreement dated December 18, 1998 relating to the 10 7/8%
Senior Subordinated Notes due 2006 as well as the Company's credit agreement,
contain restrictions as to the declaration and payment of dividends. See "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to consolidated financial statements included
elsewhere in this report.
Item 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial information on the following page
should be read in conjunction with the consolidated financial statements and
notes thereto and the information contained in "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report. The balance sheet and statement of operations data of
the Company as of and for the years ended June 30, 1998, 1999, 2000, 2001 and
2002 have been derived from historical consolidated financial statements of the
Company.
23
Year ended June 30,
---------------------------------------------------------------------------------------
1998 1999(1), (2) 2000(3) 2001(4) 2002(5)
---------------------------------------------------------------------------------------
(dollars in thousands, except check cashing data)
Statement of Operations Data:
Revenues:
Revenues from check cashing........ $ 70,306 $ 76,304 $ 97,350 $ 105,690 $ 104,792
Revenues from consumer lending, net 7,448 18,559 34,787 58,367 69,799
Revenues from money transfer fees.. 5,910 6,687 7,881 9,444 10,098
Revenues from government services.. 14,311 6,753 6,375 4,282 1,734
Other revenues..................... 13,210 12,676 19,360 17,716 15,553
---------------------------------------------------------------------------------------
Total revenues........................ 111,185 120,979 165,753 195,499 201,976
Store and regional expenses:
Salaries and benefits.............. 33,670 35,329 47,058 57,453 65,295
Occupancy.......................... 9,656 9,609 12,800 16,881 18,087
Depreciation....................... 2,018 2,227 4,683 5,829 6,522
Other.............................. 24,002 23,764 36,503 45,321 46,238
---------------------------------------------------------------------------------------
Total store and regional expenses..... 69,346 70,929 101,044 125,484 136,142
Establishment of reserves for new
consumer lending arrangements...... - - - - 2,244
Corporate expenses.................... 12,462 13,648 20,864 22,500 24,516
Loss on store closings and sales...... 45 103 249 926 1,154
Goodwill amortization................. 3,624 4,686 5,564 4,710 -
Other depreciation and amortization... 1,152 1,020 1,620 1,952 2,709
Interest expense...................... 12,945 16,401 17,491 20,361 18,694
Recapitalization costs and other
non-recurring items................ - 12,575 1,478 - 281
Writedown of goodwill................. 12,870 - - - -
---------------------------------------------------------------------------------------
(Loss) income before income taxes and
extraordinary item................. (1,259) 1,617 17,443 19,566 16,236
Income tax provision ................. 5,538 3,881 12,043 12,876 10,199
---------------------------------------------------------------------------------------
(Loss) income before extraordinary item (6,797) (2,264) 5,400 6,690 6,037
Extraordinary loss on debt
extinguishment
(net of income tax benefit of $45). - 85 - - -
---------------------------------------------------------------------------------------
Net (loss) income .................... $ (6,797) $ (2,349) $ 5,400 $ 6,690 $ 6,037
=======================================================================================
Operating and Other Data:
Adjusted EBITDA (6)................... $ 31,526 $ 38,619 $ 48,405 $ 53,885 $ 48,314
Adjusted EBITDA margin (6)............ 28.4% 31.9% 29.2% 27.6% 23.9%
Net cash provided by (used in):
Operating activities............... 18,003 15,951 16,792 16,442 14,453
Investing activities............... (4,237) (23,471) (44,526) (32,365) (10,108)
Financing activities............... (12,699) 18,269 35,306 15,602 9,409
Stores in operation at end of period.. 416 437 891 978 1,018
Check Cashing Data:
Face amount of checks cashed.......... $2,301,861,000 $2,319,847,000 $2,784,267,000 $3,150,350,000 $2,969,455,000
Number of checks cashed............... 7,991,128 7,490,406 8,328,176 9,406,749 8,689,819
Average face amount per check cashed.. $288.05 $309.71 $334.32 $334.90 $341.72
Average fee per check................. $8.80 $10.14 $11.69 $11.24 $12.06
Average fee as a % of face amount..... 3.05% 3.28% 3.50% 3.36% 3.53%
Balance Sheet Data (at end of period):
Cash.................................. $ 55,501 $ 65,782 $ 73,288 $ 72,452 $ 86,633
Total assets.......................... 165,850 203,709 259,714 276,172 291,312
Total indebtedness.................... 112,675 142,166 179,146 197,136 208,191
Shareholder's equity.................. 29,454 36,334 39,595 42,624 53,515
24
(1) On November 13, 1998, Holdings entered into an agreement and plan of
merger (the "Merger Agreement") with DFG Acquisition, Inc.,
("Acquisition") a Delaware corporation, controlled by Green Equity
Investors II, L.P., a Delaware limited partnership ("GEI II") and the
stockholders of Holdings party thereto, providing for the merger of
Acquisition with and into Holdings, with Holdings as the surviving
corporation (the "Merger"). Holdings and Acquisition consummated the
Merger on December 18, 1998.I In the Merger, the senior members of
management of Holdings retained substantially all of their stock in the
surviving corporation, and the other stockholders received cash in
exchange for their shares of Holdings. The Merger was accounted for as
a recapitalization of Holdings.
(2) On February 10, 1999, the Company acquired all of the outstanding
shares of Instant Cash Loans Limited ("ICL"), which operated eleven
stores in the UK. The initial purchase price for this acquisition was
$9.4 million plus initial working capital of approximately $2.0 million
and was funded with the issuance of the Company's 10 7/8% Senior
Subordinated Notes Due 2006. On February 17, 1999, National Money Mart
Company, a subsidiary of the Company, acquired the remaining 86.5%
partnership interest in its Calgary Money Mart Partnership ("Calgary").
Calgary operated six stores in Alberta, Canada. The aggregate purchase
price for this acquisition was $5.6 million and was funded with the
issuance of the Company's 10 7/8% Senior Subordinated Notes Due 2006.
(3) On July 7, 1999, the Company acquired all of the outstanding shares of
Cash A Cheque Holdings Great Britain Limited ("CAC"), which operated 44
company owned stores in the UK. The initial purchase price for this
acquisition was $12.5 million and was funded through excess internal
cash, the Company's revolving credit facility and the Company's 10 7/8%
Senior Subordinated Notes Due 2006. The excess of the purchase price
over the fair value of the identifiable net assets acquired was $8.2
million. Additional consideration of $9.7 million was subsequently paid
based under the profit-based earn-out agreement. On November 18, 1999,
the Company acquired all of the outstanding shares of Cheques R Us,
Inc. ("CRU") and Courtenay Money Mart Ltd. ("Courtenay"), which
operated six stores in British Columbia. The aggregate purchase price
for this acquisition was $1.2 million and was funded through excess
internal cash. The excess of the purchase price over the fair value of
identifiable net assets acquired was $1.1 million. On December 15,
1999, the Company acquired all of the outstanding shares of Cash
Centres Corporation Limited ("CCL"), which operated five company owned
stores and 238 franchises in the UK. The aggregate purchase price for
this acquisition was $8.4 million and was funded through the Company's
revolving credit facility. The excess of the purchase price over the
fair value of identifiable net assets acquired was $7.7 million.
Additional consideration of $2.7 million was subsequently paid based
under a profit-based earn-out agreement. On February 10, 2000, the
Company acquired substantially all of the assets of CheckStop, Inc.
("CheckStop"), which is a payday-loan business operating through 150
independent document transmitters in 17 states. The aggregate purchase
price for this acquisition was $2.6 million and was funded through the
Company's revolving credit facility. The excess of the purchase price
over the fair value of identifiable net assets acquired was $2.4
million. Additional consideration of $250,000 was subsequently paid
based upon a future results of operations earn-out agreement.
(4) On August 1, 2000, the Company purchased all of the outstanding shares
of West Coast Chequing Centres, Ltd ("WCCC"), which operated six stores
in British Columbia. The aggregate purchase price for this acquisition
was $1.5 million and was funded through excess internal cash. The
excess price over the fair value of identifiable net assets acquired
was $1.4 million. On August 7, 2000, the Company purchased
substantially all of the assets of Fast `n Friendly Check Cashing
("F&F"), which operated 8 stores in Maryland. The aggregate purchase
price for this acquisition was $700,000 and was funded through the
Company's revolving credit facility. The excess purchase price over
fair value of identifiable net assets acquired was $660,000. Additional
consideration of $150,000 was subsequently paid based on a revenue
earn-out agreement. On August 28, 2000, the Company purchased primarily
all of the assets of Ram-Dur Enterprises, Inc. d/b/a AAA Check Cashing
Centers ("AAA"), which operated five stores in Tucson, Arizona. The
aggregate purchase price for this acquisition was $1.3 million and was
funded through the Company's revolving credit facility. The excess
purchase price over fair value of identifiable net assets acquired was
$1.2 million. On December 5, 2000, the Company purchased all of the
outstanding shares of Fastcash Ltd. ("FCL"), which operated 13 company
owned stores and 27 franchises in the UK. The aggregate purchase price
for this acquisition was $3.1 million and was funded through the
Company's revolving credit facility. The excess of the purchase price
over the fair value of the identifiable assets acquired was $2.7
million. The agreement also includes a maximum potential contingent
payment to the sellers of $2.8 million based on levels of
profitability.
(5) On July 1, 2001 the Company adopted Financial Accounting Standards
Board Opinion No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). In accordance with the provisions of SFAS No. 142 the Company
ceased amortization of goodwill.
(6) Adjusted EBITDA is earnings before interest, income taxes,
depreciation, amortization, recapitalization costs and other
non-recurring items, writedown of goodwill, loss on store closings and
sales and establishment of reserves for new consumer lending
arrangements. Adjusted EBITDA does not represent cash flows as defined
by accounting principles generally accepted in the United States and
does not necessarily indicate that cash flows are sufficient to fund
all of the Company's cash needs. Adjusted EBITDA should not be
considered in isolation or as a substitute for net income (loss), cash
flows from operating activities, or other measures of liquidity
determined in accordance with accounting principles generally accepted
in the United States. The Adjusted EBITDA margin represents Adjusted
25
EBITDA as a percentage of revenues. Management believes that these
ratios should be reviewed by prospective investors because the Company
uses them as one means of analyzing its ability to service its debt,
and the Company understands that they are used by certain investors as
one measure of a company's historical ability to service its debt. Not
all companies calculate EBITDA in the same fashion, and therefore these
ratios as presented may not be comparable to other similarly titled
measures of other companies. The table below reconciles net income as
reported on the Statement of Operations to Adjusted EBITDA:
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Net (loss) income $ (6,797) $ (2,349) $ 5,400 $ 6,690 $ 6,037
Add:
Loss on store closings and sales 45 103 249 926 1,154
Goodwill amortization 3,624 4,686 5,564 4,710 -
Other depreciation and amortization 3,170 3,247 6,303 7,781 9,231
Interest expense 12,945 16,401 17,491 20,361 18,694
Other (Foreign currency loss/(gain)) 131 (10) (123) 541 474
Writedown of goodwill 12,870 - - - -
Income tax provision 5,538 3,881 12,043 12,876 10,199
Recapitalization costs - 12,575 133 - -
Non-recurring charges - - 1,345 - 281
Establishment of reserves for new
consumer lending arrangements - - - - 2,244
Extraordinary items - 85 - - -
------------ ------------ ------------- ------------ ----------
Adjusted EBITDA $31,526 $38,619 $48,405 $53,885 $48,314
============ ============ ============= ============ ==========
26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company has historically derived its revenues primarily from providing check
cashing services and other consumer financial products and services including
money orders, money transfers, short-term consumer loans and bill payment. In
addition, certain Company stores provide for the distribution of public
assistance benefits and food coupons. For the years ended June 30, 2000, 2001
and 2002, check cashing revenues as a percentage of total revenues approximated
58.7%, 54.1% and 51.9% respectively, and consumer lending revenues as a
percentage of total revenues approximated 21.0%, 29.9% and 34.6%, respectively.
The check cashing industry in the United States is highly fragmented and has
experienced considerable growth as store locations have increased from
approximately 1,350 in 1986 to approximately 13,000 as of March 2002. The
Company believes it is one of only seven domestic check cashing store networks
with more than 100 locations. The industry is composed of mostly local chains
and single-unit operators. The Company believes that industry growth has been
fueled by several demographic and socioeconomic trends, including a decline in
the number of households with bank deposit accounts, an increase in low-paying
service sector jobs and an overall increase in the lower-income population.
All of the Company's acquisitions have been accounted for under the purchase
method of accounting. Therefore, the historical consolidated results of
operations include the revenues and expenses of all of the acquired companies
since their respective dates of acquisition. The comparability of the historical
financial data is significantly impacted by the timing of the Company's
acquisitions. The following table sets forth information with respect to major
acquisitions completed by the Company during the periods discussed below:
Company Number of Stores Month Acquired Purchase Price
- -------------------------------------------------------------------------------------------------------------
Cash A Cheque Holdings Great Britain
Limited............................... 44 July 1999 $ 22.2 million
Cheques R Us, Inc......................... 6 November 1999 $ 1.2 million
Cash Centres Corporation Limited.......... 243 (1) December 1999 $ 11.1 million
CheckStop, Inc............................ N/A (2) February 2000 $ 3.0 million
West Coast Chequing Centres............... 6 August 2000 $ 1.5 million
Fast `n Friendly Check Cashing............ 8 August 2000 $ 0.9 million
Ram-Dur Enterprises....................... 5 August 2000 $ 1.3 million
Fastcash Limited.......................... 40 (3) December 2000 $ 3.1 million
(1) Includes 238 franchised stores.
(2) Operates through 150 independent document transmitters.
(3) Includes 27 franchised stores.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations solely reflects the historical results of the Company. The
aforementioned purchase price for Cash A Cheque Holdings Great Britain Limited
("CAC") and Cash Centres Corporation Limited ("CCL") includes additional amounts
paid to the sellers of $9.7 million and $2.7 million, respectively, determined
under profit-based earn-out agreements. The aforementioned purchase price for
CheckStop, Inc. ("CheckStop") and Fast `n Friendly ("F&F") includes additional
amounts paid to the sellers of $250,000 and $150,000, respectively, based upon a
future results of operations earn-out agreement and a revenue based earnout
agreement, respectively. The aforementioned purchase price for Fastcash Ltd.
("FCL") excludes potential contingent payments to the sellers of $2.8 million
based on profitability. Any amounts paid under the earn-out contingencies will
be recorded as additional consideration for the acquisition when the contingency
is resolved.
27
Due to the rapid growth of the Company, period-to-period comparisons of
financial data are not necessarily indicative of the results for subsequent
periods and should not be relied upon as an indicator of the future performance
of the Company.
Critical Accounting Principles and Estimates
In response to the SEC's Release numbers 33-8040 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies" and 33-8056, "Commission
Statement about Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Company has identified the following critical
accounting policies that affect the more significant judgments and estimates
used in the preparation of its financial statements. The preparation of the
Company's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an ongoing basis, the Companyevaluates these estimates,
including those related to revenue recognition, loss reserves, intangible assets
and income taxes. The Company states these accounting policies in the notes to
the financial statements and at relevant sections in this discussion and
analysis. The estimates are based on the information that is currently available
to the Company and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates under different assumptions or conditions.
The Company believes that the following critical accounting policies affect the
more significant judgments and estimates used in the preparation of its
financial statements:
Revenue Recognition
Revenue generally is recognized when services for the customer have been
provided which, in the case of check cashing and other retail products, is at
the point of sale. For the Cash 'Til Payday(R) unsecured short-term loan
service, all revenues are recognized ratably over the life of the loan offset by
net writeoffs.
Loss Reserves
The Company acts as a servicer for County Bank of Rehoboth Beach, Delaware,
marketing unsecured short-term loans to customers with established bank accounts
and verifiable employment. Loans are made for amounts up to $500, with terms of
7 to 23 days. Under this program, the Company earns servicing fees which are
subject to reduction if the related loans are not collected. The Company
maintains a reserve for these estimated reductions. In addition, the Company
maintains a reserve for anticipated losses for loans it makes directly. In order
to estimate the appropriate level of these reserves, the Company analyzes the
amount of outstanding loans owed to the Company, as well as loans owed to banks
and serviced by the Company, the historical loans charged-off, current
collection patterns and current economic trends. As these conditions change,
additional allowances might be required in future periods.
Intangible Assets
The Company has significant intangible assets on its balance sheet that include
goodwill and other intangibles related to acquisitions. The valuation and
classification of these assets and the assignment of useful amortization lives
involves significant judgments and the use of estimates. The testing of these
intangibles under established accounting guidelines for impairment also requires
significant use of judgment and assumptions. The Company's assets are tested and
reviewed for impairment on an ongoing basis under the established accounting
guidelines. Changes in business conditions could potentially require future
adjustments to asset valuations.
28
Results of Operations
The following table sets forth the Company's results of operations as a
percentage of revenues for the indicated periods:
Year ended June 30,
----------------------------
2000 2001 2002
----------------------------
Statement of Operations Data:
Revenues:
Revenues from check cashing........................................... 58.7% 54.1% 51.9%
Revenues from consumer lending, net................................... 21.0 29.9 34.6
Revenues from money transfer fees..................................... 4.8 4.8 5.0
Revenues from government services..................................... 3.8 2.2 0.9
Other revenues........................................................ 11.7 9.0 7.6
----------------------------
Total revenues............................................................ 100.0 100.0 100.0
Store and regional expenses:
Salaries and benefits................................................. 28.4 29.4 32.3
Occupancy............................................................. 7.7 8.6 9.0
Depreciation.......................................................... 2.8 3.0 3.2
Other................................................................. 22.0 23.2 22.9
----------------------------
Total store and regional expenses......................................... 60.9 64.2 67.4
Establishment of reserves for new consumer lending arrangements........... - - 1.1
Corporate expenses........................................................ 12.6 11.5 12.1
Loss on store closings and sales.......................................... 0.2 0.5 0.6
Goodwill amortization..................................................... 3.3 2.4 -
Other depreciation and amortization....................................... 1.0 1.0 1.3
Interest expense.......................................................... 10.5 10.4 9.3
Other non-recurring items................................................. 0.9 - 0.2
----------------------------
Income before income taxes................................................ 10.6 10.0 8.0
Income tax provision...................................................... 7.3 6.6 5.0
----------------------------
Net income................................................................ 3.3% 3.4% 3.0%
============================
The following chart presents a summary of the Company's consumer lending
revenues for the periods indicated below:
Consumer Lending Revenue
-------------------------------------------------------------------
For the Years Ended June 30,
-------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------------------------------------------------------------
(in thousands)
Servicing revenues........................... $5,489 $13,814 $22,692 $41,920 $44,765
Company originated domestic revenues......... 738 824 905 1,513 2,282
Company originated foreign revenues.......... 1,221 3,921 11,190 14,934 22,752
-------------------------------------------------------------------
Total consumer lending revenues, net......... $7,448 $18,559 $34,787 $58,367 $69,799
===================================================================
29
Year Ended June 30, 2002 Compared to the Year Ended June 30, 2001
Total revenues were $202.0 million for the year ended June 30, 2002, as compared
to $195.5 million for the year ended June 30, 2001, an increase of $6.5 million,
or 3.3%. Comparable retail store, franchised store and document transmitter
sales increased $2.4 million, or 1.3%. The entities acquired during fiscal 2001
(collectively referred to hereafter as the "Acquisitions") and new store
openings accounted for an increase of $10.0 million. Partially offsetting this
increase, however, was a decline in revenues from closed stores and the
termination of the State of New York government contract during fiscal year
2001, for $3.1 million and $2.8 million, respectively.
The increase in total revenues resulted from an increase in consumer lending
revenues of $11.4 million, or 19.5%. The increase in consumer lending revenues
was primarily a result of a $7.9 million, or 53%, increase in foreign operations
and a $2.2 million revenue increase in the Company's subsidiary Money Mart(R)
Express (formerly known as moneymart.com(TM)). The balance of the increase in
consumer lending revenues, $1.3 million, is attributed to other domestic
operations. These increases were partially offset by a $2.5 million decrease in
revenues from government services as a result of the termination of the
distribution of government benefits in the State of New York and a $2.4 million
decrease in other revenues.
During fiscal 2002, the Company provided for the establishment of reserves for
new consumer lending arrangements of $2.2 million. Effective June 13, 2002, the
Company entered into an agreement with County Bank of Rehoboth Beach, Delaware
("County"), a federally insured depository institution. The Company acts as a
servicer for County, marketing unsecured short-term loans to customers with
established bank accounts and verifiable employment. Loans are made for amounts
up to $500, with terms of 7 to 23 days. Under this program, the Company earns
servicing fees which are subject to reduction if the related loans are not
collected. The bank originated approximately $15 million of loans through the
Company's locations and document transmitters during the fiscal year ended June
30, 2002. In addition, the Company provided additional reserves for the loans it
originates due to the expansion of the program.
Store and regional expenses were $136.1 million for the year ended June 30, 2002
as compared to $125.5 million for the year ended June 30, 2001, an increase of
$10.6 million, or 8.4%. The full year effect of the Acquisitions in fiscal year
2001 resulted in an increase in store and regional expenses of $1.0 million and
new store openings accounted for an increase of $6.0 million. Also, store and
regional expenses increased $1.3 million due to salaries and benefits from the
foreign subsidiaries, commensurate with the growth in those operations. In
addition, $2.5 million of the increase in store and regional expenses resulted
from an increase in salaries and benefits due to the continued growth of the
Money Mart(R) Express business and the centralized collection division in fiscal
year 2002. Store and regional expenses as a percentage of revenues increased
from 64.2% in the year ended June 30, 2001 to 67.4% in the year ended June 30,
2002. Store and regional expenses as a percentage of revenues from the Company's
foreign subsidiaries were 57.5% and 55.7% for 2001 and 2002, respectively.
Salaries and benefits were $65.3 million for the year ended June 30, 2002 as
compared to $57.5 million for the year ended June 30, 2001, an increase of $7.8
million, or 13.6%. The Acquisitions accounted for an increase in salaries and
benefits of $500,000 and new store openings accounted for $2.8 million. The
Company's foreign subsidiaries accounted for an increase of $1.3 million in
salaries and benefits. In addition, Money Mart(R) Express and centralized
collection divisions accounted for an increase of $2.5 million due to increased
growth. Salaries and benefits expenses as a percentage of revenues increased
from 29.4% for the year ended June 30, 2001 to 32.3% for the year ended June 30,
2002.
Occupancy expense was $18.1 million for the year ended June 30, 2002 as compared
to $16.9 million for the year ended June 30, 2001, an increase of $1.2 million,
or 7.1%. The Acquisitions accounted for an increase of $200,000. In addition,
occupancy expenses increased $1.1 million from new store openings during the
year ended June 30, 2002. Occupancy expense as a percentage of revenues
increased from 8.6% for the year ended June 30, 2001 to 9.0% for the year ended
June 30, 2002.
Depreciation expense was $6.5 million for the year ended June 30, 2002, as
compared to $5.8 million for the year ended June 30, 2001 an increase of
$700,000, or 12.1%. The Acquisitions accounted for an increase of $100,000 and
new store openings accounted for an increase of $500,000. Depreciation expense
as a percentage of revenues increased to 3.2% for the year ended June 30, 2002
from 3.0% for the year ended June 30, 2001.
30
Other store and regional expenses were $46.2 million for the year ended June 30,
2002 as compared to $45.3 million for the year ended June 30, 2001, an increase
of $900,000, or 2.0%. The Acquisitions and new store openings accounted for an
increase in other store and regional expenses of $200,000 and $1.6 million
respectively. In addition, costs associated with Money Mart(R) Express's
independent document transmitters, increased during the fiscal year, due to the
growth in that business. Stores closed during the fiscal year partially offset
these increases. Other store and regional expenses consist of bank charges,
armored security costs, net returned third party checks, cash shortages, cost of
goods sold, advertising and other costs incurred by the stores.
Corporate expenses were $24.5 million for the year ended June 30, 2002 as
compared to $22.5 million for the year ended June 30, 2001, an increase of $2.0
million, or 8.9%. This increase resulted from additional salaries and benefits
associated with the growth of the foreign operations during fiscal year 2002.
Corporate expenses as a percentage of revenues increased to 12.1% for the year
ended June 30, 2002 from 11.5% for the year ended June 30, 2001.
Loss on store closings and sales were $1.2 million for the year ended June 30,
2002 compared to $900,000 for the year ended June 30, 2001. During fiscal year
2002, the Company decided to close certain underperforming stores. The Company
anticipates closing certain of its unprofitable stores in fiscal 2003 and is
currently evaluating the locations to be closed.
In June 2001, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other
Intangible Assets." Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
Company applied the new accounting rules beginning July 1, 2001.
Other depreciation and amortization expenses were $2.7 million for the year
ended June 30, 2002, as compared to $2.0 million for the year ended June 30,
2001, an increase of $700,000, or 35%. This increase is attributable to
additional capital expenditures made by the corporate office during fiscal year
2002. Other depreciation and amortization as a percentage of revenues increased
to 1.3% for the year ended June 30, 2002 from 1.0% for the year ended June 30,
2001.
Interest expense was $18.7 million for the year ended June 30, 2002 as compared
to $20.4 million for the year ended June 30, 2001, a decrease of $1.7 million,
or 8.3%. This decrease was primarily attributable to the decrease in the average
borrowing rates of the Company's revolving credit facilities which fund
acquisitions, purchases of property and equipment related to existing stores,
recently acquired stores and investments in technology.
During fiscal 2002, the Company expensed $0.3 million for planned acquisitions
that were not consummated.
Year Ended June 30, 2001 Compared to the Year Ended June 30, 2000
Total revenues were $195.5 million for the year ended June 30, 2001 as compared
to $165.8 million for the year ended June 30, 2000, an increase of $29.7
million, or 17.9%. Of this increase, $5.8 million resulted from the results of
operations from the Acquisitions. In addition, revenues increased $5.7 million
as a result of new store openings during fiscal 2001. Also, revenues from
acquired stores and new stores opened during fiscal year 2000, which had a full
year of revenues in fiscal year 2001, increased $9.3 million and $10.8 million,
respectively. The change in foreign exchange rates accounted for a decrease of
$5.4 million in total foreign revenue. For stores that were opened and owned by
the Company during the entire period from July 1, 1999 through June 30, 2001,
revenues increased by 2.8% or $3.6 million. After eliminating the impact in the
devaluation of the foreign currencies, the comparable retail store sales
increased $6.4 million or 4.9%. As a result of continued expansion of Loan
Mart(R) stores, the addition of Money Mart(R) Express (formerly known as
moneymart.com(TM)) agency locations and increased originations of Cash `Til
Payday(R) loans, Cash `Til Payday(R) revenues, increased as a percentage of
total revenues.
Store and regional expenses were $125.5 million for the year ended June 30, 2001
as compared to $101.0 million for the year ended June 30, 2000, an increase of
$24.5 million, or 24.3%. The Acquisitions resulted in an increase in store and
regional expenses of $4.3 million and new store openings accounted for an
increase of $8.0 million. Also, store and regional expenses from acquired stores
and new stores opened during fiscal year 2000, which incurred a full year of
expenses in fiscal year 2001, increased $9.5 million and $6.4 million,
respectively. Store and regional expenses as a percentage of revenues increased
from 60.9% in the year ended June 30, 2000 to 64.2% in the year ended June 30,
2001 due to increased costs associated with new store openings during the year
ended June 30, 2001.
31
Salaries