February 16, 2005
Mail Stop 4-8
William S. McCalmont
Executive Vice President and Chief Financial Officer
Ace Cash Express, Inc.
1231 Greenway Drive
Suite 600
Irving, Texas 75038
Re: Form 10-K
Filed September 10, 2004
File No. 000-20774
Dear Mr. McCalmont:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures. Where indicated, we think you should revise
your documents in response to these comments in future filings
beginning with your Form 10-Q for the period ended March 31, 2005,
as
appropriate. Please provide us copies of your proposed
disclosures
in your response to these comments. If you disagree, we will
consider your explanation as to why our comment is inapplicable or
a
revision is unnecessary. Please be as detailed as necessary in
your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Item 1. Business - page 3
1. Please disclose the year in which you were organized and your
form
of organization. Refer to Item 101(A)(1) of Regulation S-K.
2. Please include a reference to your segment disclosures
presented
in your financial statements. Refer to Item 101(B) of Regulation
S-
K.
3. Please disclose your Internet address. Refer to Item 101(E)(3)
of
Regulation S-K.
4. Please disclose whether you make available free of charge on or
through your Internet website your filed financial reports as soon
as
reasonably practicable after you electronically file such material
with the SEC. Refer to Item 101(F)(4) of Regulation S-K.
Growth Strategy - page 5
5. Please expand your discussion and/or add a discussion related
to
your strategies and key decision making factors related to the
following activities:
a) Acquiring new owned stores;
b) Opening new owned stores;
c) Selling existing owned stores;
d) Closing existing owned stores;
e) Opening new franchised stores;
f) Acquiring new franchised stores;
g) Closing existing franchised stores.
In your summary of significant accounting policies, please discuss
your accounting policies relating to each of the above activities
specifically disclosing how you account for the purchase or sale
price and how you calculate and record gains or losses.
Introduce New Services - page 6
6. Please revise to provide an expanded discussion of the nature
of
your relationship with NetSpend, including whether you have a
written
agreement and, if so, its material terms.
Check Cashing - page 7
7. Please revise here and in the footnotes to the financial
statements to disclose and discuss your policy for recognizing fee
revenue on cashed checks. Clarify whether or not you record them
net
of an allowance for anticipated returned checks or how you
otherwise
account for fee revenues on returned checks. Quantify in MD&A the
amount of fee revenue associated with returned checks.
8. Please revise here and in the footnotes to the financial
statements to disclose where you record returned checks that are
written-off in the statements of operations. Quantify the amounts
of
these write-offs in MD&A in each period presented.
Short-term Consumer Loans - page 7
9. Please revise here and throughout your document to clarify what
you mean by the term "matured loans" and to clarify why you think
the
related provision for loan loss measure is appropriate.
Franchising - page 9
10. Please revise to provide an expanded discussion of how you
qualify franchisees, including how they finance the acquisition of
the franchise. For instance, we note the costs associated with
the
franchise itself and the additional costs of opening a store.
Also,
clarify whether or not you finance any of start-up or operating
costs
for your franchisees.
Other Services - page 9
11. Please revise to disclose how you utilize your self-service
machines throughout the year. Revise the footnotes to the
financial
statements to clarify the amount invested in these machines, how
you
account for them, how you identify and measure impairment, to
clarify
the basis of any related deprecation policy and the depreciable
life
assigned to these assets. These appear to be seasonal use assets
who`s use and associated fee revenue is not guaranteed.
New Store Economics - page 9
12. Please revise the tabular information of store revenues to
clarify why you do not present this information for acquired
stores.
Also, consider the usefulness to an investor of presenting
separate
information for franchised stores, particularly in light of your
stated policy of increasing the number of these stores in the
future.
Advertising and Marketing - page 13
13. Please revise to provide an expanded discussion of your ACE
Plus
program. Is enrollment free? Revise here and in the footnotes to
the financial statements to clarify how you account for this
program
and you how your accounting considers the requirements of EITF 01-
9.
Security - page 15
14. Please revise here and in the footnotes to the financial
statements to discuss whether you receive any indemnification in
the
form insurance for these losses and, if so, how you account for
it.
Relationship with Republic Bank - page 16
15. Please revise to provide a detailed discussion of the various
services you provide to Republic Bank and how each of those
services
generates revenue. We note the significance of this relationship
to
your operations. Also, revise to discuss termination rights of
this
agreement by each party.
16. Please revise here and elsewhere, as appropriate, to clarify
the
basis for recording a liability for loan losses to Republic in
other
liabilities instead of in the allowance for loan losses. Disclose
the authoritative basis for your accounting.
17. On page 43, we note that your agreement with Republic Bank can
be
terminated by either party if the quarterly loan loss rate of
Republic Bank loans exceeds a specified level. Please disclose
the
contractual specified level and the actual level for each period
reported.
Relationships with the Money Order and Moneygram Suppliers - page
18
18. You disclose here that in Note 3 to the financial statements
you
describe the security agreement with Moneygram. We have reviewed
Note 3 and are unable to locate the associated discussion. Please
advise or revise, including the amount of and nature of the assets
underlying the subordinated lien.
Legal Proceedings - page 19
19. Please revise here and in the footnotes to the financial
statements to disclose managements` assessment of threatened and
pending litigation on your financial positions, results of
operations
and cash flows.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations - page 25
Critical Accounting Policies and Estimates - page 25
20. Please revise to include your policies for income taxes,
goodwill, other intangibles and self-insurance liabilities or
supplementally advise as to why you do not consider them critical.
We note your disclosures on page 38.
21. Your current disclosures seem to reiterate your accounting
policies as set forth in Note 1 to the financial statements.
Please
refer to Section V of Release Nos. 33-8350/34-48960 and revise
this
section to address the following for each critical accounting
policy:
* Specifically identify why each policy is considered critical by
management.
* Discuss why you could have selected estimates in the current
period
that would have had a materially different impact on your
financial
presentation.
* Discuss why your accounting estimates bear the risk of change
and
describe the potential impact on your financial statements.
* Discuss how accurate your estimates and assumptions have been in
the past and how much they have changed in the past.
* Include quantitative disclosure of your sensitivity to change
based
on other outcomes that are reasonably likely to occur and that
would
have a material effect on the company.
Revenue Analysis - page 26
22. Please revise here and in the footnotes to the financial
statements to clarify where you present revenues from incentives
and
bonuses paid under your various vendor agreements. Provide a
discussion of the effects of these revenues on your operations,
quantifying the amounts recorded as revenues in each period.
23. Please revise the Business section to provide an expanded
discussion of your agreements with payees under your bill payment
business. Discuss the terms of these relationships, including
associated agreements and any fee arrangements with payees.
Loan Portfolio - page 32
24. Please revise here and throughout the document to include loan
portfolio and allowance for loan loss information for each period
for
which you present a statement earnings. We note the significant
effect of these activities on earnings.
25. We note your allowance for loan loss roll-forward includes
components related to your loan portfolio and loans serviced for
Republic. Since the risk characteristics are different for each
set
of loans, in addition to your aggregated disclosure, please revise
to
provide disaggregated roll- forwards for each set of loans.
Furthermore, provide quantified information of the reserves
established by Republic in each period and the activity in those
reserves, clarifying how you determine your liability for amounts
in
excess of Republics established reserves. Revise your discussions
of
the activities in the allowance for loan losses, in addition to
your
aggregated discussion, to discuss separately the activity in each
set
of loans.
26. Please revise to provide a roll-forward of your loans
receivable
for each period presented in your financial statements, including
originations, principle payments and charge-offs.
27. We note that at the end of each fiscal quarter, you analyze
the
loan loss provision and the allowance to determine if the
allowance
is adequate based on your understanding of numerous factors and if
necessary you make adjustments. As of each reported period end,
please disclose the amount of this adjustment and discuss the main
qualitative items that factored in your decision.
28. Please refer to paragraph 13(c) of SOP 01-6 and revise to
disclose your policy for the following:
* Placing loans on non-accrual status (or discontinuing accrual of
interest),
* Recording payments received on non-accrual loans,
* Resuming accrual of interest on non-accrual loans,
* Determining past due or delinquency status (that is, whether
past
due status is based on how recently payments have been received or
contractual terms).
29. Please revise to provide tabular disclosure of non-accrual
loans
and loans past due ninety days or more at each balance-sheet date.
Refer to paragraph 13(g) of SOP 01-6.
Off-Balance Sheet Arrangement with Republic Bank
30. Please revise this section to provide a roll-forward of loans
you
service to Republic for each period presented, enhancing your
discussions of both the allowance for loan losses and your
contingent
liabilities. Include originations, principle repayments and
charge-
offs. Clearly identify the loans as not being included in your
balance sheet.
Self-Service Machine Funding Arrangements - page 37
31. We note your disclosure regarding the financing you obtained
for
the 2004 tax season. Please discuss and analyze your strategies
regarding the types of financing that are reasonably likely to be
available for future tax seasons. Discuss the impact on your cash
position and liquidity should these types of financing be
unavailable.
Financial Statements
Consolidated Statements of Cash Flows - page 57
32. Please revise to classify cash flows from money orders as an
operating activity as these amounts represent the cash effects of
transactions that enter into the determination of net income.
Refer
to paragraph 21 of SFAS 95.
33. Please revise to report the total store acquisition purchase
price, net of cash received, in the investing section of the
statement of cash flows for all periods presented.
Note 1. Summary of Significant Accounting Policies - page 58
Revenue Recognition Policy - page 58
34. Please revise here and in the Business section to specifically
disclose the nature of the products and services in which you act
in
an agency capacity. Clarify how you considered EITF 99-19 in
determining the appropriateness of your accounting.
Accounts Receivable, Net - page 59
35. Please revise to disclose why you record an allowance on
amounts
due from business partners, such as Republic and Moneygram,
including
the specific nature of the uncertainties related to the collection
of
these receivables.
Derivative Instruments and Hedging Activities - page 62
36. Please disclose the specific line items in your balance sheet,
statement of earnings, and statement of cash flows in which you
report your derivative financial instruments and their related
gains
and losses. Refer to Rule 408(n)(7) of Regulation S-X.
Note 2. Operating Segments - page 66
37. Please revise to provide the disclosures required by paragraph
32(c) of SFAS 131 for all periods presented.
Note 3. Financing Arrangements and Moneygram Agreement - page 66
Self-Service Machine Funding Arrangements - page 69
38. Please revise to disclose the terms of the multi-year license
agreement with H&R Block, including the number of years covered by
the agreement, the nature and amount of fees payable and all other
material terms.
Note 11. Shareholders` Equity - page 75
39. Please revise your discussion of stock incentive plans to
disclose the restrictions placed on restricted stock awards and
how
those restrictions are cured.
Note 20. Summarized Quarterly Financial Data (unaudited) - page 80
40. Please disclose the store gross margin in your quarterly
financial data. Refer to Item 302(A)(1) of Regulation S-K.
* * * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. In your
response,
please key your responses to our comments, tell us of your intent
to
provide the requested disclosures in future filings and provide us
drafts of those disclosures. Detailed cover letters greatly
facilitate our review. Please file your response letter on EDGAR.
Please understand that we may have additional comments after
reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Michael Volley at 202-824-5568 or Paul Cline
at
202-942-1782 if you have questions regarding comments.
Sincerely,
Paul Cline
Senior Accountant
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William S. McCalmont
Ace Cash Express, Inc.
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