UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000
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 0-20774
ACE CASH EXPRESS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2142963
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices) (Zip Code)
(972) 550-5000
(Registrant's telephone number, including area code)
NONE
(Former name,former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of February 5, 2001
----- -----------------------------------
Common Stock 10,031,621 shares
ACE CASH EXPRESS, INC.
PART I. FINANCIAL INFORMATION Page No.
Item 1. Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 2000, and June 30, 2000 3
Interim Unaudited Consolidated Statements of Earnings for the
Three and Six Months Ended December 31, 2000 and 1999 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 2000 and 1999 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 141,588 $ 105,577
Accounts receivable, net 3,814 5,985
Loans receivable, net 20,130 18,695
Prepaid expenses and other current assets 2,295 2,069
Inventories 1,064 1,418
----------- -----------
Total Current Assets 168,891 133,744
----------- -----------
Noncurrent Assets
Property and equipment, net 39,897 36,915
Covenants not to compete, net 2,361 1,429
Excess of purchase price over fair value of assets acquired, net 79,783 45,929
Other assets 3,652 3,406
----------- -----------
Total Assets $ 294,584 $ 221,423
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 113,300 $ 95,000
Accounts payable, accrued liabilities, and other current liabilities 25,827 21,242
Money order principal payable 17,048 10,487
Current portion of senior secured notes payable 4,135 4,180
Reducing revolving line-of-credit/term advances 1,875 3,469
Notes payable 1,059 898
----------- -----------
Total Current Liabilities 163,244 135,276
----------- -----------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 8,000 12,000
Long-term reducing revolving line-of-credit/term advances 60,625 15,031
Long-term notes payable 843 438
Other liabilities 3,984 3,519
----------- ----------
Total Liabilities 236,696 166,264
----------- ----------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued and outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
10,028,246 and 9,984,563 shares issued and outstanding, respectively 100 100
Additional paid-in capital 23,083 22,715
Retained earnings 38,128 34,745
Accumulated other comprehensive (loss) (716) -
Treasury stock, at cost, 211,400 and 181,400 shares, respectively (2,707) (2,401)
----------- ------------
Total Shareholders' Equity 57,888 55,159
----------- ------------
Total Liabilities and Shareholders' Equity $ 294,584 $ 221,423
=========== ============
See notes to the interim consolidated financial statements.
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 3 DECEMBER 31,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ---------- ---------- -----------
Revenues $ 45,100 $ 32,284 $ 85,338 $ 62,872
Store expenses:
Salaries and benefits 12,690 8,829 22,701 17,352
Occupancy 6,249 5,089 12,566 10,360
Depreciation 1,668 1,205 3,238 2,518
Other 11,088 7,445 22,286 14,447
----------- ---------- ----------- -----------
Total store expenses 31,695 22,568 60,791 44,677
----------- ---------- ----------- -----------
Store gross margin 13,405 9,716 24,547 18,195
Region expenses 3,335 2,631 6,465 5,004
Headquarters expenses 2,443 1,808 4,763 3,657
Franchise expenses 273 270 494 511
Other depreciation and amortization 1,214 887 2,189 1,804
Interest expense, net 2,956 1,519 5,119 2,830
Other (income) expenses (144) 263 (122) 346
----------- ---------- ----------- -----------
Income before income taxes and cumulative effect
of accounting change 3,328 2,338 5,639 4,043
Income taxes 1,331 935 2,256 1,617
----------- ---------- ----------- -----------
Income before cumulative effect of accounting
Change 1,997 1,403 3,383 2,426
Cumulative effect of accounting change, net of
income tax benefit of $402 - - - (603)
----------- ---------- ----------- -----------
Net income $ 1,997 $ 1,403 $ 3,383 $ 1,823
=========== ========== =========== ===========
Basic earnings per share:
Before cumulative effect of accounting change $ 0.20 $ 0.14 $ 0.34 $ 0.24
Cumulative effect of accounting change - - - (.06)
----------- ---------- ----------- -----------
Basic earnings per share $ 0.20 $ 0.14 $ 0.34 $ 0.18
=========== ========== =========== ===========
Weighted average number of common shares
outstanding - basic EPS 9,993 10,060 9,990 10,060
=========== ========== =========== ===========
Diluted earnings per share:
Before cumulative effect of accounting change $ 0.20 $ 0.14 $ 0.33 $ 0.24
Cumulative effect of accounting change - - - (.06)
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.20 $ 0.14 $ 0.33 $ 0.18
=========== =========== =========== ===========
Weighted average number of common and
dilutive shares outstanding - diluted EPS 10,146 10,367 10,120 10,343
============ =========== =========== ===========
See notes to the interim consolidated financial statements.
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------------
2000 1999
---------------- ----------------
Cash flows from operating activities:
Net income $3,383 $1,823
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,427 4,322
Cumulative effect of accounting change - 1,004
Deferred revenue (2,382) (1,300)
Changes in assets and liabilities:
Accounts receivable, net 2,171 (361)
Loans receivable, net (1,435) (934)
Prepaid expenses and other current assets (102) 302
Inventories 354 54
Other assets (35) (730)
Accounts payable and other liabilities 6,592 (2,549)
-------------- ----------------
Net cash provided by operating activities 13,973 1,631
Cash flows from investing activities:
Purchases of property and equipment, net (5,334) (4,825)
Cost of net assets acquired (38,074) (1,095)
-------------- ----------------
Net cash used by investing activities (43,408) (5,920)
Cash flows from financing activities:
Net increase in money order principal payable 6,561 1,269
Net borrowings from revolving line-of-credit 18,300 45,000
Reducing revolving line-of-credit/term advances from
syndicate of banks 44,000 -
Net borrowings (repayments) of acquisition-related notes
payable 566 (120)
Net repayments of long-term notes payable (4,044) (4,046)
Proceeds from stock options exercised 369 414
Purchase of treasury stock (306) (797)
-------------- ----------------
Net cash provided by financing activities 65,446 41,720
-------------- ----------------
Net increase in cash and cash equivalents 36,011 37,430
Cash and cash equivalents, beginning of period 105,577 59,414
------------- ----------------
Cash and cash equivalents, end of period $141,588 $96,844
============== ================
Supplemental disclosures of cash flows information:
Interest paid $4,985 $3,222
Income taxes paid 369 727
See notes to the interim consolidated financial statements.
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial
statements of Ace Cash Express, Inc. (the "Company" or "ACE") and its
subsidiaries have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations of
the Securities and Exchange Commission. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. Although management believes that the disclosure is
adequate to prevent the information from being misleading, the interim
consolidated financial statements should be read in conjunction with the
Company's audited financial statements in its Annual Report on Form 10-K filed
with the Securities and Exchange Commission. In the opinion of Company
management, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included.
Certain prior period accounts have been reclassified to conform to the
current year's presentation.
EARNINGS PER SHARE DISCLOSURES
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
are computed by dividing net income by the weighted average number of common
shares outstanding, after adjusting for the dilutive effect of stock options.
The following table presents the reconciliation of the numerator and denominator
used in the calculation of basic and diluted earnings per share, as required by
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
(in thousands)
Net income (numerator) $1,997 $1,403 $3,383 $1,823
============ =========== ============ ===========
Reconciliation of denominator:
Weighted average number of common shares
outstanding - basic EPS 9,993 10,060 9,990 10,060
Effect of dilutive stock options 153 307 130 283
------------ ----------- ------------ -----------
Weighted average number of common and
dilutive shares outstanding - diluted EPS 10,146 10,367 10,120 10,343
============ =========== ============ ===========
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As required, the Company adopted a new accounting standard, AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," in
the first quarter ended September 30, 1999. This standard requires the
previously capitalized start-up costs to be recognized as a cumulative effect of
change in accounting principle and expensed fully in the quarter. Start-up
costs, net of tax, of $0.6 million were expensed in the first quarter ended
September 30, 1999.
As required, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in the first quarter ended September 30, 2000. This standard
requires the Company to record the fair value of its interest-rate swaps as an
asset or liability in the consolidated balance sheet. Changes in the fair value
of the interest-rate swaps are reported as a component of shareholders' equity
in the consolidated balance sheet. The fair value of the Company's existing
interest-rate swaps is ($716,000) as of December 31, 2000.
2. DERIVATIVE INSTRUMENTS
The Company's objective in managing its exposure to fluctuations in
interest rates is to decrease the volatility of earnings and cash flows
associated with changes in the applicable rates and prices. To achieve this
objective, the Company primarily enters into agreements whose values change in
the opposite direction of the anticipated cash flows. Derivative instruments
related to forecasted transactions are considered to hedge future cash flows,
and the effective portion of any gains or losses are included in other
comprehensive income until earnings are affected by the variability of cash
flows. Any remaining gain or loss is recognized currently in earnings. The cash
flows of the derivative instruments are expected to be highly effective in
achieving offsetting cash flows attributable to fluctuations in the cash flows
of the hedged risk. If it becomes probable that a forecasted transaction will no
longer occur, the derivative will continue to be carried on the balance sheet at
fair value, and gains or losses that were accumulated in other comprehensive
income will be recognized immediately in earnings. If the derivative instruments
are terminated prior to their expiration dates, any cumulative gains and losses
are deferred and recognized in income over the remaining life of the underlying
exposure. If the hedged assets or liabilities were to be sold or extinguished,
the Company would recognize the gain or loss on the designated financial
instruments currently in income.
To reduce its risk of greater interest expense upon a rise in the prime
rate or LIBOR, the Company has entered into three interest-rate swap agreements
with Bank of America and one interest-rate swap agreement with Wells Fargo Bank.
Those agreements effectively converted a portion of the Company's floating-rate
interest obligations to fixed-rate interest obligations. With respect to the
revolving line-of-credit facility, the first notional amount is $33 million for
a two-year period that began January 4, 1999, the second notional amount is $10
million for a sixteen-month period that began September 3, 1999, and the third
notional amount is an average of $62 million from November 1, 2000 to January 1,
2002. With respect to the existing reducing revolving facility (which succeeded
a term-loan facility), the notional amount was $9.0 million until October 2,
2000, and $8.5 million thereafter through December 31, 2000. The notional
amounts were determined based on the Company's minimum projected borrowings
during calendar years 1999, 2000 and 2001. The fixed rate applicable to the
notional amount of $33 million under the revolving line-of-credit facility was
5.14% for calendar year 1999 and was 5.23% for calendar year 2000. The fixed
rate applicable to the notional amount of $10 million under the revolving
line-of-credit facility was 6.00% for calendar year 1999 and for calendar year
2000. The fixed rate applicable to the average notional amount of $62 million
under the revolving line-of-credit facility is 6.945% for the entire 14-month
period. The fixed rate applicable to the notional amount under the reducing
revolving (and former term-loan) facility was 6.23% for calendar year 1999 and
6.38% for calendar year 2000. As of December 31, 2000, the fair value of the
interest rate swaps under the revolving line-of-credit facility is $64,000
(notional amount of $33 million), $13,000 (notional amount of $10 million), and
($840,000) (average notional amount of $62 million). As of December 31, 2000,
the fair value of the interest rate swap under the reducing revolving facility
is $47,000 (notional amount $8.5 million).
The associated underlying debt has exceeded the respective notional amounts
for each swap throughout their existence and it is anticipated that it will
continue to do so. These swaps are based on the same index as, and repricing on
a consistent basis with, their respective underlying debt.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME
As required, on July 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" resulting in a $648,000 credit to accumulated other comprehensive
income for the cumulative effect of accounting change. During the six months
ended December 31, 2000, there were no gains or losses recognized in earnings
for hedge ineffectiveness or due to excluding a portion of the value from
measuring effectiveness. However, the fair value of the interest rate swaps has
decreased by $1,364,000 for the six months ended December 31, 2000 which has
been recorded to accumulated other comprehensive income (loss).
Other comprehensive income (loss) balances related to the interest
rate swaps are as follows:
OTHER COMPREHENSIVE CHANGE IN
INCOME (LOSS) AS OF: ACCUMULATED
--------------------- OTHER
JULY 1, DECEMBER 31, COMPREHENSIVE
LOAN FACILITY NOTIONAL AMOUNT 2000 2000 INCOME (LOSS)
------------- --------------- ---------- ----------- -------------
Revolving line-of-credit $33 million $452,000 $ 64,000 $ (388,000)
Revolving line-of-credit $10 million 92,000 13,000 (79,000)
Revolving line-of-credit $62 million (average) (35,000) (840,000) (805,000)
Reducing revolving line-
of-credit/term-loan $8.5 million 139,000 47,000 (92,000)
------------- --------------- --------------
Total $648,000 $(716,000) $(1,364,000)
============== ================ ==============
4. SIGNIFICANT ACQUISITION
On November 10, 2000, the Company entered into an asset purchase
agreement and ancillary documents to acquire the assets of a total of 107
check-cashing and retail financial services locations from a group of five
privately held companies that are majority owned by Morris Silverman and Jeffrey
D. Silverman and managed by MS Management Company, based in Chicago, Illinois.
The locations were operated by the sellers under the trade names "USA Checks
Cashed" and "Gold Star Check Cashing" in California, Texas, and Oklahoma.
The total purchase price for the assets of all of the locations was
$29.72 million in cash. Approximately $28.86 million of the total purchase price
was payable to the sellers as the Company exercised ownership and operating
control of the assets at the locations. Approximately $0.86 million of the total
purchase price is payable to the sellers in equal monthly installments over a
36-month period. The monthly installments are payments contingent upon revenues
from food-stamp distribution contracts at certain of the locations. In
accordance with the purchase agreement, the Company deposited the total purchase
price into escrow for release to the sellers as the Company exercised ownership
and operating control of the assets at the locations and as the monthly
revenue-related payments are required. The total purchase price is subject to
reduction if, under circumstances not caused or controlled by the Company, the
Company cannot exercise ownership and operating control of the assets at a
location, the Company ceases to receive revenues from food-stamp distribution
contracts at certain of the locations during the 36-month period, or any of
certain locations within third-party grocery stores cease operations without an
acceptable replacement location during a 36-month period. Such a reduction would
be effected by release of the appropriate amount of the escrowed funds to the
Company or by the sellers' payment of the appropriate amount to the Company.
This acquisition was accounted for using the purchase method of
accounting, and accordingly, the net assets and results of operations of the
acquired companies have been included in the Company's consolidated financial
statements since the date that each store location was activated with the
Company's proprietary point-of-sale system. Between November 11, 2000 and
December 8, 2000, 105 of the 107 stores were phased into the Company's network.
The purchase price of the acquisition was allocated to assets acquired,
including intangible assets and liabilities assumed, based on the estimated fair
values at the acquisition date. Goodwill is being amortized using the
straight-line method over a period of 30 years.
The following presents the unaudited pro forma results of operations of
the Company for the three and six months ended December 31, 2000 and 1999 as if
the acquisition had been consummated at the beginning of each of the periods
presented. The pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisition occurred at the beginning of the periods presented
or the results which may occur in the future.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- -------------
(dollars in thousands, except per share data)
Revenues $47,978 $36,779 $92,463 $71,530
Income before cumulative effect of
accounting change 2,216 1,649 3,650 2,719
Net income 2,216 1,649 3,650 2,116
Basic earnings per share 0.22 0.16 0.37 0.21
Diluted earnings per share 0.22 0.16 0.36 0.20
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
--------------------------- ------------------------ --------------------------------
2000 1999 2000 1999 2000 1999 1998
------- ------ ------- ------- --------- --------- -----
COMPANY OPERATING AND STATISTICAL DATA:
Company-owned stores in operation:
Beginning of period 938 804 915 798 798 683 617
Acquired 112 1 129 3 36 35 15
Opened 9 20 21 31 99 99 62
Closed (4) (8) (10) (15) (18) (19) (11)
-------- ------- ------- -------- ---------- -------- -------
End of period 1,055 817 1,055 817 915 798 683
======== ======= ======= ======== ========== ======== =======
Percentage increase in comparable
store revenues from prior period (1) 20.2% 7.4% 22.4% 7.4% 6.9% 10.8% 6.9%
Capital expenditures (in thousands) $ 3,399 $ 3,077 $ 5,334 $ 4,825 $ 12,255 $ 10,089 $ 5,742
Cost of net assets acquired (in
thousands) $ 32,928 $ 45 $ 38,074 $ 1,095 $ 11,359 $ 8,378 $ 4,708
OPERATING DATA (CHECK CASHING AND
MONEY ORDERS):
Face amount of checks cashed (in
millions) $ 1,027 $ 909 $ 1,981 $ 1,746 $ 3,839 $ 3,373 $ 2,898
Face amount of money orders sold (in
millions) $ 404 $ 387 $ 786 $ 783 $ 1,585 $ 1,905 $ 1,858
Face amount of money orders sold as
a percentage of the face amount of
checks cashed 39.3% 42.5% 39.7% 44.8% 41.3% 56.5% 64.1%
Face amount of average check $ 326 $ 315 $ 328 $ 314 $ 339 $ 320 $ 305
Average fee per check $ 7.27 $ 7.02 $ 7.28 $ 7.00 $ 7.92 $ 7.47 $ 7.26
Fees as a percentage of average check 2.23% 2.23% 2.22% 2.24% 2.33% 2.33% 2.38%
Number of checks cashed (in
thousands) 3,150 2,886 6,041 5,551 11,317 10,556 9,496
Number of money orders sold (in
thousands) 3,071 3,034 5,978 6,146 12,339 14,495 14,146
COLLECTIONS DATA:
Face amount of returned checks (in
thousands) $ 6,804 $ 4,207 $ 13,489 $ 8,061 $ 16,548 $ 12,442 $ 10,193
Collections (in thousands) 4,483 2,541 9,110 4,801 10,788 7,423 6,301
-------- ------- ------- -------- ---------- -------- -------
Net write-offs (in thousands) $ 2,321 $ 1,666 $ 4,379 $ 3,260 $ 5,760 $ 5,019 $ 3,892
======== ======= ======= ======== ========== ======== =======
Collections as a percentage of
returned checks 65.9% 60.4% 67.5% 59.6% 65.2% 59.7% 61.8%
Net write-offs as a percentage of
revenues 5.1% 5.3% 5.1% 5.3% 4.1% 4.1% 3.9%
Net write-offs as a percentage of the
face amount of checks cashed .23% .18% .22% .19% .15% .15% .13%
(1) Calculated based on the change in revenues of all stores open for both the
full year and the interim periods compared.
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA, continued
Three Months Ended Six Months Ended
December 31, December 31, Year Ended June 30,
-------------------------- --------------------------- -------------------------------------
2000 1999 2000 1999 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------
OPERATING DATA (SMALL CONSUMER
LOANS):
Volume - new loans and
refinances (in thousands) $ 96,943 $ 30,196 $ 178,821 $ 61,963 $ 137,015 $ 105,765 $ 69,182
Average advance $ 266 $ 217 $ 272 $ 214 $ 240 $ 200 $ 177
Average finance charge $ 39.71 $ 33.53 $ 40.66 $ 31.62 $ 34.51 $ 30.30 $ 27.51
Number of loan transactions -
new loans and refinances (in
thousands) 365 121 657 253 557 460 338
BALANCE SHEET DATA (IN
THOUSANDS):
Gross loans receivable $ 25,601 $ 6,446 $ 25,601 $ 6,446 $ 18,695 $ 5,543 $ 5,174
Less: Allowance for losses
on loans receivable 5,471 - 5,471 - - - -
-------- --------- --------- -------- --------- --------- --------
Loans receivable, net of $
Allowance $ 20,130 6,446 $ 20,130 $ 6,446 $ 18,695 $ 5,543 $ 5,174
======== ========= ========= ======== ========= ========= ========
Allowance for losses on
loans
Receivable:
Beginning of period $ 3,882 $ - $ - $ - $ - $ - $ -
Provision for loan losses 2,496 - 7,166 - - - -
Net charge-offs (907) - (1,695) - - - -
-------- --------- --------- -------- --------- --------- --------
End of period $ 5,471 $ - $ 5,471 $ - $ - $ - $ -
======== ========= ========= ======== ========= ========= ========
Allowance as a percent of
gross loans receivable 21.4% - 21.4% - - - -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue Analysis
-----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
------------------------------------------------- -------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
----------- ---------- ---------- ------------ ----------- ----------- ----------- ----------
(in thousands) (percentage of revenue) (in thousands) (percentage of revenue)
----------------------- ------------------------ ------------------------ -----------------------
Check cashing fees $22,801 $20,215 50.6% 62.6% $43,692 $38,730 51.2% 61.6%
Loan fees and interest 12,931 4,042 28.7 12.5 23,827 7,965 27.9 12.7
Tax check fees 99 90 0.2 0.3 315 309 0.4 0.5
Bill payment services 2,410 2,388 5.3 7.4 4,850 4,722 5.7 7.5
Money transfer services 2,736 1,951 6.1 6.0 5,009 3,920 5.9 6.2
Money order fees 1,719 1,739 3.8 5.4 3,365 3,508 3.9 5.6
New customer fees 652 541 1.4 1.7 1,207 1,070 1.4 1.7
Franchise revenues 666 649 1.5 2.0 1,169 1,252 1.4 2.0
Other fees 1,086 2.4 2.1 1,904 2.2 2.2
669 1,396
----------- ---------- ---------- ------------ ----------- ----------- ----------- ----------
Total revenue $45,100 $32,284 100.0% 100.0% $85,338 $62,872 100.0% 100.0%
=========== ========== ========== ============ =========== =========== =========== ==========
Average revenue per store
(excluding franchise
revenues) $44.6 $ 39.0 $85.5 $76.3
QUARTER COMPARISON
Total revenues increased $12.8 million, or 40%, to $45.1 million in the second
quarter of fiscal 2001 from $32.3 million in the second quarter of the last
fiscal year. This revenue growth resulted, in part, from a $6.1 million, or 20%,
increase in comparable store revenues (775 stores). The balance of the increase
came from stores which were opened or acquired after June 30, 1999, and were
therefore not open for both of the full periods compared. The number of
Company-owned stores increased by 238, or 29%, from 817 stores opened at
December 31, 1999, to 1,055 stores opened at December 31, 2000. The increase in
loan fees and interest accounted for 69% of the total revenue increase; the
increase in total check cashing fees accounted for 20% of the total revenue
increase; the increase in money transfer services accounted for 6% of the total
revenue increase; and the increase in other fees accounted for 3% of the total
revenue increase.
Loan fees and interest for the second quarter of fiscal 2001 reflect the
Company's participation interests in Goleta National Bank loans, but for the
second quarter of the last fiscal year, reflect the Company's so-called "payday
loans" to customers. Loan fees and interest increased $8.9 million, or 220%,
from $4.0 million in the second quarter of the last fiscal year to $12.9 million
in the second quarter of fiscal 2001 due to the increase in the number of stores
offering the Company's loan products, which in turn is principally due to the
offering of the Goleta National Bank loan product in 992 stores in the second
quarter of fiscal 2001 compared to 339 stores offering the Company's payday loan
product in the second quarter of the last fiscal year. Check cashing fees,
including tax check fees, increased $2.6 million, or 13%, from $20.3 million in
the second quarter of the last fiscal year to $22.9 million in the second
quarter of fiscal 2001. This increase resulted from a 9% increase in the total
number of checks cashed and a 4% increase in the average fee per check, which is
a result of the 4% increase in the average size check. The money transfer
revenue increase of $0.8 million, or 40%, to $2.7 million in the second quarter
of fiscal 2001 from $2.0 million in the first quarter of the last fiscal year is
primarily due to the increased number of stores opened and operating in the
current fiscal year. Other fees increased $0.4 million, or 62%, from $0.7
million in the second quarter of the last fiscal year to $1.1 million in the
second quarter of fiscal 2001 due to the increase in the number of stores in
operation.
SIX MONTH COMPARISON
Total revenues increased $22.5 million, or 36%, to $85.3 million in the first
six months of fiscal 2001 from $62.9 million in the first six months of the last
fiscal year. This revenue growth resulted, in part, from a $13.1 million, or
22.4%, increase in comparable store revenues (775 stores). The balance of the
increase came from stores which were opened or acquired after June 30, 1999, and
were therefore not open for both of the full periods compared. The increase in
loan fees and interest accounted for 71% of the total revenue increase; the
increase in total check cashing fees accounted for 22% of the total revenue
increase; the increase in money transfer services accounted for 5% of the total
revenue increase; and the increase in other fees accounted for 2% of the total
revenue increase.
Loan fees and interest for the first half of fiscal 2001 reflect the Company's
participation interests in Goleta National Bank loans, but for the first half of
the last fiscal year, reflect the Company's so-called "payday loans" to
customers. Loan fees and interest increased $15.9 million, or 199%, from $8.0
million in the first half of the last fiscal year to $23.8 million in the first
half of fiscal 2001 due to the increase in the number of stores offering the
Company's loan products, which in turn is principally due to the offering of the
Goleta National Bank loan product in 992 stores in the first half of fiscal 2001
compared to 339 stores offering the Company's payday loan product in the first
half of the last fiscal year. Check cashing fees, including tax check fees,
increased $5.0 million, or 13%, from $39.0 million in the first half of the last
fiscal year to $44.0 million in the first half of fiscal 2001. This increase
resulted from a 9% increase in the total number of checks cashed and a 4%
increase in the average fee per check, which is a result of the 4% increase in
the average size check. The money transfer revenue increase of $1.1 million, or
28%, to $5.0 million in the first half of fiscal 2001 from $3.9 million in the
first half of the last fiscal year is primarily due to the increased number of
stores opened and operating in the current fiscal year. Other fees increased
$0.5 million, or 36%, from $1.4 million for the first half of fiscal 2000 to
$1.9 million for the first half of fiscal 2001 due to the increase in the number
of stores in operation.
STORE EXPENSE ANALYSIS
------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------- -------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
----------- ----------- ---------- --------- ----------- ----------- ---------- ----------
(percentage of (percentage of
(in thousands) revenue) (in thousands) revenue)
------------------------ --------------------- ------------------------- ----------------------
Salaries and benefits $12,690 $ 8,828 28.1% 27.4% $22,701 $17,352 26.6% 27.6%
Occupancy 6,249 5,089 13.9 15.8 12,566 10,360 14.7 16.5
Armored and security 1,792 1,402 4.0 4.3 3,514 2,813 4.1 4.5
Returns and cash shorts 2,939 2,365 6.5 7.3 6,341 4,836 7.4 7.7
Loan losses/loss
provision 2,496 970 5.5 3.0 5,546 2,023 6.5 3.2
Depreciation 1,668 1,205 3.7 3.7 3,238 2,518 3.8 4.0
Other 3,861 2,710 8.6 8.4 6,885 4,776 8.1 7.6
----------- ----------- ---------- --------- ----------- ----------- ---------- ----------
Total store expenses $31,695 $22,568 70.3% 69.9% $60,791 $44,677 71.2% 71.1%
=========== =========== ========== ========= =========== =========== ========== ==========
Average per store
expense $31.8 $27.8 $61.7 $55.3
QUARTER COMPARISON
Total store expenses increased $9.1 million, or 40%, to $31.7 million in the
second quarter of fiscal 2001 from $22.6 million in the second quarter of the
last fiscal year. Total store expenses increased slightly as a percentage of
revenues, increasing to 70.3% in the second quarter of fiscal 2001 from 69.9% in
the second quarter of the last fiscal year. Salaries and benefits expenses,
occupancy costs, and armored and security expenses, totaling $20.7 million in
the second quarter of fiscal 2001, increased $5.4 million, or 35%, from $15.3
million in the second quarter of the last fiscal year primarily as a result of
the increased number of stores in operation. Returned checks, net of collections
and cash shortages increased $0.6 million, or 25%, in the second quarter of
fiscal 2001, compared to the second quarter of the last fiscal year, also
primarily due to the increased number of stores in operation. Loan losses and
loss provision increased $1.5 million in the second quarter of fiscal 2001 from
the second quarter of the last fiscal year. In the second quarter of fiscal
2001, the Company maintained an allowance for loan losses established to cover
losses anticipated from the Goleta National Bank loan product, rather than
charging off actual losses (from the Company's payday loan product) as incurred,
as the Company did in the second quarter of the last fiscal year. Loan losses
are charged to this allowance, which will be reviewed for adequacy (and may be
adjusted) on a quarterly basis. Other store expenses increased $1.2 million, or
43%, in the second quarter of fiscal 2001 compared to the second quarter of the
last fiscal year primarily as a result of the increased number of stores in
operation and an increase in advertising expense related to the Goleta National
Bank loan product.
SIX MONTH COMPARISON
Total store expenses increased $16.1 million, or 36.1%, to $60.8 million in the
first six months of fiscal 2001 from $44.7 million in the first six months of
the last fiscal year. Total store expenses increased slightly as a percentage of
revenues, increasing to 71.2% in the first six months of fiscal 2001 from 71.1%
in the first six months of the last fiscal year. Salaries and benefits expenses,
occupancy costs, and armored and security expenses, totaling $38.8 million in
the first six months of fiscal 2001, increased $8.3 million, or 27%, from $30.5
million in the first six months of the last fiscal year primarily as a result of
the increased number of stores in operation. Returned checks, net of
collections, and cash shortages increased $1.5 million, or 31%, in the first six
months of fiscal 2001, compared to the first six months of fiscal 2000, also
primarily due to the increased number of stores in operation. Loan losses and
loss provision increased $3.5 million in the second quarter of fiscal 2001 from
the second quarter of the last fiscal year. In the first six months of fiscal
2001, the Company established an allowance for loan losses to cover losses
anticipated from the Goleta National Bank loan product, rather than charging off
actual (from the Company's payday loan product) as incurred, as the Company did
in the first six months of the last fiscal year. Loan losses are charged to this
allowance, which will be reviewed for adequacy (and may be adjusted) on a
quarterly basis. Other store expenses increased $2.1 million, or 44%, in the
first six months of fiscal 2001 compared to the first six months of the last
fiscal year primarily as a result of the increased number of stores in operation
and an increase in advertising expense related to the Goleta National Bank loan
product.
OTHER EXPENSES ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
------------------------------------------------- --------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------- ---------- ---------- ---------- ----------- ---------- --------- --------
(in thousands) (percentage of revenue) (in thousands) (percentage of revenue)
------------------------- ---------------------- ----------------------- -------------------
Region expenses $3,335 $2,631 7.4% 8.2% $6,465 $5,004 7.6% 8.0%
Headquarters expenses 2,443 1,808 5.4 5.6 4,763 3,657 5.6 5.8
Franchise expenses 273 270 0.6 0.8 494 511 0.6 0.8
Other depreciation and
amortization 1,214 887 2.7 2.8 2,189 1,804 2.6 2.9
Interest expense, net 2,956 1,519 6.6 4.7 5,119 2,830 6.0 4.5
Other expenses (144) 263 (0.3) 0.8 (122) 346 (0.1) 0.5
- ---------------------------------------------------------------------------------------------------------------------------
QUARTER COMPARISON
Region Expenses
Region expenses increased $0.7 million, or 27%, in the second quarter of fiscal
2001 from the second quarter of the last fiscal year, primarily as a result of
the increase in personnel (i.e., collections, administration) to support the
loan product from Goleta National Bank. Region expenses decreased as a
percentage of revenues to 7.4% in the second quarter of fiscal 2001 from 8.2% in
the second quarter of the last fiscal year.
Headquarters Expenses
Headquarters expenses increased $0.6 million, or 35%, in the second quarter of
fiscal 2001 from the second quarter of the last fiscal year, principally as a
result of additional personnel and the corresponding salaries and benefits.
Headquarters expenses decreased as a percentage of revenues to 5.4% in the
second quarter of fiscal 2001 from 5.6% in the second quarter of the last fiscal
year.
Franchise Expenses
Franchise expenses remained unchanged at $0.3 million in the second quarter of
fiscal 2001 from the second quarter of the last fiscal year.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.3 million, or 37%, in the
second quarter of fiscal 2001 from the second quarter of the last fiscal year
due primarily to increased acquisitions of stores.
Other Expenses
Other expenses decreased by $0.4 million in the second quarter of fiscal 2001
from the second quarter of the last fiscal year due to a combination of fewer
store closings and the net proceeds realized from the sale of a single store.
Interest Expense
Interest expense, net of interest income, increased $1.4 million, or 95%, in the
second quarter of fiscal 2001 as compared to the second quarter of the last
fiscal year. This increase was the result of an increase in borrowings used to
finance store openings and acquisitions and the growth in the Goleta National
Bank loan product.
Income Taxes
A total of $1.3 million was provided for income taxes in the second quarter of
fiscal 2001, up from $0.9 million in the second quarter of the last fiscal year.
The provision for income taxes was calculated based on a statutory federal
income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 40% for the second quarter of fiscal 2001, unchanged from the second
quarter of the last fiscal year.
SIX MONTH COMPARISON
Region Expenses
Region expenses increased $1.5 million, or 29%, in the first six months of
fiscal 2001 from the first six months of the last fiscal year, primarily as a
result of the increase in personnel (i.e., collections, administration) to
support the loan product from Goleta National Bank. Region expenses decreased as
a percentage of revenues to 7.6% in the first six months of fiscal 2001 from
8.0% in the first six months of the last fiscal year.
Headquarters Expenses
Headquarters expenses increased $1.1 million, or 30%, in the first six months of
fiscal 2001 from the first six months of the last fiscal year, principally as a
result of an increase in salaries and wages. Headquarters expenses decreased as
a percentage of revenues to 5.6% in the first six months of fiscal 2001 from
5.8% in the first six months of the last fiscal year.
Franchise Expenses
Franchise expenses remained unchanged at $0.5 million in the first six months of
fiscal 2001, compared to the first six months of the last fiscal year.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.4 million, or 21%, in the first
six months of fiscal 2001 from the first six months of the last fiscal year
primarily due to increased acquisitions of stores.
Other Expenses
Other expenses decreased by $0.5 million in the first six months of fiscal 2001
from the first six months of the last fiscal year due to a combination of fewer
store closings and the net proceeds realized from the sale of a single store.
Interest Expense
Interest expense, net of interest income, increased $2.3 million, or 81%, in the
first six months of fiscal 2001 as compared to the first six months of the last
fiscal year. This increase was principally the result of an increase in
borrowings used to finance store openings and acquisitions and the growth in the
Goleta National Bank loan product.
Income Taxes
A total of $2.3 million was provided for income taxes in the first six months of
fiscal 2001, up from $1.6 million in the first six months of the last fiscal
year. The provision for income taxes was calculated based on a statutory federal
income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 40% for the first six months of fiscal 2001, unchanged from the first
six months of the last fiscal year.
Cumulative Effect of Accounting Change
Effective July 1, 1999, the Company adopted the new accounting standard, AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
resulting in a cumulative effect on net income of $0.6 million net of an income
tax benefit of $0.4 million.
BALANCE SHEET VARIATIONS
Cash and cash equivalents, the money order principal payable, and the revolving
advances vary because of seasonal and day-to-day requirements resulting from
maintaining cash for cashing checks and purchasing loan participations, receipts
of cash from the sale of money orders and from participation interests in loans,
and remittances for money orders sold. For the six months ended December 31,
2000, cash and cash equivalents increased $36.0 million compared to an increase
of $37.4 million for the six months ended December 31, 1999.
Property and equipment, net, increased by $3.0 million due to the 11 stores
opened and 129 stores acquired during the six months ended December 31, 2000,
offset by the related depreciation. The excess purchase price over the fair
value of net assets acquired, net, increased $33.9 million, as a result of the
129 stores acquired, including the 107-store acquisition described in Note 4 to
the Interim Consolidated Financial Statements above, during the six months ended
December 31, 2000, offset by the related amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the six months ended December 31, 2000 and 1999, the Company had net cash
provided by operating activities of $14.0 million and $1.6 million,
respectively. The increase in cash flows provided from operating activities in
the six months ended December 31, 2000 was the result of increased net income,
the timing of daily remittances to product or service providers (such as
MoneyGram Payment Systems, Inc., Travelers Express Company Inc., and Goleta
National Bank), and the collection of MoneyGram receivables outstanding at June
30, 2000.
Cash Flows from Investing Activities
During the six months ended December 31, 2000 and 1999, the Company used $5.3
million and $4.8 million, respectively, for purchases of property and equipment
related principally to new store openings and remodeling existing stores.
Capital expenditures for acquisitions were $38.1 million and $1.1 million,
respectively, for the six months ended December 31, 2000 and 1999, related to
the 129 stores acquired during the six months ended December 31, 2000 and the
three stores acquired during the six months ended December 31, 1999.
Cash Flows from Financing Activities
Net cash provided by financing activities for the six months ended December 31,
2000, was $65.4 million. The balance of daily remittances due to the money order
supplier increased $6.6 million from June 30, 2000 due to the timing of
remittances. The Company increased its net borrowings under its revolving
line-of-credit facility from the bank lenders by $18.3 million from June 30,
2000 due to the increased number of stores and daily fluctuations in cash
requirements. The Company increased its borrowings under the reducing revolving
(formerly term-loan) facility from the bank lenders by $44.0 million since June
30, 2000 primarily to fund the acquisitions of a total of 129 stores through
December 31, 2000. Acquisition-related notes payable to sellers increased by
$0.6 million during the six months ended December 31, 2000. Senior secured notes
payable of $12.1 million decreased $4.0 million for the six months ended
December 31, 2000, as a result of the Company's payment of the second annual
installment of principal of $4.0 million in November 2000. The Company purchased
$0.3 million of treasury stock since June 30, 2000. Net cash provided by
financing activities for the six months ended December 31, 1999, was $41.7
million.
On November 9, 2000, the Company entered into an amended and restated credit
agreement with a syndicate of banks led by Wells Fargo Bank Texas, National
Association. Under this agreement, the Company's revolving credit facility under
the preceding credit agreement was renewed until November 8, 2001, and increased
from $130 million to $155 million. Also, the term-loan facility under the
preceding credit agreement was restructured, increased and amended. The
preceding term-loan facility permitted the Company to borrow (on a one-time,
non-revolving basis) up to $35 million for approximately one year, and the
amount borrowed and outstanding at the end of that period was to become a
term-loan payable over the succeeding four years. The facility is now structured
(and designated) as a reducing revolving facility which allows the Company to
borrow (and repay and reborrow) amounts under this facility for three years,
until November 9, 2003; and the maximum amount of credit available to the
Company is $65 million, but is subject to reduction on October 1, 2001, and
quarterly thereafter, in the amount of $4.375 million. In addition, one of the
annual interest rates that the Company may choose to apply to outstanding
amounts under the reducing revolving facility, the LIBOR-based rate, is higher
than the corresponding rate applied to the preceding term-loan facility. The
LIBOR-based rate for the term-loan facility was LIBOR plus 1.75%; the
LIBOR-based rate for the reducing revolving facility is LIBOR plus 2.375%, but
is subject to adjustment quarterly, beginning March 31, 2001, within a range of
2.125% to 2.625% above LIBOR, depending on the Company's debt-to-cash flow
ratio. The alternative variable annual rate that the Company may choose is the
same for the reducing revolving facility as it was for the term-loan facility;
it is an annual rate equal to the prime rate publicly announced by Wells Fargo
Bank from time to time plus 0.25%. The commitment fees payable to the lenders
for making the facilities available were also amended in the new credit
agreement. The commitment fee for the revolving credit facility is equal to
0.25% per annum of the average daily unused portion of that facility; and the
commitment fee for the reducing revolving facility is equal to 0.375% per annum
of the average daily unused portion of that facility through March 31, 2001, but
thereafter varies within a range of 0.3% to 0.5% per annum of the average daily
unused portion of that facility, depending on the Company's debt-to-cash flow
ratio after March 31, 2001. In all other material respects, including the annual
rate of interest charged on amounts outstanding under the revolving credit
facility (which is, (at the Company's option, either the prime rate publicly
announced by Wells Fargo Bank or LIBOR plus 0.75%), the terms of the new credit
agreement do not differ from the terms of the preceding credit agreement. The
Company had borrowed $113.3 million under its revolving credit facility and
$62.5 million under its reducing revolving facility as of December 31, 2000.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into interest-rate swap agreements, which
effectively convert a portion of its floating-rate interest obligations to
fixed-rate interest obligations, as described in Notes 2 and 3 to Interim
Consolidated Financial Statements above.
Stock Repurchase Program
In August 1999, the Company's Board of Directors authorized the repurchase from
time to time of up to approximately $4 million of the Company's Common Stock in
the open market or in negotiated transactions. In August 2000, the Company's
Board of Directors authorized the repurchase from time to time of an additional
$1 million of the Company's Common Stock. This stock repurchase program will
remain in effect unless discontinued by the Board of Directors. As of December
31, 2000, the Company had repurchased 211,400 shares at an average price of
$12.80 per share.
OPERATING TRENDS
Seasonality
The Company's business is seasonal to the extent of the impact of cashing tax
refund checks and tax refund anticipation loan checks. The impact of these
services is in the third and fourth quarters of the Company's fiscal year.
Impact of Inflation
Management believes the Company's results of operations are not dependent upon
the levels of inflation.
FORWARD-LOOKING STATEMENTS
This Report contains, and from time to time the Company or certain of its
representatives may make, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
identified by the use of words such as "anticipate," "expect," "estimate,"
"believe," "intend," and terms with similar meanings. Although the Company
believes that the current views and expectations reflected in these
forward-looking statements are reasonable, those views and expectations, and the
related statements, are inherently subject to risks, uncertainties, and other
factors, many of which are not under the Company's control and may not even be
predictable. Those risks, uncertainties, and other factors could cause the
actual results to differ materially from these in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not limited
to, many of the matters described in the Company's Annual Report on Form 10-K
for its fiscal year ended June 30, 2000, this Report, and its other filings with
the Securities and Exchange Commission: the Company's relationships with
Travelers Express and its affiliates, with Goleta National Bank, and with the
secured lenders; governmental regulation of check-cashing, short-term consumer
lending, and related financial services businesses; theft and employee errors;
the availability of suitable locations, acquisition opportunities, adequate
financing, and experienced management employees to implement the Company's
growth strategy; the fragmentation of the check-cashing industry and competition
from various other sources, such as banks, savings and loans, short-term
consumer lenders, and other similar financial services entities, as well as
retail businesses that offer products and services offered by the Company; and
customer demand and response to products and services offered by the Company.
The Company expressly disclaims any obligations to release publicly any updates
or revisions to these forward-looking statements to reflect any change in its
views or expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, particularly including changes
in interest rates that might affect the costs of its financing under its Credit
Agreement. To mitigate the risks of changes in interest rates, the Company
utilizes derivative financial instruments. The Company does not use derivative
financial instruments for speculative or trading purposes.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America and one interest-rate swap agreement with Wells Fargo Bank.
Those agreements effectively convert a portion of the Company's floating-rate
interest obligations to fixed-rate interest obligations, as described above in
Notes 2 and 3 to Interim Consolidated Financial Statements.
The fair value of the Company's existing interest-rate swaps is ($716,000) as of
December 31, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the lawsuit filed against the Company in Indiana, Eva J. Rowings v. Ace Cash
Express, Inc., in the United States District Court for the Southern District of
Indiana, the Indiana Supreme Court has received the briefs on the certified
state-law question submitted on behalf of the plaintiffs and the defendants in
numerous payday loan lawsuits pending in the federal court. The Indiana Supreme
Court has not stated when it expects to render a decision.
The Florida state Circuit Court in Orange County, Florida, in the lawsuit Wendy
Betts, John Cardegna and Donna Reuter v. Ace Cash Express, Inc., et al., granted
the Company's motion to dismiss the plaintiffs' second amended complaint,
without prejudice, on December 14, 2000. The plaintiffs filed their third
amended complaint, however, on January 3, 2001, and the Company has filed a
motion to dismiss. The Company's motion is pending before the court. In
addition, as described below, on February 6, 2001, the Attorney General of the
State of Florida filed a motion to intervene as a plaintiff in this lawsuit.
In the consolidated lawsuit filed against the Company in the United States
District Court for the Middle District of Florida, Eugene R. Clement v. Ace Cash
Express, Inc. and Neil Gillespie v. Ace Cash Express, Inc., on December 21,
2000, the court granted the Company's motion to dismiss on the federal Truth In
Lending Act claim, with prejudice, and remanded the remaining state-law claims
to Florida state court. The Company intends promptly to file a motion to dismiss
the remaining claims. In addition, as described below, on February 6, 2001, the
Attorney General of the State of Florida filed a motion to intervene as a
plaintiff in this lawsuit.
Apparently as the result of its investigation of "payday lending" activities in
Florida, including the Company's responses to the subpoena served on it in May
2000, the Attorney General of the State of Florida has just filed motions to
intervene as a plaintiff in the civil lawsuits in Florida state court described
in the preceding two paragraphs. The Company had no discussions with or notice
from representatives of the Attorney General's office regarding the proposed
interventions before the motions were filed. Accordingly, the Company is unaware
of the reasons for the motions. The motions to intervene indicate that, if
permitted to intervene, the Attorney General will assert claims that are
substantially similar to those asserted by the existing plaintiffs (i.e.,
violations of Florida usury and deceptive-trade-practices laws) and will request
types of relief similar to those requested by the existing plaintiffs as well as
certain civil penalties. The Company does not know whether either court will
permit the intervention or what the effect of the intervention, if permitted,
will have on either lawsuit.
In the lawsuit filed against the Company in an Alabama state Circuit Court in
Morgan County, Alabama, Edna Jordan v. Ace Cash Express, Inc., on December 20,
2000, the court granted the Company's motion to dismiss with prejudice as to the
named plaintiff (Edna Jordan), but without prejudice as to any other possible
claimant whom Ms. Jordan purported to represent.
In the lawsuit regarding loans by Goleta National Bank offered and made in
Florida, Jennafer Long v. Ace Cash Express, Inc., pending in a Florida state
Circuit Court in Clay County, Florida, the Company has removed the case to
federal court, the United States District Court for the Middle District of
Florida, and filed a motion to dismiss. The plaintiff has filed a motion to
return the case to state court, and the Company has filed a motion to keep the
case in federal court. Those motions are pending before the federal court.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on November 17, 2000. At
this meeting the Company's shareholders elected seven directors of the Company
to serve until the next annual meeting or until their successors are elected and
qualified. The table below shows the votes cast in favor of the election of the
seven directors and the votes withheld against their election. There were no
abstentions or broker non-votes.
Director Votes for Votes Withheld
- -------------------------------------------------------------------------------
Raymond C. Hemmig 9,167,499 320,573
Donald H. Neustadt 9,167,399 320,673
Jay B. Shipowitz 9,167,399 320,673
Michael S. Rawlings 9,167,197 320,875
Marshall B. Payne 9,167,509 320,563
Edward W. Rose III 9,167,509 320,563
C. Daniel Yost 9,167,459 320,613
At the meeting, the Company's shareholders also approved an amendment to the
Company's 1997 Stock Option Plan for employees to increase the number of shares
of Common Stock that may be issued upon exercise of options granted under that
plan from 1,215,000 to 1,715,000. Shareholders voted 6,593,323 shares for the
amendment and 944,559 shares against the amendment, and 16,879 shares abstained.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibit
Exhibit 10.50 Amendment No. 3 to Ace Cash Express, Inc. 1997 Stock
Option Plan
(b) Reports on Form 8-K
(i) The Company filed a Current Report on Form 8-K during the
fiscal quarter ended December 31, 2000, regarding its
entering into an amended and restated credit agreement
with a syndicate of bank lenders. The Company filed the
Report dated November 9, 2000, on November 21, 2000. The
Items reported therein were as follows:
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits:
Exhibit 10.1 - Amended and Restated Credit Agreement
dated November 9, 2000, among the Company, Wells
Fargo Bank Texas, National Association, as agent for
the lenders named therein, and the lenders named
therein with the Schedules (other than the Company's
disclosure schedules) and the Exhibits thereto.
(ii) The Company filed a Current Report on Form 8-K during the
fiscal quarter ended December 31, 2000, regarding its
acquisition of the assets of 107 locations from a group of
five privately held companies. The Company filed the
Report dated November 10, 2000, on November 21, 2000. The
Items reported therein were as follows:
Item 2 - Acquisition or Disposition of Assets Item 7 -
Financial Statements and Exhibits:
Exhibit 2.1 - Asset Purchase Agreement dated November
10, 2000, among the Company, Check Cashiers of
Arizona, Inc., Check Cashiers of California, Inc.,
Corpus Christi Check Cashiers, Inc., U.S. Money Order
Company, Inc., Valley Check Cashiers, Inc., Morris
Silverman, and Jeffrey D. Silverman.
Exhibit 2.2 - Escrow Agreement dated November 10,
2000, among the Company, Check Cashiers of Arizona,
Inc., Check Cashiers of California, Inc., Corpus
Christi Check Cashiers, Inc., U.S. Money Order
Company, Inc., Valley Check Cashiers, Inc., and
Chicago Title Insurance Company, as Escrow Agent.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE CASH EXPRESS, INC.
----------------------
February 9, 2001 By: /s/ Debra A. Bradford
Senior Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial and chief
accounting officer)
EXHIBIT 10.50
AMENDMENT NO. 3
TO
ACE CASH EXPRESS, INC.
1997 STOCK OPTION PLAN
In accordance with Section 17 of the Ace Cash Express, Inc. 1997 Stock
Option Plan (the "Plan"), Section 5 of the Plan is hereby amended to read in its
entirety as follows:
5. SHARES SUBJECT TO PLAN. The Board may not grant options under the Plan
for more than 1,715,000 shares of Common Stock of the Company, including
(without limitation) to any key employee, but this number may be adjusted to
reflect, if deemed appropriate by the Committee, any stock dividend, stock
split, share combination, recapitalization, or the like of or by the Company.
Shares to be optioned and sold may be made available from either authorized but
unissued Common Stock or Common Stock held by the Company in its treasury.
Shares that by reason of the expiration of an option or otherwise are no longer
subject to purchase pursuant to an option granted under the Plan may be
re-offered under the Plan.
IN WITNESS WHEREOF, this instrument has been executed to be effective as
of the 26th day of September, 2000.
ACE CASH EXPRESS, INC.
By: /s/ Debra A. Bradford