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 MARCH 31, 1999
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices)
(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 May 7, 1999
----- --------------------------------
Common Stock 10,040,165 shares
ACE CASH EXPRESS, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1998 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months and Nine Months Ended March 31, 1999 and 1998 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1999 and 1998 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
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 data)
MARCH 31, JUNE 30,
-----------------------------
1999 1998
------------ ------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 61,032 $ 60,168
Accounts and notes receivable, net 7,776 8,857
Prepaid expenses and other current assets 1,739 897
Inventories 1,679 2,449
------------ ------------
Total Current Assets 72,226 72,371
------------ ------------
Noncurrent Assets
Property and equipment, net 29,197 25,852
Covenants not to compete, net 1,797 2,254
Excess of purchase price over fair value of assets
acquired, net 35,865 29,932
Other assets 4,472 4,226
------------ ------------
Total Assets $ 143,557 $ 134,635
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 39,400 $ 1,932
Accounts payable, accrued liabilities, and other current
liabilities 15,765 13,110
Money order principal payable 6,011 47,486
Current portion of senior secured notes payable 4,677 226
Term advances 1,313 7,073
Notes payable 75 228
------------ ------------
Total Current Liabilities 67,241 70,055
------------ ------------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 16,000 20,000
Term advances 9,187 -
Other liabilities 5,414 5,629
------------ ------------
Total Liabilities 97,842 95,684
------------ ------------
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,
10,024,488 and 9,882,161 shares issued and outstanding,
respectively 100 99
Additional paid-in capital 21,376 20,620
Retained earnings 24,239 18,232
------------ ------------
Total Shareholders' Equity 45,715 38,951
------------ ------------
Total Liabilities and Shareholders' Equity $ 143,557 $ 134,635
============ ============
See notes to the interim consolidated financial statements.
3
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
Revenues $ 36,009 $ 29,340 $ 90,688 $ 74,159
Store expenses:
Salaries and benefits 8,967 7,925 24,224 20,802
Occupancy 4,622 3,877 13,481 11,364
Depreciation 1,200 1,036 3,453 2,983
Other 6,721 4,966 19,211 14,747
-------- -------- -------- --------
Total store expenses 21,510 17,804 60,369 49,896
-------- -------- -------- --------
Store gross margin 14,499 11,536 30,319 24,263
Region expenses 2,445 2,107 7,010 6,054
Headquarters expenses 2,230 2,278 5,664 5,318
Franchise expenses 372 286 1,016 729
Other depreciation and amortization 1,067 877 3,092 2,569
Interest expense, net 1,622 738 3,162 1,903
Other expenses 40 4 468 54
-------- -------- -------- --------
Income before income taxes 6,723 5,246 9,907 7,636
Income taxes 2,628 2,098 3,900 3,054
-------- -------- -------- --------
Net income $ 4,095 $ 3,148 $ 6,007 $ 4,582
======== ======== ======== ========
Basic earnings per share $ 0.41 $ 0.32 $ 0.60 $ 0.47
======== ======== ======== ========
Weighted average number of common shares
outstanding - basic EPS 10,007 9,779 9,969 9,736
======== ======== ======== ========
Diluted earnings per share $ 0.40 $ 0.31 $ 0.59 $ 0.45
======== ======== ======== ========
Weighted average number of common and
dilutive shares outstanding - diluted EPS 10,253 10,239 10,275 10,152
======== ======== ======== ========
See notes to the interim consolidated financial statements.
4
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---------- ----------
(in thousands)
Cash flows from operating activities:
Net income $ 6,007 $ 4,582
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,549 5,557
Recognition of deferred revenue (1,584) (1,165)
Changes in assets and liabilities:
Accounts and notes receivable, net 1,081 (48)
Prepaid expenses (842) (175)
Inventories 770 186
Other assets (15) (211)
Accounts payable and other liabilities 4,024 1,146
---------- ----------
Net cash provided by operating activities 15,990 9,872
Cash flows from investing activities:
Purchases of property and equipment, net (6,516) (3,618)
Cost of net assets acquired (9,085) (3,275)
---------- ----------
Net cash used by investing activities (15,601) (6,893)
Cash flows from financing activities:
Net (repayments) borrowings from money order supplier/
revolver (4,007) 1,807
Borrowings of term advances from banks 10,500 -
Net payments of term advances from previous
money order supplier (7,073) (611)
Net increase (decrease) in notes payable 298 (507)
Proceeds from stock options exercised 757 662
---------- ----------
Net cash provided by financing activities 475 1,351
---------- ----------
Net increase in cash and cash equivalents 864 4,330
Cash and cash equivalents, beginning of period 60,168 55,494
---------- ----------
Cash and cash equivalents, end of period $ 61,032 $ 59,824
========== ==========
Supplemental disclosures of cash flows information:
Interest paid $ 2,748 $ 1,502
Income taxes paid 2,351 1,259
See notes to the interim consolidated financial statements.
5
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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(in thousands, except per share amounts)
Net income (nummerator) $ 4,095 $ 3,148 $ 6,007 $ 4,582
========== ========== ========== ==========
Reconciliation of denominator:
Weighted average number of
common shares outstanding -
basic EPS 10,007 9,779 9,969 9,736
Effect of dilutive stock options 246 460 306 416
---------- ---------- ---------- ----------
Weighted average number of common
and dilutive shares outstanding -
diluted EPS 10,253 10,239 10,275 10,152
========== ========== ========== ==========
6
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, YEAR ENDED JUNE 30,
--------------- --------------- ---------------------------
1999 1998 1999 1998 1998 1997 1996
------ ------ ------ ------ ------- ------- -------
(unaudited) (unaudited)
COMPANY OPERATING AND STATISTICAL DATA:
Company-owned stores in operation:
Beginning of period 735 644 683 617 617 544 452
Acquired 10 5 29 12 15 46 69
Opened 28 9 75 36 62 45 33
Closed (1) - (15) (7) (11) (18) (10)
------ ------ ------ ------ ------- ------- -------
End of period 772 658 772 658 683 617 544
====== ====== ====== ====== ======= ======= =======
Percentage increase in comparable
store revenues from prior period:
Exclusive of tax-related revenues (1) 9.5% 6.8% 11.2% 7.1% 8.0% 5.5% 4.1%
Total (2) 11.4% 5.0% 11.7% 6.2% 6.9% 6.3% 4.7%
Capital expenditures
(in thousands) $2,956 $ 968 $6,516 $3,618 $ 5,742 $ 4,868 $ 3,435
Cost of net assets acquired
(in thousands) $2,851 $1,296 $9,085 $3,275 $ 4,708 $10,766 $14,432
- ---------------------------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in
millions) $ 970 $ 827 $2,534 $2,170 $ 2,898 $ 2,621 $ 2,144
Face amount of money orders
sold (in millions) $ 465 $ 486 $1,477 $1,381 $ 1,849 $ 1,812 $ 1,531
Face amount of money orders
sold as a percentage of the face
amount of checks cashed 47.9% 58.8% 58.3% 63.6% 63.8% 69.1% 71.4%
Face amount of average check $ 365 $ 346 $ 323 $ 306 $ 305 $ 291 $ 285
Average fee per check $ 9.34 $ 8.86 $ 7.58 $ 7.33 $ 7.26 $ 6.97 $ 6.81
Fees as a percentage of average check 2.56% 2.56% 2.35% 2.40% 2.38% 2.40% 2.39%
Number of checks cashed
(in thousands) 2,657 2,388 7,839 7,093 9,496 9,020 7,535
Number of money orders sold
(in thousands) 3,710 3,673 11,107 10,555 14,146 13,608 11,835
- ---------------------------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks
(in thousands) $3,309 $2,384 $9,139 $7,865 $10,193 $10,399 $ 8,661
Collections (in thousands) 1,900 1,562 5,392 4,748 6,301 6,554 5,004
------ ------ ------ ------ ------- ------- -------
Net write-offs (in thousands) $1,409 $ 822 $3,747 $3,117 $ 3,892 $ 3,845 $ 3,657
====== ====== ====== ====== ======= ======= =======
Collections as a percentage of
returned checks 57.4% 65.5% 59.0% 60.4% 61.8% 63.0% 57.8%
Net write-offs as a percentage of
revenues 4.0% 2.8% 4.2% 4.2% 3.9% 4.4% 5.3%
Net write-offs as a percentage of
the face amount of checks cashed .15% .10% .15% .14% .13% .15% .17%
(1) Change in revenues computed excluding tax refund check cashing fees for
both the full year and the interim periods compared.
(2) Calculated based on the changes in revenues of all stores open for both
the full year and the interim periods compared.
7
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA, CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, JUNE 30,
-------------------- ------------------- -------------------
1999 1998 1999 1998 1998 1997
-------- -------- -------- -------- -------- --------
(unaudited) (unaudited)
CONSUMER LOANS (PAY DAY LOANS):
OPERATING DATA:
Volume (in thousands) $24,964 $18,063 $78,772 $47,018 $69,182 $39,336
Average advance $ 202 $ 186 $ 198 $ 170 $ 177 $ 147
Average finance charge $ 30.65 $ 28.25 $ 30.08 $ 27.01 $ 27.51 $ 25.03
Number of loans made
(in thousands) 108 84 345 238 338 229
COLLECTIONS DATA:
Charge-offs (in thousands) $ 1,915 $ 976 $ 5,862 $ 2,514 $ 3,761 $ 2,307
Recoveries (in thousands) 1,468 588 3,512 1,363 1,954 1,124
------- ------ ------- ------- ------- -------
Net charge-offs
(in thousands) $ 447 $ 388 $ 2,350 $ 1,151 $ 1,807 $ 1,183
======= ====== ======= ======= ======= =======
Charge-offs as a percentage
of pay day loan volume 7.7% 5.4% 7.4% 5.3% 5.4% 5.9%
Recoveries as a percentage of
charge-offs 76.7% 60.2% 59.9% 54.2% 52.0% 48.7%
Net charge-offs as a percentage
of pay day loan revenue 13.6% 16.3% 22.7% 18.0% 19.5% 20.7%
Net charge-offs as a percentage
of pay day loan volume 1.8% 2.2% 3.0% 2.4% 2.6% 3.0%
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENTAGE OF REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
Check cashing fees $ 16,456 $ 14,579 45.7% 49.7% $ 50,773 $ 45,159 56.0% 60.9%
Loan fees and interest 3,293 2,638 9.1 9.0 10,690 6,984 11.8 9.4
Tax check fees 8,354 6,579 23.2 22.4 8,633 6,868 9.5 9.3
Bill payment services 2,142 1,197 6.0 4.1 6,008 2,752 6.6 3.7
Money transfer services 1,959 1,610 5.4 5.5 5,357 4,483 5.9 6.0
Money order fees 1,905 750 5.3 2.6 3,516 2,149 3.9 2.9
New customer fees 624 583 1.7 2.0 1,752 1,669 1.9 2.2
Franchise revenues 416 273 1.2 0.9 1,542 1,176 1.7 1.6
Other fees 860 1,131 2.4 3.8 2,417 2,919 2.7 4.0
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue $ 36,009 $ 29,340 100.0% 100.0% $ 90,688 $ 74,159 100.0% 100.0%
======== ======== ======== ======== ======== ======== ======== ========
Average revenue per
store (excluding
franchise revenues) $ 47.2 $ 44.6 $ 122.5 $ 114.5
QUARTER COMPARISON
Total revenues increased $6.7 million, or 23%, from $29.3 million in the third
quarter of fiscal 1998 to $36.0 million in the third quarter of fiscal 1999.
This revenue growth resulted, in part, from a $3.1 million, or 11.4%, increase
in comparable store revenues (600 stores). The balance of the increase, $3.6
million, resulted from stores which were opened or acquired after June 30, 1997,
and were therefore not open for both of the full periods compared. The number
of Company-owned stores increased by 114, or 17%, from 658 stores opened at
March 31, 1998, to 772 stores opened at March 31, 1999. The increase in check
cashing fees and tax check fees combined accounted for 55% of the total revenue
increase; the increase in loan fees and interest accounted for 10% of the total
revenue increase; and the increase in bill payment services accounted for 14%
of the total revenue increase.
Check cashing fees and tax check fees combined increased $3.6 million, or 17%,
from the $21.2 million in the third quarter of fiscal 1998 to $24.8 million in
the third quarter of fiscal 1999. This increase resulted from an 11% increase
in the total number of checks cashed and a 6% increase in the average size
check, which resulted in a 5% increase in the average fee per check. Loan fees
and interest increased $0.7 million, or 25%, as a result of an increase in the
number of stores offering the Company's post-dated checks to 307 stores at
March 31, 1999, as compared to 210 stores at March 31, 1998. Bill payment
services increased $0.9 million, or 79%, principally as a result of growth in
payment revenue from existing bill payment contracts and new bill payment
contracts. Money order fees increased $1.2 million, or 154%, as a result of
increased money order pricing, enabled by the Company's new bank financing and
the new money order agreement with Travelers Express Company, Inc. Other fees
decreased $0.3 million, or 24%, as a result of decreases in food stamp
distribution revenue and other miscellaneous product revenue.
NINE MONTH COMPARISON
Total revenues increased $16.5 million, or 22%, from $74.2 million in the first
nine months of fiscal 1998 to $90.7 million in the first nine months of fiscal
1999. This revenue growth resulted, in part, from a $8.0 million, or 11.7%,
increase in comparable store revenues (600 stores). The balance of the
increase, $8.5 million, resulted from stores which were opened or acquired after
June 30, 1997, and were therefore not open for both of the full periods
compared. The number of Company-owned stores increased by 89, or 13%, from 683
stores opened at June 30, 1998, to 772 stores opened at March 31, 1999. The
increase in check cashing fees and tax check fees combined accounted for 45% of
the total revenue increase; the increase in loan fees and interest accounted for
22% of the total revenue increase; and the increase in bill payment services
accounted for 20% of the total revenue increase.
9
Check cashing fees and tax check fees combined increased $7.4 million, or 14%,
from $52.0 million in the first nine months of fiscal 1998 to $59.4 million in
the first nine months of fiscal 1999. This increase resulted from an 11%
increase in the total number of checks cashed and a 6% increase in the average
size check, which resulted in a 3% increase in the average fee per check. Loan
fees and interest increased $3.7 million, or 53%, as a result of an increase in
the number of stores offering the Company's post-dated checks to 307 stores at
March 31, 1999, as compared to 210 stores at March 31, 1998. Bill payment
services increased $3.3 million, or 118%, principally as a result of growth in
payment revenue from existing bill payment contracts and new bill payment
contracts. Money order fees increased $1.4 million, or 64%, as a result of
increased money order pricing, enabled (in the third quarter of fiscal 1999) by
the Company's new bank financing and the new money order agreement with
Travelers Express Company, Inc. Other fees decreased $0.5 million, or 17%, as
a result of decreases in food stamp distribution revenue and other
miscellaneous product revenue.
STORE EXPENSE ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENTAGE OF REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
Salaries and benefits $ 8,967 $ 7,925 24.9% 27.0% $ 24,224 $ 20,802 26.7% 28.0%
Occupancy 4,622 3,877 12.8 13.2 13,481 11,364 14.9 15.3
Armored and security 1,312 1,120 3.7 3.8 3,776 3,090 4.2 4.2
Returns and cash shorts 2,476 1,357 6.9 4.6 6,440 4,716 7.1 6.4
Loan losses 448 542 1.2 1.9 2,350 1,390 2.6 1.9
Depreciation 1,200 1,036 3.3 3.5 3,453 2,983 3.8 4.0
Other 2,485 1,947 6.9 6.7 6,645 5,551 7.3 7.5
-------- -------- -------- -------- -------- -------- -------- --------
Total store expenses $ 21,510 $ 17,804 59.7% 60.7% $ 60,369 $ 49,896 66.6% 67.3%
======== ======== ======== ======== ======== ======== ======== ========
Average per store
expense $ 28.5 $ 27.3 $ 83.0 $ 78.3
QUARTER COMPARISON
Total store expenses increased $3.7 million, or 21%, in the third quarter of
fiscal 1999 over the third quarter of fiscal 1998. Total store expenses
decreased as a percentage of revenues, however, from 60.7% in the third quarter
of fiscal 1998 to 59.7% in the third quarter of fiscal 1999. Salaries and
benefits expenses, occupancy costs, and armored and security expenses combined
increased $2.0 million, or 15%, primarily as a result of the increased number
of stores in operation. Returned checks, net of collections, and cash shortages
increased $1.1 million, or 82%, in the fiscal 1999 quarter, as compared to the
same quarter in fiscal 1998. This increase was the a result of additional
stores open during the period and increased losses in the third quarter of
fiscal 1999 compared to the third quarter of fiscal 1998. Returned checks, net
of collections, and cash shortages increased as a percentage of revenues, to
6.9% in the third quarter of fiscal 1999 from 4.6% in the third quarter of
fiscal 1998. Loan losses decreased $0.1 million, or 17%, in the third quarter
of fiscal 1999 as compared to the third quarter of fiscal 1998. Other store
expenses increased $0.5 million, or 28%, primarily as a result of the increased
number of stores in operation.
NINE MONTH COMPARISON
Total store expenses increased $10.5 million, or 21%, from the first nine
months of fiscal 1998 to the first nine months of fiscal 1999. Total store
expenses decreased as a percentage of revenues, however, from 67.3% in the first
nine months of fiscal 1998 to 66.6% in the first nine months of fiscal 1999.
Salaries and benefits expenses, occupancy costs, and armored and security
expenses combined increased $6.2 million, or 18%, primarily as a result of the
increased number of stores in operation. Returned checks, net of collections,
and cash shortages increased $1.7 million, or 37%, in the first nine months of
fiscal 1998 to the first nine months of fiscal 1999, primarily as a result of
the additional stores open during the period. Returned checks, net of
collections, and cash shortages increased as a percentage of revenues, from
6.4% in the first nine months of fiscal 1998 to 7.1% in the first nine months
of fiscal 1999. Loan losses increased $1.0 million in the first nine months of
fiscal 1999 as compared to the first nine months of fiscal 1998, as a result of
the increased volume of loans made. Other store expenses increased $1.1
million, or 20%, primarily as a result of the increased number of stores in
operation.
10
OTHER EXPENSES ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENTAGE OF REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
Region expenses $ 2,445 $ 2,107 6.8% 7.2% $ 7,010 $ 6,054 7.7% 8.1%
Headquarters expenses 2,230 2,278 6.2 7.8 5,664 5,318 6.3 7.2
Franchise expenses 372 286 1.0 1.0 1,016 729 1.1 1.0
Other depreciation and
amortization 1,067 877 3.0 3.0 3,092 2,569 3.4 3.4
Interest expense 1,622 738 4.5 2.5 3,162 1,903 3.5 2.6
Other expenses 40 4 0.1 0.0 468 54 0.5 0.1
QUARTER COMPARISON
Region Expenses
Region expenses increased $0.3 million, or 16%, in the third quarter of fiscal
1999 over the third quarter of fiscal 1998, primarily due to increased salaries
and benefits and travel expenses. Region expenses decreased as a percentage of
revenues, however, from 7.2% in the third quarter of fiscal 1998 to 6.8% in the
third quarter of fiscal 1999.
Headquarters Expenses
Headquarters expenses remained relatively unchanged for the third quarter of
fiscal 1999 as compared to the third quarter of fiscal 1998. Headquarters
expenses decreased as a percentage of revenues, however, from 7.8% in the third
quarter of fiscal 1998 to 6.2% in the third quarter of fiscal 1999.
Franchise Expenses
Franchise expenses increased $0.1 million for the third quarter of fiscal 1999
as compared to the third quarter of fiscal 1998, primarily due to increased
legal expenses related to the Company's franchise program.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.2 million, or 22%, in the third
quarter of fiscal 1999 from the third quarter of fiscal 1998. This increase is
principally due to increased amortization of intangibles (goodwill and
non-competition agreements) resulting from the 12 stores acquired during the
second and third quarters of fiscal 1999, compared to the five stores acquired
during the second and third quarters of fiscal 1998.
Interest Expense
Interest expense, net of interest income, increased $0.9 million in the third
quarter of fiscal 1999 as compared to the third quarter of fiscal 1998. This
increase was principally the result of an increase in borrowings used to
finance store acquisitions and borrowings required to replace the deferred
money order remittances formerly used by the Company under its previous
money order agreement (which was replaced during mid-December 1998).
Income Taxes
A total of $2.6 million was provided for income taxes in the third quarter of
fiscal 1999, compared to $2.1 million in the third quarter of fiscal 1998. 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.
NINE MONTH COMPARISON
Region Expenses
Region expenses increased $1.0 million, or 16%, in the nine-month period of
fiscal 1999 over the comparable nine-month period of fiscal 1998, primarily due
to increased salaries and benefits and travel expenses and the opening of a new
region
11
office during the nine-month period of fiscal 1999. Region expenses decreased
as a percentage of revenues, however, from 8.1% in first nine months of fiscal
1998 to 7.7% in the first nine months of fiscal 1999.
Headquarters Expenses
Headquarters expenses increased $0.3 million, or 7%, in the first nine months of
fiscal 1999 over the first nine months of fiscal 1998, principally as a result
of increased salaries and benefits expenses. Headquarters expenses decreased as
a percentage of revenues, however, from 7.2% in the first nine months of fiscal
1998 to 6.3% in the first nine months of fiscal 1999.
Franchise Expenses
Franchise expenses increased $0.3 million for the first nine months of fiscal
1999, compared to the first nine months of the last fiscal year, primarily due
to increased legal expenses related to the Company's franchise program.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.5 million, or 20%, in the first
nine months of fiscal 1999 over the first nine months of fiscal 1998. This
increase is principally due to increased amortization of intangibles (goodwill
and non-competition agreements) resulting from the 29 stores acquired during the
first nine months of fiscal 1999 compared to the 12 stores acquired during the
first nine months of fiscal 1998.
Interest Expense
Interest expense, net of interest income, increased $1.3 million in the first
nine months of fiscal 1999 over the first nine months of fiscal 1998. This
increase was principally the result of an increase in borrowings used to
finance store acquisitions and borrowings required to replace the deferred
money order remittances formerly used by the Company under its previous money
order agreement (which was replaced during mid-December 1998).
Income Taxes
A total of $3.9 million was provided for income taxes in the first nine months
of fiscal 1999, compared to $3.1 million in the first nine months of fiscal
1998. 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.
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 making loans, receipts of cash from the
sale of money orders, loan volume, and remittances for money orders sold. For
the nine months ended March 31, 1999 and 1998, cash and cash equivalents
increased $0.9 million and $4.3 million, respectively.
Property and equipment and the excess purchase price over the fair value of net
assets acquired increased $3.3 million and $5.9 million, respectively, as a
result of the 75 stores opened and the 29 stores acquired during the nine
months ended March 31, 1999, offset by related depreciation and amortization.
The significant variations in revolving advances and money order principal
payable result from the Company's substitution, during mid-December 1998, of
financing through the bank credit facilities described below in "--Liquidity
and Capital Resources."
The shift of certain amounts of term advances from current to noncurrent also
reflects the substitution of the term loan facility from the bank lenders for
the similar advances from the previous money order supplier, which were due no
later than December 31, 1998.
The shift of $4 million of senior secured notes payable from noncurrent to
current reflects the installment of that amount of principal due in November
1999.
12
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the nine months ended March 31, 1999 and 1998, the Company had net cash
provided by operating activities of $16.0 million and $9.9 million,
respectively.
Cash Flows from Investing Activities
During the nine months ended March 31, 1999 and 1998, the Company used $6.5
million and $3.6 million, respectively, for purchases of property and equipment
related principally to new store openings and remodeling existing stores.
Capital expenditures for acquisitions amounted to $9.1 million and $3.3
million, respectively, for the nine months ended March 31, 1999 and 1998,
related to the 29 stores acquired during the nine months ended March 31, 1999
and the 12 stores acquired during the nine months ended March 31, 1998.
Cash Flows from Financing Activities
During the nine months ended March 31, 1999 and 1998, the Company had net cash
provided by financing activities of $0.5 million and $1.4 million, respectively.
The credit facilities available to the Company under its existing credit
agreement with a syndicate of banks, led by Wells Fargo Bank (Texas), National
Association since mid-December 1998, are a revolving line-of-credit facility of
$110 million and a term-loan facility of $35 million. The revolving
line-of-credit facility replaced the deferred money order remittances and
revolving-advance facility formerly used by the Company under the previous
money order agreement, and the term-loan facility replaced the term advance
facility under the previous money order agreement. Borrowings under the
revolving line-of-credit facility may be used for working capital and general
corporate purposes, and borrowings under the term-loan facility may be used for
store construction and relocation and other capital expenditures, including
acquisitions. The Company had borrowed $39.4 million under its revolving
facility and $10.5 million under its term-loan facility as of March 31, 1999.
The Company's borrowings under the revolving facility bear interest at a
variable annual rate equal to, at the Company's discretion, either the prime
rate publicly announced by Wells Fargo Bank or the London InterBank Offered
Rate (LIBOR) plus 0.75%. The Company's borrowings under the term-loan facility
bear interest at a variable annual rate equal to, at the Company's discretion,
either the prime rate publicly announced by Wells Fargo Bank or LIBOR plus
1.75%.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company entered into interest-rate swap agreements with NationsBank,
N.A. (now Bank of America). Those agreements effectively converted a portion
of the Company's floating-rate interest obligations to fixed-rate interest
obligations for a two-year period that began January 4, 1999. The notional
amount for interest rates under the revolving line-of-credit facility is $33
million; the notional amount for interest rates under the term-loan facility is
currently $9.75 million, to increase to $10.75 million in September 1999, with
decreases in calendar year 2000 corresponding to term-loan payments due from
the Company. The notional amounts were determined based on the company's
minimum projected borrowings during calendar years 1999 and 2000. The fixed
rate applicable to the notional amount under the revolving line-of-credit
facility is 5.14% for calendar year 1999 and 5.23% for calendar year 2000. The
fixed rate applicable to the notional amount under the term-loan facility is
6.23% for calendar year 1999 and 6.38% for calendar year 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
for its fiscal year ending June 30, 1999. This standard requires the Company
to report financial and descriptive information about its reportable operating
segments. The Company considers its franchise operations to be a reportable
operating segment, which will be reported in the footnotes to the financial
statements for the year ending June 30, 1999.
The Company is required to adopt a new accounting standard, AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," by the first
quarter ending September 30, 1999. This standard requires the previously
capitalized start-
13
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,
approximate $0.48 million as of March 31, 1999.
The Company is also required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," by the first quarter ending September 30, 1999. This standard
requires the Company to record the fair value of its interest-rate swap as an
asset or liability in the consolidated balance sheet. Changes in the fair
value of the interest-rate swap will be reported as a component of
shareholders' equity in the consolidated balance sheet. The fair value of the
Company's existing interest-rate swap is $0.4 million as of March 31, 1999.
YEAR 2000 ISSUE UPDATE
The "Year 2000 Issue" is the result of computer programs that use two digits
instead of four digits to record the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 instead of the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including (among other
events) a temporary inability to process transactions, send invoices, or
conduct similar normal business activities.
The Company continues to believe that any of its software and hardware that may
be subject to the Year 2000 Issue can be modified or replaced with upgraded or
new software at a cost that will not be material to the Company's operations or
financial condition. The Company estimates the total costs of addressing its
Year 2000 Issue will be approximately $0.25 million, and the Company has
incurred costs for that purpose of approximately $0.17 million through March
31, 1999. The Company's software for its financial and reporting systems was
upgraded during the second quarter of the current fiscal year to be Year-2000-
compliant. The Company still plans to complete the necessary modification and
replacement of its remaining software and hardware to address the Year 2000
Issue no later than August 31, 1999. The Company also continues to work with
its significant suppliers and has determined the Company is not significantly
vulnerable to third parties' failure to remediate their own Year 2000 Issues.
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 may contain, 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 those reflected in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not
limited to, the following matters described in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission: governmental
regulation of the check-cashing industry; 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 the
competition from various other sources, such as banks, savings and loans, and
other 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.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in interest
rates. To mitigate risks on 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 entered into interest-rate swap agreements with NationsBank,
N.A. (now Bank of America). Those agreements effectively converted a portion
of the Company's floating-rate interest obligations to fixed-rate interest
obligations for a two-year period that began January 4, 1999. The notional
amount for interest rates under the revolving line-of-credit facility is $33
million; the notional amount for interest rates under the term-loan facility is
currently $9.75 million, to increase to $10.75 million in September 1999, with
decreases in calendar year 2000 corresponding to term-loan payments due from
the Company. The notional amounts were determined based on the company's
minimum projected borrowings during calendar years 1999 and 2000. The fixed
rate applicable to the notional amount under the revolving line-of-credit
facility is 5.14% for calendar year 1999 and 5.23% for calendar year 2000. The
fixed rate applicable to the notional amount under the term-loan facility is
6.23% for calendar year 1999 and 6.38% for calendar year 2000.
The fair value of the Company's existing interest-rate swap is $0.4 million as
of March 31, 1999. Based on the average outstanding indebtedness in the
previous quarter, a 10% change in interest rates would have changed the
Company's interest expense by approximately $53,000 (pre tax) for the quarter
ended March 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has recently been served with three class-action lawsuits regarding
its service commonly referred to in the check-cashing industry as a "payday
loan." That service consists of providing a customer cash in exchange for that
customer's check (in the amount of that cash plus a service fee) with an
agreement to defer the presentment or deposit of that check until the
customer's next payday, usually a period of two to four weeks. During the
quarter ended March 31, 1999, the average amount of cash provided to a customer
in such a transaction was approximately $200, and the fee to the Company was
approximately $30.
The first lawsuit, Bryan Meegan v. Ace Cash Express, Inc., was filed in the
United States District Court for the Southern District of California on
December 15, 1998, but was served on the Company only on February 5, 1999. The
plaintiff, for himself and other customers similarly situated, alleges
violations of the California statute that governs deferred-deposit transactions
and, therefore, violations of various California consumer-protection statutes
regarding usury and unfair and deceptive business practices. However, the
plaintiff was not a customer of the Company, but was a customer of one of the
Company's franchisees (not named in the lawsuit). It is therefore unclear
whether the allegations concern the Company's deferred-deposit business at its
own locations in California in addition to purported responsibility of the
Company for its franchisee's deferred-deposit business in California. The
complaint seeks an injunction against the alleged illegal activities and actual
and punitive damages from the Company.
The second lawsuit, Mike Kenney et al. v. Ace Cash Express, Inc., was filed in
the State Circuit Court of Pulaski County, Arkansas on February 9, 1999. The
plaintiff, for himself and other customers similarly situated, alleges that the
Company's deferred-presentment transactions in Arkansas violate the usury laws
of Arkansas. The complaint seeks the standard penalty for a usury-law
violation in Arkansas: an amount equal to twice the amount paid by customers of
deferred-presentment transactions during the past three years.
The third lawsuit, Gary M. Kane and Wendy Betts v. Ace Cash Express, Inc.
et al., was filed in the United States District Court for the Middle District
of Florida on April 19, 1999. The complaint was filed not only against the
Company, but also against Check Express, Inc., its wholly owned subsidiary, and
most of the directors and executive officers of the Company and Check Express,
Inc. The plaintiffs, for themselves and other customers similarly situated,
allege violations of the federal Truth in Lending Act and Regulation Z and of
Florida consumer-protection statutes regarding consumer lending, deceptive and
unfair trade practices, and usury. The plaintiffs seek an injunction against
the alleged illegal activities and actual and punitive damages of various
kinds, based on various theories.
15
Because each lawsuit purports to be a class action, the amount of damages for
which the Company is alleged to be responsible under any lawsuit is necessarily
uncertain. That amount would depend not only on proof of the allegations, but
also on the number of customers of the service who constitute any class of
plaintiffs, if permitted by the court, in the particular lawsuit.
The Company believes that the lawsuits are without merit and denies all
allegations. The Company intends to vigorously defend the lawsuits. The
Company understands that others in California, Arkansas, and Florida have also
been sued regarding their "payday loan" service, on substantially similar bases
as are stated in the complaints against the Company, by one or more plaintiffs
represented by the same counsel as are representing the plaintiffs in the
lawsuits against the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibits
-------------- --------
27 * Financial Data Schedule (EDGAR version only)
________________________
* Filed herewith
(b) Reports on Form 8-K
None
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.
May 13, 1999 By: /s/ Jay B. Shipowitz
--------------------
Senior Vice President and CFO
(Duly authorized officer and
principal financial and chief
accounting officer)
By: /s/ Charlotte S Shaw
---------------------
Assistant Vice President and Controller
16