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 SEPTEMBER 30, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices)
(214) 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 where 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 receding 12 months (or for such shorter period that he registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 November 8, 1996
----- ----------------------------------
Common Stock 4,239,667 shares
ACE CASH EXPRESS, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of
September 30, 1996, and June 30, 1996 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months ended September 30, 1996 and 1995 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Three Months ended September 30, 1996 and 1995 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, 1996 JUNE 30, 1996
-------------------- -------------
(UNAUDITED)
(in thousands)
Cash and cash equivalents $ 61,976 $ 56,603
Accounts and notes receivable, net 3,970 4,891
Prepaid expenses 395 328
Inventories 1,665 2,084
Property and equipment, net 20,781 19,469
Covenants not to compete, net 2,786 2,372
Excess of purchase price over fair 25,114 23,124
value of assets acquired
Other assets 2,723 2,616
Net assets held for sale 3,378 3,197
-------- --------
$122,788 $114,684
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money order principal payable $ 43,418 $ 35,488
Revolving advances from money order supplier 18,399 21,157
Accounts payable and accrued liabilities 7,939 10,411
Notes payable 4,645 2,320
Term advances from money order supplier 18,500 16,969
Other liabilities 4,274 3,103
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 6,328,861 and 6,324,306 shares
issued and outstanding, respectively 63 63
Additional paid-in capital 18,142 18,109
Retained earnings 7,408 7,064
-------- --------
Total shareholders' equity 25,613 25,236
-------- --------
$122,788 $114,684
======== ========
See notes to the interim consolidated financial statements.
3
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
------------- ------------
(in thousands,
except per share data)
Revenues $19,021 $14,067
Store expenses:
Salaries and benefits 5,755 4,607
Occupancy 3,287 2,616
Depreciation 772 621
Other 4,192 3,010
------- -------
Total store expenses 14,006 10,854
Region expenses 1,764 1,205
Headquarters expenses 1,227 964
Franchise expenses 238 --
Other depreciation and amortization 656 485
Interest expense 548 287
Other expense 16 2
------- -------
Income before income taxes 566 270
Income taxes 221 102
------- -------
Net income $ 345 $ 168
======= =======
Earnings per share $.05 $.03
======= =======
Weighted average number of common and
common equivalent shares outstanding 6,490 6,298
======= =======
See notes to the interim consolidated financial statements.
4
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
---------------------
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities: $ 344 $ 168
Depreciation and amortization 1,065 1,106
Recognition of deferred revenue (350) (69)
Changes in assets and liabilities:
Accounts and notes receivable, net 740 286
Prepaid expenses (67) (2)
Inventories 419 743
Other assets (106) (467)
Accounts payable and other liabilities (952) 118
------- -------
Net cash provided by operating activities 1,093 1,883
Cash flows from investing activities:
Purchases of property and equipment, net (1,027) (843)
Cost of net assets acquired (3,755) --
------- -------
Net cash used by investing activities (4,782) (843)
Cash flows from financing activities:
Net borrowings from money order supplier 4,695 (4,022)
Increase in notes payable 525 --
Term advances from money order supplier 2,478 --
Payments on notes payable (199) (223)
Payment of term advances from money order supplie 1,531 --
Proceeds from stock options exercised 32 2
------- -------
Net cash provided by financing activities 9,062 (4,243)
------- -------
Net increase in cash and cash equivalents 5,373 (3,203)
Cash and cash equivalents, beginning of period 56,603 49,249
------- -------
Cash and cash equivalents, end of period $61,976 $46,046
======= =======
Supplemental disclosures of cash flows information:
Cash paid for:
Interest 485 326
Income taxes 1,574 181
See notes to the interim consolidated financial statements.
5
ACE CASH EXPRESS, INC.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
OPERATIONS
Ace Cash Express, Inc. was incorporated under the laws of the State of
Texas in March 1982. The Company operates in one business segment and provides
check cashing, money order, wire transfer, loans and other transactional
services to customers for a fee. As of September 30, 1996, the Company owned
and operated 576 stores in 18 states and the District of Columbia and had 95
additional franchised stores in eleven additional states.
2. SUBSEQUENT EVENT
On October 29, 1996, the Board of Directors of the Company authorized a
stock dividend in the form of a three-for-two stock split. The split will be
effected by distributing one additional share of common stock for each two
shares of common stock outstanding. The record date for determining holders
entitled to receive the stock dividend will be November 15, 1996, with a
delivery date on or about November 30, 1996. Fractional shares will be redeemed
in cash. All share and per share amounts have been restated as if the split were
effective as of July 1, 1995.
6
SUPPLEMENTAL STATISTICAL DATA - COMPANY OWNED STORES
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------ -------------------------
1996 1995 1996 1995 1994
------- ------- ------ ------ -------
STORE OPERATING DATA:
Beginning of period 544 452 452 343 276
Acquired 23 0 69 77 32
Opened 11 6 33 40 47
Closed (2) (2) (10) (8) (12)
------ ------ ------- ------- ------
End of period 576 456 544 452 343
====== ====== ======= ======= ======
Percentage increase in comparable store
revenues from prior period (1) 5.9% 3.0% 4.1% 1.6% 1.0%
Capital expenditures (in thousands) $1,035 $ 845 $ 3,435 $ 4,187 $4,367
Cost of net assets acquired (in $3,755 -- $14,432 $14,000 $4,846
thousands)
- -----------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in $ 574 $ 472 $ 2,144 $ 1,567 $1,309
millions)
Face amount of money orders sold (in $ 435 $ 352 $ 1,531 $ 1,213 $1,042
millions)
Face amount of money orders sold as a
percentage of the face amount of
checks 75.8% 74.5% 71.4% 77.4% 79.6%
cashed
Face amount of average check $ 271 $ 277 $ 285 $ 284 $ 286
Average fee per check $ 6.32 $ 6.22 $ 6.81 $ 6.79 $ 6.94
Number of checks cashed (in thousands) 2,114 1,704 7,535 5,516 4,585
Number of money orders sold (in 3,253 2,772 11,835 9,334 8,266
thousands)
- -----------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks (in $2,705 $1,948 $ 8,661 $ 6,206 $5,196
thousands)
Collections (in thousands) 1,571 1,209 5,004 3,786 3,304
------ ------ ------- ------- ------
Net write offs (in thousands) $1,134 $ 739 $ 3,657 $ 2,420 $1,892
====== ====== ======= ======= ======
Collections as a percentage of returned 58.1% 62.0% 57.8% 61.0% 63.6%
checks
Net write-offs as a percentage of 6.0% 5.3% 5.3% 5.1% 4.7%
revenues
Net write-offs as a percentage of
the face amount of checks cashed .20% .16% .17% .15% .14%
(1) Calculated based on the change in revenues of all stores open for both of
the full year and three month periods compared.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue Analysis
- ------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
(PERCENTAGE OF
($ IN THOUSANDS) REVENUE)
------------------------------------------
1996 1995 1996 1995
------- ------- ------ ------
Check fees $13,135 $10,395 69.1% 73.9%
Tax check fees 227 204 1.2 1.5
Money transfer services 1,421 940 7.5 6.7
Loan fees and interest 1,188 400 6.2 2.8
Money order sales 659 544 3.5 3.9
New customer fees 435 272 2.3 1.9
Bill payment services 411 277 2.2 2.0
Franchise revenues 362 -- 1.9 --
Food stamp distribution 202 288 1.1 2.0
Electronic tax filings 8 7 -- --
Other fees 973 740 5.0 5.3
------- ------- ----- -----
Total revenue $19,021 $14,067 100.0% 100.0%
======= ======= ===== =====
Average revenue per store $34.0 $31.1
Revenues increased $5.0 million, or 35%, to $19.0 million in the first quarter
of fiscal 1997 from the $14.1 million in the first quarter of the last fiscal
year. This revenue growth resulted, in part, from a $0.8 million, or 5.9%,
increase in comparable store revenues (431 stores). The balance of the increase
came from stores which were opened or acquired after June 30, 1995, and were
therefore not open for both of the full periods compared. The number of
Company-owned stores increased by 120, or 26%, from 456 stores open at September
30, 1995, to 576 stores open at September 30, 1996. The increase in total check
cashing fees accounted for 55% of the total revenue increase. Check cashing
fees increased $2.7 million, or 26%, from the $10.6 million in the first quarter
of the last fiscal year to $13.4 million in the first quarter of fiscal 1997.
This increase resulted from a 24% increase in the total number of checks cashed,
plus a 1.6% increase in the average fee per check realized by the Company.
Money transfer services increased $0.5 million, or 51%, principally as a result
acquired stores and the related revenue guarantees and continued promotion
activities by the money transfer services supplier. Franchise fees in the first
quarter of fiscal 1997 are primarily franchise royalties from the Check Express
and Check-X-Change franchisees which commenced with the Check Express, Inc.
acquisition on February 1, 1996. Loan fees and interest increased $0.8 million,
or 197%, as a result of increased volume of the Company's small consumer loan
program, currently offered in 181 Company-owned stores in 11 states.
8
STORE EXPENSE ANALYSIS
- ------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
------------------------------------------
1996 1995 1996 1995
------- -------- -------- --------
Salaries and benefits $ 5,755 $ 4,607 30.3% 32.8%
Occupancy 3,287 2,615 17.3 18.6
Armored and security 774 720 4.1 5.1
Returns and cash shorts 1,642 1,106 8.6 7.9
Loan losses 297 82 1.6 0.6
Depreciation 772 621 4.1 4.4
Other 1,479 1,103 7.8 7.8
------- ------- ---- ----
Total store expense $14,006 $10,854 73.6% 77.2%
======= ======= ==== ====
Average per store expense $25.0 $24.0
Store expenses increased $3.2 million, or 29%, to $ 14.0 million in the first
quarter of fiscal 1997 from $10.9 million in the first quarter of the last
fiscal year. Store expenses decreased as a percentage of revenues, decreasing to
73.6% in the first quarter of fiscal 1997 from 77.2% in the first quarter of the
last fiscal year. Salaries and benefits expenses and occupancy costs increased
25% and 26%, respectively, primarily as a result of the increased number of
stores in operation. Returned checks, net of collections, and cash shortages
increased $0.5 million, or 48%, in the first quarter of fiscal 1997 as a result
of the increased number of stores and increased theft loses. Returned checks,
net of collections, and cash shortages increased as a percentage of revenues to
8.6% in the first quarter of fiscal 1997 from 7.9% in the first quarter of
fiscal 1996.
Loan losses increased $0.2 million in the first quarter of fiscal 1997, as
compared to the first quarter of the fiscal 1996, as a result of the increased
volume of loans made. Other store expenses increased $0.3 million, or 34%,
primaily as a result of the increased number of stores in operation.
OTHER EXPENSE ANALYSIS
- ------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
($ IN (PERCENTAGE OF REVENUE)
THOUSANDS)
--------------------------------------
1996 1995 1996 1995
----- ------ ------ ------
Region expenses $1,794 $1,205 9.3% 8.6%
Headquarters expenses 1,227 964 6.5 6.9
Franchise expense 238 -- 1.3 --
Other depreciation and amortization 656 485 3.4 3.4
Interest expense 548 287 2.9 2.0
Other expense 16 2 0.1 --
Region Expenses
Region expenses increased $0.6 million, or 46%, in the first quarter of fiscal
1997 over the first quarter of the last fiscal year, as a result of the addition
of region personnel serving the expanded Southwest region and the new Florida
region, including additional operations support personnel. In addition, district
supervisors now serve as full time management where previously a portion of
their salaries was allocated to their store expenses. Region expenses increased
as a percentage of revenues, from 8.6% in the first quarter of the last fiscal
year to 9.3% in the first quarter of fiscal 1997.
9
Headquarters Expenses
Headquarters expenses increased $0.3 million, or 27%, in the first quarter of
fiscal 1997 over the first quarter of the last fiscal year, principally as a
result of increased salaries and benefits and lease expense for additional space
at the Company's corporate headquarters. Headquarters expenses decreased as a
percentage of revenues from 6.9% in the first quarter of the last fiscal year to
6.5% in the first quarter of fiscal 1997.
Franchise Expenses
Franchise expenses consist primarily of salaries of the franchise support and
sales personnel and allocated occupancy costs since the acquisition of Check
Express, Inc. on February 1, 1996.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.2 million, or 35%, in the
first quarter of fiscal 1997 from the first quarter of the last fiscal year,
principally due to increased amortization of intangibles related to the 92
stores acquired since the first quarter of fiscal 1996.
Interest Expense
Interest expense, net of interest income, increased $0.3 million, or 91%, in the
first quarter of fiscal 1997 as compared to the first quarter of the last fiscal
year. This increase was principally the result of increased borrowings as term
advances from the money order supplier used to finance store acquisitions,
including the acquisition of Check Express, Inc. Long-term borrowings bear
interest at the prime rate plus one percent, currently totalling 9.25%.
Other Expense
Other expense was $16,000 in the first quarter of fiscal 1997 as compared to
$2,000 in the first quarter of the last fiscal year. These consist of store
closing costs.
Income Taxes
A total of $0.2 million was provided for income taxes in the first quarter of
fiscal 1997, up from $0.1 million in the first 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 the acquisition of Check Express, Inc.
BALANCE SHEET VARIATIONS
Certain balance sheet accounts of the Company vary as a result of seasonal and
day-to-day requirements resulting from maintaining cash for the cashing of
checks, receipts of cash from the sale of money orders, and remittances on money
orders sold. For the three months ended September 30, 1996, cash and cash
equivalents and money order principal payable increased principally as a result
of the increase in the number of stores operated, from 544 at June 30, 1996, to
576 at September 30, 1996, and the timing of scheduled remittances of money
orders.
Property and equipment and the excess purchase price over the fair value of net
assets acquired increased $1.3 million and $2.0 million respectively, as a
result of the 23 stores acquired and the 11 stores opened during the three
months ended September 30, 1996, offset by related depreciation and
amortization.
Term advances from the Money Order Supplier increased by $1.5 milllion for the
three months ended September 30, 1996. This change is comprised of advances of
$2.5 million to fund new and acquired stores, less payments of $0.9 million.
Other liabilities increased by $1.2 million during the three-month period ended
September 30, 1996, principally as a result of the deferred income related to a
total of $1.4 million in payments from the money transfer supplier, less related
amortization of $0.3 million.
10
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1996 and 1995, the Company had net
cash provided by operating activities of $1.1 million and $1.9 million,
respectively. During the three months ended September 30, 1996 and 1995, the
Company used $4.8 million and $0.8 million, respectively, for purchases of
property and equipment related to new stores and other capital expenditures.
Net cash provided by financing activities for the three months ended September
30, 1996 was $7.2 million. Net cash used by financing activities for the three
months ended September 30, 1995, was $4.0 million. During the three months ended
September 30, 1996 and 1995, advances from the Money Order Supplier to finance
current operations increased $7.9 million, principally as a result of normal
variations in remittance dates for money orders.
For the three months ended September 30, 1996, the Company obtained a total of
$2.5 million in advances under the Revolving Advance Commitment provisions of
the Company's agreement with the Money Order Supplier ("Term Advances"). The
repayment terms of each Term Advance call for the principal amount to be paid in
equal monthly installments on a 60-month amortization through December 1998 when
the remaining principal is due. As of September 30, 1996, $18.5 million was
outstanding under this borrowing facility. Interest is at the prime rate plus
one percent, which currently totals 9.25%.
Proposed Private Placement of Debt Securities.
The Company is negotiating with a proposed purchaser to issue up to $20 million
of debt securities of the Company in a private placement. The Company plans to
use the net proceeds of that private placement, if consummated, to repay the
outstanding Term Advances from the Money Order Supplier and for general
corporate purposes. Under the Money Order Agreement, the Term Advances, once
paid, may be reborrowed by the Company for expansion and acquisition of new
stores. Consummation of the proposed private placement will, however, require
continued negotiations with the potential purchaser and the Money Order
Supplier. Hence, there can be no assurance that the private placement will be
consummated with the potential purchaser or at all.
OPERATING TRENDS
Seasonality
The Company's business is seasonal because of the impact of cashing tax refund
checks and two other tax-related services--electronic tax filing and processing
applications for refund anticipation loans. In addition, results of operations
depend significantly upon the timing and amount of revenues and expenses
associated with the acquisition and addition of new stores.
IMPACT OF INFLATION
The Company believes that the results of its operations are not dependent upon
the levels of inflation.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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 REPORT 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.
----------------------
November 13, 1996 By: /s/ Thomas E. Larson
Senior Vice President-Finance
(Duly authorized officer and
principal financial and chief
accounting officer)
12