<PAGE>
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, 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 May 7, 1996
----- ------------------------------
Common Stock 4,191,373 shares
<PAGE>
ACE CASH EXPRESS, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1996, and June 30, 1995 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months and Nine Months ended March 31, 1996 and 1995 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Nine Months ended March 31, 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 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
---------------------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 61,333,286 $49,249,052
Accounts and notes receivable, net 5,327,925 1,633,490
Prepaid expenses 539,094 427,231
Inventories 2,345,647 1,632,779
Property and equipment, net 18,347,191 15,431,082
Covenants not to compete, net 2,421,543 2,619,201
Excess of purchase price over fair
value of assets acquired, net 21,023,705 15,692,106
Other assets, net 1,528,532 859,436
------------ -----------
$112,866,923 $87,544,377
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money order principal payable $ 36,750,022 $26,478,907
Revolving advances from money order 20,029,895 22,231,583
supplier
Accounts payable and accrued liabilities 10,085,112 6,408,077
Notes payable 2,726,872 564,676
Term advances from money order supplier 17,916,125 9,732,250
Other liabilities 1,687,090 835,198
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,
4,161,894 and 4,136,916 shares
issued and outstanding,
respectively 41,619 41,369
Additional paid-in capital 17,592,083 17,514,025
Retained earnings 6,038,105 3,738,292
------------ -----------
Total shareholders' equity 23,671,807 21,293,686
------------ -----------
$112,866,923 $87,544,377
============ ===========
</TABLE>
See notes to the interim consolidated financial statements.
3
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $20,544,265 $13,123,725 $49,201,996 $34,030,500
Store expenses:
Salaries and benefits 5,785,153 3,933,672 15,021,982 10,982,777
Occupancy 2,954,202 2,250,129 8,167,957 6,313,818
Depreciation 719,127 532,398 1,989,597 1,497,114
Other 3,480,232 2,543,416 9,588,038 6,835,671
----------- ----------- ----------- -----------
Total store expenses 12,938,714 9,259,615 34,767,574 25,629,380
Region expenses 1,561,552 1,146,687 4,076,397 3,053,792
Headquarters expenses 1,558,609 941,129 3,611,259 2,683,883
Franchise expenses 181,272 - 181,272 -
Other depreciation and amortization 571,536 314,328 1,541,221 880,110
Interest expense (income) 564,254 78,312 1,238,552 (10,014)
Other expenses 60,960 3,937 78,910 22,491
----------- ----------- ----------- -----------
Income before income taxes 3,107,368 1,379,717 3,706,811 1,770,858
Income taxes 1,180,000 515,000 1,407,000 664,000
----------- ----------- ----------- -----------
Net income $ 1,927,368 $ 864,717 $ 2,299,811 $ 1,106,858
=========== =========== =========== ===========
Earnings per share $.45 $.21 $.54 $.27
Weighted average number of common and
common equivalents shares outstanding 4,280,717 4,163,710 4,259,550 4,156,421
</TABLE>
See notes to the interim consolidated financial statements.
4
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,299,811 $ 1,106,858
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation 2,365,566 1,761,311
Amortization 1,190,116 615,913
Recognition of deferred revenue (214,722) (178,000)
Loss on disposal of property and
equipment 78,910 22,491
Changes in assets and liabilities:
Accounts and notes receivable, net 1,142,314 346,700
Prepaid expenses and other current
assets 29,081 (47,876)
Inventories (667,868) 182,442
Other assets (1,423,783) (202,069)
Accounts payable and other
liabilities 3,907,565 439,492
------------ -----------
Net cash provided by
operating activities 8,706,990 4,047,262
Cash flows from investing activities:
Purchases of property and equipment,
net (3,154,056) (2,828,529)
Acquisition of non-cash net assets of
Check Express, Inc. (Note 2) (4,499,081) -
Cost of other acquired stores (3,067,788) (2,477,743)
------------ -----------
Net cash used by investing
activities (10,720,925) (5,306,272)
Cash flows from financing activities:
Net borrowings from money order
supplier 6,700,871 5,593,143
Term advances from money order
supplier 10,011,253 950,000
Payments on notes payable (1,671,159) (804,167)
Payment of term advances from money
order supplier (1,021,104) -
Proceeds from stock options exercised 78,308 10,300
------------ -----------
Net cash provided by financing
activities 14,098,169 5,749,276
------------ -----------
Net increase in cash and cash
equivalents 12,084,234 4,490,266
Cash and cash equivalents, beginning
of period 49,249,052 36,535,352
------------ -----------
Cash and cash equivalents, end of period $ 61,333,286 $41,025,618
============ ===========
Supplemental disclosures of cash flows
information:
Cash paid for:
Interest $ 360,730 $ 26,192
Income taxes (refund) 43,860 (273,529)
Supplemental schedule of non-cash
investing activities:
Liabilities incurred in connection $ 156,000 $ 1,740,665
with acquired stores
</TABLE>
See notes to the interim consolidated financial statements.
5
<PAGE>
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. See Note 2. 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 March 31, 1996, the Company owned and operated 530
stores in 18 states and the District of Columbia and had 164 additional
franchised stores in twelve additional states.
FRANCHISE ACCOUNTING
The Company includes franchise fees in revenues. See Note 2. Franchise fees
include initial, territory, and future optional store fees, as well as
continuing franchise fees ("royalty fees") and research and development fees.
The Company offers both nonexclusive and exclusive franchise arrangements.
Initial fees are recognized when the Company has provided substantially all
its initial services in accordance with the franchise agreements. Generally,
this occurs when the related sites have been approved or identified and the
franchisee has completed the training required by the Company. Related direct
costs, primarily sales commissions, are deferred until revenue is recognized.
Royalty fees are recognized as revenues as they are earned under the franchise
agreements.
Cash payments received under franchise agreements prior to the completion of
the earnings process are deferred until all initial services are performed.
INSTALLMENT NOTES RECEIVABLE AND INTEREST INCOME RECOGNITION
The Company, through its wholly owned subsidiary, Check Express Finance,
Inc., purchases installment notes receivable originated by selected used
automobile dealers ("auto loans") at a discount. These auto loans are
collateralized by the automobile, and the Company has recourse agreements in
place with the dealers such that repossession and resale of the collateral
supporting non-performing loans is the responsibility of the dealers. The
Company currently purchases these auto loans primarily from two automobile
dealers located in Central Florida.
6
<PAGE>
These auto loans are recorded at the remaining balance of payments due, less
the unearned portion of the discount. At March 31, 1996, the auto loans
consist of $4,544,000, less purchase discounts of $1,338,000 and an allowance
for doubtful accounts of $330,000.
Interest income and discount amortization is recognized on a basis
approximating the interest method as payments are received. Net operations of
the finance company since its acquisition on February 1, 1996, are included in
revenues in the consolidated statements of earnings.
2. ACQUISITION
On February 1, 1996, the Company acquired all the outstanding common stock of
Check Express, Inc. ("Check Express") for approximately $6.1 million, plus
related expenses of approximately $450,000. In connection with the acquisition,
the Company assumed $2,764,000 of the existing notes payable to banks and other
creditors. Check Express owned and operated 29 stores in Florida, Indiana and
Washington. In addition, through two wholly owned Check Express subsidiaries,
Check Express USA, Inc. and Check-X-Change Corporation, ACE became the largest
franchisor of check cashing stores in the United States, with 164 franchised
stores in 26 states as of March 31, 1996. ACE is currently in the process of
updating its franchise offering material and plans to begin offering franchises
in all areas of the country by the end of the fiscal year.
The Check Express acquisition was accounted for using the purchase method of
accounting. Operations for the period from February 1, 1996, to March 31, 1996,
are included in ACE's consolidated results of operations for the quarter ended
March 31, 1996. The components of cash used in connection with the Check
Express, Inc. acquisition are as follows (in thousands):
Working capital, other than cash $ (3,036)
Property and equipment (1,391)
Other assets (89)
Excess of purchase price over net assets acquired (3,117)
Notes payable and capital leases 2,871
Noncurrent liabilities 263
--------
Total cash used $ (4,499)
========
The excess of purchase price over the fair value of net assets acquired has
been allocated on an individual basis to the 29 company-owned stores added in
the transaction. Company management annually evaluates the useful life of the
excess of purchase price over fair value, its carrying value and expected
benefits in relation to the results of operation on a store by store basis.
3. SUBSEQUENT EVENTS
In April 1996, the Company signed an engagement letter with an investment
banking firm to assist the Company in a private placement of debt securities of
up to $20 million. Management plans to use the net proceeds from the proposed
placement to pay down the Company's outstanding term advances from the money
order supplier and for general corporate purposes. The term advances were
originally used to assist in financing the Company's acquisitions and new store
growth. The term advances currently have an outstanding balance of
approximately $17.9 million and, once paid, may be reborrowed by the Company for
expansion and acquisition of new stores.
In addition, the Company reached an agreement in principle with MoneyGram,
its current provider of money transfer services, for an extension of its current
agreement for two years to December 31, 2000. In connection with this
extension, MoneyGram would pay the Company a signing bonus of $2,000,000 upon
execution of the definitive agreement, provide future incentives for opening new
MoneyGram service locations and make certain other payments. The signing bonus
would be recognized as revenue over the term of the agreement. This extension
and signing bonus are subject to completion and execution of the definitive
agreement by both parties.
7
<PAGE>
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31, Year ended June 30,
--------------------------------------------------------------------------
COMPANY OPERATING DATA: 1996 1995 1996 1995 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stores in operation:
Beginning of period 466 388 452 343 343 276 220
Acquired 60 9 64 39 77 32 16
Opened 7 7 21 26 40 47 47
Closed (3) (1) (7) (5) (8) (12) (7)
------ ------ ------ ------ ------- ------ ------
End of period 530 403 530 403 452 343 276
====== ====== ====== ====== ======= ====== ======
Percentage increase in comparable
store revenues from prior period:
Exclusive of tax-related revenues(1) 7.5% 4.4% 4.4% 2.9% 2.9% 1.3% 8.4%
Total(2) 15.4% (9.0%) 7.8% (2.2%) 1.6% 1.0% 7.8%
Capital expenditures (in
thousands) $1,414 $1,008 $3,154 $2,806 $ 4,187 $4,367 $3,465
Cost of acquired stores (in
thousands) $8,805 $ 845 $9,297 $4,218 $14,000 $4,846 $ 941
- - ----------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in
millions) $ 620 $ 411 $1,569 $1,126 $ 1,567 $1,309 $1,131
Face amount of money orders sold
(in millions) $ 409 $ 316 $1,111 $ 891 $ 1,213 $1,042 $ 872
Face amount of money orders sold
as a percentage of the face
amount of checks cashed 66.0% 76.8% 70.8% 79.1% 77.4% 79.6% 77.0%
Face amount of average check $ 313 $ 294 $ 287 $ 279 $ 284 $ 286 $ 282
Average fee per check $ 7.96 $ 7.15 $ 6.82 $ 6.58 $ 6.79 $ 6.94 $ 6.72
Number of checks cashed (in
thousands) 1,980 1,398 5,471 4,039 5,516 4,585 4,007
Number of money orders sold (in
thousands) 3,111 2,410 8,650 6,853 9,334 8,266 7,233
- - ----------------------------------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks
(in thousands) $2,191 $1,590 $6,318 $4,739 $ 6,206 $5,196 $3,721
Collections (in thousands) 1,280 941 3,745 2,898 3,786 3,304 2,542
------ ------ ------ ------ ------- ------ ------
Net write offs (in thousands) $ 911 $ 649 $2,573 $1,841 $ 2,420 $1,892 $1,179
====== ====== ====== ====== ======= ====== ======
Collections as a percentage of
returned checks 58.5% 59.2% 59.3% 61.2% 61.0% 63.6% 68.3%
Net write-offs as a percentage of
revenues 4.4% 4.9% 5.2% 5.4% 5.1% 4.7% 3.6%
Net write-offs as a percentage of
the face amount of checks cashed .15% .16% .16% .16% .15% .14% .10%
</TABLE>
(1) Change in revenues computed excluding electronic tax filing and tax refund
check cashing for both periods compared.
(2) Calculated based on the changes in revenues of all stores open for both of
the full year and nine month period compared.
8
<PAGE>
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUE ANALYSIS THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
- - ------------------------------------------------------------------------------------------------------------------------------
($ in thousands) (Percentage of Total) ($ in thousands) (Percentage of revenues)
--------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Check fees $11,259 $ 7,967 54.8% 60.7% $32,510 $24,413 66.1% 71.7%
Tax check fees 4,511 2,050 22.0 15.6 4,788 2,176 9.7 6.4
Money transfer services 1,085 425 5.3 3.2 3,068 1,217 6.2 3.6
Loan fees and interest 651 190 3.2 1.4 1,552 313 3.2 0.9
Money order sales 642 532 3.1 4.1 1,759 1,548 3.6 4.5
New customer fees 392 232 1.9 1.8 957 540 1.9 1.6
Bill payment services 376 211 1.8 1.6 939 540 1.9 1.6
Electronic tax filings 301 537 1.5 4.1 313 547 0.6 1.6
Franchise fees 246 - 1.2 - 246 - 0.5 -
Food stamp distribution 181 464 0.9 3.5 658 1,250 1.3 3.7
Other fees 900 516 4.4 3.9 2,412 1,487 4.9 4.4
------- ------- ----- ----- ------- ------- ----- -----
Total revenue $20,544 $13,124 100.0% 100.0% $49,202 $34,031 100.0% 100.0%
======= ======= ===== ===== ======= ======= ===== =====
Average revenue per store $41.3 $33.2 $100.2 $91.3
</TABLE>
QUARTER COMPARISONS
Revenues increased $7.4 million, or 56%, from $13.1 million in the third quarter
of the last fiscal year to $20.5 million in the third quarter of fiscal 1996.
This revenue growth resulted, in part, from a $1.8 million, or 15.4%, increase
in comparable store revenues (330 stores). The balance of the increase came
from stores which were opened or acquired after June 30, 1994, and were
therefore not open for both of the full periods compared. The number of open
stores increased by 127, or 32%, from 403 stores open at March 31, 1995, to
530 stores open at March 31, 1996. The increase in total check cashing fees
accounted for 77.6% of the total revenue increase. Check cashing fees
increased $5.8 million, or 57.4%, from the $10.0 million in the third quarter
of the last fiscal year to $15.8 million in the third quarter of fiscal 1996.
This increase resulted from a 41% increase in the total number of checks
cashed, plus a 9.6% increase in the average fee per check realized by the
Company. Such fee increase relates primarily to an increase in the average
check size due to the seasonal effects of tax refund checks. Food stamp
distribution revenues decreased $283,000, or 61%, principally as a result of
the termination of food stamp distribution contracts in Texas due to the full
implementation of electronic distribution of those benefits. Money transfer
services increased $660,000, or 155%, principally as a result of the
acquisition of 31 stores in Arizona in June 1995 and overall increased volume
in the MoneyGram network. Franchise fees in the third quarter of fiscal 1996
are franchise royalties and fees 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 $461,000, or 242%, as a
result of increased volume of the Company's small loan program, currently
offered in 137 owned stores in 11 states.
NINE MONTH COMPARISONS
Revenues increased $15.2 million, or 44.6%, from $34.0 million in the first
nine months of the last fiscal year to $49.2 million in the first nine months
of fiscal 1996. This revenue growth resulted, in part, from a $2.5 million,
or 7.8%, increase in comparable store revenue (330 stores). The balance of
the increase, $12.7 million, came from stores which were opened or acquired
after June 30, 1994, and were therefore not open for both of the full periods
compared. The increase in total check cashing fees accounted for 70.6% of the
total revenue increase. Check cashing fees increased $10.7 million, or 40.3%,
from $26.6 million in the first nine months of the last fiscal year to $37.3
million in the first nine months of fiscal 1996. This increase resulted from
a 35% increase in the total number of checks cashed, and from a 2.7% increase
in the average fee per check realized by the Company. Such fee increase
relates primarily to an increase in the average check size due to the seasonal
effects of tax refund checks.
9
<PAGE>
Food stamp distribution revenues decreased $592,000, or 47%, principally as a
result of the termination of food stamp distribution contracts in Texas due to
the full implementation of electronic distribution of those benefits. Money
transfer services increased $1.9 million, or 152%, principally as a result of
the acquisition of 31 stores in Arizona in June 1995 and overall increased
volume in the MoneyGram network. Franchise fees in the first nine months of
fiscal 1996 related to franchise royalties and fees 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 $1.2
million, or 396%, as a result of the increased volume of the Company's small
loan program.
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
- - ----------------------------------------------------------------------------------------------------------------------------
($ in thousands) (Percentage of Total) ($ in thousands) (Percentage of revenues)
-------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 5,785 $3,934 28.2% 30.0% $15,022 $10,983 30.5% 32.3%
Occupancy 2,954 2,250 14.4 17.1 8,168 6,314 16.6 18.6
Armored and security 734 615 3.6 4.7 2,129 1,743 4.3 5.1
Returned checks and cash shorts 1,257 972 6.1 7.4 3,663 2,607 7.4 7.7
Loan losses 103 13 0.5 0.1 282 22 0.6 0.1
Depreciation 719 532 3.5 4.1 1,990 1,497 4.0 4.4
Other 1,387 944 6.8 7.2 3,514 2,464 7.1 7.2
------- ------ ---- ---- ------- ------- ---- ----
Total store expense $12,939 $9,260 63.0% 70.6% $34,768 $25,630 70.7% 75.3%
======= ====== ==== ==== ======= ======= ==== ====
Average per store expense $26.0 $23.4 $70.8 $68.8
</TABLE>
QUARTER COMPARISONS
Store expenses increased $3.7 million, or 39.7% in the third quarter of fiscal
1996 over the third quarter of the last fiscal year. Store expenses decreased
as a percentage of revenues, from 70.6% in the third quarter of the last
fiscal year to 63.0% in the third quarter of fiscal 1996. Salaries and
benefits expenses and occupancy costs increased 47% and 31%, respectively,
primarily as a result of the increased number of stores in operation.
Returned checks, net of collections, and cash shortages increased $285,000, or
29%, in the fiscal 1996 quarter, as compared to the same quarter in the last
fiscal year, principally as a result of the increased number of stores.
Returned checks net of collections, and cash shortages decreased as a
percentage of revenues to 6.1% in the fiscal 1996 quarter, from 7.4% in the
fiscal 1995 quarter, primarily as a result tax-related revenue growth.
Loan losses increased $90,000 in the third quarter of fiscal 1996, as compared
to the third quarter of the last fiscal year, as a result of the increased
volume of loans made.
NINE MONTH COMPARISONS
Store expenses increased $9.1 million, or 35.7%, from the first nine months of
the last fiscal year to the first nine months of fiscal 1996. Store expenses
decreased as a percentage of revenues, from 75.3% in the first nine months of
the last fiscal year to 70.7% in the first nine months of fiscal 1996.
Salaries and benefits expenses and occupancy costs increased 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 40.5%, in the
first nine months of the last fiscal year to the first nine months of fiscal
1996. Returned checks net of collections, and cash shortages decreased as a
percentage of revenues from 7.7% in the first nine months of fiscal 1995
period to 7.4% in the first nine months of fiscal 1996.
Loan losses increased $260,000 in the first nine months of fiscal 1996, as
compared to the first nine months of the last fiscal year, as a result of the
increased volume of loans made.
10
<PAGE>
<TABLE>
<CAPTION>
OTHER EXPENSE ANALYSIS THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
- - ---------------------------------------------------------------------------------------------------------------------------------
($ in thousands) (Percentage of Total) ($ in thousands) (Percentage of revenues)
-----------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region expenses $1,562 $1,147 7.6% 8.7% $4,076 $3,054 8.3% 9.0%
Headquarters expenses 1,559 941 7.6 7.2 3,611 2,684 7.3 7.9
Franchise expenses 181 - 0.9 - 181 - 0.4 -
Other depreciation and
amortization 572 314 2.8 2.4 1,541 880 3.1 2.6
Interest expense (income) 564 78 2.7 0.6 1,238 (10) 2.5 -
Other expense 60 4 0.3 - 79 22 0.2 0.1
</TABLE>
QUARTER COMPARISONS
Region Expenses
Region expenses increased $415,000, or 36%, in the third quarter of fiscal 1996
over the third quarter of the last fiscal year, principally as a result of the
addition of region personnel serving the expanded Southwest region and the new
Florida region, including additional operations support personnel. Region
expenses decreased as a percentage of revenues, from 8.7% in the third
quarter of the last fiscal year to 7.6% in the third quarter of fiscal 1996.
Headquarters Expenses
Headquarters expenses increased $618,000, or 66%, in the third quarter of fiscal
1996 over the third quarter of the last fiscal year, principally as a result
of increased salaries and benefits, including $385,000 provided for management
bonuses, and increased rent expenses for expanded headquarters office space.
No management bonuses were provided in fiscal 1995. Headquarters expenses
increased as a percentage of revenues from 7.2% in the third quarter of the
last fiscal year to 7.6% in the third quarter of fiscal 1996.
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 $258,000, or 82%, in the third
quarter of fiscal 1996 from the third quarter of the last fiscal year,
principally due to increased amortization of intangibles related to the 102
stores acquired since the third quarter of fiscal 1995.
Interest Expense
Interest expense, net of interest income, increased $ 486,000, or 620%, in the
third quarter of fiscal 1996 as compared to the third 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 prime plus one percent, currently 9.25%.
Other Expense
Other expense was $60,000 in the third quarter of fiscal 1996 as compared to
$4,000 in the third quarter of the last fiscal year. These consist of store
closing costs.
Income Taxes
A total of $1,180,000 was provided for income taxes in the third quarter of
fiscal 1996, up from $515,000 in the third 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.
11
<PAGE>
NINE MONTH COMPARISONS
Region Expenses
Region expenses increased $1.0 million, or 33.5%, in the nine month period of
fiscal 1996 over the comparable nine month period of fiscal 1995, principally
as a result of addition of region personnel in the expanded Southwest region
and new and Florida region, including additional operations support personnel.
Region expenses decreased as a percentage of revenues, from 9.0% in first
nine months of fiscal 1995 to 8.3% in the first nine months of fiscal 1996.
Headquarters Expenses
Headquarters expenses increased $927,000, or 35%, in the first nine months of
fiscal 1996 over the first nine months of fiscal 1995, principally as a result
of increased salaries and benefits, including $385,000 provided for management
bonuses, and additional rental expenses for additional headquarters office
space. No management bonuses were provided in fiscal 1995. Headquarters expenses
decreased as a percentage of revenues, from 7.9% in the first nine months of
fiscal 1995 to 7.3% in the first nine months of fiscal 1996, consistent with
management's intent to limit headquarters expenses growth to less than the
revenue growth rate.
Other Depreciation and Amortization
Other depreciation and amortization increased $661,000, or 75%, in the first
nine months of fiscal 1996 over the first nine months of fiscal 1995,
principally due to increased amortization of intangibles related to additional
acquired stores.
Interest Expense
Interest expense, net of interest income, increased $1,238,000 in the first nine
months of fiscal 1996 over the first nine months of the last fiscal year. This
increase was principally the result of an increase in term borrowings used to
finance store acquisitions. Long-term borrowings bear interest at prime plus
one percent, currently 9.25%.
Other Expense
Other expense was $79,000 in the nine first months of fiscal 1996 as compared to
$22,000 in the first nine months period of the last fiscal year. These consist
of store closing costs.
Income Taxes
A total of $1,407,000 was provided for income taxes in the first nine months of
fiscal 1996, up from $664,000 in the first nine 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.
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 nine months ended March 31, 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 452 at June 30, 1995, to
530 at March 31, 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 $2,916,000 and $5,332,000 respectively, as a result of
the 64 stores acquired and the 21 stores opened during the nine months ended
March 31, 1996, offset by related depreciation and amortization.
Term advances from the Money Order Supplier increased by $8,184,000 for the nine
months ended March 31, 1996. This change is comprised of advances of
$10,011,000 to fund new and acquired stores, less payments of $1,671,000. Other
liabilities increased by $852,000 during the nine month period ended March 31,
1996, principally as a result of the deferred
12
<PAGE>
income related to a total of $1,289,000 advance payments from the money transfer
supplier, less related amortization of $215,000.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 1996 and 1995, the Company had net cash
provided by operating activities of $8,707,000 and $4,025,000, respectively.
During the nine months ended March 31, 1996 and 1995, the Company used
$3,154,000 and $2,806,000, respectively, for purchases of property and equipment
related to new stores and other capital expenditures.
Net cash provided by financing activities for the nine months ended March 31,
1996 and 1995, were $14,098,000 and $5,749,000, respectively. During the nine
months ended March 31, 1996 and 1995, advances from the Money Order Supplier to
finance current operations decreased $2,200,000, principally as a result of
normal variations in remittance dates for money orders.
Total capital expenditures for the nine months ended March 31, 1996 and 1995,
were $3,154,000 and $2,806,000, respectively. Capital expenditures, exclusive
of acquisitions, are principally related to new store openings and capital
expenditures at existing stores.
For the nine months ended March 31, 1996, the Company obtained a total of
$10,011,000 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. In February, 1996, the Company and the Money
Order Supplier agreed to increase the existing maximum amount of Term Advances
from $15.0 million to $18.5 million. As of March 31, 1996, $17.9 million was
outstanding under this borrowing facility. Interest is at the prime rate, plus
one percent, which currently totals 9.25%.
In April 1996, the Company signed an engagement letter with an investment
banking firm to assist the Company in a private placement of debt securities of
up to $20 million. Management plans to use the net proceeds from the proposed
placement to pay down the Company's outstanding term advances from the money
order supplier and for general corporate purposes. The term advances were
originally used to assist in financing the Company's acquisitions and new store
growth. The term advances currently have an outstanding balance of
approximately $17.9 million and, once paid, may be reborrowed by the Company for
expansion and acquisition of new stores.
In addition, the Company reached an agreement in principle with MoneyGram, its
current provider of money transfer services, for an extension of its current
agreement for two years to December 31, 2000. In connection with this
extension, MoneyGram would pay the Company a signing bonus of $2,000,000 upon
execution of the definitive agreement, provide future incentives for opening new
MoneyGram service locations and make certain other payments. The signing bonus
would be recognized as revenue over the term of the agreement. This extension
and signing bonus are subject to completion and execution of the definitive
agreement by both parties.
OPERATING TRENDS
Tax Filing Season
In fiscal 1995, there was a substantial delay in the Company's tax-related
revenues due to changes in policies by the Internal Revenue Service which
affected the timing of tax return processing and issuance of refunds. Fiscal
1996 followed a more historical sequence of processing and, consequently, the
Company experienced increases in the number of tax checks cashed and an increase
in the average tax refund amount. This benefited the quarter ended March 31,
1996, as compared to the comparable quarter in the last fiscal year. As a
result, Company management believes fourth quarter tax revenues will be
approximately 70-80% of the fourth quarter of fiscal 1995 tax revenues of
$2,304,000.
13
<PAGE>
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 loan. 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.
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
(a) Exhibits
10.15 Sixth Amendment to Lease Agreement dated February 1, 1996,
between the Company and Greenway Tower Joint Venture.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K during the quarter ended
March 31, 1996 and an amendment thereto on Form 8-K/A subsequent to the quarter
ended March 31, 1996 as follows:
The Company filed the Report dated February 1, 1996, on February 16, 1996.
The Items reported were:
Item 2 - Acquisition or Disposition of Assets
Item 7 - Financial Statements and Exhibits - Historical
consolidated financial statements of Check Express, Inc.
and its wholly owned subsidiaries for the year ended
December 31, 1994 (audited) and nine months ended
September 30, 1995 (unaudited). The Company committed to
file combined pro forma financial statements of the
Company by amendment within 60 days.
14
<PAGE>
The Company filed the amendment to the Report on April 11, 1996. The Item
reported was:
Item 7 - Financial Statements and Exhibits
a) Historical financial statements were incorporated by reference.
b) Pro Forma Financial Statements - unaudited pro forma financial
statements of the Company reflecting the acquisition, including
the unaudited pro forma balance sheet as of December 31, 1995 and
the unaudited pro forma statements of operations for the six
months ended December 31, 1995, and the year ended June 30, 1995.
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 14, 1996
By: /s/ Thomas E. Larson
Senior Vice President-Finance
(Duly authorized officer and
principal financial and chief
accounting officer)
15
<PAGE>
EXHIBIT 10.15
SIXTH AMENDMENT TO LEASE AGREEMENT FOR
GREENWAY TOWER
This Sixth Amendment to Lease Agreement for Greenway Tower is made and
entered into as of the 1st day of February, 1996, by and between GREENWAY TOWER
JOINT VENTURE, a Texas joint venture, as Lessor ("Lessor") and ACE CASH EXPRESS,
INC., a Texas corporation, as Lessee ("Lessee").
W I T N E S S E T H:
-------------------
A. Reference is made to that certain Office Lease dated October 1,
1987, between Lessor, as lessor, and Lessee, as lessee, as amended by First
Amendment to Lease Agreement for Greenway Tower dated April 29, 1988, Second
Amendment to Lease Agreement for Greenway Tower dated August 24, 1988, Third
Amendment to Lease Agreement for Greenway Tower, Fourth Amendment to Lease
Agreement for Greenway Tower dated January 29, 1991 and Fifth Amendment to Lease
Agreement for Greenway Tower dated June 13, 1994 (as amended, the "Lease"),
pursuant to the terms of which Lessor has leased to Lessee, and Lessee has
leased from Lessor, the premises (the "Premises") designated as Suite 800, being
all of the 8th floor in the office building located at 1231 Greenway Drive,
Irving, Texas, known as "Greenway Tower" (the "Building").
B. The Lessor and Lessee desire to amend the Lease as hereinafter set
forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Premises. Effective as of March 1, 1996: (a) the Premises shall be
--------
expanded to include the space located on the seventh (7th) floor of the Building
as shown on Annex 1 attached hereto, containing approximately 18,618 square feet
-------
of usable area and approximately 20,294 square feet of rentable area (the
"Expansion Space"); and (b) the Premises shall not include the approximately
1,251 square feet of rentable area shown on Annex 2 attached hereto, being all
-------
of the space leased by Lessee which is located on the ninth (9th) floor of the
Building (the "Excluded Space"). The Excluded Space shall be surrendered by
Lessee to Lessor in the condition required by the Lease on or prior to February
29, 1996. Lessor and Lessee agree that for all purposes of the Lease, following
the addition of such Expansion Space to the Premises, and the surrender of the
Excluded Space, the Premises will contain approximately 37,162 square feet of
usable area and approximately 40,507 square feet of rentable area.
2. Base Rent. The Base Rent payable under the Lease shall be as
---------
follows, prorated in the event of a partial month:
-1-
<PAGE>
<TABLE>
<CAPTION>
Monthly Base
Rent Installment
----------------
<S> <C>
2/1/96 through 2/29/96 $24,300.43
3/1/96 through 4/30/96 $44,189.01
5/1/96 through 4/30/97 $42,194.79
5/1/97 through 4/30/98 $45,570.38
5/1/98 through 4/30/99 $48,945.96
5/1/99 through 4/30/2001 $52,321.54
</TABLE>
which amount shall be payable on or before the first day of each month during
the remaining term of the Lease, without offset, demand, set off or deduction.
Notwithstanding the foregoing, if Lessee has not surrendered possession of the
Excluded Space to Lessor in the condition required by the Lease on or prior to
February 29, 1996, in addition to other amounts payable under the Lease, Lessee
shall pay to Lessor as Base Rent with respect to the Excluded Space until such
time as the Excluded Space is surrendered to Lessor in the condition required by
the Lease the sum of $1,355.25 per month at the same time that installments of
Base Rent are due with respect to the remainder of the Premises.
3. Term. The Lease Term is hereby extended to and shall end upon
----
April 30, 2001. Lessee shall have no further right to renew or extend the Lease.
4. Tax and Expense Stop. Effective as of February 1, 1996, the terms
--------------------
"Tax and Expense Stop", "Tax Stop" and "Expense Stop" as used in the Lease shall
mean the actual amount of Taxes and Operating Expenses, as applicable, incurred
by Lessor in connection with the Property during the calendar year 1995 or 1996,
whichever is greater.
5. Services. Article 7 of the Lease is amended to provide that:
--------
(a) Lessor shall provide heat and air-conditioning to the Premises as
required therein from 7:00 a.m. to 7:00 p.m., Monday through
Friday, and 8:00 a.m. to 1:00 p.m. on Saturdays, subject to the
other provisions of the Lease, except that (i) Lessor shall not
be required to provide such services on Sundays or local, state
or national holidays; and (ii) Lessor shall provide such services
during hours other than those stated above upon at least twenty
four (24) hours prior notice from Lessee to Lessor at the rate of
$45.00 per hour, per floor, with a two (2) hour minimum, which
amount shall be payable by Lessee to Lessor within ten (10) days
following receipt of an invoice therefor;
(b) Lessor shall install a separate electric meter in Lessee's
computer room for the purpose of monitoring electrical usage in
the computer room. In addition to other sums payable under the
Lease, Lessee shall pay to Lessor within ten (10) days following
receipt of an invoice therefor, all charges for electricity
consumption from the computer room, based upon the actual rate
charged to Lessor for such usage plus five percent (5%). Lessee
shall not be required to pay as a part of Operating Expenses with
respect to the portion of the Premises included within the
computer room any increases in electrical charges for the
Building over the amount included in calculating the Expense
Stop. However, Lessee shall remain obligated to pay increases in
-2-
<PAGE>
connection with the computer room with respect to all other
components of Operating Expenses; and
(c) Lessor shall provide janitorial service to the Premises
substantially in accordance with the janitorial specifications
which are set forth on Annex 3 attached hereto.
6. Condition of Premises.
---------------------
(a) Lessee has inspected and approved the condition of the Expansion
Space and agrees that the Expansion Space is suitable for
Lessee's use and occupancy. Lessee acknowledges that Lessor has
not undertaken and shall not be required to perform any
modifications, alterations or improvements to the Premises, and
that, except as provided in this Amendment, all installations and
improvements now or hereafter placed on the Premises shall be at
Lessee's cost (and Lessee shall pay ad valorem taxes and
increased insurance thereon or attributable thereto).
(b) Lessee agrees to construct or have constructed within the
Premises, in accordance with working drawings, plans and
specifications prepared by Lessee's architect and approved by
Lessor and Lessee, the improvements which are described in the
approved plans. All construction by Lessee within the Premises
shall be subject to the requirements of Annex 4 attached hereto
-------
and made a part hereof.
(c) Lessor shall remove all debris from the Expansion Space prior to
delivery of possession of the Expansion Space to Lessee.
7. Parking. During the remaining term of the Lease, provided that
-------
Lessee is not in default in the payment or performance of its obligations under
the Lease: (a) Lessee shall have the nonexclusive right to use, in common with
Lessor and other tenants of the Building, their guests and invitees, of the non-
reserved common automobile parking areas associated with the building at a ratio
of one space for each 280 square feet of rentable area contained within the
Premises; and (b) Lessor agrees to designate a total of twelve (12) reserved
surface parking spaces for use by Lessee (inclusive of the five (5)) reserved
surface parking spaces currently designated for Lessee under the Lease).
8. Signage. During the remaining term of the Lease, as long as
-------
Lessee is not in default thereunder, Lessor agrees, at Lessor's expense, to
place Lessee's name on the Building marquee located on Greenway Drive and on the
Building directory located in the lobby of the Building.
9. Representations and Warranties by Lessee. Lessee represents and
----------------------------------------
warrants to Lessor that: (i) Lessee has not previously assigned, sublet,
encumbered or otherwise transferred the Lease or Lessee's interest therein, (ii)
this Amendment constitutes a valid and legally binding obligation of Lessee and
is enforceable in accordance with its terms, and (iii) Lessee has the requisite
power and authority to execute and deliver this Amendment, and the consent or
joinder of no other person or entity is required in connection therewith.
10. Miscellaneous. Lessor and Lessee agree that the Lease, as
-------------
modified by this Amendment, sets forth the entire agreement between Lessee and
Lessee with respect to the rental of the Premises and that there are no
statements, representations, agreements or writings which are collateral or
incident to the Lease or the obligations of Lessor or Lessee thereunder, except
as are expressly set forth in writing in the Lease and in this Amendment. Lessee
hereby ratifies and affirms the Lease and each of Lessee's obligations
thereunder and
-3-
<PAGE>
confirms that Lessee has no offsets, defenses or counterclaims against Lessor
under or in connection with the Lease. Except as amended hereby, the Lease is
and remains in full force and effect as therein written. The provisions of this
Amendment shall serve to supplement and amend the Lease as set forth herein. In
the event of a conflict between the provisions of this Amendment and the
provisions of the Lease, the provisions of this Amendment shall control.
Capitalized terms which are used herein as defined terms but which are not
otherwise defined shall have the same meaning given to such terms in the Lease.
EXECUTED as of the day and year first above written.
LESSOR:
GREENWAY TOWER JOINT VENTURE
By: Independence Development Inc., a Texas
corporation, General Partner
By: /S/ GARY HAMMOND
Name: Gary Hammond
Title: Leasing Agent
LESSEE:
ACE CASH EXPRESS, INC.,
a Texas corporation
By: /S/ DONALD H. NEUSTADT
Name: Donald H. Neustadt
Title: President and Chief Executive
Officer
-4-
<PAGE>
EXHIBIT 1
WORK LETTER AGREEMENT
THIS WORK LETTER AGREEMENT IS ATTACHED TO AND FORMS A PART OF THE
SIXTH AMENDMENT TO LEASE AGREEMENT FOR GREENWAY TOWER (THE "AMENDMENT") DATED
FEBRUARY 1, 1996, BETWEEN GREENWAY TOWER JOINT VENTURE, A TEXAS JOINT VENTURE
("LESSOR") AND ACE CASH EXPRESS, INC., A TEXAS CORPORATION ("LESSEE"), MODIFYING
THE LEASE (HEREIN SO CALLED) MORE PARTICULARLY DESCRIBED THEREIN, COVERING THE
PREMISES (HEREIN SO CALLED) COMMONLY KNOWN AS SUITES 700 AND 800 OF THE BUILDING
KNOWN AS GREENWAY TOWER LOCATED AT 1231 GREENWAY DRIVE, IRVING, TEXAS.
1. LESSEE'S PLANS. Lessee shall employ an architect approved by
--------------
Lessor and duly licensed to practice in the State where the Premises are located
("Lessee's Architect"), who shall prepare and submit to the Lessor plans,
specifications and drawings describing Lessee's desired improvements to the
Premises ("Plans"). The Plans shall be subject to the prior written approval of
Lessor. Lessor's approval of such Plans shall not render Lessor liable or
responsible to Lessee or any other party for any defects or deficiencies in such
Plans or any improvements constructed pursuant to the terms thereof. Lessee and
Lessee's Architect shall be solely responsible for compliance with all
applicable legal requirements, including without limitation building and fire
codes.
2. CONSTRUCTION. Lessee will cause the leasehold improvements
------------
described in the Plans approved by Lessor to be constructed at its cost and
expense in accordance with the Plans ("Lessee's Work"), applicable legal
requirements and the building guidelines set forth on Appendix 1 attached hereto
----------
and made a part hereof for all purposes.
(a) PERMITS. In connection with Lessee's Work, Lessee shall file all
-------
drawings, plans and specifications, pay all fees and obtain all permits and
applications from any authorities having jurisdiction; and Lessee shall promptly
obtain a permanent certificate of occupancy and all other approvals required of
Lessee to use and occupy the Premises and to open for business with the public.
(b) APPROVAL. Prior to the commencement of Lessee's Work, Lessee shall
--------
submit to Lessor for Lessor's approval a list of contractors and/or
subcontractors who will perform Lessee's Work or Lessor may, at Lessor's option,
require that the portion of the work involving the heating, ventilating and air
conditioning, electrical, plumbing and sprinkler systems be done by a contractor
and/or subcontractors selected by Lessor (which shall be deemed for purposes of
this Work Letter Agreement to be Lessee's contractor). Lessee or Lessee's
contractors or subcontractors shall be required to obtain from Lessor permission
for using any area outside the Premises for storage, handling or moving
materials and equipment or for parking any vehicles. In addition, Lessee and its
contractors and subcontractors shall comply with Lessor's building guidelines
applicable to construction of Lessee's Work which are set forth on Appendix 1
----------
attached hereto and made a part hereof for all purposes. If any of Lessee's Work
relates to areas or conditions over which Lessor requires sole control, then
Lessor shall have the right at Lessor's discretion to perform (or have Lessor's
contractor perform) such portion of Lessee's Work at Lessee's expense.
(c) INSURANCE. Lessee and/or Lessee's contractors and subcontractors
---------
shall be required to provide, in addition to the insurance required to be
maintained by Lessee pursuant to the
-5-
<PAGE>
Amendment, the following types of insurance and the following minimum amounts,
naming Lessor and any other persons having an interest in the building as
"additional insureds" or "as their interests may appear", issued by companies
and in form and substance approved by Lessor:
(i) Workman's Compensation coverage with limits of at least
$500,000.00 for the employer's liability coverage thereunder.
(ii) All Risk Builders Risk on 100% Completed Value, covering
damage to the construction and improvements to be made by Lessee with
100% coinsurance protection.
(iii) Automobile Liability coverage with bodily injury limits of
at least $1,000,000.00 per accident and $500,000.00 accident for
property damage.
(iv) Other insurance reasonably required by Lessor.
Original or duplicate policies for all of the foregoing insurance shall be
delivered to Lessor before Lessee's Work is started and before any contractor's
or subcontractor's equipment is moved on to any part of the Premises.
(d) LIABILITY DURING CONSTRUCTION. Lessee hereby assumes any and all
-----------------------------
liability arising out of or relating to Lessee's Work or to the Premises after
the date hereof, including any liability arising out of statutory or common law
for any and all injuries to or death of any and all persons (including, without
limitation, Lessee's contractors and subcontractors and their employees) and any
liability for any and all damage to property caused by, or resulting from, or
arising out of any act or omission on the part of the Lessee, Lessee's
contractors and Lessee's or their subcontractors or employees in the performance
of Lessee's Work, and Lessee further agrees to defend, indemnify and save
harmless Lessor from and against all damages, claims, costs, liabilities, losses
and/or expenses (including legal fees and expenses) arising out of or related to
Lessee's Work, including without limitation any and all such injuries, death
and/or damage. Lessee agrees to insure the foregoing assumed contractual
liability in its liability policies and the original or duplicate original of
said policy that Lessee will deliver to Lessor shall expressly include said
contractual liability coverage.
(e) REMOVAL DURING CONSTRUCTION. Contractors and/or subcontractors
---------------------------
participating in the Lessee's Work shall be required to keep the Premises and
adjacent areas in a neat and clean condition and to remove and dispose of, as
frequently as Lessor may direct, all debris and rubbish caused by, or resulting
from the work and upon completion, to remove all temporary structures, surplus
materials, debris and rubbish of whatever kind remaining on any part of the
Premises or in proximity thereto that was brought in or created by the
performance of Lessee's Work. If at any time Lessee's contractors and
subcontractors shall neglect, refuse, or fail to remove any debris, rubbish, or
surplus materials within twenty-four (24) hours after written notice to Lessee,
Lessor may remove the same at Lessee's expense.
(f) CHANGES. All changes to the Plans shall be subject to Lessor's
-------
prior written approval.
(g) AFFIDAVITS. Lessee shall cause to be filed and/or recorded such
----------
affidavits as Lessor requests regarding Lessee's Work, including without
limitation an affidavit of commencement of Lessee's
-6-
<PAGE>
Work and an affidavit of completion of Lessee's Work on the dates required by
law to give proper effect thereto, or if requested by Lessor, on the dates
specified by Lessor.
3. Removal of Lessee's Work at expiration or termination of Lease.
--------------------------------------------------------------
Lessee's Work (including any Changes) shall be the property of Lessor and shall
remain upon and be surrendered with the Premises upon the expiration of the
Lease term; provided, that at Lessor's option, Lessee shall, at Lessee's sole
cost and expense, remove all of Lessee's Work from the Premises upon expiration
or termination of the Lease, and restore any damage to the Premises resulting
therefrom.
4. CONFLICTS AND CONFORMITY WITH LEASE. Any rights and obligations of
-----------------------------------
Lessor and Lessee relative to any matter not stated in this Work Letter
Agreement shall be governed by the Lease. If there shall be any conflict between
this Work Letter Agreement and the Lease, the provisions of this Work Letter
Agreement shall prevail. As used herein, all capitalized terms not defined
herein shall have the same meaning as defined in the Lease.
-7-
<PAGE>
5. ALLOWANCE.
---------
(a) Lessee's Work shall be done at Lessee's expense, including
building permit fees, other fees, architectural and engineering expenses and
other expenses relating to Lessee's Work. However, Lessor shall allow Lessee a
finish-out allowance of $185,810.00 (the "Allowance") to be applied toward
payment of actual out of pocket costs incurred by Lessee in connection with the
completion of Lessee's Work; subject to the following: (i) Lessor shall not be
required to advance any portion of the Allowance with respect to any invoice or
request for disbursement submitted by Lessee to Lessor after February 28, 1997;
and (ii) Lessee shall be entitled to use up to but not in excess of $30,000.00
out of the Allowance for costs associated with the acquisition and installation
of data cabling within the Premises. Except for the portion of the Allowance
which may be used for data cabling as set forth in clause (ii) of the preceding
sentence, the proceeds of the Allowance shall be used solely for payment of
eligible costs incurred in constructing the permanent leasehold improvements
described in the Plans approved by Lessor, and Lessor shall not be required to
advance any portion of the Allowance for any moving, telephone, equipment or
other expenses incurred by Lessee in connection with the Premises. Lessee
understands that if the cost of Lessee's Work, including without limitation any
changes in Lessee's Work, exceeds the Allowance, then Lessee shall be solely
responsible for all such costs in excess of the Allowance. The Allowance shall
be due and payable to Lessee only after lien-free final completion of Lessee's
Work in accordance with the Plans, receipt by Lessee of all necessary approvals
to operate its business at the Premises, completion by Lessor of a final
inspection and approval of Lessee's Work, and receipt by Lessor of: proof that
all bills in connection with Lessee's Work have been paid in full and all
persons or entities with the right to file a lien in connection therewith have
finally waived and released their lien rights in connection therewith in a
manner satisfactory to Lessor; a copy of Lessee's certificate of occupancy; an
original Affidavit of Total Release and Bills Paid in form acceptable to Lessor
signed by Lessee and by the general contractor, indicating that all
subcontractors and suppliers have been paid, and accompanied by copies of the
invoices referred to therein; and a copy of "as-built" plans of finish-out.
(b) If the actual construction costs are less than the Allowance, then
Lessee shall not be entitled to any portion of the unexpended Allowance, which
shall belong to Lessor.
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INTERIM UNAUDITED CONSOLIDATED STATEMENT OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 61,333
<SECURITIES> 0
<RECEIVABLES> 5,328
<ALLOWANCES> 0
<INVENTORY> 2,346
<CURRENT-ASSETS> 69,546
<PP&E> 29,852
<DEPRECIATION> 11,505
<TOTAL-ASSETS> 112,867
<CURRENT-LIABILITIES> 66,866
<BONDS> 20,643
0
0
<COMMON> 42
<OTHER-SE> 23,629
<TOTAL-LIABILITY-AND-EQUITY> 112,867
<SALES> 49,202
<TOTAL-REVENUES> 49,202
<CGS> 0
<TOTAL-COSTS> 44,178
<OTHER-EXPENSES> 79
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,238
<INCOME-PRETAX> 3,707
<INCOME-TAX> 1,407
<INCOME-CONTINUING> 2,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,300
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
