<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, 1998
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 _____
--------
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 April 29, 1998
----- --------------------------------
Common Stock 9,805,953 shares
<PAGE>
ACE CASH EXPRESS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1998 and June 30, 1997 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months and Nine Months Ended March 31, 1998 and 1997 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1998 and 1997 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE>
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)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
-----------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 59,824 $ 55,494
Accounts and notes receivable, net 7,507 7,459
Prepaid expenses 748 573
Inventories 1,866 2,052
Property and equipment, net 25,069 23,920
Covenants not to compete, net 2,437 2,775
Excess of purchase price over fair value of assets acquired,
net 29,444 28,469
Other assets 3,369 3,608
------------ ------------
$ 130,264 $ 124,350
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Money order principal payable $ 49,649 $ 41,281
Revolving advances from money order supplier 605 7,166
Accounts payable and accrued liabilities 10,944 11,031
Notes payable 130 637
Senior secured notes payable 20,702 20,231
Term advances from money order supplier 7,598 8,209
Other liabilities 4,336 4,739
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,
9,786,528 and 9,668,612 shares issued and outstanding,
respectively 98 96
Additional paid-in capital 19,790 19,130
Retained earnings 16,412 11,830
------------ ------------
Total shareholders' equity 36,300 31,056
------------ ------------
$ 130,264 $ 124,350
============ ============
</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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 29,340 $ 26,218 $ 74,159 $ 65,337
Store expenses:
Salaries and benefits 7,925 7,157 20,802 18,966
Occupancy 3,877 3,598 11,364 10,292
Depreciation 1,036 858 2,983 2,441
Other 4,966 4,787 14,747 13,139
-------- -------- -------- --------
Total store expenses 17,804 16,400 49,896 44,838
-------- -------- -------- --------
Store gross margin 11,536 9,818 24,263 20,499
Region expenses 2,107 1,920 6,054 5,479
Headquarters expenses 2,278 1,981 5,318 4,616
Franchise expenses 286 241 729 767
Other depreciation and amortization 877 776 2,569 2,162
Interest expense, net 738 623 1,903 1,736
Other expenses 4 45 54 88
-------- -------- -------- --------
Income before income taxes 5,246 4,232 7,636 5,651
Income taxes 2,098 1,663 3,054 2,219
-------- -------- -------- --------
Net income $ 3,148 $ 2,569 $ 4,582 $ 3,432
======== ======== ======== ========
Basic earnings per share $ 0.32 $ 0.27 $ 0.47 $ 0.36
======== ======== ======== ========
Weighted average number of common shares
outstanding - basic EPS 9,779 9,595 9,736 9,538
======== ======== ======== ========
Diluted earnings per share $ 0.31 $ 0.26 $ 0.45 $ 0.35
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding - diluted EPS 10,239 9,900 10,152 9,812
======== ======== ======== ========
</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,
------------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,582 $ 3,432
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,557 4,614
Recognition of deferred revenue (1,165) (989)
Changes in assets and liabilities:
Accounts and notes receivable, net (48) (2,370)
Prepaid expenses (175) (83)
Inventories 186 1,020
Other assets (211) (875)
Accounts payable and other liabilities 1,146 4,674
---------- ----------
Net cash provided by operating activities 9,872 9,423
Cash flows from investing activities:
Purchases of property and equipment, net (3,618) (3,444)
Cost of net assets acquired (3,275) (9,996)
Proceeds from disposition of net assets held for sale - 2,490
---------- ----------
Net cash used by investing activities (6,893) (10,950)
Cash flows from financing activities:
Net borrowings from money order supplier 1,807 3,449
Borrowings of senior secured notes payable - 20,587
Term advances from money order supplier 708 8,335
Payments of term advances from money order supplier (1,319) (19,740)
Net decrease in notes payable (507) (1,676)
Proceeds from stock options exercised 662 420
---------- ----------
Net cash provided by financing activities 1,351 11,375
---------- ----------
Net increase in cash and cash equivalents 4,330 9,848
Cash and cash equivalents, beginning of period 55,494 56,603
---------- ----------
Cash and cash equivalents, end of period $ 59,824 $ 66,451
========== ==========
Supplemental disclosures of cash flows information:
Interest paid $ 1,502 $ 1,174
Income taxes paid 1,259 3,040
</TABLE>
See notes to the interim consolidated financial statements.
5
<PAGE>
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.
2. SUBSEQUENT EVENTS
NEW MONEY ORDER AGREEMENT
In April 1998, the Company signed a new money order agreement with Travelers
Express Company, Inc. ("Travelers Express"), to become effective January 1,
1999. This agreement will replace the existing money order agreement with First
Data Corporation that expires December 31, 1998. Under the new five-year
agreement, the Company will exclusively sell Travelers Express money orders that
bear the Company's logo. The Company also signed a five-year agreement with
Travelers Express, effective immediately, to offer an electronic bill-payment
service to the Company's customers. In conjunction with these two agreements,
the Company received $3 million from Travelers Express in April 1998 and is
entitled to receive an additional $400,000 per year for the next five years.
The total $5 million from Travelers Express will be amortized evenly over the
five-year term of the agreements beginning January 1999.
BANK FINANCING COMMITMENTS
In April 1998, the Company received a commitment from Wells Fargo Bank
(Texas) National Association to act as lead agent and a commitment from
Chase Bank of Texas, N.A. to act as co-agent, to syndicate senior secured
credit facilities that will provide $110 million of financing to the Company.
The commitments contemplate a revolving-line-of-credit facility of $80 million,
to be used for working capital and general corporate purposes, and a term-loan
facility of $30 million, to be used to refinance its current term loan. In the
future, the Company will have the ability to utilize the term facility to fund
acquisitions and provide capital for internal expansion. It is expected that
the facility will close within the next three months and be available on January
1, 1999, upon the commencement of the new money order agreement.
6
<PAGE>
SUPPLEMENTAL STATISTICAL DATA - COMPANY-OWNED STORES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, YEAR ENDED JUNE 30,
--------------- --------------- ---------------------------
1998 1997 1998 1997 1997 1996 1995
------ ------ ------ ------ ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY OPERATING AND STATISTICAL DATA:
Company-owned stores in operation:
Beginning of period 644 592 617 544 544 452 343
Acquired 5 9 12 43 46 69 77
Opened 9 4 36 29 45 33 40
Closed - (4) (7) (15) (18) (10) (8)
------ ------ ------ ------ ------- ------- -------
End of period 658 601 658 601 617 544 452
====== ====== ====== ====== ======= ======= =======
Percentage increase in comparable
store revenues from prior period:
Exclusive of tax-related revenues (1) 6.8% 5.0% 7.1% 6.4% 5.5% 4.1% 2.9%
Total (2) 5.0% 9.6% 6.2% 8.0% 6.3% 4.7% 1.6%
Capital expenditures
(in thousands) $ 968 $1,258 $3,618 $3,444 $ 4,868 $ 3,435 $ 4,187
Cost of net assets acquired
(in thousands) $1,296 $2,087 $3,275 $7,711 $10,766 $14,432 $14,000
- ---------------------------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in
millions) $ 827 $ 762 $2,170 $1,947 $ 2,621 $ 2,144 $ 1,567
Face amount of money orders
sold (in millions) $ 486 $ 475 $1,381 $1,356 $ 1,812 $ 1,531 $ 1,213
Face amount of money orders
sold as a percentage of the face
amount of checks cashed 58.8% 62.3% 63.6% 69.6% 69.1% 71.4% 77.4%
Face amount of average check $ 346 $ 333 $ 306 $ 292 $ 291 $ 285 $ 284
Average fee per check $ 8.86 $ 8.59 $ 7.33 $ 7.08 $ 6.97 $ 6.81 $ 6.79
Number of checks cashed
(in thousands) 2,388 2,291 7,093 6,661 9,020 7,535 5,516
Number of money orders sold
(in thousands) 3,673 3,539 10,555 10,161 13,608 11,835 9,334
- ---------------------------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks
(in thousands) $2,384 $2,652 $7,865 $7,699 $10,399 $ 8,661 $ 6,206
Collections (in thousands) 1,562 1,627 4,748 4,725 6,554 5,004 3,786
------ ------ ------ ------ ------- ------- -------
Net write-offs (in thousands) $ 822 $1,025 $3,117 $2,974 $ 3,845 $ 3,657 $ 2,420
====== ====== ====== ====== ======= ======= =======
Collections as a percentage of
returned checks 65.5% 61.3% 60.4% 61.4% 63.0% 57.8% 61.0%
Net write-offs as a percentage of
revenues 2.8% 3.9% 4.2% 4.6% 4.4% 5.3% 5.1%
Net write-offs as a percentage of
the face amount of checks cashed .10% .13% .14% .15% .15% .17% .15%
</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 periods compared.
7
<PAGE>
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 REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Check fees $ 14,579 $ 13,425 49.7% 51.2% $ 45,159 $ 40,622 60.9% 62.2%
Tax check fees 6,579 6,252 22.4 23.8 6,868 6,566 9.3 10.0
Loan fees and interest 2,638 1,472 9.0 5.6 6,984 4,042 9.4 6.2
Money transfer services 1,610 1,404 5.5 5.4 4,483 4,294 6.0 6.6
Bill payment services 1,197 637 4.1 2.4 2,752 1,571 3.7 2.4
Money order sales 750 729 2.6 2.8 2,149 2,063 2.9 3.2
New customer fees 583 606 2.0 2.3 1,669 1,535 2.3 2.3
Franchise revenues 273 285 0.9 1.1 1,176 901 1.6 1.4
Electronic tax filings 235 291 0.8 1.1 242 299 0.3 0.5
Other fees 896 1,117 3.0 4.3 2,677 3,444 3.6 5.2
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues $ 29,340 $ 26,218 100.0% 100.0% $ 74,159 $ 65,337 100.0% 100.0%
======== ======== ======== ======== ======== ======== ======== ========
Average revenue per
store $ 45.1 $ 44.0 $ 116.3 $ 114.1
</TABLE>
QUARTER COMPARISON
Total revenues increased $3.1 million, or 12%, from $26.2 million in the third
quarter of fiscal 1997 to $29.3 million in the third quarter of fiscal 1998.
This revenue growth resulted, in part, from a $1.1 million, or 5%, increase in
comparable store revenues (518 stores). The balance of the increase, $2.0
million, resulted from stores which were opened or acquired after June 30, 1996,
and were therefore not open for both of the full periods compared. The number
of Company-owned stores increased by 57, or 9%, from 601 stores opened at March
31, 1997, to 658 stores opened at March 31, 1998. The increase in total check
cashing fees accounted for 47% of the total revenue increase. Check cashing
fees increased $1.5 million, or 8%, from the $19.7 million in the third quarter
of fiscal 1997 to $21.2 million in the third quarter of fiscal 1998. This
increase resulted from a 4% increase in the total number of checks cashed and a
4% increase in the face amount of the average check.
Loan fees and interest increased $1.2 million, or 79%, primarily as a result of
an increase in the number of loans per store and an increase in the number of
stores offering the loan products. The number of stores offering the Company's
loan products increased to 274 Company-owned stores at March 31, 1998, as
compared to 170 stores at March 31, 1997. Bill payment services increased $0.6
million, or 88%, as a result of offering new products, including prepaid local
telephone services in certain markets, and as a result of signing additional
bill payment agreements. Other fees decreased $0.2 million, or 20%, as a result
of decreases in food stamp distribution revenue and other miscellaneous product
revenue.
NINE MONTH COMPARISON
Total revenues increased $8.8 million, or 14%, from $65.3 million in the first
nine months of fiscal 1997 to $74.2 million in the first nine months of fiscal
1998. This revenue growth resulted, in part, from a $3.6 million, or 6.2%,
increase in comparable store revenues (518 stores). The balance of the
increase, $5.2 million, resulted from stores which were opened or acquired after
June 30, 1996, and were therefore not open for both of the full periods
compared. The increase in total check cashing fees accounted for 55% of the
total revenue increase. Check cashing fees increased $4.8 million, or 10%, from
$47.2 million in the first nine months of fiscal 1997 to $52.0 million in the
first nine months of fiscal 1998. This increase resulted from a 6% increase in
the total number of checks cashed and a 5% increase in the face amount of the
average check.
Loan fees and interest increased $2.9 million, or 73%, primarily as a result of
an increase in the number of loans per store and an increase in the number of
stores offering the loan products. The number of stores offering the Company's
loan products increased to 274 Company-owned stores at March 31, 1998, as
compared to 170 stores at March 31, 1997. Bill payment services increased $1.2
million, or 75%, as a result of offering new products, including prepaid local
telephone services in certain markets, and as a result of signing additional
bill payment agreements. Franchise revenues increased $0.3
8
<PAGE>
million, or 31%, primarily as a result of additional initial franchise fees.
During the nine months ended March 31, 1998, 32 franchised stores were opened,
compared to the 21 franchised stores opened during the nine months ended March
31, 1997. Other fees decreased $0.8 million, or 22%, as a result of decreases
in food stamp distribution revenue and other miscellaneous product revenue.
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENTAGE OF REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 7,925 $ 7,157 27.0% 27.3% $ 20,802 $ 18,966 28.0% 29.0%
Occupancy 3,877 3,598 13.2 13.7 11,364 10,292 15.3 15.8
Armored and security 1,120 959 3.8 3.7 3,090 2,577 4.2 3.9
Returns and cash shorts 1,357 1,555 4.6 5.9 4,716 4,545 6.4 7.0
Loan losses 542 245 1.9 1.0 1,390 896 1.9 1.4
Depreciation 1,036 858 3.5 3.3 2,983 2,441 4.0 3.7
Other 1,947 2,028 6.7 7.7 5,551 5,121 7.5 7.8
-------- -------- -------- -------- -------- -------- -------- --------
Total store expenses $ 17,804 $ 16,400 60.7% 62.6% $ 49,896 $ 44,838 67.3% 68.6%
======== ======== ======== ======== ======== ======== ======== ========
Average per store
expense $ 27.3 $ 27.5 $ 78.3 $ 78.3
</TABLE>
QUARTER COMPARISON
Total store expenses increased $1.4 million, or 9%, in the third quarter of
fiscal 1998 over the third quarter of fiscal 1997. Total store expenses
decreased as a percentage of revenues, however, from 62.6% in the third quarter
of fiscal 1997 to 60.7% in the third quarter of fiscal 1998. Salaries and
benefits expenses, occupancy costs, and armored and security expenses increased,
primarily as a result of the increased number of stores in operation. Returned
checks, net of collections, and cash shortages decreased 13% in the fiscal 1998
quarter, as compared to the same quarter in fiscal 1997. Returned checks, net
of collections, and cash shortages decreased as a percentage of revenues, to
4.6% in the third quarter of fiscal 1998 from 5.9% in the third quarter of
fiscal 1997. Loan losses increased $0.3 million in the third quarter of fiscal
1998 as compared to the third quarter of fiscal 1997, as a result of the
increased volume of loans made.
NINE MONTH COMPARISON
Total store expenses increased $5.1 million, or 11%, from the first nine months
of fiscal 1997 to the first nine months of fiscal 1998. Total store expenses
decreased as a percentage of revenues, however, from 68.6% in the first nine
months of fiscal 1997 to 67.3% in the first nine months of fiscal 1998.
Salaries and benefits expenses, occupancy costs, and armored and security
expenses increased, primarily as a result of the increased number of stores in
operation. Returned checks, net of collections, and cash shortages increased
$0.2 million, or 4%, in the first nine months of fiscal 1997 to the first nine
months of fiscal 1998. Returned checks, net of collections, and cash shortages
decreased as a percentage of revenues, from 7.0% in the first nine months of
fiscal 1997 to 6.4% in the first nine months of fiscal 1998. Loan losses
increased $0.5 million in the first nine months of fiscal 1998 as compared to
the first nine months of fiscal 1997, as a result of the increased volume of
loans made. Other store expenses increased $0.4 million, or 8%, primarily as a
result of the increased number of stores in operation.
<TABLE>
<CAPTION>
OTHER EXPENSE ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
(IN THOUSANDS) (PERCENTAGE OF REVENUE) (IN THOUSANDS) (PERCENTAGE OF REVENUE)
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region expenses $ 2,107 $ 1,920 7.2% 7.3% $ 6,054 $ 5,479 8.1% 8.4%
Headquarters expenses 2,278 1,981 7.8 7.6 5,318 4,616 7.2 7.1
Franchise expenses 286 241 1.0 0.9 729 767 1.0 1.2
Other depreciation and
amortization 877 776 3.0 3.0 2,569 2,162 3.4 3.3
Interest expense 738 623 2.5 2.4 1,903 1,736 2.6 2.7
Other expenses 4 45 0.0 0.2 54 88 0.1 0.1
</TABLE>
9
<PAGE>
QUARTER COMPARISON
Region Expenses
Region expenses increased $0.2 million, or 10%, in the third quarter of fiscal
1998 over the third quarter of fiscal 1997, primarily due to the addition of
region personnel and the organization of a centralized loan operations group.
Region expenses decreased slightly as a percentage of revenues, from 7.3% in the
third quarter of fiscal 1997 to 7.2% in the third quarter of fiscal 1998.
Headquarters Expenses
Headquarters expenses increased $0.3 million, or 15%, in the third quarter of
fiscal 1998 over the third quarter of fiscal 1997, principally as a result of
increased salaries and benefits expenses.
Franchise Expenses
Franchise expenses remained relatively unchanged for the third quarter of fiscal
1998 as compared to the third quarter of fiscal 1997.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.1 million, or 13%, in the third
quarter of fiscal 1998 from the third quarter of fiscal 1997, principally due to
increased depreciation for new capital expenditures.
Interest Expense
Interest expense, net of interest income, increased $0.1 million, or 18%, in the
third quarter of fiscal 1998 as compared to the third quarter of fiscal 1997.
This increase was principally the result of increased borrowings used to finance
store acquisitions. The Term Advances from the Money Order Supplier bear
interest at the prime rate plus one percent, currently 9.5%, and the Senior
Secured Notes bear interest at 9.03% per year.
Income Taxes
A total of $2.1 million was provided for income taxes in the third quarter of
fiscal 1998, compared to $1.7 million in the third quarter of fiscal 1997. 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.
NINE MONTH COMPARISON
Region Expenses
Region expenses increased $0.6 million, or 10%, in the nine-month period of
fiscal 1998 over the comparable nine-month period of fiscal 1997, primarily due
to the addition of region personnel and centralized loan operations. Region
expenses decreased as a percentage of revenues, from 8.4% in first nine months
of fiscal 1997 to 8.1% in the first nine months of fiscal 1998.
Headquarters Expenses
Headquarters expenses increased $0.7 million, or 15%, in the first nine months
of fiscal 1998 over the first nine months of fiscal 1997, principally as a
result of increased salaries and benefits expenses. Headquarters expenses
increased slightly as a percentage of revenues, from 7.1% in the first nine
months of fiscal 1997 to 7.2% in the first nine months of fiscal 1998.
Franchise Expenses
Franchise expenses remained relatively unchanged for the first nine months of
fiscal 1998, compared to the first nine months of fiscal 1997.
10
<PAGE>
Other Depreciation and Amortization
Other depreciation and amortization increased $0.4 million, or 19%, in the first
nine months of fiscal 1998 over the first nine months of fiscal 1997,
principally due to increased depreciation for new capital expenditures.
Interest Expense
Interest expense, net of interest income, increased $0.2 million in the first
nine months of fiscal 1998 over the first nine months of fiscal 1997. This
increase was principally the result of an increase in borrowings used to finance
store acquisitions. The Term Advances from the Money Order Supplier bear
interest at the prime rate plus one percent, currently 9.5%, and the Senior
Secured Notes bear interest at 9.03% per year.
Income Taxes
A total of $3.1 million was provided for income taxes in the first nine months
Of fiscal 1998, compared to $2.2 million in the first nine months of fiscal
1997. 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.
BALANCE SHEET VARIATIONS
Cash and cash equivalents, the money order principal payable, and the revolving
advances from the Money Order Supplier 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 on money orders sold. For the nine months ended March 31, 1998,
cash and cash equivalents increased $4.3 million, compared to an increase of
$9.8 million for the nine months ended March 31, 1997.
Net property and equipment increased $1.1 million, and the excess purchase price
over the fair value of net assets acquired increased $1.0 million, for the nine
months ended March 31, 1998, as a result of the 12 stores acquired and the 36
stores opened during the nine months ended March 31, 1998, offset by related
depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the nine months ended March 31, 1998 and 1997, the Company had net cash
provided by operating activities of $9.9 million and $9.4 million, respectively.
Cash Flows from Investing Activities
During the nine months ended March 31, 1998 and 1997, the Company used $3.6
million and $3.4 million, respectively, for purchases of property and equipment
related principally to new store openings and remodeling existing stores.
Capital expenditures related to acquisitions amounted to $3.3 million and $10.0
million, respectively, for the nine months ended March 31, 1998 and 1997. In
addition, during the nine months ended March 31, 1997, the Company received $2.5
million proceeds from the disposition of net assets held for sale.
Cash Flows from Financing Activities
During the nine months ended March 31, 1998 and 1997, the Company had net cash
provided by financing activities of $1.4 million and $11.4 million,
respectively. The $11.4 million net cash provided by financing activities for
the nine months of fiscal 1997 reflects the indebtedness represented by the
Company's 9.03% Senior Secured Notes. During the nine months ended March 31,
1998, the Company borrowed $1.8 million revolving advances from the Money Order
Supplier. Additionally, the Company reduced its Term Advances by $0.6 million,
paid $0.5 million of certain notes payable, and received $0.7 million for the
exercise of stock options during the nine months ended March 31, 1998.
11
<PAGE>
Under the provisions of the Company's agreement with the Money Order Supplier
regarding advances for the acquisition and construction of additional locations
("Term Advances"), the principal amount of each Term Advance is to be paid in
equal monthly installments on a 60-month amortization through December 1998, at
which time the remaining principal is due. As of March 31, 1998, approximately
$10.9 million of the total $18.5 million of Term Advances commitment was
available for acquisition and construction of additional locations. Interest on
the Term Advances accrues at the prime rate plus one percent, which currently
totals 9.5%.
The interest on revolving advances from the Money Order Supplier accrues at a
per annum rate of 1.5% over the prime rate, which currently totals 10%. The
total amount of deferred money order remittances payable to the Money Order
Supplier may not exceed the Company's cash balances and cash equivalents
(including checks cashed by the Company that are being processed for payment).
The principal amount of the Company's outstanding 9.03% Senior Secured Notes is
due in five equal annual installments of $4 million each, beginning November 15,
1999. Interest payments are due semiannually, on each May 15 and November 15,
until maturity on November 15, 2003.
New Money Order Agreement and Bank Financing Commitments
The Company's existing agreement with the Money Order Supplier (the "Existing
Money Order Agreement"), through which the Company obtains its supply of money
orders and substantial amounts of financing (in the form of deferred money
order remittances, revolving advances, and Term Advances), expires December 31,
1998. Management of the Company therefore has had preliminary discussions with
the Money Order Supplier, other money order suppliers, and banks about
arrangements to replace the Existing Money Order Agreement when it expires.
Through those discussions, management determined that it would be possible for
the Company to reduce its net financing costs by establishing separate
arrangements for money orders and for debt financing.
Accordingly, in April 1998, the Company signed a money order agreement with
Travelers Express Company, Inc. ("Travelers Express") to become effective
January 1, 1999 (the "New Money Order Agreement"), upon the expiration of the
Existing Money Order Agreement. Under the New Money Order Agreement, which has
a five-year term, the Company will be obligated to sell Travelers Express money
orders (which also bear the Company's logo) exclusively. The New Money
Order Agreement is contingent on the Company's entering into agreements with one
or more banks or financing sources to obtain financing and on the integration of
the rights of Travelers Express with the rights of those secured lenders and the
holder of the Company's 9.03% Senior Secured Notes.
In April 1998, the Company also signed a five-year agreement with Travelers
Express to offer an electronic bill-payment service to the Company's customers,
effective January 1, 1999. In conjunction with signing this agreement and the
New Money Order Agreement, the Company received $3 million from Travelers
Express in April 1998 and will be entitled to receive an additional $400,000 per
year for the next five years. The total $5 million from Travelers Express will
be amortized evenly over the five-year term of the agreements beginning January
1999. If the New Money Order Agreement does not become effective on January 1,
1999, the Company will be obligated to repay the $3 million, plus interest
thereon accrued at the prime rate from April 1998. In addition, if the New
Money Order Agreement is terminated under certain circumstances before the
expiration of its five-year term, the Company will be obligated to repay a
portion (based on a weekly proration) of the money received from Travelers
Express, without interest.
Also in April 1998, the company received a commitment from Wells Fargo Bank
(Texas) National Association to act as lead agent, and a commitment from Chase
Bank of Texas, N.A. to act as co-agent, to syndicate senior secured credit
facilities that will provide $110 million of financing to the Company effective
January 1, 1999. The commitments contemplate a revolving-line-of-credit
facility of $80 million, to be used for working capital and general corporate
purposes, and a term-loan facility of $30 million, to be used for acquisitions
and opening new locations. In the aggregate, the banks have also committed to
provide $75 million of the $110 million credit facilities. The commitments are
subject to typical conditions, including (without limitation) the completion of
the syndicate and the negotiation, preparation, and signing of satisfactory
secured loan documents. The Company and those banks have just begun to
negotiate and prepare the necessary secured loan documents. The Company intends
to complete the negotiations and preparation of, and to sign, those documents
(to become effective January 1, 1999) within the next three months.
12
<PAGE>
OPERATING TRENDS
Seasonality
The Company's business is seasonal during the third quarter of each fiscal year,
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.
IMPACT OF INFLATION
The Company believes that the results of its 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: the
Company's relationships with the Money Order Supplier and with the supplier of
MoneyGram services; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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 REPORTS ON FORM 8-K
(a) Exhibits
13
<PAGE>
Exhibit Number Exhibits
10.33 * Amendment No. 1 to the Ace Cash Express 401 K
Profit Sharing Plan effective January 1, 1998
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 4, 1998
By: /s/ Jay B. Shipowitz
--------------------
Senior Vice President and CFO
(Duly authorized officer and
principal financial and chief
accounting officer)
By: /s/ Susan S. Pressler
---------------------
Vice President and Controller
14
<PAGE>
EXHIBIT 10.33
AMENDMENT NO. 1
TO THE ACE CASH EXPRESS
401 K PROFIT SHARING PLAN
This Amendment No. 1 to the Ace Cash Express 401 K Profit Sharing Plan (the
"Plan") is entered into by and between Ace Cash Express, Inc. (the "Company")
and Merrill Lynch Trust Company (the "Trustee") this 1st day of January, 1998,
effective as set forth herein.
W I T N E S S E T H:
--------------------
WHEREAS, the Company established the Plan, effective July 1, 1994, in the
form of a prototype plan sponsored by Merrill Lynch, Pierce, Fenner & Smith,
Incorporated; and
WHEREAS, pursuant to the provisions of Section 11.1.2 of the Plan, the
Company desires to amend the Plan in certain respects as described herein;
NOW THEREFORE, the Company and the Trustee amend the Plan as follows:
1. Article I, Paragraph E and F(1) of the adoption agreement pursuant to which
the Plan is maintained, the Merrill Lynch Special Prototype Defined
Contribution Plan, 401(k) Plan Adoption Agreement (the "Merrill Lynch
Adoption Agreement") hereby is amended, effective for individuals employed
by the Company on and after January 1, 1998, in the form set forth on the
attached page 6 of the Merrill Lynch Adoption Agreement to modify the
definition of "Entry Date" and the procedures for determining eligibility
service.
2. Article I, Paragraph F(2) of the Merrill Lynch Adoption Agreement hereby is
amended, effective as of January 1, 1998, in the form set forth on the
attached page 7 of the Merrill Lynch Adoption Agreement to modify the
procedures for determining vesting service.
3. Article III, Paragraph G of the Merrill Lynch Adoption Agreement hereby is
amended, effective as of January 1, 1998, in the form set forth on the
attached page 13 of the Merrill Lynch Adoption Agreement to modify the dates
on which changes can be made to participants' elective deferral percentages.
IN WITNESS WHEREOF, the parties hereto, acting by and through their duly
authorized officers, have executed this Amendment No. 1 to the Plan as of the
date set forth above and effective as set forth herein.
ACE CASH EXPRESS, INC.
By:
EMPLOYER
MERRILL LYNCH TRUST COMPANY
By:
TRUSTEE
<PAGE>
E. Entry Date
----------
Entry Date shall mean (select as applicable):
401(k)
and/or Profit-
Thrift Sharing
[ ] [ ] (1) If the initial Plan Year is less than twelve
months, the ___ day of ___ and thereafter:
[ ] [ ] (2) the first day of the Plan Year following the
date the Employee meets the eligibility
requirements. If the Employer elects this
option (2) establishing only one Entry Date,
the eligibility "age and service" requirements
elected in Article II must be no more than age
20-1/2 and 6 months of service.
[ ] [ ] (3) the first day of the month following the date
the Employee meets the eligibility
requirements.
[x] [x] (4) the first day of the Plan Year and the first
day of the seventh month of the Plan Year
following the date the Employee meets the
eligibility requirements.
[ ] [ ] (5) the first day of the Plan Year, the first day
of the fourth month of the Plan Year, the
first day of the seventh month of the Plan
Year, and the first day of the tenth month of
the Plan Year following the date the Employee
meets the eligibility requirements.
[ ] [ ] (6) other: ______________________________________
provided that the Entry Date or Dates selected
are no later than any of the options above.
F. "Hours of Service"
------------------
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the method
specified below:
(1) Eligibility Service: For purposes of determining whether a Participant has
-------------------- satisfied the eligibility requirements, the following
method shall be used (select one):
401(k)
and/or Profit-
Thrift Sharing
[x] [x] (a) elapsed time method
[ ] [ ] (b) hourly records method
6
<PAGE>
(2) Vesting Service: A Participant's non-forfeitable interest shall be
---------------- determined on the basis of the method specified below
(select one):
[x] (a) elapsed time method
[ ] (b) hourly records method
[ ] (c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2) will
not apply.
(3) Hourly Records: For the purpose of determining Hours of Service under the
--------------- hourly record method (select one):
[x] (a) only actual hours for which an Employee is paid or entitled to
payment shall be counted.
[ ] (b) an Employee shall be credited with 45 Hours of Service if such
Employee would be credited with at least 1 Hour of Service
during the week.
G. "Integration Level"
-------------------
[x] (1) This Plan is not integrated with Social Security.
[ ] (2) This Plan is integrated with Social Security. The Integration
Level shall be (select one):
[ ] (a) the Taxable Wage Base.
[ ] (b) $__________ (a dollar amount less than the Taxable Wage
Base).
[ ] (c) _______% of the Taxable Wage Base (not to exceed 100%).
[ ] (d) the greater of $10,000 or 20% of the Taxable Wage Base.
H. "Limitation Compensation"
-------------------------
For purposes of Code Section 415, Limitation Compensation shall be compensation
as determined for purposes of (select one):
[ ] (1) Code Section 415 Safe-Harbor as defined in Section 3.9.1(H)(i)
if basic plan document #03.
[x] (2) the "Wages, Tips and Other Compensation" Box on Form W-2.
[ ] (3) Code Section 3401(a) Federal Income Tax Withholding.
I. "Limitation Year"
-----------------
For purposes of Code Section 415, the Limitation Year shall be (select one):
[x] (1) the Plan Year.
[ ] (2) the twelve consecutive month period ending on the _____ day of
the month of __________.
7
<PAGE>
(2) Qualified Nonelective Contributions will be contributed and allocated to
each Eligible Participant in an amount equal to (select one):
[ ] (a) _____% (no more than 15%) of the Compensation of each Eligible
Participant eligible to share in the allocation.
[x] (b) Such an amount determined by the Employer, which is needed to
meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
[ ] (a) all Eligible Participants.
[x] (b) only those Eligible Participants who are Nonhighly Compensated
Employees.
F. Elective Deferrals used in ACP Test (select one):
-----------------------------------
[x] (1) At the discretion of the Employer, Elective Deferrals may be used to
satisfy the ACP Test.
[ ] (2) Elective Deferrals may not be used to satisfy the ACP Test.
G. Making and modifying a 401(k) Election
--------------------------------------
An Eligible Employee shall be entitled to increase, decrease or resume his or
her Elective Deferral percentage with the following frequency during the Plan
Year (select one):
[ ] (1) annually
[x] (2) semi-annually
[ ] (3) quarterly
[ ] (4) monthly
[ ] (5) other (specify) __________.
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Elective
Deferrals at any time effective for the payroll period after written notice is
provided to the Administrator.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INTERIM UNAUDITED CONSOLIDATED STATEMENTS 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 59,824
<SECURITIES> 0
<RECEIVABLES> 7,507
<ALLOWANCES> 0
<INVENTORY> 1,866
<CURRENT-ASSETS> 69,945
<PP&E> 44,707
<DEPRECIATION> 19,638
<TOTAL-ASSETS> 130,264
<CURRENT-LIABILITIES> 61,328
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 36,202
<TOTAL-LIABILITY-AND-EQUITY> 130,264
<SALES> 74,159
<TOTAL-REVENUES> 74,159
<CGS> 49,896
<TOTAL-COSTS> 49,896
<OTHER-EXPENSES> 54
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,903
<INCOME-PRETAX> 7,636
<INCOME-TAX> 3,054
<INCOME-CONTINUING> 4,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,582
<EPS-PRIMARY> .47
<EPS-DILUTED> .45
</TABLE>
