<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___TO___
COMMISSION FILE NUMBER 0-20774
ACE CASH EXPRESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2142963
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices)
(972) 550-5000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of November 9, 1999
----- ----------------------------------
<S> <C>
Common Stock 10,071,276 shares
</TABLE>
1
<PAGE> 2
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
September 30, 1999, and June 30, 1999 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months Ended September 30, 1999 and 1998 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1999 and 1998 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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 15
</TABLE>
2
<PAGE> 3
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>
September 30, June 30,
------------- ------------
1999 1999
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 65,940 $ 59,414
Accounts and notes receivable, net 9,529 9,767
Prepaid expenses and other current assets 1,424 1,701
Inventories 1,534 1,511
------------ ------------
Total Current Assets 78,427 72,393
------------ ------------
Noncurrent Assets
Property and equipment, net 30,389 30,372
Covenants not to compete, net 1,462 1,656
Excess of purchase price over fair value of assets acquired, net 37,837 36,690
Other assets 3,767 4,122
------------ ------------
Total Assets $ 151,882 $ 145,233
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 48,100 $ 40,100
Accounts payable, accrued liabilities, and other current
liabilities 13,675 15,903
Money order principal payable 5,656 5,340
Current portion of senior secured notes payable 4,677 4,226
Term advances 2,625 1,969
Notes payable 414 330
------------ ------------
Total Current Liabilities 75,147 67,868
------------ ------------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 16,000 16,000
Term advances 7,875 8,531
Other liabilities 4,164 4,560
------------ ------------
Total Liabilities 103,186 96,959
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued and outstanding
Common stock, $.01 par value, 20,000,000 shares authorized,
10,068,926 and 10,055,528 shares issued and outstanding,
respectively 101 101
Additional paid-in capital 21,695 21,691
Retained earnings 26,900 26,482
------------ ------------
Total Shareholders' Equity 48,696 48,274
------------ ------------
Total Liabilities and Shareholders' Equity $ 151,882 $ 145,233
============ ============
</TABLE>
See notes to the interim consolidated financial statements.
3
<PAGE> 4
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenues $ 30,588 $ 26,023
Store expenses:
Salaries and benefits 8,524 7,162
Occupancy 5,271 4,322
Depreciation 1,313 1,108
Other 7,001 6,129
------------ ------------
Total store expenses 22,109 18,721
------------ ------------
Store gross margin 8,479 7,302
Region expenses 2,373 2,188
Headquarters expenses 1,849 1,563
Franchise expenses 242 240
Other depreciation and amortization 917 973
Interest expense, net 1,311 651
Other expenses 83 361
------------ ------------
Income before income taxes and cumulative effect of
accounting change 1,704 1,326
Income taxes 682 530
------------ ------------
Income before cumulative effect of accounting change 1,022 796
Cumulative effect of accounting change, net of income tax
benefit of $402 603 --
------------ ------------
Net income $ 419 $ 796
============ ============
BASIC EARNINGS PER SHARE:
Before cumulative effect of accounting change $ .10 $ .08
Cumulative effect of accounting change (.06) --
------------ ------------
Basic earnings per share $ .04 $ .08
============ ============
Weighted average number of common shares outstanding -
basic EPS 10,061 9,935
============ ============
DILUTED EARNINGS PER SHARE:
Before cumulative effect of accounting change $ .10 $ .08
Cumulative effect of accounting change (.06) --
------------ ------------
Diluted earnings per share $ .04 $ .08
============ ============
Weighted average number of common and dilutive shares
outstanding - diluted EPS 10,327 10,284
============ ============
</TABLE>
See notes to the interim consolidated financial statements.
4
<PAGE> 5
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 419 $ 796
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,231 2,081
Cumulative effect of accounting change 1,004 0
Deferred revenue (732) (486)
Changes in assets and liabilities:
Accounts and notes receivable, net 238 (525)
Prepaid expenses 276 34
Inventories (22) 711
Other assets (942) (218)
Accounts payable and other liabilities (1,894) 2,124
------------ ------------
Net cash provided by operating activities 578 4,517
Cash flows from investing activities:
Purchases of property and equipment, net (1,740) (1,644)
Cost of net assets acquired (1,166) (4,265)
------------ ------------
Net cash used by investing activities (2,906) (5,909)
Cash flows from financing activities:
Net borrowings from (repayments to) money order supplier 316 (1,817)
Net borrowings from revolving line of credit 8,000 0
Term advances from money order supplier 0 4,100
Payment of term advances from money order supplier 0 (525)
Net borrowings of acquisition-related notes payable 535 367
Proceeds from stock options exercised 2 312
------------ ------------
Net cash provided by financing activities 8,854 2,437
------------ ------------
Net increase in cash and cash equivalents 6,526 1,045
Cash and cash equivalents, beginning of period 59,414 60,168
------------ ------------
Cash and cash equivalents, end of period $ 65,940 $ 61,213
============ ============
Supplemental disclosures of cash flows information:
Interest paid $ 1,050 $ 189
Income taxes paid 9 645
</TABLE>
See notes to the interim consolidated financial statements.
5
<PAGE> 6
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial
statements of Ace Cash Express, Inc. (the "Company" or "ACE") and its
subsidiaries have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations of
the Securities and Exchange Commission. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. Although management believes that the disclosure is
adequate to prevent the information from being misleading, the interim
consolidated financial statements should be read in conjunction with the
Company's audited financial statements in its Annual Report on Form 10-K filed
with the Securities and Exchange Commission. In the opinion of Company
management, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included.
Certain prior period accounts have been reclassified to conform to the
current year's presentation.
EARNINGS PER SHARE DISCLOSURES
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
are computed by dividing net income by the weighted average number of common
shares outstanding, after adjusting for the dilutive effect of stock options.
The following table presents the reconciliation of the numerator and denominator
used in the calculation of basic and diluted earnings per share, as required by
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
1999 1998
------------ ------------
(in thousands, except per share data)
<S> <C> <C>
Net income (numerator) $ 419 $ 796
============ ============
Reconciliation of denominator:
Weighted average number of common shares
outstanding - basic EPS 10,061 9,935
Effect of dilutive stock options 266 349
------------ ------------
Weighted average number of common and dilutive
shares outstanding - diluted EPS 10,327 10,284
============ ============
</TABLE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As required, the Company adopted a new accounting standard, AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," in
the first quarter ending September 30, 1999. This standard requires the
previously capitalized start-up costs to be recognized as a cumulative effect of
change in accounting principle and expensed fully in the quarter. Start-up
costs, net of tax, of $0.6 million were expensed in the first quarter ending
September 30, 1999.
The Company is also required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," by its first quarter ending September 30, 2001. This standard
requires the Company to record the fair value of its interest-rate swap as an
asset or liability in the consolidated balance sheet. Changes in the fair value
of the interest-rate swap will be reported as a component of shareholders'
equity in the consolidated balance sheet. The fair value of the Company's
existing interest-rate swap is $0.9 million as of September 30, 1999.
6
<PAGE> 7
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
---------------------- ------------------------------------
1999 1998 1999 1998 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
COMPANY OPERATING AND STATISTICAL DATA:
Company-owned stores in operation:
Beginning of period 798 683 683 617 544
Acquired 2 17 35 15 46
Opened 11 30 99 62 45
Closed (7) (7) (19) (11) (18)
-------- -------- -------- -------- --------
End of period 804 723 798 683 617
======== ======== ======== ======== ========
Percentage increase in comparable store revenues
from prior period (1): 7.5% 12.3% 10.8% 6.9% 6.3%
Capital expenditures (in thousands) $ 1,740 $ 1,644 $ 10,089 $ 5,742 $ 4,868
Cost of net assets acquired (in thousands) $ 1,166 $ 4,265 $ 8,378 $ 4,708 $ 10,766
- ------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in millions) $ 831 $ 733 $ 3,373 $ 2,898 $ 2,621
Face amount of money orders sold (in millions) $ 397 $ 483 $ 1,905 $ 1,849 $ 1,812
Face amount of money orders sold as a percentage
of the face amount of checks cashed 47.8% 66.0% 56.5% 63.8% 69.1%
Face amount of average check $ 312 $ 300 $ 320 $ 305 $ 291
Average fee per check $ 7.06 $ 6.73 $ 7.47 $ 7.26 $ 6.97
Fees as a percentage of average check 2.26% 2.24% 2.33% 2.38% 2.40%
Number of checks cashed (in thousands) 2,654 2,438 10,556 9,496 9,020
Number of money orders sold (in thousands) 3,112 3,591 14,495 14,146 13,608
- ------------------------------------------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks (in thousands) $ 3,854 $ 2,688 $ 12,442 $ 10,193 $ 10,399
Collections (in thousands) 2,259 1,660 7,423 6,301 6,554
-------- -------- -------- -------- --------
Net write-offs (in thousands) $ 1,595 $ 1,028 $ 5,019 $ 3,892 $ 3,845
======== ======== ======== ======== ========
Collections as a percentage of returned checks 58.6% 61.8% 59.7% 61.8% 63.0%
Net write-offs as a percentage of revenues 5.3% 4.0% 4.1% 3.9% 4.4%
Net write-offs as a percentage of the face amount of
checks cashed .19% .14% .15% .13% .15%
</TABLE>
(1) Calculated based on the changes in revenues of all stores open for
both of the full year and three month periods compared.
7
<PAGE> 8
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
CONSUMER LOANS (PAY DAY LOANS):
OPERATING DATA:
Volume (in thousands) $ 31,739 $ 26,916 $105,765 $ 69,182
Average advance $ 211 $ 197 $ 200 $ 177
Average finance charge $ 29.74 $ 29.40 $ 30.30 $ 27.51
Number of loans made (in thousands) 132 119 460 338
COLLECTIONS DATA:
Charge-offs (in thousands) $ 3,611 $ 1,902 $ 8,283 $ 3,761
Recoveries (in thousands) 2,558 763 5,497 1,954
-------- -------- -------- --------
Net charge-offs (in thousands) $ 1,053 $ 1,139 $ 2,786 $ 1,807
======== ======== ======== ========
Charge-offs as a percentage of pay day loan volume 11.4% 7.1% 7.8% 5.4%
Recoveries as a percentage of charge-offs 70.9% 40.1% 66.4% 52.0%
Net charge-offs as a percentage of pay day loan
revenue 26.8% 32.6% 20.0% 19.5%
Net charge-offs as a percentage of pay day loan
volume 3.3% 4.2% 2.6% 2.6%
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUE ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Check cashing fees $ 18,515 $ 16,199 60.6% 62.3%
Loan fees and interest 3,923 3,748 12.8 14.4
Tax check fees 218 202 0.7 0.8
Bill payment services 2,335 1,722 7.6 6.6
Money transfer services 1,969 1,596 6.4 6.1
Money order fees 1,769 738 5.8 2.8
New customer fees 529 545 1.7 2.1
Franchise revenues 604 496 2.0 1.9
Other fees 726 777 2.4 3.0
-------- -------- -------- --------
Total revenue $ 30,588 $ 26,023 100.0% 100.0%
======== ======== ======== ========
Average revenue per store $ 37.4 $ 36.3
</TABLE>
Total revenues increased $4.6 million, or 18%, to $30.6 million in the first
quarter of fiscal 2000 from $26.0 million in the first quarter of the last
fiscal year. This revenue growth resulted, in part, from a $1.8 million, or
7.5%, increase in comparable store revenues (659 stores). The balance of the
increase came from stores which were opened or acquired after June 30, 1998, and
were therefore not open for both of the full periods compared. The number of
Company-owned stores increased by 81, or 11%, from 723 stores open at September
30, 1998, to 804 stores open at September 30, 1999. The increase in total check
cashing fees accounted for 51% of the total revenue increase, the increase in
money order fees accounted for 23% of the total revenue increase, and the
increase in bill payment services accounted for 13% of the total revenue
increase. Check cashing fees increased $2.3 million, or 14%, from the $16.4
million in the first quarter of the last fiscal year to $18.7 million in the
first quarter of fiscal 2000. This increase resulted from a 9% increase in the
total number of checks cashed and a 5% increase in the average fee per check due
to the increase in the average size check.
Money order fees increased $1.0 million, or 140%, as a result of increased money
order pricing, which was enabled by the Company's new Credit Agreement and the
new money order agreement with Travelers Express Company, Inc. that became
effective in mid-December 1998. Money order volume declined compared to the same
period last year as a result of increased retail pricing on money orders. Bill
payment services revenue increased $0.6 million, or 35.6%, principally as a
result of growth in payment revenue from existing bill payment contracts.
9
<PAGE> 10
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Salaries and benefits $ 8,524 $ 7,162 27.9% 27.5%
Occupancy 5,271 4,322 17.2 16.6
Armored and security 1,411 1,186 4.6 4.6
Returns and cash shorts 2,471 1,729 8.1 6.6
Loan losses 1,053 1,139 3.4 4.4
Depreciation 1,313 1,108 4.3 4.2
Other 2,066 2,075 6.8 8.0
-------- -------- -------- --------
Total store expense $ 22,109 $ 18,721 72.3% 71.9%
======== ======== ======== ========
Average per store expense $ 27.6 $ 26.6
</TABLE>
Total store expenses increased $3.4 million, or 18%, to $22.1 million in the
first quarter of fiscal 2000 from $18.7 million in the first quarter of the last
fiscal year. Total store expenses increased slightly as a percentage of revenues
to 72.3% in the first quarter of fiscal 2000 from 71.9% in the first quarter of
the last fiscal year. The total of salaries and benefits, occupancy costs, and
armored and security expenses increased $2.5 million, or 20%, primarily as a
result of the increased number of stores in operation and the expensing of
center start-up costs which were previously capitalized. Returned checks, net of
collections, and cash shortages increased $0.7 million, and increased as a
percentage of revenues to 8.1% in the first quarter of fiscal 2000 from 6.6% in
the first quarter of fiscal 1999 due to the Company cashing a higher number of
forgeries (lost or stolen checks) than the Company cashed in the comparable
quarter of fiscal 1999.
<TABLE>
<CAPTION>
OTHER EXPENSES ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C>
Region expenses 2,373 $ 2,188 7.8% 8.4%
Headquarters expenses 1,849 1,563 6.0 6.0
Franchise expenses 242 240 0.8 0.9
Other depreciation and amortization 917 973 3.0 3.7
Interest expense, net 1,311 651 4.3 2.5
Other expenses 83 361 0.3 1.4
</TABLE>
Region Expenses
Region expenses increased $0.2 million, or 8%, in the first quarter of fiscal
2000 over the first quarter of the last fiscal year. Region expenses decreased
as a percentage of revenues, however, from 8.4% in the first quarter of the last
fiscal year to 7.8% in the first quarter of fiscal 2000.
Headquarters Expenses
Headquarters expenses increased $0.3 million, or 18%, in the first quarter of
fiscal 2000 over the first quarter of the last fiscal year. Headquarters
expenses as a percentage of revenues, 6%, were the same as the first quarter of
the last fiscal year.
Franchise Expenses
Franchise expenses remained relatively unchanged for the first quarter of fiscal
2000 compared to the first quarter of the last fiscal year.
10
<PAGE> 11
Other Depreciation and Amortization
Other depreciation and amortization decreased $0.1 million, or 6%, in the first
quarter of fiscal 2000 from the first quarter of the last fiscal year,
principally due to the change in accounting principle adopted in the first
quarter of fiscal 2000, whereby unamortized start-up costs are no longer
capitalized, but fully expensed.
Interest Expense
Interest expense, net of interest income, increased $0.7 million, or 101%, in
the first quarter of fiscal 2000 compared to the first quarter of the last
fiscal year. This increase was principally the result of an increase in
borrowings used to finance store openings and acquisitions and borrowings
required to replace the deferred money order remittances formerly used by the
Company under its previous money order agreement (which was replaced during
mid-December 1998).
Other Expenses
Other expenses decreased $0.3 million, or 77%, in the first quarter of fiscal
2000 compared to the first quarter of fiscal 1999. Other expenses for the first
quarter of fiscal 1999 included approximately $0.2 million of store closing
costs and $0.1 million incurred to address the Company's Year 2000 conversion.
Income Taxes
A total of $0.7 million was provided for income taxes in the first quarter of
fiscal 2000, up from $0.5 million in the first quarter of the last fiscal year.
The provision for income taxes was calculated based on a statutory federal
income tax rate of 34%, plus a provision for state income taxes and
non-deductible goodwill resulting from acquisitions. The effective income tax
rate was 40.0% for the first quarter of fiscal 2000, unchanged from the first
quarter of the last fiscal year.
Cumulative Effect of Accounting Change
Effective July 1, 1999, the Company adopted the new accounting standard, AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
resulting in a cumulative effect on net income of $0.6 million net of an income
tax benefit of $0.4 million.
BALANCE SHEET VARIATIONS
Cash and cash equivalents, the money order principal payable, and the revolving
advances vary because of seasonal and day-to-day requirements resulting from
maintaining cash for cashing checks and making loans, receipts of cash from the
sale of money orders, loan volume, and remittances for money orders sold. For
the three months ended September 30, 1999, cash and cash equivalents increased
$6.5 million compared to an increase of $1.0 million for the three months ended
September 30, 1998.
Property and equipment increased by $1.8 million, and the excess purchase price
over the fair value of net assets acquired increased $1.2 million, as a result
of the 11 stores opened in and the acquisition of two stores during the three
months ended September 30, 1999, offset by related depreciation and
amortization. Accounts and notes receivable decreased $0.2 million, primarily
due to increased collections of accounts and notes receivable. Accounts payable
and other liabilities decreased $1.9 million, primarily due to the payment of
fiscal year 1999 annual performance bonuses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the three months ended September 30, 1999 and 1998, the Company had net
cash provided by operating activities of $0.6 million and $4.5 million,
respectively. The change in cash flows from operating activities resulted from a
$1.0 million earn-out related to a September 1998 acquisition and is payable in
the quarter ending December 31, 1999 and fluctuations in various operating
liabilities due to the timing of payments to third party agents.
Cash Flows from Investing Activities
During the three months ended September 30, 1999 and 1998, the Company used $1.7
million and $1.6 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 $1.2 million and $4.3
million, respectively, for the three months ended September 30, 1999 and 1998.
11
<PAGE> 12
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended September
30, 1999, was $8.9 million. The Company increased its borrowings under it bank
credit agreement by $8.3 million due to the timing of remittances on money order
sales. Acquisition-related notes payable to sellers increased by $0.5 million
during the three months ended September 30, 1999. Net cash provided by financing
activities for the three months ended September 30, 1998, was $2.4 million.
The credit facilities available to the Company under its existing credit
agreement with a syndicate of banks, led by Wells Fargo Bank (Texas), National
Association since mid-December 1998, are a revolving line-of-credit facility of
$110 million and a term-loan facility of $35 million. The revolving
line-of-credit facility replaced the deferred money order remittances and
revolving-advance facility formerly used by the Company under the previous money
order agreement, and the term-loan facility replaced the term advance facility
under the previous money order agreement. Borrowings under the revolving
line-of-credit facility may be used for working capital and general corporate
purposes, and borrowings under the term-loan facility may be used for store
construction and relocation and other capital expenditures, including
acquisitions, and refinancing other debt. The Company had borrowed $48.1 million
under its revolving facility and $10.5 million under its term-loan facility as
of September 30, 1999.
The Company's borrowings under the revolving facility bear interest at a
variable annual rate equal to, at the Company's discretion, either the prime
rate publicly announced by Wells Fargo Bank or the London InterBank Offered Rate
(LIBOR) plus 0.75%. The Company's borrowings under the term-loan facility bear
interest at a variable annual rate equal to, at the Company's discretion, either
the prime rate publicly announced by Wells Fargo Bank plus 0.25% or LIBOR plus
1.75%. Interest is generally payable monthly, except on LIBOR-rate borrowings;
interest on LIBOR-rate borrowings is payable every 30, 60, or 90 days, depending
on the period selected by the Company. Under the credit agreement, the Company
must also pay a commitment fee equal to 0.2% of the unused portion of the
revolving line-of-credit facility and 0.45% of the unused portion of the
term-loan facility.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America. Those agreements effectively convert a portion of the Company's
floating-rate interest obligations to fixed-rate interest obligations. With
respect to the revolving line-of-credit facility, the first notional amount is
$33 million for a two-year period that began January 4, 1999, and the second
notional amount is $10 million for a sixteen-month period that began September
3, 1999. The third notional amount under the term-loan facility is currently
$10.25 million in calendar year 1999, with decreases in calendar year 2000
corresponding to term-loan payments due from the Company. The notional amounts
were determined based on the Company's minimum projected borrowings during
calendar years 1999 and 2000. The fixed rate applicable to the notional amount
of $33 million under the revolving line-of-credit facility is 5.14% for calendar
year 1999 and 5.23% for calendar year 2000. The fixed rate applicable to the
notional amount of $10 million under the revolving line-of-credit facility is
6.00% for the rest of calendar year 1999 and for calendar year 2000. The fixed
rate applicable to the notional amount under the term-loan facility is 6.23% for
calendar year 1999 and 6.38% for calendar year 2000.
The Company is required to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," by its
first quarter ending September 30, 2001. This standard requires the Company to
record the fair value of its interest-rate swap as an asset or liability in the
consolidated balance sheet. Changes in the fair value of the interest-rate swap
will be reported as a component of shareholders' equity in the consolidated
balance sheet. The fair value of the Company's existing interest-rate swap is
$0.9 million as of September 30, 1999.
Stock Repurchase Program
In August 1999, the Company's Board of Directors authorized the repurchase from
time to time of up to approximately $4 million of the company's Common Stock in
the open market or in negotiated transactions. This stock repurchase program
will remain in effect unless discontinued by the Board of Directors. As of
November 4, 1999, the Company had purchased 28,300 shares at an average price of
$14.36 per share.
YEAR 2000 ISSUE UPDATE
The "Year 2000 Issue" is the result of computer programs that use two digits
instead of four to record the applicable year. Computer programs that have
date-sensitive software might recognize a date using "00" as the year 1900
instead of the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
events, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
12
<PAGE> 13
The Company has addressed its Year 2000 Issue and has modified or replaced
portions of its software or hardware as appropriate, so that its computer
systems will properly recognize dates beyond December 31, 1999. The Company has
also modified or replaced its hardware and software with upgraded or new
hardware and software at a cost that has not been material to the Company's
operations or financial condition. Further, the Company's operations were not
disrupted to any material extent by the Year 2000 Issue with its existing
software or hardware or by its activities to address the Year 2000 Issue.
The Company's total cost of addressing its Year 2000 Issue has been
approximately $0.25 million (excluding the compensation cost of its existing
technology personnel, which would have been incurred anyway). The Company
continues to work with its significant suppliers, and management believes that
the Company is not significantly vulnerable to third parties' failure to
remediate their own Year 2000 Issues. The Company's contingency plan in the
event of a widespread Year 2000 failure includes operating the Company's stores
on a manual, non-computerized basis.
RENEWAL OF CREDIT FACILITIES
Because the existing credit agreement contemplates that the Company's revolving
line-of-credit and term-loan facilities will expire in mid-December 1999, the
Company has been negotiating with Wells Fargo Bank (Texas), National
Association, as agent for the bank lending syndicate, to renew those facilities.
The Company's management believes that those facilities will be renewed, without
any material effect on the company, in mid-December 1999.
OPERATING TRENDS
Seasonality
The Company's business is seasonal to the extent of the impact of cashing tax
refund checks and two other tax-related services--electronic tax filing and
processing applications for refund anticipation loans. The impact of these
services is in the third and fourth quarters of the Company's fiscal year.
Impact of Inflation
Management believes the Company's results of operations are not dependent upon
the levels of inflation.
FORWARD-LOOKING STATEMENTS
This Report may contain, and from time to time the Company or certain of its
representatives may make, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
identified by the use of words such as "anticipate," "expect," "estimate,"
"believe," "intend," and terms with similar meanings. Although the Company
believes that the current views and expectations reflected in these
forward-looking statements are reasonable, those views and expectations, and the
related statements, are inherently subject to risks, uncertainties, and other
factors, many of which are not under the Company's control and may not even be
predictable. Those risks, uncertainties, and other factors could cause the
actual results to differ materially from those reflected in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not limited
to, the following matters described in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission: the availability of financing
for operations; 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
The Company is exposed to financial market risks, particularly including changes
in interest rates that might affect the costs of its financing under its credit
agreement. To mitigate the risks of changes in interest rates, the Company
utilizes derivative financial instruments. The Company does not use derivative
financial instruments for speculative or trading purposes.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company has entered into three interest-rate swap agreements with
Bank of America. Those agreements effectively convert a portion of the Company's
13
<PAGE> 14
floating-rate interest obligations to fixed-rate interest obligations, as
described above under "Management's Discussion and Analysis of financial
Condition and Results of Operations - Liquidity and Capital Resources."
The fair value of the Company's existing interest-rate swap is $0.9 million as
of September 30, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the lawsuit filed against the Company in California, Bryan Meegan v. Ace Cash
Express, Inc., the Company negotiated a settlement with the plaintiff and the
purported class in June 1999. That settlement, which contemplates the Company's
payment of an amount not material to the Company's financial condition or
operation, is subject to approval by the court. The Company believes that the
settlement will be approved. The court hearing to consider that settlement is
scheduled for November 19, 1999.
The lawsuit filed against the Company in Arkansas is now styled Mike Kenney and
Angie Gwatney v. Ace Cash Express, Inc. because of the recent addition of a
named plaintiff. The Company and the plaintiffs have conducted discovery and,
particularly within the last week, have had significant discussions about
settlement. The Company has determined that, if the court were to certify this
lawsuit as a class action and if all of the plaintiffs' allegations on behalf of
the class were proven at trial, the Company's maximum exposure in this lawsuit
would be approximately $3.6 million plus attorneys' fees awarded by the court.
Nevertheless, there has been no court hearing regarding class certification,
and the Company continues to deny all of the allegations and intends to
continue to vigorously defend this lawsuit. Further, based on the results of
discovery, the parties' discussions, and developments in other lawsuits in
Arkansas against other providers of payday loans or deferred-presentment
transactions, the Company and its counsel believe that there is a high
probability that this lawsuit could be settled for an amount that is
significantly lower than the Company's maximum exposure.
There have been no material developments in the lawsuit filed against the
Company in Florida, Gary M. Kane and Wendy Betts v. Ace Cash Express, Inc. et
al. See "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 * Financial Data Schedule (EDGAR version only)
-----------------
* Filed herewith
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE CASH EXPRESS, INC.
November 15, 1999 By: /s/ Jay B. Shipowitz
Senior Vice President and CFO
(Duly authorized officer and
principal financial and chief
accounting officer)
By: /s/ Debra A. Bradford
Vice President of Finance
15
<PAGE> 16
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 65,940
<SECURITIES> 0
<RECEIVABLES> 9,529
<ALLOWANCES> 796
<INVENTORY> 1,534
<CURRENT-ASSETS> 78,427
<PP&E> 49,897
<DEPRECIATION> 19,509
<TOTAL-ASSETS> 151,882
<CURRENT-LIABILITIES> 75,147
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 48,595
<TOTAL-LIABILITY-AND-EQUITY> 151,882
<SALES> 30,588
<TOTAL-REVENUES> 30,588
<CGS> 0
<TOTAL-COSTS> 27,490
<OTHER-EXPENSES> 83
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,311
<INCOME-PRETAX> 1,704
<INCOME-TAX> 682
<INCOME-CONTINUING> 1,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 603
<NET-INCOME> 419
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
