<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 DECEMBER 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 _____
--------
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 February 4, 1999
----- ----------------------------------
Common Stock 9,998,887 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
December 31, 1998, and June 30, 1998 3
Interim Unaudited Consolidated Statements of Earnings for the
Three and Six Months Ended December 31, 1998 and 1997 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended December 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 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
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>
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>
DECEMBER 31, JUNE 30,
------------ ------------
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 75,770 $ 60,168
Accounts and notes receivable, net 9,742 8,857
Prepaid expenses and other current assets 2,135 897
Inventories 1,601 2,449
------------ ------------
Total Current Assets 89,248 72,371
------------ ------------
Noncurrent Assets
Property and equipment, net 27,636 25,852
Covenants not to compete, net 1,925 2,254
Excess of purchase price over fair value of assets
acquired, net 34,889 29,932
Other assets 4,977 4,226
------------ ------------
Total Assets $ 158,675 $ 134,635
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 55,000 $ 1,932
Accounts payable, accrued liabilities, and other current
liabilities 14,654 13,110
Money order principal payable 12,047 47,486
Current portion of senior secured notes payable 4,226 226
Term advances 656 7,073
Notes payable 131 228
------------ ------------
Total Current Liabilities 86,714 70,055
------------ ------------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 16,000 20,000
Term advances 9,844 -
Other liabilities 4,881 5,629
------------ ------------
Total Liabilities 117,439 95,684
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $1 par value, 1,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
9,993,316 and 9,882,161 shares issued and outstanding,
respectively 99 99
Additional paid-in capital 20,993 20,620
Retained earnings 20,144 18,232
------------ ------------
Total shareholders' equity 41,236 38,951
------------ ------------
$ 158,675 $ 134,635
============ ============
</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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 28,656 $ 23,125 $ 54,679 $ 44,819
Store expenses:
Salaries and benefits 8,095 6,710 15,257 12,877
Occupancy 4,537 3,766 8,859 7,487
Depreciation 1,145 986 2,253 1,947
Other 6,361 5,083 12,490 9,781
-------- -------- -------- --------
Total store expenses 20,138 16,545 38,859 32,092
-------- -------- -------- --------
Store gross margin 8,518 6,580 15,820 12,727
Region expenses 2,377 1,907 4,565 3,947
Headquarters expenses 1,871 1,545 3,434 3,040
Franchise expenses 404 231 644 443
Other depreciation and amortization 1,052 830 2,025 1,692
Interest expense, net 889 668 1,540 1,165
Other expenses 67 18 428 50
-------- -------- -------- --------
Income before income taxes 1,858 1,381 3,184 2,390
Income taxes 742 557 1,272 956
-------- -------- -------- --------
Net income $ 1,116 $ 824 $ 1,912 $ 1,434
======== ======== ======== ========
Basic earnings per share $ .11 $ .08 $ .19 $ .15
======== ======== ======== ========
Weighted average number of common shares
outstanding - basic EPS 9,965 9,742 9,950 9,714
======== ======== ======== ========
Diluted earnings per share $ .11 $ .08 $ .19 $ .14
======== ======== ======== ========
Weighted average number of common and
dilutive shares outstanding - diluted EPS 10,283 10,146 10,284 10,080
======== ======== ======== ========
</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>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,912 $ 1,434
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,282 3,639
Deferred revenue (941) (640)
Changes in assets and liabilities:
Accounts and notes receivable, net (885) (313)
Prepaid expenses and other current assets (1,238) 44
Inventories 848 163
Other assets (1,651) (9)
Accounts payable and other liabilities 1,737 (2,630)
---------- ----------
Net cash provided by operating activities 4,064 1,688
Cash flows from investing activities:
Purchases of property and equipment, net (3,560) (2,650)
Cost of net assets acquired (6,234) (1,979)
---------- ----------
Net cash used by investing activities (9,794) (4,629)
Cash flows from financing activities:
Net borrowings from previous money order supplier/revolver 17,629 13,798
Borrowings of term advances from banks 10,500 -
Payments of term advances from previous money order supplier (7,073) (879)
Net decrease in notes payable (97) (419)
Proceeds from stock options exercised 373 502
---------- ----------
Net cash provided by financing activities 21,332 13,002
---------- ----------
Net increase in cash and cash equivalents 15,602 10,061
Cash and cash equivalents, beginning of period 60,168 55,494
---------- ----------
Cash and cash equivalents, end of period $ 75,770 $ 65,555
========== ==========
Supplemental disclosures of cash flows information:
Interest paid $ 1,523 $ 1,308
Income taxes paid 1,233 915
</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. NEW CREDIT FACILITIES
On December 16, 1998, the Company first borrowed under its credit agreement
with a syndicate of banks, led by Wells Fargo Bank (Texas), National
Association, terminated its money order agreement with Integrated Payment
Systems Inc. (under which it formerly obtained financing), and began to offer
and sell money orders under its new money order agreement with Travelers Express
Company, Inc. The credit facilities available to the Company under the credit
agreement are a revolving line-of-credit facility of $110 million and a
term-loan facility of $35 million. The revolving line-of-credit facility
replaces the deferred money order remittances and revolving advances formerly
used by the Company under the previous money order agreement, and the term-loan
facility replaces the term advance facility under the previous money order
agreement. The Company borrowed $55 million under its revolving facility and
$10.5 million under its term-loan facility as of December 31, 1998. A
classified balance sheet has now been presented as of December 31, 1998 and
June 30, 1998.
6
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
--------------- --------------- ---------------------------
1998 1997 1998 1997 1998 1997 1996
------ ------ ------ ------ ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY OPERATING AND STATISTICAL DATA:
Beginning of period 723 623 683 617 617 544 452
Acquired 2 - 19 7 15 46 69
Opened 17 22 47 27 62 45 33
Closed (7) (1) (14) (7) (11) (18) (10)
------ ------ ------ ------ ------- ------- -------
End of period 735 644 735 644 683 617 544
====== ====== ====== ====== ======= ======= =======
Percentage increase in
comparable store revenues from
prior period (1) 11.3% 7.8% 11.8% 7.0% 6.9% 6.3% 4.7%
Capital expenditures
(in thousands) $1,916 $ 830 $3,560 $2,650 $ 5,742 $ 4,868 $ 3,435
Cost of net assets acquired
(in thousands) $1,969 $ 663 $6,234 $1,979 $ 4,708 $10,766 $14,4320
- ---------------------------------------------------------------------------------------------------------
OPERATING DATA:
Face amount of checks cashed (in
millions) $ 831 $ 690 $1,564 $1,337 $ 2,898 $ 2,621 $ 2,1447
Face amount of money orders
sold (in millions) $ 529 $ 456 $1,012 $ 895 $ 1,849 $ 1,812 $ 1,531
Face amount of money orders
sold as a percentage of the face
amount of checks cashed 63.7% 66.1% 64.7% 66.9% 63.8% 69.1% 71.4%
Face amount of average check $ 303 $ 285 $ 302 $ 286 $ 305 $ 291 $ 285
Average fee per check $ 6.63 $ 6.54 $ 6.68 $ 6.59 $ 7.26 $ 6.97 $ 6.81
Fees as a percentage of average check
Number of checks cashed 2.2% 2.3% 2.3% 2.3% 2.4% 2.4% 2.4%
(in thousands) 2,744 2,422 5,182 4,682 9,496 9,020 7,535
Number of money orders sold
(in thousands) 3,806 3,493 7,397 6,881 14,146 13,608 11,8354
- ---------------------------------------------------------------------------------------------------------
COLLECTIONS DATA:
Face amount of returned checks
(in thousands) $3,142 $2,863 $5,830 $5,481 $10,193 $10,399 $ 8,661
Collections (in thousands) 1,832 1,667 3,492 3,186 6,301 6,554 5,0046
------ ------ ------ ------ ------- ------- -------
Net write-offs (in thousands) $1,310 $1,196 $2,338 $2,295 $ 3,892 $ 3,845 $ 3,6570
====== ====== ====== ====== ======= ======= =======
Collections as a percentage of
returned checks 58.3% 58.2% 59.9% 58.1% 61.8% 63.0% 57.8%
Net write-offs as a percentage of
revenues 4.6% 5.2% 4.3% 5.1% 3.9% 4.4% 5.3%
Net write-offs as a percentage of
the face amount of checks cashed .16% .17% .15% .17% .13% .15% .17%
</TABLE>
(1) Calculated based on the change in revenues of all stores open for both of
the full year and the interim periods compared.
7
<PAGE>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- ------------------- ---------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSUMER LOANS (PAY DAY LOANS):
OPERATING DATA:
Volume (in thousands) $26,892 $15,753 $53,808 $28,955 $69,182 $39,336
Average advance $ 198 $ 170 $ 197 $ 162 $ 177 $ 147
Average finance charge $ 30.20 $ 26.96 $ 29.80 $ 26.39 $ 27.51 $ 25.03
Number of loans made
(in thousands) 118 80 237 154 338 229
COLLECTIONS DATA:
Charge-offs (in thousands) $ 2,044 $ 818 $ 3,947 $ 1,538 $ 3,761 $ 2,307
Recoveries (in thousands) 1,281 462 2,044 775 1,954 1,124
------- ------ ------- ------- ------- -------
Net charge-offs (in thousands) $ 763 $ 356 $ 1,903 $ 763 $ 1,807 $ 1,183
======= ====== ======= ======= ======= =======
Charge-offs as a percentage of
pay day loan volume 7.6% 5.2% 7.3% 5.3% 5.4% 5.9%
Recoveries as a percentage of
charge-offs 62.7% 56.5% 51.8% 50.4% 52.0% 48.7%
Net charge-offs as a percentage
of pay day loan revenue 21.4% 16.4% 26.9% 19.3% 19.5% 20.7%
Net charge-offs as a percentage
of pay day loan volume 2.8% 2.3% 3.5% 2.6% 2.6% 3.0%
</TABLE>
8
<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 DECEMBER 31, SIX MONTHS ENDED DECEMBER 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 cashing fees $ 18,118 $ 15,771 63.2% 68.2% $ 34,317 $ 30,580 62.8% 68.2%
Loan fees and interest 3,649 2,376 12.7 10.3 7,397 4,346 13.5 9.7
Tax check fees 77 79 0.3 0.3 279 289 0.5 0.7
Bill payment services 2,144 862 7.5 3.7 3,866 1,555 7.1 3.5
Money transfer services 1,802 1,438 6.3 6.2 3,398 2,873 6.2 6.4
Money order fees 873 707 3.1 3.1 1,611 1,399 2.9 3.1
New customer fees 583 545 2.0 2.4 1,128 1,086 2.1 2.4
Franchise revenues 630 415 2.2 1.8 1,126 903 2.1 2.0
Other fees 780 932 2.7 4.0 1,557 1,788 2.8 4.0
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue $ 28,656 $ 23,125 100.0% 100.0% $ 54,679 $ 44,819 100.0% 100.0%
======== ======== ======== ======== ======== ======== ======== ========
Average revenue per
store (excluding
franchise revenues) $ 38.4 $ 35.8 $ 75.5 $ 69.7
</TABLE>
QUARTER COMPARISON
Total revenues increased $5.5 million, or 24%, to $28.7 million in the second
quarter of fiscal 1999 from $23.1 million in the second quarter of the last
fiscal year. This revenue growth resulted, in part, from a $2.4 million, or
11.3%, increase in comparable store revenues (600 stores). The balance of the
increase came from stores which were opened or acquired after June 30, 1997, and
were therefore not open for both of the full periods compared. The number of
Company-owned stores increased by 91, or 14%, from 644 stores opened at December
31, 1997, to 735 stores opened at December 31, 1998. The increase in total check
cashing fees accounted for 42% of the total revenue increase; the increase in
loan fees and interest accounted for 23% of the total revenue increase; and the
increase in bill payment services accounted for 23% of the total revenue
increase.
Check cashing fees and tax check fees combined increased $2.3 million, or 15%,
to $18.2 million in the second quarter of fiscal 1999 from $15.8 million in the
second quarter of the last fiscal year. This increase primarily resulted from a
13% increase in the total number of checks cashed. Loan fees and interest
increased $1.3 million, or 54%, as a result of an increase in the number of
stores offering the Company's post-dated checks to 290 stores at December 31,
1998, as compared to 189 stores at December 31, 1997. Bill payment services
increased $1.3 million, or 149%, principally as a result of growth in payment
revenue from existing bill payment contracts and new bill payment contracts.
SIX MONTH COMPARISON
Total revenues increased $9.9 million, or 22%, to $54.7 million in the first
six months of fiscal 1999 from $44.8 million in the first six months of the
last fiscal year. This revenue growth resulted, in part, from a $4.9 million,
or 11.8%, increase in comparable store revenues (600 stores). The balance of the
increase came from stores which were opened or acquired after June 30, 1997, and
were therefore not open for both of the full periods compared. The increase in
total check cashing fees accounted for 38% of the total revenue increase; the
increase in loan fees and interest accounted for 31% of the total revenue
increase; and the increase in bill payment services accounted for 23% of the
total revenue increase.
Check cashing fees and tax check fees combined increased $3.7 million, or 12%,
to $34.6 million in the first six months of fiscal 1999 from the $30.9 million
in the first six months of the last fiscal year. This increase primarily
resulted from an 11% increase in the total number of checks cashed. Loan fees
and interest increased $3.1 million, or 70%, as a result of an increase in the
number of stores offering the Company's post-dated checks to 290 stores at
December 31, 1998, as compared
9
<PAGE>
to 189 stores at December 31, 1997. Bill payment services increased $2.3
million, or 149%, principally as a result of growth in payment revenue from
existing bill payment contracts and new bill payment contracts.
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 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 $ 8,095 $ 6,710 28.2% 29.0% $ 15,257 $ 12,877 27.9% 28.7%
Occupancy 4,537 3,766 15.8 16.3 8,859 7,487 16.2 16.7
Armored and security 1,278 1,013 4.5 4.4 2,464 1,970 4.5 4.4
Returns and cash shorts 2,235 1,763 7.8 7.6 3,964 3,359 7.3 7.5
Loan losses 763 441 2.7 1.8 1,902 848 3.5 1.9
Depreciation 1,145 986 4.0 4.3 2,253 1,947 4.1 4.4
Other 2,085 1,866 7.3 8.1 4,160 3,604 7.6 8.0
-------- -------- -------- -------- -------- -------- -------- --------
Total store expenses $ 20,138 $ 16,545 70.3% 71.5% $ 38,859 $ 32,092 71.1% 71.6%
======== ======== ======== ======== ======== ======== ======== ========
Average per store
expense $ 27.6 $ 26.1 $ 54.8 $ 50.9
</TABLE>
QUARTER COMPARISON
Total store expenses increased $3.6 million, or 22%, to $20.1 million in the
second quarter of fiscal 1999 from $16.5 million in the second quarter of the
last fiscal year. Store expenses decreased as a percentage of revenues,
decreasing to 70.3% in the second quarter of fiscal 1999 from 71.5% in the
second quarter of the last fiscal year. 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 $0.5 million as a result of the
increased number of stores in the second quarter of fiscal 1999, compared to the
second quarter of the last fiscal year. Other store expenses increased $0.2
million, or 11%, primarily as a result of the increased number of stores in
operation.
SIX MONTH COMPARISON
Total store expenses increased $6.8 million, or 21%, from the $32.1 million in
the first six months of the last fiscal year to $38.9 million in the first six
months of fiscal 1999. Store expenses decreased as a percentage of revenues,
decreasing from 71.6% in the first six months of the last fiscal year to 71.1%
in the first six months of fiscal 1999. 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 $0.6 million, or 18%, in the first six
months of fiscal 1999 as a result of the increased number of stores. Returned
checks, net of collections, and cash shortages decreased as a percentage of
revenues to 7.3% in the first six months of fiscal 1999 from 7.5% in the first
six months of fiscal 1998. Loan losses increased $1.1 million in the first six
months of fiscal 1999, as compared to the first six months of fiscal 1998, as a
result of the increased volume of loans made. Other store expenses increased
$0.6 million, or 15%, primarily as a result of the increased number of stores in
operation.
10
<PAGE>
<TABLE>
<CAPTION>
OTHER EXPENSES ANALYSIS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 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 $ 2,377 $ 1,907 8.3% 8.2% $ 4,565 $ 3,947 8.3% 8.8%
Headquarters expenses 1,871 1,545 6.5 6.7 3,434 3,040 6.3 6.8
Franchise expenses 404 231 1.4 1.0 644 443 1.2 1.0
Other depreciation and
amortization 1,052 830 3.7 3.6 2,025 1,692 3.7 3.8
Interest expense, net 889 668 3.1 2.9 1,540 1,165 2.8 2.6
Other expenses 67 18 0.2 0.1 428 50 0.8 0.1
</TABLE>
QUARTER COMPARISON
Region Expenses
Region expenses increased $0.5 million, or 25%, in the second quarter of fiscal
1999 over the second quarter of the last fiscal year, primarily due to increased
salaries, benefits and travel expenses. Region expenses increased slightly as a
percentage of revenues to 8.3% in the second quarter of fiscal 1999 from 8.2% in
the second quarter of the last fiscal year.
Headquarters Expenses
Headquarters expenses increased $0.3 million, or 21%, in the second quarter of
fiscal 1999 over the second quarter of the last fiscal year, principally as a
result of an increase in the corporate staff. Headquarters expenses decreased
as a percentage of revenues to 6.5% in the second quarter of fiscal 1999 from
6.7% in the second quarter of the last fiscal year.
Franchise Expenses
Franchise expenses increased $0.2 million in the second quarter of fiscal 1999
over the second quarter of the last fiscal year, primarily due to increased
legal costs.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.2 million, or 27%, in the
second quarter of fiscal 1999 from the second quarter of the last fiscal year,
principally due to increased depreciation for new capital expenditures.
Interest Expense
Interest expense, net of interest income, increased $0.2 million, or 33%, in the
second quarter of fiscal 1999 as compared to the second quarter of the last
fiscal year.
Income Taxes
A total of $0.7 million was provided for income taxes in the second quarter of
fiscal 1999, up from $0.6 million in the second 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.
SIX MONTH COMPARISON
Region Expenses
Region expenses increased $0.6 million, or 16%, in the first six months of
fiscal 1999 over the first six months of the last fiscal year, primarily due to
increased salaries and benefits expenses. Region expenses decreased as a
percentage of revenues to 8.3% in the first six months of fiscal 1999 from 8.8%
in the first six months of the last fiscal year.
11
<PAGE>
Headquarters Expenses
Headquarters expenses increased $0.4 million, or 13%, in the first six months of
fiscal 1999 over the first six months of the last fiscal year, principally as a
result of an increase in the corporate staff. Headquarters expenses decreased
as a percentage of revenues to 6.3% in the first six months of fiscal 1999 from
6.8% in the first six months of the last fiscal year.
Franchise Expenses
Franchise expenses increased $0.2 million for the first six months of fiscal
1999, compared to the first six months of the last fiscal year, primarily due
to increased legal costs.
Other Depreciation and Amortization
Other depreciation and amortization increased $0.3 million, or 20%, in the first
six months of fiscal 1999 from the first six months of the last fiscal year,
principally due to increased depreciation for new capital expenditures.
Interest Expense
Interest expense, net of interest income, increased $0.4 million, or 32%, in the
first six months of fiscal 1999 as compared to the first six months of the last
fiscal year.
Income Taxes
A total of $1.3 million was provided for income taxes in the first six months of
fiscal 1999, up from $1.0 million in the first six 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 and non-
deductible goodwill resulting from acquisitions.
BALANCE SHEET VARIATIONS
Cash and cash equivalents, the money order principal payable, and the revolving
advances vary because of seasonal and day-to-day requirements resulting from
maintaining cash for cashing checks and making loans, receipts of cash from the
sale of money orders, loan volume, and remittances on money orders sold. For
the six months ended December 31, 1998 and 1997, cash and cash equivalents
increased $15.6 million and $10.1 million, respectively.
Property and equipment and the excess purchase price over the fair value of net
assets acquired increased $1.8 million and $5.0 million, respectively, as a
result of the 47 stores opened and the 19 stores acquired during the six months
ended December 31, 1998, offset by related depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the six months ended December 31, 1998 and 1997, the Company had net cash
provided by operating activities of $4.1 million and $1.7 million, respectively.
Cash Flows from Investing Activities
During the six months ended December 31, 1998 and 1997, the Company used $3.6
million and $2.7 million, respectively, for purchases of property and equipment
related principally to new store openings and remodeling existing stores.
Capital expenditures for acquisitions amounted to $6.2 million and $2.0 million,
respectively, for the six months ended December 31, 1998 and 1997, related to
the 19 stores acquired during the six months ended December 31, 1998 and the
seven stores acquired during the six months ended December 31, 1997.
12
<PAGE>
Cash Flows from Financing Activities
During the six months ended December 31, 1998 and 1997, the Company had net
cash provided by financing activities of $21.3 million and $13.0 million,
respectively.
On December 16, 1998, the Company first borrowed under its credit agreement with
a syndicate of banks, led by Wells Fargo Bank (Texas), National Association,
terminated its money order agreement with Integrated Payment Systems Inc. (under
which it formerly obtained financing), and began to offer and sell money orders
under its new money order agreement with Travelers Express Company, Inc. The
credit facilities available to the Company under the credit agreement are a
revolving line-of-credit facility of $110 million and a term-loan facility of
$35 million. The revolving line-of-credit facility replaces the deferred money
order remittances and revolving advances formerly used by the Company under the
previous money order agreement, and the term-loan facility replaces the term
advance facility under the previous money order agreement. The Company had
borrowed $55 million under its revolving facility and $10.5 million under its
term-loan facility as of December 31, 1998.
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
plus 0.75%. The Company's borrowings under the term-loan facility bear interest
at a variable annual rate equal to, at the Company's discretion, either the
prime rate publicly announced by Wells Fargo Bank or the London InterBank
Offered Rate plus 1.75%.
YEAR 2000 ISSUE UPDATE
The "Year 2000 Issue" is the result of computer programs that use two digits
instead of four digits to record the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 instead of the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including (among other
events) a temporary inability to process transactions, send invoices, or conduct
similar normal business activities.
The Company continues to believe that any of its software and hardware that may
be subject to the Year 2000 Issue can be modified or replaced with upgraded or
new software at a cost that will not be material to the Company's operation or
financial condition. The Company estimates the total costs of addressing its
Year 2000 Issue will be approximately $0.25 million, and the Company has
incurred costs of approximately $0.15 million through December 31, 1998. The
Company's software for its financial and reporting systems was upgraded during
the second quarter of the current fiscal year to be Year-2000-compliant. The
Company still plans to complete the necessary modification and replacement of
its remaining software and hardware to address the Year 2000 Issue by the end
of fiscal 1999. The Company also continues to work with its significant
suppliers to determine the extent to which the Company may be vulnerable to
third parties' failure to remediate their own Year 2000 Issues.
OPERATING TRENDS
Seasonality
The Company's business is seasonal to the extent of the impact of cashing tax
refund checks and tax refund anticipation loan checks. The impact of these
services is in the third and fourth quarters of the Company's fiscal year.
Impact of Inflation
Management believes the Company's results of operations are not dependent upon
the levels of inflation.
FORWARD-LOOKING STATEMENTS
This Report may contain, and from time to time the Company or certain of its
representatives may make, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
identified by the use of words such as "anticipate," "expect," "estimate,"
"believe," "intend," and terms with similar meanings. Although the Company
believes that the current views and expectations reflected in these forward-
looking statements are reasonable, those views and expectations, and the related
statements, are inherently subject to risks, uncertainties, and other factors,
many of which are not under the Company's control and may not even be
predictable. Those risks, uncertainties, and other factors could cause the
actual
13
<PAGE>
results to differ materially from those reflected in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not
limited to, the following matters described in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission: governmental
regulation of the check-cashing industry; theft and employee errors; the
availability of suitable locations, acquisition opportunities, adequate
financing, and experienced management employees to implement the Company's
growth strategy; the fragmentation of the check-cashing industry and the
competition from various other sources, such as banks, savings and loans, and
other financial services entities, as well as retail businesses that offer
products and services offered by the Company; and customer demand and response
to products and services offered by the Company. The Company expressly
disclaims any obligations to release publicly any updates or revisions to these
forward-looking statements to reflect any change in its views or expectations.
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
The Company held its Annual Meeting of Shareholders on November 16, 1998. At
this meeting the Company's shareholders elected six directors of the Company to
serve until the next annual meeting or until their successors are elected and
qualified. The table below shows the votes cast in favor of the election of the
six directors and the votes withheld against their election. There were no
abstentions or broker non-votes.
<TABLE>
<CAPTION>
Director Votes for Votes Withheld
<S> <C> <C>
Raymond C. Hemmig 8,556,242 9,205
Donald H. Neustadt 8,556,163 9,284
Howard W. Davis 8,556,142 9,305
Marshall B. Payne 8,556,142 9,305
Edward W. Rose III 8,556,242 9,205
C. Daniel Yost 8,556,242 9,205
</TABLE>
At this meeting the Company's shareholders also approved an amendment to the
Company's Non-Employee Directors Stock Option Plan. Shareholders voted
8,298,639 shares for the amendment, 233,494 shares against the amendment, and
18,100 shares abstained.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibits
-------------- --------
Exhibit 10.44 Amendment No. 3 to Ace Cash Express, Inc.
Non-Employee Directors Stock Option Plan
Exhibit 27 Financial Data Schedule (EDGAR version only)
14
<PAGE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K during the quarter ended
December 31, 1998. The Company filed the Report dated December 16, 1998,
on December 23, 1998. The Items reported were as follows:
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits: Exhibit 10.43 -- First
Amendment to Credit Agreement dated as of December 16, 1998,
among the Company, Wells Fargo Bank (Texas), National
Association, as agent, and the Lenders named therein, with
Schedules 2.01(a) and 2.01(b) thereto.
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.
----------------------
February 10, 1999 By: /s/ Jay B. Shipowitz
Senior Vice President and CFO
(Duly authorized officer and
principal financial and chief
accounting officer)
By: /s/ Charlotte Shaw
Assistant Vice President and Controller
15
<PAGE>
EXHIBIT 10.44
AMENDMENT NO. 3 TO
ACE CASH EXPRESS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In accordance with Section 15 of the Ace Cash Express, Inc. Non-Employee
Directors Stock Option Plan (the "Plan"), the Plan is hereby amended as follows:
1. Section 4 of the Plan is amended, subject to and effective upon the
approval of the shareholders of Ace Cash Express, Inc., to read in its entirety
as follows:
"4. SHARES SUBJECT TO PLAN. Options may not be granted under the Plan for
more than 260,000 shares of Common Stock of the Company, but this number may
be adjusted to reflect, as deemed appropriate by the Committee, any stock
dividend, stock split, share combination, recapitalization or the like, of
or by the Company. Shares to be optioned and sold may be made available
from either authorized but unissued Common Stock or Common Stock held by the
Company in its treasury. Shares that by reason of the expiration of an
option or otherwise are no longer subject to purchase pursuant to an option
granted under the Plan may be reoffered under the Plan."
2. Section 5(b) of the Plan is amended to read in its entirety as follows:
"On December 1, 1995, each then serving non-employee director of the Company
shall be granted an option, effective as of that date, to purchase 3,000
shares of Common Stock of the Company. On December 1, 1996, each then
serving non-employee director of the Company shall be granted an option,
effective as of that date, to purchase 4,500 shares of Common Stock of the
Company. On December 1, 1997, each then serving non-employee director of
the Company shall be granted an option, effective as of that date, to
purchase 6,750 shares of Common Stock of the Company. On December 1 (the
"Annual Grant Date") of each year thereafter, commencing December 1, 1998,
each then serving non-employee director of the Company shall be granted an
option, effective as of that Annual Grant Date, to purchase 5,000 shares of
Common Stock of the Company."
IN WITNESS WHEREOF, this instrument has been executed to be effective as of
the 17th day of August, 1998.
ACE CASH EXPRESS, INC.
By:____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 75,770
<SECURITIES> 0
<RECEIVABLES> 10,187
<ALLOWANCES> 445
<INVENTORY> 1,601
<CURRENT-ASSETS> 89,248
<PP&E> 46,685
<DEPRECIATION> 19,044
<TOTAL-ASSETS> 158,675
<CURRENT-LIABILITIES> 86,714
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 41,137
<TOTAL-LIABILITY-AND-EQUITY> 158,675
<SALES> 54,679
<TOTAL-REVENUES> 54,679
<CGS> 0
<TOTAL-COSTS> 49,527
<OTHER-EXPENSES> 428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,540
<INCOME-PRETAX> 3,184
<INCOME-TAX> 1,272
<INCOME-CONTINUING> 1,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,912
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
