<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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___TO___
COMMISSION FILE NUMBER 0-20774
ACE CASH EXPRESS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2142963
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1231 GREENWAY DRIVE, SUITE 800
IRVING, TEXAS 75038
(Address of principal executive offices) (Zip Code)
(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 November 10, 2000
----- -----------------------------------
Common Stock 9,977,288 shares
1
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC.
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Interim Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 2000, and June 30, 2000 3
Interim Unaudited Consolidated Statements of Earnings for the
Three Months Ended September 30, 2000 and 1999 4
Interim Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 2000 and 1999 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
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 amounts)
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ------------
(unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 108,893 $ 105,577
Accounts receivable, net 4,107 5,985
Loans receivable, net 16,354 18,695
Prepaid expenses and other current assets 2,377 2,069
Inventories 1,919 1,418
------------ ------------
Total Current Assets 133,650 133,744
------------ ------------
Noncurrent Assets
Property and equipment, net 37,567 36,915
Covenants not to compete, net 2,269 1,429
Excess of purchase price over fair value of assets
acquired, net 49,051 45,929
Other assets 3,232 3,406
------------ ------------
Total Assets $ 225,769 $ 221,423
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Revolving advances $ 88,900 $ 95,000
Accounts payable, accrued liabilities, and other
current liabilities 18,827 21,242
Money order principal payable 15,552 10,487
Current portion of senior secured notes payable 4,180 4,180
Term advances 6,375 3,469
Notes payable 790 898
------------ ------------
Total Current Liabilities 134,624 135,276
------------ ------------
Noncurrent Liabilities
Long-term portion of senior secured notes payable 12,000 12,000
Long-term term advances 19,125 15,031
Long-term notes payable 383 438
Other liabilities 3,375 3,519
------------ ------------
Total Liabilities 169,507 166,264
------------ ------------
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,
9,955,963 and 9,984,563 shares issued and outstanding,
respectively 100 100
Additional paid-in capital 22,719 22,715
Retained earnings 36,131 34,745
Accumulated other comprehensive income 19 -
Treasury stock, at cost, 211,400 and 181,400 shares, respectively (2,707) (2,401)
------------ ------------
Total Shareholders' Equity 56,262 55,159
------------ ------------
Total Liabilities and Shareholders' Equity $ 225,769 $ 221,423
============ ============
</TABLE>
See notes to the interim consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Revenues $ 40,238 $ 30,588
Store expenses:
Salaries and benefits 10,011 8,524
Occupancy 6,317 5,271
Depreciation 1,570 1,313
Other 11,198 7,001
------------ -------------
Total store expenses 29,096 22,109
------------ -------------
Store gross margin 11,142 8,479
Region expenses 3,130 2,373
Headquarters expenses 2,320 1,849
Franchise expenses 221 242
Other depreciation and amortization 975 917
Interest expense, net 2,163 1,311
Other expenses 22 83
------------ -------------
Income before income taxes and cumulative effect of 2,311 1,704
accounting change
Income taxes 925 682
------------ -------------
Income before cumulative effect of accounting change 1,386 1,022
Cumulative effect of accounting change, net of income tax
benefit of $402 - 603
------------ -------------
Net income $ 1,386 $ 419
============ =============
BASIC EARNINGS PER SHARE:
Before cumulative effect of accounting change $ .14 $ .10
Cumulative effect of accounting change - (.06)
------------ -------------
Basic earnings per share $ .14 $ .04
============ =============
Weighted average number of common shares outstanding -
basic EPS 9,978 10,061
============ =============
DILUTED EARNINGS PER SHARE:
Before cumulative effect of accounting change $ .14 $ .10
Cumulative effect of accounting change - (.06)
------------ -------------
Diluted earnings per share $ .14 $ .04
============ =============
Weighted average number of common and dilutive shares
outstanding - diluted EPS 10,098 10,327
============ =============
</TABLE>
See notes to the interim consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2000 1999
---------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,386 $ 419
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,567 2,231
Cumulative effect of accounting change - 1,004
Deferred revenue (964) (732)
Changes in assets and liabilities:
Accounts receivable, net 1,878 583
Loans receivable, net 2,341 (345)
Prepaid expenses 82 276
Inventories (501) (22)
Other assets (495) (942)
Accounts payable and other liabilities (1,966) (1,894)
---------------- ----------------
Net cash provided by operating activities 4,328 578
Cash flows from investing activities:
Purchases of property and equipment, net (2,244) (1,740)
Cost of net assets acquired (4,268) (1,166)
---------------- ----------------
Net cash used by investing activities (6,512) (2,906)
Cash flows from financing activities:
Net borrowings from money order supplier 5,065 316
Net borrowings from (repayments to) revolving line-of-credit (6,100) 8,000
Term advances from syndicate of banks 7,000 -
Net borrowings (repayments) of acquisition-related notes
payable (163) 536
Proceeds from stock options exercised 4 2
Purchase of treasury stock (306) -
---------------- ----------------
Net cash provided by financing activities 5,500 8,854
---------------- ----------------
Net increase in cash and cash equivalents 3,316 6,526
Cash and cash equivalents, beginning of period 105,577 59,414
---------------- ----------------
Cash and cash equivalents, end of period $108,893 $ 65,940
================ ================
Supplemental disclosures of cash flows information:
Interest paid $ 2,019 $ 1,050
Income taxes paid 31 9
</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.
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."
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- ------------
(in thousands)
Net income (numerator) $ 1,386 $ 419
========== ==========
Reconciliation of denominator:
Weighted average number of common shares
outstanding - basic EPS 9,978 10,061
Effect of dilutive stock options 120 266
---------- ----------
Weighted average number of common and dilutive
shares outstanding - diluted EPS 10,098 10,327
========== ==========
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 ended 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. This resulted
in a cumulative effect on net income for the quarter ended September 30, 1999 of
$0.6 million net of an income tax benefit of $0.4 million
As required, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in the first quarter ended September 30, 2000. This standard
requires the Company to record the fair value of its interest-rate swaps as an
asset or liability in the consolidated balance sheet. Changes in the fair value
of the interest-rate swaps are reported as a component of shareholders' equity
in the consolidated balance sheet. The fair value of the Company's existing
interest-rate swaps is $19,000 as of September 30, 2000.
6
<PAGE>
2. DERIVATIVE INSTRUMENTS
The Company's objective in managing its exposure to fluctuations in
interest rates is to decrease the volatility of earnings and cash flows
associated with changes in the applicable rates and prices. To achieve this
objective, the Company primarily enters into agreements whose values change in
the opposite direction of the anticipated cash flows. Derivative instruments
related to forecasted transactions are considered to hedge future cash flows,
and the effective portion of any gains or losses are included in other
comprehensive income until earnings are affected by the variability of cash
flows. Any remaining gain or loss is recognized currently in earnings. The cash
flows of the derivative instruments are expected to be highly effective in
achieving offsetting cash flows attributable to fluctuations in the cash flows
of the hedged risk. If it becomes probable that a forecasted transaction will no
longer occur, the derivative will continue to be carried on the balance sheet at
fair value, and gains or losses that were accumulated in other comprehensive
income will be recognized immediately in earnings. If the derivative instruments
are terminated prior to their expiration dates, any cumulative gains and losses
are deferred and recognized in income over the remaining life of the underlying
exposure. If the hedged assets or liabilities were to be sold or extinguished,
the Company would recognize the gain or loss on the designated financial
instruments currently in income.
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 and one interest-rate swap agreement with Wells Fargo Bank.
Those agreements effectively converted 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, the second notional amount is $10
million for a sixteen-month period that began September 3, 1999, and the third
notional amount is an average of $62 million from November 1, 2000 to January 1,
2002. The fourth notional amount under the term-loan facility is currently $9
million, with a scheduled decrease to $8.5 million on October 3, 2000. 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 was
5.14% for calendar year 1999 and is 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 calendar year 1999 and for calendar year
2000. The fixed rate applicable to the average notional amount of $62 million
under the revolving line-of-credit facility is 6.945% for the entire period. The
fixed rate applicable to the notional amount of $9.0 million under the term-loan
facility was 6.23% for calendar year 1999 and is 6.38% for calendar year 2000.
As of September 30, 2000, the fair value of the interest rate swaps under the
revolving line-of-credit facility is $245,000 (notional amount of $33 million),
$49,000 (notional amount of $10 million), and ($371,000) (average notional
amount of $62 million). As of September 30, 2000, the fair value of the interest
rate swap under the term-loan facility is $96,000 (notional amount $9 million).
The associated underlying debt has exceeded the respective notional amounts
for each swap throughout their existence and it is anticipated that it will
continue to do so. These swaps are based on the same index as, and repricing on
a consistent basis with, their respective underlying debt.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME
As required, on July 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" resulting in a $648,000 charge to accumulated other comprehensive
income for the cumulative effect of accounting change. During the quarter ended
September 30, 2000, there were no gains or losses recognized in earnings for
hedge ineffectiveness or due to excluding a portion of the value from measuring
effectiveness. However, the fair value of the interest rate swaps has decreased
by $629,000 for the quarter ended September 30, 2000 which has been recorded to
accumulated other comprehensive income.
Other comprehesive income (loss) balances related to the interest rate
swaps are as follows:
<TABLE>
<CAPTION>
CHANGE IN
BALANCE AS OF ACCUMULATED OTHER
COMPREHENSIVE
LOAN FACILITY NOTIONAL AMOUNT JULY 1, 2000 SEPTEMBER 30, 2000 INCOME (LOSS)
------------- --------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Revolving line-of-credit $33 million $452,000 $ 245,000 $(207,000)
Revolving line-of-credit $10 million 92,000 49,000 (43,000)
Revolving line-of-credit $62 million (average) (35,000) (371,000) (336,000)
Term-loan $9 million 139,000 96,000 (43,000)
------- ------ --------
Total $648,000 $19,000 $(629,000)
======== ======= ==========
</TABLE>
7
<PAGE>
4. SUBSEQUENT EVENTS
RENEWAL AND AMENDMENT OF CREDIT FACILITIES
On November 9, 2000, the Company entered into an amended and restated
credit agreement with a syndicate of banks led by Wells Fargo Bank Texas,
National Association. Under this agreement, the Company's revolving credit
facility under the preceding credit agreement was renewed until November 8,
2001, and increased from $130 million to $155 million. Also, the term-loan
facility under the preceding credit agreement was restructured, increased and
amended. The preceding term-loan facility permitted the Company to borrow (on a
one-time, non-revolving basis) up to $35 million for approximately one year, and
the amount borrowed and outstanding at the end of that period was to become a
term-loan payable over the succeeding four years. The facility is now structured
(and designated) as a reducing revolving facility which allows the Company to
borrow (and repay and reborrow) amounts under this facility for three years,
until November 9, 2003; and the maximum amount of credit available to the
Company is $65 million, but is subject to reduction on October 1, 2001, and
quarterly thereafter. In addition, one of the annual interest rates that the
Company may choose to apply to outstanding amounts under the reducing revolving
facility, the LIBOR-based rate, is higher than the corresponding rate applied to
the preceding term-loan facility. The LIBOR-based rate for the term-loan
facility was LIBOR plus 1.75%; the LIBOR-based rate for the reducing revolving
facility is LIBOR plus 2.375%, but is subject to adjustment quarterly, beginning
March 31, 2001, within a range of 2.125% to 2.625% above LIBOR, depending on the
Company's debt-to-cash flow ratio. The alternative variable annual rate that the
Company may choose is the same for the reducing revolving facility as it was for
the term-loan facility; it is an annual rate equal to the prime rate publicly
announced by Wells Fargo Bank from time to time plus 0.25%. The commitment fees
payable to the lenders for making the facilities available were also amended in
the new credit agreement, with the fee for the reducing revolving facility
varying in accordance with the Company's debt-to-cash flow ratio after March 31,
2001. In all other material respects, including the annual rate of interest
charged on amounts outstanding under the revolving credit facility, the terms of
the new credit agreement do not differ from the terms of the preceding credit
agreement.
SIGNIFICANT ACQUISITION
On November 10, 2000, the Company entered into an asset purchase agreement
and ancillary documents to acquire the assets of a total of 107 check-cashing
and retail financial services locations from five privately held companies. The
total purchase price for the assets of all of the locations is approximately $30
million. Sixty of the locations are in California; 41 of the locations are in
Texas; and six of the locations are in Oklahoma. The Company borrowed the
purchase price for these assets from the bank lenders under the amended and
restated credit agreement described above under "- Renewal and Amendment of
Credit Facilities."
8
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
------------------------ --------------------------------------
2000 1999 2000 1999 1998
---------- --------- ---------- ---------- --------
COMPANY OPERATING AND STATISTICAL DATA:
Company-owned stores in operation:
<S> <C> <C> <C> <C> <C>
Beginning of period 915 798 798 683 617
Acquired 17 2 36 35 15
Opened 12 11 99 99 62
Closed (6) (7) (18) (19) (11)
---------- --------- ---------- --------- --------
End of period 938 804 915 798 683
========== ========= ========== ========= ========
Percentage increase in comparable store revenues
from prior period (1): 24.7% 7.5% 6.9% 10.8% 6.9%
Capital expenditures (in thousands) $ 2,244 $ 1,740 $ 12,255 $ 10,089 5,742
Cost of net assets acquired (in thousands) $ 4,268 $ 1,166 $ 11,359 $ 8,378 4,708
OPERATING DATA (CHECK CASHING AND MONEY ORDERS):
Face amount of checks cashed (in millions) $ 954 $ 831 $ 3,839 $ 3,373 2,898
Face amount of money orders sold (in millions) $ 382 $ 397 $ 1,585 $ 1,905 1,858
Face amount of money orders sold as a percentage
of the face amount of checks cashed 40.1% 47.8% 41.3% 56.5% 64.1%
Face amount of average check $ 330 $ 312 $ 339 $ 320 305
Average fee per check $ 7.30 $ 7.06 $ 7.92 $ 7.47 7.26
Fees as a percentage of average check 2.21% 2.26% 2.33% 2.33% 2.38%
Number of checks cashed (in thousands) 2,891 2,654 11,317 10,556 9,496
Number of money orders sold (in thousands) 2,907 3,112 12,339 14,495 14,146
COLLECTIONS DATA:
Face amount of returned checks (in thousands) $ 6,685 $ 3,854 $ 16,548 $ 12,442 10,193
Collections (in thousands) $ 4,626 $ 2,259 $ 10,788 $ 7,423 6,301
---------- --------- ---------- --------- --------
Net write-offs (in thousands) $ 2,059 $ 1,595 $ 5,760 $ 5,019 3,892
========== ========= ========== ========= ========
Collections as a percentage of returned checks 69.2% 58.6% 65.2% 59.7% 61.8%
Net write-offs as a percentage of revenues 5.1% 5.3% 4.1% 4.1% 3.9%
Net write-offs as a percentage of the face amount
of checks cashed .22% .19% .15% .15% .13%
</TABLE>
(1) Calculated based on the changes in revenues of all stores open for both
of three month periods and full years compared.
9
<PAGE>
<TABLE>
<CAPTION>
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
SUPPLEMENTAL STATISTICAL DATA, continued
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
----------------------------- -----------------------------------------------
2000 1999 2000 1999 1998
------------ ------------- ------------- -------------- -- ---------
OPERATING DATA (SMALL CONSUMER LOANS):
<S> <C> <C> <C> <C> <C>
Volume (in thousands) $ 80,988 $ 31,739 $ 137,015 $ 105,765 $ 69,182
Average advance $ 285 $ 211 $ 240 $ 200 $ 177
Average finance charge $ 42.58 $ 29.74 $ 34.51 $ 30.30 $ 27.51
Number of loan transactions
(new loans and refinances-in thousands) 289 132 557 460 338
BALANCE SHEET DATA: (IN THOUSANDS)
Gross loans receivable $ 20,236 $ 5,888 $ 18,695 $ 5,543 $ 5,174
Less: Allowance for losses on loans
Receivable 3,882 - - -
--------- --------- ---------- ---------- ---------
Loans receivable, net of allowance $ 16,354 $ 5,888 $ 18,695 $ 5,543 $ 5,174
========= ========= ========== ========== =========
Allowance for losses on loans receivable:
Beginning of period $ - $ - $ - $ - $ -
Provision for loan losses 4,670 - - - -
Net charge-offs (788) - - - -
--------- --------- ---------- ---------- ---------
End of period $ 3,882 $ - $ - $ - $ -
========= ========= ========== ========== =========
Allowance as a percent of gross loans
receivable 19.2% - - - -
</TABLE>
10
<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 SEPTEMBER 30,
---------------------------------------------------------
2000 1999 2000 1999
---------- ------------- --------- --------------
(in thousands) (percentage of revenue)
<S> <C> <C> <C> <C>
Check cashing fees $20,891 $18,515 51.9% 60.6%
Loan fees and interest 10,896 3,923 27.1 12.8
Tax check fees 216 218 0.5 0.7
Bill payment services 2,440 2,335 6.1 7.6
Money transfer services 2,273 1,969 5.6 6.4
Money order fees 1,646 1,769 4.1 5.8
New customer fees 555 529 1.4 1.7
Franchise revenues 503 604 1.3 2.0
Other fees 818 726 2.0 2.4
------------ ------------ ----------- ------------
Total revenue $40,238 $30,588 100.0% 100.0%
============ ============ =========== ============
Average revenue per store $43.3 $37.4
</TABLE>
Total revenues increased $9.7 million, or 32%, to $40.2 million in the first
quarter of fiscal 2001 from $30.6 million in the first quarter of the last
fiscal year. This revenue growth resulted, in part, from a $7.0 million, or 25%,
increase in comparable store revenues (780 stores). The balance of the increase
came from stores which were opened or acquired after June 30, 1999, and were
therefore not open for both of the full periods compared. The number of
Company-owned stores increased by 134, or 17%, from 804 stores open at September
30, 1999, to 938 stores open at September 30, 2000. The increase in loan fees
and interest accounted for 72% of the total revenue increase, the increase in
total check cashing fees accounted for 25% of the total revenue increase, and
the increase in money transfer services accounted for 3% of the total revenue
increase.
Loan fees and interest for the first quarter of fiscal 2001 reflect the
Company's participation interests in Goleta National Bank loans, but for the
first quarter of the last fiscal year, reflect the Company's "payday loans" to
customers. Loan fees and interest increased $7.0 million, or 178%, from $3.9
million in the first quarter of the last fiscal year to $10.9 million in the
first quarter of fiscal 2001 due to the increase in the number of stores
offering the Company's loan products, which in turn is principally due to the
offering of the Goleta National Bank loan product in 938 stores in the first
quarter of fiscal 2001 compared to 324 stores offering of the Company's "payday
loan" product in the first quarter of the last fiscal year. Check cashing fees,
including tax check fees, increased $2.4 million, or 13%, from $18.7 million in
the first quarter of the last fiscal year to $21.1 million in the first quarter
of fiscal 2001. This increase resulted from a 9% increase in the total number of
checks cashed and a 3% increase in the average fee per check, which is a result
of the 5% increase in the average size check. The money transfer revenue
increase of $0.3 million , or 15%, to $2.3 million in the first quarter of
fiscal 2001 from $2.0 million in the first quarter of the last fiscal year is
primarily due to the increased number of stores opened and operating in the
current fiscal year.
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------
2000 1999 2000 1999
------------ ----------- ----------- ------------
(in thousands) (percentage of revenue)
<S> <C> <C> <C> <C>
Salaries and benefits $10,011 $8,524 24.9% 27.9%
Occupancy 6,317 5,271 15.7 17.2
Armored and security 1,722 1,411 4.3 4.6
Returns and cash shorts 3,402 2,471 8.4 8.1
Loan losses and loss provisions 3,050 1,053 7.6 3.4
Depreciation 1,570 1,313 3.9 4.3
Other 3,024 2,066 7.5 6.8
------------ ----------- ----------- ------------
Total store expense $29,096 $22,109 72.3% 72.3%
============ =========== =========== ============
Average per store expense $31.7 $27.6
</TABLE>
11
<PAGE>
Total store expenses increased $7.0 million, or 32%, to $29.1 million in
the first quarter of fiscal 2001 from $22.1 million in the first quarter of the
last fiscal year. Total store expenses as a percentage of revenues remained
unchanged at 72.3% in the first quarter of fiscal 2001 compared to the first
quarter of the last fiscal year. The total of salaries and benefits, occupancy
costs, and armored and security expenses increased $2.8 million, or 19%,
primarily as a result of the increased number of stores in operation. Returned
checks, net of collections, and cash shortages increased $0.9 million, or 38%,
and increased as a percentage of revenues to 8.4% in the first quarter of fiscal
2001 from 8.1% in the first quarter of the fiscal year also primarily due to the
increased number of stores in operation. Loan losses and loss provisions
increased $2.0 million in the first quarter of fiscal 2001 from the first
quarter of the last fiscal year. As of September 30, 2000, the Company
established an allowance for loan losses to cover losses anticipated from the
new loan product from Goleta National Bank, rather than only charging off actual
losses as incurred, as the Company did in the first quarter of the last fiscal
year. In the future, loan losses will be charged to this allowance, and the
allowance will be reviewed for adequacy, and may be adjusted, on a quarterly
basis. Other expenses increased $1.0 million, or 46%, to $3.0 million in the
first quarter of fiscal 2001 from $2.1 million for the first quarter of the last
fiscal year. This increase is due to the increased number of stores in operation
and an increase in advertising expense related to the Goleta National Bank loan
product.
<TABLE>
<CAPTION>
OTHER EXPENSES ANALYSIS
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ---------- -------------
(in thousands) (percentage of revenue)
<S> <C> <C> <C> <C>
Region expenses $3,130 $2,373 7.8% 7.8%
Headquarters expenses 2,320 1,849 5.8 6.0
Franchise expenses 221 242 0.5 0.8
Other depreciation and amortization 975 917 2.4 3.0
Interest expense, net 2,163 1,311 5.4 4.3
Other expenses 22 83 0.1 0.3
</TABLE>
Region Expenses
Region expenses increased $0.8 million, or 32%, in the first quarter of fiscal
2001 over the first quarter of the last fiscal year. The increase in region
expense was primarily a result of the increase in personnel (i.e., collections,
customer service) to support the loan product from Goleta National Bank. Region
expenses as a percentage of revenues, however, remained unchanged at 7.8% in the
first quarter of fiscal 2001 compared to the first quarter of the last fiscal
year.
Headquarters Expenses
Headquarters expenses increased $0.5 million, or 25.5%, in the first quarter of
fiscal 2001 over the first quarter of the last fiscal year. Headquarters
expenses as a percentage of revenues decreased to 5.8% for the first quarter of
fiscal 2001 from 6.0% for the first quarter of the last fiscal year.
Franchise Expenses
Franchise expenses remained relatively unchanged for the first quarter of fiscal
2001 compared to the first quarter of the last fiscal year.
Other Depreciation and Amortization
Other depreciation and amortization remained relatively unchanged for the first
quarter of fiscal 2001 compared to the first quarter of the last fiscal year.
Interest Expense
Interest expense, net of interest income, increased $0.9 million, or 65%, in the
first quarter of fiscal 2001 compared to the first quarter of the last fiscal
year. This increase was the result of an increase in borrowings used to finance
store openings and acquisitions, and growth in the loan product offered at the
Company's stores.
12
<PAGE>
Other Expenses
Other expenses remained relatively unchanged for the first quarter of fiscal
2001 compared to the first quarter of the last fiscal year.
Income Taxes
A total of $0.9 million was provided for income taxes in the first quarter of
fiscal 2001, up from $0.7 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 2001, 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 purchasing loan participations, receipts
of cash from the sale of money orders and from participation interests in loans,
and remittances for money orders sold. For the three months ended September 30,
2000, cash and cash equivalents increased $3.3 million compared to an increase
of $6.5 million for the three months ended September 30, 1999.
Property and equipment increased by $0.7 million, and the excess purchase price
over the fair value of net assets acquired increased $3.1 million, as a result
of the 12 stores opened and the acquisition of 17 stores during the three months
ended September 30, 2000, offset by related depreciation and amortization.
Accounts receivable, net, decreased $1.9 million, primarily due to increased
collections of accounts receivable from MoneyGram Payment Systems, Inc. for
commissions and bonuses related to the MoneyGram services.
Loans receivable, net, decreased $2.3 million as a result of the establishment
of an allowance for loans receivable, offset by increased receipts from
participation interests in Goleta National Bank loans.
Accounts payable and other liabilities decreased $2.8 million, due to the
payment of fiscal year 2000 annual performance bonuses and the timing of the
Goleta National Bank loan product remittances.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the three months ended September 30, 2000 and 1999, the Company had net
cash provided by operating activities of $4.3 million and $0.6 million,
respectively. The increase in cash flows from operating activities resulted from
the receipt of new store bonuses from MoneyGram and a decrease in loans
receivable for the first quarter of fiscal 2001 compared to the increase in
loans receivable for the first quarter of the last fiscal year.
Cash Flows from Investing Activities
During the three months ended September 30, 2000 and 1999, the Company used $2.2
million and $1.7 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 $4.3 million and $1.2
million, respectively, for the three months ended September 30, 2000 and 1999.
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended September
30, 2000, was $5.5 million. The Company reduced its net borrowings under its
revolving line-of-credit by $6.1 million from June 30, 2000 due to the timing of
remittances on money order sales. The related borrowings from the money order
supplier increased $5.1 million from June 30, 2000. The Company increased its
term advance borrowings by $7.0 million since June 30, 2000 to fund store
acquisitions. Acquisition-related notes payable to sellers decreased by $0.2
million during the three months ended September 30, 2000. The Company purchased
$0.3 million of treasury stock. The net cash provided by financing activities
for the three months ended September 30, 1999, was $8.9 million.
13
<PAGE>
As of September 30, 2000, the Company was a party to a credit agreement with a
syndicate of banks, led by Wells Fargo Bank Texas, National Association, that
was entered into in July 1998. The credit facilities available to the Company
under that credit agreement were a revolving line-of-credit facility of $130
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
were available for working capital and general corporate purposes, and
borrowings under the term-loan facility were available for store construction
and relocation and other capital expenditures, including acquisitions, and
refinancing other debt. The Company had borrowed $88.9 million under its
revolving facility and $25.5 million under its term-loan facility as of
September 30, 2000.
As of September 30,2000, the Company's borrowings under the revolving
line-of-credit facility bore 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 bore 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 was 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 that credit agreement, the Company was obligated to 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.
Because that credit agreement provided that the credit facilities were to expire
in mid-December 2000, the Company entered into an amended and restated credit
agreement with Wells Fargo Bank and other bank lenders on November 9, 2000,
which became effective on that date. See "- Renewal and Amendment of Credit
Facilities" below.
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. In August 2000, the Company's
Board of Directors authorized the repurchase from time to time of an additional
$1 million of the Company's Common Stock. This stock repurchase program will
remain in effect unless discontinued by the Board of Directors. As of September
30, 2000, the Company had repurchased 211,400 shares at an average price of
$12.80 per share.
Renewal and Amendment of Credit Facilities
On November 9, 2000, the Company entered into an amended and restated credit
agreement with a syndicate of banks led by Wells Fargo Bank Texas, National
Association. Under this agreement, the Company's revolving credit facility under
the preceding credit agreement was renewed until November 8, 2001, and increased
from $130 million to $155 million. Also, the term-loan facility under the
preceding credit agreement was restructured, increased and amended. The
preceding term-loan facility permitted the Company to borrow (on a one-time,
non-revolving basis) up to $35 million for approximately one year, and the
amount borrowed and outstanding at the end of that period was to become a
term-loan payable over the succeeding four years. The facility is now structured
(and designated) as a reducing revolving facility which allows the Company to
borrow (and repay and reborrow) amounts under this facility for three years,
until November 9, 2003; and the maximum amount of credit available to the
Company is $65 million, but is subject to reduction on October 1, 2001, and
quarterly thereafter. In addition, one of the annual interest rates that the
Company may choose to apply to outstanding amounts under the reducing revolving
facility, the LIBOR-based rate, is higher than the corresponding rate applied to
the preceding term-loan facility. The LIBOR-based rate for the term-loan
facility was LIBOR plus 1.75%; the LIBOR-based rate for the reducing revolving
facility is LIBOR plus 2.375%, but is subject to adjustment quarterly, beginning
March 31, 2001, within a range of 2.125% to 2.625% above LIBOR, depending on the
Company's debt-to-cash flow ratio. The alternative variable annual rate that the
Company may choose is the same for the reducing revolving facility as it was for
the term-loan facility; it is an annual rate equal to the prime rate publicly
announced by Wells Fargo Bank from time to time plus 0.25%. The commitment fees
payable to the lenders for making the facilities available were also amended in
the new credit agreement, with the fee for the reducing revolving facility
varying in accordance with the Company's debt-to-cash flow ratio after March 31,
2001. In all other material respects, including the annual rate of interest
charged on amounts outstanding under the revolving credit facility, the terms of
the new credit agreement do not differ from the terms of the preceding credit
agreement.
14
<PAGE>
Significant Acquisition
On November 10, 2000, the Company entered into an asset purchase agreement and
ancillary documents to acquire the assets of a total of 107 check-cashing and
retail financial services locations from five privately held companies. The
total purchase price for the assets of all of the locations is approximately $30
million. In accordance with the purchase agreement, the Company deposited the
total purchase price into escrow for release to the sellers as the Company
exercises ownership and operating control of the assets at the locations. The
Company's operating control of the assets at each location requires installation
of the Company's equipment and proprietary point-of-sale system. The Company
anticipates that the acquisition of all of the assets at the remaining locations
will be consummated by December 31, 2000. Sixty of the locations are in
California; 41 of the locations are in Texas; and six of the locations are in
Oklahoma. The Company borrowed the purchase price for these assets from the bank
lenders under the amended and restated credit agreement described above under "-
Renewal and Amendment of Credit Facilities."
OPERATING TRENDS
Seasonality
The Company's business is seasonal to the extent of the impact of cashing tax
refund 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 contains, 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 these in the forward-looking
statements. Those risks, uncertainties, and factors include, but are not limited
to, many of the matters described in this Report: the Company's relationships
with Travelers Express and its affiliates, with Goleta National Bank, and with
the Lenders; governmental regulation of check-cashing, short-term consumer
lending, and related financial services businesses; 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 competition
from various other sources, such as banks, savings and loans, short-term
consumer lenders, and other similar 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 and one interest-rate swap agreement with Wells Fargo Bank.
Those agreements effectively convert a portion of the Company's 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 swaps are $19,000 as of
September 30, 2000.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The court-approved settlement agreement in the lawsuit filed against the Company
in Arkansas, Mike Kenney and Angie Gwatney v. Ace Cash Express, Inc., became
final and effective on October 5, 2000.
In the lawsuit filed against the Company in Indiana, Eva J. Rowings v. Ace Cash
Express, Inc., the United States District Court for the Southern District of
Indiana requested the Indiana Supreme Court to decide a state-law question that
is common to, and may ultimately affect the scope of, this lawsuit and numerous
other "payday loan" lawsuits pending in the federal court. The Indiana Supreme
Court has agreed to decide that question (which no Indiana court has yet
addressed), and activity in this lawsuit has been suspended until that question
is decided. The Company expects the decision to be rendered in January 2001.
In response to the court's dismissal of the defective complaint in the lawsuit
filed against the Company in a Florida state Circuit Court in Orange County,
Florida, Wendy Betts, John Cardegna and Gary M. Kane v. Ace Cash Express, Inc.,
et al., the plaintiffs filed an amended complaint which substituted one of the
named plaintiffs and purported to cure the defects in the previous complaint.
The principal substantive claims and requests for relief in this lawsuit, now
called Wendy Betts, John Cardegna and Donna Reuter v. Ace Cash Express, Inc.,
et. al., have not been changed. The Company has filed a motion to dismiss the
amended complaint, and that motion is pending before the court.
In the consolidated lawsuit filed against the Company in the United States
District Court for the Middle District of Florida, Eugene R. Clement v. Ace Cash
Express, Inc. and Neil Gillespie v. Ace Cash Express, Inc., the plaintiffs have
filed a motion for certification of a class of plaintiffs, and the Company has
filed a motion to dismiss the complaint and a motion opposing the class
certification. All of those motions are pending before the court.
In the lawsuit filed against the Company in the United States District Court for
the Eastern District of Louisiana, Shirley Porter and Joyce Davis v. Ace Cash
Express, Inc., on October 27, 2000, the court granted the Company's motions for
judgment on the pleadings and to dismiss and thereby dismissed all of the
plaintiffs' claims with prejudice.
In the lawsuit filed against the Company in an Alabama state Circuit Court in
Morgan County, Alabama, Edna Jordan v. Ace Cash Express, Inc., the court has
denied all pending motions, including the Company's motion for summary judgment,
and has ordered limited discovery regarding the Company's relationship with its
franchisee in Alabama. When this limited discovery has been completed, the
Company will be entitled to renew its motion for summary judgment.
There has been no significant activity involving the Company regarding the
payday-lending investigation by the Attorney General of the State of Florida, as
described under "Legal Proceedings" in the Company's Form 10-K for its fiscal
year ended June 30, 2000.
On November 8, 2000, the Company was served with a lawsuit regarding loans by
Goleta National Bank offered and made in Florida, Jennafer Long v. Ace Cash
Express, Inc., which was filed in a Florida state Circuit Court in Clay County,
Florida. The plaintiff, for herself and others similarly situated, alleges that
the short-term loans offered at the Company's stores in Florida are being made
by the Company rather than Goleta National Bank and, therefore, that the
offering of those loans constitutes or involves misrepresentations and deceptive
practices, in violation of Florida law, and the loans violate Florida usury
laws. The plaintiff seeks an unspecified amount of damages, including an amount
equal to all interest charged on the loans made in Florida, attorneys' fees, and
court costs. Because this lawsuit purports to be a class action, the amount of
damages for which the Company might be responsible is necessarily uncertain.
That amount would depend upon proof of the allegations and on the number of
borrowers who constitute the class of plaintiffs (if permitted by the court).
The Company believes that this lawsuit is without merit. The Company denies all
of the plaintiff's material allegations in this lawsuit and intends to
vigorously defend this lawsuit.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
16
<PAGE>
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
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 14, 2000 By: /s/ DEBRA A. BRADFORD
------------------------
Debra A. Bradford
Senior Vice President and
Chief Financial Officer
(Duly authorized officer and principal
financial and chief accounting officer)
