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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 0-20774

ACE CASH EXPRESS, INC.

(Registrant’s telephone number, including area code) (972) 550-5000

Securities registered pursuant to Section 12(b) of the Act:

None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

As of September 19, 2002, 10,180,588 shares of Common Stock were outstanding. As of such date the aggregate market value of voting stock (based upon the last reported sales price in The Nasdaq Stock Market) held by nonaffiliates of the registrant was approximately $62,364,204.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III is incorporated by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

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PART I

ITEM 1. BUSINESS

General

Ace Cash Express, Inc. (“ACE” or the “Company”) is a significant provider of retail financial services in the United States. The Company is also the largest owner, operator, and franchiser of check-cashing stores in the United States. As of August 31, 2002, the Company had a total network of 1,189 stores in 35 states and the District of Columbia, consisting of 1,002 company-owned stores and 187 franchised stores. The Company’s general objective is to provide a full range of retail financial services and transaction processing in its markets. Additionally, it is the Company’s objective to develop and maintain the largest network of stores in each of the markets where the Company operates. The Company’s growth strategy is to integrate acquisitions, new store openings, and franchising in new and existing markets and to develop new products for introduction into the existing store base.

ACE stores offer check-cashing services and other retail financial services at competitive rates in clean, convenient settings. Services include cashing payroll checks, government checks, and insurance drafts; selling money orders; providing money transfer services using the MoneyGram network; and offering small, short-term consumer loans, including (in most locations) loans made by Goleta National Bank. Many company-owned stores also offer bill-payment services, lottery and lotto tickets, and other retail financial and transaction processing services.

Industry Overview

The primary industry in which ACE operates is check-cashing. Industry sources indicate that there are approximately 8,000 check-cashing stores nationally. Though there is limited public information available, the Company believes that there are four other check-cashing companies operating or franchising over 100 stores and five companies that operate or franchise between 50 and 100 locations, with the remaining companies operating fewer than 50 stores, in the United States.

The Company believes that it and other check-cashing companies offer services that banks do not provide and operate at locations and during hours that are more convenient than those traditionally offered by banks. Unlike many banks, check-cashing stores are willing to assume the risk that checks they cash will “bounce.” For instance, it is not unusual for a bank to refuse to cash a check for a customer who does not maintain a deposit account with the bank and to require its depositors to maintain sufficient funds in an account to cover a check to be cashed or wait several days for the check to clear. As a result, the Company believes check-cashing stores provide an attractive alternative to customers without bank accounts or with relatively small account balances. Although these customers might save money by depositing their checks in a bank and waiting for them to clear, many prefer paying a fee to take advantage of the convenience and availability of immediate cash offered by check-cashing stores.

The core business of check-cashing stores is generally cashing checks for a fee. These fees are intended to provide the check casher with a profit after covering operating expenses, including any interest expense incurred by the check casher on the funds advanced to customers between the time checks are cashed and the time the checks clear through the banking system. The risk a check-cashing store assumes upon cashing a check is that the check will be uncollected because of insufficient funds, stop payment orders, or fraud. In order to minimize this risk and the losses associated with uncollected checks, many check-cashing stores cash only payroll or government entitlement checks, charge higher fees, or have stricter approval procedures for cashing personal checks. ACE does not promote the cashing of personal checks in its stores. For the fiscal year ended June 30, 2002, less than 1% of the checks cashed by the Company were one-party personal checks.

In addition to check-cashing services, most check-cashing stores offer customers a range of other services, including access to small consumer loans, bill payments, money orders, and wire transfers of cash. Some check-cashing stores also offer lottery and lotto tickets, public transportation passes, copying and fax transmission services, and postage stamps.

The Company believes that the deregulation of the banking and savings and loan industry has increased the role played by check-cashing stores in providing basic financial transaction services to low-income and middle-income customers. At the same time, the Company believes that competition, regulatory scrutiny and complexity are contributing to consolidation of the industry. The Company’s strategy is to position itself to benefit from industry consolidation and the competitive advantages available to large operators and franchisers of retail financial services.

Growth Strategy

ACE’s growth strategy consists principally of combining acquisitions and new store openings with the objective of having the largest number of retail financial services locations in each of its markets and developing new products for introduction into the existing store base. ACE defines its target markets as cities of 100,000 or more. The Company has expanded from

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544 company-owned stores in 19 states as of June 30, 1996, to a network of 1,187 company-owned and franchised stores in 35 states as of June 30, 2002. In fiscal 2002, the Company opened 39 newly-constructed stores, acquired 8 stores, franchised 22 stores, and closed 32 company-owned stores. The Company currently anticipates that it will construct and open 20 company-owned stores, primarily in existing markets, during the fiscal year ending June 30, 2003. The Company’s growth strategy depends upon the availability of adequate financing, as well as suitable locations, acquisition opportunities, and experienced management employees, and is subject to the risk that any of these conditions may not be met. The Company’s growth in owned stores in fiscal 2002 was, and growth in owned stores in fiscal 2003 is expected to be, smaller than the Company’s historical growth primarily because of limitations on capital expenditures imposed by the Company’s existing bank credit agreement. The Company intends to continue to pursue additional sources of capital for growth and intends to focus on expanding the Company’s franchise network, which requires a minimal amount of capital.

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The following table illustrates the development of company-owned stores since June 30, 1996 by showing the number of stores open in each market area at the end of each of the indicated periods:

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Acquisitions. During fiscal 2002, the Company acquired 8 stores in four separate transactions. The Company believes its experience with acquisitions permits it to successfully integrate additional acquisitions. Of the 1,003 ACE company-owned stores in operation as of June 30, 2002, 403, or 40%, have been acquired stores. The Company does not have any current plan or expectation as to the number of stores that it may acquire during the fiscal year ending June 30, 2003. The Company intends to continue searching for strategic opportunities in both existing and new markets, subject to the availability of capital.

Self-service machines. The Company has developed self-service machines which are able to cash checks, sell prepaid long-distance telephone cards, sell money orders, and process third-party bill payments. The Company placed 100 of the self-service machines in H&R Block locations during the 2002 tax season (i.e., January through March). Those machines only cashed tax-refund checks issued by one bank to customers of H&R Block. The Company currently has 22 machines in company-owned locations and 150 machines available for deployment at H&R Block locations during the 2003 tax season.

Franchise Operations

With the acquisition of Check Express, Inc. and its wholly-owned franchising subsidiaries in February 1996, the Company became one of the largest franchisers of check-cashing stores in the United States. ACE franchises are marketed through an employee sales force, supplemented by advertising in newspapers, trade journals, and other media. As of June 30, 2002 and 2001, there were 184 and 175 company-franchised stores open and operating, respectively, in 29 states, as follows:

The Company intends to continue its expansion through the sale of new franchises and the opening of additional units under existing franchise agreements. The Company is actively marketing several types of ACE franchises depending on the style of business being conducted. These include a standard store franchise, a store-within-a-store (or “kiosk”) franchise, a small market franchise for market areas under 15,000 in population, and a conversion franchise that permits an existing check-cashing business to convert to an ACE franchisee. The Company opened 22 franchised stores, acquired eight former franchised stores, transferred one franchised store, and closed four franchised stores during fiscal 2002. The majority of franchised stores operate under the “ACE” name, by license from the Company.

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Customers and Services

Management believes the Company’s core customer group is composed primarily of individuals whose average age is 29 and who rent their house or apartment and hold a wide variety of jobs in the service sector or are clerical workers, craftsmen, and laborers. These customers tend to change jobs and residences more often than average, have annual family incomes of approximately $30,000, often pay their bills with money orders, and prefer the availability of immediate cash provided by cashing checks at the Company’s stores.

The following table reflects the major categories of services that ACE currently offers and the revenues (in thousands) from these services for the indicated fiscal years: