UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2002 |
|
| OR |
||
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to |
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Commission File Number 0-20774
ACE CASH EXPRESS, INC.
| Texas (State or other jurisdiction of incorporation or organization) |
75-2142963 (I.R.S. Employer Identification No.) |
1231 Greenway Drive, Suite 600
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 10, 2003 | |||
Common Stock |
10,180,588 shares | |||
ACE CASH EXPRESS, INC.
| Page No. | ||||||||||||
| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
Interim Consolidated Financial Statements: |
|||||||||||
Consolidated Balance Sheets as of
December 31, 2002 (unaudited) and June 30, 2002 |
3 | |||||||||||
Interim Unaudited Consolidated Statements of Earnings for the
Three and Six Months Ended December 31, 2002 and 2001 |
4 | |||||||||||
Interim Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 2002 and 2001 |
5 | |||||||||||
Notes to Interim Unaudited Consolidated Financial Statements |
6 | |||||||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
18 | ||||||||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
31 | ||||||||||
| Item 4. |
Controls and Procedures |
31 | ||||||||||
| PART II. |
OTHER INFORMATION |
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| Item 1. |
Legal Proceedings |
31 | ||||||||||
| Item 2. |
Changes in Securities |
33 | ||||||||||
| Item 3. |
Defaults Upon Senior Securities |
33 | ||||||||||
| Item 4. |
Submission of Matters to a Vote of Security Holders |
33 | ||||||||||
| Item 5. |
Other Information |
33 | ||||||||||
| Item 6. |
Exhibits and Reports on Form 8-K |
33 | ||||||||||
| SIGNATURES |
34 | |||||||||||
| CERTIFICATIONS |
35 | |||||||||||
2
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)
| December 31, | June 30, | |||||||||
| 2002 | 2002 | |||||||||
| (unaudited) | ||||||||||
ASSETS |
||||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 109,151 | $ | 116,264 | ||||||
Accounts receivable, net |
3,973 | 8,792 | ||||||||
Loans receivable, net |
19,108 | 17,356 | ||||||||
Prepaid expenses and other current assets |
8,962 | 7,979 | ||||||||
Inventories |
579 | 946 | ||||||||
Total Current Assets |
141,773 | 151,337 | ||||||||
Noncurrent Assets |
||||||||||
Property and equipment, net |
33,917 | 37,161 | ||||||||
Covenants not to compete, net |
1,344 | 1,546 | ||||||||
Goodwill, net |
74,964 | 75,015 | ||||||||
Other assets |
3,119 | 2,003 | ||||||||
Total Assets |
$ | 255,117 | $ | 267,062 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||
Current Liabilities |
||||||||||
Revolving advances |
$ | 95,600 | $ | 97,500 | ||||||
Accounts payable, accrued liabilities, and other current liabilities |
25,619 | 28,512 | ||||||||
Money orders payable |
6,770 | 13,417 | ||||||||
Senior secured notes payable |
4,000 | 4,000 | ||||||||
Term advances |
46,600 | 48,350 | ||||||||
Notes payable |
1,049 | 1,145 | ||||||||
Total Current Liabilities |
179,638 | 192,924 | ||||||||
Noncurrent Liabilities |
||||||||||
Senior secured notes payable |
— | 4,000 | ||||||||
Notes payable |
105 | 319 | ||||||||
Other liabilities |
3,336 | 3,680 | ||||||||
Total Liabilities |
183,079 | 200,923 | ||||||||
Commitments and Contingencies |
— | — | ||||||||
Shareholders’ Equity |
||||||||||
Preferred stock, $1 par value, 1,000,000 shares authorized, none
issued and outstanding |
— | — | ||||||||
Common stock, $.01 par value, 20,000,000 shares authorized,
10,391,988 shares issued and 10,180,588 shares outstanding |
102 | 102 | ||||||||
Additional paid-in capital |
24,359 | 24,353 | ||||||||
Retained earnings |
50,284 | 45,469 | ||||||||
Accumulated other comprehensive loss |
— | (1,078 | ) | |||||||
Treasury stock, at cost, 211,400 shares |
(2,707 | ) | (2,707 | ) | ||||||
Total Shareholders’ Equity |
72,038 | 66,139 | ||||||||
Total Liabilities and Shareholders’ Equity |
$ | 255,117 | $ | 267,062 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Revenues |
$ | 57,295 | $ | 54,662 | $ | 113,356 | $ | 106,572 | |||||||||||
Store expenses: |
|||||||||||||||||||
Salaries and benefits |
14,540 | 13,970 | 28,980 | 27,197 | |||||||||||||||
Occupancy |
7,143 | 6,755 | 14,421 | 13,753 | |||||||||||||||
Provision for loan losses and
doubtful accounts |
7,524 | 6,842 | 13,978 | 13,506 | |||||||||||||||
Depreciation |
1,740 | 1,781 | 3,495 | 3,526 | |||||||||||||||
Other |
8,454 | 8,638 | 16,909 | 17,452 | |||||||||||||||
Total store expenses |
39,401 | 37,986 | 77,783 | 75,434 | |||||||||||||||
Store gross margin |
17,894 | 16,676 | 35,573 | 31,138 | |||||||||||||||
Region expenses |
4,230 | 4,481 | 8,369 | 8,555 | |||||||||||||||
Headquarters expenses |
3,697 | 3,547 | 7,708 | 6,898 | |||||||||||||||
Franchise expenses |
297 | 249 | 559 | 419 | |||||||||||||||
Other depreciation and amortization |
1,767 | 1,598 | 3,256 | 2,332 | |||||||||||||||
Interest expense |
4,070 | 3,188 | 7,710 | 6,103 | |||||||||||||||
Other expenses |
650 | 254 | 777 | 124 | |||||||||||||||
Income from continuing operations before taxes |
3,183 | 3,359 | 7,194 | 6,707 | |||||||||||||||
Provision for income taxes |
1,273 | 1,364 | 2,878 | 2,723 | |||||||||||||||
Income from continuing operations |
1,910 | 1,995 | 4,316 | 3,984 | |||||||||||||||
Discontinued operations: |
|||||||||||||||||||
Gain on sale of discontinued operations, net of tax |
499 | — | 499 | — | |||||||||||||||
Net income |
$ | 2,409 | $ | 1,995 | $ | 4,815 | $ | 3,984 | |||||||||||
Basic earnings per share: |
|||||||||||||||||||
Continuing operations |
$ | 0.19 | $ | 0.20 | $ | 0.42 | $ | 0.40 | |||||||||||
Discontinued operations |
0.05 | — | 0.05 | — | |||||||||||||||
Total |
$ | 0.24 | $ | 0.20 | $ | 0.47 | $ | 0.40 | |||||||||||
Diluted earnings per share: |
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Continuing operations |
$ | 0.19 | $ | 0.20 | $ | 0.42 | $ | 0.39 | |||||||||||
Discontinued operations |
0.05 | — | 0.05 | — | |||||||||||||||
Total |
$ | 0.24 | $ | 0.20 | $ | 0.47 | $ | 0.39 | |||||||||||
Weighted average number of common shares outstanding: |
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Basic |
10,181 | 10,103 | 10,181 | 10,079 | |||||||||||||||
Diluted |
10,181 | 10,116 | 10,183 | 10,106 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
INTERIM UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Six Months Ended | ||||||||||||
| December 31, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 4,815 | $ | 3,984 | ||||||||
Less: Gain on sale of discontinued operations, net of tax |
499 | — | ||||||||||
Income from continuing operations |
4,316 | 3,984 | ||||||||||
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
6,751 | 5,858 | ||||||||||
Provision for loan losses and doubtful accounts |
13,978 | 13,426 | ||||||||||
Loss on disposal of property and equipment |
235 | — | ||||||||||
Deferred revenue amortized |
(1,116 | ) | (890 | ) | ||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
4,759 | 458 | ||||||||||
Loans receivable |
(15,670 | ) | (21,422 | ) | ||||||||
Prepaid expenses and other current assets |
(1,720 | ) | (221 | ) | ||||||||
Inventories |
367 | 336 | ||||||||||
Other assets |
(3,544 | ) | (477 | ) | ||||||||
Accounts payable, accrued liabilities and other liabilities |
(306 | ) | 7,104 | |||||||||
Net cash provided by operating activities |
8,050 | 8,156 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property and equipment |
(1,853 | ) | (4,358 | ) | ||||||||
Cost of net assets acquired |
(51 | ) | (1,185 | ) | ||||||||
Net cash used in investing activities |
(1,904 | ) | (5,543 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Net decrease in money order payable |
(6,647 | ) | (9,017 | ) | ||||||||
Net (repayments) borrowings of revolving advances |
(1,900 | ) | 30,900 | |||||||||
Net (repayments) borrowings of term advances |
(1,750 | ) | 2,000 | |||||||||
Net (repayments) borrowings of notes payable |
(310 | ) | 756 | |||||||||
Repayments of long-term notes payable |
(4,000 | ) | (4,000 | ) | ||||||||
Proceeds from stock options exercised |
6 | 398 | ||||||||||
Net cash (used in) provided by financing activities |
(14,601 | ) | 21,037 | |||||||||
Cash (used in) provided by continuing operations |
(8,455 | ) | 23,650 | |||||||||
Cash provided by sale of discontinued operations |
1,342 | — | ||||||||||
Net (decrease) increase in cash and cash equivalents |
(7,113 | ) | 23,650 | |||||||||
Cash and cash equivalents, beginning of period |
116,264 | 129,186 | ||||||||||
Cash and cash equivalents, end of period |
$ | 109,151 | $ | 152,836 | ||||||||
Supplemental disclosures of cash flows information: |
||||||||||||
Interest paid |
$ | 5,878 | $ | 5,516 | ||||||||
Income taxes paid |
$ | 1,695 | $ | 2,210 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed interim unaudited consolidated financial statements of Ace Cash Express, Inc. (the “Company” or “ACE”) and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. Although management believes that the disclosures are adequate to prevent the information from being misleading, the interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements in its Annual Report on Form 10-K for the year ended June 30, 2002, 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.
Revenue Recognition Policy
Approximately 70% of the Company’s revenues result from transactions completed at the point-of-sale with its customers. These transactions include check cashing, bill payment, money transfer, money order purchases, and other miscellaneous products and services grouped in “other fees.” These revenues are recognized when those transactions are completed at the point of sale. The Company acts in an agency capacity on many of its products, and therefore records the gross revenue less the cost remitted as revenue.
For bank loans and payday loans, revenues constituting loan fees and interest are recognized ratably over the term of each loan, which is generally 14 days.
Contractual revenue guarantees from vendors are recognized in accordance with the terms of the contracts under which they are paid. Any bonus or incentive payments from vendors are amortized over the term or duration of the contracts under which they are made.
Franchised store revenue consists of the franchise fees charged for opening the franchised store and on-going royalty fees. Franchise fees, which are the initial fees paid by the franchisees, are recognized when the franchise location has been identified, the lease has been obtained, training has occurred, the building has been built or leasehold improvements have been completed, the proprietary point-of-sale system has been installed and the store has been opened. Franchise royalty fees are a fixed monthly fee or a percentage of each franchisee’s actual revenues, and these are recognized monthly and payable under the franchise agreement.
6
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:
| Three Months Ended | Six Months Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||