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, 2003 |
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.
| 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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, 2004 | |||
Common Stock |
10,681,454 shares | |||
ACE CASH EXPRESS, INC.
| Page No. | ||||||||||
| PART I. | FINANCIAL INFORMATION |
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| Item 1. | Interim Consolidated Financial Statements: |
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Consolidated Balance Sheets as of
December 31, 2003 (unaudited) and June 30, 2003 |
3 | |||||||||
Interim Unaudited Consolidated Statements of Earnings for the
Three and Six Months Ended December 31, 2003 and 2002 |
4 | |||||||||
Interim Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 2003 and 2002 |
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 |
36 | ||||||||
| Item 4. | Controls and Procedures |
36 | ||||||||
| PART II. | OTHER INFORMATION |
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| Item 1. | Legal Proceedings |
37 | ||||||||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
37 | ||||||||
| Item 3. | Defaults Upon Senior Securities |
37 | ||||||||
| Item 4. | Submission of Matters to a Vote of Security Holders |
37 | ||||||||
| Item 5. | Other Information |
38 | ||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
38 | ||||||||
| SIGNATURES | 40 | |||||||||
| INDEX TO EXHIBITS | 41 | |||||||||
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, | |||||||||
| 2003 | 2003 | |||||||||
| (unaudited) | ||||||||||
ASSETS |
||||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 116,062 | $ | 108,110 | ||||||
Accounts receivable, net |
9,896 | 9,429 | ||||||||
Loans receivable, net |
16,721 | 13,000 | ||||||||
Prepaid expenses, inventories, and other current assets |
10,448 | 10,742 | ||||||||
Total Current Assets |
153,127 | 141,281 | ||||||||
Noncurrent Assets |
||||||||||
Property and equipment, net |
30,010 | 32,352 | ||||||||
Covenants not to compete, net |
1,007 | 1,151 | ||||||||
Goodwill, net |
75,873 | 75,586 | ||||||||
Other assets |
7,795 | 8,398 | ||||||||
Total Assets |
$ | 267,812 | $ | 258,768 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||
Current Liabilities |
||||||||||
Revolving advances |
$ | 92,300 | $ | 83,900 | ||||||
Accounts payable, accrued liabilities, and other current liabilities |
34,390 | 40,756 | ||||||||
Money orders payable |
7,153 | 6,884 | ||||||||
Term advances |
4,792 | 3,833 | ||||||||
Notes payable |
721 | 778 | ||||||||
Total Current Liabilities |
139,356 | 136,151 | ||||||||
Noncurrent Liabilities |
||||||||||
Term advances |
32,097 | 34,436 | ||||||||
Notes payable |
73 | 110 | ||||||||
Other liabilities |
8,010 | 9,087 | ||||||||
Total Liabilities |
179,536 | 179,784 | ||||||||
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,
10,746,037 and 10,395,113 shares issued and 10,534,637 and
10,183,713 shares outstanding, respectively |
105 | 102 | ||||||||
Additional paid-in capital |
28,517 | 24,385 | ||||||||
Retained earnings |
64,969 | 58,244 | ||||||||
Accumulated comprehensive loss |
(585 | ) | (1,017 | ) | ||||||
Treasury stock, at cost, 211,400 shares |
(2,707 | ) | (2,707 | ) | ||||||
Unearned compensation - restricted stock |
(2,023 | ) | (23 | ) | ||||||
Total Shareholders’ Equity |
88,276 | 78,984 | ||||||||
Total Liabilities and Shareholders’ Equity |
$ | 267,812 | $ | 258,768 | ||||||
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, | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
Revenue |
$ | 59,186 | $ | 57,295 | $ | 114,887 | $ | 113,356 | |||||||||||
Store expenses: |
|||||||||||||||||||
Salaries and benefits |
14,885 | 14,540 | 29,140 | 28,980 | |||||||||||||||
Occupancy |
7,339 | 7,143 | 14,588 | 14,421 | |||||||||||||||
Provision for loan losses and
doubtful accounts |
6,911 | 7,524 | 13,262 | 13,978 | |||||||||||||||
Depreciation |
1,737 | 1,740 | 3,474 | 3,495 | |||||||||||||||
Other |
8,946 | 8,454 | 17,723 | 16,909 | |||||||||||||||
Total store expenses |
39,818 | 39,401 | 78,187 | 77,783 | |||||||||||||||
Store gross margin |
19,368 | 17,894 | 36,700 | 35,573 | |||||||||||||||
Region expenses |
4,837 | 4,230 | 9,314 | 8,369 | |||||||||||||||
Headquarters expenses |
4,823 | 3,697 | 9,136 | 7,708 | |||||||||||||||
Franchise expenses |
321 | 297 | 584 | 559 | |||||||||||||||
Other depreciation and amortization |
1,022 | 1,767 | 2,039 | 3,256 | |||||||||||||||
Interest expense |
2,233 | 4,070 | 4,468 | 7,710 | |||||||||||||||
Other (income) expense |
(64 | ) | 650 | (48 | ) | 777 | |||||||||||||
Income from continuing operations before taxes |
6,196 | 3,183 | 11,207 | 7,194 | |||||||||||||||
Provision for income taxes |
2,478 | 1,273 | 4,482 | 2,878 | |||||||||||||||
Income from continuing operations |
3,718 | 1,910 | 6,725 | 4,316 | |||||||||||||||
Discontinued operations: |
|||||||||||||||||||
Gain on sale of discontinued operations, net of tax |
— | 499 | — | 499 | |||||||||||||||
Net income |
$ | 3,718 | $ | 2,409 | $ | 6,725 | $ | 4,815 | |||||||||||
Basic earnings per share: |
|||||||||||||||||||
Continuing operations |
$ | 0.36 | $ | 0.19 | $ | 0.65 | $ | 0.42 | |||||||||||
Discontinued operations |
— | 0.05 | — | 0.05 | |||||||||||||||
Total |
$ | 0.36 | $ | 0.24 | $ | 0.65 | $ | 0.47 | |||||||||||
Diluted earnings per share: |
|||||||||||||||||||
Continuing operations |
$ | 0.34 | $ | 0.19 | $ | 0.63 | $ | 0.42 | |||||||||||
Discontinued operations |
— | 0.05 | — | 0.05 | |||||||||||||||
Total |
$ | 0.34 | $ | 0.24 | $ | 0.63 | $ | 0.47 | |||||||||||
Weighted average number of common shares outstanding: |
|||||||||||||||||||
Basic |
10,428 | 10,181 | 10,364 | 10,181 | |||||||||||||||
Diluted |
10,880 | 10,181 | 10,735 | 10,183 | |||||||||||||||
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, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 6,725 | $ | 4,815 | ||||||||
Less: Gain on sale of discontinued operations, net of tax |
— | 499 | ||||||||||
Income from continuing operations |
6,725 | 4,316 | ||||||||||
Adjustments to reconcile net income from continuing operations
to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
5,513 | 6,751 | ||||||||||
Provision for loan losses |
13,379 | 13,918 | ||||||||||
Provision for doubtful accounts |
(105 | ) | 60 | |||||||||
Loss on disposal of property and equipment |
279 | 235 | ||||||||||
Deferred revenue |
(942 | ) | (1,116 | ) | ||||||||
Amortization of restricted stock grants |
241 | — | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(362 | ) | 4,759 | |||||||||
Loans receivable |
(12,821 | ) | (15,670 | ) | ||||||||
Prepaid expenses, inventories, and other current assets |
6 | (1,353 | ) | |||||||||
Other assets |
(640 | ) | (3,544 | ) | ||||||||
Accounts payable, accrued liabilities and other liabilities |
(10,059 | ) | (306 | ) | ||||||||
Net cash provided by operating activities |
1,214 | 8,050 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property and equipment |
(2,029 | ) | (1,853 | ) | ||||||||
Cost of net assets acquired |
(322 | ) | (51 | ) | ||||||||
Net cash used in investing activities |
(2,351 | ) | (1,904 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Net increase (decrease) in money order payable |
269 | (6,647 | ) | |||||||||
Net borrowings (repayments) of revolving advances |
8,400 | (1,900 | ) | |||||||||
Net repayments of term advances |
(1,381 | ) | (1,750 | ) | ||||||||
Net repayments of notes payable |
(94 | ) | (310 | ) | ||||||||
Repayments of long-term notes payable |
— | (4,000 | ) | |||||||||
Proceeds from stock options exercised and restricted stock granted |
1,895 | 6 | ||||||||||
Net cash provided by (used in) financing activities |
9,089 | (14,601 | ) | |||||||||
Cash provided by (used in) continuing operations |
7,952 | (8,455 | ) | |||||||||
Cash provided by sale of discontinued operations |
— | 1,342 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
7,952 | (7,113 | ) | |||||||||
Cash and cash equivalents, beginning of period |
108,110 | 116,264 | ||||||||||
Cash and cash equivalents, end of period |
$ | 116,062 | $ | 109,151 | ||||||||
Supplemental disclosures of cash flows information: |
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Interest paid |
$ | 4,509 | $ | 5,878 | ||||||||
Income taxes paid |
$ | 1,842 | $ | 1,695 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
ACE CASH EXPRESS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED 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, 2003, 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 balances have been reclassified to conform to the current period’s presentation.
Revenue Recognition Policy
Approximately 90% of the Company’s revenue results from transactions at the point-of-sale with its customers, and approximately 65% of the Company’s revenue is effectively recognized when the transaction is completed at the point-of-sale. These transactions include check cashing, bill payment, money transfer, money order sales, and other miscellaneous products and services grouped in “other fees.” The Company acts in an agency capacity regarding some of the products and services offered and sold at its stores, and therefore records as revenue the amounts received from customers less amounts remitted to the provider.
For short-term or “payday” loans made by the Company, for the Republic Loans (as defined below) for which the Company acts only as marketing agent and servicer (for a fee from the lender), and (during the fiscal year ended June 30, 2003) for the Company’s participation interests in Goleta Loans (as defined below), revenue constituting loan fees and interest (whether paid by the customer or the lender) is recognized ratably over the term of each loan, which is generally 14 days.
Contractual revenue guarantees from product or service providers are recognized in accordance with the terms of the contracts under which they are paid. Any bonus or incentive payments from product or service providers are amortized over the term or duration of the contracts under which they are made.
Franchised store revenue consists of up-front 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, the 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, which are based on a percentage of each franchisee’s actual revenues, are recognized and payable monthly.
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. Restricted stock that has been granted and not forfeited to or repurchased by the Company is included in common shares outstanding for both calculations. The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share:
6
| Three Months Ended | Six Months Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||