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<SEC-DOCUMENT>0000849116-99-000033.txt : 19991227
<SEC-HEADER>0000849116-99-000033.hdr.sgml : 19991227
ACCESSION NUMBER: 0000849116-99-000033
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 19990630
FILED AS OF DATE: 19990928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ACE CASH EXPRESS INC/TX
CENTRAL INDEX KEY: 0000849116
STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099]
IRS NUMBER: 752142963
STATE OF INCORPORATION: TX
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-20774
FILM NUMBER: 99718208
BUSINESS ADDRESS:
STREET 1: 1231 GREENWAY DR STE 800
CITY: IRVING
STATE: TX
ZIP: 75038
BUSINESS PHONE: 2145505000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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 (IRS Employer Identification No.)
of incorporation or organization)
1231 Greenway Drive, Suite 800
Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (972) 550-5000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ----------------------
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 14, 1999, 10,061,905 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 $102,185,866.
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.
<PAGE>
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 and operator, and one of the largest franchisors, of check
cashing stores in the United States. As of August 31, 1999, the Company had a
total network of 926 stores in 28 states and the District of Columbia,
including 802 Company-owned stores and 124 franchised stores. 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. 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 markets where the Company operates.
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; and providing money transfer services using the MoneyGram network.
Many Company-owned stores also offer bill-payment services, lottery and lotto
tickets, small consumer loans commonly known as "payday loans", 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 6,000 check cashing stores
nationally. While there is limited public information available, the Company
believes that there are five other check cashing companies operating over 100
stores. The remaining check cashing companies operate under 50 stores, with the
majority of companies operating fewer than 10 stores.
The Company believes that it and other check cashing companies have grown
by offering services that banks do not fully provide, 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, 1999, 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 payday 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
2
<PAGE>
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 franchisors of
retail financial services.
GROWTH STRATEGY
ACE's growth strategy consists principally of combining acquisitions and
new store openings with the objective to have the largest number of retail
financial services locations in each of its markets. Prior to June 30, 1994,
ACE generally limited its markets to major metropolitan areas with a minimum
population of 500,000. ACE now defines its target markets as cities of 100,000
or more. The Company has expanded from 276 Company-owned stores in 10
metropolitan areas as of June 30, 1993, to 798 Company-owned stores in 243
cities as of June 30, 1999. In fiscal 1999, the Company opened 99 newly
constructed stores, acquired 35 stores, franchised 42 stores, and closed 19
stores. The Company currently anticipates that it will construct and open 100
stores, primarily in existing markets, during the fiscal year ending June 30,
2000.
3
<PAGE>
The following table illustrates the development of Company-owned stores
since 1993 by showing the number of stores open in each market area at the end
of each of the indicated periods:
<TABLE>
<CAPTION>
COMPANY-OWNED STORES
-------------------------------------------------
JUNE 30,
-------------------------------------------------
MARKET AREA 1999 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS:
Dallas/Fort Worth/East Texaa 122 117 114 112 103 98 91
Houston/Galveston 83 76 74 72 60 55 50
San Antonio/Austin/El Paso 59 51 42 28 24 23 20
MARYLAND/WASHINGTON, D.C./VIRGINIA:
Baltimore/Washington, D.C.
Northern VA/Norfolk/Virginia Beach 81 77 72 74 71 62 49
FLORIDA:
Jacksonville/Orlando/Palm Beach/Tampa 73 60 46 38 - - -
ARIZONA:
Phoenix/Tucson 69 59 58 46 37 4 5
GEORGIA:
Atlanta/Albany/Augusta/Macon/
Savannah 52 50 47 47 49 42 15
COLORADO:
Denver 36 32 31 28 27 21 23
Colorado Springs/Pueblo 15 13 13 13 12 9 9
LOUISIANA:
New Orleans/Baton Rouge/Shreveport 25 25 25 19 19 14 14
TENNESSEE:
Memphis/Nashville 22 18 15 5 2 - -
NORTH & SOUTH CAROLINA:
Charlotte/Charleston/Columbia/
Greenville/Spartanburg/Orangeburg 29 17 16 16 15 11 -
INDIANA:
Indianapolis 23 14 9 4 - - -
OKLAHOMA:
Oklahoma City 14 13 13 12 12 - -
OHIO:
Cleveland 10 10 10 8 7 4 -
WASHINGTON:
Seattle/Tacoma/Everette 12 10 8 6 - - -
CALIFORNIA:
Los Angeles/Ontario/San Bernadino 16 9 - - - - -
NEW MEXICO:
Albuquerque 8 7 7 7 7 - -
ARKANSAS:
Little Rock 7 7 6 6 4 - -
MISSOURI:
St. Louis 10 6 6 3 3 - -
OREGON:
Portland 8 5 5 - - - -
NEVADA:
Las Vegas 11 4 - - - - -
KANSAS:
Wichita 3 2 - - - - -
ALABAMA:
Birmingham/Huntsville/Homewood 4 1 - - - - -
UTAH:
Salt Lake City/Layton 3 - - - - - -
KENTUCKY:
Paducah/Central City/Murray 3 - - - - - -
---- ---- ---- ---- ---- ---- ----
TOTAL 798 683 617 544 452 343 276
==== ==== ==== ==== ==== ==== ====
</TABLE>
4
<PAGE>
During fiscal 1999, the Company acquired 35 stores in 10 separate
transactions. The Company believes its experience with acquisitions permits
it to successfully integrate additional acquisitions. The Company currently
intends to continue searching for strategic opportunities in both existing and
new markets. Since 1993, the Company has acquired 290 stores in 73 separate
transactions.
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 franchisors of check cashing stores in the United States. In fiscal
1996, ACE created the ACE Franchise Group to service and market new ACE
franchises. ACE franchises are being marketed through a commissioned employee
sales force, supplemented by advertising in newspapers, trade journals, and
other media. As of June 30, 1999, there were 120 Company-franchised stores
open and operating in 22 states, located as follows:
<TABLE>
<CAPTION>
Number of stores
----------------
<S> <C>
Texas 42
California 12
Louisiana 14
Florida 10
Georgia 5
Washington 2
North Carolina 5
Oregon 3
Arkansas 2
Indiana 2
Ohio 8
South Carolina 5
Other states (10) 10
---
Total 120
===
</TABLE
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, and a
conversion franchise that permits an existing check cashing business to convert
to an ACE franchisee. The Company opened 42 new franchised stores, sold 10
franchised stores, and acquired four former franchised stores during fiscal
1999. The majority of franchises operate under the "ACE" name.
CUSTOMERS AND SERVICES
Management believes the Company's core customer group is comprised
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 under $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.
5
<PAGE>
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:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- ---------------- -----------------------------------------------------
REVENUE CATEGORY 1999 1998 1997 1996 1995
- ---------------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Check cashing fees $ 78,839 $ 68,987 $ 62,835 $ 51,327 $ 37,488
Loan fees and interest 14,257 10,137 5,703 2,462 597
Bill payment services 8,394 4,146 2,197 1,320 819
Money transfer services 7,951 6,082 5,749 4,740 1,775
Money order fees 5,332 2,879 2,757 2,413 2,089
New customer fees 2,296 2,207 2,051 1,338 806
Franchise revenues 2,117 1,665 1,398 633 -
Other fees 3,128 4,091 4,702 4,726 4,216
-------- -------- -------- -------- --------
Total revenue $122,314 $100,194 $ 87,392 $ 68,959 $ 47,790
======== ======== ======== ======== ========
</TABLE
Check cashing. ACE's primary business is cashing checks for a fee. The
principal type of check the Company cashes is a payroll check. The Company
also cashes government assistance, tax refund checks, and insurance checks or
drafts. Subject to market conditions at different locations, the Company's
check cashing fees for payroll checks approximate 2.2% of the face amount of
the check. The Company imposes a surcharge for cashing out-of-state checks,
handwritten checks, money orders, tax refund checks, and insurance checks or
drafts. Unlike many of its competitors, the Company displays its check cashing
fees in full view of its customers on a "menu board" in each store and provides
a detailed receipt for each transaction. Although the Company has established
guidelines for approving check cashing transactions, it has no preset limit on
the size of the checks it will cash.
If a check cashed by the Company is not paid for any reason, the Company
accounts for the amount of the check as a loss in the period in which it is
returned. ACE then transfers the check to its collection department, which
contacts the maker and payee of each returned check and, if necessary,
commences legal action. The collection department utilizes an automated
tracking system on the Company's central computer system to monitor the status
of all returned items. See "Selected Financial Data - Collections Data."
Loan services. The Company is engaged in the small consumer loan
business, offering short-term payday loans to individuals. Company management
believes much of its existing base of customers may have limited access to
other sources of consumer credit.
ACE is a licensed provider of small consumer loans in Arkansas, California,
Colorado, Florida, Indiana, Kansas, Kentucky, Louisiana, Maine, Missouri,
Nevada, New Mexico, North Carolina, Oklahoma, Ohio, Oregon, Tennessee,
Washington, and Washington D.C. Where permitted by law, the Company offers a
service commonly referred to in the check cashing industry as a "payday loan."
That service consists of providing a customer cash in exchange for that
customer's check (in the amount of that cash plus a service fee) with an
agreement to defer the presentment or deposit of that check until the
customer's next payday, usually a period of two to four weeks. During the year
ended June 30, 1999, the average amount of cash provided to a customer in such
a transaction was approximately $200, and the fee to the Company was
approximately $30. As of August 31, 1999, this service was offered in 310 of
the Company's stores.
This payday loan service is offered in a highly structured regulatory
environment. As required, each ACE store which offers payday loans is
individually licensed under state laws, which establish allowable fees and
other charges on these loans to consumers. In addition, many states regulate
the maximum amounts and maturities of these loans.
Bill-payment services. The Company's stores serve as payment locations
for customers to pay their utility, telephone, and other bills to third
parties. Upon acceptance of the customer's payment, the Company remits the
amount owed to the third-party payee under an agreement with that payee and
either receives a service fee from the payee or collects a fee from the
consumer.
Under a Bill-payment Processing and Funds Transfer Services Agreement
(the "MoneyLine Agreement") with Travelers Express Company, Inc. (Travelers
Express") and its affiliate MoneyLine Express, Inc. ("MoneyLine"), the Company
6
<PAGE>
acts as an agent for MoneyLine, which has agreements with various third-party
payees for consumer services. The Company's services and obligations under the
MoneyLine Agreement are similar to those in its other bill-payment agreements
directly with the payees, though consumer payments accepted by the Company are
transmitted to MoneyLine instead of directly to the payees. The MoneyLine
Agreement permits the Company to offer its customers bill-payment services to
virtually any third-party payee.
Money transfer services. ACE is an agent for the transmission and receipt of
wire transfers through the MoneyGram network. Through this network, ACE
customers can transfer funds electronically to any of approximately 15,000
MoneyGram locations nationwide (including other ACE stores) and over 29,000
locations worldwide. MoneyGram Payment Systems, Inc. establishes the fees for
this service, and the Company is paid a percentage of the fees it collects from
customers as a commission and remits the balance to MoneyGram Payment Systems,
Inc.
Money orders. The Company sells money orders issued by Travelers Express in
denominations up to $500. These money orders are generally used by the
Company's customers for bill payments, rent payments, and other general
disbursements. The Company sold 14.5 million, 14.1 million, and 13.6 million
money orders during the 1999, 1998, and 1997 fiscal years, respectively. The
fees charged for money orders depend on local market conditions and the size of
the money order. The Company remits the face amount of each money order sold to
Travelers Express. ACE's money order revenues include that portion of the fees
retained by the Company.
New customer fees. The Company charges a one-time fee for new check
cashing customers to cover the costs of initial set-up in the ACE customer
database and establishment of an identification verification system.
Franchise revenues. The Company's franchise revenues consist of
royalties, initial franchise fees, and buyback fees from its franchisees. There
were 120 Company-franchised stores in operation as of June 30, 1999.
Other services and products. In many Company-owned stores, ACE also
offers a variety of other retail financial products and services to its
customers, including lottery and lotto ticket sales, public transportation
passes, copying and fax transmission services, postage stamps, prepaid local
telephone service, and prepaid long-distance telephone cards.
STORE OPERATIONS AND NEW STORE ECONOMICS
The Company's objective is to locate its Company-owned stores in highly
visible, accessible locations and to operate the stores during convenient
hours. The Company attempts to locate stores on high traffic streets or
intersections, in many cases in or near destination shopping centers. The
Company's stores occupy 1,100 square feet on average and are located in strip
shopping centers, free-standing buildings, and kiosks located inside major
retail stores (for example, Wal-Mart SuperCenters). The Company is focused on
increasing the market's awareness of ACE by using consistent signage and design
at each store location. All but one of the locations of the Company-owned
stores are leased.
Normal business hours of the Company-owned stores are from 9:00 a.m.
until 7:00 p.m., Monday through Thursday, 9:00 a.m. until 8:00 p.m. on Friday,
and 9:00 a.m. until 6:00 p.m. on Saturday. Currently, 137 stores are also open
on Sunday, generally from 10:00 a.m. until 5:00 p.m., and several stores are
open 24 hours. The business hours of any store may be changed due to local
market conditions.
The Company's store construction and facilities planning staff supervises
the construction of new stores, the remodeling of existing stores, and performs
lease management. Although the size and shape of a Company-owned store may
vary, since many of the stores are built out of existing space, the work area
of each store is a modular-designed unit that can be customized to meet the
requirements of each location while giving a uniform appearance. These modular
units may be moved from one location to the next, thus reducing the costs
associated with opening new stores and relocating existing stores.
7
<PAGE>
The tables below show the average annual store revenues and the average store
contribution for Company-owned stores which were opened as of June 30, 1999.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE STORE REVENUES
YEAR ENDED JUNE 30,
NUMBER OF ($ in thousands)
YEAR OPENED: STORES OPEN AT ------------------------------------
JUNE 30, 1999 1999 1998 1997 1996 1995
------------- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
1990 and earlier 130 $179.9 $164.6 $156.7 $150.5 $146.8
1991 16 161.5 155.5 150.2 137.1 132.2
1992 22 221.6 199.1 175.4 152.1 143.2
1993 38 177.5 154.5 139.5 125.0 116.1
1994 35 161.8 145.9 132.1 112.2 90.9
1995 35 148.3 122.3 110.2 83.1 26.7
1996 30 158.3 137.7 106.7 32.9 -
1997 44 131.9 102.1 33.4 - -
1998 59 86.7 22.7 - - -
1999 99 22.8 - - - -
---
508
Acquired stores 290
---
798
</TABLE>
<TABLE>
<CAPTION>
AVERAGE STORE CONTRIBUTION (1)
YEAR ENDED JUNE 30,
NUMBER OF ($ in thousands)
STORES OPEN AT -----------------------------------------
YEAR OPENED: JUNE 30, 1999 1999 1998 1997 1996 1995
--------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1990 and earlier 130 $78.1 $65.4 $59.3 $55.7 $51.9
1991 16 60.0 55.0 52.0 43.4 41.8
1992 22 109.3 88.8 69.8 52.7 43.7
1993 38 73.7 57.0 46.5 35.7 27.7
1994 35 58.6 45.3 43.3 26.8 8.4
1995 35 43.5 23.0 18.2 (1.6) (13.4)
1996 30 50.7 34.7 9.2 (7.2) -
1997 44 26.4 0.0 (13.0) - -
1998 59 (6.2) (13.9) - - -
1999 99 (21.1) - - - -
---
508
Acquired stores 290
---
798
</TABLE
- -------------------------------------------------------
(1) "Average store contribution" equals revenues less direct store expenses and
store-related depreciation and amortization. Direct store expenses consist of
store salaries and benefits, occupancy costs (rent, maintenance, taxes and
utilities), returned checks net of collections, cash shortages, armored
security costs, and bank charges. Direct store expenses exclude region or
corporate overhead, depreciation, and amortization expenses.
The capital cost of opening a new store varies depending on the size and
type of store. During fiscal 1999, the Company opened 99 Company-owned stores
at an average capital cost of approximately $59,000 per store.
There can be no assurance that the Company's stores will continue to
generate the same level of revenues or revenue growth as in the past or that
any new or acquired store will perform at a level comparable to any of the
Company's existing stores.
8
<PAGE>
ADVERTISING AND MARKETING
ACE markets and promotes service offerings by a variety of methods. The
Company believes that its most effective marketing is through in-store
programs, combining the selling efforts of store personnel with various selling
messages on point-of-purchase material. The Company emphasizes courteous
service and trains service associates to recognize and develop good
relationships with customers. All check cashing customers join the ACE PLUS
gold card retention program, which rewards members with benefits like free
check cashing commensurate with the volume of check cashing done at ACE. Also,
through its standard signage and store design, the Company attempts to foster
an image that attracts customers and inspires consumer confidence. The Company
also benefits from vendor-sponsored media advertising in some markets.
SUPERVISION AND TRAINING
The Company's operations are organized in "regions," which generally
correspond to the market areas in which ACE operates its stores. Each region
has a regional vice president ("RVP"), who reports to the Senior Vice President
of Operations and is responsible for the operations, administration, training,
and supervision of the Company-owned stores in his or her region. The Company
currently has 11 RVP's who supervise an average of 70 stores each. The Company
currently has 48 district supervisors, each of whom reports to the RVP for his
or her region and is directly responsible for the general management of 6 to 30
stores within his or her territory. These district supervisors are responsible
for operations, training, scheduling, marketing, and staff motivation. Each
store manager reports to a district supervisor, has direct responsibility over
his or her store's operations, and supervises the service associates who staff
the stores.
Service associates, managers, district supervisors, and RVP's must
complete formal training programs conducted by the Company. ACE has a Company-
wide training program, with higher-level training conducted at the corporate
office and new-hire training conducted in each regional office by corporate-
trained personnel. The purpose of this training, which covers topics ranging
from customer service to loss reduction, is to improve the Company's delivery
of products and services.
POINT-OF-SALE SYSTEM
ACE has developed and implemented a proprietary personal computer based
point-of-sale system, which has been fully operational in all Company-owned
stores since 1991. In addition to other management information and control
functions, ACE's point-of-sale system allows the Company to:
1) capture, analyze, and update on a daily basis data relating to customers and
transactions, including the makers of cashed checks, which allows the Company
to provide service associates with on-demand access to current information for
use in approving check cashing transactions;
2) utilize an automated decision methodology to guide service associates to
take appropriate actions and to better manage risk in check cashing
transactions;
3) monitor daily revenues by product or service on a Company, regional, per
store, and per employee basis;
4) monitor and manage daily store exception reports, which record, for example,
any cash shortages and late store opening times;
5) identify cash differences between bank statements and the Company's records
(such as differences resulting from missing items and deposits);
6) determine, on a daily basis, the amount of cash needed at each store
location, allowing centralized cash management personnel to maintain the
optimum amount of cash inventory in each store;
7) reduce the risk of transaction errors by, for example, automatically
calculating check cashing and other transaction fees;
8) provide products and services in a standardized and efficient manner, which
the Company believes allows it to operate its stores with fewer personnel than
many of its competitors (with many of the Company's stores being operated by
only one person); and
9) facilitate compliance with regulatory requirements.
The data captured by the point-of-sale system is transmitted daily from each
store to a centralized database maintained at ACE's headquarters and is
automatically integrated into its general ledger system.
9
<PAGE>
SECURITY
All Company-owned store employees work behind bullet-resistant Plexiglas
and steel partitions. Each Company-owned store's security measures include
safes, alarm systems monitored by third parties, teller area entry control,
perimeter opening entry detection, and tracking of all employee movement in and
out of secured areas. More than 97% of the centers are currently using
centralized security, and the remainder will be converted as existing contract
obligations (entered into before acquisition by the Company) expire. The
centralized system includes the following security measures in addition to
those described above: identical alarm systems in all stores, remote control
over alarm systems, arming/disarming and changing user codes, and mechanically
and electronically controlled time-delay safes.
Since ACE's business requires its stores to maintain a significant supply
of cash, the Company is subject to the risk of cash shortages resulting from
theft and employee errors. Although the Company has implemented various
programs to reduce these risks and provide security for its facilities and
employees, there can be no assurance that these problems will be eliminated.
During the 1999 and 1998 fiscal years, cash shortages from employee errors
and from theft were approximately $2.5 million (2.0% of revenues) and $1.9
million (1.9% of revenues), respectively.
The Company's point-of-sale system allows management to detect cash
shortages on a daily basis. In addition to other procedures, district
supervisors conduct random audits of each Company-owned store's cash position
and inventories on an unannounced, random basis.
Daily transportation of currency and checks is provided by nationally
recognized armored carriers, such as Loomis, Fargo & Company. ACE employees
are not authorized to transport currency or checks.
EMPLOYEES
At June 30, 1999, ACE employed 1,731 people: 825 store employees, 660
store managers, 48 district supervisors, 11 regional vice presidents, 112
regional support personnel, 66 corporate employees, and 9 franchise personnel.
Third-party firms hired by the Company conduct background checks of the
Company's new hires.
The Company considers its employee relations to be good. ACE's employees
are not covered by a collective bargaining agreement, and the Company has never
experienced any organized work stoppage, strike, or labor dispute. Generally,
the Company's employees are not bonded.
COMPETITION
The Company believes that the principal competitive factors in the check
cashing industry are location, customer service, fees, convenience, and
services offered. The Company faces intense competition and believes that the
check cashing market is becoming more competitive as the industry matures. The
Company competes with other check cashing stores, grocery stores, banks,
savings and loans, other financial services entities, and any retail businesses
that cash checks, sell money orders, provide money transfer services, or other
services. Certain competitors of the Company, other than check cashing stores,
cash checks without charging a fee under limited circumstances. Some of the
Company's competitors that are not check cashing companies have larger and more
established customer bases and substantially greater financial, marketing, and
other resources. There is no assurance that the Company will be able to compete
successfully with its competitors.
TRADEMARKS
The Company has obtained several federal trademark registrations,
including "A-C-E America's Cash Express (REGISTERED TRADEMARK)", and the
federal trademark registration of its logo.
10
<PAGE>
REGULATION
General. The Company is subject to regulation in several jurisdictions in
which it operates, including jurisdictions that regulate check cashing fees, or
require the registration of check cashing companies or money transmission
agents. The Company is also subject to regulation in jurisdictions where it
offers payday loans. In addition, ACE is subject to federal and state
regulation relating to the reporting and recording of certain currency
transactions.
State Regulations. The Company operates in 14 states that have licensing
and/or fee regulations on check cashing fees, including Arkansas, California,
Florida, Georgia, Indiana, Kentucky, Nevada, North Carolina, Ohio, South
Carolina, Tennessee, Utah, Washington, and Washington, D.C. The Company is
licensed in each of the states in which a license is currently required for it
to operate as a check cashing company. The ceilings on fees adopted by these
states are in excess or equal to the fees charged by the Company.
The adoption of check cashing fee ceilings in additional jurisdictions
could have an adverse effect on the Company's business, and existing fee
ceilings could restrict the ability of the Company to expand its operations
into certain states.
The Company must be licensed as a check casher in all jurisdictions in
which it offers payday loans and must comply with the regulations governing
those loans. In addition, in some jurisdictions, check cashing companies or
money transmission agents are required to meet minimum bonding or capital
requirements and are subject to record-keeping requirements.
Federal Regulations. Under the Bank Secrecy Act regulations of the U.S.
Department of the Treasury (the "Treasury Department"), transactions involving
currency in an amount greater than $10,000 or the purchase of monetary
instruments for cash in amounts from $3,000 to $10,000 must be recorded. In
general, every financial institution, including the Company, must report each
deposit, withdrawal, exchange of currency or other payment or transfer, whether
by, through or to the financial institution, that involves currency in an
amount greater than $10,000. In addition, multiple currency transactions must
be treated as single transactions if the financial institution has knowledge
that the transactions are by, or on behalf of, any person and result in either
cash in or cash out totaling more than $10,000 during any one business day.
Management believes that the Company's point-of-sale system and employee
training programs are essential to the Company in complying with these
statutory requirements and may give the Company a competitive advantage.
The Money Laundering Suppression Act of 1994 added a section to the Bank
Secrecy Act requiring the registration of businesses, like the Company, that
engage in check cashing, currency exchange, money transmission, or the issuance
or redemption of money orders, traveler's checks, and similar instruments. The
purpose of the registration is to enable governmental authorities to better
enforce laws prohibiting money laundering and other illegal activities. The
registration requirement was suspended pending the adoption of regulations
implementing the statute, and in May 1997 the Financial Crimes Enforcement
Network of the Treasury Department ("FinCEN") proposed regulations for comment.
In August 1999, FinCEN announced the adoption of final implementing
regulations, effective September 20, 1999. The regulations require "money
services businesses" like the Company to register with the Treasury Department,
by filing a form to be adopted by FinCEN, by December 31, 2001 and to re-
register at least every two years thereafter. The regulations also require
that a money services business maintain a list of names and addresses of, and
other information about, its agents and that the list be made available to any
requesting law enforcement agency (through FinCEN). That agent list must first
be maintained by January 1, 2002 and must be updated at least annually. Though
FinCEN must adopt further regulations and procedures to more fully implement
these requirements, based on the newly adopted regulations, management of the
Company does not believe that compliance with these requirements will have any
material impact on the Company's operations.
Also in May 1997, FinCEN proposed for comment two additional sets of
regulations implementing the Bank Secrecy Act that could affect the Company.
One of those proposed sets of regulations requires "money transmitters" and
their "agents" to report and keep records, and verify the senders, of
transactions in currency or monetary instruments of at least $750, but not more
than $10,000, in connection with the transfer of funds to a
11
<PAGE>
person outside the United States. Because the Company is an agent in the
MoneyGram network and an agent for MoneyLine regarding bill-payment services,
the Company would be an agent of money transmitters under this set of proposed
regulations. The second proposed set of regulations would require money
transmitters and businesses that issue, sell, or redeem money orders or
traveler's checks to report suspicious transactions, involving at least $500,
to the Treasury Department. In its August 1999 announcement, FinCEN indicated
that the proposed regulations regarding transmission of funds to persons
outside the United States was being deferred (with no further explanation) and
that it is continuing to work, in consultation with money services business, on
the regulations regarding suspicious activity reporting. FinCEN also stated
that suspicious activity reporting would not begin until the initial
registration of money services businesses is completed, on or about December
31, 2001.
RELATIONSHIPS WITH MONEY ORDER AND MONEYGRAM SUPPLIERS
Money Order Agreement. In April 1998, the Company signed a money order
agreement with Travelers Express which became effective December 17, 1998.
Under this five-year agreement, the Company exclusively sells Travelers Express
money orders that bear the Company's logo. In conjunction with this agreement
and the MoneyLine Agreement (which also has a five-year term), the Company
received $3 million from Travelers Express in April 1998, received $400,000 in
April 1999, and is entitled to receive an additional $400,000 per year for the
next four years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and Note
4 of Notes to Consolidated Financial Statements. If the money order agreement
is terminated under certain circumstances before the expiration of its five-
year term, the Company will be obligated to repay a portion of the $3 million
and the annual amounts received from Travelers Express. The money order
agreement with Travelers Express (unlike the preceding money order agreement)
does not allow an extended deferral of remittances of money order proceeds.
The Company's payment and other obligations to Travelers Express under the
money order agreement are secured by a subordinated lien on the Company's
assets in accordance with the Amended Collateral Trust Agreement described
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources - Credit Facilities."
MoneyGram Services. The Company is also an agent for the receipt and
transmission of wire transfers through the MoneyGram network, in accordance
with the 1996 MoneyGram Master Agreement, as amended (the "MoneyGram
Agreement"), with MoneyGram Payment Systems, Inc., which is (since July 1998)
an affiliate of Travelers Express.
In June 1996, when the term of the MoneyGram Agreement was extended for two
additional years, to December 31, 2000, the Company received an initial bonus
of $2 million. The MoneyGram Agreement also provides for future incentive
bonuses for opening new MoneyGram service locations. The bonuses have been
deferred and included in other liabilities in the Company's consolidated
balance sheet and are amortized to revenues over the term of the MoneyGram
Agreement. During the year ended June 30, 1999, $2.2 million of amortization
was recorded and included in money transfer services revenues.
ARRANGEMENTS REGARDING SECURED NOTES
In December 1996, the Company consummated a private placement of $20
million of its 9.03% Senior Secured Notes ("Notes") and issued the Notes to
Principal Life Insurance Company (formerly known as Principal Mutual Life
Insurance Company) ("Principal") under the terms of a Note Purchase Agreement
dated as of November 15, 1996 (the "Note Purchase Agreement"). The net
proceeds of the issuance of the Notes were used to pay in full the then
outstanding $18.5 million principal amount of the Company's term-loan
indebtedness (incurred for acquisitions and capital expenditures), plus
corresponding interest and fees, and for general corporate purposes of the
Company.
Interest on the unpaid principal amount of the Notes, accruing at 9.03% per
annum, is payable semiannually on May 15 and November 15 of each year,
commencing May 15, 1997. The principal amount of the Notes is payable in five
equal installments of $4 million on November 15 of each year, commencing
November 15, 1999. All principal and accrued interest is payable at the
scheduled maturity of the Notes on November 15, 2003.
12
<PAGE>
The Company may prepay the Notes, at any time or from time to time, in the
principal amount of at least $1 million, plus accrued interest on the principal
amount being prepaid, plus an amount approximately equal to the discounted
present value of the return that the holders of the prepaid Notes would have
received if the prepayment were not made. Any prepayment will ratably reduce
the amount of each scheduled principal payment on the Notes due thereafter.
The Note Purchase Agreement contains certain restrictive covenants affecting
the business and affairs of the Company and its subsidiaries. Those covenants
address, among other things, the maintenance of specified financial ratios, the
incurrence and payment of other indebtedness, the disposition of assets or of
the ownership of any subsidiary of the Company, the grant or existence of other
liens on the assets of the Company and its subsidiaries, and transactions
between the Company or its subsidiaries and any of their affiliates.
The Note Purchase Agreement also specifies events of default that could
result in the acceleration of the maturity of the Notes. Those events include
(a) any failure by the Company to pay any amount due under the Notes, (b) any
failure by the Company to comply with various covenants set forth in the Note
Purchase Agreement and ancillary documents, (c) any misrepresentation or breach
of warranty by the Company, (d) any failure by the Company or any of its
subsidiaries to pay, or perform its obligations under, any indebtedness for
borrowed money or under capital leases in excess of $1 million, (e) various
events of bankruptcy or insolvency of the Company or any of its subsidiaries,
and (f) any final judgment of any court in excess of $1 million against the
Company or any of its subsidiaries remaining in effect 30 days after the entry
thereof.
The Company's obligations under the Notes, the Note Purchase Agreement, and all
ancillary documents entered into with Principal are secured by liens on all of
the assets of the Company. Concurrent with the Note Purchase Agreement, the
Company entered into a Collateral Trust Agreement dated as of November 15, 1996
(the "Original Collateral Trust Agreement"), with Wilmington Trust Company, as
trustee (the "Collateral Trustee"), Principal, and the Company's other secured
lender at the time. The Original Collateral Trust Agreement created a
collateral trust to secure the Company's obligations to both of its then
existing secured lenders and, under conditions set forth therein, future
secured lenders to the Company. The Original Collateral Trust Agreement was
amended and superseded in connection with the Company's Credit Agreement
described below under "- Credit Facilities."
CREDIT FACILITIES
In July 1998, the Company entered into a Credit Agreement with a syndicate of
banks (the "Lenders") represented by Wells Fargo Bank (Texas), National
Association ("Wells Fargo Bank"), as lead agent and Chase Bank of Texas as co-
agent (the "Credit Agreement"). The credit facilities under the Credit
Agreement consist of a revolving (line-of-credit) facility of $110 million (the
"Revolving Facility") and a term-loan facility of $35 million (the "Term-Loan
Facility"). The Revolving Facility is used for working capital and general
corporate purposes of the Company, and the Term-Loan Facility is used for store
construction and relocation and other capital expenditures of the Company,
including acquisitions, and refinancing other debt. Also, upon certain
conditions, in addition to the Revolving Facility, the Company has available
from Wells Fargo Bank (a) an additional ten-day revolving advance facility of
up to $20 million and (b) a standby letter-of-credit facility of up to $1.5
million. The terms of the Credit Agreement and ancillary documents are
described in more detail at "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - Credit
Facilities."
ITEM 2. PROPERTIES
All but one of the Company's stores are leased, generally under leases
providing for an initial term of three years and renewal terms of from three to
six years. The Company acquired, as part of the Check Express acquisition in
February 1996, and still owns the land and building at which one of the
Company's stores is located in Indianapolis, Indiana. Management believes that
the land and building are suitable for the successful operation of a Company-
owned store. The Company's headquarters offices in Irving, Texas, a suburb of
Dallas, occupy approximately 40,000 square feet under a 62-month lease, the
term of which expires in April 2001.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Since February 1, 1999, the Company has been served with three lawsuits
regarding its payday loan business. (See "Business - Customers and Services -
Loan Services.") The Company has recently entered into an agreement to settle
one of the lawsuits, subject to the court's approval, and the other lawsuits
are pending.
The first lawsuit, Bryan Meegan v. Ace Cash Express, Inc., was filed in the
United States District Court for the Southern District of California on
December 15, 1998, but was served on the Company only on February 5, 1999. The
plaintiff, for himself and other customers similarly situated, alleges
violations of the California statute that governs payday loans (called
"deferred-deposit transactions" in that statute) and, therefore, violations of
various California consumer-protection statutes regarding usury and unfair and
deceptive business practices. The complaint seeks an injunction against the
alleged illegal activities and actual and punitive damages from the Company.
The Company has reached a settlement with the plaintiff and the purported
class, subject to final approval by the court, for an amount not material to
the Company's operations.
The second lawsuit, Mike Kenney et al. v. Ace Cash Express, Inc., was filed
in the State Circuit Court of Pulaski County, Arkansas on February 9, 1999.
The plaintiff, for himself and other customers similarly situated, alleges
that the Company's payday loans (called "deferred-presentment transactions") in
Arkansas violate the usury laws of Arkansas. The complaint seeks the standard
penalty for a usury law violation in Arkansas: an amount equal to twice the
amount of fees paid by customers of deferred-presentment transactions for the
three years preceding the filing of the complaint and through the date of any
judgment.
The third lawsuit, Gary M. Kane and Wendy Betts v. Ace Cash Express, Inc. et
al., was filed in the United States District Court for the Middle District of
Florida on April 19, 1999. The complaint was filed not only against the
Company, but also against its wholly owned subsidiary Check Express, Inc. The
plaintiffs, for themselves and other customers similarly situated, allege
violations of the Federal Truth in Lending Act and Regulation Z and of Florida
consumer-protection statutes regarding consumer lending, deceptive and unfair
trade practices, and usury. The plaintiffs seek an injunction against the
alleged illegal activities and actual and punitive damages of various
kinds, based on various theories.
Because the plaintiff or plaintiffs in each lawsuit seek certification of the
lawsuit as a class action, the amount of damages for which the Company is
alleged to be responsible under any lawsuit is necessarily uncertain. That
amount would depend not only on proof of the allegations, but also on the
number of customers of the service who constitute any class of plaintiffs, if
permitted by the court, in the particular lawsuit.
The Company believes that these three lawsuits are without merit and denies
all allegations. The Company intends to vigorously defend the lawsuits. The
Company understands that others in California, Arkansas, and Florida have also
been sued regarding their payday loan business, on substantially similar bases
as are stated in the complaints against the Company, by one or more plaintiffs
represented by the same counsel as are representing the plaintiffs in the
lawsuits against the Company.
The Company is also involved from time to time in various legal proceedings
incidental to the conduct of its business. Management believes that none of
these legal proceedings will result in any material impact on the Company's
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 1999.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on The Nasdaq Stock Market
("NASDAQ") under the symbol "AACE". At September 14, 1999, there were
approximately 121 holders of record of the Common Stock and there were
approximately 2,200 beneficial holders of the Common Stock held in nominee or
street name.
The following table sets forth the high and low sale prices of the Common
Stock as reported by NASDAQ for the past two fiscal years (as adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend distributed to shareholders of record as of November 30, 1997):
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1998
-----------
Quarter ended September 30, 1997 13-3/4 8-1/4
Quarter ended December 31, 1997 14-5/16 10-3/16
Quarter ended March 31, 1998 16-5/16 9-1/2
Quarter ended June 30, 1998 19 13-3/4
Fiscal 1999
-----------
Quarter ended September 30, 1998 20-1/2 11-3/4
Quarter ended December 31, 1998 16-1/2 11-1/4
Quarter ended March 31, 1999 15 12-1/8
Quarter ended June 30, 1999 15-1/16 12-3/4
</TABLE
On September 14, 1999, the last reported sale price of the Common Stock
on NASDAQ was $14.375 per share.
The Company has never paid dividends on the Common Stock and has no plans
to pay dividends in the foreseeable future. In addition, the Company's ability
to pay cash dividends is currently limited under the Credit Agreement (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Credit Facilities").
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share and store data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $122,314 $100,194 $ 87,392 $ 68,959 $ 47,790
Store expenses 80,943 67,103 59,376 48,552 35,584
Region expenses 9,369 8,353 7,477 5,647 4,139
Headquarters expenses 7,673 7,198 6,106 4,744 3,651
Franchise expenses 1,288 965 1,046 458 -
Other depreciation and amortization 4,236 3,502 3,024 2,152 1,219
Interest expense, net 4,476 2,437 2,271 1,714 103
Other expenses 689 49 213 236 28
-------- -------- -------- -------- --------
Income before income taxes 13,640 10,587 7,879 5,456 3,066
Income taxes 5,390 4,185 3,113 2,130 1,076
--------- -------- -------- -------- --------
Net income $ 8,250 $ 6,402 $ 4,766 $ 3,326 $ 1,990
======== ======== ======== ======== ========
Diluted earnings per share $ .80 $ .63 $ .48 $ .35 $ .21
Weighted average number of shares (1) 10,283 10,215 9,845 9,570 9,354
- ----------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 59,414 $ 60,168 $ 55,494 $ 56,603 $ 49,249
Total assets 145,233 134,635 124,350 114,684 87,544
Term advances 10,500 7,073 8,209 16,969 9,732
Money order principal payable 5,340 47,486 41,281 35,487 26,478
Revolving advances 40,100 1,932 7,166 21,157 22,232
Senior secured notes payable 20,226 20,226 20,231 - -
Shareholders' equity 48,274 38,951 31,056 25,236 21,294
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL STATISTICAL DATA:
Company-owned stores in operation:
Beginning of year 683 617 544 452 343
Acquired 35 15 46 69 77
Opened 99 62 45 33 40
Closed (19) (11) (18) (10) (8)
----- ----- ----- ----- -----
End of year 798 683 617 544 452
===== ===== ===== ===== =====
Percentage increase in comparable store revenues from
prior year:
Exclusive of tax-related revenues (2) 10.6% 8.0% 5.5% 4.1% 2.9%
Total revenues (3) 10.8% 6.9% 6.3% 4.7% 1.6%
Capital expenditures (in thousands) $10,089 $ 5,742 $ 4,868 $ 3,435 $ 4,187
Cost of net assets acquired (in thousands) $ 8,378 $ 4,708 $ 10,766 $ 14,432 $ 14,000
- ----------------------------------------------------------------------------------------------
(1) Includes common shares and dilutive shares.
(2) Change in revenues computed excluding electronic tax filing and tax refund check cashing
for the years compared.
(3) Calculated based on the changes in revenues of all stores open for the full years
compared.
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (CHECK CASHING AND
MONEY ORDERS):
Face amount of checks cashed
(in millions) $ 3,373 $ 2,898 $ 2,621 $ 2,144 $ 1,567
Face amount of money orders sold
(in millions) $ 1,905 $ 1,858 $ 1,812 $ 1,531 $ 1,213
Face amount of money orders sold as a
percentage of the face amount of checks
cashed 56.5% 64.1% 69.1% 71.4% 77.4%
Face amount of average check $ 320 $ 305 $ 291 $ 285 $ 284
Average fee per check $ 7.47 $ 7.26 $ 6.97 $ 6.81 $ 6.79
Fees as a percentage of average check 2.33% 2.38% 2.40% 2.39% 2.39%
Number of checks cashed (in thousands) 10,556 9,496 9,020 7,535 5,516
Number of money orders sold
(in thousands) 14,495 14,146 13,608 11,835 9,334
COLLECTIONS DATA:
Face amount of returned checks (in
thousands) $ 12,442 $ 10,193 $ 10,399 $ 8,661 $ 6,206
Collections (in thousands) 7,423 6,301 6,554 5,004 3,786
-------- -------- -------- --------- --------
Net write-offs (in thousands) $ 5,019 $ 3,892 $ 3,845 $ 3,657 $ 2,420
======== ======== ======== ======== ========
Collections as a percentage of
returned checks 59.7% 61.8% 63.0% 57.8% 61.0%
Net write-offs as a percentage of
revenues 4.1% 3.9% 4.4% 5.3% 5.1%
Net write-offs as a percentage of
the face amount of checks cashed .15% .13% .15% .17% .15%
- ----------------------------------------------------------------------------------------------
OPERATING DATA (PAYDAY LOANS):
Volume (in thousands) $105,765 $ 69,182 $ 39,336 - -
Average advance $ 200 $ 177 $ 147 - -
Average finance charge $ 30.30 $ 27.51 $ 25.03 - -
Number of loans made (in thousands) 460 338 229 - -
COLLECTIONS DATA:
Charge-offs (in thousands) $ 8,283 $ 3,761 $ 2,307 - -
Recoveries (in thousands) 5,497 1,954 1,124 - -
-------- -------- --------
Net charge-offs (in thousands) $ 2,786 $ 1,807 $ 1,183 - -
======== ======== ========
Charge-offs as a percentage of
payday loan volume 7.8% 5.4% 5.9% - -
Recoveries as a percentage of
charge-offs 66.4% 52.0% 48.7% - -
Net charge-offs as a percentage of
payday loan revenue 20.0% 19.5% 20.7% - -
Net charge-offs as a percentage of
payday loan volume 2.6% 2.6% 3.0% - -
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUE ANALYSIS
- -------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1997 1999 1998 1997
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Check cashing fees $ 68,249 $ 60,416 $ 54,529 55.8% 60.3% 62.4%
Loan fees and interest 14,257 10,137 5,703 11.7 10.1 6.5
Tax check fees 10,590 8,571 8,306 8.7 8.5 9.5
Bill-payment services 8,394 4,146 2,197 6.8 4.1 2.5
Money transfer services 7,951 6,082 5,749 6.5 6.1 6.6
Money order fees 5,332 2,879 2,757 4.4 2.9 3.2
New customer fees 2,296 2,207 2,051 1.9 2.2 2.3
Franchise revenues 2,117 1,665 1,398 1.7 1.7 1.6
Other fees 3,128 4,091 4,702 2.5 4.1 5.4
-------- -------- --------- ------ ------ ------
Total revenue $122,314 $100,194 $ 87,392 100.0% 100.0% 100.0%
======== ======== ========= ====== ====== ======
Average revenue per store $ 162.3 $ 151.6 $ 148.1
(excluding franchise revenues)
</TABLE
FISCAL 1999 COMPARED TO FISCAL 1998. Revenues increased $22.1 million, or 22%,
from $100.2 million in the year ended June 30, 1998, to $122.3 million in the
year ended June 30, 1999. This revenue growth resulted from a $9.8 million, or
10.8%, increase in comparable Company-owned store revenues (589 stores) and a
$12.3 million increase from stores which were opened or acquired after June 30,
1997, and were therefore not open for both of the full periods compared. The
number of Company-owned stores increased by 115, or 17%, from 683 stores open
at June 30, 1998, to 798 stores open at June 30, 1999. The increase in total
check cashing fees accounted for 45% of the total revenue increase; the
increase in loan fees and interest accounted for 19% of the total revenue
increase; and the increase in bill-payment services accounted for 19% of the
total revenue increase.
Check cashing fees, including tax check fees, increased $9.9 million, or 14%,
from $69.0 million in fiscal 1998 to $78.8 million in fiscal 1999. This
increase resulted from an 11% increase in the total number of checks cashed and
a 3% increase in the average fee per check due to the increase in the average
size check. Loan fees and interest increased $4.1 million, or 41%, to $14.3
million in fiscal 1999 as compared to $10.1 million in fiscal 1998. This
increase is due to a combination of an increase in the number of stores
offering the Company's loan products, and volume increases from existing loan
stores. Bill-payment services increased $4.2 million, or 102%, principally as a
result of new bill-payment contracts and growth in payment revenue from
existing bill-payment contracts. Money transfer services revenues increased
$1.9 million, or 31%, principally as a result of acquired stores and related
revenue guarantees and bonuses. Money order fees increased $2.5 million, or
85%, as a result of increased money order pricing, enabled by the Company's new
Credit Agreement and the new money order agreement with Travelers Express.
During fiscal 1999, the Company sold 10 franchised stores, opened 42 franchised
stores, and acquired four former franchised stores. Franchise revenues consist
of royalties, initial franchise fees, and buyback fees. Franchise revenues
increased $0.5 million, or 27%, from fiscal 1998 to fiscal 1999, due to the
increase in the number of franchised stores.
Other fees decreased $1.0 million, or 24%, as a result of decreases in food
stamp distribution revenue and other miscellaneous product revenue.
FISCAL 1998 COMPARED TO FISCAL 1997. Revenues increased $12.8 million, or 15%,
from $87.4 million in the year ended June 30, 1997, to $100.2 million in the
year ended June 30, 1998. This revenue growth resulted from a $5.3 million, or
6.9%, increase in comparable Company-owned store revenues (515 stores) and a
$7.5 million increase from stores which were opened or acquired after June 30,
1996, and were therefore not open for both of the full
18
<PAGE>
periods compared. The number of Company-owned stores increased by 66, or 11%,
from 617 stores open at June 30, 1997, to 683 stores open at June 30, 1998. The
increase in total check cashing fees accounted for 48% of the total revenue
increase; the increase in loan fees and interest accounted for 35% of the total
revenue increase; and the increase in bill-payment services accounted for 17%
of the total revenue increase.
Check cashing fees, including tax check fees, increased $6.2 million, or 10%,
from $62.8 million in fiscal 1997 to $69.0 million in fiscal 1998. This
increase resulted from a 5% increase in the total number of checks cashed and a
4% increase in the average fee per check due to the increase in the average
size check. Loan fees and interest increased $4.4 million, or 78%, to $10.1
million in fiscal 1998 as compared to $5.7 million in fiscal 1997. This
increase relates primarily to the increase in the number of stores offering the
Company's loan products to 299 stores in fiscal 1998 as compared to 189 in
fiscal 1997. Money transfer services revenues increased $0.3 million, or 6%,
principally as a result of acquired stores and related revenue guarantees.
Bill-payment services revenues increased $1.9 million, or 89%, principally as a
result of new bill-payment contracts.
During fiscal 1998, the Company sold 20 franchised stores, opened 41 new
franchised stores, and acquired five former franchised stores. Franchise
revenues consisted of royalties, initial franchise fees, and buyback fees.
Franchise revenues increased $0.3 million, or 19%, from fiscal 1997 to fiscal
1998, due to the increase in the number of franchised stores.
Other fees decreased $0.6 million, or 13%, as a result of decreases in food
stamp distribution revenue and other miscellaneous product revenue.
</TABLE>
<TABLE>
<CAPTION>
STORE EXPENSE ANALYSIS
- -------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1997 1999 1998 1997
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 32,435 $ 27,975 $ 24,844 26.5% 27.9% 28.4%
Occupancy 18,381 15,204 13,728 15.0 15.2 15.7
Armored and security 5,144 4,200 3,480 4.2 4.2 4.0
Returns and cash shorts 8,870 6,057 5,961 7.3 6.0 6.8
Loan losses 2,786 1,807 1,183 2.3 1.8 1.4
Depreciation 4,728 4,083 3,346 3.9 4.1 3.8
Other 8,599 7,777 6,834 7.0 7.8 7.8
--------- --------- --------- ----- ----- -----
Total store expense $ 80,943 $ 67,103 $ 59,376 66.2% 67.0% 67.9%
========= ========= ========= ===== ===== =====
Average per store expense $ 109.3 $ 103.2 $ 102.2
</TABLE
FISCAL 1999 COMPARED TO FISCAL 1998. Store expenses increased $13.8 million,
or 21%, in fiscal 1999 over fiscal 1998, primarily as a result of the increased
number of stores open during the period. Average store expense increased by
approximately $6,000 per store in fiscal 1999 as compared to fiscal 1998. Store
expenses decreased as a percentage of revenues from 67.0% in fiscal 1998 to
66.2% in fiscal 1999, principally as a result of the increase in average
revenues per store. Salaries and benefits expenses, occupancy costs, and
armored and security expenses combined increased $8.6 million, or 18%,
primarily as a result of the increased number of stores in operation. Returned
checks, net of collections, and cash shortages increased $2.8 million, or 46%,
in fiscal 1999 as compared to fiscal 1998, due to the increased number of
stores in operation during fiscal 1999 as compared to fiscal 1998. Returned
checks, net of collections, and cash shortages increased as a percentage of
revenues from 6.0% in fiscal 1998 to 7.3% in fiscal 1999. Loan losses increased
$1.0 million in fiscal 1999 over fiscal 1998, due primarily to the increased
loan volume. Loan losses increased as a percentage of loan fees and interest
revenue from 18% in fiscal 1998 to 20% in fiscal 1999. Depreciation expense
increased $0.6 million, or 16%, due to the increased number of stores in
operation during fiscal 1999 as compared to fiscal 1998. Other store expenses
increased $0.8 million, or 11%, but decreased as a percentage of revenue from
7.8% for fiscal 1998 compared to 7.0% of fiscal 1999.
19
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997. Store expenses increased $7.7 million, or
13%, in fiscal 1998 over fiscal 1997, primarily as a result of the increased
number of stores open during the period. Average store expense increased by
approximately $1,000 per store in fiscal 1998 as compared to fiscal 1997. Store
expenses decreased as a percentage of revenues from 67.9% in fiscal 1997 to
67.0% in fiscal 1998, principally as a result of the increase in average
revenues per store. Salaries and benefits expenses, occupancy costs, and
armored and security expenses combined increased $5.3 million, or 13%,
primarily as a result of the increased number of stores in operation. Returned
checks, net of collections, and cash shortages increased $0.1 million, or 2%,
in fiscal 1998 as compared to fiscal 1997. Returned checks, net of collections,
and cash shortages decreased as a percentage of revenues from 6.8% in fiscal
1997 to 6.0% in fiscal 1998. Loan losses increased $0.6 million in fiscal 1998
over fiscal 1997, but decreased as a percentage of loan fees and interest
revenue from 21% in fiscal 1997 to 18% in fiscal 1998. Depreciation expense
increased $0.7 million, or 22%, due to the increased number of stores in
operation during fiscal 1998 as compared to fiscal 1997. Other store expenses
increased $0.9 million, or 14%, but remained constant at 7.8% of revenue for
both fiscal years.
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSE ANALYSIS
- -------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------
($ IN THOUSANDS) (PERCENTAGE OF REVENUE)
1999 1998 1997 1999 1998 1997
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Region expenses $ 9,369 $ 8,353 $ 7,477 7.7% 8.3% 8.6%
Headquarters expenses 7,673 7,198 6,106 6.3 7.2 7.0
Franchise expenses 1,288 965 1,046 1.1 1.0 1.2
Other depreciation and
amortization 4,236 3,502 3,024 3.5 3.5 3.5
Interest expense, net 4,476 2,437 2,271 3.7 2.4 2.6
Other expenses 689 49 213 0.1 0.0 0.2
</TABLE
REGION EXPENSES
FISCAL 1999 COMPARED TO FISCAL 1998. Region expenses increased $1.0 million,
or 12%, in fiscal 1999 over fiscal 1998. The increase is primarily due to
increased salaries and benefits and travel expenses and the opening of a new
region office during the third quarter of fiscal 1999. Region expenses as a
percentage of revenues decreased from 8.3% for fiscal 1998 to 7.7% for fiscal
1999.
FISCAL 1998 COMPARED TO FISCAL 1997. Region expenses increased $0.9 million,
or 12%, in fiscal 1998 over fiscal 1997. The increase is primarily the result
of an increase in salaries and benefits, occupancy costs, and the number of
region personnel from 93 employees in fiscal 1997 to 104 employees in fiscal
1998. Region expenses as a percentage of revenues decreased from 8.6% for
fiscal 1997 to 8.3% for fiscal 1998.
HEADQUARTERS EXPENSES
FISCAL 1999 COMPARED TO FISCAL 1998. Headquarters expenses increased $0.5
million, or 7%, in fiscal 1999 over fiscal 1998. The increase is the result of
additional salaries and benefits expenses, primarily related to merit
increases. Headquarters expenses as a percentage of revenue decreased from
7.2% in fiscal 1998 to 6.3% in fiscal 1999.
FISCAL 1998 COMPARED TO FISCAL 1997. Headquarters expenses increased $1.1
million, or 18%, in fiscal 1998 over fiscal 1997. The increase is the result of
additional salaries and benefits, primarily related to merit increases,
and additional information systems and financial planning personnel.
Headquarters expenses as a percentage of revenue increased from 7.0% in fiscal
1997 to 7.2% in fiscal 1998.
FRANCHISE EXPENSES
FISCAL 1999 COMPARED TO FISCAL 1998. Franchise expenses relate to the
salaries, benefits, and other franchisee support costs for the sales and
support personnel in the ACE Franchise Group. Franchise expenses increased
$0.3 million from fiscal 1998 to fiscal 1999, primarily due to increased legal
expenses during fiscal 1999 related to the Company's franchise program.
Franchise expense as a percentage of revenue increased to 1.1% for fiscal 1999
from 1.0% for fiscal 1998.
20
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997. Franchise expenses decreased $0.1 million
from fiscal 1997 to fiscal 1998, and decreased as a percentage of revenue from
1.2% in fiscal 1997 to 1.0% in fiscal 1998.
OTHER DEPRECIATION AND AMORTIZATION
FISCAL 1999 COMPARED TO FISCAL 1998. Other depreciation and amortization
increased $0.7 million, or 21%, for fiscal 1999 as compared to fiscal 1998.
This increase was attributable to amortization of intangibles (goodwill and
non-competition agreements) resulting from the 35 stores acquired during fiscal
1999 and the eight stores acquired during the last half of fiscal 1998. The
increase was also attributable to depreciation expense resulting from the 99
stores opened in fiscal 1999 and the 35 stores opened in the last half of
fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997. Other depreciation and amortization
increased $0.5 million, or 16%, for fiscal 1998 as compared to fiscal 1997.
This increase was attributable to amortization of intangibles (goodwill and
non-competition agreements) resulting from the 15 stores acquired during fiscal
1998 and the 12 stores acquired during the last half of fiscal 1997. The
increase was also attributable to depreciation expense resulting from the 62
stores opened in fiscal 1998 and the 20 stores opened in the last half of
fiscal 1997.
INTEREST EXPENSE
FISCAL 1999 COMPARED TO FISCAL 1998. Interest expense, net of interest income,
increased $2.0 million, or 84%, in fiscal 1999 as compared to fiscal 1998.
This increase was principally the result of an increase in borrowings used to
finance store acquisitions and borrowings required to replace the deferred
money order remittances used by the Company under its previous money order
agreement, which was replaced in mid-December 1998.
FISCAL 1998 COMPARED TO FISCAL 1997. Interest expense, net of interest income,
increased $0.2 million, or 7%, in fiscal 1998 as compared to fiscal 1997.
INCOME TAXES
FISCAL 1999 COMPARED TO FISCAL 1998. A total of $5.4 million was provided for
income taxes for fiscal 1999 as compared to $4.2 million in fiscal 1998. The
provisions for income taxes were calculated based on the 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 39.5% for fiscal years 1999 and 1998.
FISCAL 1998 COMPARED TO FISCAL 1997. A total of $4.2 million was provided for
income taxes for fiscal 1998 as compared to $3.1 million in fiscal 1997. The
provisions for income taxes were calculated based on the statutory federal
income tax rate of 34%, plus a provision for state income taxes and non-
deductible goodwill associated with the acquisition of Check Express, Inc. on
February 1, 1996. The effective income tax rate was 39.5% for fiscal years
1998 and 1997.
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
primarily from maintaining cash for cashing checks and making payday loans,
receipts of cash from the sale of money orders, loan volume, and remittances on
money orders sold. For the fiscal year ended June 30, 1999, cash and cash
equivalents decreased $0.8 million, compared to an increase of $4.7 million for
the year ended June 30, 1998. Current assets remained relatively unchanged
from June 30, 1998 to June 30, 1999.
Property and equipment increased $4.5 million, and the excess of purchase price
over the fair value of net assets acquired increased $6.8 million, during the
fiscal year ended June 30, 1999, as a result of the 35 stores acquired and the
99 stores opened during fiscal 1999, offset by related depreciation and
amortization.
The significant variations in revolving advances and money order principal
payable result from the Company's use, in mid-December 1998, of financing
through the bank credit facilities described below in "- Liquidity and
Capital Resources" instead of financing through deferred money order
remittances. The shift of certain amounts of term advances from current to
noncurrent also reflects the substitution of the Term-Loan Facility from the
bank
21
<PAGE>
lenders for the similar advances from the previous money order supplier, which
were repaid in mid-December 1998.
The shift of $4 million of senior secured notes payable from noncurrent to
current reflects the installment of that amount of principal due in November
1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During fiscal 1999, 1998 and 1997, the Company had net cash provided by
operating activities of $17.1 million, $14.2 million, and $9.4 million,
respectively.
During fiscal 1999, 1998 and 1997, the Company recognized $2.2 million, $1.5
million, and $1.5 million in deferred revenue, respectively. The MoneyGram
Agreement provides incentive bonuses for opening new locations at which
MoneyGram services are offered as well as certain other performance incentives.
The bonus of $2 million received in June 1996 and additional incentive bonuses
are recognized as revenue over the term of the MoneyGram Agreement.
Additionally, in fiscal 1999 the Company began recognizing deferred revenue
related to incentives received from Travelers Express. (See "Business -
Relationships with the Money Order and MoneyGram Suppliers.")
Cash Flows from Investing Activities
During fiscal 1999, 1998 and 1997, the Company used $10.1 million, $5.7
million, and $4.9 million, respectively, for purchases of property and
equipment related principally to new store openings and remodeling existing
stores. Capital expenditures related to acquisitions, including related
liabilities incurred, amounted to $8.4 million, $4.7 million, and $10.8 million
for the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
The Company's total budgeted capital expenditures, excluding acquisitions, are
currently anticipated to be approximately $7.6 million during its fiscal year
ending June 30, 2000, in connection with the opening of 100 new stores, the
relocation or remodeling of certain existing stores, and computer system
upgrades. The actual amount of capital expenditures will depend in part on the
number of new stores opened, the number of stores acquired, and the number of
existing stores that are relocated or remodeled. The Company believes that its
existing resources, anticipated cash flows from operations, and the Company's
credit facilities will be sufficient to finance its planned expansion and
operations during fiscal 2000. Although management anticipates that the Company
will continue to expand, there can be no assurance that the Company's expansion
plans will not be adversely affected by competition, market conditions, or
changes in laws or government regulations affecting check cashing and related
businesses of the types conducted by the Company.
Cash Flows from Financing Activities
During fiscal 1999, 1998 and 1997, the Company had net cash provided by
financing activities of $0.6 million, $0.9 million, and $2.6 million,
respectively. During the year ended June 30, 1999, the Company received $1.1
million proceeds from the exercise of stock options, borrowed $10.5 million of
term advances, and repaid $7.1 million of term advances borrowed from the
previous money order supplier. In addition, repayments to the previous money
order supplier, net of revolver borrowings, totaled $4.0 million for the year
ended June 30, 1999.
Money Order Agreement
In April 1998, the Company signed a money order agreement with Travelers
Express, which became effective December 17, 1998. In conjunction with this
agreement and the MoneyLine Agreement, the Company received $3 million from
Travelers Express in April 1998, received $400,000 in April 1999, and is
entitled to receive an additional $400,000 per year for the next four years.
The $3 million payment was deferred and included in other liabilities in the
Consolidated Balance Sheet. The total $5 million from Travelers Express is
being amortized on a straight-line basis over the five-year term of the
agreements beginning January 1999.
22
<PAGE>
Credit Facilities
In July 1998 the Company entered into the Credit Agreement with the Lenders (a
syndicate of banks) represented by Wells Fargo Bank. The credit facilities
available to the Company under the Credit Agreement are the Revolving Facility
of $110 million and the Term-Loan Facility of $35 million. Also, upon certain
conditions, in addition to the Revolving Facility, the Company has available
from Wells Fargo Bank (a) an additional 25-day revolving advance facility of up
to $20 million and (b) a stand-by letter-of-credit facility of up to $1.5
million. The Revolving 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 Facility may be used for working capital and general corporate
purposes, and borrowings under the Term-Loan Facility may be used for store
construction and relocation and other capital expenditures, including
acquisitions, and refinancing other debt. The Company first borrowed under the
Credit Agreement on December 16, 1998, and discharged all of the Company's
obligations to the previous money order supplier under the previous money order
agreement. The Company has borrowed $40.1 million under the Revolving Facility
and $10.5 million under the Term-Loan Facility as of June 30, 1999.
The Revolving Facility is available to the Company until December 16, 1999, and
unless renewed, all unpaid principal and accrued interest under the Revolving
Facility will then be due. The Term-Loan Facility will be available to the
Company until December 16, 1999, unless renewed, and all amounts outstanding
under the Term-Loan Facility at that date will be payable over the succeeding
four years; principal will be payable quarterly based on a four-year straight-
line amortization. The Company's borrowings under the Revolving Facility bear
interest at a variable annual rate equal to, at the Company's discretion,
either the prime rate publicly announced by Wells Fargo Bank or the London
InterBank Offered Rate (LIBOR) plus 0.75%. The Company's borrowings under the
Term-Loan Facility bear interest at a variable annual rate equal to, at the
Company's discretion, either the prime rate publicly announced by Wells Fargo
Bank plus 0.25% or LIBOR plus 1.75%. Interest is generally payable monthly,
except on LIBOR-rate borrowings; interest on LIBOR-rate borrowings will be
payable every 30, 60, or 90 days, depending on the period selected by the
Company. Under the Credit Agreement, the Company must also pay a commitment fee
equal to 0.2% of the unused portion of the Revolving Facility and 0.45% of the
unused portion of the Term-Loan Facility. The Credit Agreement also provides
for the Company's prepayment to the Lenders of certain amounts due under the
Term-Loan Facility upon certain events, including (i) the sale of assets from
which the Company has received net proceeds of at least $5 million during a
fiscal year, (ii) the Company's issuance of equity securities, and (iii) the
Company's having excess cash flow, as defined in the Credit Agreement, for a
fiscal year.
The short-term availability of the credit facilities under the Credit Agreement
permitted the Company to obtain a lower interest rate and other terms more
favorable than longer-term facilities, and the Company expects those facilities
to be renewed at the expiration of their currently effective period. There can
be no assurance; however, that the anticipated renewal will be effected. If no
such renewal is effected, the Company will have to obtain financing from other
sources, and that financing might be on terms less favorable to the Company
than those set forth in the Credit Agreement. The Company believes that other
sources of financing would be available to it if necessary; however, if the
Company were unable to obtain financing from one or more other sources, the
Company's liquidity and operations would be materially and adversely affected.
The Credit Agreement may be terminated before the stated expiration or maturity
dates of the Revolving Facility and the Term-Loan Facility - requiring all
unpaid principal and accrued interest to be paid to the Lenders - upon any
Event of Default as defined in the Credit Agreement. The Events of Default
include: (a) nonpayment of amounts due to the Lenders under the Credit
Agreement, (b) failure to observe or perform covenants set forth in the Credit
Agreement that are not cured, (c) a change in control of the Company, and (d)
an event or circumstance that has a material adverse effect on the Company's
business, operations, financial condition, or prospects.
The Company is subject to various restrictive covenants stated in the Credit
Agreement. These covenants, which are typical of those found in loan
agreements of that kind, include restrictions on the incurrence of indebtedness
from other sources, restrictions on advances to or investments in other persons
or entities, restrictions on significant acquisitions, restrictions on the
payment of dividends to shareholders or the repurchase of shares, and the
requirement that various financial ratios be maintained. The Company has
received the consent of the Lenders
23
<PAGE>
to implement the stock repurchase program described below under "- Stock
Repurchase Program."
The Company's payment and performance of its obligations under the Credit
Agreement and ancillary documents are secured by liens on all its assets. The
collateral arrangements are subject to the Amended and Restated Collateral
Trust Agreement dated as of July 31, 1998 (the "Amended Collateral Trust
Agreement") that was signed with the Credit Agreement. The Amended Collateral
Trust Agreement amended and superseded the Original Collateral Trust Agreement.
See "Business - Arrangement Regarding Secured Notes." The Amended Collateral
Trust Agreement created a collateral trust, with Wilmington Trust Company as
trustee, to secure the Company's obligations under the Credit Agreement and to
the Company's two other secured lenders, Principal and Travelers Express. The
Amended Collateral Trust Agreement includes agreements regarding the priority
of distributions to the secured lenders upon foreclosure and liquidation of the
collateral subject thereto and certain other intercreditor arrangements.
To reduce its risk of greater interest expense upon a rise in the prime rate or
LIBOR, the Company entered into interest-rate swap agreements with NationsBank,
N.A. (now Bank of America). Those agreements effectively converted a portion
of the Company's floating-rate interest obligations to fixed-rate interest
obligations for a two-year period that began January 4, 1999. The notional
amount for interest rates under the Revolving Facility is $33 million; the
notional amount for interest rates under the Term-Loan Facility is currently
$9.25 million, to increase to $10.25 million in September 1999, with decreases
in calendar year 2000 corresponding to term-loan payments due from the Company.
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 under the Revolving Facility is 5.14% for calendar year
1999 and 5.23% for calendar year 2000. The fixed rate applicable to the
notional amount under the Term-Loan Facility is 6.23% for calendar year 1999
and 6.38% for calendar year 2000.
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. This stock repurchase program
will remain in effect unless discontinued by the Board of Directors. As of
September 15, 1999, no amount had yet been spent to repurchase shares under
this program.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," for its
fiscal year ending June 30, 1999. This standard requires the Company to report
financial and descriptive information about its reportable operating segments.
The Company considers its franchise operations to be a reportable operating
segment and has included appropriate disclosures in its notes to the financial
statements for the year ended June 30, 1999. The Company is required to adopt
a new accounting standard, AICPA Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," by its first quarter ending 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. Start-up costs, net of tax, approximate $0.7
million as of June 30, 1999.
The Company is also required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," by its first quarter ending September 30, 2001. This standard
requires the Company to record the fair value of its interest-rate swap as an
asset or liability in the consolidated balance sheet. Changes in the fair
value of the interest-rate swap will be reported as a component of
shareholders' equity in the consolidated balance sheet. The fair value of the Company's
existing interest-rate swap is $0.9 million as of June 30, 1999.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer programs that use two digits
instead of four to record the applicable year. Computer programs that have
date-sensitive software might recognize a date using "00" as the year 1900
instead of the year 2000. This could result in a system failure or
miscalculations causing disruptions of
24
<PAGE>
operations, including, among other events, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has addressed its Year 2000 Issue and has modified or replaced
portions of its software or hardware as appropriate, so that its computer
systems will properly recognize dates beyond December 31, 1999. The Company
has also modified or replaced its hardware and software with upgraded or new
hardware and software at a cost that has not been material to the Company's
operations or financial condition. Further, the Company's operations were not
disrupted to any material extent by the Year 2000 Issue with its existing
software or hardware or by its activities to address the Year 2000 Issue.
The Company's total cost of addressing its Year 2000 Issue has been
approximately $0.25 million (excluding the compensation cost of its existing
technology personnel, which would have been incurred anyway). The Company
continues to work with its significant suppliers, and management believes that
the Company is not significantly vulnerable to third parties' failure to
remediate their own Year 2000 Issues. The Company's contingency plan in
the event of a widespread Year 2000 failure includes operating the Company's
stores on a manual, non-computerized basis.
OPERATING TRENDS
SEASONALITY
The Company's business is seasonal to the extent of the impact of cashing tax
refund checks and two other tax-related services - electronic tax filing and
processing applications for refund anticipation loans. The impact of these
services is in the third and fourth quarters of the Company's fiscal year.
IMPACT OF INFLATION
Management believes that 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, the supplier of MoneyGram services, and
the Lenders; governmental regulation of check-cashing and related 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, and other financial services entities, as well as retail businesses that
offer products and services offered by the Company; and customer demand and
response to products and services offered by the Company. The Company
expressly disclaims any obligations to release publicly any updates or
revisions to these forward-looking statements to reflect any change in its
views or expectations.
25
<PAGE>
ITEM 7A. 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
the 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 is a party to interest-rate swap agreements with Bank of
America (formerly NationsBank, N.A.). Those agreements effectively converted a
portion of the Company's floating-rate interest obligations to fixed-rate
interest obligations for a two-year period that began January 4, 1999. The
notional amount for interest rates under the Revolving Facility is $33 million;
the notional amount for interest rates under the Term-Loan Facility is
currently $9.75 million, to increase to $10.75 million in September 1999, with
decreases in calendar year 2000 corresponding to term-loan payments due from
the Company. 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 under the Revolving Facility is 5.14%
for calendar year 1999 and 5.23% for calendar year 2000. The fixed rate
applicable to the notional amount under the Term-Loan Facility is 6.23% for
calendar year 1999 and 6.38% for calendar year 2000.
The fair value of the Company's existing interest-rate swap is $0.9 million as
of June 30, 1999. Based on the average outstanding indebtedness in the
previous quarter, a 10% change in interest rates would have changed the
Company's interest expense by approximately $97,000 (pre-tax) for the year
ended June 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1 for information required for this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
The information called for in Part III of this Form 10-K is incorporated
by reference from the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than
October 28, 1999 (120 days after the Company's fiscal year).
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements.
- -----------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Report of independent public accountants . . . . . . . . . . . . . . . . . 32
Consolidated balance sheets as of June 30, 1999 and 1998 . . . . . . . . . 33
Consolidated statements of earnings for the years ended
June 30, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 34
Consolidated statements of shareholders' equity for the years ended
June 30, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 35
Consolidated statements of cash flows for the years ended
June 30, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 36
Notes to consolidated financial statements . . . . . . . . . . . . . . . . 37
</TABLE
2. Financial Statement Schedules.
- ------------------------------
All schedules have been omitted as inapplicable or because the
information required to be included therein is shown in the Financial
Statements or Notes to Consolidated Financial Statements.
3. Exhibits.
---------
Exhibit Number Exhibits
- -------------- --------
3.1 Restated Articles of Incorporation of the Registrant, as amended through
January 31, 1998. (Included as Exhibit 3.6 to the Company's Form 10-Q as of
December 31, 1997 (Commission File Number 0-20774) and incorporated herein by
reference.)
3.2 Amended and Restated Bylaws of the Registrant, as amended through January
31, 1998. (Included as Exhibit 3.7 to the Company's Form 10-Q as of December
31, 1997 (Commission File Number 0-20774) and incorporated herein by
reference.)
4.1 Form of Certificate representing shares of Registrant's Common Stock.
(Included as Exhibit 4.1 to the Company's Registration Statement on Form S-1
(Reg. No. 33-53286) (the "Registration Statement") and incorporated herein by
reference.)
10.1 Ace Cash Express, Inc. 1987 Stock Option Plan, as amended (including form
of Incentive Stock Option Agreement). (Included as Exhibit 10.1 to the
Registration Statement and incorporated herein by reference.)#
10.2 1992 Master Agreement dated October 14, 1992 (the "Money Order
Agreement") between the Company and American Express Travel Related Services
Company, Inc. (the "Money Order Supplier"). (Confidential treatment for a
portion of this document has been granted by the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934)
(Included as Exhibit 10.4 to the Registration Statement and incorporated herein
by reference.)
10.3 Agreement Regarding Stock Pledges dated as of November 20, 1992, between
the Company and the shareholders pledging shares of Common Stock to secure the
performance of the Company's obligations under the Money Order Agreement.
(Included as Exhibit 10.7 to the Registration Statement and incorporated herein
by reference.)
10.4 Lease Agreement dated October 1, 1987, between the Company and Greenway
Tower Joint Venture, as amended by First Amendment to Lease Agreement dated
April 29, 1988, Second Amendment to Lease Agreement dated August 24, 1988,
Third Amendment to Lease Agreement dated December 29, 1988 and Fourth Amendment
to Lease Agreement dated January 29, 1991. (Included as Exhibit 10.8 to the
Registration Statement and incorporated herein by reference.)
27
<PAGE>
10.5 First Amendment to the Money Order Agreement dated December 1,1992,
between the Company and the Money Order Supplier. (Included as Exhibit 10.9 to
the Registration Statement and incorporated herein by reference.)
10.6 Agreement for Purchase and Sale of Stock Assets dated January 2, 1992,
between T.J. Martin ("Martin") and R.C. Hemmig ("Hemmig"). (Included as Exhibit
10.10 to the Registration Statement and incorporated herein by reference.)
10.7 Option to Repurchase, dated January 2, 1992, in favor of Hemmig.
(Included as Exhibit 10.12 to the Registration Statement and incorporated
herein by reference.)
10.8 Irrevocable Proxy of Martin dated January 2, 1992 in favor of Hemmig.
(Included as Exhibit 10.13 to the Registration Statement and incorporated by
reference herein.)
10.9 Letter Agreement between First Data Corporation and the Company dated
December 6, 1993, amending the First Amendment to the Money Order Agreement.
(Included as Exhibit 10.9 to the Company's Form 10-K as of June 30, 1994
(Commission File Number 0-20774) and incorporated herein by reference.)
10.10 Fifth Amendment to Lease Agreement dated June 13, 1994, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.10 to the
Company's Form 10-K as of June 30, 1994 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.11 Asset Purchase Agreement dated November 22, 1993, among the Company, sole
proprietor, limited partnership, and general partnerships that conduct business
under the name "Mr. Money Check Cashers" (the "Sellers"), general partners of
the partnership sellers (the "General Partners"), and an individual agent for
the Sellers and the General Partners (the "Agent"). (Included as Exhibit 2.1 in
the Company's Form 8-K filed on December 7, 1993 (Commission File Number 0-
20774) and incorporated herein by reference.)
10.12 Food Stamp Sub-Contract Agreement dated November 22, 1993, between the
Company and the Agent. (Included as Exhibit 2.2 to the Company's Form 8-K filed
on December 7,1993 (Commission File Number 0-20774) and incorporated herein by
reference.)
10.13 Ace Cash Express, Inc. 401(k) Profit Sharing Plan, adopted July 1, 1994.
(Included as Exhibit 10.13 to the Company's Form 10-K as of June 30, 1994
(Commission File Number 0-20774) and incorporated herein by reference.)#
10.14 Ace Cash Express, Inc. Deferred Compensation Plan, adopted July 1, 1994.
(Included as Exhibit 10.14 to the Company's Form 10-K as of June 30, 1994
(Commission File Number 0-20774) and incorporated herein by reference.)#
10.15 Asset Purchase Agreement dated June 27, 1995, among the Company and Quick
Cash, Inc., Q.C. & G. Financial, Inc., David Christenholz and Gloria Guerra-
Leyva. (Included as Exhibit 2.1 to the Company's Form 8-K filed on July 11,
1995 (Commission File Number 0-20774) and incorporated herein by reference.)
10.16 Escrow Agreement dated June 27, 1995, among the Company, Quick Cash,
Inc., Q.C. & G. Financial, Inc., David Christenholz, Gloria Guerra-Leyva, and
Bank One, Arizona, NA, as escrow agent. (Included as Exhibit 2.2 to the
Company's Form 8-K filed July 11, 1995 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.17 Promissory Note dated June 27, 1995, of the Registrant in favor of the
Money Order Supplier. (Included as Exhibit 2.3 to Form 8-K filed July 11, 1995
and incorporated herein by reference.)
10.18 Second Amendment to the Money Order Agreement dated September 8, 1995,
between the Company and the Money Order Supplier. (Included as Exhibit 10.18
to the Company's Form 10-K as of June 30, 1995 (Commission File Number 0-20774)
and incorporated herein by reference.)
10.19 Ace Cash Express, Inc. Non-Employee Directors Stock Option Plan dated
March 27, 1995. (Included as Exhibit 10.19 to the Company's Form 10-K as June
30, 1995 (Commission File Number 0-20774) and incorporated herein by
reference.)
28
<PAGE>
10.20 Letter Agreement dated July 13, 1995, between First Data Corporation and
the Company amending the Money Order Agreement. (Included as Exhibit 10.20 to
the Company's Form 10-K as of June 30, 1995 (Commission File Number 0-20774)
and incorporated herein by reference.)
10.21 Letter Agreement dated February 1, 1996, between the Company and the
Money Order Supplier amending the Money Order Agreement. (Included as Exhibit
10.21 to the Company's Form 10-Q as of December 31, 1995 (Commission File
Number 0-20774) and incorporated herein by reference.)
10.22 1996 MoneyGram Master Agreement dated February 1, 1996, between the
Company and the Money Order Supplier (the "MoneyGram Agreement"). (Included as
Exhibit 10.22 to the Company's Form 10-Q as of December 31, 1995 (Commission
File Number 0-20774) and incorporated herein by reference.)
10.23 Agreement and Plan of Merger dated October 13, 1995, among the Company,
Check Express, Inc., and Ace Acquisition Corporation. (Included as Exhibit 2.1
to the Company's Form 8-K filed on February 16,1996 (Commission File Number 0-
20774) and incorporated herein by reference.)
10.24 Amendment (to Agreement and Plan of Merger) dated December 20, 1995,
among the Company, Check Express, Inc., and Ace Acquisition Corporation.
(Included as Exhibit 2.2 to the Company's Form 8-K filed on February 16, 1996
(Commission File Number 0-20774) and incorporated herein by reference.)
10.25 Sixth Amendment to Lease Agreement dated February 1, 1996, between the
Company and Greenway Tower Joint Venture. (Included as Exhibit 10.25 to the
Company's Form 10-Q as of March 31, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.26 1996-A Amendment to the MoneyGram Agreement dated March 21, 1996, between
the Company and the Money Order Supplier. (Included as Exhibit 10.26 to the
Company's Form 10-K as of June 30, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.27 1996-B Amendment to the MoneyGram Agreement dated June 27, 1996, between
the Company and the Money Order Supplier. (Included as Exhibit 10.27 to the
Company's Form 10-K as of June 30, 1996 (Commission file Number 0-20774) and
incorporated herein by reference.)
10.28 Note Purchase Agreement dated November 15, 1996, between the Company and
Principal Life Insurance Company. (Included as Exhibit 10.28 to the Company's
Form 10-Q as of December 31, 1996 (Commission File Number 0-20774) and
incorporated herein by reference.)
10.29 Form of 9.03% Senior Secured Notes due November 15, 2003. (Included as
Exhibit 10.29 to the Company's Form 10-Q as of December 31, 1996 (Commission
File Number 0-20774) and incorporated herein by reference.)
10.30 Collateral Trust Agreement dated November 15, 1996, among the Company and
the Money Order Supplier, Principal Life Insurance Company, and Wilmington
Trust Company. (Included as Exhibit 10.30 to the Company's Form 10-Q as of
December 31, 1996 (Commission File Number 0-20774) and incorporated herein by
reference.)
10.31 Assignment of Deposit Accounts and Security Agreement dated November 15,
1996, between the Company and Wilmington Trust Company. (Included as Exhibit
10.31 to the Company's Form 10-Q as of December 31, 1996 (Commission File
Number 0-20774) and incorporated herein by reference.)
10.32 Third Amendment to the Money Order Agreement dated November 15, 1996,
between the Company and the Money Order Supplier. (Included as Exhibit 10.32 to
the Company's Form 10-Q as of December 31, 1996 (Commission File Number 0-
20774) and incorporated herein by reference.)
10.33 Amendment No.1 to the Ace Cash Express 401K Profit Sharing Plan effective
January 1, 1998. (Included as Exhibit 10.33 to the Company's Form 10-Q as of
March 31, 1998 (Commission File Number 0-20774) and incorporated herein by
reference.)#
10.34 Amendment No. 1 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.34 to the Company's Form 10-K as of June
30, 1998 (Commission File No. 0-20774) and incorporated herein by reference.) #
10.35 Amendment No. 2 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.35 to the Company's Form 10-K as of June
30, 1998 (Commission File No. 0-20774) and incorporated herein by reference.) #
29
<PAGE>
10.36 Ace Cash Express, Inc. 1997 Stock Option Plan. (Included as Exhibit A to
the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders
(Commission File No. 0-20774) and incorporated herein by reference.)#
10.37 Amendment No. 1 to Ace Cash Express, Inc. 1997 Stock Option Plan.
(Included as Exhibit 10.37 to the Company's Form 10-K as of June 30, 1998
(Commission File No. 0-20774) and incorporated herein by reference.) #
10.38 Form of Change-in-Control Executive Severance Agreement between the
Company and each of its three executive officers. (Included as Exhibit 10.38 to
the Company's Form 10-K as of June 30, 1998 (Commission File No. 0-20774) and
incorporated herein by reference.) #
10.39 Money Order Agreement dated as of April 16, 1998, but effective as of
December 16, 1998, between the Company and Travelers Express Company, Inc.
(Confidential treatment for a portion of this document has been granted by the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934). (Included as Exhibit 10.39 to the Company's Form 10-K as
of June 30, 1998 (Commission File No. 0-20774) and incorporated herein by
reference.)
10.40 Credit Agreement dated as of July 31, 1998, but effective as of December
16, 1998, among the Company, Wells Fargo Bank (Texas), National Association, as
agent (the "Credit Agent"), and the lenders named therein, with Exhibits A and
B thereto and Schedules 2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.40
to the Company's Form 10-K as of June 30, 1998 (Commission File No. 0-20774)
and incorporated herein by reference.)
10.41 Amended and Restated Collateral Trust Agreement dated as of July 31,
1998, but effective as of December 16, 1998, among the Company, the Credit
Agent, Travelers Express Company, Inc., Principal Life Insurance Company
(formerly known as Principal Mutual Life Insurance Company), and Wilmington
Trust Company. (Included as Exhibit 10.41 to the Company's Form 10-K as of June
30, 1998 (Commission File No. 0-20774) and incorporated herein by reference.)
10.42 Amended and Restated Assignment of Deposit Accounts and Security
Agreement dated as of July 31, 1998, but effective as of December 16, 1998,
between the Company and Wilmington Trust Company. (Included as Exhibit 10.42 to
the Company's Form 10-K as of June 30, 1998 (Commission File No. 0-20774) and
incorporated herein by reference.
10.43 First Amendment to Credit Agreement dated as of December 16, 1998, among
the Company, the Credit Agent, and the lenders named therein, with Schedules
2.01(a) and 2.01(b) thereto. (Included as Exhibit 10.43 to the Company's Form
8-K filed on December 23, 1998 (Commission File No. 0-20774) and incorporated
herein by reference.)
10.44 Amendment No. 3 to Ace Cash Express, Inc. Non-Employee Directors Stock
Option Plan. (Included as Exhibit 10.44 to the Company's Form 10-Q as of
December 31, 1998 (Commission File No. 0-20774) and incorporated herein by
reference.)#
27 Financial Data Schedule (EDGAR version only)*
______
* Filed herewith
# Management contract of compensatory plan or arrangement
(b) Reports on Form 8-K
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ JAY B. SHIPOWITZ
----------------------
Jay B. Shipowitz
Senior Vice President
Chief Financial Officer, Treasurer and Secretary
Date: September 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
Signature Title Date
- --------------------- ----- ----
/s/ RAYMOND C. HEMMIG Chairman of the Board, Director
- ---------------------
Raymond C. Hemmig
/s/ DONALD H. NEUSTADT President and Chief Executive Officer,
- ---------------------- Director (Principal Executive Officer)
Donald H. Neustadt
/s/ JAY B. SHIPOWITZ Senior Vice President, Chief Financial
- -------------------- Officer, Treasurer and Secretary
Jay B. Shipowitz (Principal Financial and Accounting Officer)
/s/ HOWARD W. DAVIS Director
- -------------------
Howard W. Davis
/s/ MARSHALL B. PAYNE Director
- ---------------------
Marshall B. Payne
/s/ EDWARD W. ROSE III Director
- ----------------------
Edward W. Rose III
/s/ CHARLES DANIEL YOST Director
- -----------------------
Charl