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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File Number 0-20774

ACE CASH EXPRESS, INC.

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

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

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

Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  [X]  No  [  ]

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes  [  ]  No  [X]

As of September 19, 2003, 10,344,979 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 $105,396,104.

DOCUMENTS INCORPORATED BY REFERENCE

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

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PART I

ITEM 1. BUSINESS

General

Ace Cash Express, Inc. (“ACE” or the “Company”) is a significant provider of retail financial services in the United States. The Company is also the largest owner, operator, and franchiser of check-cashing stores in the United States. As of August 31, 2003, the Company had a total network of 1,168 stores in 36 states and the District of Columbia, consisting of 968 company-owned stores and 200 franchised stores. The Company seeks to provide a full range of retail financial services and transaction processing in its markets and to develop and maintain the largest network of stores in each of the markets where the Company operates. The Company’s growth strategy is to integrate acquisitions, new store openings, and franchising in new and existing markets and to develop new products for introduction into the existing store base.

ACE stores offer check-cashing services and other retail financial services at competitive rates in clean, convenient settings. The Company’s services also include offering short-term consumer loans; selling money orders; providing money transfer services using the MoneyGram network; offering bill-payment services and other retail financial transaction processing services.

Industry Overview

The primary industry in which ACE operates is check-cashing. Industry sources indicate that there are approximately 11,000 check-cashing stores nationally. Though there is limited public information available, the Company believes that there are four other check-cashing companies operating or franchising over 100 stores and five companies that operate or franchise between 50 and 100 locations, with the remaining companies operating fewer than 50 stores, in the United States.

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

The core business of check-cashing stores is generally cashing checks for a fee. These fees are intended to provide the check casher with a profit after covering operating expenses, including any interest expense incurred by the check casher on the funds advanced to customers between the time checks are cashed and the time the checks clear through the banking system. The risk a check-cashing store assumes upon cashing a check is that the check will be uncollected because of insufficient funds, stop payment orders, or fraud. In order to minimize this risk and the losses associated with uncollected checks, many check-cashing stores cash only payroll or government entitlement checks, charge higher fees, or have stricter approval procedures for cashing personal checks. ACE does not promote the cashing of personal checks in its stores. For the fiscal year ended June 30, 2003, less than 1% of the checks cashed by the Company were one-party personal checks.

In addition to check-cashing services, most check-cashing stores offer customers a range of other services, including access to short-term consumer loans, bill-payment services, money orders, and wire transfer services. Some check-cashing stores also offer 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 retail financial services to low-income and middle-income customers. At the same time, the Company believes that competition, regulatory scrutiny and complexity are contributing to consolidation of the industry. The Company’s strategy is to position itself to benefit from industry consolidation and the competitive advantages available to large operators and franchisers of retail financial services.

Growth Strategy

ACE’s growth strategy consists principally of combining acquisitions and new store openings (both company-owned and franchised stores), with the objective of having the largest number of retail financial services locations in each of its markets and developing new products for introduction into the existing store base, and by increasing same store sales of existing products. ACE defines its target markets as cities of 100,000 or more. In fiscal 2003, the Company opened 14 newly constructed stores, acquired 2 stores, franchised 26 stores, and sold 23 and closed 28 company-owned stores. The Company

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currently anticipates that it will construct and open 40 company-owned stores, primarily in existing markets, during the fiscal year ending June 30, 2004. The Company’s growth strategy depends upon the availability of adequate financing, as well as suitable locations, acquisition opportunities, and experienced management employees, and is subject to the risk that any of these conditions may not be met. The Company’s growth in owned stores in fiscal 2003 was smaller than the Company’s historical growth primarily because of limitations on capital expenditures imposed by the Company’s bank credit agreement through March 31, 2003. The Company’s new and longer-term financing arrangements entered into as of March 31, 2003, however, should enable the Company to pursue its traditional growth strategy, as well as to expand the Company’s franchise network (which requires a minimal amount of capital).

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The following table illustrates the development of company-owned stores since June 30, 1997 by showing the number of stores open in each market area at the end of each of the indicated periods:

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Acquisitions. During fiscal 2003, the Company acquired two stores in two separate transactions. The Company believes its experience with acquisitions permits it to successfully integrate additional acquisitions. Of the 968 ACE company-owned stores in operation as of June 30, 2003, 382, or 39%, have been acquired stores. The Company does not have any current plan or expectation as to the number of stores that it may acquire during the fiscal year ending June 30, 2004. The Company intends to continue searching for strategic opportunities in both existing and new markets.

Self-service machines. The Company has developed self-service machines (“SSMs”) which are able to cash checks, sell prepaid long-distance telephone cards, sell money orders, and process third-party bill payments. The Company increased the number of self-service machines in H&R Block Tax Services, Inc. (“H&R Block”) retail locations, to over 200 during the 2003 tax season (i.e., January through March). Those machines only cashed tax-refund checks issued to customers at H&R Block locations. The Company currently has 21 machines in company-owned locations and more than 200 machines available for deployment at H&R Block locations during the 2004 tax season. The Company currently has 22 bill-payment only SSMs located at a third-party service provider’s locations. The Company plans to deploy 15 additional bill-payment-only SSMs at such service provider’s locations in fiscal 2004.

Franchise Operations

The Company is one of the largest franchisers of check-cashing stores in the United States. ACE franchises are marketed through an employee sales force, supplemented by advertising in newspapers, trade journals, and other media. The following table illustrates the development of franchised stores since June 30, 1998 by showing the number of stores open in each state at the end of each of the indicated periods:

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The Company intends to continue its expansion through the sale of new franchises and the opening of additional stores under existing franchise agreements. The Company is actively marketing several types of ACE franchises, which vary by the level of business being conducted. These include a standard store franchise, a store-within-a-store (or “kiosk”) franchise, a small market franchise for market areas under 15,000 in population, and a conversion franchise that permits an existing check-cashing business to convert to an ACE franchisee. The Company opened 26 franchised stores, acquired two former franchised stores, and closed eight franchised stores during fiscal 2003. The majority of franchised stores operate under the “ACE” name, by license from the Company.

Customers and Services

Management believes the Company’s core customer group is composed primarily of individuals whose average age is between 25 and 34 and who rent their house or apartment and hold a wide variety of jobs in the service sector or are clerical workers, craftsmen, and laborers. These customers tend to change jobs and residences more often than average, have annual family incomes of approximately $30,000, often pay their bills with money orders, and prefer the availability of immediate cash provided by cashing checks at the Company’s stores.

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

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, and insurance checks or drafts. Subject to market conditions at different locations, the Company’s check-cashing fees for payroll checks approximate 2.3% of the face amount of the check. The Company may charge higher rates for cashing out-of-state checks, handwritten checks, money orders, and insurance checks or drafts, depending on risk and market factors. 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 proprietary information 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 because the Company believes that many consumers may have limited access to other sources of consumer credit. In general, the small, short-term loan product or service (commonly referred to as a “payday loan”) offered at the Company’s stores consists of providing a customer cash in exchange for the customer’s check or an Automated Clearinghouse (“ACH”) authorization to debit the customer’s bank account, along with an agreement to defer the presentment or deposit of that check or the initiation of that ACH debit on the customer’s account, as the case may be, until the customer’s next payday (typically two to four weeks later).

Until December 31, 2002, the Company was a party to a Master Loan Agency Agreement and ancillary agreements (the “Goleta Agreement”) with Goleta National Bank (“Goleta”), a national bank located in Goleta, California. Under the Goleta Agreement, the parties developed and implemented an arrangement under which short-term loans made by Goleta (“Goleta Loans”) were offered at company-owned locations. Under the Goleta Agreement, the Company purchased from Goleta a participation representing 90% of each Goleta Loan made on a previous day. Goleta determined the interest rate (and other terms) of the Goleta Loans. Interest equal to $17 per $100 of Goleta Loan was charged by Goleta for each 14-day period. As of January 1, 2003, the Company no longer offered Goleta Loans at any of its stores.

Since January 1, 2003, all of the small, short-term loan products or similar services offered at the Company’s stores have consisted of either (1) short-term loans or deferred-deposit services made or entered into by the Company, or (2) deferred-

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deposit loans or services made or entered into by Republic Bank & Trust Company, a Kentucky state-chartered bank (“Republic Bank”). As of June 30, 2003, the Company was offering its own small short-term loan or deferred-deposit service in 512 of its owned stores, and Republic Bank was offering its deferred-deposit loan or service in 350 of the Company’s owned stores in Texas, Pennsylvania, and Arkansas. All of these loans and services, regardless of type, are made in accordance with state regulation; therefore, the terms of the loans and services vary from state to state.

Both the Company’s and Republic Bank’s short-term loan service or product consists of providing a customer cash in exchange for the customer’s check or an ACH authorization to debit the customer’s bank account, along with an agreement to defer the presentment or deposit of that check or the initiation of that ACH debit on the customer’s account, as the case may be, for a period of 14 to 30 days. The amount of the customer’s check or ACH authorization is the amount of the cash provided to the customer plus a fee. Because payday loans are authorized by statute or rule in the states in which they may be offered, they are subject to extensive regulation. The scope of that regulation, including the terms on which payday loans may be made, by the states is not consistent. Almost all states establish allowable fees and other charges to consumers for these payday loans. In addition, many of the states regulate the maximum amount, maturity, and renewal or extension of these payday loans. To comply with the laws and regulations of the states in which payday loans are offered at the Company’s stores, the terms of those payday loans must vary from state to state. As required, ACE is a licensed provider of payday loans under the laws and regulations of the states in which the Company provides loan services or products.

Bill-payment services. The Company’s stores serve as payment locations for customers to pay many of 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. The company offers the bill-payment services primarily through agreements directly with various product and service providers. To a lesser extent, the Company also offers services through an agency agreement (the “MoneyLine Agreement”) with Travelers Express Company, Inc. (“Travelers Express”) and its affiliate MoneyLine Express, Inc., which in turn has agreements directly with various product and service providers.

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 60,000 MoneyGram agent locations worldwide (including other ACE stores). 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 $1,000. These money orders are generally used by the Company’s customers for bill payments, rent payments, and other general disbursements. The Company sold 10.3 million money orders during fiscal 2003. 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.

Franchise revenues. The Company markets several types of ACE franchises, which vary by the level of business being conducted. These include a standard store franchise, a store-within-a-store (or “kiosk”) franchise, a small market franchise for market areas under 15,000 in population, and a conversion franchise that permits an existing check-cashing business to convert to an ACE franchisee. The Company’s franchise revenues consist of royalties and initial franchise fees and fees for future franchise purchase options. There were 200 company-franchised stores in operation as of June 30, 2003, compared to 184 as of June 30, 2002.

Self-service machines. The Company’s SSMs are able to cash checks, sell prepaid long-distance telephone cards, sell money orders, and process third-party bill payments. The Company currently has 21 SSMs in company-owned locations, 22 bill-payment only SSMs located at a third-party service provider’s locations, and more than 200 SSMs available for deployment at H&R Block locations during the 2004 tax season (i.e., January through March). These machines use the Company’s proprietary software that, among other things, reads checks and analyzes customer and check-issuer history, thereby enabling the Company to assess credit risk before cashing a check. Each of the SSMs incorporates the Company’s point-of-sale computer system.

The Company is a party to a license agreement with H&R Block under which the Company placed over 240 SSMs in H&R Block retail locations during the 2003 tax season. Those SSMs were available only to cash tax-refund checks and tax refund anticipation loan checks issued to customers of H&R Block. The Company obtained the cash that constituted the inventory for those SSMs through separate agreements with two banks. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – SSM Funding Arrangements.” Based on the agreement with H&R Block, the Company anticipates placing more than 200 SSMs at H&R Block retail locations during the 2004 tax season.

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Other services and products. In many company-owned stores, ACE also offers a variety of other retail financial products and services to its customers, public transportation passes, copying and fax transmission services, postage stamps, and various prepaid services, such as long-distance telephone cards.

Store Operations

The Company’s objective is to locate its company-owned stores in highly visible, accessible locations and to operate the stores during hours convenient for its customers. 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. The Company is focused on increasing the customer’s awareness of ACE by using consistent signage and design at each store location. All but two 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, 169 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.

New Store Economics

The Company’s store construction and facilities planning staff reviews and negotiates lease agreements for store locations, supervises the construction of new stores and the remodeling of existing stores, and performs lease management services once the leases are executed. Although the size and shape of a company-owned store may vary, and since many of the stores are built within 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.

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The following tables show the average annual store revenues and the average store contribution for company-owned stores which were opened in the year indicated and remain open as of June 30, 2003: