<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-26580
AMERICAN COIN MERCHANDISING, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 84-1093721
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4870 STERLING DRIVE, BOULDER, COLORADO 80301
(Address of Principal Executive Offices)
(Zip Code)
(303) 444-2559
(Registrant's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
OUTSTANDING AT
CLASS NOVEMBER 1, 1996
----- ----------------
Common Stock, $0.01 par value 5,123,274 shares
Transitional Small Business Disclosure Format: Yes ______ No X
<PAGE> 2
AMERICAN COIN MERCHANDISING, INC.
10-QSB
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets
September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . 3
Condensed Statements of Income for the Three Months and
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . 4
Condensed Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN COIN MERCHANDISING, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 502,000 $ 1,590,000
Trade accounts and other receivables . . . . . . . . . . . . . . . . . . . . . . . . 707,000 768,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,030,000 3,411,000
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . 197,000 190,000
------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,436,000 5,959,000
------------- --------------
Property and equipment, at cost:
Vending machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,221,000 7,051,000
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788,000 938,000
Office equipment, furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . 494,000 306,000
------------- --------------
14,503,000 8,295,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,168,000) (3,037,000)
------------- --------------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 10,335,000 5,258,000
------------- --------------
Placement fees, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . 197,000 20,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 350,000
Cost in excess of assets acquired, net of accumulated amortization . . . . . . . . . . 3,252,000 2,115,000
------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,570,000 $ 13,702,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 406,000
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 431,000 151,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,000 188,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,844,000 1,580,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,000 104,000
Distribution payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 634,000
------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,800,000 3,063,000
------------- --------------
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . 4,885,000 283,000
Notes payable to Control Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349,000 1,349,000
------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,034,000 4,695,000
------------- --------------
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500,000 shares; none issued) . . . . . . -- --
Common stock, $.01 par value (Authorized 7,000,000 shares;
issued 5,123,274 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000 51,000
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,410,000 8,275,000
Unearned stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . (58,000) --
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,133,000 681,000
------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,536,000 9,007,000
------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $ 19,570,000 $ 13,702,000
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
AMERICAN COIN MERCHANDISING, INC.(a)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Vending . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,997,000 $ 4,018,000 $20,189,000 $11,330,000
Product and services . . . . . . . . . . . . . . . . . . . . 967,000 1,759,000 3,592,000 5,248,000
Franchise royalties . . . . . . . . . . . . . . . . . . . . 266,000 263,000 908,000 920,000
Equipment sales and other . . . . . . . . . . . . . . . . . 404,000 166,000 1,362,000 619,000
----------- ----------- ------------ -----------
Total revenue . . . . . . . . . . . . . . . . . . . . . 9,634,000 6,206,000 26,051,000 18,117,000
----------- ----------- ------------ -----------
Cost of revenue:
Vending . . . . . . . . . . . . . . . . . . . . . . . . . . 5,559,000 2,790,000 14,198,000 7,761,000
Product and services . . . . . . . . . . . . . . . . . . . . 794,000 1,369,000 2,936,000 4,247,000
Equipment sales . . . . . . . . . . . . . . . . . . . . . . 390,000 159,000 1,319,000 536,000
----------- ----------- ------------ -----------
Total cost of revenue . . . . . . . . . . . . . . . . . 6,743,000 4,318,000 18,453,000 12,544,000
----------- ----------- ------------ -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 2,891,000 1,888,000 7,598,000 5,573,000
General and administrative expenses . . . . . . . . . . . . . . 1,827,000 975,000 5,030,000 2,943,000
Commissions and royalties, related parties . . . . . . . . . . -- 124,000 -- 347,000
Interest expense, related parties . . . . . . . . . . . . . . . 27,000 118,000 81,000 191,000
Interest expense, other, net . . . . . . . . . . . . . . . . . 109,000 38,000 146,000 121,000
Minority interest in income of combined affiliates . . . . . . -- 13,000 -- 80,000
Share of loss of equity affiliate . . . . . . . . . . . . . . . -- 8,000 -- 27,000
----------- ----------- ------------ -----------
Income before taxes . . . . . . . . . . . . . . . . . . 928,000 612,000 2,341,000 1,864,000
Provision for income taxes . . . . . . . . . . . . . . . . . . 352,000 -- 889,000 --
----------- ----------- ------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 576,000 $ 612,000 $ 1,452,000 $ 1,864,000
=========== =========== ============ ===========
Net income per share of common stock . . . . . . . . . . $ 0.11 $ 0.27
Weighted average common shares . . . . . . . . . . . . . 5,460,000 5,451,000
Pro forma information:
Historical income before taxes . . . . . . . . . . . . . . $ 612,000 $ 1,864,000
Pro forma adjustments to income before taxes . . . . . . . 332,000 1,198,000
----------- -----------
Pro forma income before taxes . . . . . . . . . . . . . . 944,000 3,062,000
Pro forma income tax expense . . . . . . . . . . . . . . . 359,000 1,164,000
----------- -----------
Pro forma net income . . . . . . . . . . . . . . . . . . . $ 585,000 $ 1,898,000
=========== ===========
Pro forma earnings per common and common equivalent share
Pro forma net income per share of common stock . . . . . . $ 0.13 $ 0.43
Weighted average common shares . . . . . . . . . . . . . . 4,451,000 4,451,000
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to condensed financial statements.
4
<PAGE> 5
AMERICAN COIN MERCHANDISING, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
ADDITIONAL STOCK TOTAL
COMMON PAID-IN OPTION RETAINED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS EQUITY
----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 . . . . . . . . . . . $ 51,000 $ 8,275,000 $ -- $ 681,000 $ 9,007,000
Issuance of employee stock options . -- 80,000 (80,000) -- --
Amortization of deferred
compensation . . . . . . . . . . . -- -- 20,000 -- 20,000
Tax benefit related to employee
stock options . . . . . . . . . . -- 57,000 -- -- 57,000
Exercise of stock options . . . . . -- 1,000 -- -- 1,000
Termination of stock options . . . . -- (3,000) 2,000 -- (1,000)
Net income . . . . . . . . . . . . . -- -- -- 1,452,000 1,452,000
----------- ----------- ----------- ------------ ------------
SEPTEMBER 30, 1996 . . . . . . . . . . $ 51,000 $ 8,410,000 $ (58,000) $ 2,133,000 $ 10,536,000
=========== =========== =========== ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
AMERICAN COIN MERCHANDISING, INC.(a)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,452,000 $ 1,864,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,297,000 659,000
Share of loss of equity affiliate . . . . . . . . . . . . . . . . . -- 27,000
Minority interest in income of combined affiliates, less
distributions . . . . . . . . . . . . . . . . . . . . . . . . . . -- 45,000
Compensation expense related to stock options . . . . . . . . . . . 19,000 --
Loss (gain) on sales of assets . . . . . . . . . . . . . . . . . . . 3,000 (10,000)
Changes in operating assets and liabilities:
Trade accounts and other receivables . . . . . . . . . . . . . . 19,000 (207,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (457,000) (1,424,000)
Prepaid expenses and other assets . . . . . . . . . . . . . . . (7,000) (166,000)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 241,000 --
Accounts payable and accrued expenses . . . . . . . . . . . . . 313,000 1,194,000
----------- ------------
Net cash provided by operating activities . . . . . . . . . . . . 2,880,000 1,982,000
----------- ------------
Investing activities:
Acquisitions of property and equipment . . . . . . . . . . . . . . . . . (5,508,000) (1,152,000)
Acquisition of franchisees . . . . . . . . . . . . . . . . . . . . . . . (1,224,000) (154,000)
Proceeds from sales of property and equipment . . . . . . . . . . . . . 25,000 10,000
Placement fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (191,000) --
Payments received on notes receivable from related parties . . . . . . . -- 47,000
Payments received on notes receivable . . . . . . . . . . . . . . . . . 20,000 17,000
----------- ------------
Net cash used in investing activities . . . . . . . . . . . . . . (6,878,000) (1,232,000)
----------- ------------
Financing activities:
Net borrowings on revolving line of credit . . . . . . . . . . . . . . . 3,772,000 119,000
Principal payments on notes payable to related parties . . . . . . . . . -- (167,000)
Proceeds from issuance of notes payable to related parties . . . . . . . -- 22,000
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . (1,453,000) (460,000)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . 1,224,000 564,000
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (634,000) (420,000)
Initial public offering costs . . . . . . . . . . . . . . . . . . . . . -- (299,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . 1,000 5,000
----------- ------------
Net cash provided (used) in financing activities . . . . . . . . . 2,910,000 (636,000)
----------- ------------
Net increase (decrease) in cash and cash equivalents . . . . . . . (1,088,000) 114,000
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 1,590,000 357,000
----------- ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 502,000 $ 471,000
=========== ============
</TABLE>
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and Affiliates (see note 1).
See accompanying notes to condensed financial statements.
6
<PAGE> 7
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches,
jewelry and other items. The Company's Shoppes are placed in supermarkets, mass
merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs
and similar locations. The Company currently has 26 field offices operating in
29 states. The Company also sells products to franchisees. At September 30,
1996 there were 27 Company franchises in operation.
Prior to August 31, 1995, the date of the Reorganization described below,
certain stockholders of the Company, who collectively own a controlling
interest of the Company (the "Control Group"), owned interests in the eight
affiliated entities (the "Affiliated Entities") which were franchisees of the
Company. Except as noted below, each of the Affiliated Entities began
operations prior to January 1, 1993. The Control Group owned greater than 50%
of the outstanding common stock or partnership interests of seven of the
Affiliated Entities and less than 50% of the eighth, as follows:
Affiliated Entities:
Combined affiliates:
Chicago Toy Company
Georgia Toy Company
Inland Merchandising, Inc. (began operations in June 1993)
Lehigh Valley Toy Company
Performance Merchandising, Inc.
Southwest Coin Company
Sugarloaf, Ltd. (began operations in January 1993)
Equity affiliate:
Sugarloaf Marketing, Inc.
Due to the common controlling ownership, the accompanying financial
statements include the accounts of the Company and the combined affiliates
(collectively referred to as the "Combined Companies") through August 31, 1995.
All material intercompany balances and transactions have been eliminated.
Through August 31, 1995 the Control Group's interest has been accounted for as
equity of affiliates and the other stockholders' interest has been reflected as
minority interest. As such, the assets and liabilities of Combined Companies
have been accounted for in the financial statements based upon their historical
costs through August 31, 1995. The financial statements account for the Control
Group ownership interest in Sugarloaf Marketing, Inc. using the equity method
of accounting through August 31, 1995.
On August 31, 1995, the Company acquired substantially all of the
inventories, property and equipment, and assumed certain facilities leases,
which are operating leases, and contracts of the Affiliated Entities in
exchange for promissory notes in the principal amount of $8,983,000 (the
"Reorganization"), of which $7,634,000 was paid from the proceeds of the
Company's initial public offering in October 1995. The remaining promissory
notes in the principal amount of $1,349,000 are payable in 1997 and 1998. As a
result of the Reorganization, assets attributable to the Control Group's
interest have been accounted for similar to the pooling-of-interests method of
accounting for business combinations. Assets and liabilities included in the
financial statements which were retained by the combined affiliates in the
Reorganization have been accounted for as distributions to the combined
affiliates. Amounts paid to the combined affiliates attributed to the Control
Group interest have been accounted for as a distribution for financial
reporting purposes. Assets transferred attributable to the non-Control Group
members (the minority interest in the combined affiliates and the majority
interest in the equity affiliate) have been accounted for using the purchase
method of accounting for business combinations. The Company has recorded
approximately $1,964,000 in costs in excess of assets acquired as a result of
the transfer of assets attributable to the non-Control Group. The
Reorganization was a taxable transaction for income tax purposes, and
accordingly, the Company has a tax basis in the transferred assets in excess of
that for financial reporting.
The accompanying unaudited condensed financial statements have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have
7
<PAGE> 8
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
been condensed or omitted pursuant to such rules and regulations. Certain
amounts for prior periods have been reclassified to conform to the September
30, 1996 presentation. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these condensed financial statements be read in connection with the financial
statements and notes thereto included in the Company's annual report on Form
10- KSB for the year ended December 31, 1995.
In the opinion of the Company, the accompanying condensed financial
statements include all adjustments (consisting of normal recurring accruals)
required to present fairly the Company's financial position at September
30,1996 and December 31,1995, and the results of its operations for each of the
three month and nine month periods ended September 30,1996 and 1995, and the
cash flows for each of the nine month periods then ended.
The operating results for the nine months ended September 30,1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
A schedule of supplemental cash flow information follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
Cash paid during the period:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243,000 $ 312,000
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . 704,000 --
Significant noncash investing and financing activities:
Equipment purchases financed with debt . . . . . . . . . . . . . . . 54,000 --
Notes payable issued for acquisition of franchisees . . . . . . . . 879,000 --
Assets acquired in reorganization . . . . . . . . . . . . . . . . . -- 1,145,000
Net liabilities distributed in reorganization . . . . . . . . . . . -- 1,970,000
</TABLE>
3. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares include the dilution from the potential exercise of stock
options when the effect is dilutive. The weighted average number of shares used
in the computation of earnings per share were 5,459,881 and 5,451,303 for the
three months and nine months ended September 30,1996, respectively.
4. BANK REVOLVING LINE OF CREDIT
During the third quarter of 1996, the Company entered into a new two-year
revolving credit agreement which expires September 23, 1998 with interest
payable monthly at the bank's prime rate. At September 30, 1996, there was a
principal amount of approximately $4,178,000 outstanding on this facility that
is reflected in long-term debt on the accompanying condensed balance sheet.
Maximum borrowings on this facility cannot exceed the lessor of $6 million or a
borrowing base defined by the agreement.
The credit facility is secured by all business assets, including accounts
receivable, inventories, property and equipment and franchise rights and
agreements. The credit agreement requires that, among other things, the Company
meet certain ratios and limits the Company's ability to pay dividends and incur
additional debt.
8
<PAGE> 9
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
5. UNAUDITED PRO FORMA INFORMATION
The computation of pro forma total revenue, net income and net income per
share for the three months and nine months ended September 30, 1995 prepared on
the basis as if the Reorganization had occurred on January 1, 1995 with an
adjustment in the level of commissions and royalties to related parties that
were not paid after the Reorganization, an adjustment for interest expense
related to shareholder loans converted to common stock in conjunction with the
Company's initial public offering of common stock on October 12, 1995 and the
recording of income tax expense to reflect the conversion of the Company from
an S corporation to a taxable entity on October 12, 1995 follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1995
---- ----
<S> <C> <C>
Historical total revenue . . . . . . . . . . . . . . . . . . . . . $ 6,206,000 $ 18,117,000
Revenue of Sugarloaf Marketing . . . . . . . . . . . . . . . . . 913,000 3,941,000
Pro forma adjustment to eliminate intercompany revenue . . . . . (138,000) (712,000)
----------- ------------
Pro forma total revenue . . . . . . . . . . . . . . . . . . . . . $ 6,981,000 $ 21,346,000
=========== ============
Historical income before income taxes . . . . . . . . . . . . . . $ 612,000 $ 1,864,000
----------- ------------
Pro forma adjustments:
Net loss of Sugarloaf Marketing . . . . . . . . . . . . . . . . (16,000) (57,000)
Adjust for change in level of commissions and
royalties to related parties . . . . . . . . . . . . . . . . . 333,000 1,182,000
Adjust for interest related to stockholder loans
converted to equity . . . . . . . . . . . . . . . . . . . . . 18,000 58,000
Eliminate minority interest and equity interest as a result
of acquiring remaining ownership interest in affiliated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 107,000
Record amortization of cost in excess of assets acquired . . . . (18,000) (68,000)
Increase depreciation for assets acquired from
non-control group . . . . . . . . . . . . . . . . . . . . . . (6,000) (24,000)
----------- ------------
Total adjustments to income before taxes . . . . . . . . . . 332,000 1,198,000
----------- ------------
Pro forma income before income taxes . . . . . . . . . . . . . . . 944,000 3,062,000
Pro forma income tax expense at 38% . . . . . . . . . . . . . . . 359,000 1,164,000
----------- ------------
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . $ 585,000 $ 1,898,000
=========== ============
Weighted average shares outstanding (1) . . . . . . . . . . . . . 4,451,000 4,451,000
Pro forma net income per share . . . . . . . . . . . . . . . . . . $0.13 $0.43
===== =====
</TABLE>
(1) Shares used in computing pro forma net income per share are based upon
3,283,737 weighted average shares outstanding, common equivalent shares of
371,627, and 96,571 shares issued in connection with the conversion of
certain stockholder loans at the initial public offering price of $7.00 per
share and 699,149 shares issued to pay distributions in conjunction with
the Reorganization. Common equivalent shares consist of stock options,
determined using the treasury stock method. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the anticipated public offering
price during a 12-month period prior to the proposed offering have been
included in the calculation as if they were outstanding for the entire
period (using the treasury stock method and the average price of the common
stock from October 16, 1995 through December 31, 1995) and the shares
issued in the initial public offering whose proceeds were used to pay
distributions to Control Group stockholders in connection with the
Reorganization have been included in the calculation (using the initial
public offering price) as if they were outstanding for the entire period.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for the historical information contained therein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in this section, and those discussed in the Company's
registration statement filed on Form SB-2 and Form 10-KSB for the year ended
December 31,1995.
GENERAL
Substantially all of the Company's revenue and gross profit is from vending
revenue and product and services revenue, which is derived from the operation
of Shoppes by the Company and its franchisees. As a result, the Company's
revenue and gross profit in a particular period is directly related to the
number of Shoppes in operation during the period.
RESULTS OF OPERATIONS
Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, while the combined affiliates were each organized as S
corporations, except for Southwest Coin Company which was organized as a
partnership. Accordingly, through October 12, 1995, no provisions were made
for income taxes since all income, deductions, gains, losses and credits were
reported on the tax returns of the owners. The S corporation status of the
Company terminated on October 12, 1995 and, thereafter, the Company became a
taxable entity.
The Company's total revenue for the first nine months of 1996 increased
43.8% to $26,051,000 from $18,117,000 for the same period in 1995. The Company
realized net income of $1,452,000 for the first nine months of 1996 compared to
proforma net income of $1,898,000 for the same period in 1995. For the third
quarter of 1996 total revenue increased 55.2% to $9,634,000 as compared to
$6,206,000 for the same period in 1995. Net income for the quarter was $576,000
as compared to $585,000 of proforma net income for the third quarter of 1995.
Vending revenue increased $8,859,000 or 78.2% for the first nine months of
1996 to $20,189,000 as a result of an increase in the average number of Shoppes
in use during the first nine months of 1996, which increased 147.3% over the
average number of Shoppes in use during the same period in 1995. During the
first nine months of 1996, offices acquired in connection with the August 31,
1995 purchase of Sugarloaf Marketing contributed $3,725,000 in vending revenue.
In conjunction with the purchase of Sugarloaf Marketing, the Company added 492
Shoppes. Through the acquisition date, the Company accounted for its ownership
interest using the equity method of accounting. For the third quarter of 1996,
vending revenue increased $3,979,000 or 99% to $7,997,000 as compared to the
same period in 1995. The average number of machines in place during the third
quarter of 1996 increased by 166.4% as compared to the third quarter of 1995.
Sugarloaf Marketing offices contributed $1,064,000 in vending revenue during
the third quarter of 1996.
The Company's ability to generate increased vending revenue and achieve higher
levels of profitability will depend on its success in continuing to increase the
number of Shoppes in operation. The continued growth in the number of Shoppes
will depend, in part, upon the Company's success in securing national and
regional supermarket, mass merchandise and restaurant chain accounts. The
Company began a concerted marketing effort in August 1994 to national and
regional chain accounts and has entered into new agreements with national and
regional supermarket and mass merchandise chain accounts covering the placement
of Shoppes within the locations of such accounts. In August 1996, the Company
signed an agreement with Wal-Mart appointing the Company as the principal
operator of skill-crane vending machines for Wal-Mart Stores, Inc. through
January 1, 2000. At September 30, 1996, the Company and its franchisees had
installed more than 700 skill-crane machines in approximately 500 Wal-Mart
stores nationwide. Under the terms of the agreement, an estimated 1,250 Wal-Mart
stores will be installed with skill-crane machines by the Company and its
franchisees over the next 18 months. Although the Company intends to enter into
similar arrangements with other national and regional supermarket and mass
merchandise chain accounts and with national and regional restaurant chain
accounts, there can be no assurance that it will be able to do so or that, to
the extent it does so, it will be able to persuade a significant number of
managers within such chain accounts to place a Shoppe within their store or
other location.
Product and services revenue decreased $1,656,000 or 31.6% for the first
nine months of 1996 as compared to the same period in 1995. Product sales to
Sugarloaf Marketing in the first nine months of 1995 amounted to $660,000. The
Company also had combined product sales of $621,000 during the first nine
months of 1995 to four franchisees that were purchased by the Company during
the third quarter of 1995 and first, second and third quarters of 1996.
Franchise royalties in 1996 decreased $12,000 or 1.3% as compared to amounts
realized during 1995.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Equipment sales to franchisees during the first nine months of 1996 amounted
to $1,335,000 as compared to $661,000 in equipment sales to franchisees in
1995. In 1996, all Shoppes purchased by franchisees from the Company's primary
supplier of equipment are processed by the Company on a pass through basis. The
Company's charge to its franchisees for this service is minimal and intended to
cover the processing costs associated with coordinating the purchase. The
Company did negotiate a lower cost for Shoppes in 1996 as a result of this
change in procedure. Prior to 1996, franchisees purchased only Treasure and Fun
Shoppes from the Company. There were no initial franchise fees for the first
nine months of 1996 as compared to $56,000 for the comparable period in 1995.
The cost of vending operations for the first nine months of 1996 increased
$6,437,000 or 82.9% to $14,198,000. Vending operations' contribution to gross
profit for the first nine months of 1996 increased by $2,422,000 or 67.9% to
$5,991,000 over vending operations' gross profit realized for the same period in
1995. The vending gross profit achieved through September 30, 1996 was 29.7% of
vending revenue, as compared to 31.5% for the same period in 1995. The decline
in vending margin in 1996 results partially from lower machine averages
realized on the Company's Shoppes. For the first nine months of 1996, the
Sugarloaf Marketing offices contributed $1,240,000 of vending gross profit. For
the third quarter of 1996, the cost of vending increased $2,769,000 or 99.2% to
$5,559,000. Vending gross profit realized during the third quarter of 1996 was
$2,438,000 or 30.5% as compared to $1,228,000 or 30.6% for the third quarter of
1995.
Substantially all the Company's plush toys and certain other products
dispensed in the Company's SugarLoaf Toy Shoppes are produced by foreign
manufacturers and a majority are purchased directly by the Company from
manufacturers in the People's Republic of China ("China"). The Company also
purchases a substantial portion of the products for its other Shoppes from
vendors who obtain product from domestic and foreign manufacturers. As a
result, the Company is subject to changes in governmental policies, the
imposition of tariffs and import and export controls, transportation delays and
interruptions, political and economic disruptions and labor strikes which could
disrupt the Company's supply of products from foreign manufacturers. China
currently enjoys "most favored nation" ("MFN") status under U.S. tariff laws,
which allows for the most favorable category of U.S. import duties. The loss of
MFN status for China could result in a substantial increase in the import duty
of certain products manufactured in China, which could result in substantially
increased costs for certain products purchased by the Company. Although the
Company would attempt to mitigate any such increased cost by procuring its
product from other countries, it would likely incur substantially higher costs
and temporary disruptions in supply in the event that it becomes necessary to
do so.
Gross profit on product and service revenue for the first nine months of
1996 decreased to $656,000 or 18.3% of product and service revenue, which is
.8% lower than the gross margin achieved for the same period in 1995. For the
third quarter of 1996 gross profit on product and service revenue decreased to
$173,000 or 17.9% of product and service revenue, as compared to $390,000 or
22.2% of product and service revenue for the third quarter of 1995. The
decrease in product margin for the third quarter of 1996 results primarily from
sales discounts taken by franchisees that were higher than the comparable
period in 1995.
For the first nine months of 1996, general and administrative expenses
increased $1,740,000 to $5,030,000 or 19.3% of revenue, as compared to
$3,290,000 or 18.2% of revenue for the comparable period in 1995. The increase
in general and administrative expenses results primarily from the acquisition
of Sugarloaf Marketing and other franchisees, additional operating and
satellite offices opened during the second and third quarters of 1996, the
accelerated placement of machines during the second and third quarters of 1996
and the additional payroll and other costs associated with being a public
company. General and administrative expenses for 1995 includes $347,000 of
commissions paid to the Company's two major stockholders.
Interest expense decreased $85,000 to $227,000 in 1996 as compared to 1995.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates applicable to the borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flow from operations, borrowings under the
Company's bank credit facility and borrowings from the Company's majority
stockholders. These sources of cash flow have been offset by cash used for
investment in skill-crane machines and payment of long-term borrowings.
Net cash provided by operating activities was $2,880,000 and $1,982,000 in
1996 and 1995, respectively. The Company anticipates that cash will continue to
be provided by operations as additional skill-crane machines are placed
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
in service. Cash required in the future is expected to by funded by existing
cash or borrowings under the Company's credit facility.
Net cash used by investing activities was $6,878,000 and $1,232,000 in 1996
and 1995, respectively. Capital expenditures amounted to $5,508,000 and
$1,152,000 in 1996 and 1995, respectively, of which $4,540,000 and $974,000 was
represented by the acquisition of skill-crane machines. The acquisition of
franchisees in 1996 used $1,224,000. Placement fees in 1996 amounted to
$191,000.
Net cash provided by financing activities was $2,910,000 in 1996 as compared
to $636,000 of net cash used in financing activities during 1995. Financing
activities consist of advances and repayments on the Company's credit facility,
other debt obligations and S corporation distributions to owners.
Under its current revolving credit agreement, the Company may borrow up to
the lesser of $6,000,000 or a borrowing base defined by agreement, at the
bank's prime interest rate. The revolving line of credit is available through
September 23, 1998, and at September 30, 1996 there was a principal amount of
approximately $4,178,000 outstanding. The credit agreement provides that
certain financial ratios be met and places restrictions on, among other things,
the incurrence of additional debt financing and the payment of dividends. The
Company was in compliance with such financial ratios and restrictions at
September 30, 1996.
In January 1996, the Company acquired the Indiana-based operations, including
156 skill-crane machines, of one of its franchisees, Hoosier Coin Company, Inc.,
d/b/a Sugarloaf of Indiana. Under the terms of a definitive purchase agreement,
consideration for the acquisition, including inventory, totaled approximately
$500,000. Of this amount, $297,000 was paid in cash with the balance to be paid
over a three year period in accordance with a promissory note.
In May 1996, the Company acquired the skill-crane operations of
Colorado-based Northern Coin Company and the operating assets of A.F. Race,
Incorporated, a Colorado based skill-crane machine service company. Under the
terms of a definitive agreement, consideration for the acquisition totaled
approximately $466,000. Of this amount, $301,000 was paid in cash with the
balance to be paid over a two year period in accordance with a promissory note.
In July 1996, the Company acquired the Utah-based operations, including 213
skill-crane machines, of one of its franchisees, Sugarloaf of Utah, Inc. Under
the terms of a definitive purchase agreement, consideration for the acquisition,
including inventory, totaled approximately $938,000. Of this amount, $505,000
was paid in cash with the balance to be paid over a three year period in
accordance with a promissory note.
In August 1996, the Company acquired the Western-Colorado based operations,
including 37 skill-crane machines, of one of its franchisees, Sugarloaf West.
Under the terms of a definitive purchase agreement, consideration for the
acquisition, including inventory, totaled approximately $183,000. Of this
amount, $101,000 was paid in cash with the balance to be paid over a three year
period in accordance with a promissory note.
As acquisition opportunities arise, the capital resources of the Company may
be utilized to undertake such opportunities. The timing and nature of these
opportunities cannot be predicted; therefore, the financing of future
acquisitions may take a variety of forms.
Company management believes the Company's financial condition is strong and
that funds generated from operations and borrowings available under its credit
agreement will be sufficient to meet the Company's foreseeable operating and
capital expenditure needs.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
13
<PAGE> 14
AMERICAN COIN MERCHANDISING, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN COIN MERCHANDISING, INC.
By: /s/ Jerome M. Lapin
------------------------------------------
Jerome M. Lapin
President and Chief Executive Officer
By: /s/ W. John Cash
------------------------------------------
W. John Cash
Vice President, Chief Financial Officer
Boulder, Colorado
November 12, 1996
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
11.1 Statement re: Computation of Per Share Earnings 16
27 Financial Data Schedule 17
</TABLE>
15
<PAGE> 1
EXHIBIT 11.1
AMERICAN COIN MERCHANDISING, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
---- ----
<S> <C> <C>
EARNINGS PER SHARE:
NET INCOME . . . . . . . . . . . . . . . $ 576,000 $ 1,452,000
----------- -----------
COMMON SHARES OUTSTANDING
AT BEGINNING OF PERIOD . . . . . . . . 5,081,608 5,081,608
EFFECT OF SHARES ISSUED DURING
THE PERIOD . . . . . . . . . . . . . . 12,852 4,284
EFFECT OF SHARES ISSUABLE UNDER
STOCK OPTIONS USING THE
TREASURY STOCK METHOD . . . . . . . . . 365,421 365,411
----------- -----------
SHARES USED IN COMPUTING
EARNINGS PER SHARE . . . . . . . . . . 5,459,881 5,451,303
=========== ===========
EARNINGS PER COMMON SHARE . . . . . . . . $ 0.11 $ 0.27
=========== ===========
</TABLE>
(a) Primary and fully diluted earnings per share are the same.
(b) Net income per share for the three months and nine months ended September
30, 1995 has been omitted because through August 31, 1995 the Combined
Companies were not a single entity with its own capital structure.
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 502
<SECURITIES> 0
<RECEIVABLES> 707
<ALLOWANCES> 0
<INVENTORY> 4,030
<CURRENT-ASSETS> 5,436
<PP&E> 14,503
<DEPRECIATION> 4,168
<TOTAL-ASSETS> 19,570
<CURRENT-LIABILITIES> 2,800
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 10,485
<TOTAL-LIABILITY-AND-EQUITY> 19,570
<SALES> 25,061
<TOTAL-REVENUES> 26,051
<CGS> 9,489
<TOTAL-COSTS> 18,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234
<INCOME-PRETAX> 2,341
<INCOME-TAX> 889
<INCOME-CONTINUING> 1,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
