<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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: 0-26580
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)
5660 CENTRAL AVENUE, BOULDER, COLORADO 80301
(Address of principal executive offices)
(Zip Code)
(303) 444-2559
(Registrant's telephone number)
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 proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OCTOBER 29, 1999
----- ----------------
<S> <C>
Common Stock, $0.01 par value 6,475,069 shares
</TABLE>
<PAGE> 2
AMERICAN COIN MERCHANDISING, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION. PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1999 and December 31, 1998.................................... 3
Consolidated Condensed Statements of Operations for the Three Months and
Nine Months Ended September 30, 1999 and 1998............................... 4
Consolidated Condensed Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1999........................................ 5
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998............................... 6
Notes to Consolidated Condensed Financial Statements.......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 8
PART II OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K................................................... 12
</TABLE>
2
<PAGE> 3
AMERICAN COIN MERCHANDISING, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 633 $ 2,247
Trade accounts and other receivables ............................................... 847 1,814
Inventories ........................................................................ 12,945 12,579
Prepaid expenses and other assets .................................................. 5,825 1,581
------------ ------------
Total current assets ........................................................... 20,250 18,221
------------ ------------
Property and equipment, at cost:
Vending machines ................................................................... 50,353 46,704
Vehicles ........................................................................... 6,920 7,082
Office equipment, furniture and fixtures ........................................... 3,781 3,074
------------ ------------
61,054 56,860
Less accumulated depreciation ...................................................... (19,139) (13,381)
------------ ------------
Property and equipment, net .................................................... 41,915 43,479
------------ ------------
Placement fees, net of accumulated amortization of $925 in 1999 and $480 in 1998 ...... 702 732
Costs in excess of assets acquired and other intangible assets, net of accumulated
amortization of $3,722 in 1999 and $1,817 in 1998 .................................. 38,807 48,333
Other assets, net of accumulated amortization of $351 in 1999 and $199 in 1998 ........ 818 1,017
------------ ------------
Total assets ................................................................... $ 102,492 $ 111,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................................. $ 2,288 $ 2,155
Accounts payable ................................................................... 4,000 3,441
Accrued commissions ................................................................ 930 1,630
Other accrued expenses ............................................................. 1,467 1,760
------------ ------------
Total current liabilities ...................................................... 8,786 8,986
Long-term debt, net of current portion ................................................ 47,998 50,310
Other liabilities ..................................................................... 192 2,000
Deferred income taxes ................................................................. 1,346 1,346
------------ ------------
Total liabilities .............................................................. 58,221 62,642
------------ ------------
Company obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures ...................................... 15,529 15,492
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500 shares; none issued) ............... -- --
Common stock, $.01 par value (Authorized 20,000 shares; issued and
outstanding 6,475 shares) ........................................................ 65 65
Additional paid-in-capital ......................................................... 21,989 21,989
Retained earnings .................................................................. 6,688 11,594
------------ ------------
Total stockholders' equity ..................................................... 28,742 33,648
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 102,492 $ 111,782
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
AMERICAN COIN MERCHANDISING, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Vending ........................................................ $ 28,780 $ 26,462 $ 85,346 $ 64,170
Franchise and other ............................................ 1,107 981 3,929 2,996
-------- -------- -------- --------
Total revenue .............................................. 29,887 27,443 89,275 67,166
-------- -------- -------- --------
Cost of revenue:
Vending, excluding related depreciation and amortization ....... 19,357 16,867 57,092 41,305
Depreciation and amortization .................................. 1,987 1,773 5,886 4,112
-------- -------- -------- --------
Total cost of vending ...................................... 21,344 18,640 62,978 45,417
Franchise and other ............................................ 973 616 2,767 1,881
-------- -------- -------- --------
Total cost of revenue ...................................... 22,317 19,256 65,745 47,298
-------- -------- -------- --------
Gross profit ............................................... 7,570 8,187 23,530 19,868
General and administrative expenses ............................... 5,600 4,918 16,559 11,734
Depreciation and amortization ..................................... 1,140 648 2,701 1,098
Write off of costs in excess of assets acquired, severance and
other costs .................................................. 7,536 -- 7,536 --
-------- -------- -------- --------
Operating (loss) earnings .................................. (6,706) 2,621 (3,266) 7,036
Interest expense, related parties ................................. -- 4 -- 23
Interest expense, other, net ...................................... 1,724 1,226 5,082 1,686
-------- -------- -------- --------
(Loss) earnings before income taxes ........................ (8,430) 1,391 (8,348) 5,327
Benefit (provision) for income taxes .............................. 3,469 (485) 3,442 (1,862)
-------- -------- -------- --------
Net (loss) earnings ........................................ $ (4,961) 906 (4,906) 3,465
======== ======== ======== ========
Basic (loss) earnings per share of common stock ............ $ (0.77) $ 0.14 $ (0.76) $ 0.54
Diluted (loss) earnings per share of common stock .......... $ (0.77) $ 0.14 $ (0.76) $ 0.52
Basic weighted average common shares ....................... 6,475 6,470 6,475 6,465
Diluted weighted average common shares ..................... 6,475 6,636 6,475 6,649
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
AMERICAN COIN MERCHANDISING, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
-------- ---------- -------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998 ....... $ 65 $ 21,989 $ 11,594 $ 33,648
Net loss ............. -- -- (4,906) (4,906)
-------- -------- -------- --------
SEPTEMBER 30, 1999 ...... $ 65 $ 21,989 $ 6,688 $ 28,742
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
AMERICAN COIN MERCHANDISING, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net (loss) earnings .................................................... $ (4,906) $ 3,465
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization ...................................... 8,978 5,291
Write off of costs in excess of assets acquired, severance and
other costs ...................................................... 7,536 --
Compensation expense related to stock options ...................... -- 15
Changes in operating assets and liabilities:
Trade accounts and other receivables ........................... 885 113
Inventories .................................................... (633) (3,611)
Prepaid expenses and other assets .............................. (4,244) (2,338)
Income taxes payable ........................................... -- 124
Accounts payable, accrued expenses and other liabilities ....... (1,592) 8,901
---------- ----------
Net cash provided by operating activities ........................ 6,024 11,960
---------- ----------
Investing activities:
Acquisitions of property and equipment, net ............................ (4,865) (19,709)
Acquisitions of franchisees and others ................................. (159) (43,026)
Placement fees ......................................................... (435) (536)
---------- ----------
Net cash used in investing activities ............................ (5,459) (63,271)
---------- ----------
Financing activities:
Issuance of company obligated mandatorily redeemable preferred
securities, net of discount and issuance costs ....................... -- 15,618
Net borrowings (payments) on credit facility ........................... (416) 39,310
Principal payments on long-term debt ................................... (1,763) (1,047)
Principal payments on notes payable to Control Group ................... -- (674)
Acquisition of warrants ................................................ -- (492)
Exercise of employee stock options ..................................... -- 105
---------- ----------
Net cash provided by (used in) financing activities .............. (2,179) 52,820
---------- ----------
Net (decrease) increase in cash and cash equivalents ............. (1,614) 1,509
Cash and cash equivalents at beginning of period .......................... 2,247 1,929
---------- ----------
Cash and cash equivalents at end of period ................................ $ 633 $ 3,438
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
AMERICAN COIN MERCHANDISING, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. and
American Coin Merchandising Trust I (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, truck stops,
bingo halls, bars, restaurants, warehouse clubs and similar locations. The
Company also operates bulk vending equipment, kiddie rides and video equipment
that are located primarily in supermarkets and mass merchandisers. At September
30, 1999, the Company had 38 field offices with operations in 41 states and
there were 13 Company franchisees operating in 15 territories.
The accompanying consolidated 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 been condensed or omitted
pursuant to such rules and regulations. Certain amounts for prior periods have
been reclassified to conform to the September 30, 1999 presentation. Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these consolidated condensed
financial statements be read in connection with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
In the opinion of the Company, the accompanying consolidated condensed
financial statements include all adjustments (consisting of normal recurring
accruals and adjustments) required to present fairly the Company's financial
position at September 30, 1999 and December 31, 1998, and the results of their
operations for each of the three month and nine month periods ended September
30, 1999 and 1998, and the cash flows for each of the nine month periods then
ended.
The operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
A schedule of supplemental cash flow information follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
Cash paid during the period:
Interest paid ...................................................... $ 2,508 $ 1,599
Income taxes paid .................................................. -- 1,734
Significant noncash investing and financing activity--
notes payable issued for acquisitions of franchisees and others .... -- 5,490
</TABLE>
3. EARNINGS PER SHARE
Basic (loss) earnings and diluted (loss) earnings per share are computed
by dividing (loss) earnings available to common stockholders by the weighted
average number of common shares outstanding during the period and by all
dilutive potential common shares outstanding during the period, respectively.
The weighted average number of shares used in the computation of basic (loss)
earnings per share were 6,475,069 and 6,470,039 for the three months ended
September 30, 1999 and 1998 and 6,475,069 and 6,465,389 for the nine months
ended September 30, 1999 and 1998, respectively. Diluted weighted average
common shares for the third quarter of 1999 were 6,475,069, as including
potential common shares is anti-dilutive, as compared to 6,636,472 for the
comparable period in 1998. Diluted weighted average common shares for the first
nine months of 1999 were 6,475,069, as including potential common shares is
anti-dilutive, as compared to 6,649,333 for the comparable period in 1998.
4. INCOME TAXES
Quarterly income taxes are computed using the anticipated effective tax
rate for the year.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for the historical information contained herein, 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, but are not limited to, those discussed in this section and the
Company's Form 10-K for the year ended December 31, 1998.
GENERAL
Substantially all of the Company's revenue and gross profit is derived
from Company-owned Shoppes. The Company's revenue and gross profit in a
particular period is directly related to the number of Shoppes in operation
during the period. Management believes that the Company's business is somewhat
seasonal, with average revenue per machine per week greater during the Easter
and Christmas periods. Vending revenue represents cash receipts from customers
using vending machines and is recognized when collected. The cost of vending
revenue is comprised of the cost of vended product, location commissions,
depreciation and direct service cost.
Franchise and other revenue represents the Company's percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees, as well
as product sold to franchisees and non-franchisees. Product sold to the
franchisees consists of goods to vend in Shoppes. Equipment sales to
franchisees have been done on a pass-through basis from the Company's main
suppliers.
REVENUE
Total revenue for the first nine months of 1999 increased 32.9% to $89.3
million from $67.2 million for the same period in 1998. For the third quarter
of 1999, total revenue increased 8.9% to $29.9 million as compared to $27.4
million for the same period in 1998.
Vending revenue increased $21.2 million or 33.0% for the first nine months
of 1999 to $85.3 million from $64.2 million for the comparable period in 1998,
primarily as a result of a 37.3% increase in the average number of Shoppes in
place during the first nine months of 1999 compared to the average number in
place during the same period in 1998. For the third quarter of 1999, vending
revenue increased $2.3 million or 8.8 % to $ 28.8 million as compared to the
same period in 1998. The average number of machines in place during the third
quarter of 1999 increased by 14.0% as compared to the third quarter of 1998.
The Company has recently experienced substantial revenue growth, however,
there can be no assurance that the Company will continue to grow at historical
rates or at all. The Company's ability to generate increased revenue and
achieve higher levels of profitability will depend upon its ability and the
ability of its franchisees to place additional Shoppes as well as to maintain
or increase the average financial performance of the Shoppes. The Company's
ability to place additional Shoppes depends on a number of factors beyond the
Company's control, including general business and economic conditions.
Installation of additional Shoppes will also depend, in part, upon the
Company's ability to secure additional national and regional supermarket, mass
merchandiser and restaurant chain accounts and to obtain approval to place
additional Shoppes in individual locations of such accounts. The Company, its
franchisees and their suppliers also may be unable to place and adequately
service additional Shoppes.
The Company has recently completed a number of acquisitions (15
acquisitions since June 1, 1996, including ten acquisitions since October 1,
1997). The Company's results have been effected by the interest expense and
amortization of intangibles related to the acquisitions completed in the second
half of 1998. The Company's results have also been affected by the costs
associated with the integration of operational and administrative functions.
There can be no assurance that the Company will be able to integrate the
businesses it has acquired successfully or in a timely manner in accordance
with its strategic objectives. Failure to effectively and efficiently integrate
acquired businesses could have a material adverse effect on the Company's
business, financial condition and results of operations.
Franchise and other revenue increased $933,000 or 31.1% to $3.9 million
for the first nine months of 1999 as compared to the same period in 1998 due to
an increase in product sales to non-franchisees offset by lower product and
machine sales and franchise royalties from franchisees due to the acquisition
of franchisees by the Company. For the third quarter of 1999, franchise and
other revenue increased $126,000 or 12.8% to $1.1 million compared to the same
period in 1998. The Company anticipates product sales to non-franchisees to
decline in the future as a result of the closure of its Plush 4 Play operations
and changes in contracts assumed as a result of the Plush 4 Play acquisition.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
COST OF REVENUE AND GROSS PROFIT
The cost of vending operations for the first nine months of 1999 increased
$17.6 million or 38.7% to $63.0 million from $45.4 million for the comparable
period in 1998. The vending operation's contribution to gross profit for the
first nine months of 1999 increased to $22.4 million, which represents a 19.3%
increase over gross profit from vending operations realized in the same period
in 1998. The vending gross profit achieved during the first nine months of 1999
was 26.2% of vending revenue, which represents a 3 percentage point decrease
from the gross profit achieved during the first nine months of 1998. For the
third quarter of 1999, the cost of vending increased $2.7 million or 14.5% to
$21.3 million from $18.6 million for the comparable period in 1998. Vending
gross profit realized during the third quarter of 1999 was $7.4 million or
25.8% of vending revenue as compared to $7.8 million or 29.6% for the third
quarter of 1998.
The cash vending gross profit (vending revenue minus cost of vended
product, location commissions and direct service cost) achieved during the
first nine months of 1999 was 33.1% of vending revenue, which is 2.5 percentage
points lower than the cash vending gross profit achieved during the first nine
months of 1998. The cash vending gross profit for the current quarter is 3.6
percentage points lower than the cash vending gross profit achieved during the
third quarter of 1998. The Company attributes the shortfall primarily to the
higher cost of Star Wars product utilized during the second quarter of 1999
which failed to generate the level of anticipated customer interest, higher
skill-crane machine commission rates paid to locations resulting from contracts
assumed as a result of the Plush 4 Play acquisition and a larger percentage of
the Company's vehicle fleet being under lease in 1999 compared to 1998.
Substantially all the Company's plush toys and other products dispensed
from the Shoppes are produced by foreign manufacturers. A majority are
purchased directly by the Company from manufacturers in the People's Republic
of China ("China"). The Company purchases its other products indirectly from
vendors who obtain a significant percentage of such products from foreign
manufacturers. As a result, the Company is subject to changes in governmental
policies, the imposition of tariffs, import and export controls, transportation
delays and interruptions, political and economic disruptions and labor strikes
which could disrupt the supply of products from such manufacturers. Among other
things, the loss of China's "most favored nation" status under U.S. tariff laws
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 which could have a material adverse
effect on the Company's financial condition and results of operations.
Gross profit on franchise and other revenue for the first nine months of
1999 increased to $1.2 million or 29.6% of franchise and other revenue, which
is 7.6 percentage points lower than the gross margin percentage achieved for
the same period in 1998. For the third quarter of 1999, gross profit on
franchise and other revenue decreased to $134,000 or 12.1% of franchise and
other revenue, as compared to $365,000 or 37.2% of franchise and other revenue
for the third quarter of 1998. The decrease in gross profit on franchise and
other revenue is due primarily to a change in the computational components
utilized to allocate product procurement and warehousing costs to the Company's
vending operations and increased freight costs experienced during the third
quarter of 1999.
OPERATING EXPENSE
General and administrative expenses and depreciation and amortization as a
percentage of revenue increased to 21.6% for the first nine months of 1999, as
compared to 19.1% for the comparable period in 1998. The increase in general and
administrative expenses results from an increase in sales and use taxes;
corporate and management compensation; increased reserves for health care costs
due to a recent increase in the number of claims and the cost per claim; and a
reserve for doubtful accounts receivable. Additional depreciation expense was
recorded during the period due to the reduction in the useful life of certain
costs associated with the Company's data processing system. The Company
anticipates higher general and administrative expenses to continue through 1999.
During the third quarter of 1999, the Company renegotiated a major contract
that was originally assumed with the acquisition of Plush 4 Play. Company-owned
equipment and personnel will replace the equipment and group operators
previously utilized by Plush 4 Play to service these account locations;
therefore, substantially all of the assets and operations obtained in the Plush
4 Play acquisition will no longer have value to the Company. As a result of this
change, the Company has experienced a significant decline in product sales to
equipment group operators and is currently liquidating inventory obtained as a
result of this acquisition. The remaining $6.3 million (net of $1.4 million of
contingent earn-out consideration) of costs in excess of assets acquired and
other costs associated with the closure of related to the Plush 4 Play
acquisition have been written off.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
In addition, the Company also recorded a one-time charge to cover the
costs of severance packages for executives no longer with the Company and the
retirement of certain obsolete skill-crane machines that were not fully
depreciated.
OPERATING (LOSS) EARNINGS
The Company's operating loss for the first nine months of 1999 is $3.3
million, as compared to operating earnings of $7.0 million, or 10.5% of total
revenue for the comparable period in 1998. The decrease in operating results is
primarily attributable to the write off of costs in excess of assets acquired
related to Plush 4 Play, one-time severance costs and other costs recorded by
the Company in the third quarter of 1999.
NON OPERATING INCOME (EXPENSE)
Interest expense for the first nine months of 1999 increased $3.4 million
to $5.1 million as compared to the same period in 1998. Interest expense for
the third quarter of 1999 increased $498,000 to $1.7 million as compared to the
same period in 1998. The increase in interest expense relates to the financing
of acquisitions made by the Company in the second half of 1998. The Company's
interest expense is directly related to its level of borrowings and changes in
the underlying interest rates.
NET (LOSS) EARNINGS AND NET (LOSS) EARNINGS PER SHARE
The net loss for the first nine months of 1999 was $4.9, as compared to
net earnings of $3.5 million for the comparable period in 1998. The net loss
for the third quarter of 1999 was $5.0 as compared to net earnings of $906,000
for the comparable period in 1998. The diluted loss per share for the third
quarter of 1999 was $0.77, as compared to net earnings per share of $0.14 for
the comparable period in 1998. Diluted weighted average common shares for the
third quarter of 1999 were 6,475,069, as including potential common shares is
anti-dilutive, as compared to 6,636,472 for the comparable period in 1998. The
diluted loss per share for the first nine months of 1999 was $0.76, as compared
to net earnings per share of $0.52 for the comparable period in 1998. Diluted
weighted average common shares for the first nine months of 1999 were
6,475,069, as including potential common shares is anti-dilutive, as compared
to 6,649,333 for the comparable period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flows from operations, borrowings under the
Company's bank credit facilities and issuances of its equity securities. These
sources of cash flows have been offset by cash used for acquisitions,
investment in skill-crane machines, other amusement vending businesses and
payment of long-term borrowings.
Net cash provided by operating activities was $6.0 million and $12.0
million for the nine months ended September 30, 1999 and 1998, respectively.
The Company anticipates that cash will continue to be provided by operations as
additional skill-crane machines and other amusement devices are placed in
service. Cash required in the future is expected to be funded by existing cash
and cash provided by operations, borrowings under the Company's credit
facility.
Net cash used in investing activities was $5.5 million and $63.3 million
for the nine months ended September 30, 1999 and 1998, respectively. Capital
expenditures for the nine months ended September 30, 1999 and 1998 amounted to
$4.9 million and $19.7 million, respectively, of which $4.3 million and $16.4
million was represented by the acquisition of skill-crane and other machines.
The acquisition of franchisees and other amusement vending businesses in 1998
used $43.0 million.
Net cash used by financing activities was $2.2 million in the nine months
ended September 30, 1999 and net cash provided was $52.8 million for the nine
months ended September 30, 1998. Financing activities consist of advances and
repayments on the Company's credit facility and other debt obligations and in
1998 the repurchase of warrants.
Under its current Credit Facility, the Company may borrow up to $55.0
million less interest reserve of $509,000 at the bank's prime interest rate
(8.25% at September 30, 1999) or, at the Company's option, an interest rate
based on the current LIBOR rate. The Credit Facility is available through July
13, 2001 and at September 30, 1999 there was a principal amount of
approximately $46.2 million outstanding and $7.7 million available under the
facility. The credit facility provides that certain financial ratios be met and
places restrictions on, among other things, the occurrence of additional debt
financing and the payment of dividends. The Company was in compliance with such
financial ratios and restrictions at September 30, 1999.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
The Company may use a portion of its capital resources to effect
acquisitions of franchisees. Because the Company cannot predict the timing or
nature of acquisition opportunities, or the availability of acquisition
financing, the Company cannot determine the extent to which capital resources
may be used. Company management believes that funds generated from operations,
borrowings available under its credit facility, the Company's ability to
negotiate additional and enhanced credit agreements and to sell additional
equity securities will be sufficient to meet the Company's foreseeable
operating and capital expenditure needs.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the fact that certain management information
systems use two digit date fields which recognize dates using the assumption
that the first two digits are "19" (i.e., the number 98 is recognized as the
year 1998). When the year 2000 occurs, these systems could interpret the year
as 1900 versus 2000, which in turn, could result in system failures or
miscalculations causing disruptions to the Company and its suppliers.
To address the issue, the Company has established a compliance team that
includes outside consulting staff. The team has instituted a multi-phase plan
that includes; inventorying all computer systems, software and business
equipment to assess the impact of the Year 2000; obtaining documentation from
each software vendor to ascertain their compliance; developing solution plans
related to upgrading, modifying or replacing affected systems; and obtaining
documentation from significant suppliers stating their Year 2000 readiness.
The compliance team has determined that the Company's critical operating
systems, accounting systems, computer systems and business equipment are the
major resources that are affected by the Year 2000 issue. While certain of
these systems will need to be upgraded or replaced, the identified systems and
or programs are primarily "off the shelf" products with Year 2000 updates
available. The Company has determined these systems to be substantially
compliant.
As a part of its Year 2000 plan, the Company has contacted its significant
suppliers to determine the extent to which the systems of such suppliers are
Year 2000 compliant. The Company will continue to contact its suppliers in an
effort to minimize any potential Year 2000 compliance impact, however, it is
not possible to guarantee their compliance.
The total cost for the Year 2000 has been and is expected to be minimal.
Management believes that it has an effective plan in place to adequately
address the Year 2000 issue in a timely manner. Nevertheless, failure of third
parties upon which the Company's business relies could result in disruption of
the Company's supply of equipment and other general problems related to daily
operations. In addition, disruptions in the economy generally resulting from
Year 2000 issues could adversely effect the Company. Although, the Company
believes its Year 2000 plan will adequately address the Company's internal
issues, the overall risks associated with the Year 2000 issue cannot be fully
identified until the Company receives more responses from significant
suppliers. Accordingly, the amount of potential liability and lost revenue, if
any, cannot be reasonably estimated at this time.
11
<PAGE> 12
PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Statement re: Computation of Per Share (Loss)
Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
12
<PAGE> 13
AMERICAN COIN MERCHANDISING, INC.
SIGNATURES
Pursuant to the requirements 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.
AMERICAN COIN MERCHANDISING, INC.
November 15, 1999 By: /s/ Randall J. Fagundo
- --------------------------- ----------------------------------------
Date Randall J. Fagundo
President and Chief Executive Officer
November 15, 1999 By: /s/ W. John Cash
- --------------------------- ----------------------------------------
Date W. John Cash
Vice President, Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Statement re: Computation of Per Share (Loss) Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
AMERICAN COIN MERCHANDISING, INC.
COMPUTATION OF PER SHARE (LOSS) EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net (loss) earnings ................................... $ (4,961,000) $ 906,000 $ (4,906,000) $ 3,465,000
============ ============ ============ ============
Common shares outstanding at beginning of period ...... 6,475,069 6,468,903 6,475,069 6,452,904
Effect of shares issued during the period ........ -- 1,136 -- 12,485
------------ ------------ ------------ ------------
Basic weighted average common shares .................. 6,475,069 6,470,039 6,475,069 6,465,389
Incremental shares from assumed conversions:
Stock options .................................... -- 140,708 -- 155,131
Warrants ......................................... -- 25,257 -- 28,813
------------ ------------ ------------ ------------
Diluted weighted average common shares ................ 6,475,069 6,636,472 6,475,069 6,649,333
============ ============ ============ ============
Basic (loss) earnings per share .................. $ (0.77) $ 0.14 $ (0.76) $ 0.54
Diluted (loss) earnings per share ................ $ (0.77) $ 0.14 $ (0.76) $ 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 633
<SECURITIES> 0
<RECEIVABLES> 1,073
<ALLOWANCES> 226
<INVENTORY> 12,945
<CURRENT-ASSETS> 20,250
<PP&E> 61,054
<DEPRECIATION> 19,139
<TOTAL-ASSETS> 102,492
<CURRENT-LIABILITIES> 8,685
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 28,796
<TOTAL-LIABILITY-AND-EQUITY> 102,492
<SALES> 84,185
<TOTAL-REVENUES> 89,275
<CGS> 18,641
<TOTAL-COSTS> 65,745
<OTHER-EXPENSES> 26,570
<LOSS-PROVISION> 226
<INTEREST-EXPENSE> 5,082
<INCOME-PRETAX> (8,348)
<INCOME-TAX> 3,442
<INCOME-CONTINUING> (4,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,906)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
