-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VrEUB4YXgcf/fpQ9+Ck2ltzw1gw6u7CMfViiPHxWnd3dG8nnOEZTeKUPgzdtcN8R IXUWI+5qNb8c4dS/8D8KZQ== 0000950134-99-010153.txt : 19991117 0000950134-99-010153.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950134-99-010153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN COIN MERCHANDISING INC CENTRAL INDEX KEY: 0000949112 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 841093721 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14780 FILM NUMBER: 99754594 BUSINESS ADDRESS: STREET 1: 5660 CENTRAL AVE CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034442559 MAIL ADDRESS: STREET 1: 4870 STERLING DRIVE CITY: BOULDER STATE: CO ZIP: 80306 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1999 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.
OUTSTANDING AT CLASS OCTOBER 29, 1999 ----- ---------------- Common Stock, $0.01 par value 6,475,069 shares
2 AMERICAN COIN MERCHANDISING, INC. INDEX
PART I FINANCIAL INFORMATION. PAGE ---- 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
2 3 AMERICAN COIN MERCHANDISING, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share data)
ASSETS SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------ ------------ 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 ============ ============
See accompanying notes to consolidated condensed financial statements. 3 4 AMERICAN COIN MERCHANDISING, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 -------- -------- -------- -------- 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
See accompanying notes to consolidated condensed financial statements. 4 5 AMERICAN COIN MERCHANDISING, INC. CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
ADDITIONAL TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY -------- ---------- -------- ------------ 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 ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. 5 6 AMERICAN COIN MERCHANDISING, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---------- ---------- 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 ========== ==========
See accompanying notes to consolidated condensed financial statements. 6 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):
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 -------- -------- 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
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 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 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 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 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 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 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 14 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 11.1 Statement re: Computation of Per Share (Loss) Earnings 27 Financial Data Schedule
EX-11.1 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 AMERICAN COIN MERCHANDISING, INC. COMPUTATION OF PER SHARE (LOSS) EARNINGS
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ 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
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 633 0 1,073 226 12,945 20,250 61,054 19,139 102,492 8,685 0 0 0 65 28,796 102,492 84,185 89,275 18,641 65,745 26,570 226 5,082 (8,348) 3,442 (4,906) 0 0 0 (4,906) (0.76) (0.76)
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