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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 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: 001-14780 American Coin Merchandising, Inc. (Exact name of Registrant as specified in its charter)
 Delaware
    
    84-1093721(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 397 South Taylor Avenue
Louisville, Colorado 80027
(Address of principal executive offices)
(Zip Code) (303) 444-2559
(Registrants telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [x] NO [   ] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [   ] NO [x] As of May 10, 2004, the registrant had 1,000 shares of its $0.01 par value
common stock outstanding.




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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES INDEX PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets-March 31, 2004 and December 31, 2003
    
    
    
    3Condensed Consolidated Statements of Operations-Three Months Ended March 31, 2004 and 2003
    
    
    
    4Condensed Consolidated Statements of Cash Flows-Three Months Ended March 31, 2004 and 2003
    
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    
    16Item 4. Controls and Procedures
    
    
    
    16PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    
    17Certification Pursuant to Section 302Certification Pursuant to Section 302Certificaton Pursuant to Section 906
  2




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PART I. FINANCIAL INFORMATION 
 Item 1. FINANCIAL STATEMENTS AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands except share data)
 March 31,
    
    December 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,326
    
    
    $
    4,599Trade accounts and other receivables, net
    
    
    1,597
    
    
    
    1,294Inventories, net
    
    
    19,939
    
    
    
    22,962Prepaid expenses and other assets
    
    
    5,607
    
    
    
    5,051Total current assets
    
    
    30,469
    
    
    
    33,906Property and equipment, at cost:Vending machines
    
    
    69,968
    
    
    
    67,688Vehicles
    
    
    3,300
    
    
    
    4,062Office equipment, furniture and fixtures
    
    
    6,151
    
    
    
    5,91779,419
    
    
    
    77,667Less accumulated depreciation
    
    
    (21,463
    )
    
    
    (19,454
    )Property and equipment, net
    
    
    57,956
    
    
    
    58,213Placement fees, net of accumulated
amortization of $5,764 in 2004 and $5,148 in
2003
    
    
    1,883
    
    
    
    2,164Costs in excess of assets acquired
    
    
    74,359
    
    
    
    74,359Other intangible assets, net of accumulated
amortization of $1,146 in 2004 and $830 in
2003
    
    
    8,828
    
    
    
    9,144Other assets, net of accumulated amortization
of $3,660 in 2004 and $3,141 in 2003
    
    
    6,964
    
    
    
    6,974Total assets
    
    $
    180,459
    
    
    $
    184,760LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    6,882
    
    
    $
    6,349Accounts payable
    
    
    6,854
    
    
    
    14,300Accrued commissions
    
    
    3,880
    
    
    
    3,443Other accrued expenses
    
    
    3,365
    
    
    
    3,874Total current liabilities
    
    
    20,981
    
    
    
    27,966Long-term debt, net of current portion
    
    
    120,113
    
    
    
    117,037Other liabilities
    
    
    289
    
    
    
    298Fair value of interest rate collar agreement
    
    
    824
    
    
    
    911Total liabilities
    
    
    142,207
    
    
    
    146,212Stockholders equity:Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    41,197
    
    
    
    41,137Accumulated deficit
    
    
    (2,945
    )
    
    
    (2,589
    )Total stockholders equity
    
    
    38,252
    
    
    
    38,548Total liabilities and stockholders equity
    
    $
    180,459
    
    
    $
    184,760
 See accompanying notes to condensed consolidated financial statements. 3




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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands)
 Three MonthsEndedMarch 31,2004
    
    2003Revenue:Vending
    
    $
    55,372
    
    
    $
    37,115Franchise and other
    
    
    974
    
    
    
    880Total revenue
    
    
    56,346
    
    
    
    37,995Cost of revenue:Vending, excluding related depreciation and amortization
    
    
    38,512
    
    
    
    25,479Depreciation and amortization
    
    
    3,697
    
    
    
    3,141Total cost of vending
    
    
    42,209
    
    
    
    28,620Franchise and other
    
    
    590
    
    
    
    568Total cost of revenue
    
    
    42,799
    
    
    
    29,188Gross profit
    
    
    13,547
    
    
    
    8,807General and administrative expenses
    
    
    9,552
    
    
    
    6,598Depreciation and amortization
    
    
    592
    
    
    
    239Operating earnings
    
    
    3,403
    
    
    
    1,970Interest expense, net
    
    
    3,822
    
    
    
    2,878Change in fair value of interest rate collar
    
    
    (87
    )
    
    
    52Loss before income taxes
    
    
    (332
    )
    
    
    (960
    )Income tax (expense) benefit
    
    
    (24
    )
    
    
    365Net loss
    
    $
    (356
    )
    
    $
    (595
    )
 See accompanying notes to condensed consolidated financial statements. 4




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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands)
 Three MonthsEndedMarch 31,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (356
    )
    
    $
    (595
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities-Depreciation and amortization
    
    
    3,442
    
    
    
    3,751Amortization
of debt issuance costs allocated from Parent
    
    
    47
    
    
    
    Change in fair value of interest rate collar, net of cash paid.
    
    
    (87
    )
    
    
    52Gain on sale of assets
    
    
    (78
    )
    
    
    Changes in operating assets and liabilities:Trade accounts and other receivables
    
    
    (303
    )
    
    
    (9
    )Inventories
    
    
    3,023
    
    
    
    (328
    )Prepaid expenses and other assets
    
    
    (546
    )
    
    
    (1,458
    )Accounts payable, accrued expenses and other liabilities
    
    
    (7,168
    )
    
    
    2,248Net cash
(used in) provided by operating activities
    
    
    (2,026
    )
    
    
    3,661Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (2,474
    )
    
    
    (1,954
    )Proceeds from sale of assets
    
    
    300
    
    
    
    Placement fees
    
    
    (336
    )
    
    
    (513
    )Net cash used in investing activities
    
    
    (2,510
    )
    
    
    (2,467
    )Cash flows from financing activities:Net
borrowings (payments) on credit facility
    
    
    3,401
    
    
    
    (2,027
    )Principal payments on long-term debt
    
    
    (151
    )
    
    
    (141
    )Equity contribution from parent
    
    
    13
    
    
    
    Net cash
provided by (used in) financing activities
    
    
    3,263
    
    
    
    (2,168
    )Net change in cash and cash equivalents
    
    
    (1,273
    )
    
    
    (974
    )Cash and cash equivalents at beginning of period
    
    
    4,599
    
    
    
    4,178Cash and cash equivalents at end of period
    
    $
    3,326
    
    
    $
    3,204
 See accompanying notes to condensed consolidated financial statements. 5




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AMERICAN COIN MERCHANDISING, INC. AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Description of Business and Basis of Presentation American
Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. and Folz
Vending, Inc. (the Company) owns and
operates approximately 167,300 coin-operated amusement vending machines.
Approximately 18,700 of these machines are Shoppes that dispense plush toys,
watches, jewelry, novelties, and other items. In addition to Shoppes, the
Company operates an extensive line of bulk vending (gum, candy and novelty
items), kiddie rides, video games and other amusement equipment. The Companys
amusement vending machines are placed in supermarkets, mass merchandisers,
bowling centers, truck stops, bingo halls, bars, restaurants, warehouse clubs
and similar locations. At March 31, 2004, the Company had 37 field offices with
operations in 49 states and Puerto Rico. The Company also sells products and
amusement vending equipment to franchisees and third parties. At March 31,
2004, there were six franchisees operating in 7 territories. All significant
intercompany balances and transactions have been eliminated in consolidation. On February 11, 2002, the Company was acquired by ACMI Holdings, Inc., a
newly formed corporation organized by two investment firms, Wellspring Capital
Management LLC and Cadigan Investment Partners, Inc. (f/k/a Knightsbridge
Holdings, LLC) (the Acquisition). As a result of the Acquisition, the
Companys common stock is no longer publicly traded. The Companys mandatorily
redeemable preferred securities remain outstanding and continue to trade on the
American Stock Exchange. The accompanying condensed consolidated 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 accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. Certain
amounts for prior periods have been reclassified to conform to the March 31,
2004 presentation. These condensed consolidated financial statements should be
read in connection with the consolidated financial statements and notes thereto
included in the Companys annual report on Form 10-K for the year ended
December 31, 2003. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to income taxes,
inventory, property and equipment, valuation of long-lived and intangible
assets, costs in excess of assets acquired, and placement fees and other
assets. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results could differ significantly from those
estimates. In the opinion of the Company, the accompanying condensed consolidated
financial statements include all adjustments (consisting of normal recurring
accruals and adjustments) required to present fairly the Companys financial
position at March 31, 2004 and December 31, 2003, and the results of its
operations and cash flows for the three months ended March 31, 2004 and 2003,
respectively. The operating results for the periods ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004. The Company adopted Financial Accounting Standards Board Interpretation No. 46
Consolidation of Variable Interest Entities  An Interpretation of ARB No.
51, as revised, (FIN No. 46R) during the quarter ended March 31, 2004. As a
result of the adoption of FIN No. 46, the Company no longer consolidates its
wholly owned subsidiary American Coin Merchandising Trust I (the Trust) and
instead recognizes as debt the Ascending Rate Junior Subordinated Debentures
issued by the Company and held by the Trust, as more fully discussed in Note 8. (2) Acquisitions On April 15, 2003, the Company, through a wholly owned subsidiary,
completed the acquisition of substantially all of the assets of Folz Vending
Co., Inc. and its wholly owned subsidiary Folz Novelty Co., Inc. (collectively
Folz) for $22.3 million. The acquisition was funded through additional
borrowings under the Companys amended and restated credit facility, the
issuance of additional senior subordinated notes and an equity contribution
received from its parent company, ACMI Holdings, Inc. 6




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The Company also made several smaller acquisitions during the second
quarter of 2003. On May 30, 2003, the Company purchased certain amusement
vending assets from, and assumed certain liabilities of, GamePlan, Inc. and
Pinball Wizard, Inc. (collectively GamePlan) for $8.6 million. On May 30,
2003, the Company acquired certain amusement vending assets from a former
franchisee for $709,000. On June 19, 2003, the Company purchased certain assets
consisting of kiddie rides from another operator for $1.4 million. The Company
utilized its credit facility to fund all of these acquisitions. After allocating fair value to the assets acquired in these
acquisitions, the Company allocated remaining amounts of $3.2 million to costs in excess of assets acquired and $3.3 million to
other intangible assets. Results of operations for these acquisitions are included in the
consolidated financial statements from the respective acquisition dates
forward. (3) Stock-Based Compensation The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. No stock-based employee compensation cost has been
recognized, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
Had compensation cost for the Companys stock-based compensation plans been
determined consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the Companys net loss would have been increased to the pro forma
amounts indicated below (amounts in thousands). Three MonthsEndedMarch 31,2004
    
    2003Net lossAs reported
    
    $
    (356
    )
    
    $
    (595
    )Pro forma
    
    $
    (403
    )
    
    $
    (620
    )
 (4) Supplemental Disclosures of Cash Flow Information A schedule of supplemental cash flow information follows (in thousands): Three MonthsEndedMarch 31,2004
    
    2003Cash paid during the period:Interest paid
    
    $
    3,039
    
    
    $
    2,353Income taxes paid
    
    $
    69
    
    
    $
    28
 The
quarter ended March 31, 2004, included a $47,000 non-cash allocation
of debt issuance costs from ACMI Holdings, Inc. (5) Income Taxes The Company accounts for income taxes under the asset and liability method
of accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. Deferred tax assets and liabilities are measured using enacted rates
expected to be in effect for the years in which those temporary differences are
expected to be recovered or settled. The effects on deferred tax assets and
liabilities of a change in tax rates are recognized in income in the period
that includes the enactment date. The Company regularly reviews its
deferred tax assets for recoverability and has established valuation allowances based on its taxable income,
projected future taxable income, and the expected timing of the reversals of
existing temporary differences. If the Company operates at a loss or is unable
to generate sufficient future taxable income, or if there is a material change
in the actual effective tax rates or time period within which the underlying
temporary differences become taxable or deductible, the Company
records a valuation allowance against all or a significant
portion of our deferred tax 7




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assets
resulting in an increase in our effective tax rate or
reduction in benefit rate and a material adverse impact on our operating
results. For the three months ended March 31, 2004, the company did
not recognize any benefit for its operating losses but increased its
valuation allowance to approximately $1.0 million.
Should management conclude that its deferred tax
assets are realizable in the future, the valuation allowance will be reversed
to the extent of such realizability. The Company is also subject to examination of its income, sales and local
use tax returns by the IRS and various other tax authorities. The Company
periodically assesses the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of its provisions and related accruals. (6) Cost in Excess of Assets Acquired and Other Intangible Assets Costs in excess of assets acquired and other intangible assets represent
the purchase amount paid in excess of the fair value of the tangible net assets
acquired. The Company performs a fair value assessment of costs in excess of
assets acquired and the other intangible assets on an annual basis or whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors the Company considers important, which could trigger an
impairment review, include significant underperformance relative to expected
historical or projected future operating results, changes in the manner of use
of the acquired assets or the strategy of the related business and negative
industry or economic trends. (7) Credit Facility and Long-Term Debt On February 13, 2004, the Company completed Amendment No. 1 to its amended
and restated senior secured credit facility dated April 15, 2003. The amended
senior secured credit facility is comprised of a $12.0 million revolving credit
facility and provides for up to $78.5 million of term debt. The $78.5 million
term debt facility is comprised of a $26.3 million term loan A, a $37.2 million
term loan B, a $2.7 million term loan C and a $12.3 million term loan D. As of
March 31, 2004, there was $74.1 million of total term loans outstanding. As of
March 31, 2004, there was $4.0 million outstanding on the revolver, $1.1
million utilized by letters of credit, and $6.9 million available under the
revolving credit facility. The revolving credit facility expires on March 31,
2007. Under the term loan facilities, the Company is required to make quarterly
principal installments that increase in amount until the March 31, 2008
termination of the facilities. The revolving facility and the term loans bear
interest at a floating rate at the Companys option, equal to either LIBOR plus
the applicable margin or a base rate that is equal to the higher of the prime
rate or the federal funds rate plus one-half percent plus the applicable
margin. The effective rate of interest on the credit facility at March 31, 2004
was 6.4%. The credit agreement governing the Companys senior secured credit
facility requires certain financial ratios to be met and places restrictions
on, among other things, the incurrence of additional debt financing and certain
payments to the Companys parent company. The Company was in compliance with
such financial ratios and restrictions at March 31, 2004. In February 2002 and April 2003, the Company issued $25.0 million and $6.5
million, respectively, of senior subordinated notes due in 2009. Interest on
these notes is payable on a quarterly basis at the rate of 17% per annum;
provided, however, the minimum cash interest on these notes is 13% with the
balance of interest payable in the form of additional payment in kind notes.
Included in the $33.8 million of senior subordinated notes outstanding at March
31, 2004 is $2.3 million of payment in kind notes issued in lieu of interest.
The note agreement provides that certain financial ratios be met and places
restrictions on, among other things, the incurrence of additional senior
subordinated indebtedness and certain restricted payments. The Company was in
compliance with such financial ratios and restrictions at March 31, 2004. (8) Mandatorily Redeemable Preferred Securities In September 1998, the Trust completed a public offering of $17 million of
Ascending Rate (10.5% at December 31, 1998 increasing to 12.0% at September 16,
2005) Cumulative Trust Preferred Securities (the Trust Preferred Securities).
The Trust used the proceeds from the sale of the Trust Preferred Securities to
purchase approximately $17 million of American Coin Merchandising, Inc. Ascending Rate
(10.5% at December 31, 1998 increasing to 12.0% at September 16, 2005) Junior
Subordinated Debentures (the Subordinated Debentures) due September 15, 2028.
The sole assets of the Trust are the Subordinated Debentures. Prior to the deconsolidation of the Trust as required by FIN No. 46R, the
Company reported the Trust Preferred Securities as Company obligated
mandatorily redeemable preferred securities of subsidiary trust holding junior
subordinated debentures, a mezzanine security on the condensed consolidated
balance sheets. Under FIN No. 46R, the condensed consolidated financial
statements reflect the deconsolidation of the Trust for all periods presented.
Accordingly, long-term debt and interest expense reflect the obligation and
interest cost, respectively of the Subordinated Debentures. Adoption of FIN
No. 46R did not have a material effect on results of operations in the periods
presented, as the fair value of the Subordinated Debentures approximates the
fair value of the Trust Preferred Securities and the effective interest cost on
the Trust Preferred Securities approximates the effective interest expense on
the Subordinated Debentures. The Company may defer the payment of interest on the Subordinated
Debentures for successive periods up to eight consecutive quarters. During such
periods, accrued interest on the Subordinated Debentures will compound
quarterly and the Company may not declare or pay distributions on its common
stock or debt securities that rank equal or junior to the Subordinated
Debentures. 8




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(9) Interest Rate Collar The Company uses variable rate debt to finance its operations. These debt
obligations expose the Company to variability in interest payments due to
changes in interest rates. If interest rates increase, interest expense
increases. Conversely, if interest rates decrease, interest expense also
decreases. Management believes it is prudent to limit the variability of a portion of
its interest payments, and the Company is obligated under terms of its debt
agreements to limit the variability of a portion of its interest payments.
Accordingly, the Company entered into an interest rate collar instrument on
March 28, 2002, with the Royal Bank of Scotland PLC. The Company paid $181,000
to obtain the agreement which hedges against increases in LIBOR rates through
March 31, 2005. The initial notional amount was $27.5 million amortizing over a
three-year period. The initial floor rate is 3.0% increasing 1.0% per year over
the life of the agreement and the initial cap rate is 4.0% increasing 1.0% per
year over the life of the agreement. The Company is the floor rate payee and
the Royal Bank of Scotland PLC is the cap rate payee. No payments are made if
LIBOR falls between the floor and cap rate. This agreement reduces the risk of
interest rate increases to the Company above the cap rate. SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, requires that all derivative instruments be reported in the
statement of financial position as assets or liabilities and measured at fair
value. The Companys interest rate collar instrument does not qualify for hedge
accounting treatment under SFAS No. 133. Accordingly the Company records this
instrument at fair value and recognizes realized and unrealized gains and
losses. The Company paid $170,000 during the quarter since LIBOR was below the floor
rate under the interest rate collar. This amount is included in interest
expense in the condensed consolidated statements of operations. The fair value
of the interest rate collar is obtained from bank quotes. These values
represent the estimated amount the Company would receive or pay to terminate
the agreement taking into consideration current interest rates. The fair value
at December 31, 2003 was a liability of $911,000. The fair value recorded at
March 31, 2004 was a liability of $824,000. Accordingly, the change in fair
value of this non-hedging derivative instrument is included as a net expense
reduction of $87,000 for the three months ending March 31, 2004. The Company
does not speculate using derivative instruments. (10) Restructuring Charge In June 2003, the Company recorded a restructuring charge associated with
the termination of certain administrative and sales employees that resulted
from reorganizing certain functions after the acquisition of Folz. The
restructuring accrual is included in other accrued expenses in the accompanying
condensed consolidated balance sheets and follows the guidance of Statement of
Financial Accounting Standards (SFAS) No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. 9




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The activity in the restructuring accrual is as follows: Balance, December 31, 2002
    
    $
    Expense
    
    
    320Payments
    
    
    (181
    )Balance, December 31, 2003
    
    
    139Expense
    
    
    Payments
    
    
    (70
    )Balance, March 31, 2004
    
    $
    69
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report contains forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact, including, without limitation, the statements
under Managements Discussion and Analysis of Financial Condition and Results
of Operations are forward-looking statements. Forward-looking statements may
include the words believes, expects, plans, intends, anticipates,
continues or other similar expressions. These statements are based on the
Companys current expectations of future events and are subject to a number of
risks and uncertainties that may cause the Companys actual results to differ
materially from those described in the forward-looking statements. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. These risks and uncertainties are
disclosed from time to time in the Companys filings with the Securities and
Exchange Commission and in oral statements made by or with the approval of
authorized personnel. The Company assumes no obligation to update any
forward-looking statements as a result of new information or future events or
developments. General The Company owns and operates coin-operated amusement vending equipment
with more than 167,300 pieces of equipment on location. Over 18,700 of these
machines are Shoppes that dispense plush toys, watches, jewelry, novelties and
other items. In addition to Shoppes, the Company operates an extensive line of
bulk vending (gum, candy and novelty items), kiddie rides, video games and
other amusement equipment. The Companys Shoppes, bulk vending and other
amusement equipment are placed in supermarkets, mass merchandisers,
restaurants, bowling centers, truck stops, bingo halls, warehouse clubs and
similar retail locations to take advantage of the customer traffic at these
locations. The Companys revenue and gross profit in a particular period is
directly related to the number of Shoppes and bulk vending equipment in
operation during the period. Management believes that the Companys business is
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 products, location commissions,
depreciation, and direct service costs. On February 11, 2002 the Company was acquired by ACMI Holdings, Inc., a
newly formed corporation organized by two investment firms, Wellspring Capital
Management LLC and Cadigan Investment Partners, Inc. (f/k/a Knightsbridge
Holdings, LLC). The Companys common stock is no longer publicly traded. The
Companys mandatorily redeemable preferred securities remain outstanding and
continue to trade on the American Stock Exchange. On April 15, 2003, the Company, through a wholly owned subsidiary,
completed the acquisition of substantially all of the assets of Folz Vending
Co., Inc. and its wholly owned subsidiary Folz Novelty Co., Inc. (collectively
Folz) for $22.3 million. The acquisition was funded through additional
borrowings under the Companys amended and restated credit facility, the
issuance of $6.5 million of additional senior subordinated notes and a $12.5
million equity contribution received from the Companys parent, ACMI Holdings,
Inc. In addition to the Folz acquisition, the Company made a number of other
smaller asset acquisitions during the second quarter of 2003 in the aggregate
amount of $10.7 million, all funded through the Companys credit facility. 10




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Franchise and other revenue are derived from the sale of Shoppes, kiddie
rides and goods to vend in the Shoppes sold to third parties and franchisees,
and royalties from franchisees. RESULTS OF OPERATIONS Three-Month Period Ended March 31, 2004 Compared to March 31, 2003 The following table is presented to complement the analysis below (amounts
in thousands): Three Months Ended March 31,
    
    Change% of
    
    
    
    
    
    % of2004
    
    Revenue
    
    2003
    
    Revenue
    
    $
    
    %Revenue:Vending
    
    $
    55,372
    
    
    
    98.3
    %
    
    $
    37,115
    
    
    
    97.7
    %
    
    $
    18,257
    
    
    
    49.2
    %Franchise and other
    
    
    974
    
    
    
    1.7
    %
    
    
    880
    
    
    
    2.3
    %
    
    
    94
    
    
    
    10.7
    %Total revenue
    
    
    56,346
    
    
    
    100.0
    %
    
    
    37,995
    
    
    
    100.0
    %
    
    
    18,351
    
    
    
    48.3
    %Cost of revenue:Vending, excluding depreciation and
amortization
    
    
    38,512
    
    
    
    68.3
    %
    
    
    25,479
    
    
    
    67.1
    %
    
    
    13,033
    
    
    
    51.2
    %Depreciation and amortization
    
    
    3,697
    
    
    
    6.6
    %
    
    
    3,141
    
    
    
    8.3
    %
    
    
    556
    
    
    
    17.7
    %Total cost of vending
    
    
    42,209
    
    
    
    74.9
    %
    
    
    28,620
    
    
    
    75.3
    %
    
    
    13,589
    
    
    
    47.5
    %Franchise and other
    
    
    590
    
    
    
    1.0
    %
    
    
    568
    
    
    
    1.5
    %
    
    
    22
    
    
    
    3.9
    %Total cost of revenue
    
    
    42,799
    
    
    
    76.0
    %
    
    
    29,188
    
    
    
    76.8
    %
    
    
    13,611
    
    
    
    46.6
    %Gross profit
    
    
    13,547
    
    
    
    24.0
    %
    
    
    8,807
    
    
    
    23.2
    %
    
    
    4,740
    
    
    
    53.8
    %General and administrative expenses
    
    
    9,552
    
    
    
    17.0
    %
    
    
    6,598
    
    
    
    17.4
    %
    
    
    2,954
    
    
    
    44.8
    %Depreciation and amortization
    
    
    592
    
    
    
    1.1
    %
    
    
    239
    
    
    
    0.6
    %
    
    
    353
    
    
    
    147.7
    %Operating earnings
    
    
    3,403
    
    
    
    6.0
    %
    
    
    1,970
    
    
    
    5.2
    %
    
    
    1,433
    
    
    
    72.7
    %Interest expense, net
    
    
    3,822
    
    
    
    6.8
    %
    
    
    2,878
    
    
    
    7.6
    %
    
    
    944
    
    
    
    32.8
    %Change in fair value of interest rate collar
    
    
    (87
    )
    
    
    (0.2
    )%
    
    
    52
    
    
    
    0.1
    %
    
    
    (139
    )
    
    
    (267.3
    )%Earnings (loss) before income taxes
    
    
    (332
    )
    
    
    (0.6
    )%
    
    
    (960
    )
    
    
    (2.5
    )%
    
    
    628
    
    
    
    (65.4
    )%Income tax (expense) benefit
    
    
    (24
    )
    
    
    0.0
    %
    
    
    365
    
    
    
    1.0
    %
    
    
    (389
    )
    
    
    (106.6
    )%Net earnings (loss)
    
    $
    (356
    )
    
    
    (0.6
    )%
    
    $
    (595
    )
    
    
    (1.6
    )%
    
    $
    239
    
    
    
    (40.2
    )%Vending revenue
    
    $
    55,372
    
    
    
    
    
    
    $
    37,115
    
    
    
    
    
    
    $
    18,257
    
    
    
    49.2
    %Cost of goods sold excluding depreciation
and amortization
    
    
    38,512
    
    
    
    
    
    
    
    25,479
    
    
    
    
    
    
    
    13,033
    
    
    
    51.2
    %Gross profit-vending
    
    
    16,860
    
    
    
    30.4
    %
    
    
    11,636
    
    
    
    31.4
    %
    
    
    5,224
    
    
    
    44.9
    %Depreciation and amortization
    
    
    3,697
    
    
    
    
    
    
    
    3,141
    
    
    
    
    
    
    
    556
    
    
    
    17.7
    %Gross margin-vending
    
    $
    13,163
    
    
    
    23.8
    %
    
    $
    8,495
    
    
    
    22.9
    %
    
    $
    4,668
    
    
    
    54.9
    %Franchise and other revenue
    
    $
    974
    
    
    
    
    
    
    $
    880
    
    
    
    
    
    
    $
    94
    
    
    
    10.7
    %Cost of goods sold
    
    
    590
    
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    22
    
    
    
    3.9
    %Gross profit-franchise and other
    
    $
    384
    
    
    
    39.4
    %
    
    $
    312
    
    
    
    35.5
    %
    
    $
    72
    
    
    
    23.1
    %
 Revenue Total revenue for the three months ended March 31, 2004 increased 48.3% to
$56.3 million from $38.0 million for the same period in 2003. Vending revenue increased $18.3 million or 49.2% for the three months
ended March 31, 2004 to $55.4 million from $37.1 million for the comparable
period in 2003, primarily as a result of an increase in the number of
Shoppes bulk and amusement vending machines in place. Total amusement vending equipment
in place increased from approximately 34,100 machines at March 31, 2003 to
approximately 167,300 machines at March 31, 2004. These increases are the
result of the Folz, GamePlan and other asset acquisitions completed during the
quarter ended June 30, 2003 and internal growth. The Company has experienced growth primarily through its recent
acquisitions, 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 to place additional Shoppes, as well as to maintain or increase the
average financial 11




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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. There is no assurance that the Company will be able
to place and service additional Shoppes. Franchise and other revenue increased $94,000 or 10.7% for the first
quarter of 2004 to $974,000 from $880,000 for the same period in 2003,
due primarily to increased sales of amusement vending equipment to third
parties and franchisees. The Company anticipates franchise and other revenue
will vary in the future based upon demand and production availability. Cost of Revenue and Gross Profit The cost of vending operations (including depreciation and amortization)
for the three months ended March 31, 2004 increased $13.6 million or 47.5% to
$42.2 million from $28.6 million for the comparable period in 2003 primarily
due to increased volume and machines added as a result of the Companys acquisition activities. The vending
operations contribution to gross profit for the quarter increased $4.7 million
to $13.2 million compared to the comparable period in 2003. The vending gross
margin achieved during the quarter was 23.8% of vending revenue, which
represents a 0.9 percentage point increase over the gross profit percentage
achieved during the first quarter of 2003. Vending gross profit before
depreciation and amortization decreased 1.0 percentage points to 30.4% for the
quarter ended March 31, 2004 compared to the same period in the prior year. The
decrease in vending gross margin percentage is due primarily from the change in
the Companys sales mix. The Company now has a higher percentage of bulk
vending revenues after the Folz acquisition. Bulk vending typically has a
lower gross margin than the Companys other amusement vending offerings. Substantially all the Companys plush toys and other products dispensed
from the Shoppes are produced by foreign manufacturers. A majority is purchased
directly by the Company from manufacturers in China. The Company purchases its
other such products from third-party vendors. 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 that could disrupt the supply of
products from such manufacturers. While the Company believes that there are a
sufficient number of alternative sources of supply, no assurance can be given
that in the event of any such disruption, alternative sources will be
available, or that the Company will be able to obtain favorable pricing from
such sources. For the first quarter of 2004, gross profit on franchise and other revenue
increased to $384,000 as compared to $312,000 for the first quarter of 2003.
The increase in gross profit dollars results from the sale of amusement vending
equipment to third parties during 2004. Operating Expenses General
and administrative expenses (excluding depreciation and
amortization) increased $3.0 million to $9.6 million for the three months ended
March 31, 2004. General and administrative expenses were 17.0% of revenue in the first quarter of 2004 and 17.4% of revenue in the comparable period in 2003. The increase in general
and administrative expenses for the first quarter of 2004 as compared to the comparable period in 2003
was primarily due to the addition of personnel to support the acquired
operations, additional personnel in the sales and marketing and logistics and
support areas to better manage the Companys current and expected future
operations and travel and related costs incurred to integrate acquired
operations. Operating Earnings Operating earnings for the three months ended March 31, 2004 were $3.4
million, or 6.0% of total revenue, as compared to operating earnings of $2.0
million or 5.2% of total revenue for the comparable period in 2003. Interest Expense, Net Interest expense for the first quarter of 2004 increased $944,000 to $3.8
million as compared to the same period in 2003. The Companys interest expense
is directly related to a higher level of borrowings after the Folz and GamePlan
acquisitions during the second quarter of 2003 and changes in the underlying
interest rates. 12




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##### Table of Contents



Net Loss Net loss for the first quarter of 2004 was $356,000 compared to a net loss
of $595,000 for the comparable period in 2003. Critical Accounting Policies Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses the Companys condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments,
including those related to income taxes, inventory, property and equipment,
valuation of long-lived and intangible assets, and costs in excess of assets
acquired. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements. Income Taxes.The Company recognizes deferred tax assets and liabilities
based on the differences between the financial statement carrying amounts and
the tax bases of assets and liabilities. The Company regularly reviews its
deferred tax assets for recoverability and has historically established
a valuation allowance based on its taxable income, projected future taxable
income, and the expected timing of the reversals of existing temporary
differences. If the Company operates at a loss or is unable to generate
sufficient future taxable income, or if there is a material change in the
actual effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, the Companys estimate
of the appropriate valuation allowance may be revised and could
result in an  increase in our effective tax
rate or reduction in benefit rate and a material adverse impact on our
operating results. Inventory.The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional inventory
write-downs may be required. Property and Equipment.Property and equipment is stated at cost. Major
replacements and improvements are capitalized. When assets are sold, retired or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and a gain or loss is recognized. Repair and
maintenance costs, unless they increase the life or utility of the equipment,
are generally charged to expense as incurred. Vending machines are depreciated
using the straight-line method over estimated useful lives ranging from three
to ten years, which may be different from actual expense. Valuation of Long-Lived and Intangible Assets and Costs in Excess of
Assets Acquired.The Company assesses the impairment of identifiable
intangibles and long-lived assets whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Costs in excess of
assets acquired are reviewed for impairment annually or earlier if events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors considered important that could trigger an impairment
review include significant underperformance relative to expected historical or
projected future operating results, changes in the manner of our use of the
acquired assets and the strategy for our overall business and negative industry
or economic trends. 13




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##### Table of Contents



When the Company determines that the carrying value of costs in excess of
assets acquired and other intangible assets may not be recoverable based upon
the existence of one or more of the above indicators of impairment, the Company
measures any impairment based on the fair value of the projected discounted
cash flows using a discount rate determined by our management to be
commensurate with the risk inherent in the Companys current business model. The Company has not recorded an impairment charge upon completion of
previous impairment reviews. However, there can be no assurance that at the
time of future reviews, an impairment charge will not be required, which may be
material. 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 credit facilities and issuance of its equity and debt securities.
These sources of cash flows have been offset by cash used for acquisitions,
investment in amusement vending equipment and payment of long-term borrowings. Net
cash used in operating activities was $2.0 million for the three
months ended March 31, 2004. Net cash provided by operating activities was $3.7
million for the three months ended March 31, 2003. During the
quarter ended March 31, 2004, the Company reduced its
investment in inventory and utilized borrowings under its credit
facility to reduce the outstanding balances of accounts payable,
accrued expenses and other liabilities from December 31, 2003. The Company anticipates that
cash will be provided by operations as additional amusement vending
equipment is placed in service. Net
cash used in investing activities was $2.5 million for each of
the quarters ended March 31, 2004 and 2003. The acquisition of amusement vending equipment
was the primary use of invested cash. Net cash provided by financing activities was $3.3 million for the three
months ended March 31, 2004. For the three months ended
March 31, 2003, financing activities used $2.2 million of cash. Financing activities consist
primarily of borrowing or payments on the Company credit facility. At March 31, 2004, the Company had a $90.5 million senior secured credit
facility comprised of a $12.0 million revolving credit facility and $78.5
million of term loans. As of March 31, 2004, there was $74.1 million of total
term loans outstanding. The Company can borrow up to $12.0 million through
March 31, 2007 under the terms of the revolving credit facility. As of March
31, 2004, there was $4.0 million of revolving loans outstanding, $1.1 million
of letters of credit outstanding, and $6.9 million available under the
revolving credit facility. Under the term loan facilities, the Company is
required to make quarterly principal installments that increase in amount until
the March 31, 2007 termination of the facilities. Total
principal payments are expected to be $6.9 million during the next 12 months. The revolving facility and
the term loans bear interest at a floating rate at the Companys option, equal
to either LIBOR plus the applicable margin or a base rate that is equal to the
higher of the prime rate or the federal funds rate plus one-half percent plus
the applicable margin. The effective rate of interest on both facilities at
March 31, 2004 was 6.4%. The credit agreement governing the Companys senior
secured credit facility requires certain financial ratios to be met and places
restrictions on, among other things, the incurrence of additional debt
financing and certain payments to the Companys parent company. In February 2002 and April 2003, the Company issued $25.0 million and $6.5
million, respectively, of senior subordinated notes due in 2009. Interest on
these notes is payable on a quarterly basis at the rate of 17% per annum;
provided, however, the minimum cash interest on these notes is 13% with the
balance of interest payable in the form of additional payment in kind notes.
Included in the $33.8 million of senior subordinated notes outstanding at March
31, 2004 is $2.3 million of payment in kind notes issued in lieu of interest.
The note agreement provides that certain financial ratios be met and places
restrictions on, among other things, the incurrence of additional senior
subordinated indebtedness and certain restricted payments. The Company was in
compliance with such financial ratios and restrictions at March 31, 2004. 14




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##### Table of Contents



In accordance with FIN No. 46R, the Company deconsolidated the Trust for
financial reporting purposes. As a result, the Company has included the
Subordinated Debentures held by the Trust in long-term debt. Adoption of FIN
No. 46R did not have a material effect on results of operations in the periods
presented, as the fair value of the Subordinated Debentures approximates the
fair value of the Trust Preferred Securities and the effective interest cost on
the Trust Preferred Securities approximates the effective interest expense on
the Subordinated Debentures. The Company may defer the payment of interest on the Subordinated
Debentures for successive periods up to eight consecutive quarters. During such
periods, accrued interest on the Subordinated Debentures will compound
quarterly and the Company may not declare or pay distributions on its common
stock or debt securities that rank equal or junior to the Subordinated
Debentures. In conjunction with the acquisition of Folz on April 15, 2003, the Company
received a $12.5 million equity contribution by its parent company ACMI
Holdings, Inc. to fund a portion of the acquisition. The Company may use a portion of its capital resources to effect
acquisitions of franchisees, other companies or other amusement vending assets.
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.
Cash required in the future is expected to be funded by existing cash
and cash provided by operations and borrowings under the Companys
credit facility. Management believes such funds will be sufficient to meet the Companys foreseeable
operating and capital expenditure requirements. The Company currently has no commitments or agreements with respect to any
material acquisitions. However, if the Company concludes appropriate
opportunities are available, it may attempt to acquire businesses,
technologies, services or products that it believes are a strategic fit with
its business. If the Company undertakes such acquisitions, the process of
integrating the acquired business, technology, service or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of its business. Moreover, the Company may fail to realize the anticipated
benefits of any acquisition. Future acquisitions could also expose the Company
to unexpected future liabilities and result in impairment charges related to
intangible assets. Impact of Recently Issued Accounting Standards In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities: an Interpretation of ARB
No. 51 (FIN No. 46). FIN No. 46
requires that all special-purpose entities be designated as either a
voting-interest entity or a variable-interest entity (VIE). A VIE is an
entity for which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient
equity at risk for the VIE to finance its activities without additional
subordinated financial support from other parties. A VIE is required to be
consolidated by its primary beneficiary if it does not effectively disperse
risks among parties involved. The primary beneficiary of a VIE is the party
that absorbs a majority of the VIEs expected losses or receives a majority of
its expected residual returns. The implementation of FIN No. 46 was required for periods beginning after June 15,
2003. However, in October 2003, the FASB deferred the effective date for
applying FIN No. 46 to VIEs created before February 1, 2003 until the end of the
first interim period ending after December 15, 2003. In December 2003, the
FASB revised FIN No. 46 (FIN No. 46R) to incorporate certain revisions, including the
requirement to disregard certain rights in determining whether an entity is the
primary beneficiary in a VIE. Under FIN No. 46R, the Company is not the primary
beneficiary of American Coin Merchandising Trust I (the Trust), a wholly
owned subsidiary, and the Company was therefore required to deconsolidate the
Trust effective in the quarter ended March 31, 2004. Accordingly, the
Companys Subordinated Debentures held by the Trust have been included in long-
term debt for all periods presented. On January 1, 2003, the Company adopted SFAS No. 145, Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which rescinded the required classification of gains and losses
from extinguishments of debt as an extraordinary item, net of tax, and
eliminated inconsistency between required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
adoption of this pronouncement resulted in a reclassification of $1.7 million
from an extraordinary item to operations. On January 1, 2003, the Company adopted SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). Generally,
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized as incurred, whereas EITF Issue No. 94-3
requires such a liability to be recognized at the time that an entity committed
to an exit plan. In accordance with SFAS No. 146, the Company recorded $320,000
of restructuring costs in the second quarter of 2003. In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123. This statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosures
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company has adopted the expanded disclosure provisions of
SFAS No. 148. 15




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##### Table of Contents



In April 2003, the FASB decided to require all companies to expense the
fair value of employee stock options by no later than 2005. While the FASB has
decided in principle to measure compensation at the date of grant, no guidance
has been given as to how the cost of employee stock options should be measured.
SFAS No. 123 requires use of an option-pricing model to determine fair value,
such as Black-Scholes. This FASB plans to issue an exposure draft later this
year that will provide more guidance. Until a final pronouncement is issued by
the FASB, management cannot determine what impact expensing stock options will
have on its results of operations. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As required under the Companys senior secured credit facility, on March
28, 2002, the Company entered into an amortizing interest rate collar agreement
with the Royal Bank of Scotland PLC. The Company paid $181,000 to obtain the
agreement which hedges against increases in LIBOR rates through March 31, 2005.
The initial notional amount was $27.5 million amortizing over a three-year
period. The initial floor rate of 3.0% increases 1.0% per year over the life of
the agreement and the initial cap rate of 4.0% increases 1.0% per year over the
life of the agreement. The Company is the floor rate payee and the Royal Bank
of Scotland PLC is the cap rate payee. No payments are made if LIBOR falls
between the floor and cap rate. If the three-month LIBOR rates were to increase
(decrease) by 100 basis points, then the additional interest payment related to
the floor rate would increase (decrease) by $62,000 per quarter. The Companys
outstanding debt obligations are at variable interest rates and consequently
the fair value approximates the carrying value. 
 Item 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports filed under the

Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the specified time periods. As of the end of the period
covered by this report, the Companys Chief Executive Officer and Chief
Financial Officer evaluated, with the participation of the Companys
management, the effectiveness of the Companys disclosure controls and 16




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##### Table of Contents



procedures. Based on the evaluation, the Companys Chief Executive Officer
and Chief Financial Officer concluded that the Companys disclosure controls
and procedures are effective. There were no changes in the Companys internal
control over financial reporting that occurred during the Companys most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT
    
    DESCRIPTION2.1w
    
    Agreement and Plan of Merger, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation, Crane Mergerco Inc., a Delaware corporation and Registrant.2.2w
    
    Form of Voting Agreement, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation and each of Richard P. Bermingham, Randall J. Fagundo, Richard D. Jones, John A.
Sullivan and J. Gregory Theisen.3.1
    
    Certificate of Incorporation of the Registrant.3.3S
    
    Certificate of Merger of the Registrant.3.4S
    
    Restated Certificate of Incorporation.3.5S
    
    Amended and Restated Bylaws of the Registrant.4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2S
    
    Specimen Stock Certificate.4.3o
    
    Certificate of Trust of American Coin Merchandising Trust I.4.4o
    
    Trust Agreement of American Coin Merchandising Trust I.4.5o
    
    Amended and Restated Trust Agreement of American Coin Merchandising Trust I.4.6o
    
    Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as Trustee.4.7o
    
    Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin Merchandising
Trust
I.4.8o
    
    Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.4.9o
    
    Form of Certificate Evidencing Trust Preferred Securities.4.10o
    
    Form of Certificate Evidencing Trust Common Securities.4.11o
    
    Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.4.12S
    
    17% Senior Subordinated Notes Due 2009 between the Registrant and each of the parties listed on the
attached schedule, dated February 11, 2002.10.1
    
    Form of Indemnity Agreement to be entered into between the Registrant and its directors and executive
officers.10.47Ñ
    
    Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and Best Vendor Co.10.48Ñ
    
    Addendum to Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and
Best Vendor Co.10.49Ñ
    
    Addendum #2 to Premier Amusement Vendor Agreement, dated February 14, 2000, between the Registrant
and Best Vendor Co.10.50Ä
    
    Amusement Vending Agreement, effective as of July 1, 2000, between the Registrant and Dennys Inc.10.51Ä
    
    Other Income Supplier Agreement-Coin Operated Equipment, dated August 1, 2000 between the Registrant
and Wal-Mart Stores, Inc.10.60S
    
    Services and Fee Agreement, dated February 11, 2002, between and among the Registrant, Wellspring
Capital
Management LLC and Knightsbridge Holdings, LLC d/b/a Krysiak Navab & Co.10.61S
    
    Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.10.62S
    
    Guarantee and Collateral Agreement, dated February 11, 2002, between and among the Registrant, ACMI
Holdings and Audax Mezzanine Fund, L.P., Royal Bank of Scotland PLC and Upper Colombia Capital
Company, LLC.10.63S
    
    Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named
therein, dated as of February 11, 2002.10.64S
    
    Amended and Restated Executive Employment Agreement, dated as of September 30, 2002, between the
Registrant and Randall J. Fagundo.10.65S
    
    Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated October
24, 2002.10.66S
    
    Consent, Waiver and Amendment to and Release Under Credit Agreement, dated as of November 12, 2002,
by and among the Registrant and Madison Capital Funding LLC and The Royal Bank of Scotland PLC, New
York Branch.10.67S
    
    Consent, Waiver and Amendment to the Purchase Agreement, dated as of November 12, 2002, by and among
ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein.10.68S
    
    Amendment to Guarantee and Collateral Agreement, dated as of November 12, 2002, by and among the
Registrant, ACMI Holdings, Inc. and Madison Capital Funding LLC10.69*
    
    Amendment No. 1 to Amended and Restated Credit Agreement dated as of February 13, 2004.10.70*
    
    Consent and Amendment No. 1 to Subordination and Intercreditor Agreement date as of February 13, 2004.10.71*
    
    Consent and Amendment No. 2 to Subordination and Intercreditor Agreement dated as of February 13, 2004.14.1*
    
    Code of Ethics31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.   w
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2001.
    
    Incorporated by reference to the Companys Registration Statement on Form SB-2, File No. 33-95446-D.O
    
    Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.y
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated April 29, 1999.Ñ
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2000.Ä
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2000.j
    
    Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.s
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2001.S
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002X
    
    Indicates management contract or compensatory plan, contract or arrangement.*
    
    Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2003.  (b)
    
    Reports on Form 8-K None. 17




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##### Table of Contents



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.
(Registrant)Date: May 17, 2004
    By:

/s/RANDALL
J. FAGUNDORandall J. FagundoChief Executive Officer Date: May 17, 2004
    By:

/s/KENNETH
W. EDICKenneth W. EdicSenior Vice President and Chief Financial Officer 18




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##### Table of Contents



INDEX TO EXHIBITS EXHIBIT
    
    DESCRIPTION2.1w
    
    Agreement and Plan of Merger, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation, Crane Mergerco Inc., a Delaware corporation and Registrant.2.2w
    
    Form of Voting Agreement, dated as of September 9, 2001, among Crane Mergerco Holdings, Inc., a
Delaware corporation and each of Richard P. Bermingham, Randall J. Fagundo, Richard D. Jones, John A.
Sullivan and J. Gregory Theisen.3.1
    
    Certificate of Incorporation of the Registrant.3.3S
    
    Certificate of Merger of the Registrant.3.4S
    
    Restated Certificate of Incorporation.3.5S
    
    Amended and Restated Bylaws of the Registrant.4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2S
    
    Specimen Stock Certificate.4.3o
    
    Certificate of Trust of American Coin Merchandising Trust I.4.4o
    
    Trust Agreement of American Coin Merchandising Trust I.4.5o
    
    Amended and Restated Trust Agreement of American Coin Merchandising Trust I.4.6o
    
    Form of Junior Subordinated Indenture between the Registrant and Wilmington Trust Company, as Trustee.4.7o
    
    Form of Guarantee Agreement with respect to Trust Preferred Securities of American Coin Merchandising
Trust
I.4.8o
    
    Form of Agreement as to Expenses and Liabilities between the Registrant and American Coin
Merchandising Trust I.4.9o
    
    Form of Certificate Evidencing Trust Preferred Securities.4.10o
    
    Form of Certificate Evidencing Trust Common Securities.4.11o
    
    Form of Ascending Rate Junior Subordinated Deferrable Interest Debenture.4.12S
    
    17% Senior Subordinated Notes Due 2009 between the Registrant and each of the parties listed on the
attached schedule, dated February 11, 2002.10.1
    
    Form of Indemnity Agreement to be entered into between the Registrant and its directors and executive
officers.10.47Ñ
    
    Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and Best Vendor Co.10.48Ñ
    
    Addendum to Premier Amusement Vendor Agreement, dated January 28, 2000, between the Registrant and
Best Vendor Co.10.49Ñ
    
    Addendum #2 to Premier Amusement Vendor Agreement, dated February 14, 2000, between the Registrant
and Best Vendor Co.10.50Ä
    
    Amusement Vending Agreement, effective as of July 1, 2000, between the Registrant and Dennys Inc.10.51Ä
    
    Other Income Supplier Agreement-Coin Operated Equipment, dated August 1, 2000 between the Registrant
and Wal-Mart Stores, Inc.10.60S
    
    Services and Fee Agreement, dated February 11, 2002, between and among the Registrant, Wellspring
Capital
Management LLC and Knightsbridge Holdings, LLC d/b/a Krysiak Navab & Co.10.61S
    
    Credit Agreement, dated February 11, 2002, between and among the Registrant and Madison Capital
Funding LLC and The Royal Bank of Scotland PLC.10.62S
    
    Guarantee and Collateral Agreement, dated February 11, 2002, between and among the Registrant, ACMI
Holdings and Audax Mezzanine Fund, L.P., Royal Bank of Scotland PLC and Upper Colombia Capital
Company, LLC.10.63S
    
    Purchase Agreement among ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named
therein, dated as of February 11, 2002.10.64S
    
    Amended and Restated Executive Employment Agreement, dated as of September 30, 2002, between the
Registrant and Randall J. Fagundo.10.65S
    
    Industrial Building Lease Agreement, between the Registrant and FCF Properties, LLC, dated October
24, 2002.10.66S
    
    Consent, Waiver and Amendment to and Release Under Credit Agreement, dated as of November 12, 2002,
by and among the Registrant and Madison Capital Funding LLC and The Royal Bank of Scotland PLC, New
York Branch.10.67S
    
    Consent, Waiver and Amendment to the Purchase Agreement, dated as of November 12, 2002, by and among
ACMI Holdings, Inc., the Registrant, as Issuer and the Purchasers named therein.10.68S
    
    Amendment to Guarantee and Collateral Agreement, dated as of November 12, 2002, by and among the
Registrant, ACMI Holdings, Inc. and Madison Capital Funding LLC10.69*
    
    Amendment No. 1 to Amended and Restated Credit Agreement dated as of February 13, 2004.10.70*
    
    Consent and Amendment No. 1 to Subordination and Intercreditor Agreement date as of February 13, 2004.10.71*
    
    Consent and Amendment No. 2 to Subordination and Intercreditor Agreement dated as of February 13, 2004.14.1*
    
    Code of Ethics31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.




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##### Table of Contents



w
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated September 10, 2001.
    
    Incorporated by reference to the Companys Registration Statement on Form SB-2, File No. 33-95446-D.O
    
    Incorporated by reference to the Companys Registration Statement on Form S-3, File No. 333-60267.y
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated April 29, 1999.Ñ
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2000.Ä
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended September 30, 2000.j
    
    Incorporated by reference to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.s
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2001.S
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002X
    
    Indicates management contract or compensatory plan, contract or arrangement.*
    
    Incorporated by reference to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2003.