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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 27, 1997
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 1-11907
COINMACH LAUNDRY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3258015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
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 .
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AS OF THE CLOSE OF BUSINESS ON AUGUST 6, 1997, COINMACH LAUNDRY CORPORATION HAD
OUTSTANDING 10,004,278 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(THE "COMMON STOCK"), AND 480,648 SHARES OF NON-VOTING CLASS B COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "NON-VOTING COMMON STOCK").
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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The undersigned registrant hereby amends Item 2 of Part I of its
Quarterly Report on Form 10-Q, as filed with the Securities and Exchange
Commission on August 11, 1997, to read in its entirety as follows;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as other risks set forth in the Company's Annual Report on Form 10-K for
the year ended March 28, 1997. The results of operations for the three month
period ended June 27, 1997 do not take into account the National Coin
Acquisition.
GENERAL
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The Company, through its operating subsidiaries, is principally engaged in
supplying coin-operated laundry equipment services to multi-family housing
properties located in 31 states, the District of Columbia and Mexico operating
in 151 retail laundromats located throughout Texas. The most significant revenue
source is derived from its routes, which, giving effect to the National Coin
Acquisition, are currently comprised of approximately 40,000 locations
containing over 414,000 coin-operated washing machines and dryers. The Company
provides coin-operated laundry equipment services to locations by leasing
designated laundry rooms in buildings on a long-term basis.
The Company, through its operating subsidiary, also owns and operates Super
Laundry. Super Laundry's business consists of constructing complete turnkey
laundromat retail stores, retrofitting existing laundromat retail stores,
distributing exclusive and non-exclusive lines of commercial coin and non-coin
laundry machines and parts, and selling service contracts.
RESULTS OF OPERATIONS
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The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto and with
the Company's audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K as of and for the year
ended March 28, 1997.
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNE 27, 1997 AND JUNE 28, 1996
Revenues increased by approximately 50% for the three month period ended June
27, 1997, as compared to the prior year's corresponding period. The improvement
in revenues for the three month period consisted primarily of increased route
revenues resulting from internal expansion, the acquisition of the route and
laundromat business of Kwik Wash Laundries L.P. in January 1997 (the "Kwik Wash
Acquisition"), and the acquisition of the route business of Reliable Holding
Corp. in April 1997 (the "Reliable Acquisition"). During the three month period
ended June 27, 1997, the Company's installed base increased by approximately
5,500 machines from internal growth (excluding the machines added from the
Reliable Acquisition) as compared to an increase of approximately 2,200 machines
during the prior year period.
Laundry operating expenses increased by approximately 48%, for the three month
period ended June 27, 1997, as compared to the prior year's corresponding
period. The increase was due primarily to an increase in laundry operating
expenses related to the Kwik Wash Acquisition and the Reliable Acquisition.
Such increase in laundry operating expenses was offset partially by the
implementation
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
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of cost savings programs in the Company's field operations and the consolidation
of certain operating regions relating to certain acquisitions during the prior
year period.
General and administrative expenses increased by approximately $0.4 million, for
the three month period ended June 27, 1997, as compared to the prior year's
corresponding period. The increase for the period was due to various expenses
associated with (i) the implementation of the Company's acquisition strategy,
(ii) the development and implementation of procedures for the management of
investor relations, and (iii) systems development, refinement and integration,
in each case, resulting from the Company's recent acqusitions.
Depreciation and amortization expenses increased by approximately 68% for the
three month period ended June 27, 1997, as compared to the prior year's
corresponding period, due primarily to the contract rights and goodwill
associated with the Kwik Wash Acquisition and the Reliable Acquisition as well
as an increase in capital expenditures for the installed base of machines. As a
result of the Company's acquisition activity since early 1995, the Company
incurred approximately $8.7 million in non-cash purchase accounting related
depreciation and amortization charges for the current year period as compared to
$5.8 million for the prior year's corresponding period.
The Company granted Options to certain members of management to purchase shares
of Common Stock at a 15% discount to the initial offering price of the Common
Stock. With respect to such options granted to its employees, the Company will
record such discount as a stock-based compensation charge over the applicable
four year vesting period. The Company also granted to two of its disinterested
directors Independent Director Options to purchase up to a total of 120,000
shares of Common Stock. The Company will record the difference between the
exercise price of such options and the fair market value of the Common Stock on
the date of grant as a stock-based compensation charge over the applicable three
year vesting period. During the three months ended June 27, 1997, the Company
recorded a stock-based compensation charge of approximately $145,000 relating to
the such Options.
As a result of the above, operating income margins were approximately 8% for the
three month period ended June 27, 1997, as compared to approximately 9%, for the
three month period ended June 28, 1996.
Interest expense, net increased by approximately 64% for the three month period
ended June 27, 1997, as compared to the prior year's corresponding period, due
primarily to interest on indebtedness under the New Credit Facility. Partially
offsetting this increase in interest expense was interest income earned on
excess cash balances generated from the net proceeds from the Offering.
EBITDA (earnings before deductions for interest, income taxes, depreciation and
amortization) was approximately $22.4 million (before deduction for the stock-
based compensation charges) for the three months ended June 27, 1997, as
compared to approximately $14.3 million for the corresponding
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
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period in 1996, representing an improvement of approximately 56%. EBITDA margins
improved to approximately 31% for the three months ended June 27, 1997, compared
to approximately 30% for the prior year's corresponding period. EBITDA is used
by certain investors as an indicator of a company's historical ability to
service debt. Management believes that an increase in EBITDA is an indication of
the Company's improved ability to service existing debt, to sustain potential
future increases in debt and to satisfy capital requirements. However, EBITDA is
not intended to represent cash flows for the period, nor has it been presented
as an alternative to either (a) operating income (as determined by GAAP) as an
indicator of operating performance or (b) cash flows from operating, investing
and financing activities (as determined by GAAP) as a measure of liquidity.
Given that EBITDA is not a measurement determined in accordance with GAAP and is
thus susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
The Company's effective income tax rate differs from the amount computed by
applying the U.S. federal statutory rate to loss before income taxes as a result
of state taxes and permanent book/tax differences (largely attributable to
goodwill and certain stock compensation expenses).
LIQUIDITY AND CAPITAL RESOURCES
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The Company continues to have substantial indebtedness and debt service
requirements. At June 27, 1997, the Company had outstanding long-term debt of
approximately $403.1 million and stockholders' equity of approximately $20.2
million.
The Company's level of indebtedness will have several important effects on its
future operations, including, but not limited to, the following: (a) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness and will not be available for other
purposes; (b) the financial covenants contained in certain of the agreements
governing the Company's indebtedness will require the Company to meet certain
financial tests and will limit its ability to borrow additional funds or to
dispose of assets; (c) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (d) the Company's ability to adapt to
changes in the coin-operated laundry equipment services industry and to economic
conditions in general will be limited. At June 27, 1997, there was no amount
outstanding under the Company's revolving credit facility.
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the three months ended June 27, 1997 were approximately $60.6
million. Of such amount, the Company spent approximately $47.6 million in
acquisition and related transaction costs, including the Reliable Acquisition,
and approximately $3.9 million related to the net increase in the installed base
of machines. The balance was used to maintain the existing machine base and for
general corporate purposes. The full impact on revenues and EBITDA generated
from capital expended on acquisitions and the net increase in the installed base
of machines
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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are not expected to be reflected in the Company's financial results until
subsequent reporting periods, depending on certain factors including the timing
of the capital expended.
The Company's working capital requirements are, and are expected to continue to
be, minimal since a significant portion of the Company's operating expenses are
not paid until after cash is collected from the installed machines. In
connection with certain of the financing agreements governing the Company's
indebtedness, Coinmach is required to make monthly cash interest payments under
the New Credit Facility and semi-annual cash interest payments on the Senior
Notes.
Effective June 2, 1997, Coinmach entered into an amendment to the New Credit
Facility with Bankers Trust Company, First Union National Bank of North
Carolina, Lehman Commercial Paper, Inc. and certain other lending institutions
named therein, to increase the principal amount of the Tranche B term loan by
$60 million. The New Credit Facility, as amended and prior to giving effect to
payment of principal installments, consists of a $70 million revolving credit
facility and a $190 million term loan facility, which is comprised of a Tranche
A term loan in the amount of $30 million and Tranche B term loan in the amount
of $160 million. The New Credit Facility also provides for up to $10 million of
letter of credit financing and short term borrowings under a swing line facility
of up to $5 million.
In connection with Coinmach's January 1997 acquisition of KWL, Inc. ("KWL") and
Kwik-Wash Laundries, Inc. ("Kwik Wash"), the sole partners of Kwik Wash
Laundries, L.P., Coinmach Laundry issued a $15 million promissory note (the
"Kwik Wash Note") in partial payment of the purchase price for the outstanding
voting securities of KWL and Kwik Wash.
Management believes that the Company's future operating activities will generate
sufficient cash flow to repay borrowings under the Senior Notes, the New Credit
Facility and the Kwik Wash Note or to permit any necessary refinancings thereof.
An inability of the Company, however, to comply with covenants or other
conditions contained in the indenture governing the Senior Notes or in the New
Credit Facility could result in an acceleration of all amounts due under the
Indenture and the New Credit Agreement. If the Company is unable to meet its
debt service obligations, it could be required to take certain actions such as
reducing or delaying capital expenditures, selling assets, refinancing or
restructuring its indebtedness, selling additional equity capital or other
actions. There is no assurance that any of such actions could be effected on
commercially reasonable terms, if at all, or on terms permitted under the New
Credit Facility or the indenture governing the Senior Notes.
The Company's depreciation and amortization expenses (aggregating approximately
$16.5 million for the three months ended June 27, 1997) have the effect of
reducing net income but not operating cash flow. In accordance with GAAP, a
significant amount of the purchase price of businesses acquired by the Company
is allocated to "contract rights", which costs are amortized over periods of up
to 15 years. Although such accounting treatment can have a favorable effect on
operating cash flow by reducing taxes, such treatment also reduces net income.
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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On July 17, 1997, Coinmach consummated the National Coin Acquisition, pursuant
to which it acquired 100% of the outstanding voting securities of NCLH and NLEC.
NCLH is the parent of NCL. In a related transaction, the Company acquired
substantially all of the assets of Whitmer, an affiliate of NCLH, NLEC and NCL.
Coinmach acquired the NCL Entities for an aggregate purchase price of
approximately $19.0 million in cash. The NCL Entities provide coin-operated
laundry equipment services to multi-family dwellings in the states of Ohio,
Indiana, Kentucky, Michigan, West Virginia, Pennsylvania, Georgia, Tennessee,
Illinois and Florida, as well as distributing exclusive lines of commercial coin
and non-coin laundry machines and parts, and selling service contracts.
Subsequent to the acquisition of Whitmer and of the other NCL Entities, such
other entities were merged with and into Coinmach. The New Credit Facility was
used to fund the National Coin Acquisition.
As part of its business strategy, the Company will continue to evaluate
opportunities to acquire local, regional and multi-regional route businesses.
There can be no assurance that the Company will find attractive acquisition
candidates or effectively manage the integration of acquired businesses into its
existing business.
INFLATION AND SEASONALITY
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In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COINMACH LAUNDRY CORPORATION
Date: November 18, 1997 /s/ ROBERT M. DOYLE
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Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal Financial
Officer)
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