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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
EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 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 NOVEMBER 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
November 10, 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.
GENERAL
The Company is principally engaged in the business of supplying out-sourced
coin-operated laundry equipment services to multi-family housing properties. On
September 26, 1997, the Company owned and operated approximately 417,000 coin-
operated washers and dryers in approximately 42,000 multi-family housing
properties on routes throughout the United States and 151 retail laundromats
located throughout Texas. Coinmach Laundry, through Super Laundry Equipment
Corp. ("Super Laundry"), a wholly-owned subsidiary of Coinmach, is also a
construction and laundromat equipment distribution company.
The Company provides out-sourced coin-operated laundry equipment services
to locations by leasing laundry rooms from building owners and property
management companies, typically on a long-term, renewable basis. In return for
the exclusive right to provide these services, most of the Company's contracts
provide for commission payments to the location owners. Commission expense
(also referred to as rent expense), the Company's single largest expense item,
is included in laundry operating expenses and represents payments to location
owners. Commissions may be fixed amounts or percentages of revenues and are
generally paid monthly. Also included in laundry operating expenses are the
cost of servicing and collecting in the route business, including, payroll,
parts, vehicles and other related items, the cost of sales associated with Super
Laundry and certain expenses related to the operation of retail laundromats.
In addition to commission payments, many of the Company's leases require
the Company to make advance rental payments to the location owners. These
advance payments are capitalized and amortized over the life of the applicable
lease.
Other revenue sources for the Company include (i) leasing laundry equipment
and other household appliances and electronic items to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties; (ii) operating, maintaining and servicing retail laundromats; and
(iii) constructing complete turnkey retail laundromats, retrofitting existing
retail laundromats, distributing exclusive lines of commercial coin and non-coin
machines and parts, and selling service contracts.
RESULTS OF OPERATIONS
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.
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 COMPARED TO THREE AND SIX
MONTH PERIODS ENDED SEPTEMBER 27, 1996
Revenues increased by approximately 67% and 59% for the three and six month
periods ended September 26, 1997, respectively, as compared to the prior year's
corresponding periods. The improvement in revenues for the three and six month
periods resulted primarily from the acquisition of the route and laundromat
business of Kwik Wash Laundries, L.P. in January 1997 (the "Kwik Wash
Acquisition"), the acquisition of the route business of Reliable Holding Corp.
in April 1997 (the "Reliable Acquisition"), the acquisition (the "National Coin
Acquisition")
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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)
of the route business of National Coin Laundry Holding, Inc. ("NCLH"), National
Coin Laundry, Inc. ("NCL"), National Laundry Equipment Company, Inc. ("NLEC")
and Whitmer Vend-O-Mat Laundry Services, Inc. ("Whitmer"), and increased route
revenues resulting from internal expansion. During such six-month period, the
Company's installed base increased by approximately 9,400 machines from internal
growth (excluding the machines added from the Reliable Acquisition and the
National Coin Acquisition) as compared to an increase of approximately 4,200
machines during the prior year's corresponding period.
Laundry operating expenses increased by approximately 68% and 58% for the
three and six month periods ended September 26, 1997, respectively, as compared
to the prior year's corresponding periods. The increase was due primarily to an
increase in laundry operating expenses related to the Kwik Wash Acquisition, the
Reliable Acquisition and the National Coin Acquisition.
General and administrative expenses increased by approximately $0.3 million
and $0.8 million, for the three and six month periods ended September 26, 1997,
respectively, as compared to the prior year's corresponding periods. The
increase for the periods was primarily due to various expenses associated with
(i) costs relating to the Company's acquisition strategy, including legal and
financial due diligence investigations of potential targets and related costs,
(ii) the development and implementation of procedures for the management of
investor relations, and (iii) systems development and refinement relating to the
integration of prior acquisitions.
Depreciation and amortization increased by approximately 74% and 71% for
the three and six month periods ended September 26, 1997, respectively, as
compared to the prior year's corresponding periods, due primarily to the
contract rights and goodwill associated with the Kwik Wash Acquisition, the
Reliable Acquisition and the National Coin 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 $18.9 million in non-cash depreciation and amortization charges
for the six months ended September 26, 1997 as compared to $11.7 million for the
prior year's corresponding period.
In July 1996, Coinmach Laundry issued in privately negotiated transactions,
79,029 shares of its Class B common stock to certain members of management.
Coinmach Laundry recorded a stock-based compensation charge of approximately
$887,000 attributable to the issuance of such stock. In addition, in July 1996
approximately $103,000 of receivables relating to loans to management in
connection with prior purchases of Common Stock were forgiven and have been
recorded as a stock-based compensation charge.
During July and September 1996, Coinmach Laundry granted nonqualified
options (the "Options") to purchase Common Stock, to certain members of
management and certain other individuals, which enable such persons to purchase
shares of Common Stock at a 15% discount to the initial offering price of Common
Stock. With respect to the 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 options to two of its
disinterested directors (the "Independent Director Options"), which enable such
persons to purchase an aggregate of 120,000 shares of Common Stock at the
initial offering price of Common Stock. The Company will record the difference
between the exercise price of the Independent Director 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.
In September 1997, Coinmach Laundry granted non-qualified options (the
"1997 Options") to purchase an aggregate of 200,000 shares of Common Stock to
certain members of management at an exercise price of $11.90
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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)
per share of Common Stock. The Company will record the difference between the
exercise price of the 1997 Options and the fair market value of the Common Stock
on the date of grant as a stock-based compensation charge over the applicable
four year vesting period. For the six months ended September 26, 1997 and
September 27, 1996, the Company recorded a stock-based compensation charge of
approximately $545,000 and $470,000 respectively, relating to the Options, the
Independent Director Options and the 1997 Options.
Operating income margins were approximately 7% and 8% for the three and six
month periods ended September 26, 1997, respectively, as compared to
approximately 6% and 7%, for the three and six month periods ended September 27,
1996, respectively.
Interest expense, net increased by approximately 84% and 74%, for the three
and six month periods ended September 26, 1997, respectively, as compared to the
prior year's corresponding periods, due primarily to increased interest payable
under the Company's senior financing arrangement obtained in January 1997 (as
amended, the "Credit Facility") resulting from increased borrowings to fund
acquisitions.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization), before deduction for stock-based compensation charges, was
approximately $46.6 million for the six months ended September 26, 1997, as
compared to approximately $28.7 million for the corresponding period in 1996,
representing an improvement of approximately 62%. EBITDA margins improved to
approximately 31.1% for the six months ended September 26, 1997, compared to
approximately 30.4% for the prior year's corresponding period. EBITDA is used
by management and certain investors as an indicator of a company's historical
ability to service debt. Management believes that an increase in EBITDA is an
indicator 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 (i) operating income (as
determined by generally accepted accounting principles ("GAAP")) as an indicator
of operating performance or (ii) 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 goodwill and
certain stock compensation expenses).
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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
The Company continues to have substantial indebtedness and debt service
requirements. On September 26, 1997, the Company had outstanding long-term debt
of approximately $402.5 million and stockholders' equity of approximately $16.1
million. On September 26, 1997, $16.0 million of revolving debt was outstanding
under the Credit Facility.
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 flows 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.
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 six months ended September 26, 1997 were approximately
$91.9 million. Of such amount, the Company spent approximately $66.3 million in
acquisition and related transaction costs, including the Reliable Acquisition
and the National Coin Acquisition, and approximately $8.0 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 are not expected to be reflected in
the Company's financial results until subsequent reporting periods, depending on
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 Credit Facility and semi-annual cash interest payments on the Senior Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $34.6 million for the six months ended September 26, 1997) have
the effect of reducing net income but not operating cash flow. In accordance
with GAAP, a significant portion of the purchase prices 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.
Effective June 2, 1997, Coinmach entered into an amendment to the 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 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 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.
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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)
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.
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 and substantially all of the assets of Whitmer for an aggregate
purchase price of approximately $19.0 million in cash. NCLH is the parent of
NCL. The National Coin Acquisition enabled the Company to further expand its
operations by providing coin-operated laundry equipment services to multi-family
housing properties in the states of Ohio, Indiana, Kentucky, Michigan, West
Virginia, Pennsylvania, Georgia, Tennessee, Illinois and Florida, as well as by
distributing exclusive lines of commercial coin and non-coin laundry machines
and parts, and by selling service contracts. Subsequent to the National Coin
Acquisition, NCLH, NLEC and NCL were merged with and into Coinmach. The Credit
Facility was used to finance the National Coin Acquisition.
On October 8, 1997, Coinmach completed the private placement (the "Bond
Offering") of $100 million aggregate principal amount of its 11 3\4% Series
C Notes due 2005 ("Series C Notes"), on substantially identical terms as its
outstanding Senior Notes. The issue price was 109.875%, representing a 9.94%
yield to maturity. The gross proceeds from the Bond offering were $109.875
million of which $100.0 million represented the payment of principal and $9.875
million represented the payment of a premium for the Series C Notes. Coinmach
used approximately $105.4 million of the net proceeds from the Bond Offering to
repay indebtedness outstanding under the Credit Facility. After giving effect
to such repayment of indebtedness, the aggregate outstanding indebtedness under
the Credit Facility is $97.9 million as of November 10, 1997.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay borrowings under the Senior Notes, the
Series C Notes, the 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 indentures governing the
Senior Notes or the Series C Notes, respectively, or in the credit agreement
evidencing the Credit Facility (as amended, the "Credit Agreement") could result
in an acceleration of all amounts due under such indentures, the Credit
Agreement and the Kwik Wash Note. 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 Credit
Agreement, or the indentures governing the Senior Notes or the Series C Notes,
respectively.
INFLATION AND SEASONALITY
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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