<PAGE>
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 DECEMBER 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 __.
---
AS OF THE CLOSE OF BUSINESS ON FEBRUARY 6, 1998, COINMACH LAUNDRY CORPORATION
HAD OUTSTANDING 12,687,135 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").
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
INDEX
-----
PART I.
<TABLE>
<CAPTION>
Financial Information Page No.
- --------------------- --------
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets-
December 26, 1997 (Unaudited) and March 28, 1997 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months Ended December 26, 1997 and December 27, 1996 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended December 26, 1997 and December 27, 1996 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
PART II.
Other Information 18-19
- -----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page 20
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</TABLE>
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
December 26, 1997 March 28, 1997/1/
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 17,575 $ 14,729
Receivables, net 8,003 6,894
Inventories 13,220 7,959
Prepaid expenses 4,439 3,170
Advance location payments 48,644 38,472
Property and equipment, less accumulated
depreciation of $64,638 and 42,017 133,181 112,116
Contract rights, less accumulated
amortization of $34,035 and $19,815 215,858 180,557
Goodwill, less accumulated amortization of
$10,733 and $5,574 108,199 95,771
Other assets 18,403 13,253
-------- --------
$567,522 $472,921
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 11,552 $ 8,941
Accrued rental payments 13,135 10,573
Accrued interest 4,059 9,712
Other accrued expenses 11,434 8,996
Deferred income taxes 78,028 65,650
11 3/4% Senior Notes 296,655 196,655
Premium on 11 3/4% Senior Notes 9,669 --
Credit facility indebtedness 75,000 130,000
9 7/8 promissory note -- 15,000
Other long-term debt 6,146 3,831
Stockholders' equity:
Common stock and capital in excess of par value 103,110 53,265
Notes receivable from management (439) (439)
Accumulated deficit (40,827) (29,263)
-------- --------
Total stockholders' equity 61,844 23,563
-------- --------
Total liabilities and stockholders' equity $567,522 $472,921
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
___________
1. The March 28, 1997 Balance Sheet has been derived from the audited financial
statements as of that date.
-3-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
December 26, December 27, December 26, December 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 80,618 $ 48,759 $ 230,415 $143,205
COSTS AND EXPENSES:
Laundry operating expenses 53,840 32,886 154,150 96,482
General and administrative expenses 1,600 1,147 4,517 3,270
Depreciation and amortization 17,957 10,389 52,537 30,581
Stock-based compensation charge 400 460 945 1,920
-------- -------- --------- --------
73,797 44,882 212,149 132,253
-------- -------- --------- --------
OPERATING INCOME 6,821 3,877 18,266 10,952
INTEREST EXPENSE, NET 11,301 6,004 32,430 18,146
-------- -------- --------- --------
LOSS BEFORE INCOME TAXES (4,480) (2,127) (14,164) (7,194)
-------- -------- --------- --------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 80 100 230 250
Deferred (775) (800) (2,830) (2,550)
-------- -------- --------- --------
(695) (700) (2,600) (2,300)
-------- -------- --------- --------
NET LOSS ($3,785) ($1,427) ($11,564) ($4,894)
======== ======== ========= ========
NET LOSS PER SHARE ($.35) ($.14) ($1.09) ($.56)
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
December 26, 1997 December 27, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($11,564) ($4,894)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 22,910 16,114
Amortization of advance location payments 7,566 4,767
Amortization of intangibles 22,061 9,700
Deferred income taxes (2,830) (2,550)
Stock-based compensation charge 945 1,920
Amortization of debt discount and debt issuance costs 533 465
Amortization of premium on 11 3/4% Senior Notes (206) --
Increase or decrease in operating assets and liabilities,
net of business acquired:
(Increase) decrease in other assets (1,348) 366
Decrease (increase) in receivables, net 718 (733)
Increase in inventories and prepaid expenses (3,679) (2,225)
Increase in accounts payable 172 2,067
Decrease in accrued interest (5,653) (4,643)
Increase in accrued expenses, net (916) (770)
--------- --------
Net cash provided by operating activities 28,709 19,584
--------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (28,734) (19,618)
Advance location payments to location owners (10,257) (7,455)
Additions to net assets related to acquisitions of
businesses (net of promissory note of $2,500 in 1997) (69,026) (20,615)
--------- --------
Net cash used for investing activities (108,017) (47,688)
--------- --------
FINANCING ACTIVITIES:
Debt transactions:
Net repayments of bank and other borrowings (425) (249)
Deferred debt issuance costs (5,355) (365)
Net repayment of credit facility (55,000) --
Proceeds from issuance of 11 3/4% Senior Notes 109,875 --
Repayment of 9 7/8% promissory note (15,000) --
Principal payments on capitalized lease obligations (841) (378)
Equity transactions:
Proceeds from issuance of common stock 48,900 52,047
Redemption of preferred stock -- (19,207)
Dividend paid-preferred stock -- (21)
--------- --------
Net cash provided by financing activities 82,154 31,827
--------- --------
Net increase in cash and cash equivalents 2,846 3,723
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,729 19,858
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,575 $ 23,581
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 36,500 $ 22,760
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Coinmach Laundry Corporation ("Coinmach Laundry"), a Delaware corporation,
through its wholly-owned subsidiaries (collectively, the "Company"), is the
leading supplier of out-sourced coin-operated laundry equipment services for
multi-family housing properties in the United States. The Company's business
involves leasing laundry rooms from building owners and property management
companies, installing and servicing the laundry equipment and collecting
revenues generated from laundry machines. Giving effect to the Sharp
Acquisition (as hereinafter defined) the Company owns and operates approximately
440,000 coin-operated washers and dryers in approximately 43,000 locations on
routes throughout the United States and in 151 retail laundromats located
throughout Texas. On January 15, 1998, Coinmach Corporation ("Coinmach"), a
wholly-owned subsidiary of Coinmach Laundry, completed the acquisition of the
route business of Apartment Laundries, Inc. ("ALI") and the distribution
business of Sharp Distributing, Inc. ("SDI") for an aggregate purchase price of
$16.2 million (the "Sharp Acquisition"). See Note 7, "Subsequent Events." The
Sharp Acquisition does not affect the results of operations for the three and
nine month periods ended December 26, 1997.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in conformity with generally accepted accounting
principles ("GAAP") for interim financial reporting and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, such
financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements. GAAP requires the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates. The interim results
presented herein are not necessarily indicative of the results to be expected
for the entire year.
In the opinion of management of the Company, these unaudited condensed
consolidated financial statements contain all adjustments of a normal recurring
nature necessary for a fair presentation of the financial statements for the
interim periods presented.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included in
Coinmach Laundry's Annual Report on Form 10-K for the year ended March 28, 1997.
Certain 1996 balances have been reclassified to conform with the 1997
presentation.
3. LOSS PER SHARE
Loss per share for the three and nine month periods ended December 26, 1997
was calculated based upon the weighted average aggregate number of shares of
Common Stock and Non-Voting Common Stock outstanding, of 10,872,450 and
10,614,101, respectively, during such periods. Loss per share for the three and
nine month periods ended December 27, 1996 was calculated based upon the
weighted average aggregate number of shares of Common Stock and Non-Voting
Common Stock outstanding, which was 10,453,105 and 8,815,065, respectively,
during such periods. The computation of weighted average number of shares was
not adjusted for common stock equivalents since such adjustment would be anti-
dilutive for the periods presented. At December 26, 1997 and December 27, 1996,
there were 1,279,973 and 1,222,830 options, respectively, outstanding to
purchase Common Stock.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS
128"). This standard changes the method of calculating earnings per share and is
effective for periods ending after December 15, 1997.
-6-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT
On December 26, 1997, the outstanding long-term debt of Coinmach Laundry
and Coinmach consisted of (a) approximately $296.7 million in the aggregate of
Series B and Series C 11 3/4% Senior Notes due 2005 issued by Coinmach and (b)
$75.0 million of term loans.
On October 8, 1997, Coinmach completed a private placement (the "Bond
Offering") of $100 million aggregate principal amount of its 11 3/4% Series C
Senior Notes due 2005 (the "Series C Notes") on substantially identical terms as
its outstanding Series B 11 3/4% Senior Notes due 2005 (the "Series B Notes"
and, together with the Series C Notes, the "Senior Notes"). The gross proceeds
from the Bond Offering were $109.875 million, of which $100.0 million
represented the principal amount outstanding 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 its senior financing arrangement. On December 23, 1997,
Coinmach commenced an offer to exchange (the "Exchange Offer") up to $296.7
million of its 11 3/4% Series D Senior Notes due 2005 for any and all of its
Series C Notes and its Series B Notes. The Exchange Offer expired on February
6, 1998, and as of such date the holders of 100% of the outstanding Series B
Notes and Series C Notes tendered such notes in the Exchange Offer.
The outstanding term loans were made pursuant to the senior financing
arrangement obtained by the Company in December 1997, which, as amended and
restated (the "Amended Credit Facility"), provides $235 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility (undrawn at December 26, 1997) bearing interest at an annual rate of
LIBOR plus 1.50%; (ii) a $125 million acquisition revolving credit facility
(undrawn at December 26, 1997) bearing interest at an annual rate of LIBOR plus
1.50%; and (iii) a $75 million term loan facility (fully funded at December 26,
1997) bearing interest at an annual rate of LIBOR plus 2.00%. The working
capital revolving credit facility and the acquisition revolving credit facility
are expected to mature in six years, and the term loan facility is expected to
mature in seven years.
Indebtedness under the Amended Credit Facility is secured by all of the
Company's real and personal property. Coinmach Laundry has guaranteed the
indebtedness under the Amended Credit Facility and pledged to Bankers Trust
Company, as Collateral Agent, its interests in all of the issued and outstanding
shares of capital stock of Coinmach. In addition to certain terms and
provisions, events of default, and customary restrictive covenants and
agreements, the Amended Credit Facility and the indenture governing the Senior
Notes contain certain covenants including, but not limited to, a maximum
leverage ratio, a minimum consolidated interest coverage ratio, and limitations
on indebtedness, capital expenditures, advances, investments and loans, mergers
and acquisitions, dividends, stock issuances and transactions with affiliates.
Also, the indentures governing the Senior Notes and the Amended Credit Facility
limit Coinmach's ability to pay dividends.
-7-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. STOCKHOLDERS' EQUITY
A. 1997 PUBLIC OFFERING
On December 19, 1997, Coinmach Laundry completed an offering (the "1997
Stock Offering") of 4,600,000 shares of Common Stock at a price of $19.75 per
share (including the issuance of 600,000 shares in connection with the exercise
of an underwriters' over-allotment option granted in connection therewith). In
connection with the 1997 Stock Offering, 2,665,000 shares were sold by Coinmach
Laundry and 1,935,000 shares were sold by certain stockholders of the Company.
The Company did not receive any proceeds from the sale of shares by selling
stockholders.
Proceeds generated from the 1997 Stock Offering were approximately $48.9
million, after underwriting discounts and commissions and before expenses. Part
of the proceeds from the 1997 Stock Offering were invested in Coinmach
Corporation.
B. INITIAL PUBLIC OFFERING
On July 23, 1996, Coinmach Laundry completed its initial public offering
(the "Common Stock Offering") of 4,120,000 shares of Common Stock at a price of
$14.00 per share. Coinmach Laundry's registration statement for 4,000,000
shares of Common Stock was filed with the Securities and Exchange Commission
(the "Commission") on May 13, 1996 and subsequently declared effective by the
Commission on July 17, 1996. On July 18, 1996, Coinmach Laundry filed with the
Commission an additional registration statement on Form S-1 with respect to the
registration of an additional 120,000 shares of Common Stock, which registration
statement was effective upon filing.
In connection with the Common Stock Offering, the underwriters were granted
a 30-day option to purchase up to an aggregate of 618,000 additional shares of
Common Stock to cover over-allotments (the "Over-Allotment Option"), which Over-
Allotment Option was exercised on August 16, 1996 with respect to the purchase
of an additional 63,642 shares of Common Stock.
Proceeds from the Common Stock Offering and from the exercise of the
underwriters' over-allotment option were approximately $54.5 million, after
underwriting discounts and commissions and before expenses. After giving effect
to the redemption of the Preferred Stock (as described below), proceeds from the
Common Stock Offering were approximately $35.3 million. Part of the proceeds
from the Common Stock Offering were invested in Coinmach Corporation.
Prior to the Common Stock Offering 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 in an amount of approximately $887,000 during the quarter
ended September 27, 1996, 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 Coinmach Laundry's common
stock were forgiven and have been accounted for as a stock-based compensation
charge during the quarter ended September 27, 1996.
C. RECLASSIFICATION AND STOCK SPLIT
In connection with the Common Stock Offering, Coinmach Laundry approved a
reclassification (the "Reclassification") of all of its capital stock, pursuant
to which all seven classes of the previously issued and outstanding capital
stock of Coinmach Laundry prior to the Common Stock Offering were converted into
a class of preferred stock, a class of voting common stock and a class of non-
voting common stock. As part of the
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Reclassification, holders of Coinmach Laundry's Class A common stock, Class E
common stock and Class F common stock immediately prior to the Common Stock
Offering (collectively, the "Preference Shares") also received a distribution
consisting of shares of Common Stock and shares of Series A preferred stock, par
value $.01 per share (the "Preferred Stock") representing an amount equal to the
sum of: (a) preferred dividends on such Preference Shares in an amount equal to
the accrued yield (at a rate of 8% per annum, compounded quarterly) on the
original investment in such Preference Shares through July 23, 1996; and (b) an
amount equal to the original investment in such Preference Shares. Holders of
Preference Shares who were members of the Company's management received an
aggregate of 28,425 shares of Common Stock, and holders of the Preference Shares
who were not members of the Company's management received an aggregate of 1,000
shares of Preferred Stock. In connection with the Reclassification, Coinmach
Laundry also approved an approximate 23-to-1 stock split (the "Stock Split")
payable to shareholders of record of Coinmach Laundry on July 12, 1996.
D. REDEMPTION OF PREFERRED STOCK
Immediately following the Common Stock Offering, approximately $19.2
million of the proceeds of the Common Stock Offering were used by the Company to
retire all of the issued and outstanding shares of Preferred Stock.
E. STOCK OPTIONS
Prior to the Common Stock Offering, the Company adopted the 1996 Employee
Stock Option Plan (as amended and restated, the "Stock Option Plan") which
provides that the Company may grant options for the purchase of up to 1,109,147
shares of Common Stock to key employees of the Company over a period of up to
ten years. The Company may grant incentive stock options or options which do
not qualify as incentive stock options at an exercise price per share not less
than 100% of the fair market value of the Common Stock on the date of grant.
All options granted under the Stock Option Plan vest over four years in five
equal installments (20% vest immediately on the date of grant and the remainder
vest over a four year period) and expire ten years from the date of grant.
The Company has granted 246,250 options to various employees of the Company
pursuant to the Stock Option Plan, through December 26, 1997.
On July 23, 1996, in connection with the Common Stock Offering, Coinmach
Laundry granted certain non-qualified options (the "Options") to certain members
of management (collectively, the "Option Holders") to purchase up to 735,618
shares of Common Stock at 85% of the initial offering price of the Common Stock.
On September 17, 1996, for the purpose of preserving the Option Holders'
percentage interest of Common Stock represented by the Options (which percentage
interest was decreased as a result of the exercise of the Over-Allotment
Option), Coinmach Laundry granted to the Option Holders additional non-qualified
stock options to purchase up to 3,819 shares of Common Stock (the "Additional
Options"). The Options and Additional Options vest in equal annual installments
(20% vest immediately on the date of grant and the remainder over a four year
period) commencing on July 23, 1996, the effective date of the Common Stock
Offering. With respect to Options and Additional Options granted to employees
of the Company, the Company will record the difference between the exercise
price and the initial offering price of Common Stock as a stock-based
compensation charge over the applicable four year vesting period.
On September 17, 1996, Coinmach Laundry granted to certain directors, each
of whom was appointed by the Board of Directors of Coinmach Laundry on such date
to serve as independent directors, options entitling each such director to
purchase up to 60,000 shares of Common Stock (the "Independent Director
Options"). The
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. STOCKHOLDER'S EQUITY (CONTINUED)
Independent Director Options vest in equal annual installments (25% vest
immediately on the date of grant and the remainder vest over a three year
period), commencing on September 17, 1996, and entitle each such director to
purchase shares of Common Stock at the initial public offering price of the
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 September 17, 1996 as a stock-based compensation charge over the
applicable three year vesting period.
On September 5, 1997, Coinmach Laundry granted certain non-qualified
options (the "1997 Options") to certain members of management to purchase up to
200,000 shares of Common Stock at an exercise price of $11.90 per share of
Common Stock. The 1997 Options vest in equal annual installments (20% vest
immediately on the date of grant and the remainder vest over a four year period)
commencing on September 5, 1997. The Company will record the difference between
the exercise price of the 1997 Options and the fair market value of Common Stock
on September 5, 1997 as a stock-based compensation charge over the applicable
four year vesting period.
For the nine months ended December 26, 1997 and December 27, 1996, the
Company recorded a stock-based compensation charge of approximately $944,000 and
$1,920,000, respectively, relating to the Options, the Additional Options, the
Independent Director Options and the 1997 Options.
6. ACQUISITIONS
On January 8, 1997, Coinmach acquired (the "Kwik Wash Acquisition") 100% of
the outstanding voting securities of the partners of Kwik Wash Laundries, L.P.
("Kwik Wash") for $125 million in cash and a $15.0 million 9 7/8%
promissory note by Coinmach Laundry. The Kwik Wash Acquisition enabled the
Company to provide coin-operated laundry equipment services to multi-family
housing properties in Texas, Louisiana, Arkansas and Oklahoma and to operate 150
retail laundromats throughout Texas.
On April 23, 1997, Coinmach completed the acquisition and merger (the
"Reliable Acquisition") of Reliable Holding Corp. ("Reliable") and its
subsidiaries, Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V. and Automatica S.A. de C.V., with and into
Coinmach for $44 million in cash which was financed through borrowings under
the Amended Credit Facility (as defined). The Reliable Acquisition
provided the Company with a strong foothold in the California market and an
entry into the northern Mexican market.
On July 17, 1997, Coinmach acquired (i) 100% of the outstanding voting
securities of National Coin Laundry Holding, Inc., an Ohio Corporation ("NCLH")
and National Laundry Equipment Company, an Ohio corporation ("NLEC"), the parent
of National Coin Laundry, Inc., an Ohio corporation ("NCL"), and (ii)
substantially all of the assets of Whitmer Vend-O-Mat Laundry Services, Inc., an
Indiana corporation ("Whitmer"). NCLH, NLEC, NCL and Whitmer, all of which were
under common ownership, were acquired for an aggregate purchase price of
approximately $19 million in cash (the "National Coin Acquisition") financed
through borrowings under the Amended Credit Facility. 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.
-10-
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. ACQUISITIONS (CONTINUED)
The Kwik Wash Acquisition, the Reliable Acquisition and the National Coin
Acquisition have been accounted for as purchases. The Company has made
preliminary allocations to fair value of the assets and liabilities assumed in
such transactions as of their respective acquisition dates.
7. SUBSEQUENT EVENTS
On January 15, 1998, Coinmach completed the Sharp Acquisition pursuant to
which Coinmach acquired substantially all the assets of ALI and SDI (both of
which were under common ownership) for $16.2 million. The Sharp Acquisition was
financed through working capital and borrowings under the Amended Credit
Facility. ALI provides coin-operated laundry equipment services for multi-
family housing units in Oklahoma, Texas, Kansas and Arkansas, and SDI sells
commercial laundry equipment and parts primarily to commercial laundromats and
large institutional customers in Oklahoma.
On January 20, 1998, Coinmach signed a definitive agreement to acquire
Macke Laundry Service, L.P. and substantially all of the assets of certain
related entities (the "Macke Acquisition") for approximately $214 million.
Consummation of the of the Macke Acquisition is subject to regulatory and other
approvals. The Macke Acquisition is expected to be financed with cash and
borrowings under the Amended Credit Facility, which credit facility will be
amended and restated in connection with such acquisition to provide for
additional borrowing capacity on substantially similar terms.
-11-
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
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.
After giving effect to the Sharp Acquisition, the Company owns and operates
approximately 440,000 coin-operated washers and dryers in approximately 43,000
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 (approximately $2.2 million for the nine months ended
December 26, 1997); (ii) operating, maintaining and servicing retail laundromats
(approximately $15.9 million for the nine months ended December 26, 1997); 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 (approximately $18.9 million
for the nine months ended December 26, 1997).
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 NINE MONTH PERIODS ENDED DECEMBER 26, 1997 COMPARED TO THREE AND NINE
MONTH PERIODS ENDED DECEMBER 27, 1996
Revenues increased by approximately 65% and 61% for the three and nine
month periods ended December 26, 1997, respectively, as compared to the prior
year's corresponding periods. The improvement in revenues for the three and
nine month periods resulted primarily from the acquisition of the route and
laundromat business of
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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") in
July 1997 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. The Company's
acquisition strategy involves the complete integration of its acquired
companies. The Company estimates that approximately $78.8 million of its
revenue increase for the nine month period is the combined result of the Kwik
Wash Acquisition, the Reliable Acquisition and the National Coin Acquisition
based on the historical revenue of such acquired companies. In addition, during
such nine-month period, the Company's installed machine base increased by
approximately 16,700 machines from internal growth (excluding the machines added
from the Reliable Acquisition and the National Coin Acquisition during such
period) as compared to an increase of approximately 5,400 machines during the
prior year's corresponding period. Included in internal growth are acquisitions
of small, local route operators and new customers secured by the Company's sales
force.
Laundry operating expenses increased by approximately 64% and 60% for the
three and nine month periods ended December 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 $0.5 million
and $1.2 million, for the three and nine month periods ended December 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 73% and 72% for
the three and nine month periods ended December 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 $28.6 million in non-cash depreciation and amortization charges
for the nine months ended December 26, 1997 as compared to $17.5 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 during the quarter ended
September 27, 1996. In addition, in July 1996 approximately $103,000 of
receivables relating to loans to management in connection with prior purchases
of Coinmach Laundry common stock were forgiven and have been recorded as a
stock-based compensation charge during the quarter ended September 27, 1996.
During July and September 1996, Coinmach Laundry granted to certain members
of management and certain other individuals nonqualified options (the "Options")
to purchase 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
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
enable such persons to purchase an aggregate of 120,000 shares of Common Stock
at the initial offering price of the 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. 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 nine
months ended December 26, 1997 and December 27, 1996, the Company recorded a
stock-based compensation charge of approximately $944,000 and $1,920,000,
respectively, relating to the Options, the Independent Director Options and the
1997 Options.
Operating income margins were approximately 8.5% and 7.9% for the three and
nine month periods ended December 26, 1997, respectively, as compared to
approximately 7.9% and 7.6%, for the three and nine month periods ended December
27, 1996, respectively.
Interest expense, net increased by approximately 88% and 79%, for the three
and nine month periods ended December 26, 1997, respectively, as compared to the
prior year's corresponding periods, due primarily to increased interest payable
under the Company's senior credit facility entered into in January 1997
resulting from increased borrowings to fund acquisitions, as well as the
increased interest due to the private placement (the "Bond Offering") by the
Company of $100 million aggregate principal amount of its 11 3/4% Series C
Senior Notes due 2005 ("Series C Notes") on October 8, 1997.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization), before deduction for stock-based compensation charges, was
approximately $71.7 million for the nine months ended December 26, 1997, as
compared to approximately $43.4 million for the corresponding period in 1996,
representing an improvement of approximately 65%. EBITDA margins improved to
approximately 31.1% for the nine months ended December 26, 1997, compared to
approximately 30.3% 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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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
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 December 26, 1997, the Company had outstanding long-term debt
of approximately $377.8 million (excluding the premium on the Series C Notes)
and stockholders' equity of approximately $61.8 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 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.
As the Company has focused on increasing its EBITDA, it has made
significant capital investments, primarily consisting of capital expenditures
related to acquisitions, renewal and growth. 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 nine months ended
December 26, 1997 were approximately $111.3 million (including a $2.5 million
promissory note in connection with the acquisition of a small route operator and
approximately $.8 million relating to capital lease obligations). Of such
amount, the Company spent approximately $66.3 million in acquisition and related
transaction costs, primarily the Reliable Acquisition and the National Coin
Acquisition, and approximately $17.8 million related to the net increase in the
installed base of machines. The balance of approximately $27.2 million 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, as
required by the Company's existing credit facility, and semi-annual cash
interest payments, as required by the Company's outstanding Series B 11 3/4%
Senior Notes due 2005 (the "Senior B Notes") and the Series C Notes
(collectively, the "Senior Notes").
The Company's depreciation and amortization expenses (aggregating
approximately $52.5 million for the nine months ended December 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.
On April 23, 1997, Coinmach completed the acquisition and merger (the
"Reliable Acquisition") of Reliable Holding Corp. ("Reliable") and its
subsidiaries, Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V. and Automatica S.A. de C.V., with and into
Coinmach for $44 million in cash which was financed through borrowings under
the Amended Credit Facility (as defined). The Reliable Acquisition provided the
Company with a strong foothold in the California market and an entry into the
northern Mexican market.
-15-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 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. Borrowings
under the Company's existing credit facility were used to finance the National
Coin Acquisition.
On October 8, 1997, Coinmach completed the Bond Offering of $100 million
aggregate principal amount of its Series C Notes, on substantially identical
terms as its outstanding Series B 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 principal
amount outstanding 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 (including
aproximately $.7 million of accrued interest) under its existing credit
facility. On December 23, 1997, Coinmach commenced an offer to exchange (the
"Exchange Offer") up to $296.7 million of its 11 3/4% Series D Senior Notes due
2005 (the "Exchange Notes") for any and all of its Series C Notes and its Series
B Notes. The Exchange Offer expired on February 6, 1998, and as of such date the
holders of 100% of the outstanding Series B Notes and Series C Notes tendered
such notes in the Exchange Offer for Exchange Notes.
On December 19, 1997, Coinmach Laundry completed an offering (the "1997
Stock Offering") of 4,600,000 shares of Common Stock at a price of $19.75 per
share (including the issuance of 600,000 shares in connection with the exercise
of an underwriters' over-allotment option granted in connection therewith). In
connection with the 1997 Stock Offering, 2,665,000 shares were sold by Coinmach
Laundry and 1,935,000 shares were sold by certain stockholders of the Company.
The Company did not receive any proceeds from the sale of shares by selling
stockholders.
Proceeds from the 1997 Stock Offering were approximately $48.9 million,
after underwriting discounts and commissions and before expenses. The Company
utilized $15.0 million and $31.5 million of the net proceeds from the 1997 Stock
Offering to repay the 9 7/8% promissory note and amounts borrowed under the
Amended Credit Facility, respectively.
In December 1997, the Company amended and restated its existing credit
facility with Bankers Trust Company, First Union National Bank of North Carolina
and certain other lending institutions (as amended and restated, the "Amended
Credit Facility"). The Amended Credit Facility provides $235 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility (undrawn at December 26, 1997) bearing interest at an annual rate of
LIBOR plus 1.50%; (ii) a $125 million acquisition revolving credit facility
(undrawn at December 26, 1997) bearing interest at an annual rate of LIBOR plus
1.50%; and (iii) a $75 million term loan facility (fully funded at December 26,
1997) bearing interest at an annual rate of LIBOR plus 2.00%. The working
capital revolving credit facility and the acquisition revolving credit facility
are expected to mature in six years, and the term loan facility is expected to
mature in seven years.
On January 15, 1998, Coinmach completed the Sharp Acquisition pursuant to
which Coinmach acquired substantially all the assets of ALI and SDI for $16.2
million in cash and borrowings under the Amended Credit Facility. ALI provides
coin-operated laundry equipment services for multi-family housing units in
Oklahoma, Texas, Kansas and Arkansas, and SDI sells commercial laundry equipment
and parts primarily to commercial laundromats and large institutional customers
in Oklahoma.
On January 20, 1998, Coinmach signed a definitive agreement to acquire
Macke Laundry Service, L.P. and substantially all of the assets of certain
related entities (the "Macke Acquisition") for approximately $214 million.
Consummation of the Macke Acquisition is subject to certain regulatory and other
approvals. The Macke Acquisition is expected to be financed with cash and
borrowings, including borrowings of up to an additional $200
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
million in term loans under the Amended Credit Facility, through an expansion of
the Amended Credit Facility on substantially similar terms. Such term loans are
expected to mature on June 30, 2005 and to be subject to the same mandatory
repayment terms and to bear interest at the rate per annum, in each case, set
forth in the Amended Credit Facility.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the Senior
Notes and the Exchange Notes and borrowings under the Amended Credit Facility 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 and the Exchange Notes or in the credit
agreement evidencing the Amended Credit Facility could result in an acceleration
of all amounts due under such indentures and the Amended Credit Facility. 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 Amended Credit Facility, or the indentures
governing the Senior Notes and the Exchange Notes.
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.
-17-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Although the amount of any liability that could arise with respect to these
actions can not be accurately predicted, management believes that any such
liability, individually or in the aggregate, will not have a material adverse
effect on the financial condition and results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.58 Supply Agreement, dated as of May 13, 1997, by and among
Coinmach Corporation, Super Laundry Equipment Corporation
and Raytheon Appliances, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
During the three month period ended December 26, 1997, the Company
filed the following reports:
(1) Amendment No. 3 on Form 8-K/A to Current Report on Form 8-
K, dated January 8, 1997, reporting in Items 2 and 7
thereof, the completion of the acquisition of 100% of the
outstanding voting securities of each of KWL, Inc. and
Kwik-Wash Laundries, Inc. by Coinmach Corporation for $125
million in cash and a $15 million promissory note issued by
the Company, together with the audited combined financial
statements of Kwik Wash Laundries, Inc. and KWL, Inc. for
the years ended December 31, 1996, 1995 and 1994, and the
unaudited pro forma combined financial statements of
Coinmach Laundry Corporation for the nine-month period
ended December 27, 1996 and for the year ended March 29,
1996;
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K (continued)
_______________________________
(2) Current Report on Form 8-K, dated October 8, 1997, reporting in
Items 5 and 7 thereof, the consummation of a private placement
of $100,000,000 aggregate principal amount of 11 3/4% Series C
Senior Notes due 2005 of Coinmach Corporation;
(3) Amendment No. 1 on Form 8-K/A to Current Report on Form 8-K,
dated October 8, 1997, reporting in Items 5 and 7 thereof, the
consummation of a private placement of $100,000,000 aggregate
principal amount of the Company's 11 3/4 Series C Senior Notes
due 2005, together with the audited combined financial
statements of Kwik Wash Laundries, Inc. and KWL, Inc. for the
years ended December 31, 1996, 1995 and 1994, and the unaudited
pro forma combined financial statements of Coinmach Laundry
Corporation for the nine-month period ended December 27, 1996
and for the year ended March 29, 1996; and
(4) Current Report on Form 8-K, dated October 14, 1997, reporting
in Item 5 thereof, the filing of a registration statement with
the Securities and Exchange Commission relating to a proposed
offering of 4,312,500 shares of the Company's Class A Common
Stock, par value $.01 per share.
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
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: February 6, 1998 /s/ ROBERT M. DOYLE
------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal Financial
Officer)
-20-
<PAGE>
EXHIBIT 10.58
SUPPLY AGREEMENT
----------------
This Supply Agreement ("Agreement") is made and entered into as of May
13th, 1997, by and among Coinmach Corporation ("Coinmach") and Super Laundry
Equipment Corporation ("Super Laundry") (Coinmach and Super Laundry being
collectively referred to herein as "Buyer"), and Raytheon Appliances, Inc., a
Delaware corporation ("Seller").
WITNESSETH
----------
WHEREAS, Buyer is in the business of providing vended and non-vended
laundry equipment services for multi-family housing units, and is also a
distributor of laundromat equipment and turnkey laundromat stores; and
WHEREAS, Buyer wishes to assure itself of an ongoing business
relationship with Seller beneficial to Buyer in terms of assuring that Buyer has
access in sufficient quantities to the Seller's latest products and technology
in the Buyer's business, and other complementary benefits; and
WHEREAS, SAS Acquisitions, Inc. ("SAS") and Solon Automated Services,
Inc. ("Solon"; SAS and Solon are each a predecessor-in-interest to Coinmach
Corporation) previously entered into a Supply Agreement with Speed Queen Company
(a predecessor-in-interest to Seller), dated as of July 26, 1995 (the "Existing
Supply Agreement"), in which it was anticipated that Coinmach Corporation and
certain of its subsidiaries could, in the future, become entitled to the
benefits accruing to SAS as a "Buyer" under the Existing Supply Agreement; and
WHEREAS, Coinmach Corporation has subsequently succeeded to the rights
and interests of SAS and Solon under the Existing Supply Agreement, and has,
either directly or through its affiliated entities which are also parties to
this Agreement, consummated a series of substantial acquisitions which have
materially increased the laundry equipment purchasing requirements of Buyer
hereunder from the purchasing requirements which were applicable at the time the
Existing Supply Agreement was entered into; and
WHEREAS, Buyer and Seller hereunder now desire to enter into this
Agreement, pursuant to which Buyer will purchase its requirements of the
Products (as defined herein) from Seller, in replacement of the Existing Supply
Agreement, in order to extend the term of the relationship between Buyer and
Seller, to put into effect the current pricing structure as reflected on
Exhibits A and B attached hereto (taking into account the present volume
requirements, and reflecting appropriate current volume discounts, applicable to
Buyer's current operations), and to include certain existing affiliates of
Coinmach Corporation directly as Buyer under this Agreement.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1
<PAGE>
1. Requirements Contract - For the term hereof (as defined in Section
---------------------
10), so long as Seller is a manufacturer of the Products defined in Section 2
herein and so long as Buyer leases and/or operates premises on which one or more
coin-operated or card-operated washing machines and/or dryers are located;
and/or is an authorized distributor for Seller's Products in one or more
territories, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, Buyer's requirements of Products on the terms and conditions contained
herein. In the event Buyer wishes to lease Products, Buyer further agrees to
specify to the lessor that such Products must be purchased from Seller.
2. Definition of Products - For purposes of this Agreement, the parties
----------------------
agree that the following are the defined "Products" referenced in this
Agreement;
a. All coin-operated or card-operated washing machines and front
load washers;
b. All coin-operated or card-operated dryers, stacked dryers, and
tumbler dryers;
c. All new replacement and new repair parts for any and all of
Seller's coin-operated or card-operated washing machines,
dryers, frontload washers, stacked dryers and tumbler dryers
owned by, leased to or serviced by Buyer.
3. Price - The current prices to be charged Buyer for the current
-----
formulations of the Speed Queen branded products are those set forth in Exhibit
A and Huebsch branded products are those set forth in Exhibit B attached hereto
and by this reference made a part hereof. The current prices to be charged
Buyer for replacement and repair parts are those set forth in Seller's published
parts price lists stated as either a net price or a suggested list price;
however, if such price is listed as a suggested list price, Buyer shall be
charged suggested list price less a 55% discount.
The prices set forth in Exhibit A are stated as a net price and are FOB
shipping point for tumblers and washer extractors; and freight prepaid on
washers, dryers and stack dryers.
The prices set forth in Exhibit B will be subject to Seller's Commercial
Laundry Volume Rebate Program, attached hereto and by this reference made a part
of Exhibit B; provided, however, Buyer's net purchases of serial numbered Speed
Queen branded equipment and serial numbered Huebsch branded equipment will be
combined for determining the percent (%) rebate, to be applied to Buyer's net
purchases of Huebsch branded equipment, to determine the rebate amount to be
paid quarterly by Seller to Buyer within thirty days following the end of each
rebated period, which shall be the calendar quarters ended March, June,
September and December. The rebate percent to be used to determine the amount
paid for the first three quarters shall be based on Buyer's annualized net
purchases of equipment for the quarter which will be calculated by taking
Buyer's net purchases of equipment for the quarter times four (4). The rebate
paid for the fourth quarter ended December, will reflect any adjustments
necessary (either up or down) to reflect rebates earned on an annual basis. The
prices set forth in Exhibit B are
2
<PAGE>
stated on a FOB shipping point basis, except Seller will prepay freight on
orders of 42 or more units of Seller's washers and dryers (21 or more for
stacked dryers) for shipments within the continental United States. Further,
Seller agrees to establish a Merchandising Fund for Huebsch branded equipment
invoiced which Buyer may present claims for reimbursement by Seller subject to
the Merchandising Fund Policy as set forth in Exhibit C.
Seller reserves the right to select the carrier and shipping point for
Products. Payment terms shall be ninety (90) days from date of invoice;
provided, however, that Seller retains the right to adjust payment terms in the
event that Buyer fails to maintain its timeliness of payment in all material
respects.
4. Rights with Respect to Future Prices - Seller shall have the right
------------------------------------
to change the prices charged Buyer for Products upon sixty (60) days prior
written notice. The percentage increases in prices by Seller shall not exceed
the percentage price increases which are implemented with respect to Seller's
other route customers as documented by Seller's published manufacturer's list
prices. In any event, increases in price by Seller shall not exceed three
percent (3%) annually, for the first three years this Agreement is in effect.
5. Competitive Product - In consideration of Seller's agreement to
-------------------
provide significant volume-based discount pricing, Buyer agrees to purchase at
least 80% of its needed Products from Seller during the term of the Agreement.
In addition, if (a) Seller is unable to deliver Products which Buyer has ordered
within forty-five (45) days of the date such Products would be shipped in the
ordinary course of Seller's business, and (b) such order is in an amount
customarily ordered by Buyer, Buyer has the right to instead purchase a like
number of pieces of equipment of comparable grade and quality from Seller's
competitors.
6. Technical Support - Seller will commit resources to work directly
-----------------
with Buyer on projects mutually beneficial to both parties, including but not
limited to audit control, electronic display, card-actuated washers and dryers
and stacked frontload washer/dryer combinations. This is required by Buyer to
ensure timely response to competitive new product developments and to allow
Buyer to be more competitive by offering more efficient customer friendly
laundry equipment services.
7. Product Reliability - Buyer will share with Seller service history
-------------------
and product reliability data which is readily available to Buyer concerning the
performance of Seller's products.
8. Warranty - All Products sold to Buyer shall be sold to Buyer with
--------
Seller's standard commercial limited parts warranties, unless otherwise
specified by Seller and mutually agreed to by Buyer in advance of any sales;
except, however, the Speed Queen branded Washers, Dryers and Stack Dryers
shipped by Seller to Buyer on or after January 27, 1997 shall be sold to Buyer
without warranty; provided, however, that Seller shall reimburse Buyer for any
cost of material (but not labor) incurred by Buyer which is attributable to
Seller's verified "Epidemic Failure" of component parts. An "Epidemic Failure"
of a component part occurs when there is in excess of a 10% failure rate for the
proceeding twelve (12) months for that component.
3
<PAGE>
9. Default and Arbitration - Each of the following shall constitute an
-----------------------
Event of Default under this Agreement:
A. Default in the payment when due of any amount owed to either
Party by the other under this Agreement, if such failure continues for a period
of thirty days after payment was due;
B. Default in the obligation to obtain all Products from Seller in
the manner set forth in Sections 1, 2 and 5; and
C. Default in any of Seller's obligations to Buyer hereunder.
Upon the occurrence and continuation of an Event of Default hereunder,
Seller shall have the right to commence appropriate proceedings in any state or
federal court located in Fond du Lac, Wisconsin, Buyer hereby agreeing that it
irrevocably submits to the jurisdiction of such court and waives, to the fullest
extent such party may effectively do so, the defense of an inconvenient forum to
the maintenance of any such action or proceeding. The foregoing
notwithstanding, if there is a dispute arising out of any of the other terms of
this Agreement, such dispute shall be immediately submitted to arbitration in
Chicago, Illinois, by a retired judge provided by the Judicial Arbitration and
Mediation Service in accordance of the commercial rules then in effect of the
American Arbitration Association, and any award of such arbitration shall be
final and binding upon the parties.
10. Term - The initial term of this Agreement shall be three (3) years,
----
commencing on the date hereof and ending on May 31, 2000. This Agreement shall
thereafter be automatically renewed for one (1) year terms (to December 31 of
each year) until one party gives a written notice of non-renewal to the other
party at least six (6) months prior to the termination date of any term or
renewal term of this Agreement; provided, however, that this Agreement may be
terminated at Buyer's option by providing Seller written Notice within thirty
(30) days following the occurrence of a Change of Control (hereinafter defined)
affecting Seller. For purposes of this Agreement, a Change of Control regarding
Seller shall be deemed to have occurred if all or substantially all of either
the assets of Seller or a majority of the issued and outstanding capital stock
representing the ownership interest in Seller is sold, transferred, or otherwise
disposed of to any person; provided, however, that no Change of Control shall be
deemed to have occurred if the person acquiring the stock or assets in Seller is
either (1) in a manner similar to Seller, also an affiliate of Raytheon Company
or (2) a non-North American manufacturer of appliances (whether or not such
appliances include laundry equipment), or controls, is controlled by, or is
commonly controlled with a non-North American manufacturer of appliances, and
which entity has a net worth, determined in accordance with generally accepted
accounting principles, of at least $250,000,000.
11. Notice - Except as otherwise provided herein, any notice required
------
hereunder shall be in writing and shall be deemed to have been validly served,
given, or delivered upon (a) deposit in the United States certified or
registered mails, with proper postage prepaid, (b) deposit with a reputable
overnight courier with all charges prepaid, or (c) delivery, if hand-delivered
by messenger, all of which must be properly addressed to the party to be
notified as follows:
4
<PAGE>
a. If to Seller at: Attn: President
Raytheon Appliances Commercial Laundry
Shepard Street
P.O. Box 990
Ripon, WI 54971-0990
with a copy to: Attn: Vice President Sales and Marketing
Raytheon Appliances Commerical Laundry
Shepard Street
P.O. Box 990
Ripon, WI 54971-0990
b. If to Buyer at: Coinmach Laundry Corporation
55 Lumber Road
Roslyn, New York 11576
Attn: Mr. Robert M. Doyle
with a copy to: Anderson, Kill & Olick , P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attn: Ronald S. Brody, Esq.
or to such other address as each party may designate for itself by like notice.
13. Choice of Law - This Agreement shall be governed by the laws of
-------------
the State of Wisconsin.
14. Successors and Assigns - This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors,
legal representatives, and assigns.
15. Counterparts Clause: Telecopy Execution - This Agreement may
---------------------------------------
be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile
shall also deliver a manually executed counterpart of this Agreement, but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
16. Future Acquisitions - Buyer may, in the future, acquire other
-------------------
route businesses from independent operators and operate such either under a new
wholly-owned subsidiary (if such acquisition is structured as a stock purchase
with the acquired corporation not thereafter being merged into one of the
entities comprising Buyer) or under one of Buyer's existing operating entities
(if such acquisition is structured as an asset purchase). In the event that
Buyer consummates any such future acquisitions, Buyer or its applicable
subsidiary shall remain entitled to the same benefits hereunder as if such
person were a party, as an additional
5
<PAGE>
"Buyer," to this Agreement, and in the event any such acquisition is structured
as a stock purchase, resulting in a new wholly-owned or controlled subsidiary of
Buyer, Buyer shall cause such new subsidiary to execute an agreement, in form
and substance satisfactory to Seller, adopting the terms of this Agreement as a
"Buyer" hereunder and agreeing to be bound by all the terms and provisions
hereof; provided, however, that until such time as such new subsidiary has
adopted this Agreement, Buyer shall cause such new subsidiary to abide and be
bound by the terms hereof in the same manner as if such new subsidiary were a
party hereto. However, in the event of a stock purchase in which Buyer's new
subsidiary is already a party to a non-cancellable Supply Agreement, Buyer is
not bound to cause such new subsidiary to execute an agreement adopting the
terms of this Agreement. In the event that Buyer consummates one or more
acquisitions which result, in the aggregate, in a twenty five percent (25%)
increase in Buyer's annual purchasing requirements, as measured by Buyer's and
Kwik Wash Laundries L.P.'s (Kwik Wash Laundries, L.P. was acquired by Coinmach
Laundry Corporation, Buyers parent company, during the first quarter of 1997 and
was subsequently merged into Coinmach) 1996 combined purchases which shall be
deemed the base amount for determining whether Buyer's annual purchases have
increased by twenty five percent (25%), Buyer and Seller shall mutually agree to
reconsider whether the specific pricing established by Exhibit A and B attached
hereto continues to be appropriate in light of Buyer's expanded operations.
17. Complete Agreement - This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith (i) embody the
complete agreement and understanding among the parties, and (ii) supersede and
preempt any prior summaries of terms and conditions, understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
BUYER: SELLER:
COINMACH CORPORATION, RAYTHEON APPLIANCES, INC.,
a Delaware corporation a Delaware corporation
/s/ STEPHEN R. KERRIGAN /s/ THOMAS L'ESPERANCE
By:___________________________ By:_____________________________
Chief Executive Officer PRESIDENT
Title:________________________ Title:__________________________
SUPER LAUNDRY EQUIPMENT CORPORATION,
a New York corporation
/s/ STEPHEN R. KERRIGAN
By:___________________________
Chief Executive Officer
Title:________________________
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-27-1998 MAR-27-1998
<PERIOD-START> SEP-27-1997 MAR-29-1997
<PERIOD-END> DEC-26-1997 DEC-26-1997
<CASH> 17,575 17,575
<SECURITIES> 0 0
<RECEIVABLES> 8,003 8,003
<ALLOWANCES> 0 0
<INVENTORY> 13,220 13,220
<CURRENT-ASSETS> 0 0
<PP&E> 197,819 197,819
<DEPRECIATION> 64,638 64,638
<TOTAL-ASSETS> 567,522 567,522 <F1>
<CURRENT-LIABILITIES> 0 0
<BONDS> 381,324 381,324 <F2>
0 0
0 0
<COMMON> 103,110 103,110
<OTHER-SE> (40,827) (40,827)
<TOTAL-LIABILITY-AND-EQUITY> 567,522 567,522 <F3>
<SALES> 0 0
<TOTAL-REVENUES> 80,618 230,415
<CGS> 0 0
<TOTAL-COSTS> 53,840 154,150
<OTHER-EXPENSES> 19,957 57,999 <F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,301 32,430
<INCOME-PRETAX> (4,480) (14,164)
<INCOME-TAX> (695) (2,600) <F5>
<INCOME-CONTINUING> (3,785) (11,564)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,785) (11,564) <F6>
<EPS-PRIMARY> (.35) (1.09)
<EPS-DILUTED> 0 0
<FN>
ARTICLE 5 OF REGULATION S-X
Footnotes
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
1. TOTAL ASSETS:
Includes Advance Location Payments of $48,644, Contract Rights of $215,858, and
Goodwill of $108,199, each net of accumulated amortization, as of December
26, 1997.
2. BONDS:
Includes $296,655 of 11 3/4% senior notes, and the premium on the 11 3/4%
senior notes of $9,699, as well as debt outstanding under a credit facility of
$75,000 as of December 26, 1997.
3. TOTAL LIABILITIES:
Includes Accrued Rental Payments of $13,135 and Accrued Interest of $4,059, at
December 26, 1997.
4. OTHER EXPENSES:
Other Expenses include stock based compensation charges of $945 for the nine
months ended December 26, 1997.
5. INCOME TAX:
The provision (benefit) for income taxes consists of $230 currently payable and
($2,830) deferred, for the nine months ended December 26, 1997.
6. NET INCOME:
In addition, EBITDA (earnings before interest, income taxes, depreciation and
amortization), before the deduction for the stock-based compensation charge, of
$71,748 was generated for the reported period. EBITDA is a meaningful measure
of a company's ability to service debt.
</FN>
</TABLE>
