SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the period ended December 31, 1998
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 5, 1999, 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.
Financial Information Page No.
- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1998 (Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months Ended December 31, 1998
and December 26, 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three and Nine Months Ended December 31, 1998
and December 26, 1997 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-16
PART II.
Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
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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 31, 1998 March 31, 1998 1
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $23,995 $22,456
Receivables, net 8,436 7,750
Inventories 16,535 13,430
Prepaid expenses 6,007 6,308
Advance location payments 79,034 74,026
Land, property and equipment, less accumulated
depreciation of $111,287 and $72,234 218,587 194,328
Contract rights, less accumulated amortization of
$62,098 and $39,923 412,788 366,762
Goodwill, less accumulated amortization of $18,309
and $12,530 110,658 110,424
Other assets 21,479 21,464
------- -------
Total assets $897,519 $816,948
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $20,225 $ 17,128
Accrued rental payments 26,473 20,977
Accrued interest 5,421 13,993
Other accrued expenses 12,215 15,178
Deferred income taxes 82,364 79,511
11-3/4% Senior Notes 296,655 296,655
Premium on 11 3/4% Senior Notes, net 8,332 9,258
Credit facility indebtedness 388,489 296,267
Other long-term debt 7,021 9,236
Stockholders' equity:
Common stock and capital in excess of par value 104,093 103,210
Notes receivable from management (232) (335)
Accumulated deficit (53,537) (44,130)
-------- -------
Total stockholders' equity 50,324 58,745
------- -------
Total liabilities and stockholders' equity $897,519 $816,948
======= ========
See accompanying notes.
- ------
1. The March 31, 1998 balance sheet has been derived from the audited
financial statements as of that date.
</TABLE>
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<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 31, December 26, December 31, December 26,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $130,736 $80,618 $373,645 $230,415
COSTS AND EXPENSES:
Laundry operating expenses 85,738 53,840 245,461 154,150
General and administrative
expenses 2,006 1,600 5,987 4,517
Depreciation and amortization 28,847 17,957 83,940 52,537
Stock-based compensation
charge 369 400 987 945
--------- ------- ---------- ---------
116,960 73,797 336,375 212,149
--------- ------ --------- ---------
OPERATING INCOME 13,776 6,821 37,270 18,266
INTEREST EXPENSE, NET 16,902 11,301 49,336 32,430
-------- ------ --------- ---------
LOSS BEFORE INCOME TAXES (3,126) (4,480) (12,066) (14,164)
--------- ------- --------- ----------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 400 80 647 230
Deferred (828) (775) (3,306) (2,830)
----- ----- --------- ----------
(428) (695) (2,659) (2,600)
----- ----- --------- ----------
NET LOSS $(2,698) $(3,785) $(9,407) $(11,564)
========= ========= ========= ==========
BASIC AND DILUTED LOSS PER
SHARE $(.20) $(.35) $(.71) $ (1.09)
====== ====== ====== ==========
WEIGHTED AVERAGE COMMON 13,167,783 10,872,450 13,167,783 10,614,101
SHARES OUTSTANDING
See accompanying notes.
</TABLE>
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
December 31, December 26,
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(9,407) $(11,564)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 38,580 22,910
Amortization of advance location payments 15,035 7,566
Amortization of intangibles 30,325 22,061
Deferred income taxes (3,306) (2,830)
Stock-based compensation charge 987 945
Amortization of premium on 11 3/4% Senior Notes (926) (206)
Amortization of debt discount and deferred issuance
costs 1,316 533
Change in operating assets and liabilities,
net of business acquired:
Other assets (1,499) (1,348)
Receivables, net (131) 718
Inventories and prepaid expenses (1,201) (3,679)
Accounts payable 1,278 172
Accrued interest (8,572) (5,653)
Accrued expenses, net 2,284 (916)
Net cash provided by operating activities 64,763 28,709
------ ------
INVESTING ACTIVITIES:
Additions to property and equipment (45,718) (36,357)
Advance location payments to location owners (16,230) (10,257)
Additions to net assets related to acquisitions of businesses (89,584) (63,903)
Net cash used for investing activities (151,532) (110,517)
--------- ---------
FINANCING ACTIVITIES:
Debt transactions:
Net (repayments) borrowing of bank and other
borrowings (1,507) 2,075
Deferred debt issuance costs (381) (5,355)
Proceeds (repayments) from credit facility, net 92,222 (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 (2,026) (841)
Equity Transactions:
Proceeds from issuance of common stock - 48,900
------- ------
Net cash provided by financing activities 88,308 84,654
------ ------
Net increase in cash and cash equivalents 1,539 2,846
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 22,456 14,729
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $23,995 $17,575
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $57,863 $36,500
======= =======
See accompanying notes.
</TABLE>
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<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 outsourced laundry equipment services to
multi-family housing properties throughout the United States. The Company's core
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. The Company owns and
operates approximately 755,000 washers and dryers in approximately 75,000
locations on routes throughout the United States and in 162 retail laundromats
located throughout Texas and Arizona.
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 in the financial statements. 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 31,
1998.
Certain prior year's balances have been reclassified to conform with
the current period presentation.
3. Loss per Share
Basic and diluted loss per share for each of the three and nine months
ended December 31, 1998 was calculated based upon the weighted average number of
common shares outstanding of 13,167,783. Basic and diluted loss per share for
the three months ended December 26, 1997 was calculated based upon the weighted
average number of common shares outstanding of 10,872,450. Basic and diluted
loss per share for the nine months ended December 26, 1997 was calculated based
upon the weighted average number of common shares outstanding of 10,614,101.
Conversion of common equivalent shares (stock options) was not assumed since the
results would have been antidilutive.
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. Comprehensive Income
On April 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS No. 130 had no impact on the Company's net loss or
stockholders' equity. The Company did not have any elements of comprehensive
income which would be required to be included in its financial statements for
the periods presented.
5. Long-Term Debt
At December 31, 1998, Coinmach Corporation ("Coinmach"), a wholly-owned
subsidiary of Coinmach Laundry, had outstanding long-term debt consisting of (a)
approximately $296.7 million of 11 3/4% Senior Notes due 2005 (the "Senior
Notes") and (b) $272.5 million of term loans and approximately $116.0 million of
a revolving line of credit under the Amended and Restated Credit Facility.
Indebtedness under the Amended and Restated Credit Facility is secured by all of
the Company's real and personal property. Coinmach Laundry has guaranteed the
indebtedness under the Amended and Restated 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 and Restated Credit Facility contains 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 indenture governing the
Senior Notes and the Amended and Restated Credit Facility limit Coinmach's
ability to pay dividends.
6. Stockholders' Equity
a. Secondary Offering
On December 19, 1997, Coinmach Laundry completed a secondary offering
(the "Secondary 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 Secondary 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 Secondary Offering were approximately $49.9
million, after underwriting discounts and commissions and before expenses.
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
6. Stockholders' Equity (continued)
b. Stock Option Plan
Prior to the Company's initial public offering in July 1996 (the
"Initial 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 stock options for the purchase of up to 1,109,147 shares of Common
Stock to key employees of the Company over a period not to exceed ten years. The
Company may grant incentive stock options at an exercise price per share not
less than 100% of the fair market value of the Common Stock at the date of grant
and stock options which do not qualify as incentive stock options at an exercise
price per share not less than the average closing price of the Common Stock for
the thirty consecutive trading days immediately preceding the date of grant. All
stock 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
over a four year period) and expire ten years from the date of grant.
Through December 31, 1998, the Company has granted 502,250 stock
options to various employees of the Company pursuant to the Stock Option Plan,
of which 248,500 were granted during the past fiscal nine months.
During July and September, 1996, in connection with the Initial
Offering, Coinmach Laundry granted certain non-qualified stock options to
certain members of management to purchase up to 739,437 shares of Common Stock
at 85% of the initial offering price of the Common Stock. Such 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 Initial Offering. The Company records the difference between the
exercise price of such options 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, stock options entitling each such
director to purchase up to 60,000 shares of Common Stock (the "Independent
Director Options"). The Independent Director Options vest in equal annual
installments (25% vest immediately on the date of grant and the remainder 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 records 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 to certain members of
management certain non-qualified stock options to purchase up to 200,000 shares
of Common Stock at an exercise price of $11.90 per share. Such 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 records the difference between the exercise price of such options and
the fair market value of
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
6. Stockholders' Equity (continued)
the Common Stock on September 5, 1997 as a stock-based compensation charge over
the applicable four year vesting period.
On May 4, 1998, the Company granted to certain employees 248,500
non-qualified stock options pursuant to the Stock Option Plan and 31,244
non-qualified stock options to a director of the Company at an exercise price of
$22.30938 per share. Such options vest in equal annual installments (20% vest
immediately on June 10, 1998 and the remainder vest over a four year period).
The Company records the difference between the exercise price of such options
and the fair market value of the Common Stock on May 4, 1998 as a stock-based
compensation charge over the applicable four year vesting period.
For the nine months ended December 31, 1998, the Company recorded a
stock-based compensation charge relating to the options described above of
approximately $987,000. For the nine months ended December 26, 1997, the Company
recorded a stock-based compensation charge relating to the options described
above of approximately $945,000.
7. Acquisitions - 1998
On May 19, 1998, the Company completed the acquisition of Cleanco, Inc.
and certain of its affiliates ("Cleanco") for a cash purchase price of
approximately $23.0 million, excluding transaction expenses (the "Cleanco
Acquisition"), financed with cash and borrowings under the Amended and Restated
Credit Facility. Cleanco, headquartered in Miami, Florida, was a leading
provider of outsourced laundry equipment services in southern Florida. The
Cleanco Acquisition added approximately 21,000 machines to the Company's
installed base.
On June 5, 1998, the Company completed the acquisition of Gordon &
Thomas Companies, Inc. ("G&T") for a cash purchase price of approximately $58
million, excluding transaction expenses (the "G&T Acquisition") and the
assumption of certain liabilities. This transaction was financed with cash and
borrowings under the Amended and Restated Credit Facility. G&T, headquartered in
New Jersey, was a leading provider of outsourced laundry equipment services in
the New York metropolitan area. The G&T Acquisition strengthened the Company's
presence in the northeastern United States by adding approximately 36,000
machines to the Company's installed base.
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, certain information
contained and matters discussed in this document are forward-looking statements
based on the beliefs of the Company's management and are subject to certain
risks and uncertainties described herein and contained in the Company's Annual
Report on Form 10-K for the year ended March 31, 1998. Should these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, the
Company's future performance and actual results of operations may vary
materially from those expected or intended.
General
The Company, through its operating subsidiaries, is principally engaged
in supplying outsourced laundry equipment services to multi-family housing
properties. The Company owns and operates approximately 755,000 washers and
dryers in approximately 75,000 multi-family housing properties on routes
throughout the United States and 162 retail laundromats located throughout Texas
and Arizona.
The Company provides outsourced 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 costs of servicing and collecting
in the route business, including payroll, parts, vehicles and other related
items, the cost of sales associated with the equipment distribution business 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 location 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, individual property owners and managers of multi-family
housing properties (approximately $8.1 million for the nine months ended
December 31, 1998 and approximately $2.2 million for the nine months ended
December 26, 1997); (ii) operating, maintaining and servicing retail laundromats
(approximately $14.9 million for the nine months ended December 31, 1998 and
approximately $15.9 million for the nine months ended December 26, 1997); and
(iii) constructing complete turnkey retail laundromats, retrofitting retail
laundromats, distributing exclusive lines of commercial coin and non-coin
operated machines and parts, and selling service contracts (approximately $27.5
million for the nine months ended December 31, 1998 and approximately $18.9
million for the nine months ended December 26, 1997).
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations
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 31, 1998.
Comparison of the three and nine month periods ended December 31, 1998 and
December 26, 1997
Revenues increased by approximately 62% for both the three and nine
month periods ended December 31, 1998, as compared to the prior year's
corresponding periods. This improvement in revenues resulted primarily from the
Company's execution of its acquisition strategy and increased route revenues
resulting from internal expansion. Based on the historical revenues of acquired
businesses, the Company estimates that approximately $127.6 million of its
revenue increase for the current nine month period is primarily due to the
National Coin Acquisition (as defined) in July 1997, the ALI Acquisition (as
defined) in January 1998, the Macke Acquisition (as defined) in March 1998, the
Cleanco Acquisition in May 1998 and the G&T Acquisition in June 1998. In
addition, during the current nine month period, the Company's installed machine
base increased by approximately 18,000 machines from internal growth (excluding
the machines added from the Cleanco Acquisition and the G&T Acquisition during
such period) as compared to an increase of approximately 16,700 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 59% for both the
three and nine month periods ended December 31, 1998, as compared to the prior
year's corresponding periods. The increase was due basically to an increase in
laundry operating expenses (primarily commission expense) related to the
National Coin Acquisition, the ALI Acquisition, the Macke Acquisition, the
Cleanco Acquisition and the G&T Acquisition. However, as a percentage of
revenue, laundry operating expenses were 65.6% for the three month period ended
December 31, 1998 and 65.7% for the nine month period ended December 31, 1998 as
compared to 66.8% for the three month period ended December 26, 1997 and 66.9%
for the nine month period ended December 26, 1997.
General and administrative expenses increased by approximately $0.4
million for the three month period ended December 31, 1998 and by approximately
$1.5 million for the nine month period ended December 31, 1998, as compared to
the prior year's corresponding periods. The increase for such periods was due to
various costs and expenses related to (i) the Company's acquisition strategy,
including systems development and refinement relating to the integration of
prior acquisitions, and (ii) accounting, management information systems and
other administrative functions associated with the Company's growth. However, as
a percentage of revenues, general and administrative expenses were 1.5% for the
three month period ended December 31, 1998 and 1.6% for the nine month period
ended December 31, 1998, as compared to 2.0% for each of the prior year's
corresponding periods.
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Depreciation and amortization expenses increased by approximately 61%
for the three month period ended December 31, 1998 and by approximately 60% for
the nine month period ended December 31, 1998, as compared to the prior year's
corresponding periods, due primarily to contract rights and goodwill associated
with the above-mentioned acquisitions, as well as an increase in capital
expenditures with respect to the Company's installed base of machines.
During 1996 and 1997, the Company granted to certain members of
management of the Company and certain other individuals non-qualified options to
purchase shares of Common Stock at a 15% discount to the initial offering price
of the Common Stock. With respect to such options granted to its employees, the
Company records such discount as a stock-based compensation charge over the
applicable four year vesting period. The Company also granted to two of its
directors Independent Director Options to purchase up to a total of 120,000
shares of Common Stock. The Company records the difference between the exercise
price of such options and the fair market value of the Common Stock on the date
of grant as a stock-based compensation charge over the applicable three year
vesting period. On May 4, 1998, the Company granted 248,500 non-qualified stock
options to certain employees pursuant to the Stock Option Plan and 31,244
non-qualified stock options to a director of the Company at an exercise price of
$22.30938 per share. Such options vest in equal annual installments (20% vest
immediately on June 10, 1998 and the remainder vest over a four year period).
The Company records the difference between the exercise price of such options
and the fair market value of the Common Stock on May 4, 1998 as a stock-based
compensation charge over the applicable four year vesting period. During the
nine months ended December 31, 1998, the Company recorded a stock-based
compensation charge relating to these options of approximately $987,000. During
the nine months ended December 26, 1997, the Company recorded a stock-based
compensation charge relating to these options of approximately $945,000.
Operating income margins were approximately 10.5% for the three month
period ended December 31, 1998, as compared to approximately 8.5% for the three
month period ended December 26, 1997. Operating income margins were
approximately 10.0% for the nine month period ended December 31, 1998, as
compared to approximately 7.9% for the nine month period ended December 26,
1997.
Interest expense, net, increased by approximately 50% for the three
month period ended December 31, 1998 and by approximately 52% for the nine month
period ended December 31, 1998, as compared to each of the prior year's
corresponding periods due primarily to increased borrowing levels under the
Amended and Restated Credit Facility in connection with certain acquisitions, as
well as increased interest expense due to the offering by the Company of $100
million aggregate principal amount of 11 3/4% Series C Senior Notes due 2005
(the "Series C Notes") in October 1997.
EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) before deduction for stock-based compensation
charges was approximately $122.2 million for the nine months ended December 31,
1998, as compared to approximately $71.7 million for the corresponding period in
1997, representing an improvement of approximately 70%. EBITDA margins improved
to
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COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
approximately 32.7% for the nine months ended December 31, 1998, compared to
approximately 31.1% for the prior year's corresponding period. EBITDA is used by
certain investors as an indicator of a company's historical ability to service
debt. Management believes that an increase in EBITDA is an indication of the
Company's improved ability to service existing debt, to sustain potential future
increases in debt and to satisfy capital requirements. However, EBITDA is not
intended to represent cash flows for the period, nor has it been presented as an
alternative to either (a) operating income (as determined by GAAP) as an
indicator of operating performance or (b) cash flows from operating, investing
and financing activities (as determined by GAAP) as a measure of liquidity.
Given that EBITDA is not a measurement determined in accordance with GAAP and is
thus susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At December 31, 1998, the Company had outstanding long-term debt
(excluding the premium on the Series C Notes) of approximately $692.2 million
and stockholders' equity of approximately $50.3 million.
The Company's level of indebtedness will have several important effects
on its future operations, including, but not limited to, the following: (a) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (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 may 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 outsourced laundry equipment
services industry and to economic conditions in general will be limited.
As the Company has focused on increasing its cash flow from operating
activities, 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 31, 1998 were approximately $151.5 million. Of such
amount, the Company spent approximately $89.6 million in acquisition and related
transaction costs, primarily due to the Cleanco Acquisition and the G&T
Acquisition, and approximately $17.4 million related to the net increase in the
installed base of machines of approximately 18,000 machines. The balance of
approximately $44.5 million (which consists of machine expenditures, advance
location payments and laundry room improvements) was used to maintain the
existing machine base in current locations and through replacement of
discontinued locations and for general corporate purposes. The full impact on
revenues and cash flow 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
certain factors, including the timing of the capital expended. While the Company
estimates that it will generate sufficient cash flows from operations to finance
anticipated capital expenditures, there can be no assurances that it will be
able to do so.
-13-
<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)
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 Amended and Restated Credit Facility and semi-annual cash
interest payments on the Senior Notes.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the Senior
Notes and borrowings under the Amended and Restated Credit Facility or to permit
any necessary refinancings thereof. An inability of the Company, however, to
comply with covenants or other conditions under the Amended and Restated Credit
Facility or contained in the indenture governing the Senior Notes could result
in an acceleration of all amounts due thereunder. 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 and Restated Credit Facility or the indenture governing the Senior
Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $83.9 million for the nine months ended December 31, 1998) have
the effect of reducing net income but not operating cash flow. In accordance
with GAAP, a significant amount of the purchase price of businesses acquired by
the Company is allocated to "contract rights", which costs are amortized over
periods of 15 years.
Summary of Recent Acquisitions
On July 17, 1997, Coinmach completed the acquisition of National
Laundry Equipment Company, Whitmer Vend-O-Mat Laundry Services, Inc. and certain
other related parties (the "National Coin Acquisition") for an aggregate
purchase price of approximately $19 million, excluding transaction expenses. The
National Coin Acquisition, which was financed through borrowings under the
Company's then existing credit facility, enabled the Company to further expand
its operations by providing 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.
On January 15, 1998, Coinmach completed the acquisition of the route
business of Apartment Laundries, Inc. ("ALI"), pursuant to which Coinmach
acquired substantially all the assets of ALI for a cash purchase price of $16.2
million, excluding transaction expenses (the "ALI Acquisition"). The ALI
Acquisition was financed through working capital and borrowings under the
Company's then existing credit facility. ALI provided outsourced laundry
equipment services for multi-family housing units in Oklahoma, Texas, Kansas and
Arkansas.
On March 2, 1998, Coinmach completed the acquisition of Macke Laundry
Service, L.P. and substantially all of the assets of certain related entities
(collectively, "Macke") for a cash purchase price
-14-
<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)
of approximately $213 million, excluding transaction expenses (the "Macke
Acquisition"). The Macke Acquisition was financed with cash and borrowings under
the Amended and Restated Credit Facility, which was amended and restated in
connection with such acquisition to provide for additional borrowing capacity on
substantially similar terms. The Macke Acquisition enabled the Company to
further expand its route operations by providing outsourced laundry equipment
services to multi-family housing properties throughout the United States and
added approximately 236,000 machines to the Company's base.
On May 19, 1998, Coinmach completed the Cleanco Acquisition. The
Cleanco Acquisition was financed with cash and borrowings under the Amended and
Restated Credit Facility. Cleanco, headquartered in Miami, Florida, was a
leading provider of outsourced laundry equipment services in southern Florida.
The Cleanco Acquisition added approximately 21,000 machines to the Company's
installed base.
On June 5, 1998, Coinmach completed the G&T Acquisition which was
financed with cash and borrowings under the Amended and Restated Credit
Facility. G&T, headquartered in New Jersey, was a leading provider of outsourced
laundry equipment services in the New York metropolitan area. The G&T
Acquisition strengthened the Company's presence in the northeastern United
States by adding approximately 36,000 machines to the Company's installed base.
As part of its business strategy, the Company will continue to evaluate
opportunities to acquire local, regional and multi-regional route businesses.
There can be no assurance that the Company will find attractive acquisition
candidates or effectively manage the integration of acquired businesses into its
existing business.
Year 2000
The Company has undertaken a comprehensive Year 2000 initiative managed
by a team consisting of internal staff and outside consultants. The Year 2000
initiative has involved an extensive review of the Company's information systems
and an assessment of the compliance status of customers, suppliers and lenders
with whom the Company has a significant relationship. The Company anticipates
its information systems will be substantially Year 2000 compliant by the fall of
1999.
The Company has contacted its significant customers, suppliers and
lenders to ensure that those parties have appropriate plans to remediate Year
2000 issues where their systems interface with the Company's systems or
otherwise impact its operations. Based on its evaluations to date, the Company
believes that it will not be materially impacted by Year 2000 problems arising
from its relationships with customers, suppliers and lenders. During 1999, the
Company will continue to assess the Year 2000 compliance of these parties and
will develop contingency plans should it appear that these parties will not be
adequately prepared to address Year 2000 problems that could significantly
impact the Company's operations.
-15-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Year 2000 (continued)
As of December 31, 1998, costs incurred in connection with Year 2000
compliance have not been material. The Company anticipates that future costs
associated with the Year 2000 initiative will not be material to the Company's
results of operation or financial condition.
The Company believes it is devoting appropriate resources to the Year
2000 issue and that its internal systems will be adequately prepared for Year
2000 processing. While there can be no assurance of third party compliance,
based on the analysis performed to date, the Company believes that it has
resolved or has adequately addressed all identified Year 2000 issues. While the
Company believes its planning efforts are adequate to address Year 2000
concerns, there can be no assurance that all such Year 2000 issues have been
adequately identified and addressed, and actual results could differ materially
from those planned or anticipated. The Company will continue to monitor Year
2000 readiness and to develop appropriate responses should they be required.
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 does not exhibit material seasonality fluctuations.
-16-
<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
None.
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
3.1 Fourth Amended and Restated Certificate of
Incorporation of Coinmach Laundry (incorporated by
reference from Exhibit 3.5 to Coinmach Laundry's Form
10-Q for the quarterly period ended June 30, 1998)
3.2 Third Amended and Restated Bylaws of Coinmach Laundry
(incorporated by reference from Exhibit 3.1 to
Coinmach Laundry's Form 10-Q for the quarterly period
ended September 27, 1996)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
-17-
<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 5, 1999 /s/ ROBERT M. DOYLE
--------------------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal Financial
Officer)
-18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001013021
<NAME> Coinmach Laundry Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> APR-01-1998 OCT-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 23,995 0
<SECURITIES> 0 0
<RECEIVABLES> 8,436 0
<ALLOWANCES> 0 0
<INVENTORY> 16,535 0
<CURRENT-ASSETS> 0 0
<PP&E> 329,874 0
<DEPRECIATION> (111,287) 0
<TOTAL-ASSETS> <F1> 897,519 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 692,165 0
0 0
0 0
<COMMON> <F2> 104,093 0
<OTHER-SE> (53,769) 0
<TOTAL-LIABILITY-AND-EQUITY> <F3> 897,519 0
<SALES> 0 0
<TOTAL-REVENUES> 373,645 130,736
<CGS> 0 0
<TOTAL-COSTS> 245,461 85,738
<OTHER-EXPENSES> <F4> 90,914 31,222
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 49,336 16,902
<INCOME-PRETAX> (12,066) (3,126)
<INCOME-TAX> <F5> (2,659) (428)
<INCOME-CONTINUING> (9,407) (2,698)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> <F6> (9,407) (2,698)
<EPS-PRIMARY> (.71) (.20)
<EPS-DILUTED> (.71) (.20)
<FN>
<F1> Total Assets: Includes Advance Location Payments of $79,034, Contract
Rights of $412,788 and Goodwill of $110,658, each net of accumulated
amortization at December 31, 1998.
<F2> Bonds: Includes $296,655 of 11-3/4 senior notes, as well as debt
outstanding under a credit facility of $388,489 at December 31, 1998.
<F3> Total Liabilities: Includes Accrued Rental Payments of $26,473 and Accrued
Interest of $5,421 at December 31, 1998.
<F4> Other Expenses: Includes stock based compensation charges of $369 and $987
for the quarter and nine months ended December 31, 1998.
<F5> Income Tax: The provision (benefit) for income taxes consists of $400 and
$647 currently payable and ($828) and ($3,306) deferred, for the quarter
and nine months ended December 31, 1998.
<F6> Net Income: In addition, EBITDA of $122,197 (earnings before interest,
income taxes, depreciation and amortization) before the deduction for the
stock-based compensation charge was generated for the reported period.
EBITDA is a meaningful measure of a company's ability to service debt.
</FN>
</TABLE>
