COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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 September 30, 1999
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 November 12, 1999, Coinmach Laundry Corporation
had outstanding 12,931,869 shares of Class A common stock, par value $.01 per
share (the "Common Stock"), and 240,324 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-
September 30, 1999 (Unaudited) and March 31, 1999 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Six Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
PART II.
Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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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>
September 30, 1999 March 31, 19991
------------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 25,893 $ 26,515
Receivables, net 9,231 8,107
Inventories 18,375 16,328
Prepaid expenses 6,853 6,552
Advance location payments 79,423 79,705
Land, property and equipment, net of accumulated
depreciation of $150,956 and $123,337 230,341 223,610
Contract rights, net of accumulated amortization of
$86,536 and $70,602 399,275 413,014
Goodwill, net of accumulated amortization of $24,285
and $20,318 105,192 109,025
Other assets 17,225 18,440
-------- ---------
Total assets $891,808 $901,296
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 22,703 $ 20,478
Accrued rental payments 28,624 26,888
Accrued interest 16,424 15,516
Other accrued expenses 13,519 13,366
Deferred income taxes 78,248 81,494
11 3/4% Senior Notes 296,655 296,655
Premium on 11 3/4% Senior Notes, net 7,406 8,023
Credit facility indebtedness 380,564 384,003
Other long-term debt 6,508 6,833
Stockholders' equity:
Common stock and capital in excess of par value 104,718 104,363
Receivables from management (190) (219)
Accumulated deficit (63,371) (56,104)
-------- -------
Total stockholders' equity 41,157 48,040
------ -------
Total liabilities and stockholders' equity $891,808 $901,296
======== ========
</TABLE>
See accompanying notes.
- ------
1. The March 31, 1999 balance sheet has been derived from the audited
consolidated financial statements as of that date.
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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 Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------------ -------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $130,060 $124,975 $263,598 $242,909
COSTS AND EXPENSES:
Laundry operating expenses 86,282 82,155 173,493 159,723
General and administrative
expenses 2,067 1,984 4,146 3,981
Depreciation and amortization 30,630 28,250 60,566 55,093
Stock-based compensation
charge 187 397 346 618
------- -------- -------- --------
119,166 112,786 238,551 219,415
------- -------- -------- --------
OPERATING INCOME 10,894 12,189 25,047 23,494
INTEREST EXPENSE, NET 16,849 16,867 33,589 32,434
------- ------- ------ -------
LOSS BEFORE INCOME TAXES (5,955) (4,678) (8,542) (8,940)
------- ------- ------- -------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 872 139 2,011 246
Deferred (1,994) (1,222) (3,286) (2,477)
------- ------- ------- -------
(1,122) (1,083) (1,275) (2,231)
------- -------- ------- -------
NET LOSS $(4,833) $ (3,595) $(7,267) $ (6,709)
------- ------- ------- --------
BASIC AND DILUTED LOSS $ (.37) $ (.27) $ (.55) $ (.51)
======= ======== ======= ========
PER SHARE
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Common Shares 13,167,831 13,167,783 13,167,807 13,167,783
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>
Six Months Ended
----------------------------------
September 30, September 30,
1999 1998
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (7,267) $ (6,709)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 27,629 25,210
Amortization of advance location payments 12,166 9,919
Amortization of intangibles 20,771 19,964
Deferred income taxes (3,286) (2,477)
Amortization of premium on 11 3/4% Senior Notes (617) (617)
Amortization of debt discount and deferred issue costs 916 808
Stock-based compensation 346 618
Change in operating assets and liabilities, net of businesses acquired:
Other assets (353) (664)
Receivables, net (1,124) 90
Inventories and prepaid expenses (2,348) (920)
Accounts payable 2,226 365
Accrued interest, net 908 310
Other accrued expenses, net (696) 2,478
--------- ---------
Net cash provided by operating activities 49,271 48,375
--------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment (34,402) (32,842)
Advance location payments to location owners (10,421) (10,229)
Additions to net assets related to acquisitions of businesses - (86,123)
--------- ----------
Net cash used in investing activities (44,823) (129,194)
--------- ---------
FINANCING ACTIVITIES:
Net (repayments) proceeds of credit facility borrowings (3,439) 85,594
Net repayments of bank and other borrowings (196) (967)
Principal payments on capitalized lease obligations (1,472) (1,227)
Deferred debt issue costs - (227)
Proceeds from issuance of stock for employee stock option
plan 37 -
--------- --------
Net cash (used in) provided by financing activities (5,070) 83,173
--------- --------
Net (decrease) increase in cash and cash equivalents (622) 2,354
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,515 22,456
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $25,893 $24,810
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 32,472 $ 32,682
======= ========
Income taxes paid $ 1,947 $ 259
======== =========
NON-CASH FINANCING ACTIVITIES:
Acquisition of fixed assets through capital leases $ 1,593 $ 915
======== =========
</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"), including Coinmach Corporation ("Coinmach"), is the leading supplier
of outsourced laundry services for multi-family housing properties in the United
States. The Company's core business involves leasing laundry rooms from building
owners and property management companies, installing and servicing laundry
equipment and collecting revenues generated from laundry machines. The Company
owns and operates approximately 781,000 washers and dryers (hereinafter referred
to as "laundry machines" or "machines") in approximately 75,000 locations on
routes located throughout the United States and in 172 retail laundromats
located throughout Texas and Arizona. The Company also leases laundry machines
and other household appliances to corporate relocation entities, property
owners, managers of multi-family housing properties and individuals. Super
Laundry Equipment Corp. ("Super Laundry"), a wholly-owned subsidiary of
Coinmach, is a laundromat equipment distribution company.
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 differ 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 its fiscal year ended March
31, 1999.
3. Loss per Share
Basic and diluted loss per share for each of the three and six month
periods ended September 30, 1999 were calculated based upon the weighted average
number of common shares outstanding of 13,167,831 and 13,167,807, respectively.
Basic and diluted loss per share for each of the three and six month periods
ended September 30, 1998 were calculated based upon the weighted average number
of common shares outstanding of 13,167,783. Conversion of common equivalent
shares (stock options) was not assumed since the results would have been
antidilutive.
-6-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. Debt
At September 30, 1999, the Company had outstanding debt consisting of
(a) approximately $296.7 million of Coinmach's 11 3/4% Senior Notes due 2005
(the "Senior Notes"), (b) approximately $270.3 million of term loans, and (c)
approximately $110.3 million under a revolving line of credit. The above
mentioned term loans and revolving line of credit represent indebtedness
pursuant to the Company's existing credit facility (as amended and restated, the
"Amended and Restated Credit Facility"), which is secured by all of the
Company's real and personal property. Under the Amended and Restated Credit
Facility, the Company has 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 representations, warranties and agreements, the Amended and Restated
Credit Facility contains certain restrictive 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,
transactions with affiliates and the Company's ability to pay dividends. Also,
the indenture governing the Senior Notes contains restrictive covenants that
similarly limit Coinmach's ability to, among other things, incur debt, pay
dividends or make other distributions, make investments, create liens, enter
into transactions with affiliates, and sell assets.
5. Employee Stock Purchase Plan
On August 2, 1999, the Company commenced the first offering period
under its Employee Stock Purchase Plan (the "Plan"). Subject to the terms and
conditions of the Plan, all eligible employees who elect to participate in the
Plan are entitled to purchase shares of Common Stock. Each share of Common Stock
purchased by eligible employees under the Plan shall be purchased at a fifteen
percent (15%) discount to the fair market value of one share of Common Stock as
determined pursuant to the Plan through consecutive offering periods until May
3, 2008 or such earlier date that the Plan is terminated. A maximum of 1,000,000
shares of Common Stock shall be available for purchase under the Plan. The
shares of Common Stock sold to participants under the Plan may be authorized and
unissued Common Stock or previously issued shares acquired by the Company and
held in its treasury. Proceeds are withheld from employees' payroll deductions
and shares are sold on the last day of each quarter. The Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code.
-7-
<PAGE>
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 based on the beliefs
of the Company's management as of the date of this report and are subject to
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 31, 1999. Should these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, the Company's
future performance and actual results of operations may differ materially from
those expected or intended.
General
- -------
The Company is principally engaged in the business of supplying
outsourced laundry services for multi-family housing properties. At September
30, 1999, the Company owned and operated approximately 781,000 washers and
dryers in approximately 75,000 locations on routes throughout the United States
and in 172 retail laundromats located throughout Texas and Arizona. The Company,
through Super Laundry, its wholly-owned subsidiary, is also a laundromat
equipment distribution company. Additionally, the Company leases laundry
machines and other household appliances to corporate relocation entities,
property owners, managers of multi-family housing properties and individuals.
The Company's primary financial objective is to increase its cash flow
from operations. Cash flow from operations represents a source of funds
available to service indebtedness and for investment in both internal growth and
growth through acquisitions. The Company has experienced net losses during the
past three fiscal years. Such net losses are attributable in part to significant
non-cash charges associated with the Company's execution of its
acquisition-related growth strategy, namely, high levels of amortization of
contract rights and goodwill related to the addition of new machines and
customers through acquisitions accounted for under the purchase method of
accounting.
The Company's most significant revenue source is its route business,
accounting for more than 85% of its revenue. The Company provides outsourced
laundry 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 machine maintenance and revenue collection in the route business,
including payroll, parts, insurance and other related expenses, 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.
-8-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
General (continued)
- -------
Other revenue sources for the Company include: (i) 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 $19.6 million for the
six months ended September 30, 1999 and $14.5 million for the six months ended
September 30, 1998); (ii) operating, maintaining and servicing retail
laundromats (approximately $10.2 million for the six months ended September 30,
1999 and $9.4 million for the six months ended September 30, 1998); and (iii)
leasing laundry equipment and other household appliances and electronic items to
corporate relocation entities, property owners, managers of multi-family housing
properties and individuals (approximately $6.7 million for the six months ended
September 30, 1999 and $5.2 million for the six months ended September 30,
1998).
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 for its fiscal year
ended March 31, 1999.
Comparison of the three and six month periods ended September 30, 1999 and
September 30, 1998
- ---------------------------------------------------------------------------
Revenues increased by approximately $5.1 million or 4% for the three
month period ended September 30, 1999, as compared to the prior year's
corresponding period. Revenues increased by approximately $20.7 million or 9%
for the six month period ended September 30, 1999, as compared to the prior
year's corresponding period. These improvements 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 $8.7 million of
its revenue increase for the current six-month period is primarily due to the
acquisition of Cleanco, Inc. and certain of its affiliates in May 1998 and the
acquisition of Gordon & Thomas Companies, Inc. in June 1998. In addition, during
the current six-month period, the Company's installed machine based increased by
approximately 16,000 machines from internal growth as compared to an increase of
approximately 15,600 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 5% and 9% for the
three and six month periods ended September 30, 1999 as compared to the prior
year's corresponding periods. This increase was due primarily to an increase in
commission expense related to the improvements in revenues. As a percentage of
revenues, laundry operating expenses have remained relatively consistent at
approximately 66% for each of the three and six month periods ended September
30, 1999 and September 30, 1998.
-9-
<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)
- --------------------
General and administrative expenses increased slightly for the three
and six month periods ended September 30, 1999, as compared to the prior year's
corresponding periods. However, as a percentage of revenues, general and
administrative expenses remained constant at approximately 1.6% for each of the
three and six month periods ended September 30, 1999 and September 30, 1998.
Depreciation and amortization increased by approximately 8% and 10% for
the three and six month periods ended September 30, 1999, 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 a related
increase in capital expenditures with respect to the Company's installed base of
machines.
Operating income margins were approximately 8.4% and 9.5% for the three
and six month periods ended September 30, 1999, as compared to approximately
9.8% and 9.7% for the three and six month periods ended September 30, 1998. This
change was primarily due to increases in depreciation expense noted above.
Interest expense, net, for the three month period ended September 30,
1999, remained relatively consistent with the prior year's corresponding period.
Interest expense, net, increased by approximately 4% for the six month period
ended September 30, 1999, as compared to the prior year's corresponding period,
due primarily to increased borrowing levels under the Amended and Restated
Credit Facility in connection with certain acquisitions mentioned above.
The effective tax benefit rate decreased to approximately 15% for the
six month period ended September 30, 1999 from approximately 25% for the prior
year's corresponding period. The lower effective tax benefit rate is the result
of the greater impact that non-deductible amortization, which has remained
constant, has when added back to losses before income taxes, which are lower
than in corresponding periods.
EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) before deduction for stock-based compensation
charges was approximately $86.0 million for the six months ended September 30,
1999, as compared to approximately $79.2 million for the corresponding period in
1998, representing an improvement of approximately 9%. This increase was
primarily the result of increased revenues, as discussed above. EBITDA margins
remained consistent at approximately 32.6% for both the six months ended
September 30, 1999 and September 30, 1998. 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 expenditure 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.
-10-
<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. At September 30, 1999, the Company had outstanding long-term debt
(excluding the unamortized premium on the Senior Notes in an amount of
approximately $7.4 million) of approximately $683.7 million and stockholders'
equity of approximately $41.2 million.
The Company's level of indebtedness will have several important effects
on its future operations, including, but not limited to, the following: (a) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (b) the restrictive 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 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 six
months ended September 30, 1999 were approximately $44.8 million. Of such
amount, the Company spent approximately $13.9 million related to the net
increase in the installed base of machines of approximately 16,000 machines. The
balance of approximately $30.9 million (which consists of machine expenditures,
advance location payments and laundry room improvements) was used to maintain
the existing machine base in current locations, to replace 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.
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.
-11-
<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)
- -------------------------------
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 under the indenture governing the Senior Notes, in either case 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 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 $60.6 million for the six months ended September 30, 1999) 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 a
period of 15 years.
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. Additionally, the Company expects to utilize excess cash flow
from operations primarily to reduce debt.
-12-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Year 2000 Compliance
- --------------------
The "year 2000" or "Y2K" problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
As a consequence, computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The
Company's comprehensive year 2000 initiative is being managed by a team of
internal staff and outside consultants. The team's activities are designed to
ensure that there is no adverse effect on the Company's core business operations
and that transactions with customers, suppliers and financial institutions are
fully supported.
During the 1999 Fiscal Year, the Company assessed the year 2000
readiness of its information technology ("IT") and non-IT systems. The Company
determined that it needed to modify significant portions of its IT systems so
that such systems would function properly with respect to dates in the year 2000
and beyond. The Company has substantially completed its IT systems
transformation and is currently verifying the year 2000 compliance of these
systems.
In addition, as part of its year 2000 initiative, the Company has
contacted its significant suppliers, customers and financial institutions 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. The Company is continuing to assess the extent to which its
operations are vulnerable should those organizations fail to properly address
their year 2000 readiness. Based on this review, the Company does not expect the
computer systems of those operations to have a material adverse effect on the
Company's operations.
While the Company believes its planning efforts are adequate to address
the year 2000 issue, there can be no guarantee that its computer systems or the
computer systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not have a material
adverse effect on the operations of the Company. The cost of the year 2000
initiative has not been material to the Company's results of operations,
financial condition or cash flows and is not expected to be material in the
foreseeable future.
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 will not be material to the Company. The Company's business
generally is not seasonal.
-13-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 8, 1999, Sand v. Coinmach Laundry Corporation, et. al, a
purported class action securities fraud lawsuit, was filed in the Federal
District Court for the Eastern District of New York (the "Federal Securities
Action") naming the Company and certain of its executive officers as defendants.
The Federal Securities Action was purportedly brought on behalf of all
shareholders of the Company who purchased or otherwise acquired the Company's
Common Stock during the period August 6, 1997 to September 29, 1998. The
complaint in the Federal Securities Action alleges violations of various federal
securities laws, including misrepresentations of certain information about the
Company. The complaint in the Federal Securities Action seeks damages in
unspecified amounts. Although the outcome of this proceeding cannot be
predicted, based on the allegations contained in the complaint, management
believes that the Federal Securities Action will not have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company.
The Company is also party to various legal proceedings arising in the
ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe that
adverse determinations in any or all such proceedings would have a material
adverse effect upon the financial condition, results of operations or cash flows
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
-14-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
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 September 30, 1998,
file number 1-11907)
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, file number 1-11907)
3.3 Certificate of Powers, Designations,
Preferences and Relative Participating,
Optional and other Special Rights of Series
A Preferred Stock and Qualifications,
Limitations and Restrictions thereof
(incorporated by reference from exhibit 3.2
to Coinmach Laundry's Form 10-Q for the
quarterly period ended June 28, 1996, file
number
1-11907)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
-15-
<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: November 12, 1999 /s/ ROBERT M. DOYLE
-------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal
Financial Officer)
-16-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013021
<NAME> COINMACH LAUNDRY CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-2000
<PERIOD-START> JUL-01-1999 APR-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 25893 0
<SECURITIES> 0 0
<RECEIVABLES> 9231 0
<ALLOWANCES> 0 0
<INVENTORY> 18375 0
<CURRENT-ASSETS> 0 0
<PP&E> 381297 0
<DEPRECIATION> (150956) 0
<TOTAL-ASSETS> 891808 <F1> 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 691133 <F2> 0
0 0
0 0
<COMMON> 104718 0
<OTHER-SE> (63561) 0
<TOTAL-LIABILITY-AND-EQUITY> 891808 <F3> 0
<SALES> 0 0
<TOTAL-REVENUES> 130060 263,598
<CGS> 0 0
<TOTAL-COSTS> 86282 173493
<OTHER-EXPENSES> 32884 <F4> 65058
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16849 33589
<INCOME-PRETAX> (5955) (8542)
<INCOME-TAX> (1122) <F5> (1275)
<INCOME-CONTINUING> (4833) (7267)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,833) <F6> (7267)
<EPS-BASIC> (.37) (.55)
<EPS-DILUTED> (.37) (.55)
<FN>
<F1> Total Assets:
Includes Advance Location Payments of $79,423, Contract Rights of $399,275 and
Goodwill of $105,192, each net of accumulated amortization at September 30, 1999
<F2> Bonds:
Includes $296,655 of 11 3/4 senior notes, as well as debt outstanding under a
credit facility of $380,564 at September 30, 1999.
<F3> Total Liabilities:
Includes Accrued Commissions of $28,624 and Accrued Interest of $16,424 at
September 30, 1999.
<F4> Other Expenses:
Other Expenses include stock based compensation charges of $187 and $346 for the
quarter and six months ended September 30, 1999.
<F5> Income Tax:
The provision (benefit) for income taxes consists of $872 and $2,011 currently
payable and ($1,994) and ($3,286) deferred, for the quarter and six months ended
September 30, 1999.
<F6> Net Income:
In addition, EBITDA of $85,959 (earnings before interest, income taxes,
depreciation and amortization) before the deduction for the stock-based
compensation charge was generated for the six months ended September 30, 1999.
EBITDA is a meaningful measure of a company's ability to service debt.
</FN>
</TABLE>
