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, 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 February 11, 2000, Coinmach Laundry Corporation
had outstanding 12,939,391 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").
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
INDEX
PART I.
Financial Information Page No.
- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1999 (Unaudited) and March 31, 1999 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months Ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended December 31, 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
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
PART II.
Other Information
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Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
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, 1999 March 31, 1999(1)
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 28,022 $ 26,515
Receivables, net 10,072 8,107
Inventories 19,563 16,328
Prepaid expenses 7,763 6,552
Advance location payments 78,577 79,705
Land, property and equipment, net of accumulated
depreciation of $165,303 and $123,337 233,091 223,610
Contract rights, net of accumulated amortization of
$94,511 and $70,602 392,971 413,014
Goodwill, net of accumulated amortization of $26,268
and $20,318 103,323 109,025
Other assets 16,706 18,440
------- ----------
Total assets $890,088 $901,296
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 23,979 $ 20,478
Accrued rental payments 29,026 26,888
Accrued interest 8,120 15,516
Other accrued expenses 14,626 13,366
Deferred income taxes 75,656 81,494
11 3/4% Senior Notes 296,655 296,655
Premium on 11 3/4% Senior Notes, net 7,098 8,023
Credit facility indebtedness 392,135 384,003
Other long-term debt 6,351 6,833
Stockholders' equity:
Common stock and capital in excess of par value 104,936 104,363
Receivables from management (163) (219)
Accumulated deficit (68,331) (56,104)
-------- -------
Total stockholders' equity 36,442 48,040
-------- --------
Total liabilities and stockholders' equity $890,088 $901,296
======== ========
See accompanying notes.
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1. The March 31, 1999 balance sheet has been derived from the audited
consolidated 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 31, December 31, December 31,
1999 1998 1999 1998
------------------ -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REVENUES $130,713 $130,736 $394,311 373,645
COSTS AND EXPENSES:
Laundry operating expenses 87,597 85,738 261,090 245,461
General and administrative
expenses 2,089 2,006 6,235 5,987
Depreciation and amortization 30,730 28,847 91,296 83,940
Stock-based compensation
charge 186 369 532 987
------- -------- -------- --------
120,602 116,960 359,153 336,375
------- ------- ------- -------
OPERATING INCOME 10,111 13,776 35,158 37,270
INTEREST EXPENSE, NET 17,045 16,902 50,634 49,336
------ ------- ------ -------
LOSS BEFORE INCOME TAXES (6,934) (3,126) (15,476) (12,066)
------- ------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 733 400 2,744 647
Deferred (2,707) (828) (5,993) (3,306)
------- ------- ------- -------
(1,974) (428) (3,249) (2,659)
------- ------- ------- -------
NET LOSS $ (4,960) $ (2,698) $(12,227) $ (9,407)
------- -------- -------- --------
BASIC AND DILUTED LOSS $ (.38) $ (.20) $ (.93) $ (.71)
======== ======== ======== ========
PER SHARE
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Common Shares 13,172,274 13,167,783 13,169,302 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>
Nine Months Ended
----------------------------------
December 31 , December 31,
1999 1998
------ -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (12,227) $ (9,407)
Adjustments to reconcile net loss to net
cash
provided by operating activities:
Depreciation 42,006 38,580
Amortization of advance location
payments 18,102 15,035
Amortization of intangibles 31,188 30,325
Deferred income taxes (5,993) (3,306)
Amortization of premium on 11 3/4%
Senior Notes (925) (926)
Amortization of debt discount and
deferred issue costs 1,315 1,316
Stock-based compensation 532 987
Change in operating assets and liabilities, net of businesses acquired:
Other assets (786) (1,499)
Receivables, net (1,965) (131)
Inventories and prepaid expenses (4,167) (1,201)
Accounts payable 3,502 1,278
Accrued interest, net (7,396) (8,572)
Other accrued expenses, net (755) 2,284
----- -------
Net cash provided by operating activities 62,431 64,763
------ ------
INVESTING ACTIVITIES:
Additions to property and equipment (51,852) (45,718)
Advance location payments to location
owners (14,880) (16,230)
Additions to net assets related to
acquisitions of businesses - (89,584)
--------- --------
Net cash used in investing activities (66,732) (151,532)
-------- ---------
FINANCING ACTIVITIES:
Net proceeds of credit facility borrowings 8,132 92,222
Net repayments of bank and other borrowings (260) (1,507)
Principal payments on capitalized lease
obligations (2,160) (2,026)
Deferred debt issue costs - (381)
Proceeds from issuance of stock for
employee stock option
plan 96 -
------- -----
Net cash provided by financing
activities 5,808 88,308
----- ------
Net increase in cash and cash
equivalents 1,507 1,539
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,515 22,456
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $28,022 $23,995
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 57,665 $ 57,863
======= =======
Income taxes paid $ 2,366 $ 432
======== =========
NON-CASH FINANCING ACTIVITIES:
Acquisition of fixed assets through capital leases $ 2,313 $ 1,372
======== ========
</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 786,000 washers and dryers (hereinafter referred
to as "laundry machines" or "machines") in over 75,000 locations on routes
located throughout the United States and in 181 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 nine month
periods ended December 31, 1999 were calculated based upon the weighted average
number of common shares outstanding of 13,172,274 and 13,169,302, respectively.
Basic and diluted loss per share for each of the three and nine month periods
ended December 31, 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.
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. Debt
At December 31, 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 $269.5 million of term loans, and (c)
approximately $122.6 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
"Senior Credit Facility"), which is secured by all of the Company's real and
personal property. Under the Senior 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 Senior 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.
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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 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 December 31,
1999, the Company owned and operated approximately 786,000 washers and dryers in
over 75,000 locations on routes throughout the United States and in 181 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 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.
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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)
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 $33.7 million for the
nine months ended December 31, 1999 and $28.5 million for the nine months ended
December 31, 1998); (ii) operating, maintaining and servicing retail laundromats
(approximately $15.2 million for the nine months ended December 31, 1999 and
$14.9 million for the nine months ended December 31, 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 $10.2 million for the nine
months ended December 31, 1999 and $8.1 million for the nine months ended
December 31, 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 nine month periods ended December 31, 1999
and December 31, 1998
Revenues increased by approximately $20.7 million or 6% for the nine
month period ended December 31, 1999, as compared to the prior year's
corresponding period. The improvement in revenues for the nine month period is
attributable primarily to (i) increased route revenues resulting from internal
expansion in an approximate amount of $13.1 million despite an estimated $1.5
million reduction in revenue in the south central region due to increased
vandalism; (ii) increased revenues generated from the distribution business in
an approximate amount of $5.2 million; and (iii) increased revenues generated
from the rental business in an approximate amount of $2.1 million. Revenues
remained unchanged for the three month period ended December 31, 1999, as
compared to the prior year's corresponding period, due primarily to an
improvement in route revenues which was offset by increased vandalism in the
south central region, a decrease in distribution revenues of approximately $1.1
million and a decrease in retail laundromat revenues of approximately $0.5
million.
Laundry operating expenses increased by approximately 2% and 6% for the
three and nine month periods ended December 31, 1999, respectively, as compared
to the prior year's corresponding periods. This increase was due primarily to
(i) an increase in commission expense and operating
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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)
- ---------------------
expenses related to the improvements in route revenues; (ii) cost of sales
related to increased volume in the distribution business; and (iii) an increase
in expenses related to growth in the rental business. As a percentage of
revenues, laundry operating expenses have remained relatively constant at
approximately 66% for each of the three and nine month periods ended December
31, 1999 and December 31, 1998.
General and administrative expenses increased nominally for the three
and nine month periods ended December 31, 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 nine month periods ended December 31, 1999 and December 31, 1998.
Depreciation and amortization expense increased by approximately 7% and
9% for the three and nine month periods ended December 31, 1999, respectively,
as compared to the prior year's corresponding periods, due to an increase in
capital expenditures with respect to the Company's installed base of machines.
The increase for the nine month period ended December 31, 1999 was also
attributable to contract rights and goodwill associated with the above-mentioned
acquisitions.
Operating income margins were approximately 7.7% and 8.9% for the three
and nine month periods ended December 31, 1999, respectively, as compared to
approximately 10.5% and 10.0% for the three and nine month periods ended
December 31, 1998. This change was primarily due to increases in depreciation
and amortization expense as noted above.
Interest expense, net, for the three month period ended December 31,
1999 remained relatively unchanged as compared to the prior year's corresponding
period. Interest expense, net, increased by approximately 3% for the nine month
period ended December 31, 1999, as compared to the prior year's corresponding
period, due primarily to increased borrowing levels under the Senior Credit
Facility in connection with certain acquisitions mentioned above.
The effective tax benefit rate for the nine month period ended December
31, 1999 remained relatively constant with the prior year's corresponding
period.
EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) before deduction for stock-based compensation
charges was approximately $127.0 million for the nine months ended December 31,
1999, as compared to approximately $122.2 million for the corresponding period
in 1998, representing an improvement of approximately 4%. This increase was
primarily the result of increased revenues, as discussed above. EBITDA margins
remained constant at approximately 32% for the nine months ended December 31,
1999. 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
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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)
- ---------------------
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, 1999, the Company had outstanding long-term debt
(excluding the unamortized premium on the Senior Notes in an amount of
approximately $7.1 million) of approximately $695.1 million and stockholders'
equity of approximately $36.4 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 nine
months ended December 31, 1999 were approximately $66.7 million. Of such amount,
the Company spent approximately $19.6 million related to the net increase in the
installed base of machines of approximately 21,000 machines. The balance of
approximately $47.1 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
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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)
- -------------------------------
governing the Company's indebtedness, Coinmach is required to make monthly cash
interest payments as required by the Senior 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 Senior Credit Facility or to permit any necessary
refinancings thereof. An inability of the Company, however, to comply with
covenants or other conditions under the Senior 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 Senior Credit
Facility or the indenture governing the Senior Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $91.3 million for the nine months ended December 31, 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.
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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)
Year 2000 Compliance
- --------------------
The "year 2000" or "Y2K" problem was the result of computer programs
being written using two digits rather than four to define the applicable year.
As a consequence, computer programs that had 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 was managed by a team
of internal staff and outside consultants. The team's activities were designed
to ensure that there was no adverse effect on the Company's core business
operations and that transactions with customers, suppliers and financial
institutions were fully supported. The Company has not experienced any
significant disruptions in any of its systems on January 1, 2000 or at any time
through the date of this report. 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.
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 completed its IT systems transformation and believes its
IT and non-IT systems to be compliant.
In addition, as part of its year 2000 initiative, the Company contacted
its significant suppliers, customers and financial institutions to ensure that
those parties had appropriate plans to remediate year 2000 issues where their
systems interface with the Company's systems or otherwise impact its operations.
The Company assessed the extent to which its operations were vulnerable should
those organizations fail to properly address their year 2000 readiness. As of
the date of this report, the computer systems of those operations have not had a
material adverse effect on the Company's operations. The Company will continue
to contact its significant suppliers, customers and financial institutions to
monitor and confirm that those parties are not anticipating any further Y2K
contingencies during the remainder of the year.
While the Company believes its planning efforts were 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 were converted on a timely basis and will not have a material
adverse effect on the operations of the Company.
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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's principal exposure to market risk relates to changes in
interest rates on its borrowings. The Company has not experienced any material
changes in reported market risks related to its borrowings since March 31, 1999,
the end of its most recent fiscal year.
-14-
<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. An amended complaint was filed on December 10, 1999 seeking damages in
unspecified amounts. Although the outcome of this proceeding cannot be
predicted, based on the allegations contained in the complaint and consultation
with the Company's insurance carrier, 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.
On November 18, 1999, K. Reed Hinrichs v. Stephen R. Kerrigan, et al.,
a purported class action lawsuit, was filed in the Delaware Court of Chancery,
Newcastle County naming the Company and certain of its executive officers as
defendants. Plaintiffs allege that the defendants are breaching their fiduciary
duty to the Company's public shareholders by selling the Company for inadequate
compensation. The matter has been stayed by agreement of the parties. On
February 3, 2000, GRKC Holding Company, LLC, whose acquisition proposal was the
subject of the lawsuit, withdrew its proposal to acquire the Company's common
stock. Based on the allegations contained in the complaint and the withdrawal of
the acquisition proposal, management believes that this 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
-15-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
ITEM 5. Other Information
On February 3, 2000, GRKC Holding Company, LLC announced the withdrawal
of its proposal to acquire the Company's common stock for $13.00 per share in
cash due to an inability to reach an agreement with an independent committee of
the Company's board of directors. The proposal was originally presented to the
board of directors of the Company in October 1999.
-16-
<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
-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 11, 2000 /s/ Robert M. Doyle
-----------------------
Robert M. Doyle
Senior Vice President and
Chief Financial
Officer
(On behalf of registrant and
as Principal Financial Officer)
-18-
<TABLE> <S> <C>
<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>
<CIK> 0001013021
<NAME> COINMACH LAUNDRY CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-2000
<PERIOD-START> OCT-01-1999 APR-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 28,022 0
<SECURITIES> 0 0
<RECEIVABLES> 10,072 0
<ALLOWANCES> 0 0
<INVENTORY> 19,563 0
<CURRENT-ASSETS> 0 0
<PP&E> 398,394 0
<DEPRECIATION> (165,303) 0
<TOTAL-ASSETS> 890,088 <F1> 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 702,239 <F2> 0
0 0
0 0
<COMMON> 104,936 0
<OTHER-SE> (68,494) 0
<TOTAL-LIABILITY-AND-EQUITY> 890,088 <F3> 0
<SALES> 0 0
<TOTAL-REVENUES> 130,713 394,311
<CGS> 0 0
<TOTAL-COSTS> 87,597 261,090
<OTHER-EXPENSES> 33,005 98,063
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,045 50,634
<INCOME-PRETAX> (6,934) (15,476)
<INCOME-TAX> (1,974) <F5> (3,249)
<INCOME-CONTINUING> (4,960) (12,227)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,960)<F6> (12,227)
<EPS-BASIC> (.38) (.93)
<EPS-DILUTED> (.38) (.93)
<FN>
<F1>
1. Total Assets: Includes Advance Location Payments of $78,577,
Contract Rights of $392,971, and Goodwill of $103,323, each net
of accumulated amortization at December 31, 1999.
<F2>
2. Bonds: Includes $296,655 of 11-3/4% senior notes, as well as debt
outstanding under a credit facility of $392,135, at December 31, 1999.
<F3>
3. Total Liabilities: Includes Accrued Commissions of $29,026
and Accrued Interest of $8,120, at December 31, 1999.
<F4>
4. Other Expenses: Other Expenses include stock based compensation
charges of $186 and $532 for the quarter and nine months ended
December 31, 1999.
<F5>
5. Income Tax: The provision (benefit) for income taxes consists of
$733 and $2,744 currently payable and ($2,707) and ($5,993) deferred,
for the quarter and nine months ended December 31, 1999.
<F6>
6. Net Income: In addition, EBITDA of $126,986 (earnings before interest,
income taxes, depreciation and amortization), before the deduction for
the stock-based compensation charge was generated for the nine months
ended December 31, 1999. EBITDA is a meaningful measure of a company's
ability to service debt.
</FN>
</TABLE>
