<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 333-56857
333-56857-01
333-56857-02
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
ALLIANCE LAUNDRY HOLDINGS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 39-1927923
DELAWARE 39-1928505
DELAWARE 52-2055893
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
P.O. BOX 990
RIPON, WISCONSIN 54971-0990
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(920) 748-3121
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ]
<PAGE>
Alliance Laundry Systems LLC
Form 10-Q
For The Periods Ended June 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
PART I Financial Information
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 2000 and December 31, 1999 3
Condensed Statements of Income for the periods ended June 30, 2000 and June 30, 1999 4
Condensed Statements of Cash Flows for the periods ended June
30, 2000 and June 30, 1999 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
PART II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash.......................................................... $ 831 $ 3,028
Cash-restricted............................................... 425 956
Accounts receivable, net...................................... 22,213 33,578
Inventories, net.............................................. 41,312 31,282
Prepaid expenses and other.................................... 9,235 6,160
------------ ------------
Total current assets...................................... 74,016 75,004
Notes receivable................................................. 20,986 18,314
Property, plant and equipment, net............................... 56,223 57,615
Goodwill, net.................................................... 56,622 48,319
Debt issuance costs, net......................................... 11,813 13,064
Other assets..................................................... 7,394 7,550
------------ ------------
Total assets.............................................. $ 227,054 $ 219,866
============ =============
Liabilities and Members' Deficit
Current liabilities:
Current portion of long-term debt............................. $ 1,000 $ 500
Accounts payable.............................................. 13,965 12,362
Finance program obligation.................................... 2,886 3,551
Revolving credit facility..................................... 15,000 -
Other current liabilities..................................... 22,309 21,805
------------ ------------
Total current liabilities................................. 55,160 38,218
Long-term debt:
Senior credit facility........................................ 199,000 199,500
Senior subordinated notes..................................... 110,000 110,000
Junior subordinated note...................................... 13,122 12,048
Other long-term liabilities...................................... 1,921 1,866
------------ ------------
Total liabilities......................................... 379,203 361,632
Commitments and contingencies (See Note 6).......................
Mandatorily redeemable preferred equity.......................... 6,000 6,000
Members' deficit................................................. (158,149) (147,766)
----------- -------------
Total liabilities and members' deficit.................... $ 227,054 $ 219,866
=========== =============
</TABLE>
3
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Commercial laundry............................. $ 66,489 $ 58,756 $ 123,134 $ 110,543
Appliance Co. consumer laundry................. - 21,145 - 40,100
Service parts.................................. 8,766 8,244 17,760 16,790
---------- --------- ---------- ----------
75,255 88,145 140,894 167,433
Cost of sales....................................... 52,015 65,314 98,566 124,104
---------- --------- ---------- ----------
Gross profit........................................ 23,240 22,831 42,328 43,329
---------- --------- ---------- ----------
Selling, general and administrative expense......... 12,778 10,630 23,831 21,125
Nonrecurring costs.................................. - 448 - 894
---------- --------- ---------- ----------
Total operating expenses............................ 12,778 11,078 23,831 22,019
---------- --------- ---------- ----------
Operating income............................... 10,462 11,753 18,497 21,310
Interest expense.................................... 8,605 8,007 18,245 16,047
Other income (expense), net......................... (111) (117) (108) (144)
---------- --------- ---------- ----------
Income before taxes............................ 1,746 3,629 144 5,119
Provision for income taxes.......................... 20 29 20 29
---------- --------- ---------- ----------
Net income..................................... $ 1,726 $ 3,600 $ 124 $ 5,090
========== ========= ========== ==========
</TABLE>
4
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $ 124 $ 5,090
Adjustments to reconcile net income to net cash
provided by operating activities; excluding the effects of the
acquisition opening balance sheet:
Depreciation and amortization........................................ 8,681 8,552
Non-cash junior subordinated note interest........................... 1,074 898
(Gain) loss on sale of property, plant and equipment................. 108 144
Changes in assets and liabilities:
Accounts and notes receivable..................................... 4,373 (23,456)
Inventories....................................................... (6,047) 2,071
Other assets...................................................... (3,467) 720
Accounts payable.................................................. 821 11,147
Finance program obligation........................................ (357) (275)
Other liabilities................................................. (637) (366)
----------- -----------
Net cash provided by operating activities............................ 4,673 4,525
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment................................ (2,508) (5,989)
Acquisition of business................................................... (13,399) -
Proceeds on disposal of property, plant and equipment..................... (43) 596
----------- -----------
Net cash (used in) investing activities.............................. (15,950) (5,393)
----------- -----------
Cash flows from financing activities:
Debt financing costs...................................................... - (686)
Proceeds from revolving line of credit.................................... 15,000 -
Distribution to Raytheon and related transaction costs.................... (5,920) -
----------- -----------
Net cash provided by financing activities............................ 9,080 (686)
----------- -----------
Increase (decrease) in cash.................................................... (2,197) (1,554)
Cash at beginning of quarter................................................... 3,028 4,839
----------- -----------
Cash at end of quarter......................................................... $ 831 $ 3,285
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................... $ 16,001 $ 14,129
</TABLE>
5
<PAGE>
Notes to Unaudited Condensed Financial Statements
NOTE 1. BASIS OF PRESENTATION
The unaudited financial statements as of June 30, 2000 and June 30,
1999 and for the periods ended June 30, 2000 present the consolidated financial
position and results of operations of Alliance Laundry Holdings LLC (the
"Company"), including its wholly-owned direct and indirect subsidiaries,
Alliance Laundry Systems LLC and Alliance Laundry Corporation.
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position and
operating results of the Company for the periods presented. The results of
operations for such interim periods are not necessarily indicative of results of
operations to be expected for the full year.
These financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such regulations, although the Company believes the
disclosures provided are adequate to prevent the information presented from
being misleading.
This report on Form 10-Q for the periods ended June 30, 2000 should be
read in conjunction with the audited financial statements presented in the
Company's Annual Report on Form 10-K (file no. 333-56857) filed with the
Securities and Exchange Commission, which includes the audited financial
statements of the Company as of and for the year ended December 31, 1999.
NOTE 2. MERGER OF BUSINESS
On May 5, 1998, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") among Bain/RCL, L.L.C., a Delaware limited liability company
("Bain LLC"), RCL Acquisitions LLC ("MergeCo"), Raytheon Commercial Laundry LLC
and Raytheon Company ("Raytheon"), MergeCo was merged with and into Raytheon
Commercial Laundry LLC (the "Merger") with Raytheon Commercial Laundry LLC being
the surviving entity. Immediately following the merger Raytheon Commercial
Laundry LLC was renamed to "Alliance Laundry Holdings LLC". Prior to the Merger,
Raytheon owned 100% of the equity securities of Raytheon Commercial Laundry LLC,
and Bain LLC, the BRS Investors (as defined), and certain members of management
owned 100% of the equity securities of MergeCo. As a result of the Merger (i)
Raytheon's limited liability company interest in Raytheon Commercial Laundry LLC
was converted into the right to receive (a) an aggregate amount of cash equal to
$320.6 million, which includes pre-closing and post-closing adjustments
(including final settlements - see Note 6), (b) a junior subordinated promissory
note from the Company in the original principal amount of $9.0 million which
matures in 2009, (c) preferred membership interests of the Company with a
liquidation value of approximately $6.0 million which are mandatorily redeemable
in 2009, and (d) common membership units of the Company representing 7% of the
total common membership interests of the Company and (ii) Bain LLC's, the BRS
Investors' and certain management members' limited liability company interests
in MergeCo were converted into the right to receive up to 93% of the total
common membership interests of the Company.
6
<PAGE>
Simultaneous with the consummation of the Merger and each of the other
related transactions (the "Closing"), the Company contributed substantially all
of its assets and liabilities to Alliance Laundry Systems LLC, a newly formed
limited liability company ("Alliance Laundry"). Immediately after the
consummation of the transactions, Alliance Laundry became the only direct
subsidiary of the Company and succeeded to substantially all of the assets and
liabilities of the Company. Subsequent to May 4, 1998, Alliance Laundry
comprises all of the operating activities of the Company.
The transactions contemplated by the Merger Agreement (the
"Transactions") were funded by: (i) $200.0 million of term loan borrowings by
Alliance Laundry; (ii) $110.0 million of senior subordinated notes of Alliance
Laundry and Alliance Laundry Corporation due in 2008 (substantially all of the
amounts in clauses (i) and (ii) were distributed by Alliance Laundry to the
Company to fund the Merger and to fund related fees and expenses); (iii) the
issuance by the Company of a junior subordinated promissory note in the original
principal amount of $9.0 million; (iv) the issuance by the Company of the
mandatorily redeemable preferred membership interests with a liquidation value
of $6.0 million; (v) the investors' equity contributions by Bain LLC, the BRS
Investors and certain members of management of $47.1 million and (vi) retained
equity of Raytheon of $3.5 million. Each of the transactions was conditioned
upon consummation of each of the others, and consummation of each of the
transactions occurred simultaneously.
In connection with the Merger, the Company entered into a five year
$250.0 million revolving loan agreement, which provides off-balance sheet
financing through Alliance Laundry Receivables Warehouse LLC ("ALRW"), its
special purpose single member limited liability company, to finance trade
receivables and notes receivable related to equipment loans with Lehman
Commercial Paper, Inc. (the "Facility Lender"), an affiliate of Lehman Brothers,
Inc. (the "Asset Backed Facility"). These financing programs have been and will
continue to be structured in a manner that qualifies for off-balance sheet
treatment in accordance with generally accepted accounting principles. Alliance
Laundry, as servicing agent, retains collection and administrative
responsibilities for the accounts and notes sold through the Asset Backed
Facility.
NOTE 3. NONRECURRING ITEMS
The Company entered into retention agreements with certain key
executives, managers and commissioned sales people prior to the Merger. For the
period ended June 30, 1999, the Company incurred approximately $0.9 million in
expense associated with payments under these agreements. Payments under this
program were completed in November of 1999.
During the fourth quarter of 1999, the Company recorded a $2.3 million
restructuring charge, of which $2.1 million was non-cash, associated with the
closing of the Company's Madisonville, Kentucky manufacturing facility. A
decision was made to close the Madisonville facility and transfer production to
the Ripon, Wisconsin manufacturing facility because of the available capacity at
the Ripon facility and the operating synergies that will be recognized. The
charge includes $1.7 million in employee termination and severance benefit
charges, $0.5 million for the estimated loss on fixed assets which were held for
disposal, and $0.1 million in miscellaneous costs. The carrying value of assets
held for disposal at June 30, 2000 is $1.0 million.
7
<PAGE>
<TABLE>
<CAPTION>
Balance at
1999 Utilized December 31,
Charge Cash Non-cash 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Write-down of fixed assets.................... $ 485 $ - $ (485) $ -
Employee termination and severance benefits... 1,739 (20) (1,640) 79
Other......................................... 31 - - 31
------------ ------------ ------------ ------------
Total................................... $ 2,255 $ (20) $ (2,125) $ 110
============ ============ ============ ============
Balance at Balance at
December 31, Utilized June 30,
1999 Cash Non-cash Reallocation 2000
------------ ------------ ------------ ------------ ------------
Write-down of fixed assets.................... $ - $ - $ 50 $ (48) $ 2
Employee termination and severance benefits... 79 (58) (69) 48 -
Other......................................... 31 (5) (8) - 18
------------ ------------ ------------ ------------ ------------
Total................................... $ 110 $ (63) $ (27) $ - $ 20
============ ============ ============ ============ ============
</TABLE>
NOTE 4. INVENTORIES
Inventories are stated at cost using the first-in, first-out method but
not in excess of net realizable value, and consist of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Materials and purchased parts.............................. $ 20,291 $ 14,506
Work in process............................................ 3,382 3,688
Finished goods............................................. 21,515 16,736
Less: inventory reserves................................... (3,876) (3,648)
------------ ------------
$ 41,312 $ 31,282
============ ============
</TABLE>
NOTE 5. CONDENSED FINANCIAL INFORMATION OF ALLIANCE LAUNDRY SYSTEMS LLC
As discussed more fully in Note 2, substantially all of the assets and
liabilities of the Company were transferred to Alliance Laundry, a wholly-owned
subsidiary of the Company, in connection with the Merger. Alliance Laundry is
the only direct subsidiary of the Company and comprises all of the Company's
operating activities.
In connection with the Merger, Alliance Laundry and its wholly-owned
subsidiary, Alliance Laundry Corporation, issued the $110 million of senior
subordinated notes. Alliance Laundry Corporation was incorporated for the sole
purpose of serving as a co-issuer of the senior subordinated notes in order to
facilitate their issuance. Alliance Laundry Corporation does not have any
substantial operations or assets of any kind. Alliance Laundry Holdings LLC has
provided a full and unconditional guarantee of the senior subordinated notes and
has no operating activities independent of Alliance
8
<PAGE>
Laundry. Separate financial statements of Alliance Laundry are not presented
because Company management has determined that they would not be material to
investors. Summarized unaudited financial information of Alliance Laundry as of
June 30, 2000 and December 31, 2000 and for the three months and six months
ended June 30, 2000 and June 30, 1999 is presented below.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets....................................... $ 74.0 $ 75.0
Noncurrent assets.................................... 153.1 144.9
----------- ------------
$ 227.1 $ 219.9
=========== ============
Current liabilities.................................. $ 55.2 $ 38.2
Long-term debt....................................... 309.0 309.5
Other long-term liabilities.......................... 1.9 1.9
Members' deficit..................................... (139.0) (129.7)
----------- ------------
$ 227.1 $ 219.9
=========== ============
Three Months Ended
------------------------------
June 30, June 30,
2000 1999
----------- ------------
(Unaudited) (Unaudited)
Net sales............................................ $ 75.3 $ 88.1
Gross profit......................................... 23.2 22.8
Selling, general and administrative expense.......... 12.8 10.6
Nonrecurring costs................................... - 0.5
----------- ------------
Operating income..................................... 10.4 11.7
Interest expense..................................... 8.0 7.5
Other income (expense), net.......................... (0.1) (0.1)
----------- ------------
Income before taxes.................................. $ 2.3 $ 4.1
=========== ============
Six Months Ended
------------------------------
June 30, June 30,
2000 1999
----------- ------------
(Unaudited) (Unaudited)
Net sales............................................ $ 140.9 $ 167.4
Gross profit......................................... 42.3 43.3
Selling, general and administrative expense.......... 23.8 21.1
Nonrecurring costs................................... - 0.9
----------- ------------
Operating income..................................... 18.5 21.3
Interest expense..................................... 17.2 15.2
Other income (expense), net.......................... (0.1) (0.1)
----------- ------------
Income before taxes.................................. $ 1.2 $ 6.0
=========== ============
</TABLE>
9
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
On February 8, 1999, Raytheon commenced an arbitration under the
Commercial Arbitration Rules of the American Arbitration Association in Boston,
Massachusetts against the Company, seeking damages of $12.2 million plus
interest thereon and attorney's fees for breach of the Merger Agreement based on
Raytheon's claim for indemnification for a payment made to a third party
allegedly on behalf of the Company and Alliance Laundry following the Closing.
An arbitration was conducted pursuant to the terms of the Merger Agreement
("Arbitration"). The Company asserted in the Arbitration that Raytheon owed the
$12.2 million to the third party and that neither the Company nor Alliance
Laundry is liable for such amount. In addition, the Company and Bain LLC filed
counterclaims and claims seeking damages in excess of $30 million from Raytheon.
On March 31, 2000, the Arbitrators issued their decision. Pursuant to that
decision Raytheon prevailed on its claim and the Company and Bain LLC prevailed
on its counterclaims. Ultimately, the Company was required to pay Raytheon $6.8
million, including $1.5 million in interest, in full satisfaction of the
arbitration award and after offsetting the amount for price adjustments in favor
of the Company which had been agreed to during 1999. The award payment was made
on April 13, 2000. Of this amount, $9.9 million plus related costs of $0.6
million (of which $0.5 million had been expended as of March 31, 2000) was
recorded in the first quarter financial statements as an adjustment of members'
deficit, consistent with the original recording of the Merger, which was
accounted for as a recapitalization. The price adjustments concluded during 1999
had been previously recorded in the financial statements as of and for the
period ended December 31, 1999. The related net interest, including amounts
related to prior years, has been included in current year interest expense.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
ultimate liability from these proceedings is difficult to determine, in the
opinion of management, any additional liability will not have a material effect
on the Company's financial position, liquidity or results of operations.
NOTE 7. COMPREHENSIVE INCOME
Comprehensive income totaled $124,000 and $4,897,000 for the six months
ended June 30, 2000 and June 30, 1999, respectively. Total Comprehensive Income
for the six months ended June 30, 2000 is comprised entirely of net income.
Total Comprehensive Income for the six months ended June 30, 1999 is comprised
of net income of $5,090,000 and Other Comprehensive Income (Loss) of ($193,000).
Other Comprehensive Income (Loss) in 1999 is comprised entirely of unrealized
holding gains and losses on available-for-sale securities.
NOTE 8. SEGMENT INFORMATION
Based upon the information used by management for making operating
decisions and assessing performance, the Company has organized its business into
categories based upon products and services broken down primarily by markets.
Commercial laundry equipment and service parts, including sales to international
markets, are combined to form the commercial laundry segment. Commercial laundry
net sales include amounts related to the Company's finance program which
supports its commercial laundry operations. The Company's primary measure of
operating performance is gross profit which does not include an allocation of
any selling or product distribution expenses. Such amounts are reviewed on a
consolidated basis by management. In determining gross profit for its operating
units, the Company also does not allocate certain manufacturing costs, including
manufacturing variances and warranty and service support costs. Gross profit is
determined by subtracting cost of sales from net sales. Cost of sales is
comprised of the costs of raw materials and component parts, plus costs incurred
at the
10
<PAGE>
manufacturing plant level, including, but not limited to, labor and related
fringe benefits, depreciation, tools, supplies, utilities, property taxes and
insurance. The Company does not allocate assets internally in assessing
operating performance. Net sales and gross profit as determined by the Company
for its operating segments are as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------------------------- -------------------------------
Net Gross Net Gross
Sales Profit Sales Profit
------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial laundry............................. $75,255 $28,695 $67,000 $24,732
Appliance Co. consumer laundry................ - - 21,145 623
------------------- ---------------- ------------- -------------
$75,255 28,695 $88,145 25,355
=================== =============
Other manufacturing costs...................... (5,455) (2,524)
---------------- -------------
Gross profit as reported.................. $23,240 $22,831
================ =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------------------------- -------------------------------
Net Gross Net Gross
Sales Profit Sales Profit
------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial laundry............................. $140,894 $54,096 $127,333 $46,699
Appliance Co. consumer laundry................ - - 40,100 1,112
------------------- ---------------- ------------- -------------
$140,894 54,096 $167,433 47,811
=================== =============
Other manufacturing costs...................... (11,768) (4,482)
---------------- -------------
Gross profit as reported.................. $42,328 $43,329
================ =============
</TABLE>
NOTE 9. ACQUISITION OF AJAX PRODUCT LINE
On March 6, 2000, the Company completed the acquisition of selected
assets of American Laundry Machinery Inc.'s pressing and finishing equipment
division (d/b/a "Ajax"). Ajax, located in Cincinnati, Ohio, manufactures,
designs and markets a line of presses and finishers serving the dry cleaning and
industrial laundry markets. The cash consideration was approximately $13.1
million. The Company also assumed selective liabilities of approximately $1.2
million related to the product line and recorded estimated acquisition costs of
$0.3 million (of which $0.2 million was expended as of June 30, 2000). Assets
acquired and liabilities assumed have been recorded at their estimated fair
value, and are subject to adjustment when additional information concerning
asset and liability valuations is finalized. The excess of the purchase price
over the fair value of the net assets acquired (goodwill) was approximately $9.2
million and is being amortized on a straight-line basis over 20 years. The
purchase was financed through the proceeds of trade receivable sales and use of
the Revolving Credit Facility. As part of the Ajax acquisition, the Cincinnati
facility will be closed, and production will be transferred to the Company's
Marianna, Florida manufacturing facility. As such, a $1.0 million reserve was
established primarily for employee termination and severance benefit charges.
11
<PAGE>
The Ajax acquisition has been accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying consolidated
statements of income include only revenues and expenses of Ajax for the period
from March 6, 2000. On a pro-forma basis, this acquisition was not material to
the results of operations for the periods presented and, accordingly, such
information is not presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company believes it is the leading designer, manufacturer and
marketer of stand-alone commercial laundry equipment in North America and a
leader worldwide. Under the well-known brand names of Speed Queen, UniMac,
Huebsch and Ajax, the Company produces a full line of commercial washing
machines and dryers with load capacities from 16 to 250 pounds, and presses and
finishers used in the dry cleaning market. The Company's commercial products are
sold to four distinct customer groups: (i) laundromats; (ii) multi-housing
laundries, consisting primarily of common laundry facilities in apartment
buildings, universities and military installations; (iii) on-premise laundries,
consisting primarily of in-house laundry facilities of hotels, hospitals,
nursing homes and prisons; and (iv) dry cleaners. In addition, during 1999,
pursuant to a supply agreement with Appliance Co., the Company supplied consumer
washing machines to the consumer appliance business of Appliance Co. for sale at
retail. This supply agreement was completed and concluded on September 17, 1999.
This discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto included in this report and in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations set forth in the Company's Annual Report on Form 10-K
(file no. 333-56857) filed with the Securities and Exchange Commission, which
includes the audited financial position and operating results of the Company as
of and for the year ended December 31, 1999.
RESULTS OF OPERATIONS
Quarter Ended June 30, 2000 Compared to the Quarter Ended June 30, 1999
The following table sets forth the Company's historical net sales for the
periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
June 30, 2000 June 30, 1999
---------------- --------------
(Dollars in millions)
Net sales
<S> <C> <C>
Commercial laundry $ 66.5 $ 58.8
Appliance Co. consumer laundry - 21.1
Service parts 8.8 8.2
---------------- --------------
$ 75.3 $ 88.1
================ ==============
</TABLE>
The following table sets forth certain condensed historical financial data for
the Company expressed as a percentage of net sales for each of the periods
indicated:
12
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------
June 30, 2000 June 30, 1999
--------------- ---------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 69.1% 74.1%
Gross profit 30.9% 25.9%
Selling, general and administrative expense 17.0% 12.1%
Nonrecurring costs - 0.5%
Operating income 13.9% 13.3%
Net income 2.3% 4.1%
</TABLE>
Net sales. Net sales for the quarter ended June 30, 2000 decreased
$12.8 million, or 14.6%, to $75.3 million from $88.1 million for the quarter
ended June 30, 1999. This decrease, attributable to consumer laundry equipment
sales of $21.1 million, was partly offset by increases in commercial laundry
sales, $7.7 million, and service part sales, $0.6 million. The decrease in
consumer laundry sales was due to the completion and conclusion of the Appliance
Co. supply agreement as of September 17, 1999. The increase in commercial
laundry sales was due primarily to higher North American equipment sales of $6.4
million, higher international sales of $1.1 million and higher earnings from the
Company's off-balance sheet equipment financing program of $0.2 million. The
increase in North American equipment sales was primarily due to higher sales for
laundromats and multi-housing laundries, and due to the additional sales
resulting from the March 6, 2000 acquisition of the Ajax pressing and finishing
equipment division. The equipment financing program earnings were higher due to
an increase in the amount of loan originations.
Gross profit. Gross profit for the quarter ended June 30, 2000
increased $0.4 million, or 1.8%, to $23.2 million from $22.8 million for the
quarter ended June 30, 1999. This increase was primarily attributable to
manufacturing efficiencies implemented during 1999 and 2000 which were partially
offset by under-absorption of overhead previously applied against consumer
laundry sales. Gross profit as a percentage of net sales increased to 30.9% for
the quarter ended June 30, 2000 from 25.9% for the quarter ended June 30, 1999.
The increase in gross profit as a percentage of net sales is attributable to the
termination of sales to Appliance Co. which were at margins substantially below
that of the continuing business as well as from the manufacturing efficiencies
noted above.
Selling, general and administrative expense. Selling, general and
administrative expenses for the quarter ended June 30, 2000 increased $2.1
million, or 20.2%, to $12.7 million from $10.6 million for the quarter ended
June 30, 1999. The increase in selling, general and administrative expenses was
primarily due to $0.9 million of expenses related to the relocation of
Madisonville, Kentucky production lines to Ripon, Wisconsin and due to
incremental selling, general and administrative expenses associated with the
Ajax product line. Selling, general and administrative expenses as a percentage
of net sales increased to 17.0% for the quarter ended June 30, 2000 from 12.1%
for the quarter ended June 30, 1999 as a result of the production line move
noted above.
13
<PAGE>
Nonrecurring costs. There were no nonrecurring costs for the quarter
ended June 30, 2000 as compared to $0.4 million in nonrecurring costs recorded
for the quarter ended June 30, 1999. Nonrecurring costs in 1999 were comprised
entirely of employee retention costs.
Operating income. As a result of the foregoing, operating income for
the quarter ended June 30, 2000 decreased $1.3 million, or 11.0%, to $10.5
million from $11.8 million for the quarter ended June 30, 1999. Operating income
as a percentage of net sales increased to 13.9% for the quarter ended June 30,
2000 from 13.3% for the quarter ended June 30, 1999.
Interest expense. Interest expense for the quarter ended June 30, 2000
increased $0.6 million, or 7.5%, to $8.6 million from $8.0 million for the
quarter ended June 30, 1999. The increase is primarily attributable to interest
expense on borrowings from the revolving line of credit resulting from the
acquisition of the Ajax product line (see note 9 of the financial statements)
and from payment of the Raytheon arbitration award (see note 6 of the financial
statements).
Net income. As a result of the foregoing, net income for the quarter
ended June 30, 2000 decreased $1.9 million, or 52.1%, to $1.7 million from $3.6
million for the quarter ended June 30, 1999. Net income as a percentage of net
sales decreased to 2.3% for the quarter ended June 30, 2000 from 4.1% for the
quarter ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
The following table sets forth the Company's historical net sales for the
periods indicated:
Six Months Ended
------------------------------------
June 30, 2000 June 30, 1999
--------------- --------------
(Dollars in millions)
Net sales
Commercial laundry................ $ 123.1 $ 110.5
Appliance Co. consumer laundry.... - 40.1
Service parts..................... 17.8 16.8
---------------- --------------
$ 140.9 $ 167.4
================ ==============
14
<PAGE>
The following table sets forth certain condensed historical financial data for
the Company expressed as a percentage of net sales for each of the periods
indicated:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
June 30, 2000 June 30, 1999
--------------- ---------------
<S> <C> <C>
Net sales...................................... 100.0% 100.0%
Cost of sales.................................. 70.0% 74.1%
Gross profit................................... 30.0% 25.9%
Selling, general and administrative expense.... 16.9% 12.7%
Nonrecurring costs............................. - 0.5%
Operating income............................... 13.1% 12.7%
Net income................................. 0.1% 3.0%
</TABLE>
Net sales. Net sales for the six months ended June 30, 2000 decreased
$26.5 million, or 15.9%, to $140.9 million from $167.4 million for the six
months ended June 30, 1999. This decrease, attributable to consumer laundry
equipment sales of $40.1 million, was partly offset by increases in commercial
laundry sales, $12.6 million, and service part sales, $1.0 million. The decrease
in consumer laundry sales was due to the completion and conclusion of the
Appliance Co. supply agreement as of September 17, 1999. The increase in
commercial laundry sales was due primarily to higher North American equipment
sales of $9.7 million, higher international sales of $2.1 million and higher
earnings from the Company's off-balance sheet equipment financing program of
$0.8 million. The increase in North American equipment sales was primarily due
to higher sales for laundromats and multi-housing laundries, and due to the
additional sales resulting from the March 6, 2000 acquisition of the Ajax
pressing and finishing equipment division. The equipment financing program
earnings were higher due to an increase in the amount of loan originations.
Gross profit. Gross profit for the six months ended June 30, 2000
decreased $1.0 million, or 2.3%, to $42.3 million from $43.3 million for the six
months ended June 30, 1999. This decrease was attributable to the completion of
the supply agreement with Appliance Co. on September 17, 1999, which resulted in
under-absorption of overhead previously applied against consumer laundry sales.
This under-absorption was partially offset by manufacturing efficiencies
implemented during 1999 and 2000. Gross profit as a percentage of net sales
increased to 30.0% for the six months ended June 30, 2000 from 25.9% for the six
months ended June 30, 1999. The increase in gross profit as a percentage of net
sales is primarily attributable to the manufacturing efficiencies noted above
and higher margins attributable to the increased North American equipment sales
as compared to consumer laundry sales.
Selling, general and administrative expense. Selling, general and
administrative expenses for the six months ended June 30, 2000 increased $2.7
million, or 12.8%, to $23.8 million from $21.1 million for the six months ended
June 30, 1999. The increase in selling, general and administrative expenses was
primarily due to $2.0 million of expenses related to the relocation of
Madisonville, Kentucky production lines to Ripon, Wisconsin and due to
incremental selling, general and administrative expenses associated with the
Ajax product line. Selling, general and administrative expenses as a percentage
of net sales increased to 13.1% for the six months ended June 30, 2000 from
12.7% for the six months ended June 30, 1999 as a result of the production line
move noted above.
15
<PAGE>
Nonrecurring costs. There were no nonrecurring costs for the six months
ended June 30, 2000 as compared to $0.9 million in nonrecurring costs recorded
for the six months ended June 30, 1999. Nonrecurring costs in 1999 were
comprised entirely of employee retention costs.
Operating income. As a result of the foregoing, operating income for
the six months ended June 30, 2000 decreased $2.8 million, or 13.2%, to $18.5
million from $21.3 million for the six months ended June 30, 1999. Operating
income as a percentage of net sales increased to 13.1% for the six months ended
June 30, 2000 from 12.7% for the six months ended June 30, 1999.
Interest expense. Interest expense for the six months ended June 30,
2000 increased $2.2 million, or 13.7%, to $18.2 million from $16.0 million for
the six months ended June 30, 1999. The increase is attributable to $1.5 million
of net interest expense associated with the Raytheon arbitration award, as well
as borrowings from the revolving line of credit used in connection with the
Raytheon arbitration award (see note 6 of the financial statements) and the
acquisition of the Ajax product line (see note 9 of the financial statements).
Net income. As a result of the foregoing, net income for the six months
ended June 30, 2000 decreased $5.0 million, or 97.6%, to $0.1 million from $5.1
million for the six months ended June 30, 1999. Net income as a percentage of
net sales decreased to 0.1% for the six months ended June 30, 2000 from 3.0% for
the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In May 1998, Alliance Laundry entered into a credit agreement (the
"Senior Credit Facility") with a syndicate of financial institutions (the
"Lenders") for which Lehman Brothers, Inc. acted as arranger and Lehman
Commercial Paper, Inc. acted as syndication agent. The Senior Credit Facility is
comprised of a term loan facility aggregating $200.0 million (the "Term Loan
Facility") and a $75.0 million revolving credit facility (the "Revolving Credit
Facility"), which was made available in conjunction with the issuance of
Alliance Laundry's senior subordinated notes.
The Company's principal sources of liquidity are cash flows generated
from operations and borrowings under its $75.0 million Revolving Credit
Facility. The Company's principal uses of liquidity are to meet debt service
requirements, finance the Company's capital expenditures and provide working
capital. The Company expects that capital expenditures in 2000 will not exceed
$12.0 million. The Company expects the ongoing requirements for debt service,
capital expenditures and working capital will be funded by internally generated
cash flow and borrowings under the Revolving Credit Facility.
As of June 30, 2000, the Company has $338.1 million of combined
indebtedness outstanding, consisting of outstanding debt of $200.0 million under
the Term Loan Facility and $15.0 million under the Revolving Credit Facility,
$110.0 million of senior subordinated notes and $13.1 million of junior
subordinated notes, and had $44.5 million of its $75.0 million Revolving Credit
Facility available subject to certain limitations under the Senior Credit
Facility. After considering such limitations, the Company could have borrowed up
to $44.5 million at June 30, 2000 in additional indebtedness under the Revolving
Credit Facility.
16
<PAGE>
The $200.0 million Term Loan Facility amortizes quarterly and is
repayable in the following aggregate annual amounts:
Year Amount Due
---- -----------
(Dollars in
millions)
2000.............................. $ 0.5
2001.............................. $ 1.0
2002.............................. $ 1.0
2003.............................. $ 20.5
2004.............................. $ 98.5
2005.............................. $ 78.5
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain debt incurrences, asset sales and a portion of Excess Cash
Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility
will terminate in 2003.
The Company's Asset Backed Facility provides $250.0 million of
off-balance sheet financing for trade receivables and equipment loans. The
finance programs have been and will continue to be structured in a manner that
qualifies for off-balance sheet treatment in accordance with generally accepted
accounting principles. It is expected that under the Asset Backed Facility, the
Company will continue to act as originator and servicer of the equipment
financing promissory notes and the trade receivables.
As required by the terms of the Asset Backed Facility, the Company is
in the process of completing a securitization transaction for the sale of loans
currently held by Alliance Laundry Receivable Warehouse ("ALRW"), a
special-purpose single member limited liability company. The Company expects
this transaction to be completed during the third quarter and expects to finance
its net increase in related residual interests with borrowings under the
Revolving Credit Facility. The net effects resulting from the Company's
interests in this new securitization transaction will be reflected in financial
statements for the period in which the securitization transaction is completed.
The Company's ability to make scheduled payments of principal of, or to
pay the interest or liquidated damages, if any, on, or to refinance, its
indebtedness, or to fund planned capital expenditures, will depend upon its
future performance, which, in turn, is subject to general economic, financial,
competitive and other factors that are beyond its control. Based upon the
current level of operations and anticipated growth, management believes that
future cash flow from operations, together with available borrowings under the
Revolving Credit Facility, will be adequate to meet the Company's anticipated
requirements for capital expenditures, working capital, interest payments and
scheduled principal payments. There can be no assurance, however, that the
Company's business will continue to generate sufficient cash flow from
operations in the future to service its debt and make necessary capital
expenditures after satisfying certain liabilities arising in the ordinary course
of business. If unable to do so, the Company may be required to refinance all or
a portion of its existing debt, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
available or that any such sales of assets or additional financing could be
obtained.
17
<PAGE>
Historical
Cash generated from operations for the six months ended June 30, 2000
of $4.7 million was principally derived from the Company's earnings before
depreciation and amortization, and increased sales of accounts receivable under
the Asset Backed Facility which were partially offset by changes in working
capital. The working capital investment in accounts receivable at June 30, 2000
of $22.2 million decreased $11.4 million as compared to the balance of $33.6
million at December 31, 1999, which was primarily attributable to selling more
accounts receivable through ALRW. The working capital investment in inventories
at June 30, 2000 of $41.3 million increased $10.0 million as compared to the
balance of $31.3 million at December 31, 1999. Inventory balances have increased
as a result of a $4.0 million increase attributable to inventories acquired
through the Ajax acquisition, and temporary increases in raw materials and
finished goods during the relocation of the Madisonville, Kentucky production
lines to Ripon, Wisconsin.
Net cash provided by operating activities for the six months ended June
30, 2000 of $4.7 million increased by $0.1 million as compared to the six months
ended June 30, 1999. This increase was primarily due to higher net cash provided
by changes in assets and liabilities of $4.8 million, offset by a reduction in
net income of $5.0 million for the six months ended June 30, 2000 as compared to
the six months ended June 30, 1999. The net cash impact from changes in assets
and liabilities for six months ended June 30, 2000 of $4.8 million was largely
due to an increase in accounts receivable sold under the Asset Backed Facility.
The proceeds of the sale of receivables was utilized largely to finance the
March 6, 2000 acquisition of the Ajax pressing and finishing equipment division
and to pay the Raytheon award.
Capital Expenditures
The Company's capital expenditures for the six months ended June 30,
2000 and June 30, 1999 were $2.5 million and $6.0 million, respectively. Capital
spending in 2000 was principally oriented toward reducing manufacturing costs
and transitioning tumbler production from the Company's Madisonville, Kentucky
manufacturing facility to Ripon, Wisconsin (see Note 3), while spending in 1999
was principally oriented toward reducing manufacturing costs and transitioning
dryer production from Appliance Co. to the Company's Ripon manufacturing
facility.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and was effective for all fiscal years beginning
after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of SFAS No. 133," and will now be effective for fiscal years
beginning after June 15, 2000, with early adoption permitted. SFAS No. 133, as
amended, requires the Company to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Upon adoption, the
Company will be required to report derivative and hedging instruments at fair
value in the balance sheet and recognize changes in the fair value of
derivatives in net income or other comprehensive income, as appropriate. This
statement will be effective for the Company's first quarter of 2001. Given the
Company's current derivative and hedging activities, the statement is not
expected to have a material effect on the Company's results of operations or
financial position.
18
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk associated with
changes in interest and foreign exchange rates. From time to time the Company
may enter into derivative financial instruments to hedge its interest rate
exposures and to hedge exchange rate fluctuations between United States dollars
and foreign currencies. An instrument will be treated as a hedge if it is
effective in offsetting the impact of volatility in the Company's underlying
exposures. The Company does not enter into derivatives for speculative purposes.
There have been no material changes in the Company's market risk exposures as
compared to those discussed in the Company's Annual Report on Form 10-K (file
no. 333-56857).
FORWARD-LOOKING STATEMENTS
With the exception of the reported actual results, the information
presented herein contains predictions, estimates or other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended, including
items specifically discussed in the "Note 6 - Commitments and Contingencies"
section of this document. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results,
performance or achievements of the Company to differ materially from those
expressed or implied by such forward-looking statements. Although the Company
believes that its plans, intentions and expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that such plans, intentions, expectations, objectives or goals will be
achieved. Important factors that could cause actual results to differ materially
from those included in forward-looking statements include: impact of
competition; continued sales to key customers; possible fluctuations in the cost
of raw materials and components; possible fluctuations in currency exchange
rates, which affect the competitiveness of the Company's products abroad; market
acceptance of new and enhanced versions of the Company's products; the impact of
substantial leverage and debt service on the Company and other risks listed from
time to time in the Company's reports, including but not limited to the
Company's Annual Report on Form 10-K (file no. 333-56857).
19
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Legal actions relating to Appliance Co. are described in Footnote 6 to
the Financial Statements in Part I hereto and are incorporated by reference into
Part II.
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) List of Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Systems LLC has duly caused this quarterly report to be signed
on its behalf by the undersigned, thereto duly authorized, in the city of Ripon,
state of Wisconsin, on the 2nd day of August 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8/2/2000
--------------------- ------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8/2/2000
--------------------- ------------
Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Corp. has duly caused this quarterly report to be signed on its
behalf by the undersigned, thereto duly authorized, in the city of Ripon, state
of Wisconsin, on the 2nd day of August 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8/2/2000
--------------------- ------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8/2/2000
--------------------- ------------
Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Holdings LLC has duly caused this quarterly report to be signed
on its behalf by the undersigned, thereto duly authorized, in the city of Ripon,
state of Wisconsin, on the 2nd day of August 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8/2/2000
--------------------- ------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8/2/2000
--------------------- ------------
Bruce P. Rounds
21
