<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 27, 1996
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 333-0062
COINMACH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 53-0188589
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
---- ----
AS OF THE CLOSE OF BUSINESS ON NOVEMBER 8, 1996, COINMACH CORPORATION HAD
OUTSTANDING 100 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON
STOCK"), ALL OF WHICH WERE HELD BY COINMACH LAUNDRY CORPORATION.
<PAGE>
COINMACH CORPORATION
--------------------
INDEX
PART I.
Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
September 27, 1996 (Unaudited) and March 29, 1996 3
Condensed Consolidated Statements of Operations --
Three Months and Six Months Ended September 27, 1996
(Unaudited) and September 29, 1995 4
Condensed Consolidated Statements of Cash Flows --
Six Months Ended September 27, 1996 (Unaudited)
and September 29, 1995 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II.
Other Information 13
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page 14
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<PAGE>
COINMACH CORPORATION
---------------------
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
September 27, March 29,
1996 1996
-------------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 5,086 $ 19,723
Receivables, net 5,821 5,758
Inventories 5,492 4,443
Prepaid expenses 2,638 2,641
Advance rental payments 22,528 20,320
Property and equipment, less accumulated depreciation
of $30,124 and $19,509 93,819 82,699
Contract rights, less accumulated amortization
of $13,329 and $8,925 63,217 59,745
Goodwill, less accumulated amortization
of $3,554 and $2,386 43,173 44,071
Other assets, principally debt issuance costs 10,155 8,767
-------- --------
Total assets $251,929 $248,167
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT:
Accounts payable $ 5,550 $ 5,944
Accrued commissions 7,982 7,380
Accrued interest 8,741 7,745
Other accrued expenses 8,295 7,557
Due to parent 4,627 -
Deferred income taxes 17,174 18,924
11-3/4% Senior Notes 196,655 196,655
12-3/4% Senior Notes 5,000 5,000
Other long-term debt 2,254 1,110
Shareholder's deficit:
Common stock and capital in excess
of par value 18,104 18,104
Notes receivable from management ( 254) ( 1,692)
Accumulated deficit (22,199) (18,560)
-------- --------
Total shareholder's deficit ( 4,349) ( 2,148)
-------- --------
Total liabilities and shareholder's deficit $251,929 $248,167
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
(dollars in thousands)
----------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
GROSS REVENUES $46,506 $ 43,192 $94,446 $89,719
COSTS AND EXPENSES
Laundry operating expenses 31,016 30,151 63,596 62,905
General and administrative expenses 1,076 1,287 2,092 2,458
Depreciation and amortization 10,382 9,272 20,192 18,423
Stock-based compensation charge 1,460 - 1,460 -
Restructuring expenses - 2,200 - 2,200
------- -------- ------- -------
43,934 42,910 87,340 85,986
------- -------- ------- -------
OPERATING INCOME 2,572 282 7,106 3,733
INTEREST EXPENSE 6,224 5,801 12,345 11,541
------- -------- ------- -------
LOSS BEFORE INCOME TAXES (3,652) (5,519) (5,239) (7,808)
------- -------- ------- -------
PROVISION (BENEFIT) FOR INCOME
TAXES:
Currently payable 100 309 150 420
Deferred (1,300) (1,793) (1,750) (2,282)
-------- ------- -------
(1,200) (1,484) (1,600) (1,862)
-------- ------- -------
NET LOSS $(2,452) $( 4,035) $(3,639) $(5,946)
======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
September 27, September 29,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ (3,639) $ (5,946)
Net loss
Adjustment to reconcile net loss to net cash
provided by operating activities: 20,192 18,423
Depreciation and amortization
Deferred income taxes (1,750) ( 2,000)
Stock-based compensation charge 1,460 -
Amortization of debt discount and debt issuance 261 735
Increase in other assets (690) (717)
Increase in receivables, net (63) (73)
(Increase) decrease in inventories and prepayments (1,177) 930
Decrease in accounts payable (394) (668)
Increase (decrease) in accrued interest 996 (25)
Increase in accrued expenses 688 1,980
-------- --------
Net cash provided by operating activities 15,884 12,639
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (12,555) (9,545)
Advance rental payment to location owners (4,872) (3,569)
Additions to net assets from acquired businesses (17,623) -
--------
Net cash used for investing activities (35,050) (13,114)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of bank and other borrowings (136) 1,126
Net advances from (to) parent 4,984 (2,000)
Deferred debt issuance costs (90) -
Principal payments on capitalized lease obligations (229) (143)
-------- --------
Net cash provided by (used for) financing activities 4,529 (1,017)
-------- --------
Net decrease in cash and cash equivalents (14,637) (1,492)
CASH AND CASH EQUIVALENTS, BEGINNING 19,723 10,774
OF PERIOD -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,086 $ 9,282
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW $ 11,131 $ 8,478
INFORMATION: ======== ========
Interest paid
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Coinmach Corporation, a Delaware corporation (the "Company"), is a leading
supplier of coin-operated laundry equipment services for multi-family housing
units. The Company owns and operates approximately 247,000 coin-operated
washers and dryers on routes in over 26,000 locations in 28 states and the
District of Columbia. Such routes are located throughout the Northeast, Mid-
Atlantic, Southeast, South Central and Midwest regions of the United States.
Coinmach Corporation, through its wholly-owned subsidiary, Super Laundry
Equipment Corp., a New York corporation ("Super Laundry"), is also a
construction and laundromat equipment distribution company. Coinmach
Corporation is a wholly-owned subsidiary of Coinmach Laundry Corporation, a
Delaware corporation ("Coinmach Laundry"). Unless otherwise specified herein,
references to the "Company" shall mean Coinmach Corporation and Super Laundry.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles ("GAAP") for interim financial reporting and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, such
financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements. GAAP requires the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates. In addition, certain
reclassifications have been made to prior period financial statements to conform
with the 1996 presentations. 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 combined and consolidated financial statements
included in the Company's Annual Report on Form 10-K for the six month
transition period ended March 29, 1996.
3. LONG-TERM DEBT
The Company has long-term debt, consisting of (a) approximately $196.7 million
of 11 3/4% Senior Notes due 2005, (b) $5.0 million of 12 3/4% Senior Notes due
2001 (collectively, the "Senior Notes") and (c) an availability of up to $35.0
million under a revolving credit facility which, among other items, imposes
restrictions on the Company's ability to incur debt, make acquisitions and
certain restricted payments, create liens, sell assets or enter into
transactions with affiliates. The revolving credit facility contains covenants
and agreements that are generally more restrictive than the indentures governing
the Senior Notes. Also, the Senior Notes and the revolving credit facility
presently limit the Company's ability to pay dividends. At September 27, 1996,
there were no amounts outstanding under the Company's revolving credit facility.
-6-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
4. ACCOUNTING PRONOUNCEMENTS
Effective March 30, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. FAS 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The effect of adoption did not have a material impact on the Company's
results of operations or financial condition for the three months and six months
ended September 27, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans. FAS 123 is effective for transactions entered into in
fiscal years beginning after December 15, 1995. The Company has accounted for
stock-based compensation awards pursuant to the provisions of Accounting
Principles Board Opinion No. 25, as permitted by FAS 123, but will provide the
necessary disclosure information in the Company's annual report on Form 10-K for
the fiscal year ended March 28, 1997.
5. EQUITY RESTRUCTURING OF COINMACH LAUNDRY
During July, Coinmach Laundry completed its initial public offering (the
"Offering") of 4,120,000 shares of its Class A common stock, par value $.01 per
share (the "CLC Common Stock") at an initial public offering price of $14.00 per
share. Coinmach Laundry's registration statement on Form S-1 (No. 333-03587)
for 4,000,000 shares of CLC Common Stock was filed with the Securities and
Exchange Commission on May 13, 1996 and subsequently declared effective on July
17, 1996. Coinmach Laundry filed an additional registration statement on Form
S-1 (No. 333-08331) with respect to the registration of an additional 120,000
shares of CLC Common Stock, which registration statement was effective upon
filing. Proceeds from the Offering were approximately $53.6 million, after
underwriting discounts and commissions. After giving effect to the redemption
of the Preferred Stock (as described below), net proceeds from the Offering were
approximately $34.4 million, before expenses.
In connection with the Offering, the underwriters were granted a 30-day option
to purchase up to an aggregate of 618,000 additional shares of CLC Common Stock
to cover over-allotments (the "Over-Allotment Option"), which Over-Allotment
Option was exercised on August 16, 1996, with respect to the purchase of an
additional 63,642 shares of CLC Common Stock.
6. RELATED PARTY TRANSACTIONS
Prior to the Offering, Coinmach Laundry issued an additional 79,029 shares of
its Class B common stock to certain members of management, which shares were
purchased through loans made by the Company aggregating approximately $56,000.
The difference between the estimated fair market value of such stock (which
management estimates to be 85% of the initial offering price of the CLC Common
Stock in the Offering) and the amount paid for such stock was approximately
$887,000 and has been accounted for by the Company as a stock-based compensation
charge. In addition, approximately $103,000 of receivables outstanding at June
28, 1996 relating to loans to management in connection with the purchase of
common stock of Coinmach Laundry were forgiven and have been accounted for by
the Company as a stock-based compensation charge.
-7-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
6. RELATED PARTY TRANSACTIONS (continued)
On July 23, 1996, in connection with the Offering, Coinmach Laundry granted
certain non-qualified options (the "Options") to purchase up to 735,618 shares
of CLC Common Stock at 85% of the initial offering price of the CLC Common Stock
in the Offering to certain members of management and other individuals
(collectively, the "Option Holders") pursuant to the terms and conditions of
option agreements entered into among Coinmach Laundry and the Option Holders,
dated July 23, 1996 (the "Option Agreements"). On September 17, 1996, for the
purpose of preserving the percentage interest of issued and outstanding CLC
Common Stock on a fully diluted basis represented by the Options (which
percentage interest was decreased as a result of the exercise of the Over-
Allotment Option), Coinmach Laundry granted additional non-qualified stock
options to purchase up to 3,819 shares of CLC Common Stock to each of the Option
Holders (the "Additional Options"). The Additional Options are subject to the
terms and conditions of the Option Agreements, as amended by that certain
Omnibus Amendment to Option Agreements, dated September 27, 1996. The Options
and Additional Options vest in five equal annual installments commencing as of
July 23, 1996, the effective date of the Offering. With respect to Options and
Additional Options granted to employees of the Company, the Company will record
the difference between the exercise price and the $14.00 initial offering price
of CLC Common Stock in the Offering as a stock-based compensation charge over
the applicable four-year vesting period.
On September 17, 1996, Coinmach Laundry granted to two of its independent
directors, each of whom was appointed by the Board of Directors of Coinmach
Laundry on such date, options entitling each such director to purchase up to
60,000 shares of CLC Common Stock (the "Independent Director Options"). The
Independent Director Options vest in four equal annual installments, commencing
on September 17, 1996, and entitle each such director to purchase shares of CLC
Common Stock at $14.00 per share, the initial public offering price of the CLC
Common Stock in the Offering. The Independent Director Options are subject to
the terms and conditions of option agreements by Coinmach Laundry and such
directors and expire on September 17, 2006. The Company will record the
difference between the exercise price of the Independent Director Options and
the fair market value of the CLC Common Stock on September 17, 1996 as a stock-
based compensation charge over the applicable three-year vesting period.
For the three months ended September 27, 1996, the Company has recorded a stock-
based compensation charge of approximately $470,000 related to the Options, the
Additional Options and the Independent Director Options.
-8-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as the other risks set forth in the Company's Annual Report on Form 10-K
for the six month transition period ended March 29, 1996.
GENERAL
The Company is principally engaged in supplying coin-operated laundry equipment
services for multi-family housing units in 28 states and the District of
Columbia located throughout the Northeast, Mid-Atlantic, Southeast, South-
Central and Midwest regions of the United States. The most significant revenue
source is derived from its routes, which are comprised of over 26,000 locations
containing approximately 247,000 coin-operated washing machines and dryers. The
Company provides coin-operated laundry equipment services to locations by
leasing designated laundry rooms in buildings on a long-term basis. The Company
is a wholly owned subsidiary of Coinmach Laundry Corporation ("Coinmach
Laundry").
The Company also owns and operates Super Laundry Equipment Corp. ("Super
Laundry"). Super Laundry's business consists of constructing complete turnkey
laundromat retail stores, retrofitting existing laundromat retail stores,
distributing exclusive and non-exclusive lines of commercial coin and non-coin
machines and parts, and selling service contracts.
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto and with
the Company's audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K as of and for the six month
transition period ended March 29, 1996.
COMPARISON OF THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 27, 1996 AND
SEPTEMBER 29, 1995
Gross revenues increased by approximately 8% and 5% for the three months and six
months ended September 27, 1996, respectively, as compared to gross revenues for
the prior year's corresponding periods. The improvement in gross revenues for
the three month and six month period consisted primarily of increased route
revenues resulting substantially from the acquisition in April 1996 of the route
business of Allied Laundry Equipment Company (the "Allied Acquisition") located
in the Midwest region and by a slight increase in distribution revenues from
Super Laundry. During the six months ended September 29, 1995, the Company's
machine base declined by approximately 2,500 machines, primarily due to capital
constraints, but increased by approximately 3,800 machines during the six months
ended September 27, 1996 (excluding the machines added from the Allied
Acquisition). This favorable trend is primarily the result of a reorganization
of the field management team and additional capital resources provided by the
Company's issuance of its 11 3/4% Senior Notes due 2005.
Laundry operating expenses increased by approximately 3% and 1%, respectively,
for three month and six month periods ended September 27, 1996, as compared to
the prior year's corresponding periods. The increase was due primarily to an
increase in laundry operating expenses related to the Allied Acquisition in the
Midwest region as well as an increase in the cost of sales related to Super
Laundry's increased sales volume. Such increase in laundry operating expenses
was substantially offset by a reduction in expenses primarily related to the
implementation of cost savings programs in the Company's field operations and
consolidation of certain operating regions.
-9-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ----------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
RESULTS OF OPERATIONS (continued)
- ---------------------
General and administrative expenses decreased by approximately 16% and 15%,
respectively, for the three month and six month periods ended September 27,
1996, as compared to the prior year's corresponding periods, due primarily to
the consolidation of the Company's corporate staff into its existing facility in
Roslyn, New York on September 29, 1995.
Depreciation and amortization increased by approximately 12% and 10%,
respectively, for the three month and six month periods ended September 27,
1996, as compared to the prior year's corresponding periods, due primarily to
the acquisition of the Midwest region route business in April 1996, as well as
an increase in capital expenditures resulting from the elimination of capital
constraints subsequent to September 29, 1995.
The Company incurred one-time restructuring costs of approximately $2.2 million
in the three months ended September 29, 1995, to cover severance payments to
certain of its management, administrative and regional personnel, costs to
relocate certain financial and administrative functions to Roslyn, New York,
costs to integrate certain financial and operating systems, and costs related to
the consolidation of certain of its regional offices.
Prior to the Offering, Coinmach Laundry had issued an additional 79,029 shares
of its Class B common stock to certain members of management. The difference
between the estimated fair market value of such stock (estimated by management
to be 85% of the initial offering price of the CLC Common Stock in the Offering)
and the amount paid for such stock was approximately $.9 million and has been
recorded by the Company as a stock-based compensation charge. In addition,
approximately $103,000 of receivables relating to loans to management in
connection with the purchase of common stock of Coinmach Laundry were forgiven
and have been recorded by the Company as a stock-based compensation charge.
The Company also granted to management and certain other individuals options to
purchase certain shares of CLC Common Stock at 85% of the initial offering price
of the CLC Common Stock in the Offering. With respect to such options granted
to its employees, the Company will record such 15% discount as a stock-based
compensation charge over the applicable four year vesting period. The Company
also granted to two of its disinterested directors options to purchase certain
shares of CLC Common Stock. The Company will record the difference between the
exercise price of the such options and the fair market value of the CLC Common
Stock on the date of grant as a stock-based compensation charge over the
applicable three-year vesting period. During the three months ended September
27, 1996, the Company recorded a stock-based compensation charge of
approximately $.5 million relating to the foregoing options.
As a result of the above, operating income margins improved to approximately 6%
and 8%, respectively, for the three month and six month periods ended September
27, 1996, as compared to approximately 1% and 4%, respectively, for the three
month and six month periods ended September 29, 1995.
Interest expense increased by approximately 7% for each of the three month and
six month periods ended September 27, 1996, as compared to the prior year's
corresponding periods, due primarily to incurrence of debt resulting from the
Company's refinancing in November 1995. Partially offsetting this increase in
interest expense was the decrease in the effective interest rate as the result
of such refinancing, as well as interest income earned on excess cash balances.
-10-
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COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ----------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
RESULTS OF OPERATIONS (continued)
- ---------------------
EBITDA (earnings before deductions for interest, income taxes, depreciation and
amortization) was approximately $28.8 million (before deduction for the stock-
based compensation charges) for the six months ended September 27, 1996,
compared to approximately $24.4 million (before deduction for restructuring
costs) for the corresponding period in 1995, representing an improvement of
approximately 18%. EBITDA margins improved to approximately 30% for the six
months ended September 27, 1996, compared to approximately 27% for the
corresponding period in 1995. EBITDA is used by management and certain
investors as an indicator of a company's historical ability to service debt.
Management believes that an increase in EBITDA is an indication of a company's
improved ability to service existing debt, potential future increases in debt or
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either (a)
operating income (as determined by GAAP) as an indicator of operating
performance or (b) cash flows from operating, investing and financing activities
(as determined by GAAP) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with GAAP and is thus susceptible to
varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
The Company's effective income tax rate differs from the amount computed by
applying the U.S. federal statutory rate to loss before income taxes as a result
of state taxes and permanent book/tax differences (largely goodwill
amortization).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company continues to have substantial indebtedness and debt service
requirements. At September 27, 1996, the Company had outstanding long-term debt
of approximately $203.9 million and a stockholder's deficit of approximately
$4.3 million after restructuring charges and writeoffs.
The Company's level of indebtedness will have several important effects on its
future operations, including the following: (a) a significant portion of the
Company's cash flow from operations will be required to pay interest on its
indebtedness and will not be available for other purposes; (b) financial
covenants contained in certain of the agreements governing the Company's
indebtedness will require the Company to meet certain financial tests and 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, and general corporate purposes may be
impaired; and (d) the Company's ability to adapt to changes in the coin-operated
laundry equipment services industry and to economic conditions in general could
be limited. At September 27, 1996, there was no amount outstanding under the
Company's revolving credit facility.
The expenses of the Company include significant amounts of depreciation and
amortization (approximately $20.2 million for the six months ended September 27,
1996) which have the effect of reducing net income but not operating cash flow.
In accordance with GAAP, a significant amount of the purchase price of
businesses acquired by the Company is allocated to "contract rights", which
costs are amortized over periods of up to 15 years. Although such accounting
treatment has a favorable effect on operating cash flow by reducing taxes, it
also reduces net income. The Company expects to continue such practice with
future acquisitions, so as to maximize cash flows through the recognition of
related smaller net income, caused by the increased amortization. Such a
practice will be employed until the purchase price has been fully amortized.
-11-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ----------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the six months ended September 27, 1996 were approximately
$35.1 million. Of such amount, the Company spent approximately $17.6 million on
the acquisition of related businesses, including the Allied Acquisition and
approximately $4.3 million related to the net increase in the machine base. The
balance was used to maintain the existing machine base and for general corporate
purposes. The effect of incremental increases in revenues and EBITDA generated
from capital expended on acquisitions and the net increase in the machine base
may not be reflected in the financial results until subsequent reporting
periods, depending on the timing of the capital expended.
The Company's working capital requirements are, and are expected to continue to
be, minimal since a significant portion of the Company's operating expenses are
not paid until after cash is collected from the installed machines. In
connection with certain of the financing agreements governing the Company's
indebtedness, the Company is required to make semi-annual cash interest payments
on the 11 3/4% Senior Notes due 2005 and the 12 3/4% Senior Notes due 2001
(collectively, the "Senior Notes"), and will be required to make monthly
interest payments under the revolving credit facility. Management believes that
the Company's future operating activities will generate sufficient cash flow to
repay borrowings under the Senior Notes and the revolving credit facility or to
permit any necessary refinancings thereof. An inability of the Company,
however, to comply with covenants or other conditions contained in the
indentures governing the Senior Notes or in the revolving credit facility could
result in an acceleration of the amounts due thereunder. If the Company is
unable to meet its debt service obligations, it could be required to take
certain actions such as reducing or delaying capital expenditures, selling
assets, refinancing or restructuring its indebtedness, selling additional equity
capital or other actions. There is no assurance that any of such actions could
be effected on commercially reasonable terms, if at all, or on terms permitted
under the Company's revolving credit facility or the indentures governing the
Senior Notes.
In July 1996, Coinmach Laundry used approximately $5.0 million from the net
proceeds from the Offering to repay amounts borrowed under the Company's
revolving credit facility. The balance of such net proceeds are currently
invested in short-term, investment grade, interest-bearing securities,
certificates of deposit or direct or guaranteed obligations of the United
States. The Company has not yet determined the specific uses for the balance of
the net proceeds of the Offering. 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.
INFLATION AND SEASONALITY
- -------------------------
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
-12-
<PAGE>
COINMACH CORPORATION
---------------------
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company has been, and expects to continue to
be, subject to legal proceedings and claims in the ordinary course of its
business. Although the amount of any liability that could arise with respect to
these actions can not be accurately predicted, management believes that any such
liability, individually or in the aggregate, will not have a material adverse
effect on the financial condition and results of operations of the Company.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
None
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the three
months ended September 27, 1996.
-13-
<PAGE>
COINMACH CORPORATION
--------------------
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 CORPORATION
Date: November 8, 1996 /s/ Robert M. Doyle
--------------------------------------
Robert M. Doyle
Senior Vice President and
Chief Financial Officer
(On behalf of Registrant and as
Principal Financial Officer)
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-28-1997 MAR-28-1997
<PERIOD-START> JUN-29-1996 MAR-30-1996
<PERIOD-END> SEP-27-1996 SEP-27-1996
<CASH> 5,086 5,086
<SECURITIES> 0 0
<RECEIVABLES> 5,821 5,821
<ALLOWANCES> 0 0
<INVENTORY> 5,492 5,492
<CURRENT-ASSETS> 0 0
<PP&E> 123,943 123,943
<DEPRECIATION> 30,124 30,124
<TOTAL-ASSETS> 251,929<F1> 251,929<F1>
<CURRENT-LIABILITIES> 0 0
<BONDS> 203,909 203,909
0 0
0 0
<COMMON> 18,104 18,104
<OTHER-SE> (22,453) (22,453)
<TOTAL-LIABILITY-AND-EQUITY> 251,929 251,929
<SALES> 0<F2> 0<F2>
<TOTAL-REVENUES> 46,506 94,446
<CGS> 0 0
<TOTAL-COSTS> 31,016<F3> 63,596<F3>
<OTHER-EXPENSES> 12,918<F5> 23,744<F5>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,224 12,345
<INCOME-PRETAX> (3,652) (5,239)
<INCOME-TAX> (1,200)<F4> (1,600)<F4>
<INCOME-CONTINUING> (2,452) (3,639)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,452)<F6> (3,639)<F6>
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Includes Advance Rental Payments of $22,528, Contract Rights of $63,217, and
Goodwill of $43,173, each net of accumulated amortization, at September 27,
1996.
<F2>Total Revenues include Sales of laundromats and equipment of $4,614 and
$9,172, for the 3 months and 6 months ended September 27, 1996, respectively.
<F3>Total Costs include Cost of Goods Sold of $3,083 and $6,458, for the 3 months
and 6 months ended September 27, 1996, respectively.
<F4>The provision (benefit) for income taxes consists of $100 and $150 currently
payable and ($1,350) and ($1,750) deferred, for the 3 months and 6 months ended
September 27, 1996, respectively.
<F5>A stock-based compensation charge was recorded of $1,460 for the 3 month and 6
month periods ended September 27, 1996.
<F6>In addition, EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) of $28,758 (before the deduction for the
stock-based compensation charge), was generated for the reported period.
EBITDA is used by management and certain investors as an indicator of a
company's historical ability to service debt.
</FN>
</TABLE>
