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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1997
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 33-49830
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 .
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As of the close of business on November 6, 1997, Coinmach Corporation had
outstanding 100 shares of common stock, par value $.01 per share (the "Common
Stock"), all of which shares were held by Coinmach Laundry Corporation.
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COINMACH CORPORATION
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The undersigned registrant hereby amends Item 2 of Part I of its
Quarterly Report on Form 10-Q for the quarterly period ended September 26,
1997, as filed with the Securities and Exchange Commission on November 10, 1997,
to read in its entirety as follows:
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 other risks set forth in the Company's Annual Report on Form 10-K for
the year ended March 28, 1997.
General
The Company is principally engaged in the business of supplying
out-sourced coin-operated laundry equipment services to multi-family housing
properties. On September 26, 1997, the Company owned and operated approximately
417,000 coin-operated washers and dryers in approximately 42,000 multi-family
housing properties on routes throughout the United States and 151 retail
laundromats located throughout Texas. The Company, through Super Laundry
Equipment Corp. ("Super Laundry"), its wholly-owned subsidiary, is also a
construction and laundromat equipment distribution company.
The Company provides out-sourced coin-operated laundry equipment
services to locations by leasing laundry rooms from building owners and property
management companies typically on a long-term, renewable basis. In return for
the exclusive right to provide these services, most of the Company's contracts
provide for commission payments to the location owners. Commission expense (also
referred to as rent expense), the Company's single largest expense item, is
included in laundry operating expenses and represents payments to location
owners. Commissions may be fixed amounts or percentages of revenues and are
generally paid monthly. Also included in laundry operating expenses are the
costs of servicing and collecting in the route business, including, payroll,
parts, vehicles and other related items, the cost of sales associated with Super
Laundry and certain expenses related to the operation of retail laundromats.
In addition to commission payments, many of the Company's leases
require the Company to make advance rental payments to the location owners.
These advance payments are capitalized and amortized over the life of the
applicable lease.
Other revenue sources for the Company include (i) leasing laundry
equipment and other household appliances and electronic items to corporate
relocation entities, property owners and managers of multi-family housing
properties; (ii) operating, maintaining and servicing retail laundromats; and
(iii) constructing complete turnkey retail laundromats, retrofitting existing
retail laundromats, distributing exclusive lines of commercial coin and non-coin
operated machines and parts, and selling service contracts.
Results of Operations
The following discussion should be read in conjunction with the
attached unaudited condensed consolidated financial statements and notes thereto
and with the Company's audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K as of and for the
year ended March 28, 1997.
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 COMPARED TO THE THREE AND
SIX MONTH PERIODS ENDED SEPTEMBER 27, 1996
Revenues increased by approximately 67% and 59% for the three and six
month periods ended September 26, 1997, respectively, as compared to the prior
year's corresponding periods. The improvement in revenues for the three and six
month periods resulted primarily from the acquisition of the route and
laundromat business of Kwik Wash Laundries L.P. in January 1997 (the "Kwik Wash
Acquisition"), the acquisition of the route business of Reliable Holding Corp.
in April 1997 (the "Reliable Acquisition"), the acquisition (the "National Coin
Acquisition")
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COINMACH CORPORATION
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
of the route business of National Coin Laundry Holding, Inc.
("NCLH"), National Coin Laundry, Inc. ("NCL"), National Laundry Equipment
Company, Inc. ("NLEC") and Whitmer Vend-O-Mat Laundry Services, Inc.
("Whitmer"), and increased route revenues resulting from internal expansion.
During such six month period, the Company's installed base increased by
approximately 9,400 machines from internal growth (excluding the machines added
from the Reliable Acquisition and the National Coin Acquisition) as compared to
an increase of approximately 4,200 machines during the prior year's
corresponding period.
Laundry operating expenses increased by approximately 68% and 58% for
the three and six month periods ended September 26, 1997, respectively, as
compared to the prior year's corresponding periods. The increase was due
primarily to an increase in laundry operating expenses related to the Kwik Wash
Acquisition, the Reliable Acquisition and the National Coin Acquisition.
General and administrative expenses increased by approximately $0.3 and
$0.8 million, for the three and six month periods ended September 26, 1997,
respectively, as compared to the prior year's corresponding periods. The
increase for the periods was due to various expenses associated with (i) costs
relating to the Company's acquisition strategy, including legal and financial
due diligence investigations of potential targets and related costs, (ii) the
development and implementation of procedures for the management of investor
relations, and (iii) systems development and refinement relating to the
integration of prior acquisitions.
Depreciation and amortization increased by approximately 74% and 71%
for the three and six month periods ended September 26, 1997, respectively, as
compared to the prior year's corresponding periods, due primarily to the
contract rights and goodwill associated with the Kwik Wash Acquisition, the
Reliable Acquisition and the National Coin Acquisition as well as an increase in
capital expenditures for the installed base of machines. As a result of the
Company's acquisition activity since early 1995, the Company incurred
approximately $18.9 million in non-cash depreciation and amortization charges
for the six months ended September 26, 1997 as compared to $11.7 million for the
prior year's corresponding period.
In July 1996, Coinmach Laundry issued in privately negotiated
transactions, 79,029 shares of its Class B common stock to certain members of
management. Coinmach Laundry recorded a stock-based compensation charge of
approximately $887,000 attributable to the issuance of such stock. In addition,
in July 1996 approximately $103,000 of receivables relating to loans to
management in connection with prior purchases of CLC Common Stock were forgiven
and have been recorded as a stock-based compensation charge.
During July and September 1996, Coinmach Laundry granted nonqualified
options (the "Options") to purchase CLC Common Stock, to certain members of
management and certain other individuals, which enable such persons to purchase
shares of CLC Common Stock at a 15% discount to the initial offering price of
the CLC Common Stock. With respect to the Options granted to its employees, the
Company will record such discount as a stock-based compensation charge over the
applicable four year vesting period. Coinmach Laundry also granted options to
two of its disinterested directors (the "Independent Director Options"), which
enable such persons to purchase an aggregate of 120,000 shares of CLC Common
Stock at the initial offering price of CLC Common Stock. 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 the date of grant as a
stock-based compensation charge over the applicable three year vesting period.
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COINMACH CORPORATION
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
In September 1997, Coinmach Laundry granted non-qualified options (the
"1997 Options") to purchase an aggregate of 200,000 shares of CLC Common Stock
to certain members of management at an exercise price of $11.90 per share of
Common Stock. The Company will record the difference between the exercise price
of the 1997 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 four year
vesting period. For the six months ended September 26, 1997 and September 27,
1996, the Company recorded a stock-based compensation charge of approximately
$462,000 and $470,000 respectively, relating to the Options,the Independent
Director Options and the 1997 Options.
Operating income margins were approximately 7% and 8% for the three and
six month periods ended September 26, 1997, as compared to approximately 6% and
7% for the three and six month periods ended September 27, 1996, respectively.
Interest expense, net increased by approximately 78% and 72% for the
three and six month periods ended September 26, 1997, respectively, as compared
to the prior year's corresponding periods, due primarily to increased interest
payable under the Company's senior financing arrangement obtained in January,
1997 (as amended, the "Credit Facility") resulting from increased borrowings to
fund acquisitions.
EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization), before deduction for stock-based compensation
charges, was approximately $46.6 million for the six months ended September 26,
1997, as compared to approximately $28.8 million for the corresponding period in
1996, representing an improvement of approximately 62%. EBITDA margins improved
to approximately 31% for the six months ended September 26, 1997, compared to
approximately 30% for the prior year's corresponding period. 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
indicator of the Company's improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements. However,
EBITDA is not intended to represent cash flows for the period, nor has it been
presented as an alternative to either (i) operating income (as determined by
generally accepted accounting principles ("GAAP")) as an indicator of operating
performance or (ii) 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 difference (largely goodwill
and certain stock compensation expenses).
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At September 26, 1997, the Company had outstanding long-term debt
of approximately $402.3 million and stockholder's equity of approximately $4.3
million.
The Company's level of indebtedness will have several important effects
on its future operations including, but not limited to, the following: (i) 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; (ii) the financial covenants contained
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COINMACH CORPORATION
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
in certain of the agreements governing the Company's indebtedness will require
the Company to meet certain financial tests and will limit its ability to borrow
additional funds or to dispose of assets; (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; and (iv) the
Company's ability to adapt to changes in the coin-operated laundry equipment
services industry and to economic conditions in general will be limited.
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 26, 1997 were approximately
$91.9 million. Of such amount, the Company spent approximately $66.3 million in
acquisition and related transaction costs, including the Reliable Acquisition
and the National Coin Acquisition, and approximately $8.0 million related to the
net increase in the installed base of machines. The balance was used to maintain
the existing machine base and for general corporate purposes. The full impact on
revenues and EBITDA generated from capital expended on acquisitions and the net
increase in the installed base are not expected to be reflected in the Company's
financial results until subsequent reporting periods, depending on 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 monthly cash interest payments
under the Credit Facility and semi-annual cash interest payments on the Senior
Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $34.6 million for the six months ended September 26, 1997) have
the effect of reducing net income but not operating cash flow. In accordance
with GAAP, a significant amount of the purchase prices 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 can have a
favorable effect on operating cash flow by reducing taxes, such treatment also
reduces net income.
Effective June 2, 1997, the Company entered into an amendment to the
Credit Facility with Bankers Trust Company, First Union National Bank of North
Carolina, Lehman Commercial Paper, Inc. and certain other lending institutions
named therein, to increase the principal amount of the Tranche B term loan by
$60 million. The Credit Facility, as amended and prior to giving effect to
payment of principal installments, consists of a $70 million revolving credit
facility and a $190 million term loan facility, which is comprised of a Tranche
A term loan in the amount of $30 million and Tranche B term loan in the amount
of $160 million. The Credit Facility also provides for up to $10 million of
letter of credit financing and short term borrowings under a swing line facility
of up to $5 million.
In connection with the Company's January 1997 acquisition of KWL, Inc.
("KWL") and Kwik-Wash Laundries, Inc. ("Kwik Wash"), the sole partners of Kwik
Wash Laundries, L.P., Coinmach Laundry issued a $15 million promissory note (the
"Kwik Wash Note") in partial payment of the purchase price for the outstanding
voting securities of KWL and Kwik Wash.
On July 17, 1997, the Company consummated the National Coin
Acquisition, pursuant to which it acquired 100% of the outstanding voting
securities of NCLH and NLEC and substantially all of the assets of Whitmer for
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COINMACH CORPORATION
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
an aggregate purchase price of approximately $19.0 million in cash. NCLH is the
parent of NCL. The National Coin Acquisition enabled the Company to further
expand its operations by providing coin-operated laundry equipment services to
multi-family housing properties in the states of Ohio, Indiana, Kentucky,
Michigan, West Virginia, Pennsylvania, Georgia, Tennessee, Illinois and Florida,
as well as by distributing exclusive lines of commercial coin and non-coin
laundry machines and parts, and by selling service contracts. Subsequent to the
National Coin Acquisition, NCLH, NLEC and NCL were merged with and into the
Company. The Credit Facility was used to finance the National Coin Acquisition.
On October 8, 1997, the Company completed the private placement (the
"Bond Offering") of $100 million aggregate principal amount of its 11 3/4%
Series C Notes due 2005 ("Series C Notes"), on substantially identical terms as
its outstanding Senior Notes. The issue price was 109.875%, representing a 9.94%
yield to maturity. The gross proceeds from the Bond Offering were $109.875
million, of which $100.0 million represented the payment of principal and $9.875
million represented the payment of a premium for the Series C Notes. The Company
used approximately $105.4 million of the net proceeds from the Bond Offering to
repay indebtedness outstanding under the Credit Facility. After giving effect to
such repayment of indebtedness, the aggregate outstanding indebtedness under the
Credit Facility is $97.9 million as of November 10,1997.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay borrowings under the Senior Notes, the
Series C Notes, the Credit Facility and the Kwik Wash Note 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 the Series C Notes, respectively, or in the credit agreement
evidencing the Credit Facility (as amended, the "Credit Agreement"), could
result in an acceleration of all amounts due under such indentures the Credit
Agreement and the Kwik Wash Note. 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 Credit
Agreement or the indentures governing the Senior Notes or the Series C Notes,
respectively.
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.
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COINMACH CORPORATION
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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.
Date: December 5, 1997
COINMACH CORPORATION
/s/ ROBERT M. DOYLE
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Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant and as Principal
Financial Officer)
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