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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 AND
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 27, 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 AUGUST 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 hereby amends Item 2 of Part I of its Quarterly Report on Form
10-Q for the quarterly period ended June 27, 1997, as filed with the Securities
and Exchange Commission on August 11, 1997, to read in its entirety as follows:
ITEM 2. MANAGEMENTS 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. The results of operations for the three month
period ended June 27, 1997 do not take into account the National Coin
Acquisition.
GENERAL
The Company is principally engaged in the business of supplying coin-operated
laundry equipment services to multi-family housing properties in 31 states, the
District of Columbia and Mexico operating in 151 retail laundromats located
throughout Texas. The most significant revenue source is derived from its
routes, which, giving effect to the National Coin Acquisition, are currently
comprised of over 40,000 locations containing approximately 414,000 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.
The Company also owns and operates 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 laundry 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.
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNE 27, 1997 AND JUNE 28, 1996
Revenues increased by approximately 50% for the three months ended June 27,
1997, as compared to the prior year's corresponding period. The improvement in
revenues for the three month period consisted primarily of increased route
revenues resulting from internal expansion, the acquisition of the route and
laundromat business of Kwik Wash Laundries L.P. in January 1997 ("the Kwik Wash
Acquisition") and the acquisition of the route business of Reliable Holding
Corp. in April 1997 (the "Reliable Acquisition"). During the three month period
ended June 27, 1997, the Company's installed base increased by approximately
5,500 machines from internal growth (excluding the machines added from the
Reliable Acquisition) as compared to an increase of approximately 2,200 machines
during the prior year period.
Laundry operating expenses increased by approximately 48%, for three month
period ended June 27, 1997, as compared to the prior year's corresponding
period. The increase was due primarily to an increase in laundry operating
expenses related to the Kwik Wash Acquisition and the Reliable
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COINMACH CORPORATION
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Acquisition. Such increase in laundry operating expenses was offset partially
by the implementation of cost savings programs in the Company's field operations
and the consolidation of certain operating regions relating to certain
acquisitions during the prior year period.
General and administrative expenses increased by approximately $0.4 million, for
the three month period ended June 27, 1997, as compared to the prior year's
corresponding period. The increase for the period was due to various expenses
associated with (i) the implementation of the Company's acquisition strategy,
(ii) the development and implementation of procedures for the management of
investor relations, and (iii) systems development, refinement and integration,
in each case, resulting from Coinmach Laundry's recent acquisitions.
Depreciation and amortization increased by approximately 68% for the three
month period ended June 27, 1997, as compared to the prior year's corresponding
period, due primarily to the contract rights and goodwill associated with the
Kwik Wash Acquisition and the Reliable 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 $8.7 million in non-cash purchase accounting related depreciation
and amortization charges for the current year period as compared to $5.8 million
for the prior year's corresponding period.
Coinmach Laundry granted Options to certain members of management to purchase
shares of CLC Common Stock at a 15% discount to the initial offering price of
the CLC Common Stock. With respect to such options granted to its employees,
the Company will record such discount as a stock-based compensation charge over
the applicable four year vesting period. During the three months ended June 27,
1997, the Company recorded a stock-based compensation charge of approximately
$104,000 relating to such options.
As a result of the above, operating income margins were approximately 8% for the
three month period ended June 27, 1997, as compared to approximately 9%, for the
three month period ended June 28, 1996.
Interest expense, net increased by approximately 65% for the three month period
ended June 27, 1997, as compared to the prior year's corresponding period, due
primarily to interest on indebtedness under the New Credit Facility. Partially
offsetting this increase in interest expense was interest income earned on
excess cash balances generated from operations.
EBITDA (earnings before deductions for interest, income taxes, depreciation and
amortization) was approximately $22.4 million (before deduction for stock-based
compensation charges) for the three months ended June 27, 1997, as compared to
approximately $14.3 million for the corresponding period in 1996, representing
an improvement of approximately 56%. EBITDA margins improved to approximately
31% for the three months ended June 27, 1997, compared to approximately 30% for
the prior year's corresponding period. EBITDA is used by certain investors as an
indicator of a company's historical ability to service debt. Management believes
that an increase in EBITDA is an indication of the Company's improved ability to
service existing debt, to sustain potential
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COINMACH CORPORATION
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RESULT OF OPERATIONS (continued)
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 (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 attributable to
goodwill and certain stock compensation expenses).
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At June 27, 1997, the Company had outstanding long-term debt
(excluding advances from Coinmach Laundry) of approximately $386.9 million and
stockholder's equity of approximately $8.5 million.
The Company's level of indebtedness will have several important effects on its
future operations, including, but not limited to, the following: (a) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness and will not be available for other
purposes; (b) the financial covenants contained 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; (c) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (d) the Company's ability to adapt to
changes in the coin-operated laundry equipment services industry and to economic
conditions in general will be limited. At June 27, 1997, there was no amount
outstanding under the Company's revolving credit facility.
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 three months ended June 27, 1997 were approximately $60.6
million. Of such amount, the Company spent approximately $47.6 million in
acquisition and related transaction costs, including the Reliable Acquisition,
and approximately $3.9 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
of machines are not expected to be reflected in the Company's financial results
until subsequent reporting periods, depending on certain factors including the
timing of the capital expended.
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
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COINMACH CORPORATION
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 New Credit Facility and semi-annual cash
interest payments on the 11 3/4% Senior Notes due 2005 (the "Senior Notes").
Effective June 2, 1997, the Company entered into an amendment to the New 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 New 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 New 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.
Management believes that the Company's future operating activities will generate
sufficient cash flow to repay borrowings under the Senior Notes, the New 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 indenture governing the Senior Notes or in the New
Credit Facility could result in an acceleration of all amounts due under the
indenture and the New Credit Facility. 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 New
Credit Facility or the indenture governing the Senior Notes.
The Company's depreciation and amortization expenses (aggregating approximately
$16.5 million for the three months ended June 27, 1997) 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 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.
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. NCLH is the parent of NCL. In a related transaction, the
Company acquired substantially all of the assets of Whitmer, an affiliate of
NCLH, NLEC and NCL. The Company acquired the NCL Entities for an aggregate
purchase price of approximately $19.0 million in cash. The NCL Entities provide
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COINMACH CORPORATION
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
coin-operated laundry equipment services to multi-family dwellings in the states
of Ohio, Indiana, Kentucky, Michigan, West Virginia, Pennsylvania, Georgia,
Tennessee, Illinois and Florida, as well as distribute exclusive lines of
commercial coin and non-coin laundry machines and parts, and sell service
contracts. Subsequent to the acquisition of Whitmer and of the other NCL
Entities, such other entities were merged with and into the Company. The New
Credit Facility was used to fund the National Coin Acquisition.
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, successfully complete such transactions 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.
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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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