<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
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 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 0-7694
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 FEBRUARY 6, 1998, 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.
<PAGE>
COINMACH CORPORATION
INDEX
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PART I.
Financial Information Page No.
- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 26, 1997 (Unaudited) and March 28, 1997 3
Condensed Consolidated Statements of Operations (Unaudited)-
Three and Nine Months Ended December 26, 1997 and December 27,
1996 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 26, 1997 and December 27, 1996 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
PART II.
Other Information 16-17
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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 18
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COINMACH CORPORATION
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PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
December 26, 1997 March 28, 1997/1/
------------------ ------------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 16,780 $ 10,110
Receivables, net 8,003 6,894
Inventories 13,220 7,959
Prepaid expenses 4,439 3,170
Advance location payments 48,644 38,472
Property and equipment, less accumulated
depreciation of $64,638 and $42,017 133,181 112,116
Contract rights, less accumulated amortization of
$34,035 and $19,815 215,858 180,557
Goodwill, less accumulated amortization of $10,733 and
$5,574 108,199 95,771
Other assets 17,721 12,501
-------- --------
Total assets $566,045 $467,550
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $ 11,551 $ 8,946
Accrued rental payments 13,135 10,573
Accrued interest 4,059 9,712
Other accrued expenses 11,476 8,986
Due to Coinmach Laundry Corporation 63,368 22,432
Deferred income taxes 78,028 65,650
11 3/4% Senior Notes 296,655 196,655
Premium on 11 3/4% Senior Notes 9,669 --
Credit facility indebtedness 75,000 130,000
Other long-term debt 2,563 2,623
Stockholder's equity:
Common stock and capital in excess of par value 41,391 41,391
Notes receivable from management (254) (254)
Accumulated deficit (40,596) (29,164)
-------- --------
Total stockholder's equity 541 11,973
-------- --------
Total liabilities and stockholder's equity $566,045 $467,550
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
_______________
1. The March 28, 1997 Balance Sheet has been derived from the audited financial
statement as of that date.
-3-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
December 26, December 27, December 26, December 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 80,618 $ 48,759 $ 230,415 $143,205
COSTS AND EXPENSES:
Laundry operating expenses 53,840 32,886 154,150 96,482
General and administrative expenses 1,598 1,139 4,484 3,231
Depreciation and amortization 17,957 10,389 52,537 30,581
Stock-based compensation charge 358 460 820 1,920
-------- -------- --------- --------
73,753 44,874 211,991 132,214
-------- -------- --------- --------
OPERATING INCOME 6,865 3,885 18,424 10,991
INTEREST EXPENSE, NET 11,283 6,191 32,456 18,536
-------- -------- --------- --------
LOSS BEFORE INCOME TAXES (4,418) (2,306) (14,032) (7,545)
-------- -------- --------- --------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 80 100 230 250
Deferred (775) (800) (2,830) (2,550)
-------- -------- --------- --------
(695) (700) (2,600) (2,300)
-------- -------- --------- --------
NET LOSS ($3,723) ($1,606) ($11,432) ($5,245)
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COINMACH CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
December 26, December 27,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($11,432) ($5,245)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation 22,910 16,114
Amortization of advance location payments 7,566 4,767
Amortization of intangibles 22,061 9,700
Deferred income taxes (2,830) (2,550)
Stock-based compensation charge 820 1,920
Amortization of debt discount and debt issuance 463 405
Amortization of premium on 11 3/4% Senior Notes (206) --
Increase or decease in operating assets and
liabilities, net of business acquired:
(Increase) decrease in other assets (1,348) 366
Decrease (increase) in receivable net 718 (733)
Increase in inventories and prepayments (3,679) (2,225)
Increase in accounts payable 166 2,209
Decrease in accrued interest (5,653) (4,643)
Increase in accrued expenses, net (864) (770)
--------- --------
Net cash provided by operating activities 28,692 19,315
--------- --------
INVESTING ACTIVITIES:
(28,734) (19,618)
Additions to property and equipment
Advance location payments to location owners (10,257) (7,455)
Additions to net assets from acquired businesses
(net of promissory note of $2,500 in 1997) (69,026) (20,615)
--------- --------
Net cash used for investing activities (108,017) (47,688)
--------- --------
FINANCING ACTIVITIES:
Net repayments of bank and other borrowings (300) (249)
Net advances from parent 37,616 17,127
Net repayment of credit facility (55,000) --
Proceeds from issuance of 11 3/4% Senior Notes 109,875 --
Deferred debt issuance costs (5,355) (365)
Principal payments on capitalized lease obligations (841) (378)
--------- --------
Net cash provided by financing activities 85,995 16,135
--------- --------
Net increase (decrease) in cash and cash equivalents 6,670 (12,238)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 10,110 19,723
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,780 $ 7,485
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 36,500 $ 22,760
========= ========
</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 (the "Company"), a Delaware corporation, is the
leading supplier of out-sourced coin-operated laundry equipment services to
multi-family housing properties in the United States. The Company's business
involves leasing laundry rooms from building owners and property management
companies, installing and servicing the laundry equipment and collecting
revenues generated from laundry machines. Giving effect to the Sharp
Acquisition (as hereinafter defined), the Company owns and operates
approximately 440,000 coin-operated washers and dryers in approximately 43,000
multi-family housing properties on routes throughout the United States and 151
retail laundromats located throughout Texas. Coinmach Corporation is a wholly-
owned subsidiary of Coinmach Laundry Corporation, a Delaware corporation
("Coinmach Laundry"). On January 15, 1998, the Company completed the
acquisition of the route business of Apartment Laundries, Inc. ("ALI") and the
distribution business of Sharp Distributing, Inc. ("SDI") for an aggregate
purchase price of $16.2 million (the "Sharp Acquisition"). See Note 7,
"Subsequent Events." The Sharp Acquisition does not affect the results of
operations for the three and nine month periods ended December 26, 1997.
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. The interim results
presented herein are not necessarily indicative of the results to be expected
for the entire year.
In the opinion of management of the Company, these unaudited condensed
consolidated financial statements contain all adjustments of a normal recurring
nature necessary for a fair presentation of the financial statements for the
interim periods presented.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended March 28, 1997.
Certain 1996 balances have been reclassified to conform with the 1997
presentation.
3. LONG-TERM DEBT
On December 26, 1997, the Company had outstanding long-term debt consisting
of (a) approximately $296.7 million in the aggregate of Series B and Series C 11
3/4% Senior Notes due 2005 and (b) $75.0 million of term loans.
On October 8, 1997, the Company completed a private placement (the "Bond
Offering") of $100 million aggregate principal amount of its 11 3/4% Series C
Senior Notes due 2005 (the "Series C Notes") on substantially identical terms as
its outstanding Series B 11 3/4% Senior Notes due 2005 (the "Series B Notes"
and, together with the Series C Notes, the "Senior Notes"). The gross proceeds
from the Bond Offering were $109.875 million, of which $100.0 million
represented the principal amount outstanding 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 its senior financing arrangement. On December 23, 1997, the
Company commenced an offer to exchange (the "Exchange Offer") up to $296.7
million of its 11 3/4% Series D Senior Notes due 2005 for any and all of its
Series C Notes and its Series B Notes. The Exchange Offer expired
-6-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
on February 6, 1998, and as of such date the holders of 100% of the outstanding
Series B Notes and Series C Notes tendered such notes in the Exchange Offer.
The outstanding term loans were made pursuant to the senior financing
arrangement obtained by the Company in December, 1997 which, as amended and
restated (the "Amended Credit Facility"), provides $235 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility (undrawn at December 26, 1997) bearing interest at an annual rate of
LIBOR plus 1.50%; (ii) a $125 million acquisition revolving credit facility
(undrawn at December 26, 1997) bearing interest at an annual rate of LIBOR plus
1.50%; and (iii) a $75 million term loan facility (fully funded at December 26,
1997) bearing interest at an annual rate of LIBOR plus 2.00%. The working
capital revolving credit facility and the acquisition revolving credit facility
are expected to mature in six years, and the term loan facility is expected to
mature in seven years.
Indebtedness under the Amended Credit Facility is secured by all of the
Company's real and personal property. Coinmach Laundry has guaranteed the
indebtedness under the Amended Credit Facility and pledged to Bankers Trust
Company, as Collateral Agent, its interests in all of the issued and outstanding
shares of capital stock of the Company. In addition to certain terms and
provisions, events of default, and customary restrictive covenants and
agreements, the Amended Credit Facility contains covenants including, but not
limited to, a maximum leverage ratio, a minimum consolidated interest coverage
ratio, and limitations on indebtedness, capital expenditures, advances,
investments and loans, mergers and acquisitions, dividends, stock issuances and
transactions with affiliates. Also, the indentures governing the Senior Notes
and the Amended Credit Facility limit the Company's ability to pay dividends.
4. PUBLIC OFFERINGS OF COINMACH LAUNDRY
a. INITIAL PUBLIC OFFERING
On July 23, 1996, Coinmach Laundry completed its initial public offering
(the "Common Stock Offering") of 4,120,000 shares of its Class A Common Stock,
par value $.01 per share (the "CLC Common Stock"), at a price of $14.00 per
share. In August 1996, Coinmach Laundry issued an additional 63,642 shares of
CLC Common Stock in connection with the exercise of an underwriter's over-
allotment option granted in the Common Stock Offering.
Proceeds from the Common Stock Offering and from the exercise of the
underwriters' over-allotment option were approximately $54.5 million, after
underwriting discounts and commissions and before expenses. After giving effect
to the redemption of shares of Series A preferred stock of Coinmach Laundry,
proceeds from the Common Stock Offering were approximately $35.3 million, before
expenses. Part of the proceeds from the Common Stock Offering were invested in
the Company.
b. 1997 PUBLIC OFFERING
On December 19, 1997, Coinmach Laundry completed an offering (the "1997
Stock Offering") of 4,600,000 shares of CLC Common Stock at a price of $19.75
per share (including the issuance of 600,000 shares in connection with the
exercise of an underwriters' over-allotment option granted in connection
therewith). In connection with the 1997 Stock Offering, 2,665,000 shares were
sold by Coinmach Laundry and 1,935,000 shares were sold by certain stockholders
of the Company. The Company did not receive any proceeds from the sale of
shares by selling stockholders.
-7-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. PUBLIC OFFERINGS OF COINMACH LAUNDRY (Continued)
Proceeds from the 1997 Stock Offering were approximately $48.9 million,
after underwriting discounts and commissions and before expenses. Part of the
proceeds from the 1997 Stock Offering were invested in the Company.
5. RELATED PARTY TRANSACTIONS
Prior to the Common Stock Offering in July 1996, Coinmach Laundry issued,
in privately negotiated transactions, 79,029 shares of its Class B common stock
to certain members of management of the Company. The Company recorded a stock-
based compensation charge in an amount of approximately $887,000 during the
quarter ended September 27, 1996, attributable to the issuance of such stock.
In addition, in July 1996 approximately $83,000 of outstanding receivables
relating to loans to management in connection with prior purchases of Coinmach
Laundry common stock were forgiven and have been accounted for as a stock-based
compensation charge during the quarter ended September 27, 1996.
During July and September 1996, in connection with the Common Stock
Offering, Coinmach Laundry granted certain nonqualified options (the "Options")
to certain members of management (collectively, the "Option Holders") to
purchase up to 739,437 shares of CLC Common Stock at 85% of the initial offering
price of the CLC Common Stock. The Options vest in equal annual installments
(20% vest on the date of grant and the remainder vest over a four year period)
commencing on July 23, 1996, the effective date of the Common Stock Offering.
With respect to Options granted to employees of the Company, the Company will
record the difference between the exercise price and the initial offering price
of CLC Common Stock as a stock-based compensation charge over the applicable
vesting period.
On September 5, 1997, Coinmach Laundry granted certain non-qualified
options (the "1997 Options") to certain members of management to purchase up to
200,000 shares of CLC Common Stock at an exercise price of $11.90 per share.
The 1997 Options vest in equal annual installments (20% vest immediately on the
date of grant and the remainder over a four year period) commencing on September
5, 1997. The Company will record the difference between the exercise price of
the 1997 Options and the fair market value of CLC Common Stock on September 5,
1997 as a stock-based compensation charge over the applicable four year vesting
period.
For the nine months ended December 26, 1997 and December 27, 1996, the
Company recorded a stock-based compensation charge of approximately $820,000 and
$1,920,000, respectively, related to the Options and the 1997 Options.
-8-
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COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. ACQUISITIONS
On January 8, 1997, the Company acquired (the "Kwik Wash Acquisition") 100%
of the outstanding voting securities of the partners of Kwik Wash Laundries,
L.P. ("Kwik Wash") for $125 million in cash and a $15.0 million promissory note
issued by Coinmach Laundry. The Kwik Wash Acquisition enabled the Company to
provide coin-operated laundry equipment services to multi-family housing
properties in Texas, Louisiana, Arkansas and Oklahoma and to operate 150 retail
laundromats throughout Texas.
On April 23, 1997, the Company completed the acquisition and merger (the
"Reliable Acquisition") of Reliable Holding Corp. ("Reliable") and its
subsidiaries, Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V. and Automatica S.A. de C.V., with and into
the Company for $44 million in cash which was financed through borrowings under
the Amended Credit Facility (as defined). The Reliable Acquisition provided the
Company with a strong foothold in the California market and an entry into the
northern Mexican market.
On July 17, 1997, the Company acquired 100% of the outstanding voting
securities of National Coin Laundry Holding, Inc., an Ohio Corporation ("NCLH")
and National Laundry Equipment Company, an Ohio corporation ("NLEC") which is
the parent of National Coin Laundry, Inc., an Ohio corporation ("NCL") and
substantially all of the assets of Whitmer Vend-O-Mat Laundry Services, Inc., an
Indiana corporation ("Whitmer"). NCLH, NLEC, NCL and Whitmer, all of which were
under common ownership, were acquired for an aggregate purchase price of
approximately $19 million in cash (the "National Coin Acquisition") financed
through borrowings under the Amended Credit Facility. 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 Kwik Wash Acquisition, the Reliable Acquisition and the National Coin
Acquisition have been accounted for as purchases. The Company has made
preliminary allocations to fair value of the assets and liabilities assumed in
such transactions as of their respective acquisition dates.
7. SUBSEQUENT EVENTS
On January 15, 1998, the Company completed the Sharp Acquisition pursuant
to which the Company acquired substantially all the assets of ALI and SDI (both
of which were under common ownership) for $16.2 million. The Sharp Acquisition
was financed through working capital and borrowings under the Amended Credit
Facility. ALI provides coin-operated laundry equipment services for multi-
family housing units in Oklahoma, Texas, Kansas and Arkansas, and SDI sells
commercial laundry equipment and parts primarily to commercial laundromats and
large institutional customers in Oklahoma.
On January 20, 1998, the Company signed a definitive agreement to acquire
Macke Laundry Service, L.P. and substantially all of the assets of certain
related entities (the "Macke Acquisition") for approximately $214 million.
Consummation of the Macke Acquisition is subject to certain regulatory and other
approvals. The Macke Acquisition is expected to be financed with cash and
borrowings, including borrowings of up to an additional $200 million in term
loans under the Amended Credit Facility, through an expansion of the Amended
Credit Facility on substantially similar terms.
-9-
<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 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.
After giving effect to the Sharp Acquisition, the Company owns and operates
approximately 440,000 coin-operated washers and dryers in approximately 43,000
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 (approximately $2.2 million for the nine months ended December 26,
1997); (ii) operating, maintaining and servicing retail laundromats
(approximately $15.9 million for the nine months ended December 26, 1997); 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 (approximately $18.9
million for the nine months ended December 26, 1997).
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 NINE MONTH PERIODS ENDED DECEMBER 26, 1997 COMPARED TO THE THREE AND
NINE MONTH PERIODS ENDED DECEMBER 27, 1996
Revenues increased by approximately 65% and 61% for the three and nine
month periods ended December 26, 1997, respectively, as compared to the prior
year's corresponding periods. The improvement in revenues for the three and
nine 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
-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)
of Reliable Holding Corp. in April 1997 (the "Reliable Acquisition"), the
acquisition (the "National Coin Acquisition") in July 1997 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. The Company's acquisition strategy involves the
complete integration of its acquired companies. The Company estimates that
approximately $78.8 million of its revenue increase for the nine month period is
the combined result of the Kwik Wash Acquisition, the Reliable Acquisition and
the National Coin Acquisition based on the historical revenue of such acquired
companies. In addition, during such nine month period, the Company's installed
machine base increased by approximately 16,700 machines from internal growth
(excluding the machines added from the Reliable Acquisition and the National
Coin Acquisition during such period) as compared to an increase of approximately
5,400 machines during the prior year's corresponding period. Included in
internal growth are acquisitions of small, local route operators and new
customers secured by the Company's sales force.
Laundry operating expenses increased by approximately 64% and 60% for the
three and nine month periods ended December 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 $0.5 and
$1.3 million, for the three and nine month periods ended December 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 73% and 72% for
the three and nine month periods ended December 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 $28.6 million in non-cash depreciation and amortization charges
for the nine months ended December 26, 1997 as compared to $17.5 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 during the quarter ended
September 27, 1996. In addition, in July 1996 approximately $83,000 of
receivables relating to loans to management in connection with prior purchases
of Coinmach Laundry common stock were forgiven and have been recorded as a
stock-based compensation charge during the quarter ended September 27, 1996.
During July and September 1996, Coinmach Laundry granted to certain members
of management and certain other individuals nonqualified options (the "Options")
to purchase shares of Coinmach Laundry's Class A common stock, par value $0.01
per share (the "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.
-11-
<PAGE>
COINMACH CORPORATION
--------------------
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. 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 nine months ended December 26, 1997 and December 27, 1996, the
Company recorded a stock-based compensation charge of approximately $820,000 and
$1,920,000, respectively, relating to the Options and the 1997 Options.
Operating income margins were approximately 8.5% and 8.0% for the three and
nine month periods ended December 26, 1997, as compared to approximately 8.6%
and 7.2% for the three and nine month periods ended December 27, 1996,
respectively.
Interest expense, net increased by approximately 82% and 75% for the three
and nine month periods ended December 26, 1997, respectively, as compared to the
prior year's corresponding periods, due primarily to increased interest payable
under the Company's senior credit facility entered into in January 1997
resulting from increased borrowings to fund acquisitions, as well as the
increased interest due to the private placement (the "Bond Offering") by the
Company of $100 million aggregate principal amount of its 11 3/4% Series C
Senior Notes due 2005 (the "Series C Notes") on October 8, 1997.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization), before deduction for stock-based compensation charges, was
approximately $71.8 million for the nine months ended December 26, 1997, as
compared to approximately $43.5 million for the corresponding period in 1996,
representing an improvement of approximately 65%. EBITDA margins improved to
approximately 31% for the nine months ended December 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 expense).
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. On December 26, 1997, the Company had outstanding long-term debt
of approximately $374.2 million (excluding the premium on the Series C Notes)
and stockholder's equity of $0.5 million.
-12-
<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'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 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.
As the Company has focused on increasing its EBITDA, it has made
significant capital investments, primarily consisting of capital expenditures
related to acquisitions, renewal and growth. The Company anticipates that it
will continue to utilize cash flows from operations to finance its capital
expenditures and working capital needs, including interest payments on its
outstanding indebtedness. Capital expenditures for the nine months ended
December 26, 1997 were approximately $111.3 million (including a $2.5 million
promissory note in connection with the acquisition of a small route operator and
approximately $.8 million relating to capital lease obligations). Of such
amount, the Company spent approximately $66.3 million in acquisition and related
transaction costs, primarily the Reliable Acquisition and the National Coin
Acquisition, and approximately $17.8 million related to the net increase in the
installed base of machines. The balance of approximately $27.2 million 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, as
required by the Company's existing credit facility, and semi-annual cash
interest payments, as required by the Company's outstanding Series B 11 3/4%
Senior Note due 2005 (the "Series B Notes") and the Series C Notes
(collectively, the "Senior Notes").
The Company's depreciation and amortization expenses (aggregating
approximately $52.5 million for the nine months ended December 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.
On April 23, 1997, the Company completed the acquisition and merger (the
"Reliable Acquisition") of Reliable Holding Corp. ("Reliable") and its
subsidiaries, Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V. and Automatica S.A. de C.V., with and into
the Company for $44 million in cash which was financed through borrowings under
the Amended Credit Facility (as defined). The Reliable Acquisition provided the
Company with a strong foothold in the California market and an entry into the
northern Mexican market.
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 an aggregate
purchase price of approximately $19 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.
Borrowings under the Company's existing credit facility were used to finance the
National Coin Acquisition.
13
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
On October 8, 1997, the Company completed the Bond Offering of $100 million
aggregate principal amount of its Series C Notes, on substantially identical
terms as its outstanding Series B 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
principal amount outstanding 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
(including approximately $.7 million of accrued interest) under its existing
credit facility. On December 19, 1997, the Company filed an offer to exchange
(the "Exchange Offer") up to $296.7 million of its 11 3/4% Series D Senior Notes
due 2005 (the "Exchange Notes") for any and all of its Series C Notes and its
Series B Notes. The Exchange Offer expired on February 6, 1998, and as of such
date the holders of 100% of the outstanding Series B Notes and Series C Notes
tendered such notes in the Exchange Offer for Exchange Notes.
On December 19, 1997, Coinmach Laundry completed an offering (the "1997
Stock Offering") of 4,600,000 shares of CLC Common Stock at a price of $19.75
per share (including the issuance of 600,000 shares in connection with the
exercise of an underwriters' over-allotment option granted in connection
therewith). In connection with the 1997 Stock Offering, 2,665,000 shares were
sold by Coinmach Laundry and 1,935,000 shares were sold by certain stockholders
of the Company. The Company did not receive any proceeds from the sale of
shares by selling stockholders.
Proceeds from the 1997 Stock Offering were approximately $48.9 million,
after underwriting discounts and commissions and before expenses.
In December 1997, the Company entered into an amendment to its existing
credit facility with Bankers Trust Company, First Union National Bank of North
Carolina and certain other lending institutions (as amended, the "Amended Credit
Facility"). Such amended and restated facility provides $235 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility (undrawn at December 26, 1997) bearing interest at an annual rate of
LIBOR plus 1.50%; (ii) a $125 million acquisition revolving credit facility
(undrawn at December 26, 1997) bearing interest at an annual rate of LIBOR plus
1.50%; and (iii) a $75 million term loan facility (fully funded at December 26,
1997) bearing interest at an annual rate of LIBOR plus 2.00%. The working
capital revolving credit facility and the acquisition revolving credit facility
are expected to mature in six years, and the term loan facility is expected to
mature in seven years.
On January 15, 1998, the Company completed the Sharp Acquisition pursuant
to which the Company acquired substantially all the assets of ALI and SDI for
$16.2 million in cash and borrowings under the Amended Credit Facility. ALI
provides coin-operated laundry equipment services for multi-family housing units
in Oklahoma, Texas, Kansas and Arkansas, and SDI sells commercial laundry
equipment and parts primarily to commercial laundromats and large institutional
customers in Oklahoma.
On January 20, 1998, the Company signed a definitive agreement to acquire
Macke Laundry Service, L.P. and substantially all of the assets of certain
related entities (the "Macke Acquisition") for approximately $214 million.
Consummation of the Macke Acquisition is subject to certain regulatory and other
approvals. The Macke Acquisition is expected to be financed with cash and
borrowings, including borrowings of up to an additional $200 million in term
loans under the Amended Credit Facility, through an expansion of the Amended
Credit Facility on substantially similar terms. Such term loans are expected to
mature on June 30, 2005 and to be subject to the same mandatory repayment terms
and to bear interest at the rate per annum, in each case, set forth in the
Amended Credit Facility.
-14-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the Senior
Notes and the Exchange Notes and borrowings under the Amended 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 and the Exchange Notes or in the credit
agreement evidencing the Amended Credit Facility, could result in an
acceleration of all amounts due under such indentures and the Amended 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 Amended Credit Facility or the indentures
governing the Senior Notes and the Exchange Notes.
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.
-15-
<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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.58 Supply Agreement, dated as of May 13, 1997, by and among
Coinmach Corporation, Super Laundry Equipment
Corporation and Raytheon Appliances, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
During the three month period ended December 26, 1997, the
Company filed the following reports:
(1) Amendment No. 3 on Form 8-K/A to Current Report on Form
8-K, dated January 8, 1997, reporting in Items 2 and 7
thereof, the completion of the acquisition of 100% of
the outstanding voting securities of each of KWL, Inc.
and Kwik-Wash Laundries, Inc. by the Company for $125
million in cash and a $15 million promissory note issued
by CLC, together with the audited combined financial
statements of Kwik Wash Laundries, Inc. and KWL, Inc.
for the years ended December 31, 1996, 1995 and 1994,
and the unaudited pro forma combined financial
statements of Coinmach Laundry Corporation for the nine-
month period ended December 27, 1996 and for the year
ended March 29, 1996;
-16-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K (continued)
-------------------------------
(2) Current Report on Form 8-K, dated October 8, 1997,
reporting in Item 5 thereof, the consummation of a
private placement of $100,000,000 aggregate principal
amount of the Company's 11 3/4% Series C Senior Notes
due 2005; and
(3) Amendment No. 1 on Form 8-K/A to Current Report on Form
8-K, dated October 8, 1997, reporting in Items 5 and 7
thereof, the consummation of a private placement of
$100,000,000 aggregate principal amount of the Company's
11 3/4 Series C Senior Notes due 2005, together with the
audited combined financial statements of Kwik Wash
Laundries, Inc. and KWL, Inc. for the years ended
December 31, 1996, 1995 and 1994, and the unaudited pro
forma combined financial statements of Coinmach Laundry
Corporation for the nine-month period ended December 27,
1996 and for the year ended March 29, 1996.
-17-
<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.
Date: February 6, 1998
COINMACH CORPORATION
/s/ ROBERT M. DOYLE
----------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial
Officer (On behalf of registrant and as
Principal Financial Officer)
-18-
<PAGE>
EXHIBIT 10.58
SUPPLY AGREEMENT
----------------
This Supply Agreement ("Agreement") is made and entered into as of May
13th, 1997, by and among Coinmach Corporation ("Coinmach") and Super Laundry
Equipment Corporation ("Super Laundry") (Coinmach and Super Laundry being
collectively referred to herein as "Buyer"), and Raytheon Appliances, Inc., a
Delaware corporation ("Seller").
WITNESSETH
----------
WHEREAS, Buyer is in the business of providing vended and non-vended
laundry equipment services for multi-family housing units, and is also a
distributor of laundromat equipment and turnkey laundromat stores; and
WHEREAS, Buyer wishes to assure itself of an ongoing business
relationship with Seller beneficial to Buyer in terms of assuring that Buyer has
access in sufficient quantities to the Seller's latest products and technology
in the Buyer's business, and other complementary benefits; and
WHEREAS, SAS Acquisitions, Inc. ("SAS") and Solon Automated Services,
Inc. ("Solon"; SAS and Solon are each a predecessor-in-interest to Coinmach
Corporation) previously entered into a Supply Agreement with Speed Queen Company
(a predecessor-in-interest to Seller), dated as of July 26, 1995 (the "Existing
Supply Agreement"), in which it was anticipated that Coinmach Corporation and
certain of its subsidiaries could, in the future, become entitled to the
benefits accruing to SAS as a "Buyer" under the Existing Supply Agreement; and
WHEREAS, Coinmach Corporation has subsequently succeeded to the rights
and interests of SAS and Solon under the Existing Supply Agreement, and has,
either directly or through its affiliated entities which are also parties to
this Agreement, consummated a series of substantial acquisitions which have
materially increased the laundry equipment purchasing requirements of Buyer
hereunder from the purchasing requirements which were applicable at the time the
Existing Supply Agreement was entered into; and
WHEREAS, Buyer and Seller hereunder now desire to enter into this
Agreement, pursuant to which Buyer will purchase its requirements of the
Products (as defined herein) from Seller, in replacement of the Existing Supply
Agreement, in order to extend the term of the relationship between Buyer and
Seller, to put into effect the current pricing structure as reflected on
Exhibits A and B attached hereto (taking into account the present volume
requirements, and reflecting appropriate current volume discounts, applicable to
Buyer's current operations), and to include certain existing affiliates of
Coinmach Corporation directly as Buyer under this Agreement.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1
<PAGE>
1. Requirements Contract - For the term hereof (as defined in Section
---------------------
10), so long as Seller is a manufacturer of the Products defined in Section 2
herein and so long as Buyer leases and/or operates premises on which one or more
coin-operated or card-operated washing machines and/or dryers are located;
and/or is an authorized distributor for Seller's Products in one or more
territories, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, Buyer's requirements of Products on the terms and conditions contained
herein. In the event Buyer wishes to lease Products, Buyer further agrees to
specify to the lessor that such Products must be purchased from Seller.
2. Definition of Products - For purposes of this Agreement, the parties
----------------------
agree that the following are the defined "Products" referenced in this
Agreement;
a. All coin-operated or card-operated washing machines and front
load washers;
b. All coin-operated or card-operated dryers, stacked dryers, and
tumbler dryers;
c. All new replacement and new repair parts for any and all of
Seller's coin-operated or card-operated washing machines,
dryers, frontload washers, stacked dryers and tumbler dryers
owned by, leased to or serviced by Buyer.
3. Price - The current prices to be charged Buyer for the current
-----
formulations of the Speed Queen branded products are those set forth in Exhibit
A and Huebsch branded products are those set forth in Exhibit B attached hereto
and by this reference made a part hereof. The current prices to be charged
Buyer for replacement and repair parts are those set forth in Seller's published
parts price lists stated as either a net price or a suggested list price;
however, if such price is listed as a suggested list price, Buyer shall be
charged suggested list price less a 55% discount.
The prices set forth in Exhibit A are stated as a net price and are FOB
shipping point for tumblers and washer extractors; and freight prepaid on
washers, dryers and stack dryers.
The prices set forth in Exhibit B will be subject to Seller's Commercial
Laundry Volume Rebate Program, attached hereto and by this reference made a part
of Exhibit B; provided, however, Buyer's net purchases of serial numbered Speed
Queen branded equipment and serial numbered Huebsch branded equipment will be
combined for determining the percent (%) rebate, to be applied to Buyer's net
purchases of Huebsch branded equipment, to determine the rebate amount to be
paid quarterly by Seller to Buyer within thirty days following the end of each
rebated period, which shall be the calendar quarters ended March, June,
September and December. The rebate percent to be used to determine the amount
paid for the first three quarters shall be based on Buyer's annualized net
purchases of equipment for the quarter which will be calculated by taking
Buyer's net purchases of equipment for the quarter times four (4). The rebate
paid for the fourth quarter ended December, will reflect any adjustments
necessary (either up or down) to reflect rebates earned on an annual basis. The
prices set forth in Exhibit B are
2
<PAGE>
stated on a FOB shipping point basis, except Seller will prepay freight on
orders of 42 or more units of Seller's washers and dryers (21 or more for
stacked dryers) for shipments within the continental United States. Further,
Seller agrees to establish a Merchandising Fund for Huebsch branded equipment
invoiced which Buyer may present claims for reimbursement by Seller subject to
the Merchandising Fund Policy as set forth in Exhibit C.
Seller reserves the right to select the carrier and shipping point for
Products. Payment terms shall be ninety (90) days from date of invoice;
provided, however, that Seller retains the right to adjust payment terms in the
event that Buyer fails to maintain its timeliness of payment in all material
respects.
4. Rights with Respect to Future Prices - Seller shall have the right
------------------------------------
to change the prices charged Buyer for Products upon sixty (60) days prior
written notice. The percentage increases in prices by Seller shall not exceed
the percentage price increases which are implemented with respect to Seller's
other route customers as documented by Seller's published manufacturer's list
prices. In any event, increases in price by Seller shall not exceed three
percent (3%) annually, for the first three years this Agreement is in effect.
5. Competitive Product - In consideration of Seller's agreement to
-------------------
provide significant volume-based discount pricing, Buyer agrees to purchase at
least 80% of its needed Products from Seller during the term of the Agreement.
In addition, if (a) Seller is unable to deliver Products which Buyer has ordered
within forty-five (45) days of the date such Products would be shipped in the
ordinary course of Seller's business, and (b) such order is in an amount
customarily ordered by Buyer, Buyer has the right to instead purchase a like
number of pieces of equipment of comparable grade and quality from Seller's
competitors.
6. Technical Support - Seller will commit resources to work directly
-----------------
with Buyer on projects mutually beneficial to both parties, including but not
limited to audit control, electronic display, card-actuated washers and dryers
and stacked frontload washer/dryer combinations. This is required by Buyer to
ensure timely response to competitive new product developments and to allow
Buyer to be more competitive by offering more efficient customer friendly
laundry equipment services.
7. Product Reliability - Buyer will share with Seller service history
-------------------
and product reliability data which is readily available to Buyer concerning the
performance of Seller's products.
8. Warranty - All Products sold to Buyer shall be sold to Buyer with
--------
Seller's standard commercial limited parts warranties, unless otherwise
specified by Seller and mutually agreed to by Buyer in advance of any sales;
except, however, the Speed Queen branded Washers, Dryers and Stack Dryers
shipped by Seller to Buyer on or after January 27, 1997 shall be sold to Buyer
without warranty; provided, however, that Seller shall reimburse Buyer for any
cost of material (but not labor) incurred by Buyer which is attributable to
Seller's verified "Epidemic Failure" of component parts. An "Epidemic Failure"
of a component part occurs when there is in excess of a 10% failure rate for the
proceeding twelve (12) months for that component.
3
<PAGE>
9. Default and Arbitration - Each of the following shall constitute an
-----------------------
Event of Default under this Agreement:
A. Default in the payment when due of any amount owed to either
Party by the other under this Agreement, if such failure continues for a period
of thirty days after payment was due;
B. Default in the obligation to obtain all Products from Seller in
the manner set forth in Sections 1, 2 and 5; and
C. Default in any of Seller's obligations to Buyer hereunder.
Upon the occurrence and continuation of an Event of Default hereunder,
Seller shall have the right to commence appropriate proceedings in any state or
federal court located in Fond du Lac, Wisconsin, Buyer hereby agreeing that it
irrevocably submits to the jurisdiction of such court and waives, to the fullest
extent such party may effectively do so, the defense of an inconvenient forum to
the maintenance of any such action or proceeding. The foregoing
notwithstanding, if there is a dispute arising out of any of the other terms of
this Agreement, such dispute shall be immediately submitted to arbitration in
Chicago, Illinois, by a retired judge provided by the Judicial Arbitration and
Mediation Service in accordance of the commercial rules then in effect of the
American Arbitration Association, and any award of such arbitration shall be
final and binding upon the parties.
10. Term - The initial term of this Agreement shall be three (3) years,
----
commencing on the date hereof and ending on May 31, 2000. This Agreement shall
thereafter be automatically renewed for one (1) year terms (to December 31 of
each year) until one party gives a written notice of non-renewal to the other
party at least six (6) months prior to the termination date of any term or
renewal term of this Agreement; provided, however, that this Agreement may be
terminated at Buyer's option by providing Seller written Notice within thirty
(30) days following the occurrence of a Change of Control (hereinafter defined)
affecting Seller. For purposes of this Agreement, a Change of Control regarding
Seller shall be deemed to have occurred if all or substantially all of either
the assets of Seller or a majority of the issued and outstanding capital stock
representing the ownership interest in Seller is sold, transferred, or otherwise
disposed of to any person; provided, however, that no Change of Control shall be
deemed to have occurred if the person acquiring the stock or assets in Seller is
either (1) in a manner similar to Seller, also an affiliate of Raytheon Company
or (2) a non-North American manufacturer of appliances (whether or not such
appliances include laundry equipment), or controls, is controlled by, or is
commonly controlled with a non-North American manufacturer of appliances, and
which entity has a net worth, determined in accordance with generally accepted
accounting principles, of at least $250,000,000.
11. Notice - Except as otherwise provided herein, any notice required
------
hereunder shall be in writing and shall be deemed to have been validly served,
given, or delivered upon (a) deposit in the United States certified or
registered mails, with proper postage prepaid, (b) deposit with a reputable
overnight courier with all charges prepaid, or (c) delivery, if hand-delivered
by messenger, all of which must be properly addressed to the party to be
notified as follows:
4
<PAGE>
a. If to Seller at: Attn: President
Raytheon Appliances Commercial Laundry
Shepard Street
P.O. Box 990
Ripon, WI 54971-0990
with a copy to: Attn: Vice President Sales and Marketing
Raytheon Appliances Commerical Laundry
Shepard Street
P.O. Box 990
Ripon, WI 54971-0990
b. If to Buyer at: Coinmach Laundry Corporation
55 Lumber Road
Roslyn, New York 11576
Attn: Mr. Robert M. Doyle
with a copy to: Anderson, Kill & Olick , P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attn: Ronald S. Brody, Esq.
or to such other address as each party may designate for itself by like notice.
13. Choice of Law - This Agreement shall be governed by the laws of
-------------
the State of Wisconsin.
14. Successors and Assigns - This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors,
legal representatives, and assigns.
15. Counterparts Clause: Telecopy Execution - This Agreement may
---------------------------------------
be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile
shall also deliver a manually executed counterpart of this Agreement, but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
16. Future Acquisitions - Buyer may, in the future, acquire other
-------------------
route businesses from independent operators and operate such either under a new
wholly-owned subsidiary (if such acquisition is structured as a stock purchase
with the acquired corporation not thereafter being merged into one of the
entities comprising Buyer) or under one of Buyer's existing operating entities
(if such acquisition is structured as an asset purchase). In the event that
Buyer consummates any such future acquisitions, Buyer or its applicable
subsidiary shall remain entitled to the same benefits hereunder as if such
person were a party, as an additional
5
<PAGE>
"Buyer," to this Agreement, and in the event any such acquisition is structured
as a stock purchase, resulting in a new wholly-owned or controlled subsidiary of
Buyer, Buyer shall cause such new subsidiary to execute an agreement, in form
and substance satisfactory to Seller, adopting the terms of this Agreement as a
"Buyer" hereunder and agreeing to be bound by all the terms and provisions
hereof; provided, however, that until such time as such new subsidiary has
adopted this Agreement, Buyer shall cause such new subsidiary to abide and be
bound by the terms hereof in the same manner as if such new subsidiary were a
party hereto. However, in the event of a stock purchase in which Buyer's new
subsidiary is already a party to a non-cancellable Supply Agreement, Buyer is
not bound to cause such new subsidiary to execute an agreement adopting the
terms of this Agreement. In the event that Buyer consummates one or more
acquisitions which result, in the aggregate, in a twenty five percent (25%)
increase in Buyer's annual purchasing requirements, as measured by Buyer's and
Kwik Wash Laundries L.P.'s (Kwik Wash Laundries, L.P. was acquired by Coinmach
Laundry Corporation, Buyers parent company, during the first quarter of 1997 and
was subsequently merged into Coinmach) 1996 combined purchases which shall be
deemed the base amount for determining whether Buyer's annual purchases have
increased by twenty five percent (25%), Buyer and Seller shall mutually agree to
reconsider whether the specific pricing established by Exhibit A and B attached
hereto continues to be appropriate in light of Buyer's expanded operations.
17. Complete Agreement - This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith (i) embody the
complete agreement and understanding among the parties, and (ii) supersede and
preempt any prior summaries of terms and conditions, understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
BUYER: SELLER:
COINMACH CORPORATION, RAYTHEON APPLIANCES, INC.,
a Delaware corporation a Delaware corporation
/s/ STEPHEN R. KERRIGAN /s/ THOMAS L'ESPERANCE
By:___________________________ By:_____________________________
Chief Executive Officer PRESIDENT
Title:________________________ Title:__________________________
SUPER LAUNDRY EQUIPMENT CORPORATION,
a New York corporation
/s/ STEPHEN R. KERRIGAN
By:___________________________
Chief Executive Officer
Title:________________________
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
<S> <C> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-27-1998 MAR-27-1998
<PERIOD-START> SEP-27-1997 MAR-29-1997
<PERIOD-END> DEC-26-1997 DEC-26-1997
<CASH> 16780 16780
<SECURITIES> 0 0
<RECEIVABLES> 8003 8003
<ALLOWANCES> 0 0
<INVENTORY> 13220 13220
<CURRENT-ASSETS> 0 0
<PP&E> 197819 197819
<DEPRECIATION> 64638 64638
<TOTAL-ASSETS> 566045 566045<F1>
<CURRENT-LIABILITIES> 0 0
<BONDS> 381324 381324<F2>
0 0
0 0
<COMMON> 41391 41391
<OTHER-SE> (40596) (40596)
<TOTAL-LIABILITY-AND-EQUITY> 566045 566045<F3>
<SALES> 0 0
<TOTAL-REVENUES> 80618 230415
<CGS> 0 0
<TOTAL-COSTS> 53840 154150
<OTHER-EXPENSES> 19913 57841<F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11283 32456
<INCOME-PRETAX> (4418) (14032)
<INCOME-TAX> (695) (2600)<F5>
<INCOME-CONTINUING> (3723) (11432)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3723) (11432)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>1. TOTAL ASSETS:
Includes Advance Location Payments of $48,644, Contract Rights of $215,858, and
Goodwill of $108,199 each net of accumulated amortization, at December 26,
1997.
<F2>2. BONDS:
Includes $296,655 of $11 3/4% senior notes and the premium on the 11 3/4%
senior notes of $9,669, as well as debt outstanding under a credit facility of
$75,000 at December 26, 1997.
<F3>3. TOTAL LIABILITIES:
Includes Accrued Rental Payments of $13,135 and Accrued Interest of $4,059, at
December 26, 1997.
<F4>4. OTHER EXPENSES:
Other Expenses include stock based compensation charges of $820 for the nine
months ended December 26, 1997.
<F5>5. INCOME TAX:
The provision (benefit) for income taxes consists of $230 currently payable and
($2,830) deffered for the nine months ended December 26, 1997.
</FN>
</TABLE>
