<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the period ended September 30, 1998
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 .
--- --
As of the close of business on November 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.
<TABLE>
<CAPTION>
Financial Information Page No.
- --------------------- --------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1998 (Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited)-
Three and Six Months Ended September 30, 1998 and September 26, 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three and Six Months Ended September 30, 1998 and September 26, 1997 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
PART II.
Other Information
- -----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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</TABLE>
-2-
<PAGE>
COINMACH CORPORATION
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998/1/
------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 24,805 $ 22,451
Receivables, net 8,264 7,750
Inventories 16,988 13,430
Prepaid expenses 5,628 6,254
Advance location payments 77,693 74,026
Land, property and equipment, less accumulated
depreciation of $97,880 and $72,234 218,334 194,328
Contract rights, less accumulated amortization of
$54,403 and $39,923 418,349 366,762
Goodwill, less accumulated amortization of $16,364
and $12,530 112,558 110,424
Other assets 20,784 20,807
-------- --------
Total assets $903,403 $816,232
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $ 19,146 $ 17,128
Accrued rental payments 26,861 20,977
Accrued interest 14,303 13,993
Other accrued expenses 13,059 15,220
Due to Coinmach Laundry Corporation 63,608 64,039
Deferred income taxes 83,158 79,511
11-3/4% Senior Notes 296,655 296,655
Premium on 11-3/4% Senior Notes, net 8,641 9,258
Credit facility indebtedness 381,861 296,267
Other long-term debt 5,159 5,778
Stockholder's equity:
Common stock and capital in excess of par value 41,391 41,391
Notes receivable from management (85) (169)
Accumulated deficit (50,354) (43,816)
-------- --------
Total stockholder's equity (9,048) (2,594)
-------- --------
Total liabilities and stockholder's equity $903,403 $816,232
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- ----------
1. The March 31, 1998 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 Six Months Ended
------------------ ----------------
September 30, September 26, September 30, September 26,
1998 1997 1998 1997
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES $124,975 $77,702 $242,909 $149,797
COSTS AND EXPENSES:
Laundry operating expenses 82,155 52,074 159,723 100,310
General and administrative
expenses 1,940 1,423 3,911 2,886
Depreciation and amortization 28,250 18,105 55,093 34,580
Stock-based compensation
charge 361 358 564 462
-------- ------- -------- --------
112,706 71,960 219,291 138,238
-------- ------- -------- --------
OPERATING INCOME 12,269 5,742 23,618 11,559
INTEREST EXPENSE, NET 16,844 11,083 32,387 21,173
-------- ------- -------- --------
LOSS BEFORE INCOME TAXES (4,575) (5,341) (8,769) (9,614)
-------- ------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 139 100 246 150
Deferred (1,222) (1,205) (2,477) (2,055)
-------- ------- -------- --------
(1,083) (1,105) (2,231) (1,905)
-------- ------- -------- --------
NET LOSS $ (3,492) $(4,236) $ (6,538) $ (7,709)
======== ======= ======== ========
</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>
Six Months Ended
-----------------------------------
September 30, September 26,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,538) $ (7,709)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 25,210 14,858
Amortization of advance location payments 9,919 5,067
Amortization of intangibles 19,964 14,655
Deferred income taxes (2,477) (2,055)
Stock-based compensation charge 564 462
Amortization of debt discount and deferred issuance costs 761 305
Amortization of premium on 11-3/4% Senior Notes (617) --
Change in operating assets and liabilities,
net of business acquired:
Other assets (664) (1,182)
Receivables, net 90 88
Inventories and prepaid expenses (947) (2,204)
Accounts payable 365 (1,498)
Accrued interest 310 1,159
Increase in accrued expenses, net 2,497 412
--------- --------
Net cash provided by operating activities 48,437 22,358
--------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (32,842) (21,337)
Advance location payments to location owners (10,229) (6,660)
Additions to net assets related to acquisitions of businesses (86,123) (63,903)
--------- --------
Net cash used for investing activities (129,194) (91,900)
--------- --------
FINANCING ACTIVITIES:
Net repayments of bank and other borrowings (326) (262)
Net advances from (to) parent (703) 4,181
Deferred debt issuance costs (227) (900)
Proceeds from credit facility, net 85,594 73,250
Principal payments on capitalized lease obligations (1,227) (488)
--------- --------
Net cash provided by financing activities 83,111 75,781
--------- --------
Net increase in cash and cash equivalents 2,354 6,239
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,451 10,110
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,805 $ 16,349
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 32,682 $ 19,628
========= ========
</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 outsourced laundry equipment services to multi-family
housing properties throughout the United States. The Company's core 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. The Company owns and operates
approximately 753,000 washers and dryers in approximately 75,000 locations on
routes throughout the United States and in 150 retail laundromats located
throughout Texas. Coinmach Corporation is a wholly-owned subsidiary of Coinmach
Laundry Corporation, a Delaware corporation ("Coinmach Laundry").
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in conformity with generally accepted accounting
principles ("GAAP") for interim financial reporting and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, such
financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements. GAAP requires the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates. 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 31, 1998.
Certain prior year's balances have been reclassified to conform with the
1998 presentation.
3. COMPREHENSIVE INCOME
On April 1, 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS No. 130 had no impact on the Company's net loss or stockholders' equity.
The Company does not have any elements of comprehensive income which would be
required to be included in its financial statements.
-6-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. LONG-TERM DEBT
At September 30, 1998, the Company had outstanding long-term debt
consisting of (a) approximately $296.7 million of 11 3/4% Senior Notes due 2005
(the "Senior Notes") and (b) $273.3 million of term loans and approximately
$108.6 million of a revolving line of credit under the Amended and Restated
Credit Facility. Indebtedness under the Amended and Restated Credit Facility is
secured by all of the Company's real and personal property. Coinmach Laundry
has guaranteed the indebtedness under the Amended and Restated 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 and Restated 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
indenture governing the Senior Notes and the Amended and Restated Credit
Facility limit the Company's ability to pay dividends.
5. RELATED PARTY TRANSACTIONS
During July and September 1996, in connection with the initial public
offering (the "Initial Offering") by Coinmach Laundry of its Class A Common
Stock, par value $.01 per share (the "CLC Common Stock"), Coinmach Laundry
granted certain non-qualified stock options (the "1996 Options") to certain
members of management to purchase up to 739,437 shares of CLC Common Stock at
85% of the initial offering price of the CLC Common Stock. The 1996 Options
vest in equal annual installments (20% vest on the date of grant and the
remainder over a four year period) commencing on July 23, 1996, the effective
date of the Initial Offering. With respect to 1996 Options granted to employees
of the Company, the Company records 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 stock
options (the "1997 Options") to certain members of management to purchase up to
200,000 shares of Common Stock at an exercise price of $11.90 per share of CLC
Common Stock. The 1997 Options vest in equal annual installments (20% vest
immediately on the date of grant and the remainder vest over a four year period)
commencing on September 5, 1997. The Company records 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.
On May 4, 1998, the Company granted to certain employees 248,500 non-
qualified stock options pursuant to the Stock Option Plan and 31,244 non-
qualified stock options to a director of the Company at an exercise price of
$22.30938 per share. Such options vest in equal annual installments (20% vest
immediately on June 10, 1998 and the remainder vest over a four year period).
The Company records the difference between the exercise price of such options
and the fair market value
-7-
<PAGE>
COINMACH CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
of the Common Stock on May 4, 1998 as a stock-based compensation charge over the
applicable four year vesting period.
For the six months ended September 30, 1998 and September 26, 1997, the
Company has recorded a stock-based compensation charge of approximately $564,000
and $462,000, respectively, related to the options described above.
6. ACQUISITIONS - 1998
On May 19, 1998, the Company completed the acquisition (the "Cleanco
Acquisition") of Cleanco, Inc. and certain of its affiliates ("Cleanco") for a
cash purchase price of approximately $23.0 million (excluding transaction
expenses), financed with cash and borrowings under the Amended and Restated
Credit Facility. Cleanco, headquartered in Miami, Florida, was a leading
provider of outsourced laundry equipment services in southern Florida. The
Cleanco Acquisition added approximately 21,000 machines to the Company's
installed base.
On June 5, 1998, the Company completed the acquisition (the "G&T
Acquisition") of Gordon & Thomas Companies, Inc. ("G&T") for a cash purchase
price of approximately $58 million, excluding transaction expenses and the
assumption of certain liabilities. This transaction was financed with cash and
borrowings under the Amended and Restated Credit Facility. G&T, headquartered
in New Jersey, was a leading provider of outsourced laundry equipment services
in the New York metropolitan area. The G&T Acquisition strengthened the
Company's presence in the northeastern United States by adding approximately
36,000 machines to the Company's installed base.
-8-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as other risks set forth in the Company's Annual Report on Form 10-K for
the year ended March 31, 1998.
GENERAL
The Company is principally engaged in the business of supplying outsourced
laundry equipment services to multi-family housing properties. The Company owns
and operates approximately 753,000 washers and dryers in approximately 75,000
multi-family housing properties on routes throughout the United States and 150
retail laundromats located throughout Texas.
The Company provides outsourced 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 the equipment distribution
business 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 location 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, individuals, property owners and managers of multi-family
housing properties (approximately $5.2 million and $1.5 million for the six
months ended September 30, 1998 and September 26, 1997, respectively; (ii)
operating, maintaining and servicing retail laundromats (approximately $9.4
million and $10.5 million for the six months ended September 30, 1998 and
September 26, 1997, respectively); 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 $14.5 million and $12.4 million for the
six months ended September 30, 1998 and September 26, 1997, respectively.)
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 31, 1998.
-9-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 26, 1997
Revenues increased by approximately 61% and 62% for the three and six
months ended September 30, 1998, as compared to the prior year's corresponding
periods. This improvement in revenues resulted primarily from the Company's
execution of its acquisition strategy and increased route revenues resulting
from internal expansion. Based on the historical revenues of acquired
businesses, the Company estimates that approximately $84.2 million of its
revenue increase for the current six month period is primarily due to the
National Coin Acquisition (as defined) in July 1997, the ALI Acquisition (as
defined) in January 1998, the Macke Acquisition (as defined) in March 1998, the
Cleanco Acquisition in May 1998 and the G&T Acquisition in June 1998. In
addition, during the current three month period, the Company's installed machine
base increased by approximately 15,600 machines from internal growth (excluding
the machines added from the Cleanco Acquisition and the G&T Acquisition during
such period) as compared to an increase of approximately 9,400 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 58% and 59% for three
and six month periods ended September 30, 1998, as compared to the prior year's
corresponding periods. This increase was due basically to an increase in
laundry operating expenses, primarily commission expense, related to the
National Coin Acquisition, the ALI Acquisition, the Macke Acquisition, the
Cleanco Acquisition and the G&T Acquisition.
General and administrative expenses increased by approximately $0.5 million
and $1.0 million for the three and six month periods ended September 30, 1998,
as compared to the prior year's corresponding periods. The increase for the
period was due to various expenses associated with (i) costs and expenses
relating to the Company's acquisition strategy, including systems development
and refinement relating to the integration of prior acquisitions, and (ii)
additional expenses, such as accounting, management information systems and
other administrative functions related to the Company's growth. However, as a
percentage of revenues, general and administrative expenses were 1.6% for both
the three and six month periods ended September 30, 1998 as compared to 1.8% and
1.9% for the prior year's corresponding periods.
Depreciation and amortization expenses increased by approximately 56% and
59% for the three and six month periods ended September 30, 1998, as compared to
the prior year's corresponding periods, due primarily to the contract rights and
goodwill associated with the above-mentioned acquisitions, as well as an
increase in capital expenditures with respect to the Company's installed base of
machines.
During 1996 and 1997, Coinmach Laundry granted to certain members of
management of the Company and certain other individuals non-qualified stock
options to purchase shares of CLC
-10-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (CONTINUED)
Common Stock at an exercise price of $11.90. With respect to such options
granted to its employees, the Company records such discount as a stock-based
compensation charge over the applicable four year vesting period. On May 4,
1998, the Company granted to certain employees 248,500 non-qualified stock
options pursuant to the Stock Option Plan at an exercise price of $22.30938 per
share.
Such options vest in equal annual installments (20% vest immediately on June 10,
1998 and the remainder vest over a four year period). The Company records the
difference between the exercise price of such options and the fair market value
of the Common Stock on May 4, 1998 as a stock-based compensation charge over the
applicable four year vesting period. During the six months ended September 30,
1998 and September 26, 1997, the Company recorded a stock-based compensation
charge of approximately $564,000 and $462,000, respectively, relating to such
options.
Operating income margins were approximately 9.8% and 9.7% for the three and
six month periods ended September 30, 1998, as compared to approximately 7.4%
and 7.7%, for the three and six month periods ended September 26, 1997.
Interest expense, net, increased by approximately 52% and 53% for the three
and six month periods ended September 30, 1998, as compared to the prior year's
corresponding periods, due primarily to increased borrowing levels under the
Amended and Restated Credit Facility in connection with certain acquisitions, as
well as increased interest expense due to the offering by the Company of $100
million aggregate principal amount of 11 3/4 Series C Senior Notes due 2005 (the
"Series C Notes") in October 1997.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization), before deduction for stock-based compensation charges was
approximately $79.3 million for the six months ended September 30, 1998, as
compared to approximately $46.6 million for the corresponding period in 1997,
representing an improvement of approximately 70%. EBITDA margins improved to
approximately 32.6% for the six months ended September 30, 1998, compared to
approximately 31.1% 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
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.
-11-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At September 30, 1998, the Company had outstanding long-term debt
(excluding the premium on the Series C Notes) of approximately $683.7 million
and stockholder's deficit of approximately $9.0 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; (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 may 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 outsourced laundry equipment
services industry and to economic conditions in general will be limited.
As the Company has focused on increasing its cash flow from operating
activities, 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 six
months ended September 30, 1998, were approximately $129.2 million. Of such
amount, the Company spent approximately $86.1 million in acquisition and related
transaction costs, primarily due to the Cleanco Acquisition and the G&T
Acquisition, and approximately $14.3 million related to the net increase in the
installed base of machines of approximately 15,600 machines. The balance of
approximately $28.8 million (which consists of machine expenditures, advance
location payments and laundry room improvements) was used to maintain the
existing machine base in current locations and through replacement of
discontinued locations and for general corporate purposes. The full impact on
revenues and cash flow 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
certain factors, including the timing of the capital expended. While the
Company estimates that it will generate sufficient cash flows from operations to
finance anticipated capital expenditures, there can be no assurances that it
will be able to do so.
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 Amended and Restated Credit Facility and semi-annual cash
interest payments on its 11 3/4% Senior Notes due 2005.
-12-
<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 borrowings under the Amended and Restated Credit Facility or to permit
any necessary refinancings thereof. An inability of the Company, however, to
comply with covenants or other conditions under the Amended and Restated Credit
Facility or contained in the indenture governing the Senior Notes could result
in an acceleration of all amounts due thereunder. If the Company is unable to
meet its debt service obligations, it could be required to take certain actions
such as reducing or delaying capital expenditures, selling assets, refinancing
or restructuring its indebtedness, selling additional equity capital or other
actions. There is no assurance that any of such actions could be effected on
commercially reasonable terms, if at all, or on terms permitted under the
Amended and Restated Credit Facility or the indentures governing the Senior
Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $55.1 million for the six months ended September 30, 1998) have
the effect of reducing net income but not operating cash flow. In accordance
with GAAP, a significant amount of the purchase price of businesses acquired by
the Company is allocated to "contract rights", which costs are amortized over
periods of 15 years.
Summary of Recent Acquisitions
On July 17, 1997, Coinmach completed the acquisition of National Laundry
Equipment Company, Whitmer Vend-O-Mat Laundry Services, Inc. and certain other
related parties (the "National Coin Acquisition") for an aggregate purchase
price of approximately $19 million, excluding transaction expenses. The
National Coin Acquisition, which was financed through borrowings under the
Company's then existing credit facility, enabled the Company to further expand
its operations by providing 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.
On January 15, 1998, Coinmach completed the acquisition of the route
business of Apartment Laundries, Inc. ("ALI") pursuant to which Coinmach
acquired substantially all the assets of ALI for a cash purchase price of $16.2
million, excluding transaction expenses (the "ALI Acquisition"). The ALI
Acquisition was financed through working capital and borrowings under the
Company's then existing credit facility. ALI provided outsourced laundry
equipment services for multi-family housing units in Oklahoma, Texas, Kansas and
Arkansas.
On March 2, 1998, Coinmach completed the acquisition of Macke Laundry
Service, L.P. and substantially all of the assets of certain related entities
(collectively, "Macke") for a cash purchase price of approximately $213 million,
excluding transaction expenses (the "Macke Acquisition"). The Macke Acquisition
was financed with cash and borrowings under the Amended and Restated Credit
Facility, which was amended and restated in connection with such acquisition to
provide for additional
-13-
<PAGE>
COINMACH CORPORATION
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
borrowing capacity on substantially similar terms. The Macke Acquisition
enabled the Company to further expand its route operations by providing
outsourced laundry equipment services to multi-family housing properties
throughout the United States and added approximately 236,000 machines to the
Company's base.
On May 19, 1998, Coinmach completed the Cleanco Acquisition. The Cleanco
Acquisition was financed with cash and borrowings under the Amended and
Restated Credit Facility. Cleanco, headquartered in Miami, Florida, was a
leading provider of outsourced laundry equipment services in southern Florida.
The Cleanco Acquisition added approximately 21,000 machines to the Company's
installed base.
On June 5, 1998, Coinmach completed the G&T Acquisition which was financed
with cash and borrowings under the Amended and Restated Credit Facility. G&T,
headquartered in New Jersey, was a leading provider of outsourced laundry
equipment services in the New York metropolitan area. The G&T Acquisition
strengthened the Company's presence in the northeastern United States by adding
approximately 36,000 machines to the Company's installed base.
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 does not exhibit material seasonality fluctuations.
-14-
<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
--------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference from exhibit 3.1 to the
Company's Form 10-K for the transition period from
September 30, 1995 to March 29, 1996, file number 0-
7694)
3.2 Bylaws of the Company (incorporated by reference from
exhibit 3.2 to the Company's Form 10-K for the
transition period from September 30, 1995 to March 29,
1996, file number 0-7694)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
-15-
<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: November 13, 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)
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> APR-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 24,805 0
<SECURITIES> 0 0
<RECEIVABLES> 8,264 0
<ALLOWANCES> 0 0
<INVENTORY> 16,988 0
<CURRENT-ASSETS> 0 0
<PP&E> 316,214 0
<DEPRECIATION> (97,880) 0
<TOTAL-ASSETS> 903,403<F1> 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 683,675<F2> 0
0 0
0 0
<COMMON> 41,391 0
<OTHER-SE> (50,439) 0
<TOTAL-LIABILITY-AND-EQUITY> 903,403<F3> 0
<SALES> 0 0
<TOTAL-REVENUES> 242,909 124,975
<CGS> 0 0
<TOTAL-COSTS> 159,723 82,155
<OTHER-EXPENSES> 59,568<F4> 30,551
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,387 16,844
<INCOME-PRETAX> (8,769) (4,575)
<INCOME-TAX> (2,231)<F5> (1,083)
<INCOME-CONTINUING> (6,538) (3,492)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,538)<F6> (3,492)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>1. Total Assets:
Includes Advance Rental Payments of $77,693, Contract Rights of $418,349, and
Goodwill of $112,558, each net of accumulated amortization, at September 30,
1998.
<F2>2. Bonds:
Includes $296,655 of 11 3/4% senior notes, as well as debt outstanding under a
credit facility of $381,861 at September 30, 1998.
<F3>3. Total Liabilities:
Includes Accrued Rental Payments of $26,861 and Accrued Interest of $14,303, at
September 30, 1998.
<F4>4. Other Expenses:
Includes stock based compensation charges of $361 and $564 for the quarter and
six months ended September 30, 1998.
<F5>5. Income Tax:
The provision (benefit) for income taxes consists of $139 and $246 currently
payable and ($1,222) and ($2,477) deferred, for the quarter and six months
ended September 30, 1998.
<F6>6. Net Income:
In addition, EBITDA of $79,275 (earning before interest, income taxes,
depreciation and amortization) before the deduction for the stock-based
compensation charge was generated for the reported period. EBITDA is a
meaningful measure of a company's ability to service debt.
</FN>
</TABLE>
