SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
{ 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.
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The undersigned registrant hereby amends Item 2 of Part I of its
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998,
as filed with the Securities and Exchange Commission on November 13, 1998, to
read in its entirety as follows:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as other risks set forth in the Company's Annual Report on Form 10-K for
the year ended March 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.)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
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 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
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.
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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.
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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.
Year 2000
The Company has undertaken a comprehensive Year 2000 initiative managed
by a team consisting of internal staff and outside consultants. The Year 2000
initiative has involved an extensive review of the Company's information systems
and an assessment of the compliance status of customers, suppliers and lenders
with whom the Company has a significant relationship. The Company anticipates
its information systems will be substantially Year 2000 compliant by the fall of
1999.
The Company has contacted its significant customers, suppliers and
lenders to ensure that those parties have appropriate plans to remediate Year
2000 issues where their systems interface with the Company's systems or
otherwise impact its operations. Based on its evaluations to date, the Company
believes that it will not be materially impacted by Year 2000 problems arising
from its relationships with customers, suppliers and lenders. During 1999, the
Company will continue to assess the Year 2000 compliance of these parties and
will develop contingency plans should it appear that these parties will not be
adequately prepared to address Year 2000 problems that could significantly
impact the Company's operations.
As of September 30, 1998, costs incurred in connection with Year 2000
compliance have not been material. The Company anticipates that future costs
associated with the Year 2000 initiative will not be material to the Company's
results of operation or financial condition.
The Company believes it is devoting appropriate resources to the Year
2000 issue and that its internal systems will be adequately prepared for Year
2000 processing. While there can be no assurance of third party compliance,
based on the analysis performed to date, the Company believes that it has
resolved or has adequately addressed all identified Year 2000 issues. While the
Company believes its planning efforts are adequate to address Year 2000
concerns, there can be no assuarance that all such Year 2000 issues have been
adequately identified and addressed, and actual results could differ materially
from those planned or anticipated. The Company will continue to monitor Year
2000 readiness and to develop appropriate responses should they be required.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 22, 1999
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)
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