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 December 31, 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 February 5, 1999, 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
PART I.
Financial Information Page No.
- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1998 (Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of
Operations (Unaudited)-
Three and Nine Months Ended December 31, 1998
and December 26, 1997 4
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three and Nine Months Ended December 31, 1998
and December 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 9-15
PART II.
Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
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<PAGE>
COINMACH CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998(1)
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 23,990 $ 22,451
Receivables, net 8,436 7,750
Inventories 16,535 13,430
Prepaid expenses 5,994 6,254
Advance location payments 79,034 74,026
Land, property and equipment, less accumulated
depreciation of $111,287 and $72,234 218,587 194,328
Contract rights, less accumulated amortization of
$62,098 and $39,923 412,788 366,762
Goodwill, less accumulated amortization of $18,309
and $12,530 110,658 110,424
Other assets 20,891 20,807
--------- ---------
Total assets $ 896,913 $ 816,232
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $ 20,225 $ 17,128
Accrued rental payments 26,473 20,977
Accrued interest 5,421 13,993
Other accrued expenses 12,215 15,220
Due to Coinmach Laundry Corporation 63,277 64,039
Deferred income taxes 82,364 79,511
11-3/4% Senior Notes 296,655 296,655
Premium on 11-3/4% Senior Notes, net 8,332 9,258
Credit facility indebtedness 388,489 296,267
Other long-term debt 5,146 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 (52,990) (43,816)
--------- ---------
Total stockholder's equity (11,684) (2,594)
--------- ---------
Total liabilities and stockholder's equity $ 896,913 $ 816,232
========= =========
</TABLE>
See accompanying notes.
(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 Nine Months Ended
------------------ -----------------
December 31, December 26, December 31, December 26,
1998 1997 1998 1997
-------------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUES $ 130,736 $ 80,618 $ 373,645 $ 230,415
COSTS AND EXPENSES:
Laundry operating expenses 85,738 53,840 245,461 154,150
General and administrative
expenses 1,986 1,598 5,897 4,484
Depreciation and amortization 28,847 17,957 83,940 52,537
Stock-based compensation
charge 351 358 915 820
--------- --------- --------- ---------
116,922 73,753 336,213 211,911
--------- --------- --------- ---------
OPERATING INCOME 13,814 6,865 37,432 18,424
INTEREST EXPENSE, NET 16,878 11,283 49,265 32,456
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (3,064) (4,418) (11,833) (14,032)
--------- --------- --------- ---------
PROVISION (BENEFIT) FOR
INCOME TAXES:
Currently payable 400 80 647 230
Deferred (828) (775) (3,306) (2,830)
--------- --------- --------- ---------
(428) (695) (2,659) (2,600)
--------- --------- --------- ---------
NET LOSS $ (2,636) $ (3,723) $ (9,174) $ (11,432)
========= ========= ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
COINMACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,1998 December 26, 1997
----------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (9,174) $ (11,432)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 38,580 22,910
Amortization of advance location payments 15,035 7,566
Amortization of intangibles 30,325 22,061
Deferred income taxes (3,306) (2,830)
Stock-based compensation charge 915 820
Amortization of debt discount and deferred issuance costs 1,246 463
Amortization of premium on 11-3/4% Senior Notes (926) (206)
Change in operating assets and liabilities, net of business acquired:
Other assets (1,499) (1,348)
Receivables, net (131) 718
Inventories and prepaid expenses (1,240) (3,679)
Accounts payable 1,278 166
Accrued interest (8,572) (5,653)
Increase in accrued expenses, net 2,242 (864)
--------- ---------
Net cash provided by operating activities 64,773 28,692
--------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment (45,718) (28,734)
Advance location payments to location owners (16,230) (10,257)
Additions to net assets related to acquisitions of businesses (89,584) (69,026)
--------- ---------
Net cash used for investing activities (151,532) (108,017)
--------- ---------
FINANCING ACTIVITIES:
Net repayments of bank and other borrowings (299) (300)
Net advances from (to) parent (1,218) 37,616
Deferred debt issuance costs (381) (5,355)
Proceeds (repayments) from credit facility, net 92,222 (55,000)
Proceeds from issuance of 11-3/4% Senior Notes -- 109,875
Principal payments on capitalized lease obligations (2,026) (841)
--------- ---------
Net cash provided by financing activities 88,298 85,995
--------- ---------
Net increase in cash and cash equivalents 1,539 6,670
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,451 10,110
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,990 $ 16,780
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 57,863 $ 36,500
========= =========
</TABLE>
See accompanying notes.
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<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 755,000 washers and dryers in approximately 75,000 locations on
routes throughout the United States and in 162 retail laundromats located
throughout Texas and Arizona. 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 in the financial statements. 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 current period presentation.
3. Comprehensive Income
On April 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("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 did not have any elements of comprehensive
income which would be required to be included in its financial statements for
the periods presented.
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<PAGE>
COINMACH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
4. Long-term Debt
At December 31, 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) $272.5 million of term loans and approximately
$116.0 million of a revolving line of credit under the Company's existing credit
facility (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
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<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 nine months ended December 31, 1998, the Company recorded a
stock-based compensation charge of approximately $915,000 related to the options
described above. For the nine months ended December 26, 1997, the Company
recorded a stock-based compensation charge relating to the options described
above of approximately $820,000.
6. Acquisitions - Nine Months Ended December 31, 1998
On May 19, 1998, the Company completed the acquisition of Cleanco, Inc.
and certain of its affiliates ("Cleanco") for a cash purchase price of
approximately $23.0 million, excluding transaction expenses (the "Cleanco
Acquisition"), 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 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 (the "G&T Acquisition"). 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
information contained and matters discussed in this document are forward-looking
statements based on the beliefs of the Company's management and are subject to
certain risks and uncertainties described herein and contained in the Company's
Annual Report on Form 10-K for the year ended March 31, 1998. Should these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's future performance and actual results of operations may vary
materially from those expected or intended.
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 755,000 washers and dryers in
approximately 75,000 multi-family housing properties on routes throughout the
United States and 162 retail laundromats located throughout Texas and Arizona.
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, individual property owners and managers of multi-family
housing properties (approximately $8.1 million for the nine months ended
December 31, 1998 and approximately $2.2 million for the nine months ended
December 26, 1997); (ii) operating, maintaining and servicing retail laundromats
(approximately $14.9 million for the nine months ended December 31, 1998 and
approximately $15.9 million for the nine months ended December 26, 1997); and
(iii) constructing complete turnkey retail laundromats, retrofitting retail
laundromats, distributing exclusive lines of commercial coin and non-coin
operated machines and parts, and selling service contracts (approximately $27.5
million for the nine months ended December 31, 1998 and approximately $18.9
million for the nine months ended December 26, 1997).
-9-
<PAGE>
COINMACH CORPORATION
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 nine month periods ended December 31, 1998 and
December 26, 1997
Revenues increased by approximately 62% for both the three and nine
months ended December 31, 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 $127.6 million of its
revenue increase for the current nine 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 (as defined) in May 1998 and the G&T Acquisition (as
defined) in June 1998. In addition, during the current nine month period, the
Company's installed machine base increased by approximately 18,000 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 16,700 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 59% for both the
three and nine month periods ended December 31, 1998, as compared to the prior
year's corresponding periods. The increase was due primarily 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. However, as a percentage of
revenue, laundry operating expenses were 65.6% for the three month period ended
December 31, 1998 and 65.7% for the nine month period ended December 31, 1998 as
compared to 66.8% for the three month period ended December 26, 1997 and 66.9%
for the nine month period ended December 26, 1997.
General and administrative expenses increased by approximately $0.4
million for the three month period ended December 31, 1998 and by approximately
$1.4 million for the nine month period ended December 31, 1998, as compared to
the prior year's corresponding periods. The increase for such periods was due to
various costs and expenses related to (i) the Company's acquisition strategy,
including systems development and refinement relating to the integration of
prior acquisitions, and (ii) accounting, management information systems and
other administrative functions associated with the Company's growth. However, as
a percentage of revenues, general and administrative expenses were 1.5% for the
three month period ended December 31, 1998 and 1.6% for nine month period ended
December 31, 1998, as compared to 2.0% for each of the prior year's
corresponding periods.
-10-
<PAGE>
COINMACH CORPORATION
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 61%
for the three month period ended December 31, 1998 and by approximately 60% for
the nine month period ended December 31, 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 nine months
ended December 31, 1998, the Company recorded a stock-based compensation charge
relating to these options of approximately $915,000. During the nine months
ended December 26, 1997, the Company recorded a stock-based compensation charge
relating to these options of approximately $820,000.
Operating income margins were approximately 10.6% for the three month
period ended December 31, 1998, as compared to approximately 8.5% for the three
month period ended December 26, 1997. Operating income margins were
approximately 10.0% for the nine month period ended December 31, 1998, as
compared to approximately 8.0% for the nine month period ended December 26,
1997.
Interest expense, net, increased by approximately 50% for the three
month period ended December 31, 1998 and by approximatley 53% for the nine month
period ended December 31, 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 $122.3 million for the nine months ended December 31,
1998, as compared to approximately $71.8 million for the corresponding period in
1997, representing an improvement of approximately 70%. EBITDA margins improved
to approximately 32.9% for the nine months ended December 31, 1998, compared to
approximately 31.2% 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
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<PAGE>
COINMACH CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
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 December 31, 1998, the Company had outstanding long-term debt
(excluding the premium on the Series C Notes) of approximately $690.3 million
and stockholder's deficit of approximately $11.7 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 nine
months ended December 31, 1998, were approximately $151.5 million. Of such
amount, the Company spent approximately $89.6 million in acquisition and related
transaction costs, primarily due to the Cleanco Acquisition and the G&T
Acquisition, and approximately $17.4 million related to the net increase in the
installed base of machines of approximately 18,000 machines. The balance of
approximately $44.5 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
-12-
<PAGE>
COINMACH CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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 $83.9 million for the nine months ended December 31, 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
-13-
<PAGE>
COINMACH CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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, the Company completed the acquisition of Cleanco, Inc.
and certain of its affiliates ("Cleanco") for a cash purchase price of
approximately $23.0 million, excluding transaction expenses (the "Cleanco
Acquisition"), 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 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 (the "G&T Acquisition"). 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.
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.
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.
-14-
<PAGE>
COINMACH CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Year 2000 (continued)
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 December 31, 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 assurance 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.
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.
-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
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.
-16-
<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 13, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000091693
<NAME> Coinmach Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> APR-01-1998 OCT-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 23,990 0
<SECURITIES> 0 0
<RECEIVABLES> 8,436 0
<ALLOWANCES> 0 0
<INVENTORY> 16,535 0
<CURRENT-ASSETS> 0 0
<PP&E> 329,874 0
<DEPRECIATION> (111,287) 0
<TOTAL-ASSETS> <F1> 896,913 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 690,290 0
0 0
0 0
<COMMON> <F2> 41,391 0
<OTHER-SE> (53,075) 0
<TOTAL-LIABILITY-AND-EQUITY> <F3> 896,913 0
<SALES> 0 0
<TOTAL-REVENUES> 373,645 130,736
<CGS> 0 0
<TOTAL-COSTS> 245,461 85,738
<OTHER-EXPENSES> <F4> 90,752 31,184
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 49,265 16,878
<INCOME-PRETAX> (11,833) (3,064)
<INCOME-TAX> <F5> (2,659) (428)
<INCOME-CONTINUING> (9,174) (2,636)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> <F6> (9,174) (2,636)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> Total Assets: Includes Advance Location Payments of $79,034, Contract
Rights of $412,788 and Goodwill of $110,658, each net of accumulated
amortization at December 31, 1998.
<F2> Bonds: Includes $296,655 of 11-3/4 senior notes, as well as debt
outstanding under a credit facility of $388,489 at December 31, 1998.
<F3> Total Liabilities: Includes Accrued Rental Payments of $26,473 and Accrued
Interest of $5,421 at December 31, 1998.
<F4> Other Expenses: Includes stock based compensation charges of $351 and $915
for the quarter and nine months ended December 31, 1998.
<F5> Income Tax: The provision (benefit) for income taxes consists of $400 and
$647 currently payable and ($828) and ($3,306) deferred, for the quarter
and nine months ended December 31, 1998.
<F6> Net Income: In addition, EBITDA of $122,287 (earnings 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>
