COINMACH CORPORATION AND SUBSIDIARIES
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, 2000
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 14, 2000, Coinmach Corporation had
outstanding 100 shares of common stock, par value $.01 per share (the "Common
Stock"), all of which shares were held by Coinmach Laundry Corporation.
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COINMACH CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
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PART I.
FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 2000 (Unaudited) and March 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) -
Quarter and Six Months Ended September 30, 2000 and September 30, 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended September 30, 2000 and September 30, 1999 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 14
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COINMACH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000(1)
------------------ --------------
Successor Predecessor
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 23,876 $ 23,174
Receivables, net 11,100 10,206
Inventories 14,474 17,770
Prepaid expenses 6,782 6,899
Advance location payments 77,093 77,212
Land, property and equipment, net of accumulated
depreciation of $27,270 and $179,643 272,899 237,160
Contract rights, net of accumulated amortization of
$14,008 and $102,307 395,806 384,680
Goodwill, net of accumulated amortization of $6,955
and $28,248 220,865 101,253
Other assets 15,434 17,271
---------- --------
Total assets $1,038,329 $875,625
========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable $21,316 $ 20,769
Accrued rental payments 31,802 28,445
Accrued interest 15,383 15,786
Other accrued expenses 14,115 13,165
Deferred income taxes 92,057 74,022
11 3/4% Senior Notes 296,655 296,655
Premium on 11 3/4% Senior Notes, net 6,172 6,789
Credit facility indebtedness 386,936 382,020
Other long-term debt 5,640 5,144
Parent Company investment 133,330 62,973
Stockholder's equity:
Common stock and capital in excess of par value 41,391 41,391
Receivables from management -- (21)
Accumulated deficit (6,468) (71,513)
---------- --------
Total stockholder's equity 34,923 (30,143)
---------- --------
Total liabilities and stockholder's equity $1,038,329 $875,625
========== ========
</TABLE>
See accompanying notes.
------
1. The March 31, 2000 balance sheet has been derived from the audited
consolidated financial statements as of that date.
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COINMACH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
--------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------ ------ ------ -----
Successor Predecessor Combined Predecessor
<S> <C> <C> <C> <C>
REVENUES $128,332 $130,060 $262,557 $263,598
COSTS AND EXPENSES:
Laundry operating expenses 84,415 86,282 174,259 173,493
General and administrative expenses 2,110 2,198 4,254 4,388
Depreciation and amortization 32,100 30,630 63,657 60,566
-------- -------- -------- --------
118,625 119,110 242,170 238,447
-------- -------- -------- --------
OPERATING INCOME 9,707 10,950 20,387 25,151
INTEREST EXPENSE, NET 17,008 16,825 33,669 33,542
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (7,301) (5,875) (13,282) (8,391)
-------- -------- -------- --------
NET BENEFIT FOR INCOM E TAXES: (833) (1,122) (2,162) (1,275)
-------- -------- -------- --------
NET LOSS $(6,468) $(4,753) $(11,120) $(7,116)
======== ======== ========= ========
See accompanying notes.
</TABLE>
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COINMACH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
September 30, September 30,
2000 1999
------ -----
Combined Predecessor
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(11,120) $ (7,116)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 30,373 27,629
Amortization of advance location payments 12,254 12,166
Amortization of intangibles 21,030 20,771
Deferred income taxes (2,676) (3,286)
Amortization of premium on 11 3/4% Senior Notes (617) (617)
Amortization of debt discount and deferred issue costs 860 869
Stock-based compensation ----- 315
Change in operating assets and liabilities, net of businesses acquired:
Other assets (415) (353)
Receivables, net (1,357) (1,124)
Inventories and prepaid expenses (516) (2,311)
Accounts payable 547 2,226
Accrued interest, net (403) 908
Other accrued expenses, net (2,141) (550)
------ ------
Net cash provided by operating activities 45,819 49,527
------ ------
INVESTING ACTIVITIES:
Additions to property and equipment (35,237) (34,402)
Advance location payments to location owners (11,363) (10,421)
------ ------
Net cash used in investing activities (46,600) (44,823)
------ ------
FINANCING ACTIVITIES:
Net proceeds from credit facility 4,916 (3,439)
Net repayments to parent (1,754) (219)
Net repayments of bank and other borrowings (71) (196)
Principal payments on capitalized lease obligations (1,608) (1,472)
------- -------
Net cash provided by (used in) financing activities 1,483 (5,326)
------ -------
Net increase (decrease) in cash and cash equivalents 702 (622)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,174 26,515
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $23,876 $25,893
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $33,834 $32,472
======= =======
Income taxes paid $ 1,519 $ 1,947
======= =======
NON-CASH FINANCING ACTIVITIES:
Acquisition of fixed assets through capital leases $ 2,175 $ 1,593
======= =======
</TABLE>
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<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business
Coinmach Corporation, a Delaware corporation (the "Company"), is the
leading supplier of outsourced laundry services for multi-family housing
properties in 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 also leases laundry machines and other household
appliances to corporate relocation entities, property owners, managers of
multi-family housing properties and individuals. The Company owns and operates
approximately 816,000 washers and dryers (hereinafter referred to as "laundry
machines" or "machines") in approximately 80,000 locations on routes located
throughout the United States and in 183 retail laundromats located throughout
Texas and Arizona. The Company, through its wholly-owned subsidiary, Super
Laundry Equipment Corp. ("Super Laundry"), is a laundromat equipment
distribution company. The Company is a wholly-owned subsidiary of Coinmach
Laundry Corporation, a Delaware Corporation ("Coinmach Laundry"). Unless
otherwise specified herein, references to the Company shall mean Coinmach
Corporation and its subsidiaries.
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 differ from such
estimates. The interim results presented herein are not necessarily indicative
of the results to be expected for the entire year.
As more fully described in Note 4, the Company's parent, Coinmach
Laundry, in connection with a going-private transaction (the "Transaction"),
completed a merger on July 13, 2000 with CLC Acquisition Corporation ("CLC
Acquisition"), a newly formed Delaware corporation. The Transaction was
accounted for using the purchase method of accounting and, according to a
practice known as "push down" accounting, as of July 1, 2000 (the beginning of
the accounting period closest to the date on which control was effective), the
Company adjusted its consolidated assets and liabilities to their estimated fair
values, based on preliminary independent appraisals, evaluations, estimations
and other studies. The purchase price exceeded the fair value of assets acquired
(based on an independent appraisal for certain assets) less liabilities assumed
by approximately $ 130 million, which was allocated to goodwill.
References to the "Successor" period refer to the Company subsequent to
the date of the Transaction, while references to the "Predecessor" period refer
to prior periods. As a result of the Transaction, the combined consolidated
financial statements for the Successor are presented on a different basis of
accounting than that for the Predecessor and, therefore, are not entirely
comparable.
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<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
2. Basis of Presentation (continued)
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, 2000.
3. Debt
At September 30, 2000, the Company had outstanding debt consisting of
(a) approximately $296.7 million of 11 3/4% Senior Notes due 2005 (the "Senior
Notes"), (b) $267.3 million of term loans, and (c) approximately $119.7 million
of a revolving line of credit. The above mentioned term loans and revolving line
of credit represent indebtedness pursuant to the Company's existing credit
facility (as amended and restated, the "Senior Credit Facility"), which is
secured by all of the Company's real and personal property. Under the Senior
Credit Facility, the Company has pledged to Bankers Trust Company, as Collateral
Agent, its interests in all of the issued and outstanding shares of capital
stock of Coinmach. In addition to certain terms and provisions, events of
default and customary representations, covenants and agreements, the Senior
Credit Facility contains certain restrictive 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 Senior Credit Facility limit Coinmach's ability to pay dividends.
4. Recent Developments
On May 12, 2000, the Company's parent, Coinmach Laundry, entered into
an Agreement and Plan of Merger (the "Merger Agreement") with CLC Acquisition, a
newly formed Delaware corporation formed by Bruce V. Rauner, a director of
Coinmach Laundry and a principal of the indirect general partner of Golder,
Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR Fund IV"), the largest stockholder
of Coinmach Laundry. Pursuant to the Merger Agreement, CLC Acquisition acquired
all of Coinmach Laundry's outstanding Common Stock and Non-Voting Common Stock,
(collectively, the "Shares") for $14.25 per Share in a two-step transaction
consisting of a tender offer (the "Offer") followed by a merger transaction (the
"Merger) of CLC Acquisition with and into Coinmach Laundry.
The period during which Shares could be tendered in the Offer expired
on July 7, 2000. Approximately 99% of the outstanding Shares were either
tendered in the Offer and not withdrawn or contributed to CLC Acquisition by
certain members of management of the Company and GTCR Fund IV. Effective July
13, 2000, CLC Acquisition was merged with and into Coinmach Laundry pursuant to
the terms of the Merger Agreement. Each Share not tendered in the Offer was
canceled and converted into the right to receive an amount equal to $14.25 per
Share in cash, without interest thereon.
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COINMACH CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Except for the historical information contained herein, certain 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,
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, 2000. Should these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, the Company's future performance and actual results
of operations may differ materially from those expected or intended.
The Company is principally engaged in the business of supplying
outsourced laundry services for multi-family housing properties. The Company
also leases laundry machines and other household appliances to corporate
relocation entities, property owners, managers of multi-family housing
properties and individuals. Unless otherwise specified herein, references to the
Company shall mean Coinmach Corporation and its subsidiaries. At September 30,
2000, the Company owned and operated approximately 816,000 washers and dryers in
approximately 80,000 locations on routes throughout the United States and in 183
retail laundromats located throughout Texas and Arizona. The Company, through
Super Laundry, its wholly-owned subsidiary, is also a laundromat equipment
distribution company.
The Company's primary financial objective is to increase its cash flow
from operations. Cash flow from operations represents a source of funds
available to service indebtedness and for investment in both internal growth and
growth through acquisitions. The Company has experienced net losses during the
past three fiscal years. Such net losses are attributable in part to significant
non-cash charges associated with the Company's execution of its growth strategy,
namely, high levels of amortization of contract rights and goodwill related to
the addition of new machines and customers through acquisitions accounted for
under the purchase method of accounting.
The Company's most significant revenue source is its route business,
accounting for more than 85% of its revenue. The Company provides outsourced
laundry 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 machine maintenance and revenue collection in the route business,
including payroll, parts, insurance and other related expenses, the costs 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, property owners, managers of
-8-
<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
General (continued)
-------
multi-family housing properties and individuals (approximately $8.5 million for
the six months ended September 30, 2000 and $6.7 million for the six months
ended September 30, 1999); (ii) operating, maintaining and servicing retail
laundromats (approximately $10.0 million for the six months ended September 30,
2000 and $10.2 million for the six months ended September 30, 1999); 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 $21.0
million for the six months ended September 30, 2000 and $23.8 million for the
six months ended September 30, 1999).
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 for the year ended
March 31, 2000.
Comparison of the three and six-month periods ended September 30, 2000
and September 30, 1999
Revenues decreased by approximately $1.7 million or 1% for the three
month period ended September 30, 2000, as compared to the prior year's
corresponding period. The decline in revenue for the quarter was due primarily
to decreased revenues of approximately $3.1 million generated from the
distribution business during the same period. This decline in revenue for the
quarter was offset partially by an increase in revenues generated from the
rental business of approximately $0.7 million and from the route business of
approximately $0.6 million.
Revenues decreased by approximately $1.0 million or less than 1% for
the six-month period ended September 30, 2000, as compared to the prior year's
corresponding period. The decline in revenue for the six-month period was due
primarily to decreased revenues generated from the distribution business of
approximately $2.9 million during the same period. This decrease was offset
partially by an increase in revenues for the quarter of approximately $1.8
million generated from the rental business.
Laundry operating expenses decreased by approximately 2% for the
three-month period ended September 30, 2000, as compared to the prior year's
corresponding period. The decrease in laundry operating expenses for the quarter
was due to a decrease in cost of sales resulting from reduced sales in the
distribution business. This decrease in operating expenses partially offset
additional costs associated with the expansion into new markets in the rental
business.
Laundry operating expenses increased by less than 1% for the six-month
period ended September 30, 2000 as compared to the prior year's corresponding
period. The increase in laundry operating expenses for the six-month period was
due primarily to costs associated with the expansion into new markets in the
rental business. As a percentage of revenues, laundry operating expenses were
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COINMACH CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
--------------------
approximately 66% for each of the three and six-month periods ended September
30, 2000 and the three and six-month periods ended September 30, 1999.
General and administrative expenses decreased by approximately 4% for
the three month period ended September 30, 2000, as compared to the prior year's
corresponding period. General and administrative expenses decreased by
approximately 3% for the six-month period ended September 30, 2000, as compared
to the prior year's corresponding period. As a percentage of revenues, general
and administrative expenses remained constant at approximately 1.6% for each of
the three and six month periods ended September 30, 2000 and September 30, 1999.
Depreciation and amortization increased by approximately 5% for the
three-month period ended September 30, 2000, as compared to the prior year's
corresponding period. Depreciation and amortization increased by approximately
5% for the six-month period ended September 30, 2000, as compared to the prior
year's corresponding period. The increase for both the three and six-month
periods was primarily due to an increase in capital expenditures with respect to
the Company's installed base of machines.
Operating income margins were approximately 7.6% and 7.8% for the three
and six-month periods ended September 30, 2000, as compared to approximately
8.4% and 9.5% for the three and six- month periods ended September 30, 1999. The
decrease in operating income margin for the three and six-month periods was
primarily due to increases in depreciation and amortization expense.
Interest expense, net, increased by approximately 1% for both the three
and six-month periods ended September 30, 2000, as compared to the prior year's
corresponding periods, primarily because the borrowing levels under the Senior
Credit Facility and other long-term debt increased slightly as compared to the
previous periods as well as due to an increase in interest rates.
EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) was approximately $41.8 million for the three
months ended September 30, 2000, as compared to approximately $41.6 million for
the corresponding period in 1999, representing an increase of approximately 1%.
EBITDA margins increased to approximately 32.6% for the three months ended
September 30, 2000, compared to approximately 32.0% for the prior year's
corresponding period. These decreases are primarily the result of decreased
operating expenses.
EBITDA was approximately $84.0 million for the six months ended
September 30, 2000, as compared to approximately $85.7 million for the
corresponding period in 1999, representing a decrease of approximately 2%.
EBITDA margins declined to approximately 32.0% for the six months ended
September 30, 2000, compared to approximately 32.5% for the prior year's
corresponding period. These decreases are primarily the result of increased
operating expenses, as discussed above.
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
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COINMACH CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
---------------------
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, 2000, the Company had outstanding long-term debt
(excluding the unamortized premium of approximately $6.2 million) of
approximately $689.2 million and stockholder's equity of approximately $34.9
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 services
industry and to economic conditions in general could 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, 2000 of approximately $46.6 million (which consists
primarily of machine expenditures, advance location payments and laundry room
improvements) were used to maintain the existing machine base in current
locations and through replacement of discontinued locations, growth in the
installed base of machines and for general corporate purposes. The full impact
on revenues and cash flow generated from capital expended on the net increase in
the installed machine 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 Senior Credit Facility and semi-annual cash interest payments as
required by the 11 3/4% Senior Notes.
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<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
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 11
3/4% Senior Notes and borrowings under the Senior Credit Facility or to permit
any necessary refinancings thereof. An inability of the Company, however, to
comply with covenants or other conditions contained in the indentures governing
the 11 3/4% Senior Notes or in the credit agreement evidencing the Senior Credit
Facility 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 or on terms permitted under the
Senior Credit Facility or the indenture governing the 11 3/4% Senior Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $63.6 million for the six months ended September 30, 2000) 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.
An integral component of the Company's business strategy has been
growth through a combination of internal growth and selective acquisitions
designed to increase the Company's machine base and to achieve economies of
scale, increase its operating efficiencies and improve its financial
performance. While the Company continues to expand its machine base, at the
present time, the Company believes that the number of significant acquisition
opportunities is limited due in part to the Company's successful execution of
its acquisition strategy over the past several years. Against this background of
limited opportunities for significant acquisitions, and in an effort to preserve
capital and reduce its level of indebtedness, the Company has determined to slow
its rate of growth by acquisitions; however, the Company may pursue
opportunities to acquire additional route businesses within the fragmented
outsourced laundry equipment services industry. There can be no assurance,
however, that the Company will be able to take advantage of these opportunities
on commercially reasonable terms, if at all.
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 will not be material to the Company. The Company's business
generally is not seasonal.
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<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On November 18, 1999, K. Reed Hinrichs v. Stephen R. Kerrigan, et al.,
a purported class action lawsuit, was filed in the Delaware Court of Chancery,
Newcastle County naming Coinmach Laundry, Golder, Thoma, Cressey, Rauner Fund
IV, L.P. ("GTCR Fund IV"), GTCR Golder Rauner, L.L.C. and certain of its
executive officers as defendants. Plaintiffs allege that the defendants'
proposal to acquire between 80% and 90% of Coinmach Laundry's Common Stock for
$13.00 per share was inadequate and that the defendants breached their fiduciary
duty to Coinmach Laundry's public shareholders. The defendant's time to respond
to the complaint has been adjourned indefinitely by agreement of the parties.
The Company is also party to various legal proceedings arising in the
ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe that
adverse determinations in any or all such proceedings would have a material
adverse effect upon the financial condition, results of operations or cash flows
of the Company.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On May 12, 2000, the Company's parent, Coinmach Laundry, entered into
an Agreement and Plan of Merger (the "Merger Agreement") with CLC Acquisition
Corporation ("CLC Acquisition"), a newly formed Delaware corporation formed by
Bruce V. Rauner, a director of Coinmach Laundry and a principal of the indirect
general partner of Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR Fund
IV"), the largest stockholder of Coinmach Laundry. Pursuant to the Merger
Agreement, CLC Acquisition acquired all of Coinmach Laundry's outstanding Common
Stock and Non-Voting Common Stock (collectively, the "Shares") for $14.25 per
Share in a two-step transaction consisting of a tender offer (the "Offer")
followed by a merger transaction (the "Merger") of CLC Acquisition with and into
Coinmach Laundry.
The period during which Shares could be tendered in the Offer expired
on July 7, 2000. Approximately 99% of the outstanding Shares were either
tendered in the Offer and not withdrawn or contributed to CLC Acquisition by
certain members of management of the Company and GTCR Fund IV. Effective July
13, 2000, CLC Acquisition was merged with and into Coinmach Laundry pursuant to
the terms of the Merger Agreement. Each share not tendered in the Offer was
cancelled and converted into the right to receive an amount equal to $14.25 per
Share in cash, without interest thereon.
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.
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<PAGE>
COINMACH CORPORATION AND SUBSIDIARIES
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.
COINMACH CORPORATION
Date: November 14, 2000 /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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