-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQtc2Rpv3PA0fRqgl8I+EE3c8I7xhR3AxC4ZqxuVcO6GdqGCxMzZUFv80HkBAKaS tSg5ekuSyct3kdkIgPyTPQ== 0000902561-99-000525.txt : 19991115 0000902561-99-000525.hdr.sgml : 19991115 ACCESSION NUMBER: 0000902561-99-000525 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COINMACH LAUNDRY CORP CENTRAL INDEX KEY: 0001013021 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 113258015 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11907 FILM NUMBER: 99751256 BUSINESS ADDRESS: STREET 1: 55 LUMBER ROAD STREET 2: C/O COINMACH CORP CITY: ROSLYN STATE: NY ZIP: 11576 BUSINESS PHONE: 5164842300 MAIL ADDRESS: STREET 1: 55 LUMBER ROAD CITY: ROSLYN STATE: NY ZIP: 11576 10-Q 1 FORM 10-Q COINMACH LAUNDRY 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, 1999 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 1-11907 Coinmach Laundry Corporation (Exact name of registrant as specified in its charter) Delaware 11-3258015 (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 12, 1999, Coinmach Laundry Corporation had outstanding 12,931,869 shares of Class A common stock, par value $.01 per share (the "Common Stock"), and 240,324 shares of non-voting Class B Common Stock, par value $.01 per share (the "Non-Voting Common Stock"). COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES INDEX PART I. Financial Information Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets- September 30, 1999 (Unaudited) and March 31, 1999 3 Condensed Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended September 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended September 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 PART II. Other Information Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15 Signature Page 16 -2- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
September 30, 1999 March 31, 19991 ------------------ -------------- (Unaudited) ASSETS: Cash and cash equivalents $ 25,893 $ 26,515 Receivables, net 9,231 8,107 Inventories 18,375 16,328 Prepaid expenses 6,853 6,552 Advance location payments 79,423 79,705 Land, property and equipment, net of accumulated depreciation of $150,956 and $123,337 230,341 223,610 Contract rights, net of accumulated amortization of $86,536 and $70,602 399,275 413,014 Goodwill, net of accumulated amortization of $24,285 and $20,318 105,192 109,025 Other assets 17,225 18,440 -------- --------- Total assets $891,808 $901,296 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable $ 22,703 $ 20,478 Accrued rental payments 28,624 26,888 Accrued interest 16,424 15,516 Other accrued expenses 13,519 13,366 Deferred income taxes 78,248 81,494 11 3/4% Senior Notes 296,655 296,655 Premium on 11 3/4% Senior Notes, net 7,406 8,023 Credit facility indebtedness 380,564 384,003 Other long-term debt 6,508 6,833 Stockholders' equity: Common stock and capital in excess of par value 104,718 104,363 Receivables from management (190) (219) Accumulated deficit (63,371) (56,104) -------- ------- Total stockholders' equity 41,157 48,040 ------ ------- Total liabilities and stockholders' equity $891,808 $901,296 ======== ========
See accompanying notes. - ------ 1. The March 31, 1999 balance sheet has been derived from the audited consolidated financial statements as of that date. -3- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands of dollars, except per share data)
Three Months Ended Six Months Ended ------------------ ---------------- September 30, September 30, September 30, September 30, 1999 1998 1999 1998 ------------------ -------------------- ----------------- --------------- REVENUES $130,060 $124,975 $263,598 $242,909 COSTS AND EXPENSES: Laundry operating expenses 86,282 82,155 173,493 159,723 General and administrative expenses 2,067 1,984 4,146 3,981 Depreciation and amortization 30,630 28,250 60,566 55,093 Stock-based compensation charge 187 397 346 618 ------- -------- -------- -------- 119,166 112,786 238,551 219,415 ------- -------- -------- -------- OPERATING INCOME 10,894 12,189 25,047 23,494 INTEREST EXPENSE, NET 16,849 16,867 33,589 32,434 ------- ------- ------ ------- LOSS BEFORE INCOME TAXES (5,955) (4,678) (8,542) (8,940) ------- ------- ------- ------- PROVISION (BENEFIT) FOR INCOME TAXES: Currently payable 872 139 2,011 246 Deferred (1,994) (1,222) (3,286) (2,477) ------- ------- ------- ------- (1,122) (1,083) (1,275) (2,231) ------- -------- ------- ------- NET LOSS $(4,833) $ (3,595) $(7,267) $ (6,709) ------- ------- ------- -------- BASIC AND DILUTED LOSS $ (.37) $ (.27) $ (.55) $ (.51) ======= ======== ======= ======== PER SHARE WEIGHTED AVERAGE SHARES OUTSTANDING: Common Shares 13,167,831 13,167,783 13,167,807 13,167,783 See accompanying notes.
-4- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands of dollars)
Six Months Ended ---------------------------------- September 30, September 30, 1999 1998 ------------- ------------ OPERATING ACTIVITIES: Net loss $ (7,267) $ (6,709) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 27,629 25,210 Amortization of advance location payments 12,166 9,919 Amortization of intangibles 20,771 19,964 Deferred income taxes (3,286) (2,477) Amortization of premium on 11 3/4% Senior Notes (617) (617) Amortization of debt discount and deferred issue costs 916 808 Stock-based compensation 346 618 Change in operating assets and liabilities, net of businesses acquired: Other assets (353) (664) Receivables, net (1,124) 90 Inventories and prepaid expenses (2,348) (920) Accounts payable 2,226 365 Accrued interest, net 908 310 Other accrued expenses, net (696) 2,478 --------- --------- Net cash provided by operating activities 49,271 48,375 --------- --------- INVESTING ACTIVITIES: Additions to property and equipment (34,402) (32,842) Advance location payments to location owners (10,421) (10,229) Additions to net assets related to acquisitions of businesses - (86,123) --------- ---------- Net cash used in investing activities (44,823) (129,194) --------- --------- FINANCING ACTIVITIES: Net (repayments) proceeds of credit facility borrowings (3,439) 85,594 Net repayments of bank and other borrowings (196) (967) Principal payments on capitalized lease obligations (1,472) (1,227) Deferred debt issue costs - (227) Proceeds from issuance of stock for employee stock option plan 37 - --------- -------- Net cash (used in) provided by financing activities (5,070) 83,173 --------- -------- Net (decrease) increase in cash and cash equivalents (622) 2,354 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,515 22,456 --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $25,893 $24,810 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 32,472 $ 32,682 ======= ======== Income taxes paid $ 1,947 $ 259 ======== ========= NON-CASH FINANCING ACTIVITIES: Acquisition of fixed assets through capital leases $ 1,593 $ 915 ======== =========
-5- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Description of Business Coinmach Laundry Corporation ("Coinmach Laundry"), a Delaware corporation, through its wholly-owned subsidiaries (collectively, the "Company"), including Coinmach Corporation ("Coinmach"), 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 laundry equipment and collecting revenues generated from laundry machines. The Company owns and operates approximately 781,000 washers and dryers (hereinafter referred to as "laundry machines" or "machines") in approximately 75,000 locations on routes located throughout the United States and in 172 retail laundromats located throughout Texas and Arizona. The Company also leases laundry machines and other household appliances to corporate relocation entities, property owners, managers of multi-family housing properties and individuals. Super Laundry Equipment Corp. ("Super Laundry"), a wholly-owned subsidiary of Coinmach, is a laundromat equipment distribution company. 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. 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 Coinmach Laundry's Annual Report on Form 10-K for its fiscal year ended March 31, 1999. 3. Loss per Share Basic and diluted loss per share for each of the three and six month periods ended September 30, 1999 were calculated based upon the weighted average number of common shares outstanding of 13,167,831 and 13,167,807, respectively. Basic and diluted loss per share for each of the three and six month periods ended September 30, 1998 were calculated based upon the weighted average number of common shares outstanding of 13,167,783. Conversion of common equivalent shares (stock options) was not assumed since the results would have been antidilutive. -6- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) 4. Debt At September 30, 1999, the Company had outstanding debt consisting of (a) approximately $296.7 million of Coinmach's 11 3/4% Senior Notes due 2005 (the "Senior Notes"), (b) approximately $270.3 million of term loans, and (c) approximately $110.3 million under 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 "Amended and Restated Credit Facility"), which is secured by all of the Company's real and personal property. Under the Amended and Restated 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, warranties and agreements, the Amended and Restated 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, transactions with affiliates and the Company's ability to pay dividends. Also, the indenture governing the Senior Notes contains restrictive covenants that similarly limit Coinmach's ability to, among other things, incur debt, pay dividends or make other distributions, make investments, create liens, enter into transactions with affiliates, and sell assets. 5. Employee Stock Purchase Plan On August 2, 1999, the Company commenced the first offering period under its Employee Stock Purchase Plan (the "Plan"). Subject to the terms and conditions of the Plan, all eligible employees who elect to participate in the Plan are entitled to purchase shares of Common Stock. Each share of Common Stock purchased by eligible employees under the Plan shall be purchased at a fifteen percent (15%) discount to the fair market value of one share of Common Stock as determined pursuant to the Plan through consecutive offering periods until May 3, 2008 or such earlier date that the Plan is terminated. A maximum of 1,000,000 shares of Common Stock shall be available for purchase under the Plan. The shares of Common Stock sold to participants under the Plan may be authorized and unissued Common Stock or previously issued shares acquired by the Company and held in its treasury. Proceeds are withheld from employees' payroll deductions and shares are sold on the last day of each quarter. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. -7- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES 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 based on the beliefs of the Company's management as of the date of this report 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, 1999. 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. General - ------- The Company is principally engaged in the business of supplying outsourced laundry services for multi-family housing properties. At September 30, 1999, the Company owned and operated approximately 781,000 washers and dryers in approximately 75,000 locations on routes throughout the United States and in 172 retail laundromats located throughout Texas and Arizona. The Company, through Super Laundry, its wholly-owned subsidiary, is also a laundromat equipment distribution company. Additionally, the Company leases laundry machines and other household appliances to corporate relocation entities, property owners, managers of multi-family housing properties and individuals. 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 acquisition-related 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 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. -8- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) General (continued) - ------- Other revenue sources for the Company include: (i) 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 $19.6 million for the six months ended September 30, 1999 and $14.5 million for the six months ended September 30, 1998); (ii) operating, maintaining and servicing retail laundromats (approximately $10.2 million for the six months ended September 30, 1999 and $9.4 million for the six months ended September 30, 1998); and (iii) leasing laundry equipment and other household appliances and electronic items to corporate relocation entities, property owners, managers of multi-family housing properties and individuals (approximately $6.7 million for the six months ended September 30, 1999 and $5.2 million for the six months ended September 30, 1998). 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 its fiscal year ended March 31, 1999. Comparison of the three and six month periods ended September 30, 1999 and September 30, 1998 - --------------------------------------------------------------------------- Revenues increased by approximately $5.1 million or 4% for the three month period ended September 30, 1999, as compared to the prior year's corresponding period. Revenues increased by approximately $20.7 million or 9% for the six month period ended September 30, 1999, as compared to the prior year's corresponding period. These improvements 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 $8.7 million of its revenue increase for the current six-month period is primarily due to the acquisition of Cleanco, Inc. and certain of its affiliates in May 1998 and the acquisition of Gordon & Thomas Companies, Inc. in June 1998. In addition, during the current six-month period, the Company's installed machine based increased by approximately 16,000 machines from internal growth as compared to an increase of approximately 15,600 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 5% and 9% for the three and six month periods ended September 30, 1999 as compared to the prior year's corresponding periods. This increase was due primarily to an increase in commission expense related to the improvements in revenues. As a percentage of revenues, laundry operating expenses have remained relatively consistent at approximately 66% for each of the three and six month periods ended September 30, 1999 and September 30, 1998. -9- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Results of Operations (continued) - -------------------- General and administrative expenses increased slightly for the three and six month periods ended September 30, 1999, as compared to the prior year's corresponding periods. However, 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, 1999 and September 30, 1998. Depreciation and amortization increased by approximately 8% and 10% for the three and six month periods ended September 30, 1999, as compared to the prior year's corresponding periods, due primarily to contract rights and goodwill associated with the above-mentioned acquisitions, as well as a related increase in capital expenditures with respect to the Company's installed base of machines. Operating income margins were approximately 8.4% and 9.5% for the three and six month periods ended September 30, 1999, as compared to approximately 9.8% and 9.7% for the three and six month periods ended September 30, 1998. This change was primarily due to increases in depreciation expense noted above. Interest expense, net, for the three month period ended September 30, 1999, remained relatively consistent with the prior year's corresponding period. Interest expense, net, increased by approximately 4% for the six month period ended September 30, 1999, as compared to the prior year's corresponding period, due primarily to increased borrowing levels under the Amended and Restated Credit Facility in connection with certain acquisitions mentioned above. The effective tax benefit rate decreased to approximately 15% for the six month period ended September 30, 1999 from approximately 25% for the prior year's corresponding period. The lower effective tax benefit rate is the result of the greater impact that non-deductible amortization, which has remained constant, has when added back to losses before income taxes, which are lower than in corresponding periods. EBITDA (earnings before deductions for interest, income taxes, depreciation and amortization) before deduction for stock-based compensation charges was approximately $86.0 million for the six months ended September 30, 1999, as compared to approximately $79.2 million for the corresponding period in 1998, representing an improvement of approximately 9%. This increase was primarily the result of increased revenues, as discussed above. EBITDA margins remained consistent at approximately 32.6% for both the six months ended September 30, 1999 and September 30, 1998. 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 expenditure 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. -10- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources - ------------------------------- The Company continues to have substantial indebtedness and debt service requirements. At September 30, 1999, the Company had outstanding long-term debt (excluding the unamortized premium on the Senior Notes in an amount of approximately $7.4 million) of approximately $683.7 million and stockholders' equity of approximately $41.2 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 restrictive 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 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, 1999 were approximately $44.8 million. Of such amount, the Company spent approximately $13.9 million related to the net increase in the installed base of machines of approximately 16,000 machines. The balance of approximately $30.9 million (which consists of machine expenditures, advance location payments and laundry room improvements) was used to maintain the existing machine base in current locations, to replace 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, Coinmach is required to make monthly cash interest payments as required by the Amended and Restated Credit Facility and semi-annual cash interest payments on the Senior Notes. -11- COINMACH LAUNDRY 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 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 under the indenture governing the Senior Notes, in either case 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 Amended and Restated Credit Facility or the indenture governing the Senior Notes. The Company's depreciation and amortization expenses (aggregating approximately $60.6 million for the six months ended September 30, 1999) 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 a period of 15 years. 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 or effectively manage the integration of acquired businesses into its existing business. Additionally, the Company expects to utilize excess cash flow from operations primarily to reduce debt. -12- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Year 2000 Compliance - -------------------- The "year 2000" or "Y2K" problem is the result of computer programs being written using two digits rather than four to define the applicable year. As a consequence, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Company's comprehensive year 2000 initiative is being managed by a team of internal staff and outside consultants. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations and that transactions with customers, suppliers and financial institutions are fully supported. During the 1999 Fiscal Year, the Company assessed the year 2000 readiness of its information technology ("IT") and non-IT systems. The Company determined that it needed to modify significant portions of its IT systems so that such systems would function properly with respect to dates in the year 2000 and beyond. The Company has substantially completed its IT systems transformation and is currently verifying the year 2000 compliance of these systems. In addition, as part of its year 2000 initiative, the Company has contacted its significant suppliers, customers and financial institutions 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. The Company is continuing to assess the extent to which its operations are vulnerable should those organizations fail to properly address their year 2000 readiness. Based on this review, the Company does not expect the computer systems of those operations to have a material adverse effect on the Company's operations. While the Company believes its planning efforts are adequate to address the year 2000 issue, there can be no guarantee that its computer systems or the computer systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material adverse effect on the operations of the Company. The cost of the year 2000 initiative has not been material to the Company's results of operations, financial condition or cash flows and is not expected to be material in the foreseeable future. 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. -13- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. Legal Proceedings On April 8, 1999, Sand v. Coinmach Laundry Corporation, et. al, a purported class action securities fraud lawsuit, was filed in the Federal District Court for the Eastern District of New York (the "Federal Securities Action") naming the Company and certain of its executive officers as defendants. The Federal Securities Action was purportedly brought on behalf of all shareholders of the Company who purchased or otherwise acquired the Company's Common Stock during the period August 6, 1997 to September 29, 1998. The complaint in the Federal Securities Action alleges violations of various federal securities laws, including misrepresentations of certain information about the Company. The complaint in the Federal Securities Action seeks damages in unspecified amounts. Although the outcome of this proceeding cannot be predicted, based on the allegations contained in the complaint, management believes that the Federal Securities Action will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. 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 None -14- COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Fourth Amended and Restated Certificate of Incorporation of Coinmach Laundry (incorporated by reference from Exhibit 3.5 to Coinmach Laundry's Form 10-Q for the quarterly period ended September 30, 1998, file number 1-11907) 3.2 Third Amended and Restated Bylaws of Coinmach Laundry (incorporated by reference from Exhibit 3.1 to Coinmach Laundry's Form 10-Q for the quarterly period ended September 27, 1996, file number 1-11907) 3.3 Certificate of Powers, Designations, Preferences and Relative Participating, Optional and other Special Rights of Series A Preferred Stock and Qualifications, Limitations and Restrictions thereof (incorporated by reference from exhibit 3.2 to Coinmach Laundry's Form 10-Q for the quarterly period ended June 28, 1996, file number 1-11907) 27.1 Financial Data Schedule (b) Reports on Form 8-K None -15- COINMACH LAUNDRY 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 LAUNDRY CORPORATION Date: November 12, 1999 /s/ ROBERT M. DOYLE ------------------------------- Robert M. Doyle Senior Vice President and Chief Financial Officer (On behalf of registrant and as Principal Financial Officer) -16- EX-27 2 FDS -- FINANCIAL DATA SCHEDULE
5 0001013021 COINMACH LAUNDRY CORPORATION 1000 U.S. DOLLARS 3-MOS 6-MOS MAR-31-2000 MAR-31-2000 JUL-01-1999 APR-01-1999 SEP-30-1999 SEP-30-1999 1 1 25893 0 0 0 9231 0 0 0 18375 0 0 0 381297 0 (150956) 0 891808 0 0 0 691133 0 0 0 0 0 104718 0 (63561) 0 891808 0 0 0 130060 263,598 0 0 86282 173493 32884 65058 0 0 16849 33589 (5955) (8542) (1122) (1275) (4833) (7267) 0 0 0 0 0 0 (4,833) (7267) (.37) (.55) (.37) (.55) Total Assets: Includes Advance Location Payments of $79,423, Contract Rights of $399,275 and Goodwill of $105,192, each net of accumulated amortization at September 30, 1999 Bonds: Includes $296,655 of 11 3/4 senior notes, as well as debt outstanding under a credit facility of $380,564 at September 30, 1999. Total Liabilities: Includes Accrued Commissions of $28,624 and Accrued Interest of $16,424 at September 30, 1999. Other Expenses: Other Expenses include stock based compensation charges of $187 and $346 for the quarter and six months ended September 30, 1999. Income Tax: The provision (benefit) for income taxes consists of $872 and $2,011 currently payable and ($1,994) and ($3,286) deferred, for the quarter and six months ended September 30, 1999. Net Income: In addition, EBITDA of $85,959 (earnings before interest, income taxes, depreciation and amortization) before the deduction for the stock-based compensation charge was generated for the six months ended September 30, 1999. EBITDA is a meaningful measure of a company's ability to service debt.
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