-----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, DHQUTGm1Vxt9RVeS7QnV6a0T1YMvFUPKgRWVPv1nZFR/VscIoJSwxYDWRP/UBmdG /QhTUIIR1tv+rdgafGr/5g== 0000902561-99-000540.txt : 19991117 0000902561-99-000540.hdr.sgml : 19991117 ACCESSION NUMBER: 0000902561-99-000540 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COINMACH CORP CENTRAL INDEX KEY: 0000091693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 530188589 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-49830 FILM NUMBER: 99755300 BUSINESS ADDRESS: STREET 1: 55 LUMBER ROAD CITY: ROSLYN STATE: NY ZIP: 11576 BUSINESS PHONE: 5164842300 MAIL ADDRESS: STREET 1: 55 LUMBER ROAD CITY: ROSLYN STATE: NY ZIP: 11576 FORMER COMPANY: FORMER CONFORMED NAME: SOLON AUTOMATED SERVICES INC DATE OF NAME CHANGE: 19940222 10-Q 1 FORM 10-Q 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 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 15, 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. COINMACH 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 Months Ended September 30, 1999 and September 30, 1998 4 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended September 30, 1999 and September 30, 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 CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION --------------------- ITEM 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars) September 30, 1999 March 31, 1999(1) ------------------ --------------- (unaudited) ASSETS: Cash and cash equivalents 25,893 $ 26,515 Receivables, net 9,231 8,107 Inventories 18,375 16,328 Prepaid expenses 6,744 6,480 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 16,708 17,876 -------- -------- Total assets $891,182 $900,660 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY: Accounts payable $ 22,703 $ 20,478 Accrued rental payments 28,624 26,888 Accrued interest 16,424 15,516 Other accrued expenses 13,666 13,366 Due to parent 63,106 63,282 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 5,008 5,083 Stockholder's equity: Common stock and capital in excess of par value 41,391 41,391 Receivables from management (63) (85) Accumulated deficit (62,550) (55,434) -------- ------- Total stockholder's equity (21,222) (14,128) --------- --------- Total liabilities and stockholder's equity $891,182 $900,660 ======== ========
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 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) ----------- (In thousands of dollars) 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 2,030 1,940 4,073 3,911 Depreciation and amortization 30,630 28,250 60,566 55,093 Stock-based compensation charge 168 361 315 564 ------- ------- ------- ------- 119,110 112,706 238,447 219,291 ------- ------- ------- ------- OPERATING INCOME 10,950 12,269 25,151 23,618 INTEREST EXPENSE, NET 16,825 16,844 33,542 32,387 ------- ------ ------ ------- LOSS BEFORE INCOME TAXES (5,875) (4,575) (8,391) (8,769) -------- ------- ------- ------- 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 $(4,753) $(3,492) $(7,116) ($6,538) ======== ======== ======== ========
See accompanying notes. -4- COINMACH 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 $ (7,116) $(6,538) 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 315 564 Amortization of debt discount and deferred issue costs 869 761 Stock-based compensation (617) (617) Change in operating assets and liabilities, net of businesses acquired: Other assets (353) (664) Receivables, net (1,124) 90 Inventories and prepaid expenses (2,311) (947) Accounts payable 2,226 365 Accrued interest, net 908 310 Other accrued expenses, net (531) 2,497 -------- ------- Net cash provided by operating activities 49,546 48,437 ------ ------ 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 proceeds from credit facility (196) (326) Net repayments to parent (238) (703) Net repayments of bank and other borrowings - (227) Principal payments on capitalized lease obligations (3,439) 85,594 Deferred debt issue costs (1,472) (1,227) ------- ------- Net cash (used in) provided by financing activities (5,345) 83,111 ------- ------ Net (decrease) increase in cash and cash equivalents (622) 2,354 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,515 22,451 ------ ------ CASH AND CASH EQUIVALENTS, END OF PERIOD $25,893 $24,805 ====== ====== 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 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 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, through its wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super Laundry"), is a laundromat equipment distribution company. 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 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. 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 its fiscal year ended March 31, 1999. 3. DEBT At September 30, 1999, the Company had outstanding debt consisting of (a) approximately $296.7 million of 11 3/4% Senior Notes due 2005 (the "Senior Notes"), (b) $270.3 million of term loans, and (c) approximately $110.3 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 "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 -6- COINMACH CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) 3. DEBT (CONTINUED) 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 the Company'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. -7- COINMACH 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. 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'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 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 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 month 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 an 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 $79.3 million for the corresponding period in 1998, representing an improvement of approximately 8%. EBITDA margins remained consistent at approximately 32.6% for both the six months ended September 30, 1999 and September 30, 1998. This increase is primarily the result of increased revenues, 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 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 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 $682.2 million and stockholder's deficit of approximately $21.2 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 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 could, in either case, 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 flows from operations primarily to reduce debt. -12- COINMACH CORPORATION AND SUBSIDIARIES 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 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 CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Company's Form 10-K for the transition period from September 30, 1995 to March 29, 1996, file number 0-7694) 3.2 Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company's Form 10-K for the transition period from September 30, 1995 to March 29, 1996, file number 0-7694) 27.1 Financial Data Schedule (b) Reports on Form 8-K ------------------- None -15- 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 15, 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 0000091693 COINMACH CORPORATION 1000 U.S. DOLLARS 6-MOS 3-MOS MAR-31-2000 MAR-31-2000 APR-01-1999 JUL-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 891182 0 0 0 689630 0 0 0 0 0 41391 0 (62613) 0 891182 0 0 0 263598 130060 0 0 173493 86282 64954 32828 0 0 33542 16825 (8391) (5875) (1275) (1122) (7116) (4753) 0 0 0 0 0 0 (7116) (4753) 0 0 0 0 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 $168 and $315 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 $86,032 (earnings before interest, income taxes, depreciation and amortization) before the deduction for the stock-based compensation charge was generated for the three months ended September 30, 1999. EBITDA is a meaningful measure of a company's ability to service debt.
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