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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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 of incorporation) (I.R.S. Employer 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
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
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 twelve 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 28, 2000, the registrant had outstanding 100 shares of
common stock, par value $.01 per share (the "Common Stock").
No market value can be determined for the Common Stock. See Item 5 of
this Form 10-K Report.
PART I
ITEM 1. BUSINESS
Unless otherwise expressly indicated herein, the descriptions of the
Company contained herein are as of March 31, 2000.
Description of the Business
General
Coinmach Corporation, a Delaware corporation (the "Company" or the
"Registrant"), is the leading supplier of outsourced laundry equipment services
for multi-family housing properties in the United States. At March 31, 2000, the
Company owned and operated approximately 790,000 washers and dryers (sometimes
hereinafter referred to as "laundry machine" or "machines") in approximately
79,000 locations on routes located throughout the United States and in 184
retail laundromats located throughout Texas and Arizona. The Company, through
its wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super Laundry"), is
also 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.
Overview
The outsourced laundry equipment services industry provides washer and
dryer services to individuals living in multi-family housing properties. The
Company's existing customer base for its core business is comprised of
landlords, property management companies, and owners of rental apartment
buildings, condominiums and cooperatives, university and institutional housing
and other multi-family housing properties. 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 typically sets pricing for the use of laundry
machines on location, and the owner or property manager maintains the premises
and provides utilities such as gas, electricity and water.
As a result of its strategy to acquire route operators that contribute
to the Company's core operations, the Company has selectively acquired certain
related businesses which expand and diversify the types of services provided by
the Company. The Company operates 184 retail laundromats throughout Texas and
Arizona and provides laundromat services at all such locations. The Company also
leases laundry equipment and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. The Company believes that these non-core businesses, although not
material to the Company's operations, provide a platform for expansion and
diversification of the Company's services. See "Business - Description of
Business - Complementary Operations."
The Company maintains its headquarters in Roslyn, New York, a corporate
office in Charlotte, North Carolina and regional offices throughout the United
States through which it conducts operating activities, including sales, service
and collections.
Business Strategy
Commencing with Golder, Thoma, Cressey, Rauner Fund IV L.P.'s ("GTCR
Fund IV") acquisition of an interest in the Company in January 1995, an integral
component of the Company's business strategy had 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. From January 1995
to June 1998, the Company pursued a strategy of rapid growth through
acquisitions of local route
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operators, regional route operators and multi-regional route operators. The
Company continued to expand its geographic presence to gain additional regional
and multi-regional account opportunities with large multi-family housing
property managers and owners. As a result, the Company has become the largest
provider of outsourced laundry equipment services in the United States. At the
present time, however, 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. The Company believes that there are numerous
private, family-owned businesses that often lack the financial resources to
provide advance location payments, install new equipment, make laundry room
improvements or otherwise compete effectively with larger independent operators
such as the Company to secure new or existing contracts. Consequently, such
independent operators, especially those which are undergoing generational
ownership changes, continue to represent potential acquisition opportunities for
the Company. The Company evaluates potential acquisitions based on the size of
the business (in terms of revenues, cash flow and machine base), the geographic
concentration of the business, market penetration, service history, customer
relations, existing contract terms and potential operating efficiencies and cost
savings. 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.
The Company's business strategy also includes the continued development
of its management information systems (the "Integrated Computer Systems"), which
management believes are the most advanced in the industry. The Integrated
Computer Systems provide real-time operational and competitive data which, in
conjunction with the Company's multi-regional service capabilities, enhances the
Company's operating efficiencies throughout its operating regions and enables
the Company to deliver superior customer service. The Integrated Computer
Systems also provide the Company with the flexibility to integrate acquisitions
on a timely basis, including key functions such as sales, service, collections
and security. Finally, as the industry leader, the Company works closely with
its equipment vendors to assess ongoing technological changes and implements
those which the Company believes are beneficial to its customers and to the
Company's operating efficiencies and financial performance.
Growth Strategy
The Company's growth strategy is to increase operating cash flow and
profitability through a combination of internal expansion and acquisitions. For
information about the Company's growth through acquisitions, see "Business-
Business Strategy" above.
Internal Expansion
Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers in existing regions and increasing the
number of locations with existing customers; (ii) converting owner-operated
facilities to Company managed facilities, (iii) improving the net contribution
per machine through operating efficiencies and selective price increases; and
(iv) pursuing additional growth opportunities presented by its leading market
position and access to approximately six million individual housing units.
New Customers and Locations. The Company's sales and marketing
efforts focus on adding new customers and increasing the number of
locations from existing customers within its existing operating
regions. The Company's primary means of internal expansion is by
marketing the Company's products and services to building managers and
property owners whose leases with other laundry equipment services
providers are near expiration. The Company's Integrated Computer
Systems track information on the lease expirations of its competitors.
The Company believes that its leading market position and expanding
geographic presence, primarily achieved through acquisitions, enhances
its ability to gain new customers and additional locations from its
existing customers.
Conversions. Management believes that there are approximately one
million machines installed in locations which continue to be managed
by owner-operators. Building owners or managers can forgo
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significant cash outlays and servicing costs by contracting with the
Company to purchase, service and maintain laundry equipment.
Accordingly, the Company pursues building owners and managers to
outsource their laundry facilities. The Company offers a full range of
services from the design, construction and installation of new laundry
facilities to the refurbishment of existing facilities. Management
believes these services provide a competitive advantage in securing new
customers.
Operating Efficiencies and Price Increases. The Company focuses on
improving its net contribution per machine through achieving operating
efficiencies and selective price increases. Due to local competition
and other factors beyond the Company's control, however, there can be
no assurance that such efficiencies or price increases will occur.
Other Growth Opportunities. While management intends to continue
its focus on increasing its installed machine base, management believes
that its leading market position and its access to over six million
housing units provides the Company with additional growth and
diversification opportunities. These opportunities include laundry
equipment rental as well as other route-based facilities management
services. The Company regularly explores strategic alliances with
vendors of products complementary to its customer base. 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.
Industry
The outsourced laundry equipment services industry is characterized by
stable cash flows generated by long-term, renewable lease contracts with
multi-family housing property owners and management companies. The industry
remains highly fragmented, with many small, private and family-owned route
businesses operating throughout all major metropolitan areas. According to
information provided by the Multi-housing Laundry Association, the industry
consists of over 280 independent operators. Based upon industry estimates,
management believes there are approximately 3.5 million installed machines in
multi-family properties throughout the United States, approximately 2.5 million
of which have been outsourced to independent operators such as the Company and
approximately one million of which continue to be operated by the owners of such
locations.
The industry is highly the capital intensive with the most significant
capital costs incurred upon procurement of new leases and the renewal of
existing leases. Initial costs may include replacing or repairing existing
washers and dryers, refurbishing laundry rooms and making advance location
payments to secure long-term, renewable leases. After the initial expenditures,
ongoing working capital requirements, which consist mainly of providing service
and revenue collection, are minimal, since machines typically operate throughout
the term of the contract under which they are installed, and variable costs are
paid out of revenues collected from the machines.
Historically, the industry has been characterized by stable demand and
has been resistant to changing market conditions and general economic cycles.
Management believes that the industry's consistent and predictable revenue and
cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
Description of Principal Operations
The principal aspects of the Company's operations include: (i) sales
and marketing; (ii) location leases; (iii) service; (iv) information management;
(v) remanufacturing and (vi) revenue collection and security.
Sales and Marketing
The Company markets its products and services through a sales staff
with an average industry experience of over ten years. The principal
responsibility of the sales staff is to solicit customers and negotiate lease
arrangements with building owners and managers. Sales personnel are paid
commissions that comprise 50% or more of their annual compensation. Selling
commissions are based on a percentage of a location's annualized earnings before
interest and
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taxes. Sales personnel must be proficient with the application of sophisticated
financial analyses which calculate minimum returns on investments to achieve the
Company's targeted goals in securing location contracts and renewals. Management
believes that its sales staff is among the most competent and effective in the
industry.
The Company's marketing strategy emphasizes excellent service offered
by its experienced, highly skilled personnel and quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. The Company's
sales staff targets potential new and renewal lease locations by utilizing the
Integrated Computer Systems' extensive database to provide information on the
Company's, as well as its competitors', locations. Additionally, the Integrated
Computer Systems monitor performance, repairs and maintenance, as well as the
profitability of locations on a daily basis. All sales, service and installation
data is recorded and monitored daily on a custom-designed, computerized sales
planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenue.
Location Leasing
The Company's leases provide the Company the exclusive right to operate
and service the installed laundry machines, including repairs, revenue
collection and maintenance. The Company typically sets pricing for the use of
the machines on location, and the property owner or property manager maintains
the premises and provides utilities such as gas, electricity and water.
In return for the exclusive right to provide laundry equipment
services, most of the Company's leases provide for monthly commission payments
to the location owners. Under the majority of leases, these commissions are
based on a percentage of the cash collected from the laundry machines. Many of
the Company's leases require the Company to make advance location payments to
the location owner in addition to commissions. The Company's leases typically
include provisions that allow for unrestricted price increases, a right of first
refusal (an opportunity to match competitive bids at the expiration of the lease
term) and termination rights if the Company does not receive minimum net
revenues from a lease. The Company has some flexibility in negotiating its
leases and, subject to local and regional competitive factors, may vary the
terms and conditions of a lease, including commission rates and advance location
payments. The Company evaluates each lease opportunity through its Integrated
Computer Systems to achieve a desired level of return on investments.
Management estimates that approximately 90% of its locations are under
long-term leases with initial terms of five to ten years. Of the remaining
locations not subject to long term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
expects to continue to service such customers. A majority of the Company's
leases renew automatically, and the Company has a right of first refusal on
termination on approximately 40% of its leases. The Company's automatic renewal
clause typically provides that, if the building owner fails to take any action
prior to the end of the original lease term or any renewal term, the lease will
automatically renew on substantially similar terms. As of March 31, 2000, the
Company's leases have an average remaining life to maturity of approximately 47
months (without giving effect to automatic renewals).
Service
The Company's employees deliver, install, service and collect revenue
from washers and dryers in laundry facilities at its leased locations.
The Company's Integrated Computer Systems allow for the quick dispatch
of service technicians in response to both computer-generated (for preventive
maintenance) and customer-generated service calls. On a daily basis, the Company
receives and responds to approximately 3,000 service calls. Management estimates
that less than 1% of the Company's machines are out of service on any given day.
The ability to reduce machine down time, especially during peak usage, enhances
revenue and improves the Company's reputation with its customers.
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In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of responding promptly to customer needs.
Computer-generated service calls for preventive maintenance are based on
previous service history, repeat service call analysis and monitoring of service
areas. These systems coordinate the Company's radio-equipped service vehicles
and allow the Company to address customer needs quickly and efficiently.
Information Management
The Company's Integrated Computer Systems serve three major functions:
(i) tracing the service cycle of equipment; (ii) monitoring revenues and costs
by location, customer and salesperson; and (iii) providing information on
competitors' and the Company's lease renewal schedules.
The Integrated Computer Systems provide speed and accuracy throughout
the entire service cycle by integrating the functions of service call entry,
dispatching service personnel, parts and equipment purchasing, installation,
distribution and collection. In addition to coordinating all aspects of the
service cycle, the Company's Integrated Computer Systems track contract
performance, which indicate potential machine problems or pilferage and provide
data to forecast future equipment servicing requirements.
Data on machine performance is used by the sales staff to forecast
revenue by location. Management is able to obtain daily, monthly, quarterly and
annual reports on location performance, coin collection, service and sales
activity by salesperson.
The Integrated Computer Systems also provide the sales staff with an
extensive database essential to the Company's marketing strategy to obtain new
business through competitive bidding or owner-operator conversion opportunities.
Management also believes that the Integrated Computer Systems enhance
the Company's ability to successfully integrate acquired businesses into its
existing operations. Regional or certain multi-regional acquisitions have
typically been substantially integrated within 90 to 120 days, while a local
acquisition can be integrated almost immediately.
Remanufacturing
The Company rebuilds and reinstalls a portion of its machines at
approximately one-third the cost of acquiring new machines, providing
significant cost savings. Remanufactured machines are restored to virtually new
condition with the same estimated average life and service requirements as new
machines. Machines that can no longer be remanufactured are added to the
Company's inventory of spare parts.
The Company maintains four regional remanufacturing facilities,
strategically located to service each of its operating regions, which provide
for consistent machine quality and efficient operations.
Revenue Collection and Security
Management believes that it provides the highest level revenue of
collection security control in the outsourced laundry equipment services
industry. The Company utilizes numerous precautionary procedures with respect to
cash collection, including frequent alteration of collection patterns, extensive
monitoring of collections and other control mechanisms. The Company enforces
stringent employee standards and screening procedures for prospective employees.
Employees responsible for or who have access to the collection of funds are
tested randomly and frequently. Additionally, the Company's security department
performs trend and variance analyses of daily collections by location. Security
personnel monitor locations, conduct investigations, and implement additional
security procedures as necessary.
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Complementary Operations
In addition to supplying outsourced laundry equipment services, the
Company has expanded its breadth of operations to related, complementary lines
of businesses:
Individual Multi-Housing Units
The Company is involved in the business of renting laundry equipment
and other household appliances and electronic items to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. With access to approximately six million individual housing units,
the Company believes this business line represents an opportunity for growth in
a new market segment which is complementary to its core business.
Laundromat Equipment Distribution
Super Laundry, a wholly-owned subsidiary of the Company, is a
laundromat equipment distribution company. Super Laundry's business consists of
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. Super Laundry's
customers generally enter into sales contracts pursuant to which Super Laundry
constructs and equips a complete laundromat operation, including location
identification, construction, plumbing, electrical wiring and all required
permits.
Retail Laundromat Operations
The Company operates 184 retail laundromats located throughout Texas
and Arizona. The operation of the retail laundromats involves leasing store
locations in desirable geographic areas, maintaining an appropriate mix of
washers and dryers at each store location and servicing the washers and dryers
at such locations. The Company is also responsible for maintaining the premises
at each retail laundromat and paying for utilities and related expenses.
Competition
The outsourced laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, the Company believes there are
currently three multi-regional route operators, including the Company with
significant operations throughout the United States. The two other major
multi-regional competitors are Web Service Company, Inc. and Mac-Gray Corp.
Employees
As of March 31, 2000, the Company employed 2,226 employees (including
355 laundromat attendants in the Company's retail laundromats in Texas and
Arizona). In the Northeast region, 129 hourly workers are represented by Local
966, affiliated with the International Brotherhood of Teamsters (the "Union").
Management believes that the Company has maintained a good relationship with the
Union employees and has never experienced a work stoppage since its inception.
General Development of Business
Coinmach Laundry was incorporated on March 31, 1995 under the name SAS
Acquisitions Inc. in the State of Delaware and is the sole shareholder of all of
the common stock of the Company, its primary operating subsidiary. In November
1995, The Coinmach Corporation ("TCC"), a Delaware corporation and predecessor
of the Company, merged (the "Solon Merger") with and into Solon Automated
Services, Inc. ("Solon"). In connection with the Merger, Coinmach Laundry
changed its name from SAS Acquisitions Inc., and Solon, the surviving
corporation in the Merger, changed its name to Coinmach Corporation.
The Company's headquarters are located at 55 Lumber Road, Roslyn, New
York 11576, and its telephone number is (516) 484-2300. The Company's mailing
address is the same as that of its headquarters. The Company also maintains a
corporate office in Charlotte, North Carolina.
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Credit Facility and Senior Notes
In March 1998, the Company's credit facility (of which Bankers Trust
Company and First Union National Bank of North Carolina are the primary lending
institutions) was amended to provide for an aggregate of $435 million of secured
financing consisting of: (i) a $160 million revolving credit facility currently
bearing interest at an annual rate of LIBOR plus 1.75%; (ii) a $75 million
Tranche A term loan facility currently bearing interest at an annual rate of
LIBOR plus 2.25%; and (iii) a $200 million Tranche B term loan facility
currently bearing interest at an annual rate of LIBOR plus 2.50%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Financing Activities - Senior
Credit Facility."
On March 28, 1996, Coinmach consummated a registered exchange offer,
pursuant to which all issued and outstanding 11 3/4% Senior Notes due 2005 were
exchanged for Coinmach's Series B 11 3/4% Senior Notes due 2005 (the "Series B
Notes"). On October 8, 1997, Coinmach completed a private placement of $100
million aggregate principal amount of its 11 3/4% Series C Senior Notes due 2005
(the "Series C Notes") on substantially identical terms as its Series B Notes.
On December 23, 1997, Coinmach commenced a registered exchange offer pursuant to
which all issued and outstanding Series B Notes and Series C Notes were
exchanged for Coinmach's 11 3/4% Series D Senior Notes due 2005 (the "11 3/4%
Series Notes"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Financing
Activities - Senior Note Offering and Exchange Offer."
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
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 GTCR Fund IV, the largest stockholder of Coinmach Laundry.
Pursuant to the Merger Agreement, CLC Acquisition agreed to acquire 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 Offer is
conditioned upon, among other things, there being validly tendered and not
withdrawn, prior to expiration date of the Offer, that number of Shares which,
when combined with the Shares owned by CLC Acquisition, result in CLC
Acquisition owning at least 51% of the outstanding Shares on the date of
purchase. Upon consummation of the Merger, each Share not tendered in the Offer
will be canceled and converted into the right to receive $14.25 net per Share in
cash, without interest thereon.
On May 26, 2000, CLC Acquisition announced its offer to purchase any
and all Shares of Coinmach Laundry (except for certain Shares held by some
members of management of Coinmach Laundry and GTCR Fund IV). The Offer period
during which Shares may be tendered is scheduled to expire on July 3, 2000 (the
"Expiration Date"), unless the Offer is extended. Assuming the conditions to the
Offer are satisfied or waived, CLC Acquistion has determined to provide for a
subsequent offering period commencing on July 5, 2000 and expiring on July 7,
2000, unless otherwise extended.
Coinmach Laundry's board of directors, at a meeting held on May 12,
2000, by unanimous vote of all of the directors, based upon, among other things,
the recommendation of its special committee (consisting of two independent or
disinterested directors and their own financial and legal advisors), (i)
determined that the Merger is advisable and that the terms of the Offer and the
Merger are fair to, and in the best interests of, Coinmach Laundry and its
stockholders, (ii) approved the Offer and the Merger and approved and adopted
the Merger Agreement, and (iii) recommended that the stockholders of Coinmach
Laundry accept the Offer.
For more information concerning the Offer and the Merger, refer to
Coinmach Laundry's Solicitation/Recommendation Statement in Schedule 14D-9 and
CLC Acquisition's Tender Offer Statement on Schedule TO, in each case, as
amended and initially filed with the Securities and Exchange Commission on May
26, 2000.
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ITEM 2. PROPERTIES
As of March 31, 2000, the Company leased 59 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, revenue collection and warehousing.
The Company presently maintains its headquarters in Roslyn, New York,
leasing approximately 40,000 square feet pursuant to a five year lease
terminating April 30, 2001. The Company's Roslyn facility is used for general
and administrative purposes and is the operational headquarters for the
Northeast regional branch. The Company has an option to purchase the Roslyn
facility, which it presently does not intend to exercise.
The Company also maintains a corporate office in Charlotte, North
Carolina, leasing approximately 3,000 square feet pursuant to a five year lease
terminating September 30, 2001.
ITEM 3. 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 Coinmach
Laundry'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. On March 10, 2000, the Company filed a motion to dismiss
the complaint and denied all of the allegations of wrongdoing asserted against
it in the complaint. On April 10, 2000, the plaintiff filed a response to the
Company's motion to dismiss. On May 16, 2000, the Company replied to the
plaintiff's response. On June 1, 2000, the court dismissed the complaint in its
entirety on the grounds that the applicable statute of limitations had passed
prior to the date in which the complaint was filed.
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, 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 the Common Stock
for $13.00 per share was inadequate and that the defendants breached their
fiduciary duty to Coinmach Laundry's public shareholders. The defendants' time
to respond to the complaint has been adjourned indefinitely by agreement of the
parties. See "Business, Recent Developments".
The Company is 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 financed condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information
There currently exists no established public trading market for the Common
Stock, all of which is held beneficiall and of record by Coinmach Laundry.
Holders
As of March 31, 2000, there was one holder of record of the Common Stock.
Dividends
The Company has not paid any dividends on the Common Stock during the past
fiscal year and does not intend to pay dividends on the Common Stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained in
certain of its outstanding debt and financing agreements relating to the payment
of cash dividends on its Common Stock. The Company may in the future enter into
loan or other agreements or issue debt securities or preferred stock that
restrict the payment of cash dividends or certain other distributions. See Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios)
The following table presents summary historical consolidated financial
information of the Company. Such table includes the consolidated financial
information for the years ended March 31, 2000 ("2000 Fiscal Year"), March 31,
1999 ("1999 Fiscal Year"), March 31, 1998 ("1998 Fiscal Year") and March 28,
1997 ("1997 Fiscal Year"), for the six month transition period ended March 29,
1996, and the period from April 5, 1995 to September 29, 1995. The financial
data set forth below should be read in conjunction with the Company's audited
historical combined and consolidated financial statements and the related notes
thereto included in Item 8 "Financial Statements and Supplementary Data" and
with the information presented in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," of this Form 10-K.
Ended March 29,
Year Ended Six month
------------------------------------------------------ Transition Period Period From
March 31, March 31, March 31, March 28, Ended March 29, April 5, 1995 to
2000 1999 1998 1997 1996 September 29, 1995
---------- ----------- ----------- ----------- ---------------- ------------------
Operations Data:
Revenues.............................. $527,079 $505,323 $324,887 $206,852 $89,070 $89,719
Operating general and administrative
expense............................ 358,081 339,551 223,491 143,966 62,560 65,363
Depreciation and amortization......... 123,002 113,448 75,453 46,316 18,212 18,423
Operating income...................... 45,344 51,204 24,682 14,802 8,298 3,733
Interest expense...................... 67,232 65,901 44,668 27,417 11,830 11,541
Loss before extraordinary item........ 16,079 (11,618) (14,652) (10,308) 2,534 (5,946)
Net loss.............................. 16,079 (11,618) (14,652) (10,604) (11,459) (5,946)
Balance Sheet Data (at end of period)
Cash and cash equivalents............. $23,174 $26,515 $22,451 $10,110 $19,723 $9,282
Property and equipment, net........... 237,160 223,610 194,328 112,116 82,699 80,706
Contract rights, net.................. 384,680 413,014 366,762 180,557 59,745 63,801
Advance location payments............. 77,212 79,705 74,026 38,472 20,320 19,772
Goodwill, net......................... 101,253 109,025 110,424 95,771 44,071 45,071
Total assets.......................... 875,625 900,660 816,232 467,550 248,167 239,943
Total debt(4)......................... 683,819 685,741 598,700 329,278 202,765 176,415
Stockholder's (deficit) equity........ (30,143) (14,128) (2,594) 11,973 (2,148) 13,783
Financial Information and Other Data:
Cash flow provided by operating
activities.......................... $90,743 $103,041 $58,686 $34,305 $12,100 $12,639
Cash flow used for investing
activities.......................... (88,404) (181,665) (350,875) (196,698) (14,162) (13,114)
Cash flow (used for) provided by
financing activities................ (5,680) 82,688 304,530 152,780 12,503 (1,017)
EBITDA(1)............................. 168,998 165,772 101,396 62,886 26,510 24,356
EBITDA margin(2)...................... 32.1% 32.8% 31.2% 30.4% 29.8% 27.2%
Capital expenditures(3)
Growth capital expenditures.......... $25,272 $24,096 $21,119 $12,563 -- --
Renewal capital expenditures......... 63,132 60,038 37,609 29,025 $14,219 $13,119
Acquisition capital expenditures..... -- 97,531 294,996 171,455 - -
------- -------- -------- -------- ------- -------
Total Capital Expenditures............ $88,404 $181,665 $353,724 $213,043 $14,219 $13,119
======= ======== ======== ======= ======= =======
- --------------------
(1) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the
fiscal years ended March 31, 2000, March 31, 1999, March 31, 1998 and March
28, 1997 is before the deduction for the stock based compensation charges,
and EBITDA for the period ending September 29, 1995 is before the deduction
for restructuring costs. EBITDA is used by management and certain investors
as an indication of a 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 generally accepted accounting
principles) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by generally
accepted accounting principles) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
-11-
(2) EBITDA margin represents EBITDA as a percentage of revenues. Management
believes that EBITDA margin is a useful measure to evaluate the Company's
performance over various sales levels. EBITDA margin should not be
considered as an alternative for measurements determined in accordance with
generally accepted accounting principles.
(3) Capital expenditures represent amounts expended for property and equipment,
for advance location payments to location owners and for acquisitions.
Acquisition capital expenditures represent the amounts expended to acquire
local, regional and multi-regional route operators, as well as
complementary businesses. For the fiscal years ended March 31, 1998 and
March 28, 1997, acquisition capital expenditures include approximately $2.3
million and $16.2 million, respectively, of promissory notes issued by
Coinmach Laundry related to certain acquisitions. Growth capital
expenditures represent the amount of capital expended that reflects a net
increase in the installed base of machines, excluding acquisitions. Renewal
capital expenditures represent the amount of capital expended assuming no
net increase in the installed base of machines.
(4) Total debt at March 31, 2000, March 31, 1999 and March 31, 1998 does not
include the premium, net, of $6,789, $8,023 and $9,258, respectively,
recorded as a result of the issuance by Coinmach of $100 million aggregate
principal amount of 11 3/4% Series C Senior Notes due 2005 in October 1997.
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis pertains to the results of
operations and financial position of the Company for the 2000 Fiscal Year, the
1999 Fiscal Year and the 1998 Fiscal Year and should be read in conjunction with
the consolidated financial statements and related notes thereto included in Item
8.
General
The Company is principally engaged in the business of supplying
outsourced laundry equipment services to multi-family housing properties. At
March 31, 2000, the Company owned and operated approximately 790,000 washers and
dryers in approximately 79,000 multi-family housing properties on routes
throughout the United States and in 184 retail laundromats located throughout
Texas and Arizona. The Company, through Super Laundry, its wholly-owned
subsidiary, is also a laundromat equipment distribution company.
Sources of Revenue
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 approximately 85% of its revenue. The Company provides outsourced
laundry equipment services to locations by leasing laundry rooms from building
owners and property management companies, typically on a long-term, renewable
basis. In return for the exclusive right to provide these services, most of the
Company's contracts provide for commission payments to the location owners.
Commission expense (also referred to as rent expense), the Company's single
largest expense item, is included in laundry operating expenses and represents
payments to location owners. Commissions may be fixed amounts or percentage 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 multi-family housing
properties and individuals (approximately $13.9 million for the 2000 Fiscal Year
and $11.1 million for the 1999 Fiscal Year); (ii) operating, maintaining and
servicing retail laundromats (approximately $20.6 million for the 2000 Fiscal
Year and $20.2 million for the 1999 Fiscal Year); and (iii) constructing
complete turnkey retail laundromats, retrofitting existing retail laundromats,
distributing exclusive lines of commercial coin and non-coin machines and parts,
and selling service contracts (approximately $46.3 million for the 2000 Fiscal
Year and $38.6 million for the 1999 Fiscal Year).
-13-
Results of Operations
The following table sets forth the periods indicated, selected
statement of operations data and EBITDA margin, as percentages of revenue:
Year Ended March 31,
------------------------------
2000 1999 1998
------- ------ ------
Revenues...................................... 100% 100% 100%
Laundry operating expenses.................... 66.4 65.6 66.9
General and administrative expenses........... 1.5 1.6 1.9
Depreciation and amortization................. 23.3 22.5 23.2
Operating income.............................. 8.6 10.1 7.6
Interest expense, net......................... 12.8 13.0 13.8
EBITDA margin................................. 32.1 32.8 31.2
Fiscal Year Ended March 31, 2000 Compared to the
Fiscal Year Ended March 31, 1999
Revenues increased by approximately 4% for the 2000 Fiscal Year as
compared to the 1999 Fiscal Year. The improvement in revenues is attributable
primarily to (i) increased route and retail laundromat business resulting from
internal expansion of approximately $11 million, despite an estimated $2 million
reduction in revenues in the South Central region due to excessive vandalism and
increased retail laundromat competition in Texas; (ii) increased revenues
generated from the distribution business of approximately $8 million; and (iii)
increased revenues generated from the rental business of approximately $3
million.
Laundry operating expenses increased by approximately 6% for the 2000
Fiscal Year as compared to the 1999 Fiscal Year. This increase was primarily the
result of an increase in commission and operating expenses related to an
improvement in route revenue as well as an increase in cost of sales related to
higher volume in the distribution business and an increase in expenses
associated with the expansion into new markets in the rental, retail laundromat
and distribution businesses. As a percentage of revenues, laundry operating
expenses have remained relatively constant at approximately 66% for the 2000
Fiscal Year and the 1999 Fiscal Year.
General and administrative expenses increased nominally for the 2000
Fiscal Year as compared to the 1999 Fiscal Year. However, as a percentage of
revenues, general and administrative expenses remained constant at approximately
1.55% for the 2000 Fiscal Year and the 1999 Fiscal Year.
Depreciation and amortization expense increased by approximately 8% for
the 2000 Fiscal Year as compared to the 1999 Fiscal Year, due in part to an
increase in capital expenditures with respect to the Company's installed base of
machines. The increase for the 2000 Fiscal Year was also attributable to
contract rights and goodwill associated with acquisitions during the 1999 Fiscal
Year.
Interest expense, net, increased by approximately 2% for the 2000
Fiscal Year as compared to the 1999 Fiscal Year due primarily to increased
borrowing levels under the Senior Credit Facility in connection with certain
acquisitions made during the prior year.
-14-
EBITDA(1) (earnings before deductions for interest, income taxes,
depreciation and amortization) before deduction for stock-based compensation
charges was approximately $169.0 million for the 2000 Fiscal Year as compared to
approximately $165.8 million for the 1999 Fiscal Year, representing an
improvement of approximately $3.2 million or 2%. The major sources of this
EBITDA improvement were increases of approximately $2 million in route and
retail laundromat business, and the remainder from the distribution business and
the rental business. As mentioned above, the route and retail laundromat
business was negatively impacted during the 2000 Fiscal Year by excessive
vandalism in the South Central region and increased competition in the retail
laundromat business in Texas. In addition, during the 2000 Fiscal Year, a new
distribution office was opened in Southern California and the rental business
was expanded into four new markets, which contributed to increased costs in the
2000 Fiscal Year.
Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998
Revenues increased by approximately 56% for the 1999 Fiscal Year as
compared to the 1998 Fiscal Year. This improvement in revenues resulted
primarily from the Company's execution of its acquisition strategy and increased
route revenues resulting from internal expansion. Based on the historical
revenues of acquired businesses, the Company estimates that approximately $162.0
million or 90% of its revenue increase for the 1999 Fiscal Year is primarily due
to the National Coin Acquisition (July 1997), the ALI Acquisition (January
1998), the Macke Acquisition (March 1998), the Cleanco Acquisition (May 1998)
and the G&T Acquisition (June 1998). In addition, during the 1999 Fiscal Year,
the Company's installed machine base increased by approximately 23,300 machines
from internal growth (excluding the machines added from the above-mentioned
acquisitions during such period) as compared to an increase of approximately
19,500 machines from internal growth 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 53% for the 1999
Fiscal Year, as compared to the 1998 Fiscal Year. This increase was due
primarily to an increase in commission expense, related to the acquisitions
mentioned above. However, as a percentage of revenues, laundry operating
expenses were approximately 65.6% for the 1999 Fiscal Year as compared to 66.9%
for the 1998 Fiscal Year. This change was primarily due to cost efficiencies
related to the consolidation of the acquisitions noted above into the Company's
operations.
General and administrative expenses increased by approximately $1.7
million or 28% for the 1999 Fiscal Year as compared to the 1998 Fiscal Year. The
increase for the year was due to various costs and expenses related to (i) the
Company's acquisition strategy, including systems development and refinement
relating to the integration of prior acquisitions and (ii) accounting,
management information systems and other administrative functions associated
with the Company's growth. However, as a percentage of revenues, general and
administrative expenses were 1.6% for the 1999 Fiscal Year as compared to 1.9%
for the 1998 Fiscal Year. This change was primarily due to cost efficiencies
related to the consolidation of the acquisitions noted above into the Company's
operations.
Depreciation and amortization increased by approximately 50% for the
1999 Fiscal Year, as compared to the 1998 Fiscal Year, due primarily to contract
rights and goodwill associated with the acquisitions mentioned above, as well as
an increase in capital expenditures with respect to the Company's installed base
of machines.
Interest expense, net, increased by approximately 48% for the 1999
Fiscal Year, as compared to the 1998 Fiscal Year, due primarily to increased
borrowing levels under the Amended and Restated Credit Facility in connection
with certain acquisitions, as well as the increased interest expense due to the
Bond Offering (as defined herein). See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital Resources
- - Financing Activities - Senior Note Offering and Exchange Offer."
- --------
(1) 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.
-15-
EBITDA before deduction for stock-based compensation charges was
approximately $165.8 million for the 1999 Fiscal Year as compared to
approximately $101.4 million for the 1998 Fiscal Year, representing an
improvement of approximately 63%. EBITDA margins improved to approximately 32.8%
of revenues for the current year compared to approximately 31.2% of revenues for
the prior year. These increases were primarily due to the effect of cost
efficiencies related to the consolidation of the above-mentioned acquisitions
into the Company's operations, as well as internal growth.
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 2000, the Company had outstanding long-term debt of
approximately $683.8 million (excluding the premium, net, of approximately $6.8
million) and stockholder's deficit of approximately $30.1 million.
Financing Activities
Senior Note Offering and Exchange Offer
On October 8, 1997, Coinmach completed a private placement (the "Bond
Offering") of $100 million aggregate principal amount of Series C Notes on
substantially identical terms as its Series B Notes. The gross proceeds from the
Bond Offering were $109.875 million, of which $100.0 million represented the
principal amount outstanding and $9.875 million represented the payment of a
premium for the Series C Notes. Coinmach used approximately $105.4 million of
the net proceeds from the Bond Offering to repay indebtedness outstanding under
its senior financing arrangement.
On December 23, 1997, Coinmach commenced an offer to exchange (the
"Exchange Offer") up to $296.7 million (excluding the premium on the Series C
Notes discussed above) of its 11 3/4% Senior Notes for any and all of its Series
B Notes and its Series C Notes. The Exchange Offer expired on February 6, 1998,
and, as of such date, the holders of 100% of the outstanding Series B Notes and
Series C Notes tendered such notes in the Exchange Offer for the 11 3/4% Senior
Notes.
The 11 3/4% Senior Notes, which mature on November 15, 2005, are
unsecured senior obligations of Coinmach and are redeemable, at the Company's
option, in whole or in part at any time or from time to time, on and after
November 15, 2000, upon not less than 30 nor more than 60 days notice, at the
redemption prices set forth in that certain Indenture, dated as of November 30,
1995, by and between Coinmach Corporation and Fleet National Bank of Connecticut
(formerly Shawmut Bank Connecticut, National Associates) as Trustee (the
"Indenture") plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption.
The Indenture contains a number of restrictive covenants and
agreements, including covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on certain payments (in the form of
the declaration or payment of certain dividends or distributions on the capital
stock of Coinmach Laundry or its subsidiaries, the purchase, redemption or other
acquisition of any capital stock of Coinmach Laundry, the voluntary prepayment
of subordinated indebtedness, or an Investment (as defined in the Indenture) in
any other person or entity); (iii) limitation on transactions with affiliates;
(iv) limitation on liens; (v) limitation on sales of assets; (vi) limitation on
sale and leaseback transactions; (vii) limitation on conduct of business; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) limitation on consolidations, mergers and sales of substantially all of
the assets of Coinmach.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and continuance
of certain events of default, the trustee or the holders of not less than 25% in
aggregate principal amount of outstanding 11 3/4% Senior Notes may declare all
unpaid principal and accrued interest on all of the 11 3/4% Senior Notes to be
immediately due and payable.
Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of 11 3/4% Senior Notes will have the right to require
that the Company purchase all or a portion of such holder's 11 3/4% Senior Notes
pursuant to the offer described in the Indenture, at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase.
-16-
Senior Credit Facility
The Company's existing credit facility with Bankers Trust Company
("Banker's Trust"), First Union National Bank of North Carolina ("First Union")
and certain other lending institutions, as amended (the "Senior Credit
Facility"), provides for an aggregate of $435 million of secured financing
consisting of: (i) a $160 million revolving credit facility bearing interest at
an annual rate of LIBOR plus 1.75%; (ii) a $75 million Tranche A term loan
facility bearing interest at an annual rate of LIBOR plus 2.25% and (iii) a $200
million Tranche B term loan facility bearing interest at an annual rate of LIBOR
plus 2.50%. The Senior Credit Facility also provides for up to $10 million of
letter of credit financings and short term borrowings under a swing line
facility of up to $5 million.
On January 12, 2000, the Senior Credit Facility was amended to provide,
among other things, that the $35 million working capital revolving credit
facility and the $125 million acquisition revolving credit facility be combined
into a single revolving credit facility without increasing the total aggregate
amount of such revolving credit facility ($160 million), which revolving credit
facility is available for general corporate purposes, including acquisitions.
Interest on the Company's borrowings under the Senior Credit Facility
is payable quarterly in arrears with respect to Base Rate Loans and the last day
of each applicable interest period with respect to Eurodollar Loans and at a
rate per annum no greater than the sum of the Applicable Base Rate Margin plus
the Base Rate or the sum of the Applicable Eurodollar Margin plus the Eurodollar
Rate (in each case, as defined in the Senior Credit Facility).
At March 31, 2000, the monthly variable LIBOR interest rate was
approximately 6.13%.
To manage its exposure to fluctuations in interest rates, the Company
entered into interest rate swap agreements, relating to its variable rate debt
portfolio. On February 23, 1998, the Company entered into a 33 month $75 million
notional amount interest rate swap transaction with Bankers Trust to fix the
monthly LIBOR interest rate under the Senior Credit Facility at 5.71%. On March
2, 1998, the Company entered into a 32 month, $100 million notional amount
interest rate swap transaction with First Union to fix the monthly LIBOR
interest rate under a portion of the Senior Credit Facility at 5.83% (the "March
Swap Agreement"). On April 7, 1998, the Company entered into a 31 month, $75
million notional amount interest rate swap transaction with Bankers Trust to fix
the monthly LIBOR interest rate under a portion of the Senior Credit Facility at
5.75%. On September 15, 1998, the Company amended the March Swap Agreement to
increase the notional amount to $175 million and to reduce the fixed monthly
LIBOR interest rate to 5.515%. The new expiration date is November 15, 2002. The
Company does not use derivative financial instruments for trading purposes.
Indebtedness under the Senior Credit Facility is secured by all of the
Company's real and personal property. Under the Senior Credit Facility, the
Company has pledged to Bankers Trust, as Collateral Agent, its interests in all
of the issued and outstanding shares of capital stock of the Company.
The Senior Credit Facility contains a number of restrictive covenants
and agreements, including covenants with respect to limitations on (i)
indebtedness; (ii) certain payments (in the form of the declaration or payment
of certain dividends or distributions on the capital stock of Coinmach Laundry
or its subsidiaries or the purchase, redemption or other acquisition of any
capital stock of Coinmach Laundry or its subsidiaries); (iii) voluntary
prepayments of previously existing indebtedness; (iv) Investments (as defined in
the Senior Credit Facility); (v) transactions with affiliates; (vi) liens; (vii)
sales or purchases of assets; (viii) conduct of business; (ix) dividends and
other payment restrictions affecting subsidiaries; (x) consolidations and
mergers; (xi) capital expenditures; (xii) issuances of certain equity securities
of the Company; and (xiii) creation of subsidiaries. The Senior Credit Facility
also requires that the Company satisfy certain financial ratios, including a
maximum leverage ratio and a minimum consolidated interest coverage ratio.
The Senior Credit Facility contains certain events of default,
including the following: (i) the failure of the Company to pay any of its
obligations under the Senior Credit Facility when due; (ii) certain failures by
the Company to pay principal or interest on indebtedness or certain breaches or
defaults by the Company in respect of certain indebtedness, in each case, after
the expiration of any applicable grace periods; (iii) certain defaults by the
Company in the performance or observance of the agreements or covenants under
the Senior Credit Facility or related agreements, beyond any applicable cure
periods; (iv) the falsity in any material respect of certain of the Company's
representations or warranties under the Senior Credit Facility; (v) certain
judgments against the Company; and (vi) certain events of bankruptcy or
insolvency of the Company.
-17-
Operating and Investing Activities
The Company's level of indebtedness will have several important effects
on its future operations including, but not limited to, the following: (i) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (ii) 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; (iii) 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 (iv) the
Company's ability to adapt to changes in the outsourced laundry equipment
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, renewals 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 2000
Fiscal Year were approximately $91.3 million (including approximately $2.9
million relating to capital lease obligations). Of such amount, the Company
spent approximately $25.3 million related to the net increase in the installed
base of machines of 28,400 machines. The balance of approximately $63.1 million
(which consists of machine expenditures, advance location payments and laundry
room improvements) was used to maintain the existing machine base in current
locations and through replacement of discontinued locations and for general
corporate purposes. The full impact on revenues and cash flow generated from
capital expended on acquisitions and the net increase in the installed based 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. The Company anticipates that capital expenditures, excluding
acquisitions and internal growth, will be approximately $65 million for the
twelve months ending March 31, 2001. 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.
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 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 indentures governing the 11 3/4% Senior Notes.
Certain Accounting Treatment
The Company's depreciation and amortization expenses, aggregating
approximately $123.0 million for the 2000 Fiscal Year, have the effect of
reducing net income but not operating cash flow. In accordance with generally
accepted accounting principles generally accepted in the United States, 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 up
to 15 years.
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
that 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.
-18-
Forward Looking Statements
Certain statements and information contained in this Form 10-K and
other reports and statements filed by the Company from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain certain forward looking statements and information that are based on the
beliefs of the Company's management as well as estimates and assumptions made
by, and information currently available to, the Company's management. Forward
looking statements are those that are not historical facts. When used in SEC
Filings, the words "anticipate," "project," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to the
Company or the Company's management, identify forward looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, competitive factors,
shifts in market demand, and other risks and uncertainties that may be beyond
the Company's control. Such risks and uncertainties, together with any risks and
uncertainties specifically identified in the text surrounding such forward
looking statements, include, but are not limited to, the Company's ability to
satisfy its debt service requirements, the costs of integration of acquired
businesses and realization of anticipated synergies, increased competition,
availability of capital to finance capital expenditures necessary to increase
and maintain the Company's operating machine base, the rate of growth in general
and administrative expenses due to the Company's business expansion, the
Company's dependence upon lease renewals, risks of extended periods of reduced
occupancy levels, and the ability of the Company to implement its business
strategy, including the acquisition and successful integration and operation of
acquired businesses. Other risks and uncertainties also include changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's future performance
and actual results of operations may vary significantly from those anticipated,
projected, believed, estimated, expected, intended or planned.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal exposure to market risk relates to changes in
interest rates on its borrowings. The Company's cash flow would be adversely
affected by an increase in interest rates. As of March 31, 2000, the Company had
approximately $57.0 million outstanding relating to its variable rate debt
portfolio.
The Company's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. If
market rates of interest on the Company's variable rate debt increased by 2.0%
(or 200 basis points), the Company's annual interest expense would change by
approximately $1.1 million, assuming the amount outstanding was $57.0 million,
the balance as of March 31, 2000. The Company utilizes interest rate swap
agreements to manage its exposure to these risks.
On February 23, 1998, the Company entered into a 33-month $75 million
notional amount interest rate swap transaction with Bankers Trust to fix the
monthly LIBOR interest rate under the Senior Credit Facility at 5.71%. On March
2, 1998, the Company entered into a 32-month, $100 million notional amount
interest rate swap transaction with First Union to fix the monthly LIBOR
interest rate under a portion of the Senior Credit Facility at 5.83%. On April
7, 1998, the Company entered into a 31-month, $75 million notional amount
interest rate swap transaction with Bankers Trust to fix the monthly LIBOR
interest rate under a portion of the Senior Credit Facility at 5.75%. On
September 15, 1998, the Company amended the March 2, 1998 swap agreement with
First Union to increase the notional amount to $175 million and to reduce the
fixed monthly LIBOR interest rate to 5.515%. The new expiration date is November
15, 2002.
The Company's fixed debt instruments are not generally affected by a
change in the market rates of interest, and therefore, such instruments
generally do not have an impact on future earnings. However, as fixed rate debt
matures, future earnings and cash flows may be impacted by changes in interest
rates related to debt acquired to fund repayments under maturing facilities.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
-19-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-25 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-20-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors
The directors of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company, the periods during which they have served as such and certain other
information. The term of office of each director continues until the election of
directors to be held at the next annual meeting of stockholders or until his
successor has been elected. There is no family relationship between any director
and any other director or executive officer of the Company. The information set
forth below concerning such directors has been furnished by such directors.
Name Title Age
----- ------- ----
Stephen R. Kerrigan Chairman of the Board and Directo 46
Mitchell Blatt Director 48
Robert M. Doyle Director 43
Mr. Kerrigan. Mr. Kerrigan has been Chief Executive Officer of Coinmach
Laundry since April 1996 and of Coinmach since November 1995. Mr. Kerrigan was
President and Treasurer of Solon Automated Services, Inc. ("Solon") and Coinmach
Laundry from April 1995 until April 1996, and Chief Executive Officer of TCC
from January 1995 until November 1995. Mr. Kerrigan has been a director and
Chairman of the Board of Coinmach Laundry since April 1995 and of Coinmach since
November 1995. Mr. Kerrigan was a director of TCC from January 1995 to November
1995 and a director of Solon from April 1995 to November 1995. Mr. Kerrigan
served as Vice President and Chief Financial Officer of TCC's predecessor,
Coinmach Industries Co., L.P. from 1987 to 1994.
Mr. Blatt. Mr. Blatt has been President and Chief Operating Officer of
Coinmach Laundry since April 1996 and of Coinmach since November 1995. Mr. Blatt
was the President and Chief Operating Officer of TCC from January 1995 to
November 1995. Mr. Blatt has been a director of Coinmach Laundry and Coinmach
since November 1995. Mr. Blatt joined TCC as Vice President-General Manager in
1982 and was Vice President and Chief Operating Officer from 1988 to 1994.
Mr. Doyle. Mr. Doyle has been Chief Financial Officer, Senior Vice
President, Treasurer and Secretary of Coinmach Laundry since April 1996 and
Coinmach since November 1995. Mr. Doyle has been a director of Coinmach since
November 1995. Mr. Doyle served as Vice President, Treasurer and Secretary of
TCC from January 1995 to November 1995. Mr. Doyle joined TCC's predecessor in
1987 as Controller. In 1988, Mr. Doyle became Director of Accounting, and was
promoted in 1989 to Vice President and Controller.
Executive Officers
The executive officers of the Company are listed on the table below
which is followed by descriptions of all positions and offices held by such
persons with the Company and the periods during which they have served as such
and other information. The term of office of each executive officer continues
until the election of executive officers to be held at the next annual meeting
of directors or until his successor has been elected. There is no family
relationship between any executive officer and any other executive officer or
director of the company.
Name Title Age
----- ------- ----
Stephen R. Kerrigan Chairman of the Board and Chief 46
Executive Officer
Mitchell Blatt President, Chief Operating Officer 48
Robert M. Doyle Chief Financial Officer, Senior Vice President, 43
Treasurer, Secretary
John E. Denson Senior Vice President 62
Michael E. Stanky Senior Vice President 48
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- Directors"
above.
-21-
Mr. Denson. Mr. Denson has been Senior Vice President of Coinmach
Laundry since April 1996 and of Coinmach since November 1995. Mr. Denson was
Senior Vice President, Finance of Solon from June 1987 until November 1995. Mr.
Denson has served as an officer of Solon under various titles since 1973, and
served as a director and Co-Chief Executive Officer of Solon from November 1994
to April 1995.
Mr. Stanky. Mr. Stanky has been Senior Vice President of Coinmach
Laundry since April 1996 and of Coinmach since November 1995. Mr. Stanky was a
Senior Vice President of Solon from July 1995 to November 1995. Mr. Stanky
served Solon in various capacities since 1976, and in 1985 was promoted to Area
Vice President responsible for Solon's South-Central region. Mr. Stanky served
as a Co-Chief Executive Officer of Solon from November 1994 to April 1995.
-22-
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
who had annual compensation in excess of $100,000 for all services rendered in
all capacities for the fiscal years ended March 31, 1998, March 31, 1999 and
March 31, 2000.
Annual Long-term
Compensation Compensation
---------------------------------------------- --------------------------------
Common Stock
Other Annual Underlying All other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)
- ---------------------------------- ------ ------- -------- ------------- ------------ ------------
Stephen R. Kerrigan 2000 350,000 400,000 115,956(1) 50,000 2,972(12)
Chief Executive Officer 1999 350,000 400,000 121,740(2) 50,000 2,121(12)
1998 350,000 400,000 83,870(3) - 1,929(12)
Mitchell Blatt 2000 300,000 250,000 66,281(4) 30,000 2,553(12)
President, Chief Operating Officer 1999 300,773 150,000 65,575(5) 30,000 1,957(12)
1998 268,530 280,000 62,680(6) 100,000 2,073(12)
Robert M. Doyle 2000 193,942 125,000 12,052(7) 20,000 2,124(12)
Chief Financial Officer 1999 175,000 87,500 - 20,000 1,190(12)
1998 169,438 175,000 - 100,000 2,030(12)
John E. Denson 2000 125,000 32,500 26,863(8) 10,000 1,456(12)
Senior Vice President 1999 125,500 25,000 47,868(9) 5,000 1,359(12)
1998 125,000 30,000 74,828(10) - 1,586(12)
Michael E. Stanky 2000 175,000 87,500 3,526(11) 10,000 2,009(12)
Senior Vice President 1999 175,000 87,500 - 10,000 1,928(12)
1998 164,793 175,000 - 153,521 2,145(12)
- ------------
(1) Includes $98,118 in forgiven indebtedness; $3,750 in interest, calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$12,660 in club membership fees; and $1,428 in life insurance premiums paid
by the Company on behalf of Mr. Kerrigan.
(2) Includes $98,118 in forgiven indebtedness; $3,750 in interest, calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$4,265 in automobile allowance; $14,500 in club membership fees; and $1,107
in life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
(3) Includes $45,393 in forgiven indebtedness; $3,750 in interest, calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$26,593 for reimbursement of certain out-of-pocket relocation expenses;
$3,643 in automobile allowances; $3,335 in club membership fees; and $1,156
in life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
(4) Includes $48,118 in forgiven indebtedness; $2,813 in automobile allowances;
$14,050 in club membership fees; and $1,300 in life insurance premiums paid
by the Company on behalf of Mr. Blatt.
(5) Includes $48,118 in forgiven indebtedness; $3,312 in automobile allowances;
$13,300 in club membership fees; and $845 in life insurance premiums paid
by the Company on behalf of Mr. Blatt.
(6) Includes $45,393 in forgiven indebtedness; $3,687 in automobile allowances;
$12,700 in club membership fees; and $900 in life insurance premiums paid
by the Company on behalf of Mr. Blatt.
(7) Includes $10,259 in forgiven indebtedness; $1,213 in automobile allowances;
and $580 in life insurance premiums paid by the Company on behalf of Mr.
Doyle.
(8) Includes $20,000 in forgiven indebtedness; $3,800 in interest, calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson;
$1,463 in automobile allowance; and $1,600 in life insurance premiums paid
by the Company on behalf of Mr. Denson.
-23-
(9) Includes $20,000 in forgiven indebtedness; $5,700 in interest, calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson;
$19,577 for reimbursement of certain out-of-pocket relocation expenses;
$1,525 in automobile allowances; and $1,066 in life insurance premiums paid
by the Company on behalf of Mr. Denson.
(10) Includes $7,600 in imputed interest, calculated at a rate of 9.5% per
annum, on an interest free loan made by the Company to Mr. Denson; $48,691
for reimbursement of certain out-of-pocket relocation expenses; $796 in
automobile allowances; $984 in life insurance premiums paid by the Company
on behalf of Mr. Denson; and $16,757 in net proceeds from the exercise of
options and sale of 2,457 underlying shares of Common Stock in the
Secondary Offering in December 1997 (equal to the difference between the
applicable exercise price of such options and the sale price of the
underlying shares of Common Stock, net of commissions).
(11) Includes $2,455 in forgiven indebtedness; $243 in automobile allowance; and
$828 in life insurance premiums paid by the Company on behalf of Mr.
Stanky.
(12) Represents matching contributions made by the Company to the 401(k) Plan.
Employment Contracts
Employment Agreements of Stephen R. Kerrigan, Mitchell Blatt and Robert
M. Doyle. On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell
Blatt and Robert M. Doyle (each, a "Senior Manager"), entered into Senior
Management Agreements (collectively, the "Senior Management Agreements"). In
connection with the Solon Merger, the obligations of TCC under the Senior
Management Agreements were assumed by Coinmach and certain amendments to such
agreements were effected pursuant to the Omnibus Agreement, dated as of November
30, 1995 (the "Omnibus Agreement"). The Senior Management Agreements (after
giving effect to base salary increases thereunder) provides for annual base
salaries of $350,000, $300,000 and $200,000 for each of Messrs. Kerrigan, Blatt
and Doyle, respectively, which amounts are reviewed annually by the Board.
During the fiscal year ended March 31, 2000, the Compensation Committee approved
annual base salaries for each of Messrs.Kerrigan, Blatt and Doyle of $350,000
$300,000 and $200,000 respectively. The Board, in its sole discretion, may grant
each Senior Manager an annual bonus. Each Senior Management Agreement is
terminable at the will of the Senior Managers or at the discretion of the Board.
Senior Managers are entitled to severance pay upon termination of their
employment. If employment is terminated by the Company without Cause (as defined
in the Senior Management Agreements) and no event of default has occurred under
any bank credit facility to which the Company is a party, Senior Managers are
entitled to receive severance pay in an amount equal to 1.5 times their
respective annual base salaries then in effect, payable in 18 equal monthly
installments. If employment is terminated by the Company and an event of default
has occurred and is continuing under any bank credit facility to which the
Company is a party, Senior Managers are entitled to receive severance pay in an
amount equal to their respective annual base salaries then in effect, payable in
12 equal monthly installments. Under limited circumstances, Senior Managers are
entitled to receive half of the severance pay to which they are otherwise
entitled if employment with the Company is terminated by them.
Employment Agreement of John E. Denson. The Company entered into an
employment agreement with Mr. Denson, dated as of September 5, 1996, for a term
of one year which is automatically renewable each year for successive one-year
terms. Such agreement provided for an annual base salary of $110,000, commencing
January 1, 1997, which amount is to be reviewed each December by the Board.
During the fiscal year ended March 31, 2000, the Compensation Committee approved
an annual base salary for Mr. Denson of $125,000. The Board may, in its
discretion, grant Mr. Denson a performance-based annual bonus. The agreement is
terminable at the will of Mr. Denson or at the discretion of the Board. Under
the terms of such employment agreement, Mr. Denson is entitled to receive
severance pay upon termination of employment by the Company without Cause (as
defined in such agreement) in an amount equal to the greater of $110,000 or his
annual base salary then in effect.
Employment Agreement of Michael E. Stanky. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky which provided for an
annual base salary of $150,000. The terms and conditions of Mr. Stanky's
employment agreement are substantially similar to those contained in the Senior
Management Agreements. During the fiscal year ended March 31, 2000, the
Compensation Committee approved an annual base salary for Mr. Stanky of
$175,000.
401(k) Savings Plan
The Company offers a 401(k) savings plan (the "401(k) Plan") to all
current eligible employees of the Company who have completed three months of
service. Pursuant to the 401(k) Plan, eligible employees may defer from
-24-
2% up to 15% of their salaries up to a maximum level imposed by applicable
federal law ($10,500 in 2000). The percentage of compensation contributed to the
plan is deducted from each eligible employee's salary and considered
tax-deferred savings under applicable federal income tax law. Pursuant to the
401(k) Plan, the Company contributes matching contribution amounts (subject to
the Internal Revenue Code limitation on compensation taken into account for such
purpose) of 25% of the amount contributed to the 401(k) Plan by the respective
eligible employee. Eligible employees become vested with respect to matching
contributions made by the Company pursuant to a vesting schedule based upon an
eligible employee's years of service. After two years of service, an eligible
employee is 20% vested in all matching contributions made to the 401(k) Plan.
Such employee becomes vested in equal increments thereafter through the sixth
year of service, at which time such employee becomes 100% vested. Eligible
participants are always 100% vested in their own contributions, including
investment earnings on such amounts.
The Company made the following matching contributions during its fiscal
year ended March 31, 2000 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $2,972; Mr. Blatt $2,553; Mr.
Doyle $2,124; Mr. Denson $1,456; and Mr. Stanky $2,009.
Compensation of Directors
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Board meetings.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 2000, the Compensation Committee
was composed of Dr. Arthur B. Laffer, Mr. Stephen G. Cerri and Mr. David A.
Donnini. None of Dr. Laffer or Messrs. Cerri and Donnini have been an employee
or officer of the Company or any of its subsidiaries. Mr. Donnini is a principal
of Golder, Thoma, Cressey, Rauner, Inc., the general partner of GTCR Fund IV.
Dr. Laffer and Messrs. Donnini and Cerri are directors of Coinmach Laundry.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 31, 2000, the Company had 100 shares of Common Stock issued
and outstanding, 100% of which was owned by Coinmach Laundry. The information in
the following table sets forth, as of June 28, 2000, certain information with
respect to the beneficial ownership of Coinmach Laundry's common stock by (a)
each director, (b) each Named Executive Officer of the Company who is a
stockholder, (c) each person known to the Company to own beneficially more than
5% of any class of voting stock of Coinmach Laundry, and (d) all directors and
Named Executive Officers as a group. No director or executive officer of the
Company owns any shares of Coinmach Laundry's Class B non-voting common stock.
The Company believes that except as otherwise indicated, the beneficial holders
listed below have sole voting and investment power regarding the shares of
Coinmach Laundry's common stock owned by them.
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
- -------------------------------------- -------------------- ----------------
Golder, Thoma, Cressey, Rauner, 3,008,402 22.8%
Fund IV, L.P.
6100 Sears Tower
Chicago, IL 60606
Strong Capital Management, Inc. 1,927,425(2) 14.6%
100 Heritage Reserve
Menomonee Falls, WI 53051
Prudential Insurance Company of 1,100,800(3) 8.4%
America
751 Broad Street
Newark, NJ 07102-3777
-25-
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class(1)
- -------------------------------------- -------------------- ----------------
Robert Fleming, Inc. 1,014,805(4) 7.7%
320 Park Avenue, 11th Floor
New York, NY 10022
Capital Guardian Trust Company 615,300(5) 4.7%
333 South Hope Street, 52nd Flr.
Los Angeles, CA 90071
Dimensional Fund Advisors, Inc. 778,600(6) 5.9%
OFFICERS AND DIRECTORS
Stephen R. Kerrigan 687,467(7) 5.21%
Mitchell Blatt 508,845(8) 3.86%
Robert M. Doyle 247,790(9) 1.88%
Michael E. Stanky 187,846(10) 1.42%
John E. Denson 33,854(11) *
Bruce V. Rauner 3,008,402(12) 22.8%
David A. Donnini 3,008,402(13) 22.8%
James N. Chapman 52,565(14) *
Arthur B. Laffer 74,000(15) *
Stephen G. Cerri 79,500(16) *
---------- ----
All Officers and Directors as a 4,893,269(17) 35.1%
group (10 persons)
- ---------------------
* Percentage of shares beneficially owned does not exceed 1% of Common
Stock outstanding.
(1) Share percentage ownership is rounded to nearest tenth of 1% and reflects
the effect of dilution as a result of outstanding options to the extent
such options are, or within 60 days from March 31, 2000 will become,
exercisable. Shares underlying any option which was exercisable on March
31, 2000 or becomes exercisable within the 60 day period thereafter are
deemed outstanding only for purposes of computing the share ownership and
share ownership percentage of the holder of such option.
(2) Based on a report on Schedule 13G filed by Strong Capital Management, Inc.
("Strong") with the SEC on May 10, 2000. Strong has sole voting power as to
1,501,600 shares and sole investment power as to 1,927,425 shares.
(3) Based on a report on Schedule 13G/A filed by Prudential Insurance Company
of America ("Prudential") with the SEC on January 31, 2000. Prudential has
sole voting power as to 284,400 shares and shared voting power as to
816,400 shares. Prudential has sole investment power as to 284,400 shares
and shared investment power as to 816,400 shares.
(4) Based on a report on Schedule 13G filed by Robert Fleming Inc. with the SEC
on February 7, 2000.
(5) Based on a report on Schedule 13G filed by Capital Guardian Trust Company
("Capital") with the SEC as of December 31, 1999. Capital has sole voting
power as to 494,100 shares and sole investment power as to 615,300 shares.
Capital has disclaimed beneficial ownership of all shares pursuant to Rule
13d-4 of the Securities Exchange Act of 1934, as amended.
(6) Based on a report on Schedule 13G filed by Dimensional Fund ("Dimensional")
Advisors, Inc. with the SEC on February 4, 2000. Dimensional has sole
voting power as to 778,600 shares and sole investment power as to 778,600
shares. Dimensional disclaims beneficial ownership of all such shares.
(7) Includes shares beneficially owned by MCS Capital, Inc. ("MCS"), a
corporation controlled by Mr. Kerrigan. Includes shares underlying options
held by MCS to purchase an aggregate of 308,098 shares of Common Stock at
an exercise price of $11.90 per share, all of which options are currently
exercisable. Includes shares underlying options held by Mr. Kerrigan to
purchase an aggregate of (i) 30,000 shares of Common Stock at an exercise
price of approximately $23.05 per share and (ii) 20,000 shares of Common
Stock at an exercise price of approximately $10.56 per share, all of which
options are currently exercisable. Does not include shares underlying
options held by Mr. Kerrigan to purchase an aggregate of (i) 20,000 shares
of Common Stock at an exercise price of approximately $23.05 per share and
(ii) 30,000 shares of Common Stock at an exercise price of approximately
$10.56 per share, none of which options are currently exercisable nor
become exercisable within the next 60 days.
-26-
(8) Includes shares underlying options to purchase an aggregate of (i) 100,000
shares of Common Stock at an exercise price of $11.90 per share, (ii)
60,000 shares of Common Stock at an exercise price of $14.00 per share,
(iii) 18,000 shares of Common Stock at an exercise price of approximately
$23.05 per share and (iv) 12,000 shares of Common Stock at an exercise
price of approximately $10.56 per share, all of which options are currently
exercisable. Does not include shares underlying options to purchase an
aggregate of (i) 40,000 shares of Common Stock at an exercise price of
$14.00 per share, (ii) 12,000 shares of Common Stock at an exercise price
of approximately $23.05 per share and (iii) 18,000 shares of Common Stock
at an exercise price of $10.56 per share, none of which options are
currently exercisable nor become exercisable within the next 60 days.
(9) Includes shares underlying options to purchase an aggregate of (i) 151,890
shares of Common Stock at an exercise price of $11.90 per share, (ii)
12,000 shares of Common Stock at an exercise price of approximately $23.05
per share and (iii) 8,000 shares of Common Stock at an exercise price of
$10.56 per share, all of which options are currently exercisable. Does not
include shares underlying options to purchase an aggregate of (i) 20,000
shares of Common Stock at an exercise price of $11.90 per share, (ii) 8,000
shares of Common Stock at an exercise price of approximately $23.05 per
share and (iii) 12,000 shares of Common Stock at an exercise price of
$10.56 per share, all of which options are not currently exercisable nor
become exercisable within the next 60 days.
(10) Includes shares underlying options to purchase an aggregate of (i) 103,521
shares of Common Stock at an exercise price of $11.90 per share, (ii)
50,000 shares of Common Stock at an exercise price of $14.00 per share,
(iii) 6,000 shares of Common Stock at an exercise price of approximately
$22.31 per share and (iv) 4,000 shares of Common Stock at an exercise price
of $10.56 per share, all of which options are currently exercisable. Does
not include shares underlying options to purchase an aggregate of (i) 4,000
shares of Common Stock at an exercise price of approximately $22.31 per
share and (ii) 6,000 shares of Common Stock at an exercise price of $10.56
per share, none of which options are currently exercisable nor become
exercisable within the next 60 days.
(11) Includes shares underlying options to purchase an aggregate of (i) 26,299
shares of Common Stock at an exercise price of $11.90 per share, (ii) 3,000
shares of Common Stock at an exercise price of approximately $23.31 per
share and (iii) 4,000 shares of Common Stock at an exercise price of $10.56
per share, all of which options are currently exercisable. Does not include
shares underlying options to purchase an aggregate of (i) 2,000 shares of
Common Stock at an exercise price of approximately $23.31 per share and
(ii) 6,000 shares of Common Stock at an exercise price of $10.56 per share,
none of which options are currently exercisable nor become exercisable
within the next 60 days.
(12) All such shares are held by GTCR Fund IV, of which GTCR IV, L.P. ("GTCR
IV"), is the general partner. Mr. Rauner is a principal of Golder, Thoma,
Cressey, Rauner, Inc., the general partner of GTCR IV. Mr. Rauner disclaims
beneficial ownership of such shares.
(13) All such shares are held by GTCR Fund IV, of which GTCR IV is the general
partner. Mr. Donnini is a principal of Golder, Thoma, Cressey, Rauner,
Inc., the general partner of GTCR IV. Mr. Donnini disclaims beneficial
ownership of such shares.
(14) Includes shares underlying options to purchase an aggregate of (i) 28,756
shares of Common Stock at an exercise price of $11.90 per share, and (ii)
13,248 shares of Common Stock at an exercise price of approximately $11.69
per share, all of which options are currently exercisable. Does not include
shares underlying options to purchase an aggregate of 52,996 shares of
Common Stock at an exercise price of approximately $11.69 per share, none
of which options are currently exercisable nor become exercisable within
the next 60 days.
(15) Includes shares underlying options to purchase an aggregate of (i) 60,000
shares of Common Stock at an exercise price of $14.00 per share, and (ii)
14,000 shares of Common Stock at an exercise price of approximately $11.69
per share, all of which options are currently exercisable. Does not include
shares underlying options to purchase an aggregate of 21,000 shares of
Common Stock at an exercise price of $11.69 per share, none of which
options are currently exercisable nor become exercisable within the next 60
days.
(16) Represents shares underlying options to purchase an aggregate of (i) 60,000
shares of Common Stock at an exercise price of $14.00 per share, and (ii)
14,000 shares of Common Stock at an exercise price of approximately $11.69
per share, all of which options are currently exercisable. Does not include
shares underlying options to purchase an aggregate of 21,000 shares of
Common Stock at an exercise price of $11.69 per share and, none of which
options are currently exercisable nor become exercisable within the next 60
days.
(17) In calculating the shares beneficially owned by executive officers and
directors as a group, 3,008,402 shares of Common Stock owned by GTCR Fund
IV and included in the beneficial ownership amounts of each of Messrs.
Rauner and Donnini are included only once. In calculating the percentage of
shares beneficially owned by executive officers and directors as a group,
the shares of Common Stock underlying all options which are currently
exercisable or become exercisable within the next 60 days are deemed
outstanding.
Change of Control
Pursuant to the terms of the Credit Agreement relating to the Senior
Credit Facility, upon the occurrence of an Event of Default (as defined in such
Credit Agreement), the lenders under such credit facility have the right to
foreclose on all of the outstanding shares of Common Stock issued in Coinmach
Laundry's name and pledged to such lenders by Coinmach Laundry pursuant to the
terms and conditions of the Credit Agreement and the Holdings Pledge Agreement
(as defined in the Credit Agreement).
-27-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Management and Consulting Services
During the last fiscal year, the Company paid Mr. Chapman, a director
of the Company, $180,000 for general financial advisory and investment banking
services.
Registration Rights Agreement
The Company and GTCR, MCS and Messrs. Blatt, Doyle, Stanky and Chapman
are parties to a registration rights agreement, dated July 26, 1995 (the
"Company Registration Agreement"), pursuant to which the Company granted such
parties certain rights with respect to the registration under the Securities
Act, for resale to the public, of their respective Registrable Securities (as
defined in the Company Registration Agreement). The Company Registration
Agreement provides that, among other things, GTCR has the right to "demand"
registrations under the Securities Act with respect to all or a portion of
GTCR's Registrable Securities. The Company Registration Agreement also provides
for customary provisions regarding the priority among holders of securities with
respect to the number of shares to be registered pursuant to any demand or
piggyback registration and indemnification by the Company of the holders of
Registrable Securities.
Certain Loans to Members of Management
As of June 28, 2000, Mr. Kerrigan (directly and indirectly through MCS,
an entity controlled by Mr. Kerrigan) and Mr. Blatt owed the Company $395,257
and $275,257, respectively, plus interest accrued thereon. During the last
fiscal year, the largest aggregate amount owed to the Company by Mr. Kerrigan
(directly and indirectly through MCS) and Mr. Blatt equaled $489,528 and
$339,528, respectively, plus interest accrued thereon. The indebtedness of each
of MCS and Mr. Blatt is evidenced by (i) two promissory notes dated January 31,
1995 in the original principal amount of $140,000; (ii) two promissory notes
dated July 26, 1995 in the original amount of $52,370; and (iii) two promissory
notes dated May 3, 1996 in the original amount of $21,797. Each such note
accrues interest at a rate of 8% per annum and was delivered to the Company in
connection with the purchase of the Company's securities by MCS and Mr. Blatt.
The promissory notes dated January 31, 1995 are payable in four equal annual
installments commencing on January 31, 1996. The promissory notes dated July 26,
1995 and May 3, 1996 are payable in eight equal annual installments commencing
on July 26, 1996 and May 3, 1996, respectively. During the 2000 Fiscal Year, the
Company forgave the repayment of approximately (i) $45,393 by each of MCS and
Mr. Blatt, which amounts represent the aggregate amount of the fourth
installment of principal and interest owed by MCS and Mr. Blatt under the notes
dated January 31, 1995 and July 26, 1995, and (ii) $2,725 by each of MCS and Mr.
Blatt, which amounts represent the aggregate amount of the second installment of
principal and interest owed by MCS and Mr. Blatt under the notes dated May 3,
1996. On May 5, 1999, the Company agreed to extend a loan of $250,000 to Mr.
Blatt, which loan is evidenced by a promissory note providing, among other
things, that such loan (i) be repaid in a single payment on the third
anniversary of such loan and (ii) accrue interest at a rate of 8% per annum. A
principal payment of $20,000 was made by Mr. Blatt on June 7, 1999. Such loan is
also secured by a pledge of all the Common Stock held by Mr. Blatt.
Relocation Loans
In connection with the Company's establishment of a corporate
development office in Charlotte, North Carolina and the relocation of Messrs.
Kerrigan and Denson to such office in September 1996 and March 1997,
respectively, Coinmach extended loans to each of Messrs. Kerrigan and Denson in
the principal amounts of $500,000 ($350,000 of which is reflected in the
$395,257 owed by Mr. Kerrigan to the Company as of June 28, 2000) and $80,000,
respectively. The loan to Mr. Denson (the "Denson Loan") is an interest free
demand loan. The Company forgave an aggregate of $40,000 on the Denson Loan,
$20,000 of which was forgiven during the 2000 Fiscal Year and $20,000 of which
was forgiven during the 1999 Fiscal Year. The loan to Mr. Kerrigan (the
"Kerrigan Loan") provides for the repayment of principal and interest in five
equal annual installments commencing in July 1997 (each payment date, a "Payment
Date") and accrual of interest at a rate of 7.5% per annum. During the fiscal
year ended March 31, 1998, the Board determined to extend the Kerrigan loan an
additional five years providing for repayment of outstanding principal and
interest in equal annual installments ending July 2006. The Kerrigan Loan
provides that payments of principal and interest will be forgiven on each
Payment Date provided that Mr. Kerrigan is employed by Coinmach on such Payment
Date. If Mr. Kerrigan ceases to be employed by Coinmach for a reason other than
(i) a change in control of Coinmach, (ii) the death or disability of Mr.
Kerrigan while employed by Coinmach, or (iii) cause (as defined in the Kerrigan
Loan) (each, a "Termination Event"), then all outstanding amounts due under the
Kerrigan Loan will be forgiven as of the date of the Termination Event. If Mr.
Kerrigan's employment is terminated upon the occurrence of any event that is not
a Termination Event, then all outstanding amounts due under the Kerrigan Loan
will become due and payable within 30 business days following the termination of
Mr. Kerrigan's employment.
-28-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements -- see Index to Financial Statements
appearing on Page F-1.
(2) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
3.1 Restated Certificate of Incorporation of Coinmach Corporation
("Coinmach") (incorporated by reference from exhibit 3.1 to Coinmach's
Form 10-K for the transition period from September 30, 1995 to March
29, 1996, file number 0-7694)
3.2 Bylaws of Coinmach (incorporated by reference from exhibit 3.2 to
Coinmach's Form 10-K for the transition period from September 30, 1995
to March 29, 1996, file number 0-7694)
4.1 Indenture, dated as of November 30, 1995, by and between Coinmach, as
Issuer, and Fleet National Bank of Connecticut (formerly, Shawmut Bank
Connecticut, National Association) ("Fleet"), as Trustee (incorporated
by reference from exhibit number 4.1 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
4.2 First Supplemental Indenture, dated as of December 11, 1995, by and
between Coinmach, as Issuer, and Fleet , as Trustee (incorporated by
reference from exhibit number 4.2 to Coinmach's Registration Statement
on Form S-1, file number 333-00620)
4.3 First Supplemental Indenture, dated as of November 28, 1995, by and
between Solon Automated Services, Inc. ("Solon") and U.S. Trust Company
of New York, as Trustee (incorporated by reference from exhibit number
4.3 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
4.4 Registration Rights Agreement, dated as of November 30, 1995, by and
between Coinmach and Lazard Freres & Co. LLC ("Lazard"), as Initial
Purchaser (incorporated by reference from exhibit number 4.6 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
4.5 Addendum to Registration Rights Agreement, dated December 14, 1995, by
and between Coinmach and Lazard, as Initial Purchaser (incorporated by
reference from exhibit number 4.8 to Coinmach's Registration Statement
on Form S-1, file number 333-00620)
4.6 Form of Global Note (included as an exhibit to Exhibit 4.1 hereto)
(incorporated by reference from exhibit number 4.4 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
4.7 Form of Physical Note (included as an exhibit to Exhibit 4.1 hereto)
(incorporated by reference from exhibit number 4.5 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.1 Purchase Agreement, dated as of January 31, 1995, by and among The
Coinmach Corporation ("TCC"), CIC I Acquisition Corp. ("CIC"), the
stockholders of CIC and Coinmach Holding Corp. (incorporated by
reference from exhibit number 10.1 to Coinmach's Registration Statement
on Form S-1, file number 333-00620)
-29-
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
10.2 Equity Purchase Agreement, dated as of January 31, 1995, by and between
TCC and Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR"),
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.2 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.3 Investor Purchase Agreement, dated as of January 31, 1995, by and
between TCC, GTCR and President and Fellows of Harvard College
("Harvard"), subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit number
10.3 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.4 Investor Purchase Agreement, dated as of January 31, 1995, by and
between TCC, GTCR, MCS Capital Management, Inc. and Stephen R.
Kerrigan, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.4 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.5 Stock Pledge Agreement, dated as of January 31, 1995, by and between
TCC and MCS Capital, Inc. ("MCS") (incorporated by reference from
exhibit number 10.5 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.6 Stock Pledge Agreement, dated as of January 31, 1995, by and between
TCC and Mitchell Blatt (incorporated by reference from exhibit number
10.6 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.7 Promissory Note, dated January 31, 1995, of MCS in favor of TCC,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.7 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.8 Promissory Note, dated January 31, 1995, of Mitchell Blatt in favor of
TCC, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.8 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.9 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Stephen R. Kerrigan, MCS and GTCR, subsequently amended by
the Omnibus Agreement (as hereinafter defined) (incorporated by
reference from exhibit number 10.10 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
10.10 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Mitchell Blatt and GTCR,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.11 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.11 Senior Management Agreement, dated January 31, 1995, by and between
TCC, Coinmach Industries Co., L.P., Robert M. Doyle and GTCR,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.12 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.12 Employment Agreement, dated as of August 4, 1995, by and between Solon
and John E. Denson (incorporated by reference from exhibit number 10.13
to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.13 Employment Agreement, dated as of July 1, 1995, by and between Solon,
Michael E. Stanky and GTCR (incorporated by reference from exhibit
number 10.14 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
-30-
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
10.14 Stock Purchase Agreement, dated as of March 7, 1995, by and among Ford
Coin Laundries, Inc., Kwik Wash Laundries, Inc., Solon and the Sellers
(incorporated by reference from exhibit number 10.15 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.15 Dealer Manager Agreement, dated October 20, 1995, by and among TCC,
Solon, Lazard and Fieldstone Private Capital Group, L.P. ("Fieldstone")
(incorporated by reference from exhibit number 10.17 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.16 Purchase Agreement, dated November 15, 1995, by and among TCC, Solon
and Lazard (incorporated by reference from exhibit number 10.18 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.17 Addendum to Purchase Agreement, dated December 11, 1995, by and between
Coinmach and Lazard (incorporated by reference from exhibit number
10.19 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.18 Omnibus Agreement, dated as of November 30, 1995, among SAS, Solon, TCC
and each of the other parties executing a signature page thereto (the
"Omnibus Agreement") (incorporated by reference from exhibit number
10.20 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.19 Commitment Letter, dated November 22, 1996, from Bankers Trust Company
("Bankers Trust"), First Union Bank of North Carolina ("First Union")
and Lehman Commercial Paper, Inc. ("Lehman"), addressed to Coinmach
Laundry Corporation ("Coinmach Laundry") (incorporated by reference
from exhibit 10.1 to Coinmach's Form 10-Q for the quarterly period
ended December 27, 1996, file number 0-7694)
10.20 Stock Purchase Agreement, dated November 25, 1996, by and among Tamara
Lynn Ford, Robert Kyle Ford, Traci Lea Ford, Tucker F. Enthoven,
Richard F. Enthoven, Richard Franklin Ford, Jr., Trustee u/d/t February
4, 1994, KWL, Inc., Kwik-Wash Laundries, Inc., Kwik Wash Laundries,
L.P. and Coinmach (the "Stock Purchase Agreement") (incorporated by
reference from exhibit 10.2 to Coinmach's Form 10-Q for the quarterly
period ended December 27, 1996, file number 0-7694)
10.21 First Amendment to Stock Purchase Agreement, dated as of January 8,
1997 (incorporated by reference from exhibit 10.3 to Coinmach's Form
10-Q for the quarterly period ended December 27, 1996, file number
0-7694)
10.22 Registration Rights Agreement, dated as of March 14, 1997, between
Coinmach and Atlanta Washer & Dryer Leasing, Inc. (incorporated by
reference from exhibit 10.33 to Coinmach's Form 10-K for the fiscal
year ended March 28, 1997, file number 0-7694)
10.23 Amended and Restated Employment Agreement, dated as of June 1, 1996, by
and between Coinmach and John E. Denson (incorporated by reference from
exhibit 10.34 to Coinmach's Form 10-K for the fiscal year ended March
28, 1997, file number 0-7694)
10.24 Promissory Note, dated February 11, 1997, of Stephen R. Kerrigan in
favor of Coinmach (incorporated by reference from exhibit 10.35 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.2 Underwriting Agreement, dated July 17, 1996, by and among Coinmach
Laundry and Lehman Brothers, Inc., Dillon, Read & Co., Inc., Lazard and
Fieldstone (collectively, the "Representatives") (incorporated by
reference from exhibit 10.36 to Coinmach's Form 10-K for the fiscal
year ended March 28, 1997, file number 0-7694)
-31-
10.26 Lock-Up Agreements, dated July 23, 1996, among Coinmach Laundry and the
Representatives (incorporated by reference from exhibit 10.37 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.27 Promissory Note, dated January 8, 1997, of Coinmach Laundry in favor of
Richard F. Enthoven, as agent for Tamara Lynn Ford, Richard Kyle Ford,
Traci Lea Ford, Tucker F. Enthoven, Richard F. Enthoven, and Richard
Franklin Ford, Jr., Trustee u/d/t February 4, 1994 (incorporated by
reference from exhibit 10.38 to Coinmach's Form 10-K for the fiscal
year ended March 28, 1997, file number 0-7694)
10.28 Tax Cooperation Agreement, dated as of January 8, 1997, by and among
Kwik Wash Laundries, L.P., KWL, Inc., Kwik-Wash Laundries, Inc.,
Coinmach and the Sellers (incorporated by reference from exhibit 10.39
to Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.29 Consulting Services Agreement, dated as of January 8, 1997, by and
between Richard F. Enthoven and Coinmach (incorporated by reference
from exhibit 10.40 to Coinmach's Form 10-K for the fiscal year ended
March 28, 1997, file number 0-7694)
10.30 Credit Agreement dated January 8, 1997, among Coinmach, the Lending
Institutions listed therein, Bankers Trust, First Union and Lehman
(incorporated by reference from exhibit 10.41 to Coinmach's Form 10-K
for the fiscal year ended March 28, 1997, file number 0-7694)
10.31 Tranche A Term Notes, each dated January 8, 1997, by Coinmach in favor
of each of Bankers Trust, First Union, Lehman, Heller, The Nippon
Credit Bank, Ltd., Credit Lyonnais New York Branch, Bank of Scotland
and Bank of Boston (incorporated by reference from exhibit 10.42 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.32 Tranche B Term Notes, each dated January 8, 1997, by Coinmach in favor
of each of Bankers Trust, First Union, Lehman, Fleet National Bank,
Heller, The Nippon Credit Bank, Ltd., Bank of Scotland, Bank of Boston,
Massachusetts Mutual Life Insurance Company, Pilgrim America Prime Rate
Trust, Prime Income Trust, The Ing Capital Senior Secured High Income
Fund, L.P., and Merrill Lynch Senior Floating Rate Fund, Inc.
(incorporated by reference from exhibit 10.43 to Coinmach's Form 10-K
for the fiscal year ended March 28, 1997, file number 0-7694)
10.33 Revolving Notes, each dated January 8, 1997, by Coinmach in favor of
each of Bank of Boston, Bankers Trust, First Union, Lehman, Fleet
National Bank, Heller, The Nippon Credit Bank, Ltd., Credit Lyonnais
New York Branch, and Bank of Scotland (incorporated by reference from
exhibit 10.44 to Coinmach's Form 10-K for the fiscal year ended March
28, 1997, file number 0-7694)
10.34 Swing Line Note, dated January 8, 1997, in the principal amount of
$5,000,000 in favor of Bankers Trust (incorporated by reference from
exhibit 10.45 to Coinmach's Form 10-K for the fiscal year ended March
28, 1997, file number 0-7694)
10.35 Holdings Pledge Agreement, dated January 8, 1997, made by Coinmach
Laundry to Bankers Trust and Richard F. Enthoven, as Seller Agent
(incorporated by reference from exhibit 10.46 to Coinmach's Form 10-K
for the fiscal year ended March 28, 1997, file number 0-7694)
10.36 Borrower Pledge Agreement, dated January 8, 1997, made by Coinmach to
Bankers Trust (incorporated by reference from exhibit 10.47 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.37 Security Agreement, dated January 8, 1997, between Coinmach and Bankers
Trust and the Assignment of Security Interest in United States
Trademarks and Patents (incorporated by reference from exhibit 10.48 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
-32-
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
10.38 Collateral Assignment of Leases, dated January 8, 1997, by Coinmach in
favor of Bankers Trust (incorporated by reference from exhibit 10.49 to
Coinmach's Form 10-K for the fiscal year ended March 28, 1997, file
number 0-7694)
10.39 Collateral Assignment of Location Leases, dated January 8, 1997, by
Coinmach in favor of Bankers Trust (incorporated by reference from
exhibit 10.50 to Coinmach's Form 10-K for the fiscal year ended March
28, 1997, file number 0-7694)
10.40 Amendment to Investor Purchase Agreements, dated January 8, 1997, by
and among Coinmach Laundry, GTCR, Coinmach, Heller, Jackson National
Life Insurance Company, individually and as successor by merger with
Jackson National Life Insurance Company of Michigan (collectively,
"JNL"), Harvard, James N. Chapman and Michael E. Marrus (incorporated
by reference from exhibit 10.51 to Coinmach's Form 10-K for the fiscal
year ended March 28, 1997, file number 0-7694)
10.41 Amendment to Investor Purchase Agreement, dated January 8, 1997, by and
among Coinmach Laundry, GTCR, Heller, JNL, Harvard, MCS, James N.
Chapman, Michael E. Marrus, Mitchell Blatt and Michael Stanky
(incorporated by reference from exhibit 10.52 to Coinmach's Form 10-K
for the fiscal year ended March 28, 1997, file number 0-7694)
10.42 Promissory Note, dated March 24, 1997, of John E. Denson in favor of
Coinmach (incorporated by reference from exhibit 10.53 to Coinmach's
Form 10-K for the fiscal year ended March 28, 1997, file number 0-7694)
10.43 Deed of Trust, Security Agreement, Assignment of Leases, Rents and
Profits, Financing Statement and Fixture Filing, made by Coinmach to
Bankers Trust, as executed on March 27, 1997 and recorded with the
County Clerk of Dallas County, Texas on April 7, 1997 (incorporated by
reference from exhibit 10.54 to Coinmach's Form 10-K for the fiscal
year ended March 28, 1997, file number 0-7694)
10.44 Amendment No. One and Waiver, dated as of June 2, 1997, to the Credit
Agreement dated as of January 8, 1997, among Coinmach, Coinmach
Laundry, the lending institutions named therein, Bankers Trust, First
Union and Lehman (incorporated by reference from exhibit number 10.55
to Coinmach's Form 10-Q for the quarterly period ended June 27, 1997,
file number 0-7694)
10.45 Amendment No. Two and Waiver, dated as of October 7, 1997, to the
Credit Agreement, dated as of January 8, 1997, as amended by Amendment
No. 1 dated as of June 2, 1997, among Coinmach, Coinmach Laundry, the
lending institutions from time to time a party thereto, Bankers Trust,
First Union and Lehman (incorporated by reference from exhibit number
10.4 to Coinmach's Form 8-K/A Amendment No. 1 dated October 8, 1997,
file number 0-7694)
10.46 Indenture, dated as of October 8, 1997, by and between Coinmach and
State Street Bank and Trust Company ("State Street") (incorporated by
reference from exhibit number 4.1 to Coinmach's Form 8-K/A Amendment
No. 1 dated October 8, 1997, file number 0-7694)
10.47 Purchase Agreement, dated as of October 1, 1997, by and among Coinmach,
Jefferies and Company, Inc. ("Jefferies"), Lazard, BT Alex. Brown
Incorporated ("BT Alex. Brown") and First Union Capital Markets Corp.
(incorporated by reference from exhibit 10.1 to Coinmach's Form 8-K/A
Amendment No. 1 dated October 8, 1998, file number 0-7694)
10.48 Registration Rights Agreement, dated October 8, 1997, by and among
Coinmach, Jefferies, Lazard, BT Alex. Brown and First Union Capital
Markets Corp. (incorporated by reference from exhibit 10.2 to
Coinmach's Form 8-K/A Amendment No. 1 dated October 8, 1998, file
number 0-7694)
10.49 Second Supplement Indenture, dated as of October 8, 1997 (Supplement to
Indenture dated as of November 11, 1995) from Coinmach to State Street
(incorporated by reference from exhibit 10.3 to Coinmach's Form 8-K/A
Amendment No. 1 dated October 8, 1998, file number 0-7694)
-33-
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
10.50 Stock Purchase Agreement, dated July 17, 1997, by and among the
"Sellers" as set forth on Exhibit A attached thereto, National Coin
Laundry Holding, Inc., National Coin Laundry, Inc., National Laundry
Equipment Company and Coinmach (incorporated by reference from exhibit
10.56 to Coinmach's Form 10-Q for the quarterly period ended September
26, 1997, file number 0-7694)
10.51 Asset Purchase Agreement, dated July 17, 1997, by and among Whitmer
Vend-O-Mat Laundry Services, Inc., Stephen P. Close, Kimberly A. Close,
Ruth D. Close, Kimberly A. Close, Ruth D. Close and Stephen P. Close as
trustees of the Alvin D. Close Trust, SPC Management, Inc. and Coinmach
(incorporated by reference from exhibit 10.57 to Coinmach's Form 10-Q
for the quarterly period ended September 26, 1997, file number 0-7694)
10.52 Supply Agreement, dated as of May 13, 1997, by and among Coinmach, SLEC
and Raytheon Appliances, Inc. (incorporated by reference from exhibit
10.58 to Coinmach's Form 10-Q for the quarterly period ended December
26, 1997, file number 0-7694) (superceded by exhibit 10.57 of this
report)
10.53 Purchase Agreement, dated as of January 20, 1998, by and among
Coinmach, Matthew A. Spagat, Jerome P. Seiden, Macke Laundry Service
Midwest Limited Partnership, JPS Laundry, Inc., Macke Laundry Service,
Inc., Coin Controlled Washers, Inc., Macke Laundry Service-Central
Limited Partnership, Macke Services-Texas, Inc., Superior Coin, Inc.,
Superior Coin II, Inc., and Advance/Macke Domestic Machines, Inc. (the
"Macke Purchase Agreement") (incorporated by reference from exhibit
10.59 to Coinmach's Form 8-K dated March 2, 1998, file number 0-7694)
10.54 Amendment No. 1, dated as of March 2, 1998, to the Macke Purchase
Agreement (incorporated by reference from exhibit 10.60 to Coinmach's
Form 8-K dated March 2, 1998, file number 0-7694)
10.55 Second Amended and Restated Credit Agreement, dated as of March 2,
1998, among Coinmach, Coinmach Laundry, First Union, as Syndication
Agent, Bankers Trust, as Administrative Agent, and the Banks party
thereto (incorporated by reference from exhibit 10.61 to Coinmach's
Form 8-K dated March 2, 1998, file number 0-7694)
10.56 First Amendment to the Second Amended and Restated Credit Agreement,
dated as of March 2, 1998, among Coinmach, Coinmach Laundry, First
Union, as Syndication Agent, Bankers Trust, as Administrative Agent,
and the Banks party thereto (incorporated by reference from exhibit
10.62 to Coinmach's Form 8-K dated March 2, 1998, file number 0-7694)
10.57 Supply Agreement, dated as of May 1, 1998, by and among Coinmach, SLEC
and Raytheon Commercial Laundries, LLC (certain portions of this
exhibit were omitted pursuant to the grant of a request for
confidential treatment) (incorporated by reference from exhibit 10.75
to Coinmach's Form 10-K for the fiscal year ended March 31, 1998, file
number 0-7694)
16.1 Letter, dated June 29, 1995, from Arthur Andersen LLP to the Securities
and Exchange Commission regarding change in certifying accountants
(incorporated by reference from exhibit number 16.1 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
21.1 Subsidiaries of Coinmach Corporation
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
During the year ended March 31, 2000, the Company did not
file any reports on Form 8-K.
(c) Exhibits -- See (a)(2) above.
(d) None.
-34-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Roslyn,
State of New York on June 28, 2000.
COINMACH CORPORATION
By: /s/ STEPHEN R. KERRIGAN
----------------------------------
Stephen R. Kerrigan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
Date: June 28, 2000 By: /s/ STEPHEN R. KERRIGAN
----------------------------------
Stephen R. Kerrigan
Chairman of the Board of Directors and
Chief Executive Officer (Principal
Executive Officer)
Date: June 28, 2000 By: /s/ MITCHELL BLATT
-----------------------------------
Mitchell Blatt
Director, President and Chief Operating Officer
Date: June 28, 2000 By: /s/ ROBERT M. DOYLE
------------------------------------
Robert M. Doyle
Chief Financial Officer, Senior Vice President
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Date: June 28, 2000 By: /s/ JOHN E. DENSON
----------------------------------
John E. Denson
Senior Vice President - Corporate Development
Date: June 28, 2000 By: /s/ MICHAEL STANKY
------------------------------------
Michael Stanky
Senior Vice President
-35-
XXX Coinmach Corporation and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Auditors............................................ F-1
As of March 31, 2000 and March 31, 1999:
Consolidated Balance Sheets............................................ F-2
For the years ended March 31, 2000, 1999 and 1998:
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholder's Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements................................ F-8
Reports of Independent Auditors
To the Board of Directors of
Coinmach Corporation
We have audited the accompanying consolidated balance sheets of Coinmach
Corporation and Subsidiaries (the "Company") as of March 31, 2000 and 1999, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for each of the three years in the period ended March 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coinmach
Corporation and Subsidiaries at March 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/S/ ERNST & YOUNG
Melville, New York
May 17, 2000, except for paragraph 2 of Note 10,
as to which the date is May 26, 2000
F-1
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
March 31
2000 1999
-----------------------------------
Assets
Cash and cash equivalents $ 23,174 $ 26,515
Receivables, less allowance of $638 and $618 10,206 8,107
Inventories 17,770 16,328
Prepaid expenses 6,899 6,480
Advance location payments 77,212 79,705
Land, property and equipment:
Laundry equipment and fixtures 361,291 301,894
Land, building and improvements 41,693 34,830
Trucks and other vehicles 13,819 10,223
-----------------------------------
416,803 346,947
Less accumulated depreciation and amortization (179,643) (123,337)
-----------------------------------
Net property and equipment 237,160 223,610
Contract rights, net of accumulated amortization
of $102,307 and $70,602 384,680 413,014
Goodwill, net of accumulated amortization
of $28,248 and $20,318 101,253 109,025
Other assets 17,271 17,876
-----------------------------------
Total assets $ 875,625 $ 900,660
===================================
See accompanying notes.
F-2
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousand of dollars)
March 31
2000 1999
-----------------------------------
Liabilities and stockholder's deficit
Accounts payable $ 20,769 $ 20,478
Accrued rental payments 28,445 26,888
Accrued interest 15,786 15,516
Other accrued expenses 13,165 13,366
Due to parent 62,973 63,282
Deferred income taxes 74,022 81,494
11-3/4% Senior Notes 296,655 296,655
Premium on 11-3/4% Senior Notes, net 6,789 8,023
Credit facility indebtedness 382,020 384,003
Other long-term debt 5,144 5,083
Stockholder's deficit:
Common stock, par value $.01:
1,000 shares authorized, 100 shares issued and outstanding
- -
Capital in excess of par value 41,391 41,391
Accumulated deficit (71,513) (55,434)
-----------------------------------
-----------------------------------
(30,122) (14,043)
Notes receivable from management (21) (85)
-----------------------------------
-----------------------------------
Total stockholder's deficit (30,143) (14,128)
-----------------------------------
-----------------------------------
Total liabilities and stockholder's deficit $ 875,625 $ 900,660
===================================
See accompanying notes.
F-3
Coinmach Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands of dollars)
Year ended March 31
2000 1999 1998
-----------------------------------------------------
Revenues $ 527,079 $ 505,323 $ 324,887
Costs and expenses:
Laundry operating expenses 349,925 331,647 217,333
General and administrative 8,156 7,904 6,158
Depreciation and amortization 123,002 113,448 75,453
Stock based compensation charge 652 1,120 1,261
-----------------------------------------------------
481,735 454,119 300,205
-----------------------------------------------------
Operating income 45,344 51,204 24,682
Interest expense, net 67,232 65,901 44,668
-----------------------------------------------------
Loss before income taxes (21,888) (14,697) (19,986)
-----------------------------------------------------
Provision (benefit) for income taxes:
Current 1,743 1,264 299
Deferred (7,552) (4,343) (5,633)
-----------------------------------------------------
(5,809) (3,079) (5,334)
-----------------------------------------------------
Net loss $ (16,079) $ (11,618) $ (14,652)
=====================================================
See accompanying notes.
F-4
Coinmach Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
(In thousands of dollars)
Total
Capital in Receivables Stockholder's
Common Common Excess of Accumulated from (Deficit)
Stock Stock Par Value Deficit Management Equity
--------------------------------------------------------------------------------------------
Balance, March 28, 1997 $ - $ - $ 41,391 $ (29,164) $ (254) $ 11,973
Forgiveness of receivables
from management - - - - 85 85
Net loss - - - (14,652) - (14,652)
--------------------------------------------------------------------------------------------
Balance, March 31, 1998 - - 41,391 (43,816) (169) (2,594)
Forgiveness of receivables
from management - - - - 84 84
Net loss - - - (11,618) - (11,618)
--------------------------------------------------------------------------------------------
Balance, March 31, 1999 - - 41,391 (55,434) (85) (14,128)
Forgiveness of receivables
from management - - - - 64 64
Net loss - - - (16,079) - (16,079)
--------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ - $ - $ 41,391 $ (71,513) $ (21) $ (30,143)
============================================================================================
See accompanying notes.
F-5
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
Year ended March 31
2000 1999 1998
-----------------------------------------------------
Operating activities
Net loss $ (16,079) $ (11,618) $ (14,652)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 56,601 52,135 30,649
Amortization of advance location payments 24,622 20,339 11,280
Amortization of intangibles 41,779 40,974 33,524
Deferred income taxes (7,552) (4,343) (5,633)
Amortization of debt discount and
deferred issue costs 1,681 1,730 996
Amortization of premium on 11-3/4%
Senior Notes (1,234) (1,235) (617)
Stock based compensation 652 1,120 1,261
Change in operating assets and liabilities, net of
businesses acquired:
Other assets (2,733) (1,463) (3,026)
Receivables, net (2,099) 469 1,406
Inventories and prepaid expenses (1,582) (1,576) (2,844)
Accounts payable 292 3,327 714
Accrued interest, net 270 1,052 4,281
Other accrued expenses, net (3,875) 2,130 1,347
-----------------------------------------------------
Net cash provided by operating activities 90,743 103,041 58,686
-----------------------------------------------------
Investing activities
Additions to property and equipment (69,317) (62,082) (42,468)
Advance location payments to location owners (19,087) (22,052) (13,330)
Additions to net assets related to acquisitions of
businesses (net of promissory notes of $2,250 in 1998)
- (97,531) (295,676)
Sales of property and equipment - - 599
-----------------------------------------------------
Net cash used in investing activities (88,404) (181,665) (350,875)
-----------------------------------------------------
F-6
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands of dollars)
Year ended March 31
2000 1999 1998
--------------------------------------------------
Financing activities
Net (repayments) proceeds from credit facility $ (1,983) $ 87,736 $ 166,267
Net (repayments) advances from parent (397) (1,293) 38,180
Net (repayments) borrowings of bank and
other borrowings (398) (431) 396
Principal payments on capitalized lease obligations (2,902) (2,894) (1,173)
Deferred debt issuance costs - (430) (9,013)
Proceeds from issuance of 11-3/4% senior notes - - 109,875
--------------------------------------------------
Net cash (used in) provided by financing activities (5,680) 82,688 304,530
--------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,341) 4,064 12,341
Cash and cash equivalents, beginning of year 26,515 22,451 10,110
--------------------------------------------------
Cash and cash equivalents, end of year $ 23,174 $ 26,515 $ 22,451
==================================================
Supplemental disclosure of cash flow information
Interest paid $ 66,543 $ 64,418 $ 38,385
==================================================
Income taxes paid $ 2,829 $ 477 $ 358
==================================================
Noncash financing activities
Acquisition of fixed assets through capital leases $ 3,361 $ 2,307 $ 1,111
==================================================
See accompanying notes.
F-7
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Coinmach Corporation and Subsidiaries, a Delaware corporation (the "Company").
The Company is a wholly-owned subsidiary of Coinmach Laundry Corporation
("CLC"). 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. At
March 31, 2000, the Company owned and operated approximately 790,000 washers and
dryers in approximately 79,000 locations on routes throughout the United States
and in 184 retail laundromats throughout Texas and Arizona. The Company provides
laundromat services at all such retail locations. Super Laundry Equipment Corp.
("Super Laundry"), a wholly-owned subsidiary of the Company, is a laundromat
equipment distribution company. The Company also leases laundry equipment and
other household appliances to corporate relocation entities, individuals,
property owners and managers of multi-family housing properties.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Recognition of Revenues
The Company has agreements with various property owners that provide for the
Company's installation and operation of laundry machines at various locations in
return for a commission. These agreements provide for both contingent
(percentage of revenues) and fixed commission payments. The Company reports
revenues from laundry machines on the accrual basis and has accrued the cash
estimated to be in the machines at the end of each fiscal year.
Super Laundry's customers generally sign sales contracts pursuant to which Super
Laundry constructs and equips complete laundromat operations, including location
identification, construction, plumbing, electrical wiring and all required
permits. Revenue is recognized on the completed contract method. A contract is
considered complete when all costs have been incurred and either the
installation is operating according to specifications or has been accepted by
the customer. The duration of such contracts is normally less than six months.
Sales of laundromats amounted to approximately $29.1 million, $25.3 million and
$21.8 million, in 2000, 1999 and 1998, respectively.
F-8
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
March 31
2000 1999
---------------------------------------
Laundry equipment $ 13,273 $ 11,785
Machine repair parts 4,497 4,543
---------------------------------------
---------------------------------------
$ 17,770 $ 16,328
=======================================
Land, Property and Equipment
Property, equipment and leasehold improvements are carried at cost and are
depreciated or amortized on a straight-line basis over the lesser of the
estimated useful lives or lease life, whichever is shorter:
Laundry equipment, installation costs and fixtures 5 to 8 years
Leasehold improvements and decorating costs 5 to 8 years
Trucks and other vehicles 3 to 4 years
F-9
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Upon the sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and the
resulting gain or loss is included in income. Maintenance and repairs are
charged to operations currently, and replacements of laundry machines and
significant improvements are capitalized.
Goodwill and Contract Rights
Goodwill, under purchase accounting, represents the excess of cost over fair
value of net assets acquired and is being amortized on a straight-line basis
over periods ranging from 15 to 20 years.
Contract rights represent amounts expended for location contracts arising from
the acquisition of laundry machines on location. These amounts, which arose
solely from purchase price allocations, are amortized on a straight-line basis
over the period of expected benefit of approximately 15 years and are based on
independent appraisals or present valued future cash flows at prevailing
discount rates.
Management evaluates the realizability of goodwill and contract rights balances
(if there are indicators of impairment) based upon the Company's forecasted
undiscounted cash flows and operating income. Based upon present operations and
strategic plans, management believes that no impairment of goodwill or contract
rights has occurred.
Advance Location Payments
Advance location payments to location owners are amortized on a straight-line
basis over the contract term, which generally ranges from 5 to 10 years.
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity, (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
F-10
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes pursuant to the liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Any deferred tax assets recognized for net operating loss carryforwards
and other items are reduced by a valuation allowance when it is more likely than
not that the benefits may not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company evaluates the
requirement to recognize impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Company management believes that no impairment to its
long-lived assets has occurred.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
will require the Company to recognize all derivatives on the balance sheet at
fair value.
If the derivative is a hedge that is eligible for special accounting, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
F-11
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Currently, the Company's only exposure to derivatives is interest rate swap
transactions (see Note 4b) and, therefore, the Company does not believe that
SFAS No. 133 will have a significant impact on the earnings and financial
position of the Company. The Company will adopt the Statement as required for
its first quarter filing of the year ending March 31, 2001.
Fiscal Year
On March 6, 1998, the Company changed its fiscal year end to the twelve
consecutive months ending March 31. The Company's fiscal year had been the 52 or
53 week period ending on the last Friday in March. The impact of this change in
1998 was not material to the financial statements taken as a whole. The years
ended March 31, 1998, 1999 and 2000 are referred to as "1998", "1999" and
"2000," respectively.
2. Business Combinations
a. The G&T Acquisition--1999
On June 5, 1998, the Company completed the acquisition (the "G&T Acquisition")
of Gordon & Thomas Company, Inc. ("G&T") for a cash purchase price of
approximately $58 million, excluding transaction expenses, and the assumption of
certain liabilities. G&T operated approximately 36,000 washers and dryers, and
provided outsourced laundry equipment services to multi-family properties
throughout New York and New Jersey. The excess of cost over net tangible assets
acquired of approximately $50.2 million has been allocated to contract rights.
b. The Macke Acquisition--1998
On March 2, 1998, the Company completed the acquisition of Macke Laundry Service
Limited Partnership and substantially all of the assets of certain related
entities (collectively "Macke") for an aggregate purchase price of approximately
$213 million (the "Macke Acquisition"), excluding transaction expenses. Macke
operated approximately 236,000 washers and dryers, and provided outsourced
laundry equipment services to multi-family properties throughout the United
States. The excess of allocated cost over the net tangible assets acquired of
approximately $135.9 million has been allocated to contract rights.
F-12
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Business Combinations (continued)
c. Other Acquisitions
During the 1999 fiscal year, the Company made acquisitions of several small
route businesses for cash purchase prices aggregating approximately $39.5
million. The excess of cost over the net assets acquired amounted to
approximately $33.1 million, of which approximately $26.7 million has been
allocated to contract rights and approximately $6.4 million has been allocated
to goodwill.
During the 1998 fiscal year, the Company made acquisitions of several small
route businesses or assets of businesses with purchase prices aggregating
approximately $84 million, of which the Company paid approximately $81.8 million
in cash and $2.3 million in promissory notes issued by the Company, which are
included in other long-term debt. The excess of cost over the net assets
acquired amounted to approximately $63.6 million, of which approximately $47.1
million has been allocated to contracts rights and approximately $16.5 million
to goodwill.
All acquisitions have been accounted for as purchases and, accordingly, assets
and liabilities have been recorded at their estimated fair values at the dates
of acquisition and the results of operations are included subsequent to that
date.
The following table reflects unaudited pro forma combined results of operations
of the Company and the 1999 and 1998 acquired businesses described above, as if
the acquisitions had taken place at the beginning of 1998 (in thousands):
Year ended March 31
1999 1998
------------------- ------------------
Revenues $ 516,898 $ 500,489
Net loss (11,884) (18,395)
These unaudited pro forma results have been presented for comparative purposes
only and include certain adjustments, such as increased interest expense on the
related acquisition debt and additional amortization expense of intangible
assets, offset by the capitalization of installation and decorating costs to
conform to the accounting policy of the Company.
F-13
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Business Combinations (continued)
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisitions described above been consummated at the beginning of 1998 or of the
results of future operations of the combined companies under the ownership and
management of the Company.
3. Receivables
Receivables consist of the following (in thousands):
March 31
2000 1999
------------------------------------
Trade receivables $ 9,725 $7,220
Notes receivable 257 469
Other 862 1,036
------------------------------------
10,844 8,725
Allowance for doubtful accounts 638 618
------------------------------------
$ 10,206 $8,107
====================================
Notes receivable, which arise from the construction of laundromats, bear
interest at a weighted average rate of approximately 10% per annum and mature
through 2004. The notes are collateralized by the underlying laundry equipment.
The Company periodically sells notes receivable arising from the sale of
laundromats to third party finance companies. Included in other receivables are
finance reserves, which arise when the Company sells notes and a portion of the
proceeds are retained by the finance company. As the notes are collected, the
finance companies remit a portion of the collections to the Company. Many of the
notes receivable are sold with recourse to the Company (see Note 8). Control of
the notes sold with recourse is surrendered by the Company on the date of
transfer. The Company generally sells its notes receivables with recourse at
cost, recognizing no gain or loss.
F-14
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt
Debt consists of the following (in thousands):
March 31
2000 1999
-------------------------------
11-3/4% Senior Notes due 2005 $ 296,655 $296,655
Premium on 11-3/4% Senior Notes, net 6,789 8,023
Credit facility indebtedness 382,020 384,003
Obligations under capital leases 4,748 4,291
Other long-term debt with varying terms
and maturities 396 792
-------------------------------
$ 690,608 $693,764
===============================
a. 11-3/4% Senior Notes
On October 8, 1997, the Company completed a private placement (the "Bond
Offering") of $100 million aggregate principal amount of its 11-3/4% Series C
Senior Notes due 2005 (the "Series C Notes") on substantially identical terms as
its then outstanding Series B 11-3/4% Senior Notes due 2005 (the "Series B
Notes"). The gross proceeds from the Bond Offering were $109.875 million, of
which $100 million represented the principal amount outstanding and $9.875
million represented the payment of a premium for the Series C Notes. The premium
is being amortized as a reduction of interest expense through November 2005. The
Company used approximately $105.4 million of the net proceeds from the Bond
Offering to repay indebtedness outstanding under its senior financing
arrangement. On December 23, 1997, the Company commenced an offer to exchange
(the "Exchange Offer") up to $296.7 million of its registered 11-3/4% Senior
Notes due 2005 (the "11-3/4% Senior Notes") for any and all of its Series C
Notes and its Series B Notes. The Exchange Offer expired on February 6, 1998,
and as of such date the holders of 100% of the outstanding Series B Notes and
Series C Notes tendered such notes in the Exchange Offer.
Interest on the 11-3/4% Senior Notes is payable semi-annually on May 15 and
November 15. The 11-3/4% Senior Notes are redeemable at the option of the
Company at any time after November 15, 2000 at a price equal to 105-7/8%
declining to par if redeemed after November 15, 2002. The 11-3/4% Senior Notes
contain certain financial covenants and restrict the payment of certain
dividends, distributions or other payments from the Company to CLC.
F-15
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt (continued)
b. Credit Facility
The Company's existing credit facility with Bankers Trust Company ("Banker's
Trust"), First Union National Bank of North Carolina ("First Union") and certain
other lending institutions, as amended (the "Amended and Restated Credit
Facility"), provides for an aggregate of $435 million of secured financing
consisting of: (i) a $160 million revolving credit facility currently bearing
interest at an annual rate of LIBOR plus 1.75%; (ii) a $75 million Tranche A
term loan facility currently bearing interest at an annual rate of LIBOR plus
2.25% and (iii) a $200 million Tranche B term loan facility currently bearing
interest at an annual rate of LIBOR plus 2.50%. The Amended and Restated Credit
Facility also provides for up to $10 million of letter of credit financings.
These interest rates are subject to change from time to time and may increase by
25 basis points or decrease up to 75 basis points based on certain financial
ratios set forth in the Amended and Restated Credit Facility. Under the Amended
and Restated Credit Facility, the working capital revolver and the acquisition
revolver mature on December 31, 2003, the Tranche A term loan facility matures
on December 31, 2004 and the Tranche B term loan facility matures on June 30,
2005.
On January 12, 2000, the Amended and Restated Credit Facility was further
amended to provide, among other things, that the working capital revolving
credit facility and the acquisition revolving credit facility be combined into a
single revolving credit facility without increasing the total aggregate amount
of such revolving credit facility ($160 million) which revolving credit facility
is available for general corporate expenses, including acquisitions.
Interest on the Company's borrowings under the Amended and Restated Credit
Facility is payable quarterly in arrears with respect to Base Rate Loans and the
last day of each applicable interest period with respect to Eurodollar Loans and
at a rate per annum no greater than the sum of the Applicable Base Rate Margin
plus the Base Rate or the sum of the Applicable Eurodollar Margin plus the
Eurodollar Rate (in each case, as defined in the Amended and Restated Credit
Facility). Subject to the terms and conditions of the Amended and Restated
Credit Facility, the Company may, at its option convert Base Rate Loans into
Eurodollar loans.
At March 31, 2000, the monthly variable LIBOR interest rate was approximately
6.13%.
F-16
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt (continued)
The Company entered into swap agreements to reduce its exposure to fluctuations
in interest rates relating to its variable rate debt portfolio. On February 23,
1998, the Company entered into a 33 month $75 million notional amount interest
rate swap transaction with Bankers Trust, to fix the monthly LIBOR interest rate
at 5.71% on the Amended and Restated Credit Facility. The fair value of this
swap agreement at March 31, 2000, as estimated by a dealer, was approximately
$328,000 unfavorable and at March 31, 1999, it was approximately $584,000
favorable.
On March 2, 1998, the Company entered into a 32 month, $100 million notional
amount interest rate swap transaction with First Union, to fix the monthly LIBOR
interest rate at 5.83% on a portion of the Amended and Restated Credit Facility.
On September 15, 1998, the Company amended the March 2, 1998 swap agreement with
First Union to increase the notional amount to $175 million and to reduce the
fixed monthly LIBOR rate to 5.515%. The new expiration date is November 15,
2002. The fair value of this swap transaction at March 31, 2000, as estimated by
a dealer, was approximately $5.1 million favorable and at March 31, 1999 it was
approximately $203,000 unfavorable.
On April 7, 1998, the Company entered into a 31 monthly $75 million notional
amount interest rate swap transaction with Bankers Trust, to fix the monthly
LIBOR interest rate at 5.75% on the Amended and Restated Credit Facility. The
fair value of this swap transaction at March 31, 2000, as estimated by a dealer,
was approximately $308,000 unfavorable and at March 31, 1999 it was
approximately $633,000 unfavorable.
Indebtedness under the Amended and Restated Credit Facility is secured by all of
the Company's real and personal property. Under the Amended and Restated Credit
Facility, CLC pledged to Bankers Trust, 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, as defined, and
customary restrictive covenants and agreements, the Amended and Restated Credit
Facility contains certain 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 11-3/4% Senior Notes and the Amended and
Restated Credit Facility limits the Company's ability to pay dividends.
F-17
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt (continued)
Debt outstanding under the Amended and Restated Credit Facility consisted of the
following (in thousands):
March 31
2000 1999
-----------------------------------
Term loan A, quarterly payments of $250,
increasing to $5,000 on March 31, 2003
and $12,500 on March 31, 2004
(Interest rate of approximately
8.38% at March 31, 2000)
$ 72,750 $ 73,750
Term loan B, quarterly payments of $500
with the final payment of $186,000 on
June 30, 2005 (Interest rate of approximately
8.63% at March 31, 2000) 196,000 198,000
Acquisition revolving line of credit - 94,646
Working capital revolving line of credit 113,270 17,607
-----------------------------------
$ 382,020 $ 384,003
===================================
5. Retirement Savings Plans
The Company maintains several defined contribution plans meeting the guidelines
of Section 401(k) of the Internal Revenue Code. All of the plans require
employees to meet certain age, employment status and minimum entry requirements
as allowed by law.
The Company made contributions for 2000, 1999 and 1998 to pension plans that
cover its union employees. These plans provide defined benefits based on union
members' earnings and period of coverage under the respective plans. In the
event these plans terminate, or if the Company discontinues its participation in
these plans, the Company may be liable for a portion of the plans' unfunded
vested benefits, the amounts of which, if any, have not been determined.
Contributions to all the plans for 2000, 1999 and 1998 amounted to approximately
$395,000, $339,000 and $281,000, respectively.
The Company does not provide any other post-retirement benefits.
F-18
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
The components of the Company's deferred tax liabilities and assets are as
follows (in thousands):
March 31
2000 1999
-----------------------------------
Deferred tax liabilities:
Accelerated tax depreciation and contract rights $ 92,493 $95,882
Other, net 2,624 3,057
-----------------------------------
95,117 98,939
-----------------------------------
Deferred tax assets:
Net operating loss carryforwards 16,328 14,032
Stock compensation expense 1,760 1,460
AMT credit 2,499 1,156
Covenant not to compete 508 797
-----------------------------------
21,095 17,445
-----------------------------------
Net deferred tax liability $ 74,022 $81,494
===================================
The net operating loss carryforwards of approximately $40 million, after a
reduction to reflect the limitation imposed under the provisions of the Internal
Revenue Code regarding change of ownership, expire between fiscal years 2001
through 2020. In addition, the net operating losses are subject to annual
limitations imposed under the provisions of the Internal Revenue Code regarding
changes in ownership.
The benefit for income taxes consists of (in thousands):
Year ended March 31
2000 1999 1998
-------------------------------------------------
Federal $ (4,841) $ (2,561) $ (4,265)
State (968) (518) (1,069)
-------------------------------------------------
$ (5,809) $ (3,079) $ (5,334)
=================================================
F-19
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The effective income tax rate differs from the amount computed by applying the
U.S. federal statutory rate to loss before taxes as a result of state taxes and
permanent book/tax differences as follows (in thousands):
Year ended March 31
2000 1999 1998
--------------------------------------------------
Expected tax benefit $ (7,839) $ (5,144) $ (6,995)
State tax benefit, net of federal taxes (629) (314) (690)
Permanent book/tax differences:
Goodwill 2,600 2,552 2,289
Other 59 (173) 62
--------------------------------------------------
Tax provision/(benefit) $ (5,809) $ (3,079) $ (5,334)
==================================================
7. Related Party Transactions
In July 1996, CLC issued, in privately negotiated transactions, 79,029 shares of
its Class B common stock to certain members of management of the Company. The
Company recorded a stock based compensation charge in an amount of approximately
$887,000 attributable to the issuance of such stock in 1997. In addition,
approximately $85,000 of outstanding receivables relating to loans to management
in connection with prior purchases of common stock of CLC were forgiven and have
been accounted for as a stock-based compensation charge in 2000, 1999 and 1998,
respectively.
During July and September 1996, CLC granted certain nonqualified stock options
(the "Options") to certain members of management (collectively, the "1996 Option
Holders") to purchase up to 739,437 shares of CLC common stock at 85% of the
initial offering price of the CLC Common Stock. The Options vest in equal annual
installments (20% vest on the date of grant and the remainder over a four year
period) commencing on July 23, 1996, the effective date of the Offering.
On September 5, 1997, CLC granted certain nonqualified options (the "1997
Options") to certain members of management to purchase up to 200,000 shares of
CLC Common Stock at an exercise price of $11.90 per share of CLC Common Stock.
The 1997 Options vest in equal annual installments (20% vest immediately on the
date of grant and the remainder vest over a four year period) commencing on
September 5, 1997.
F-20
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Related Party Transactions (continued)
During May and July 1998, the Company granted to certain employees 248,500
non-qualified stock options and 31,244 non-qualified stock options
(collectively, the "1998 Options") to a director of the Company at exercise
prices ranging from $22.31 to $23.05 per share. Such options vest in equal
annual installments (20% vest immediately on the date of grant and the remainder
vest over a four year period).
During May and July 1999, the Company granted 258,744 non-qualified options to
certain directors and officers of the Company at prices ranging from $10.56 to
$11.69 per share. Such options vest in equal installments (20% vest immediately
on the date of grant and the remainder vest over a four year period).
On May 5, 1999, the Company repriced 197,000 nonqualified options previously
granted to employees under the Plan such that the exercise price per share was
changed from $22.31 to $14.00 per share. The repriced options otherwise remain
governed in accordance with the terms and conditions set forth in the agreements
pursuant to which such options were granted.
The Company records the difference between the exercise price of all options
granted and the respective initial offering price or the fair market value of
the CLC Common Stock on the date of grant as a stock-based compensation charge
over the applicable vesting period.
For the years 2000, 1999 and 1998 the Company recorded stock-based compensation
charges of approximately $588,000, $1,036,000 and $1,176,000, respectively
relating to the options mentioned above.
To finance certain acquisitions and provide working capital, CLC advanced to the
Company approximately $38.2 million net, during 1998. Such advances are
noninterest bearing and have no repayment terms.
In connection with the Company's establishment of a corporate office in
Charlotte, North Carolina, and the relocation of an executive officer of the
Company to such office in September 1996, the Company extended a loan to such
officer in the principal amount of $500,000 payable in ten equal annual
installments commencing in July 1997 (each payment date, a "Payment Date"), with
interest accruing at a rate of 7.5% per annum. The Company has authorized that
payment of principal and interest will be forgiven on each Payment Date.
F-21
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Related Party Transactions (continued)
The balance of such loan of $350,000 and $400,000 is included in other assets as
of March 31, 2000 and March 31, 1999, respectively.
On May 5, 1999, the Company extended a loan to an executive officer of the
Company in the principal amount of $250,000 to be repaid in a single payment on
the third anniversary of such loan with interest accruing at a rate of 8% per
annum. The balance of such loan of $230,000 is included in other assets as of
March 31, 2000.
8. Commitments and Contingencies
Rental expense for all operating leases, which principally cover office and
warehouse facilities, laundromats and vehicles, was approximately $8,163, $7,227
and $4,483 for 2000, 1999 and 1998, respectively (in thousands).
Future minimum rental commitments under all capital leases and noncancelable
operating leases as of March 31, 2000 are as follows (in thousands):
Capital Operating
---------------- ----------------
2001 $ 2,657 $ 6,675
2002 1,739 5,409
2003 945 4,544
2004 41 3,200
2005 8 2,179
Thereafter - 5,312
---------------- ----------------
Total minimum lease payments 5,390 $ 27,319
================
Less amounts representing interest 642
----------------
$ 4,748
================
The Company is contingently liable on receivables sold with recourse to finance
companies. The total amount of such receivables outstanding as of March 31, 2000
is approximately $800,000.
The Company utilizes third party letters of credit to guarantee certain business
transactions, primarily certain insurance activities. The total amount of the
letters of credit at March 31, 2000 and 1999 were approximately $3.4 million and
$4.9 million, respectively.
F-22
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
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
CLC and certain of its executive officers as defendants. The Federal Securities
Action was purportedly brought on behalf of all shareholders of CLC who
purchased or otherwise acquired CLC'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 alleges that the defendants violated various
securities laws and seeks damages in unspecified amounts. On June 1, 2000, the
court dismissed the complaint in its entirety on grounds that the applicable
statute of limitations had passed prior to the date on which the complaint was
filed.
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 CLC, 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 the Common Stock for
$13.00 per share was inadequate and that the defendants breached their fiduciary
duty to the CLC's public shareholders. The defendants' time to respond to the
complaint has been adjourned indefinitely by mutual agreement of the parties
(see Note 10).
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.
In connection with insurance coverages, which include workers' compensation,
general liability and other coverages, annual premiums are subject to limited
retroactive adjustment based on actual loss experience.
F-23
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Fair Value of Financial Instruments
The Company is required to disclose fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate the value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques.
The carrying amounts of cash and cash equivalents, receivables, the Amended and
Restated Credit Facility, and other long-term debt approximates their fair value
at March 31, 2000.
The carrying amount and related estimated fair value for the Company's 11-3/4%
Senior Notes are as follows (in thousands):
Carrying Estimated
Amount Fair Value
------------ ------------
11-3/4% Senior Notes at March 31, 2000 $303,444 $292,205
(including premium of $6,789)
11-3/4% Senior Notes at March 31, 1999
(including premium of $8,023) $304,678 $326,706
The fair value of the 11-3/4% Senior Notes is based on quoted market prices.
10. Subsequent Events
On May 12, 2000, the Company's parent, CLC 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 CLC and a principal of the indirect general partner of Golder,
Thoma, Cresscy, Rauner Fund IV, L.P. ("GTCR Fund IV"), the largest stockholder
of CLC. Pursuant to the Merger Agreement, CLC Acquisition agreed to acquire all
of CLC'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 CLC. The Offer is conditioned upon, among other
things, there being validly tendered and not withdrawn, prior to expiration date
of Offer, that number of Shares which, when combined with the Shares owned by
CLC Acquisition, result in CLC Acquisition owning at least 51% of the
outstanding Shares on the date of purchase. Upon consummation of the Merger,
each Share not tendered in the Offer will be canceled and converted into the
right to receive an amount per Share equal to $14.25.
F-24
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Subsequent Events (continued)
On May 26, 2000, CLC Acquisition announced its offer to purchase any and all
Shares (except for certain Shares held by some members of management of the
Company and GTCR Fund IV). The Offer period during which shares may be tendered
is scheduled to expire on July 3, 2000 (the "Expiration Date"), unless extended.
Assuming the conditions to the offer are satisfied or waived, the Company will
provide for a subsequent offering period commencing on July 5, 2000 and expiring
on July 7, 2000, unless extended. The Company reserves the right to extend the
subsequent offering period for up to an additional 17 business days.
F-25
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NAME DOMESTIC JURISDICTION
- ---- ---------------------
Super Laundry Equipment Corp. New York
Maquilados Automaticos, SA de CV Mexico
Automaticos, SA de CV Mexico