Back to GetFilings.com
================================================================================
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, 2001
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 12, 2001, 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, 2001.
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. The Company's core
business involves leasing laundry rooms from building owners and property
management companies, installing and servicing the laundry equipment and
collecting revenues generated from laundry machines. The Company also leases
laundry machines and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. At March 31, 2001, the Company owned and operated approximately
820,000 washers and dryers (sometimes hereinafter referred to as "laundry
machines" or "machines") in approximately 80,000 locations on routes located
throughout the United States and in 181 retail laundromats located throughout
Texas and Arizona. The Company, through its wholly-owned subsidiary, Super
Laundry Equipment Corp. ("Super Laundry"), is a laundromat equipment
distribution company. The Company is a wholly-owned subsidiary of Coinmach
Laundry Corporation, a Delaware corporation ("Coinmach Laundry"). Unless
otherwise specified herein, references to the Company shall mean Coinmach
Corporation and its subsidiaries.
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 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 181 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
2
performance. From January 1995 to June 1998, the Company pursued a strategy of
rapid growth through acquisitions of local route 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, enhance the
Company's operating efficiencies throughout its operating regions and enable 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 its cash flow from
operations 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, enhance
its ability to gain new customers and additional locations from its
existing customers.
3
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 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 provide 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 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
4
more of their annual compensation. Selling commissions are based on a percentage
of a location's annualized earnings before interest and 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 upon
termination in over 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, 2001, the
Company's leases had 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 the Company's 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.
5
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 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 three 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 of security for
revenue collection 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.
6
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, through its Appliance Warehouse division, 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 and non-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, through its Kwik Wash division, operates 181 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 for
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, 2001, the Company employed 2,119 employees (including
346 laundromat attendants in the Company's retail laundromats in Texas and
Arizona). In the Northeast region, 132 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 Solon Merger, Coinmach Laundry
changed its name from SAS Acquisitions Inc., and Solon, the surviving
corporation in the Solon Merger, changed its name to Coinmach Corporation.
7
On May 12, 2000, 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, Coinmach Laundry's then-largest stockholder. Pursuant to the
Merger Agreement, CLC Acquisition acquired all of Coinmach Laundry's outstanding
common stock and non-voting common stock for $14.25 per share in a two-step
going-private transaction consisting of a tender offer followed by a merger of
CLC Acquisition with and into Coinmach Laundry. Effective July 13, 2000, CLC
Acquisition was merged with and into Coinmach Laundry pursuant to the terms of
the Merger Agreement. Coinmach Laundry's Class A common stock was delisted from
The Nasdaq Stock Market and Coinmach Laundry is no longer subject to the
reporting requirements of the Securities Exchange Act of 1934. The foregoing
transactions are collectively referred to herein as the "Transaction."
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.
Credit Facility and Senior Notes
In November 2000, the Company's existing 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 $485
million of secured financing consisting of: (i) a $160 million revolving credit
facility currently bearing interest at a monthly Eurodollar rate offered by the
administrative agent to financial institutions in New York (the "Eurodollar
Rate") plus 2.00%; (ii) a $75 million Tranche A term loan facility currently
bearing interest at a monthly Eurodollar Rate plus 2.50%; and (iii) a $250
million Tranche B term loan facility currently bearing interest at a monthly
Eurodollar Rate plus 2.75%. 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, the Company consummated a registered exchange offer,
pursuant to which all issued and outstanding 11 3/4% Senior Notes due 2005 were
exchanged for the Company's Series B 11 3/4% Senior Notes due 2005 (the "Series
B Notes"). On October 8, 1997, the Company 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, the Company commenced a registered exchange offer pursuant
to which all issued and outstanding Series B Notes and Series C Notes were
exchanged for the Company's 11 3/4% Series D Senior Notes due 2005 (the "11 3/4%
Senior 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."
ITEM 2. PROPERTIES
As of March 31, 2001, the Company leased 64 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 scheduled
to terminate July 31, 2001. The Company's Roslyn facility has been used for
general and administrative purposes and is the operational headquarters for the
Northeast regional branch. The Company has signed two separate leases, one in
Syosset, New York to be used for the operational headquarters for the Northeast
regional branch and one in Plainview, New York to be used for general and
administrative purposes. The Company's Plainview facility covers approximately
11,600 square feet and is pursuant to a ten year lease scheduled to terminate in
2011.
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.
8
ITEM 3. LEGAL PROCEEDINGS
On November 18, 1999, K. Reed Hinrichs v. Stephen R. Kerrigan, et al.,
a purported class action lawsuit, was filed in the Delaware Court of Chancery,
Newcastle County naming Coinmach Laundry, GTCR Fund IV, GTCR Golder Rauner,
L.L.C. and certain of its executive officers as defendants. Plaintiffs allege
that the defendants' proposal to acquire between 80% and 90% of Coinmach
Laundry's common stock for $13.00 per share was inadequate and that the
defendants breached their fiduciary duty to Coinmach Laundry's public
shareholders. The defendant's time to respond to the complaint has been
adjourned indefinitely by agreement of the parties. Given that such acquisition
proposal was not accepted by Coinmach Laundry, the Company believes this class
action is without merit and that the ultimate disposition of such action will
not have a material adverse effect on the Company.
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 financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
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 beneficially and of record by Coinmach
Laundry.
Holders
As of March 31, 2001, 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."
10
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 period from July 1, 2000 to March 31, 2001
("Post-Transaction") and the period from April 1, 2000 to June 30, 2000
("Pre-Transaction"), and 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"). 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.
July 1, 2000 to April 1, 2000 to
March 31, 2001 June 30, 2000 Year Ended
--------------- --------------- ---------------------------------------------
Post- Pre- March 31, March 31, March 31, March 28,
Transaction(6) Transaction(7) 2000 1999 1998 1997
------------- ------------- --------- ---------- ---------- ---------
Operations Data:
Revenues ..................................... $ 393,890 $134,225 $527,079 $505,323 $324,887 $206,852
Operating, general and administrative ........
expenses 271,580 91,988 358,733 340,671 224,752 145,734
Depreciation and amortization ................ 102,727 31,557 123,002 113,448 75,453 46,316
Operating income ............................. 19,583 10,680 45,344 51,204 24,682 14,802
Interest expense ............................. 52,391 16,661 67,232 65,901 44,668 27,417
Loss before extraordinary item ............... (25,603) (4,652) (16,079) (11,618) (14,652) (10,308)
Net loss ..................................... (25,603) (4,652) (16,079) (11,618) (14,652) (10,604)
Balance Sheet Data (at end of period):
Cash and cash equivalents .................... $ 25,859 -- $ 23,174 $ 26,515 $ 22,451 $ 10,110
Property and equipment, net .................. 276,004 -- 237,160 223,610 194,328 112,116
Contract rights, net ......................... 376,779 -- 384,680 413,014 366,762 180,557
Advance location payments .................... 74,233 -- 77,212 79,705 74,026 38,472
Goodwill, net ................................ 215,317 -- 101,253 109,025 110,424 95,771
Total assets ................................. 1,014,074 -- 875,625 900,660 816,232 467,550
Total debt(1)................................. 697,969 -- 683,819 685,741 598,700 329,278
Stockholder's equity (deficit) ............... 91,788 -- (30,143) (14,128) (2,594) 11,973
Financial Information and Other Data:
Cash flow provided by operating activities ... $ 71,955 $ 17,407 $ 90,743 $103,041 $ 58,686 $ 34,305
Cash flow used for investing activities ...... (66,202) 24,273 (88,404) (181,665) (350,875) (196,698)
Cash flow (used for) provided by
financing activities ....................... (4,471) 8,269 (5,680) 82,688 304,530 152,780
EBITDA(2)..................................... 122,310 42,237 168,346 164,652 100,135 61,118
EBITDA margin(3) ............................. 31.1% 31.5% 31.9% 32.6% 30.8% 29.5%
Operating margin(4) .......................... 5.0% 7.9% 8.6% 10.1% 7.6% 7.2%
Capital expenditures(5)
Growth capital expenditures ................ $ 8,676 $ 2,770 $ 25,272 $ 24,096 $ 21,119 $ 12,563
Renewal capital expenditures ............... 51,944 21,503 63,132 60,038 37,609 29,025
Acquisition capital expenditures ........... 5,582 -- -- 97,531 294,996 171,455
---------- -------- -------- -------- -------- --------
Total Capital Expenditures ................... $ 66,202 $ 24,273 $ 88,404 $181,665 $353,724 $213,043
========== ======== ======== ======== ======== ========
- ------------
1 Total debt at March 31, 2001, March 31, 2000, March 31, 1999 and March 31,
1998 does not include the premium, net, of $5,555, $6,789, $8,023 and $9,258,
respectively, recorded as a result of the issuance by the Company of $100
million aggregate principal amount of 11 3/4% Series C Senior Notes due 2005 in
October 1997.
2 EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization for the period from
July 1, 2000 to March 31, 2001, the period from April 1, 2000
11
to June 30, 2000, and the years ended March 31, 2000, March 31, 1999, March 31,
1998 and March 28, 1997. EBITDA is used by certain investors as an indication of
a company's 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
alternativeto 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
may not be comparable to other similarly titled measures of other companies.
3 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.
4 Operating margin represents operating income as a percentage of revenues.
5 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.
6 Includes the results of operations for the period July 1, 2000 to March
31, 2001, representing the results subsequent to the Transaction.
7 Includes the results of operations for the period April 1, 2000 to June
30, 2000, representing the results prior to the Transaction.
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 period from April 1,
2000 to March 31, 2001 (the "2001 12-Month Period"), the 2000 Fiscal Year and
the 1999 Fiscal Year and should be read in conjunction with the consolidated
financial statements and related notes thereto included in Item 8. The 2001
12-Month Period is comprised of the Pre-Transaction period combined with the
Post-Transaction period, and is not adjusted for the pro-forma effect that
additional depreciation and amortization would have on the Pre-Transaction
period had the Transaction occurred at the beginning of the 2001 12-Month
Period.
General
The Company is principally engaged in the business of supplying
outsourced laundry equipment services to 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 also leases
laundry machines and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. At March 31, 2001, the Company owned and operated approximately
820,000 washers and dryers in approximately 80,000 multi-family housing
properties on routes throughout the United States and in 181 retail laundromats
located throughout Texas and Arizona. The Company, through Super Laundry, its
wholly-owned subsidiary, is 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 acquisitions and the related
amortization of contract rights and goodwill and 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 (i) the costs of machine maintenance and revenue collection in the
route business, including payroll, parts, insurance and other related expenses,
(ii) the costs of sales associated with the equipment distribution business and
(iii) certain expenses related to the operation of the Company's rental business
and 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 through its Appliance Warehouse division, (ii)
operating, maintaining and servicing retail laundromats through its Kwik Wash
division, 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,
through its Super Laundry subsidiary.
13
Results of Operations
The following table sets forth for the periods indicated, selected
statement of operations data and EBITDA, as percentages of revenue:
July 1, April 1,
2000 to 2000 to
March 31, June 30,
2001 2000 Year Ended March 31,
----------- ----------- --------------------
Post- Pre-
Transaction Transaction 2000 1999
----------- ----------- ------ -----
Revenues.................................. 100.0% 100.0% 100.0 % 100.0%
Laundry operating expenses................ 67.2 66.9 66.4 65.6
General and administrative expenses....... 1.7 1.6 1.7 1.8
Depreciation and amortization............. 26.0 23.5 23.3 22.5
Operating income.......................... 5.0 7.9 8.6 10.1
Interest expense, net..................... 13.3 12.4 12.8 13.0
EBITDA.................................... 31.1 31.5 31.9 32.6
12-Month Period Ended March 31, 2001 Compared to the Fiscal Year Ended March 31,
2000
The following table sets forth the Company's net revenues for the
periods indicated:
(dollars in millions)
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $ 449.9 $ 446.4 $ 3.5
Distribution......................... 38.3 46.3 (8.0)
Retail Laundromat.................... 21.6 20.6 1.0
Rental............................... 18.3 13.8 4.5
======= ======= ======
$ 528.1 $ 527.1 $ 1.0
Revenue increased by approximately $1.0 million or less than 1% for the
2001 12-Month Period, as compared to the prior year.
Route revenue for the 2001 12-Month Period increased by
approximately $3.5 million or less than 1% over the prior year. During
the prior year, the Company experienced excessive vandalism, primarily
in the South-Central region of the U.S., which adversely impacted the
Company's second, third and fourth fiscal quarters' results of
operations for the prior year. Management believes that the improvement
in route revenue for the 2001 12-Month Period as compared to the prior
year is the result of the combination of (i) increased revenue from the
existing machine base due primarily to price changes and machine
installations, (ii) a reduction in vandalism as a result of heightened
security measures and (iii) the timing of price changes and internal
growth in machine count during the 2001 12-Month Period and the 2000
Fiscal Year. Internal growth in route revenue has been partially offset
by the removal of approximately 2,900 non-productive machines from the
base during the 2001 12-Month Period.
Distribution revenue for the 2001 12-Month Period decreased by
approximately $8.0 million or 17% from the prior year. The decrease for
the 2001 12-Month Period is primarily the result of certain of
14
our large retail laundromat customers experiencing financial
difficulty, resulting in reduced machine purchases. In addition, sales
from the distribution business unit are sensitive to general market
conditions and as a result may experience fluctuations. The Company has
made a strategic change in product lines during the current fiscal
year, which created a lag in revenue as sales and service personnel
became acquainted with the new product lines. In addition, in January
2001 the Company purchased a distribution business for approximately
$4.3 million. This acquisition increases the Company's presence in the
Midwest region.
Retail laundromat revenue for the 2001 12-Month Period
increased by approximately $1.0 million or 5% over the prior year. The
increase for the 2001 12-Month Period was primarily due to an increase
in the number of laundromats, which increase was partially offset by
reduced same store revenues due to increased competition in this
market. Same store retail laundromat revenue for the last six months of
the 2001 12-Month Period has increased as compared to the prior year's
corresponding period due primarily to pricing strategies implemented to
address increased competition in this market.
Rental revenue for the 2001 12-Month Period increased by
approximately $4.5 million or 32% over the prior year. The increase was
primarily the result of the internal growth of the machine base in
existing areas of operations and expansion into new territories.
Laundry operating expenses increased by approximately $4.8 million or
1% for the 2001 12-Month Period, as compared to the prior year. This increase in
laundry operating expenses was due primarily to additional costs associated with
expansion into new markets in the rental, distribution and retail laundromat
businesses as well as increased utility costs in the retail laundromat business.
This increase was partially offset by a decrease in cost of sales resulting from
reduced sales in the distribution business. As a percentage of revenues, laundry
operating expenses were approximately 67% and 66% for the 2001 12-Month Period
and the 2000 Fiscal Year, respectively.
General and administrative expenses increased by approximately 1% for
the 2001 12-Month Period, as compared to the prior year. The increase in general
and administrative expenses was primarily due to various costs and expenses
related to accounting, management information systems and other administrative
functions associated with the Company's growth. As a percentage of revenues,
general and administrative expenses were approximately 1.7% for both the 2001
12-Month Period and the 2000 Fiscal Year.
Depreciation and amortization expense increased by approximately $10.5
million in the Post-Transaction period from July 1, 2000 to March 31, 2001, as
the result of the application of push-down accounting resulting from the
Transaction. Increases in depreciation and amortization other than from the
Transaction were primarily due to capital expenditures required by historical
increases in the Company's installed base of machines, as well as a write-off of
contract rights values relating to certain locations not renewed of
approximately $5.9 million.
Operating income margins were approximately 6% for the 2001 12-Month
Period, as compared to approximately 9% for the 2000 Fiscal Year. The decrease
in operating income margin for the 2001 12-Month Period was primarily due to an
increase in depreciation and amortization expense in such period.
Interest expense, net, increased by approximately 3% for the 2001
12-Month Period, as compared to the prior year. The increase was primarily due
to the increased borrowing levels under the Senior Credit Facility as well as to
an increase in interest rates on such credit facility as a result of general
market rate increases.
EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization. EBITDA is used by
certain investors as an indication of a company's 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
15
accordance with generally accepted accounting principles and is thus susceptible
to varying calculations, EBITDA may not be comparable to other similarly titled
measures of other companies.
The following table sets forth the Company's EBITDA for the periods
indicated:
(dollars in millions)
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $160.4 $ 161.2 $(0.8)
Distribution......................... 1.8 5.0 (3.2)
Retail Laundromat.................... 4.0 5.1 (1.1)
Rental............................... 7.2 5.8 1.4
G&A.................................. (8.9) (8.8) (0.1)
====== ====== ======
$164.5 $ 168.3 $(3.8)
EBITDA was approximately $164.5 million for the 2001 12-Month Period,
as compared to approximately $168.3 million for the 2000 Fiscal Year,
representing a decrease of approximately 2%. EBITDA margins declined to
approximately 31.1% for the 2001 12-Month Period, as compared to approximately
31.9% for the prior year. These decreases are the result of the combination of
decreased revenues and increased operating expenses, as discussed above.
Fiscal Year Ended March 31, 2000 Compared to the Fiscal Year Ended March 31,
1999
The following table sets forth the Company's net revenues for the years
indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2000 1999 Change
------ ------ ------
Route................................ $ 446.4 $ 435.4 $ 11.0
Distribution......................... 46.3 38.6 7.7
Retail Laundromat.................... 20.6 20.2 0.4
Rental............................... 13.8 11.1 2.7
======= ======= ======
$ 527.1 $ 505.3 $ 21.8
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.
16
General and administrative expenses decreased nominally for the 2000
Fiscal Year as compared to the 1999 Fiscal Year. However, as a percentage of
revenues, general and administrative expenses remained relatively constant at
approximately 1.7% for the 2000 Fiscal Year as compared to approximately 1.8%
for 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.
The following table sets forth the Company's EBITDA for the years
indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2000 1999 Change
------ ------ ------
Route................................ $ 161.2 $ 157.5 $ 3.7
Distribution......................... 5.0 4.6 0.4
Retail Laundromat.................... 5.1 6.4 (1.3)
Rental............................... 5.8 5.2 0.6
G&A.................................. (8.8) (9.0) 0.2
======= ======= ======
$ 168.3 $ 164.7 $ 3.6
EBITDA(1) was approximately $168.3 million for the 2000 Fiscal Year as
compared to approximately $164.7 million for the 1999 Fiscal Year, representing
an improvement of approximately $3.6 million or 2%. The major sources of this
EBITDA improvement resulted from a combined net increase in revenue of
approximately $2 million from the route and retail laundromat businesses, and
the remainder from the distribution business and the rental business. As
mentioned above, the route and retail laundromat businesses were 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.
- --------
1 EBITDA represents earnings from continuing operations before
deductions for interest, income taxes, depreciation and amortization. EBITDA is
used by certain investors as an indication of a company's 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 may not be
comparable to other similarly titled measures of other companies.
17
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 2001, the Company had outstanding long-term debt
(excluding the premium, net, of approximately $5.6 million) of approximately
$698.0 million, which includes $296.7 million of 11 3/4% Senior Notes and $395.3
million of borrowings under the Senior Credit Facility. The Company's
stockholder's equity was approximately $15.8 million as of March 31, 2001.
Financing Activities
Senior Note Offering and Exchange Offer
On October 8, 1997, the Company 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. 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 (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 the Company 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 the Company 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 the Company.
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.
18
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 $485 million of secured financing
consisting of: (i) a revolving credit facility which has a maximum borrowing
limit of $160 million bearing interest at a monthly Eurodollar Rate plus 2.00%;
(ii) a $75 million Tranche A term loan facility bearing interest at a monthly
Eurodollar Rate plus 2.50% and (iii) a $250 million Tranche B term loan facility
bearing interest at a monthly Eurodollar Rate plus 2.75%. 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. As of
March 31, 2001, the Company had approximately $79.7 million in aggregate
principal amount outstanding on the revolving portion of the Senior Credit
Facility, which will expire on December 31, 2003.
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.
On November 21, 2000, the Senior Credit Facility was amended to provide
for an additional $50.0 million in the form of a Tranche B term loan payable on
terms identical to the original Tranche B term loan. Such funds were used to
reduce the amount outstanding under the revolving line of credit by $50.0
million.
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 a base rate or Eurodollar rate, in each case as
defined in the Senior Credit Facility.
At March 31, 2001, the monthly variable Eurodollar interest rate was
approximately 5.12%.
As of March 31, 2001, the Company had $225 million in aggregate
notional amount of interest rate swap agreements with First Union to manage its
variable rate debt liabilities and consisting of: (i) a notional amount of $175
million swap transaction effectively fixing the one-month LIBOR interest rate
(as determined therein) at 5.515% and expiring on November 15, 2002 and (ii) a
notional amount of $50 million swap transaction effectively fixing the one-month
LIBOR interest rate (as determined therein) at 6.14% and expiring on November
15, 2002.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
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.
19
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.
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. Renewal
capital is the amount of capital required to maintain the existing machine base
in current locations, as well as replacement of discontinued locations. Growth
capital is the amount of capital, in excess of renewal capital, that is expended
to increase the installed base from period to period. 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 2001 12-Month Period
were approximately $88.0 million (including approximately $3.1 million relating
to capital lease obligations and excluding approximately $5.6 million relating
to acquisition capital expenditures). The primary components of the Company's
capital expenditures are (i) machine expenditures, (ii) advance location
payments, and (iii) laundry room improvements. The growth in the installed base
of machines for the route business was approximately 3,700 for the 2001 12-Month
Period. The growth in the rental business machine base was approximately 31,400
for the 2001 12-Month Period. The full impact on revenues and cash flow
generated from capital expended on the net increase in the installed base of
machines 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
$70.0 million for the twelve months ending March 31, 2002. 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 following table sets forth the Company's capital expenditures
(excluding payments for capital lease obligations) for the years indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $73.1 $77.6 $(4.5)
Distribution......................... 0.1 0.6 (0.5)
Retail Laundromat.................... 2.1 3.1 (1.0)
Rental............................... 9.6 7.1 2.5
====== ====== ======
$84.9 $88.4 $(3.5)
20
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.
Under the Company's existing financing arrangements, the Company is required to
make monthly cash interest payments under its Senior Credit Facility and
semi-annual cash interest payments under its 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 $134.3 million for the 2001 12-Month Period, reduce the Company's
net income, but not its cash flow from operations. In accordance with accounting
principles generally accepted in the United States, a significant amount of the
purchase price related to businesses acquired by the Company is allocated to
"contract rights", which costs are amortized over 15 years. The Company
amortizes the goodwill related to acquisitions over a 15 year period.
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.
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
21
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, 2001, the Company had
approximately $170.0 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 $3.4 million, assuming the amount outstanding was $170.0 million,
the balance as of March 31, 2001. The Company utilizes interest rate swap
agreements to manage its exposure to these risks.
As of March 31, 2001, the Company had $225 million in aggregate
notional amount of interest rate swap agreements with First Union to manage its
variable rate debt liabilities consisting of: (i) a notional amount of $175
million swap transaction effectively fixing the one-month LIBOR interest rate
(as determined therein) at 5.515% and expiring on November 15, 2002 and (ii) a
notional amount of $50 million swap transaction effectively fixing the one-month
LIBOR interest rate (as determined therein) at 6.14% and expiring on 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-31 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
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 Director 47
Mitchell Blatt Director 49
Robert M. Doyle Director 44
Mr. Kerrigan. Mr. Kerrigan has been Chief Executive Officer of Coinmach
Laundry since April 1996 and of the Company 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 the
Company 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 the Company 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 the Company
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 of
the Company since November 1995. Mr. Doyle has been a director of the Company
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.
23
Name Title Age
---- ----- ---
Stephen R. Kerrigan Chairman of the Board and Chief Executive Officer 47
Mitchell Blatt President, Chief Operating Officer 49
Robert M. Doyle Chief Financial Officer, Senior Vice President, 44
Treasurer, Secretary
John E. Denson Senior Vice President 63
Michael E. Stanky Senior Vice President 49
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- Directors"
above.
Mr. Denson. Mr. Denson has been Senior Vice President of Coinmach
Laundry since April 1996 and of the Company 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 the Company 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.
24
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 $100,000 for all services rendered in
all capacities for the fiscal years ended March 31, 1999 and March 31, 2000, and
the 2001 12-Month Period.
Annual Long-Term
Compensation Compensation
------------------------------------------------- --------------------------------
Common Stock
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation(14)
Name and Principal Position Year ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------- -------- ------------ ---------------
Stephen R. Kerrigan 2001 404,617 275,000 70,266(1) -- 2,631
Chief Executive Officer 2000 350,000 400,000 115,956(2) 50,000 2,972
1999 350,000 400,000 121,740(3) 50,000 2,121
Mitchell Blatt 2001 301,731 120,000 27,671(4) -- 2,352
President, Chief 2000 300,000 250,000 66,281(5) 30,000 2,553
Operating Officer 1999 300,773 150,000 65,575(6) 30,000 1,957
Robert M. Doyle 2001 200,673 85,000 7,034(7) -- 2,347
Chief Financial Officer 2000 193,942 125,000 12,052(8) 20,000 2,124
1999 175,000 87,500 -- 20,000 1,190
John E. Denson 2001 139,720 28,000 26,228(9) -- 1,927
Senior Vice President 2000 125,000 32,500 26,863(10) 10,000 1,456
1999 125,500 25,000 47,868(11) 5,000 1,359
Michael E. Stanky 2001 195,684 50,000 3,800(12) -- 2,421
Senior Vice President 2000 175,000 87,500 3,526(13) 10,000 2,009
1999 175,000 87,500 -- 10,000 1,928
- ----------------------
1 Includes $59,271 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;
$5,950 in club membership fees; and $1,295 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;
$12,660 in club membership fees; and $1,428 in life insurance premiums paid by
the Company on behalf of Mr. Kerrigan.
3 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 allowances; $14,500 in club membership fees; and $1,107 in
life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
4 Includes $9,271 in forgiven indebtedness; $2,813 in automobile allowances;
$14,450 in club membership fees; and $1,137 in life insurance premiums paid by
the Company on behalf of Mr. Blatt.
25
5 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.
6 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.
7 Includes $4,426 in forgiven indebtedness; $2,098 in automobile allowances;
and $510 in life insurance premiums paid by the Company on behalf of Mr. Doyle.
8 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.
9 Includes $20,000 in forgiven indebtedness; $2,900 in interest calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson; $1,275
in automobile allowances; and $2,053 in life insurance premiums paid by the
Company on behalf of Mr. Denson.
10 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 allowances; and $1,600 in life insurance premiums paid by the
Company on behalf of Mr. Denson.
11 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.
12 Includes $2,455 in forgiven indebtedness; $551 in automobile allowances;
and $794 in life insurance premiums paid by the Company on behalf of Mr. Stanky.
13 Includes $2,455 in forgiven indebtedness; $243 in automobile allowances;
and $828 in life insurance premiums paid by the Company on behalf of Mr. Stanky.
14 Represents matching contributions made by the Company to the 401(k) Plan.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Value
Table
The following table sets forth the number of stock options in respect
of Class A common stock of Coinmach Laundry exercised by the Named Executive
Officers listed below during the 2001 12-Month Period.
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options At Fiscal Options At Fiscal
Shares Year-End Year-End
Acquired Value (#) ($)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------- ------------ -------- --------------- -----------------
Stephen R. Kerrigan 358,098 908,380 0* --
Robert M. Doyle 191,890 477,682 0* --
John E. Denson 36,299 98,673 0* --
Michael E. Stanky 163,521 292,644 0* --
- --------------------
* All options not exrcised in the Transaction (all of which consisted of
out-of-the money options) were cancelled following consummation of the
Transaction.
26
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 Laundry 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) provide 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
of directors of the Company (the "Board"). During the 2001 12-Month Period, the
compensation committee of Coinmach Laundry (the "Compensation Committee")
approved annual base salaries for each of Messrs. Kerrigan, Blatt and Doyle of
$425,000, $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 2001 12-Month Period, the Compensation Committee approved an annual
base salary for Mr. Denson of $140,000. 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 $140,000 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 2001 12-Month Period, the Compensation
Committee approved an annual base salary for Mr. Stanky of $195,000.
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 2% up to
15% of their salaries up to a maximum level imposed by applicable federal law
($10,500 in 2001). 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% contributed to the 401(k) Plan by the respective eligible employee up to the
first 6% of the amount contributed by such 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
27
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 the 2001
12-Month Period to the Named Executive Officers appearing in the Summary
Compensation Table above: Mr. Kerrigan $2,631; Mr. Blatt $2,352; Mr. Doyle
$2,347; Mr. Denson $1,927; and Mr. Stanky $2,421.
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 2001 12-Month Period, 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 director of Coinmach
Laundry. Prior to the Transaction, Mr. Donnini was a principal of Golder, Thoma,
Cressey, Rauner, Inc., the general partner of GTCR Fund IV, and presently is a
principal of the majority stockholder of Coinmach Laundry. During the past
fiscal year, Dr. Laffer and Mr. Cerri were directors of Coinmach Laundry until
their respective resignations from the board of directors of Coinmach Laundry
and the Compensation Committee on July 13, 2000. Following their resignations,
all compensation matters with respect to the Company were, and continue to be,
addressed by the Board or the Chief Executive Officer, as appropriate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 2001, the Company had 100 shares of Common Stock issued
and outstanding, all of which were owned by Coinmach Laundry. Coinmach Laundry
completed the Transaction in July 2000, pursuant to which it was acquired by an
affiliate of GTCR Fund IV. For more information concerning the Transaction, see
Item 1 -- "Business - General Development of Business."
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 to Coinmach
Laundry 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).
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, GTCR Fund IV, 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 Fund IV has the right to
"demand" registrations under the Securities Act with respect to all or a portion
of GTCR Fund IV's Registrable Securities. The
28
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 8, 2001, Mr. Kerrigan (directly and indirectly through MCS,
an entity controlled by Mr. Kerrigan) and Mr. Blatt owed the Company $333,261
and $263,261, 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 $395,257 and
$275,257, respectively, plus interest accrued thereon. The indebtedness of each
of MCS and Mr. Blatt is evidenced by (i) two promissory notes dated July 26,
1995 in the original principal amount of $52,370, and (ii) two promissory notes
dated May 3, 1996 in the original principal amount of $21,797. Each such note
(i) accrues interest at a rate of 8% per annum, (ii) was delivered to the
Company in connection with the purchase of the Company's securities by MCS and
Mr. Blatt and (iii) is secured by pledges of all the Coinmach Laundry common
stock held by MCS and Mr. Blatt. 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 2001 12-Month Period, the
Company forgave the repayment of approximately (i) $6,546 by each of MCS and Mr.
Blatt, which amounts represent the aggregate amount of the fifth 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 third installment of principal and
interest owed by MCS and Mr. Blatt under the note 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 Coinmach Laundry 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, the Company extended loans to each of Messrs. Kerrigan and Denson
in the principal amounts of $500,000 ($300,000 of which is reflected in the
$333,261 owed by Mr. Kerrigan to the Company as of June 8, 2001) and $80,000,
respectively. The loan to Mr. Denson (the "Denson Loan") is an interest free
demand loan. The Company forgave an aggregate of $60,000 on the Denson Loan,
$20,000 of which was forgiven during the 2001 12-Month Period and $20,000 of
which was forgiven during the 2000 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 the Company on such
Payment Date. If Mr. Kerrigan ceases to be employed by the Company as a result
of (i) a change in control of the Company, (ii) the death or disability of Mr.
Kerrigan while employed by the Company or (iii) a termination by Mr. Kerrigan
for 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.
29
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)
30
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)
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)
31
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)
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)
32
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)
10.25 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)
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)
33
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)
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)
34
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)
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)
35
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
(b) Reports on Form 8-K.
During the 2001 12-Month Period, the Company did not file any
reports on Form 8-K.
(c) Exhibits -- See (a)(2) above.
(d) None.
36
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 12, 2001.
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 12, 2001 By: /s/ STEPHEN R. KERRIGAN
-----------------------------------------------
Stephen R. Kerrigan
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
Date: June 12, 2001 By: /s/ MITCHELL BLATT
-----------------------------------------------
Mitchell Blatt
Director, President and
Chief Operating Officer
Date: June 12, 2001 By: /s/ ROBERT M. DOYLE
-----------------------------------------------
Robert M. Doyle
Chief Financial Officer,
Senior Vice President
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Date: June 12, 2001 By: /s/ JOHN E. DENSON
-----------------------------------------------
John E. Denson
Senior Vice President - Corporate Development
Date: June 12, 2001 By: /s/ MICHAEL STANKY
-----------------------------------------------
Michael Stanky
Senior Vice President
Coinmach Corporation and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Auditors............................................ F-2
As of March 31, 2001 and March 31, 2000:
Consolidated Balance Sheets............................................ F-3
For the periods from July 1, 2000 to March 31, 2001 and from April 1,
2000 to June 30, 2000 and for the years ended March 31, 2000 and 1999:
Consolidated Statements of Operations.................................. F-5
Consolidated Statements of Stockholder's Equity (Deficit).............. F-6
Consolidated Statements of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements................................ F-9
Schedule II - Valuation and Qualifying Accounts:
For the periods from July 1, 2000 to March 31, 2001 and from April 1,
2000 to June 30, 2000 and for the years ended March 31, 2000 and 1999.. F-31
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
F-1
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, 2001
(post-transaction) and March 31, 2000 (pre-transaction), and the related
consolidated statements of operations, stockholder's equity (deficit), and cash
flows for the post-transaction period from July 1, 2000 to March 31, 2001 and
the pre-transaction period from April 1, 2000 to June 30, 2000 and each of the
two years in the period ended March 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). 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, 2001 (post-transaction) and March 31,
2000 (pre-transaction), and the consolidated results of their operations and
their cash flows for the post-transaction period from July 1, 2000 to March 31,
2001 and the pre-transaction period from April 1, 2000 to June 30, 2000 and each
of the two years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Melville, New York
June 5, 2001
F-2
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
March 31
2001 2000
----------------------------------------
(Post-Transaction) (Pre-Transaction)
Assets
Cash and cash equivalents $ 25,859 $ 23,174
Receivables, less allowance
of $998 and $638 10,070 10,206
Inventories 13,362 17,770
Prepaid expenses 7,755 6,899
Advance location payments 74,233 77,212
Land, property and equipment:
Laundry equipment and fixtures 313,492 361,291
Land, building and improvements 5,471 41,693
Trucks and other vehicles 13,023 13,819
----------------------------------------
331,986 416,803
Less accumulated depreciation
and amortization (55,982) (179,643)
----------------------------------------
Net property and equipment 276,004 237,160
Contract rights, net of accumulated
amortization of $33,404 and $102,307 376,779 384,680
Goodwill, net of accumulated
amortization of $14,529 and $28,248 215,317 101,253
Other assets 14,695 17,271
----------------------------------------
Total assets $1,014,074 $875,625
========================================
See accompanying notes.
F-3
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
March 31
2001 2000
----------------------------------------
(Post-Transaction) (Pre-Transaction)
Liabilities and stockholder's
equity (deficit)
Accounts payable and accrued expenses $ 35,332 $ 33,934
Accrued rental payments 28,482 28,445
Accrued interest 15,939 15,786
Deferred income taxes 85,801 74,022
11-3/4% Senior Notes due 2005 296,655 296,655
Premium on 11-3/4% Senior Notes, net 5,555 6,789
Credit facility indebtedness 395,331 382,020
Other long-term debt 5,983 5,144
Due to parent 53,208 62,973
Stockholder's equity (deficit):
Common stock, par value $.01:
1,000 shares authorized, 100
shares issued and outstanding - -
Capital in excess of par value 117,391 41,391
Accumulated deficit (25,603) (71,513)
----------------------------------------
91,788 (30,122)
Notes receivable from management - (21)
----------------------------------------
Total stockholder's equity (deficit) 91,788 (30,143)
----------------------------------------
Total liabilities and stockholder's
equity (deficit) $ 1,014,074 $ 875,625
========================================
See accompanying notes.
F-4
Coinmach Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands of dollars)
July 1, 2000 April 1, 2000
to March 31, to June 30, Year ended March 31,
2001 2000 2000 1999
-----------------------------------------------------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Revenues $ 393,890 $ 134,225 $ 527,079 $ 505,323
Costs and expenses:
Laundry operating expenses 264,839 89,844 349,925 331,647
General and administrative 6,741 2,144 8,808 9,024
Depreciation and amortization 102,727 31,557 123,002 113,448
--------------------------------------------------------------------
374,307 123,545 481,735 454,119
--------------------------------------------------------------------
Operating income 19,583 10,680 45,344 51,204
Interest expense, net 52,391 16,661 67,232 65,901
--------------------------------------------------------------------
Loss before income taxes (32,808) (5,981) (21,888) (14,697)
--------------------------------------------------------------------
Provision (benefit) for income taxes:
Current (145) 544 1,743 1,264
Deferred (7,060) (1,873) (7,552) (4,343)
--------------------------------------------------------------------
(7,205) (1,329) (5,809) (3,079)
--------------------------------------------------------------------
Net loss $ (25,603) $ (4,652) $ (16,079) $ (11,618)
====================================================================
See accompanying notes.
F-5
Coinmach Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity (Deficit)
(In thousands of dollars, except share data)
Total
Common Stock Capital in Receivables Stockholder's
Excess of Accumulated from Equity
Shares Amount Par Value Deficit Management (Deficit)
------------------------------------------------------------------------------------------------
Balance, March 31, 1998 100 $ - $ 41,391 $(43,816) $(169) $ (2,594)
Forgiveness of receivables
from management - - - - 84 84
Net loss (pre-transaction) - - - (11,618) - (11,618)
------------------------------------------------------------------------------------------------
Balance, March 31, 1999 100 - 41,391 (55,434) (85) (14,128)
Forgiveness of receivables
from management - - - - 64 64
Net loss (pre-transaction) - - - (16,079) - (16,079)
------------------------------------------------------------------------------------------------
Balance, March 31, 2000 100 - 41,391 (71,513) (21) (30,143)
Forgiveness of receivables
from management - - - - 21 21
Net loss (pre-transaction) - - - (4,652) - (4,652)
------------------------------------------------------------------------------------------------
Balance, June 30, 2000
(pre-transaction) 100 - $ 41,391 $ (76,165) $ - $ (34,774)
================================================================================================
Application of push-down
accounting 100 - $ 117,391 - 117,391
Net loss (post-transaction) - - - (25,603) (25,603)
------------------------------------------------------------ ----------------
Balance, March 31, 2001 100 $ - $ 117,391 $ (25,603) $ 91,788
============================================================ ================
See accompanying notes.
F-6
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
July 1, 2000 to April 1, 2000
March 31, to June 30, Year ended March 31
2001 2000 2000 1999
------------------------------------------------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Operating activities
Net loss $ (25,603) $ (4,652) $ (16,079) $ (11,618)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 45,124 15,214 56,601 52,135
Amortization of advance
location payments 19,063 6,122 24,622 20,339
Amortization of intangibles 38,540 10,221 41,779 40,974
Deferred income taxes (7,060) (1,873) (7,552) (4,343)
Amortization of debt discount and
deferred issue costs 981 431 1,681 1,730
Amortization of premium on 11-3/4%
Senior Notes (925) (309) (1,234) (1,235)
Stock based compensation - 88 652 1,120
Change in operating assets and
liabilities, net of businesses
acquired:
Other assets (1,582) (1,295) (2,733) (1,463)
Receivables, net 3,205 (1,536) (2,099) 469
Inventories and prepaid expenses (837) 910 (1,582) (1,576)
Accounts payable and accrued
expenses, net (8,105) 3,087 (3,583) 5,457
Accrued interest, net 9,154 (9,001) 270 1,052
-----------------------------------------------------------------
Net cash provided by operating activities 71,955 17,407 90,743 103,041
-----------------------------------------------------------------
Investing activities
Additions to property and equipment (46,917) (18,063) (69,317) (62,082)
Advance location payments to
location owners (13,703) (6,210) (19,087) (22,052)
Additions to net assets related to
acquisitions of businesses (5,582) - - (97,531)
-----------------------------------------------------------------
Net cash used in investing activities (66,202) (24,273) (88,404) (181,665)
-----------------------------------------------------------------
F-7
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands of dollars)
July 1, 2000 April 1, 2000
to March 31, to June 30, Year ended March 31
2001 2000 2000 1999
---------------------------------------------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Financing activities
Proceeds from credit facility $ 27,242 $ 15,500 $ 40,936 $ 126,173
Repayments to credit facility (23,082) (6,349) (42,919) (38,437)
Net repayments to parent (6,313) (47) (397) (1,293)
Repayments of bank and other
borrowings (74) (4) (398) (431)
Principal payments on capitalized
lease obligations (2,244) (831) (2,902) (2,894)
Deferred debt issuance costs - - - (430)
---------------------------------------------------------------
Net cash (used in) provided by
financing activities (4,471) 8,269 (5,680) 82,688
---------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,282 1,403 (3,341) 4,064
Cash and cash equivalents,
beginning of period 24,577 23,174 26,515 22,451
---------------------------------------------------------------
Cash and cash equivalents,
end of period $ 25,859 $ 24,577 $ 23,174 $ 26,515
===============================================================
Supplemental disclosure of
cash flow information
Interest paid $ 42,898 $ 25,772 $ 66,543 $ 64,418
===============================================================
Income taxes paid $ 1,015 $ 629 $ 2,829 $ 477
===============================================================
Noncash financing activities
Acquisition of fixed assets
through capital leases $ 2,458 $ 1,534 $ 3,361 $ 2,307
===============================================================
See accompanying notes.
F-8
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Coinmach Corporation, a Delaware corporation, and its subsidiaries (collectively
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, 2001, the Company owned and operated approximately 820,000 washers
and dryers in approximately 80,000 locations on routes throughout the United
States and in 181 retail laundromats (through its Kwik Wash division) 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 (through
its Appliance Warehouse division) 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.
On May 12, 2000, 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 then-largest stockholder of CLC. Pursuant to the
Merger Agreement, CLC Acquisition acquired 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 period during which Shares could be tendered in the Offer expired on July 7,
2000. Approximately 99% of the outstanding Shares were either tendered in the
Offer and not withdrawn or contributed to CLC Acquisition by certain members of
management of the Company and GTCR Fund IV. Effective July 13, 2000, CLC
Acquisition was merged with and into CLC pursuant to the terms of the Merger
Agreement. Each Share not tendered in the Offer was canceled and converted into
the right to receive an amount per Share equal to $14.25, without interest
thereon.
CLC, in connection with a going-private transaction (the "Transaction"),
completed a merger on July 13, 2000 with CLC Acquisition. The Transaction was
accounted for using the purchase method of accounting and, according to a
practice known as "push down" accounting, as of July 1, 2000 (the beginning of
the accounting period closest to the date on which control was effective), the
Company adjusted its consolidated assets and liabilities to their estimated fair
values, based on independent appraisals, evaluations, estimations and other
studies. References to the "pre-transaction" period refer to the Company prior
to the date of the Transaction and references to the "post-transaction" period
refer to the Company subsequent to the date of the Transaction. As a result, the
financial statements presented for the post-transaction period are not
comparable to the financial statements presented for the pre-transaction
periods. The purchase price exceeded the fair value of assets acquired (based on
an independent appraisal for certain assets) less liabilities assumed by
approximately $124.2 million, which was allocated to goodwill. In applying
F-9
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
push-down accounting, the Company adjusted its accounts as follows (in
thousands):
Property and equipment $ 28,516
Contract rights 24,871
Goodwill 124,165
All other assets (4,676)
----------------
$ 172,876
================
Deferred taxes $ 20,711
Capital in excess of par value 76,000
Accumulated deficit 76,165
----------------
$ 172,876
================
Had the Transaction taken place at April 1, 2000, on an unaudited pro-forma
basis, depreciation and amortization and net loss would have been $3.5 million
higher than reported for the pre-transaction period ended June 30, 2000.
F-10
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies
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. 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. Construction-in-progress,
the amount of which is not material, is classified as a component of inventory
on the accompanying balance sheets. Sales of laundromats amounted to
approximately $21.1 million for the period from July 1, 2000 to March 31, 2001
(post-transaction), $10.8 million for the period from April 1, 2000 to June 30,
2000 (pre-transaction), and $29.1 million and $25.3 million, for the years ended
March 31, 2000 (pre-transaction) and 1999 (pre-transaction), respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
F-11
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
March 31
2001 2000
---------------------------------------
Post-Transaction Pre-Transaction
Laundry equipment $ 9,505 $ 13,273
Machine repair parts 3,857 4,497
---------------------------------------
$ 13,362 $ 17,770
=======================================
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
The cost of installing laundry machines is capitalized and included with laundry
equipment. Decorating costs, which represent the costs of refurbishing and
decorating laundry rooms in property-owner facilities, are capitalized and
included with leasehold improvements.
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.
F-12
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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 a period of 15 years. The goodwill which arose in the business combinations
described in Note 3 is presented for historical purposes. Such goodwill was
adjusted to a new basis as the result of push-down accounting as described in
Note 1. On May 22, 2001, the Financial Accounting Standards Board ("FASB")
announced that it had completed redeliberations of the provisions in the 2001
FASB Exposure Draft (Revised), Business Combinations and Intangible Assets -
Accounting for Goodwill, and expressed its support for the tentative decisions
reached. Included among those tentative decisions is a provision which states
that goodwill should not be amortized, but should be tested at least annually
for impairment at the reporting unit level. The new accounting for goodwill
would be effective for fiscal years beginning after December 15, 2001, and
therefore, the Company would be required to adopt the new accounting on April 1,
2002. The Company will be permitted to adopt the new accounting on April 1,
2001, provided it had not previously issued its financial statements for the
quarter ending June 30, 2001. The FASB is presently drafting the final
statements, and plans to issue those statements by the second half of July 2001.
Management is unable at this time to determine when the new accounting will be
adopted by the Company; however, such accounting will be adopted no later than
April 1, 2002.
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 pursuant to acquisition, are amortized on
a straight-line basis over the period of expected benefit of approximately 15
years and are based on an independent appraisal. Amortization of contract rights
during the post-transaction period amounted to approximately $26.1 million, of
which approximately $5.9 million represented the value of contract rights
relating to locations not renewed. The Company does not record contract rights
relating to new locations signed in the ordinary course of business.
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.
F-13
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Advance Location Payments
Advance location payments to location owners are paid at the inception or
renewal of a lease for the right to operate applicable laundry rooms during the
contract period, in addition to commission to be paid during the lease term and
are amortized on a straight-line basis over the contract term, which generally
ranges from 5 to 10 years. Prepaid rent is shown separately on the Balance Sheet
as a component of Prepaid Expenses.
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.
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.
F-14
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying value of the
assets exceed the fair value of the asset. 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.
Currently, the Company's only exposure to derivatives is interest rate swap
transactions (see Note 5b) 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, 2002.
Reclassifications
Certain amounts in the pre-transaction financial statements have been
reclassified for presentation purposes.
F-15
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Business Combinations
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 was allocated to contract rights in the
pre-transaction period.
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 was allocated
to contract rights and approximately $6.4 million was allocated to goodwill in
the pre-transaction period.
All acquisitions have been accounted for as purchases and, accordingly, assets
and liabilities were recorded at their estimated fair values at the dates of
acquisition and the results of operations were included subsequent to those
dates.
Unaudited pro forma combined results of operations of the Company and the 1999
acquired businesses, as if the acquisitions had taken place at the beginning of
1999, is not presented as such pro-forma information would be substantially the
same as results of operations as presented for 1999.
4. Receivables
Receivables consist of the following (in thousands):
March 31
2001 2000
-----------------------------------
Post-Transaction Pre-Transaction
Trade receivables $ 10,084 $ 9,725
Other 984 1,119
-----------------------------------
11,068 10,844
Allowance for doubtful accounts 998 638
-----------------------------------
$ 10,070 $ 10,206
===================================
F-16
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Debt
Debt consists of the following (in thousands):
March 31
2001 2000
-----------------------------------
Post-Transaction Pre-Transaction
11-3/4% Senior Notes due 2005 $ 296,655 $296,655
Premium on 11-3/4% Senior Notes, net 5,555 6,789
Credit facility indebtedness 395,331 382,020
Obligations under capital leases 5,666 4,748
Other long-term debt with varying
terms and maturities 317 396
-----------------------------------
$ 703,524 $690,608
===================================
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 by the Company utilizing the interest method, 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-17
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. 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 $485 million of secured financing
consisting of: (i) a $160 million revolving credit facility currently bearing
interest at a monthly Eurodollar rate offered by the administrative agent to
financial institutions in New York (the "Eurodollar Rate") plus 2.00%; (ii) a
$75 million Tranche A term loan facility currently bearing interest at a monthly
Eurodollar Rate plus 2.50% and (iii) a $250 million Tranche B term loan facility
currently bearing interest at a monthly Eurodollar Rate plus 2.75%. 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 revolver matures 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 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 purposes, including acquisitions.
On November 21, 2000, the Amended and Restated Credit Facility was amended to
provide for an additional $50 million in the form of a Tranche B term loan
payable on terms identical to the original Tranche B term loan. Such funds were
used to reduce the amount outstanding under the revolving line of credit by $50
million.
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 base rate or 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.
F-18
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Debt (continued)
At March 31, 2001, the monthly variable Eurodollar interest rate was
approximately 5.12%.
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. This agreement expired on November 15, 2000.
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, 2001, as estimated by
a dealer, was approximately $2.0 million unfavorable and at March 31, 2000 was
approximately $5.1 million favorable.
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 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. This agreement expired November 15,
2000.
On October 12, 2000, the Company entered into a 25-month $25 million notional
amount interest rate swap transaction with First Union, to fix the monthly LIBOR
interest rate at 6.31% on the Amended and Restated Credit Facility. On December
7, 2000, the Company amended the October 12, 2000 swap agreement with First
Union to increase the notional amount to $50 million and to reduce the fixed
monthly LIBOR rate to 6.14%. The expiration date remained the same at November
15, 2002. The fair value of this swap transaction at March 31, 2001, as
estimated by a dealer, was approximately $1.75 million unfavorable.
At March 31, 2001, the aggregate notional amount under the Company's swap
agreements was $225 million, and the aggregate fair values were unfavorable by
approximately $3.75 million.
F-19
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Debt (continued)
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.
Debt outstanding under the Amended and Restated Credit Facility consisted of the
following (in thousands):
March 31
2001 2000
-----------------------------------
Post-Transaction Pre-Transaction
Tranche 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
7.89% at March 31, 2001) $ 71,750 $ 72,750
Tranche term loan B, quarterly
payments of $625 with the final
payment of $233,875 on
June 30, 2005 (Interest rate of
approximately 8.22% at March 31, 2001) 243,875 196,000
Revolving line of credit 79,706 113,270
-----------------------------------
$ 395,331 $ 382,020
===================================
In addition, as of March 31, 2001, the amount available on the revolving portion
of the Amended and Restated Credit Facility was approximately $77.6 million. The
aggregate maturities of debt (exclusive of the premium on the 11-3/4% Senior
Notes, net) during the next five years as of March 31, 2001 are as follows (in
thousands):
Years Ending
March 31, Principal Amount
----------- ----------------
2002 $ 6,419
2003 10,226
2004 30,745
2005 119,961
2006 530,618
Thereafter --
------------
Total debt $ 697,969
============
6. Retirement Savings Plan
The Company maintains a defined contribution plan meeting the guidelines of
Section 401(k) of the Internal Revenue Code. Such plan requires employees to
meet certain age, employment status and minimum entry requirements as allowed by
law.
F-20
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Retirement Savings Plan (continued)
Contributions to such plan amounted to approximately $347,000 for the period
from July 1, 2000 to March 31, 2001 (post-transaction), $127,000 for the period
from April 1, 2000 to June 30, 2000 (pre-transaction) and $395,000 and $339,000
for the years ended March 31, 2000 (pre-transaction) and 1999 (pre-transaction),
respectively.
The Company does not provide any other post-retirement benefits.
7. Income Taxes
The components of the Company's deferred tax liabilities and assets are as
follows (in thousands):
March 31
2001 2000
-----------------------------------------
Post-Transaction Pre-Transaction
Deferred tax liabilities:
Accelerated tax depreciation
and contract rights $ 112,551 $92,493
Other, net 1,714 2,624
-----------------------------------------
114,265 95,117
-----------------------------------------
Deferred tax assets:
Net operating loss carryforwards 25,991 16,328
Stock compensation expense - 1,760
AMT credit 1,696 2,499
Covenant not to compete 777 508
-----------------------------------------
28,464 21,095
-----------------------------------------
Net deferred tax liability $ 85,801 $74,022
=========================================
F-21
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
The net operating loss carryforwards of approximately $63.5 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 2002
through 2021. 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):
July 1, 2000 April 1, 2000
to to Year Ended March 31
March 31, 2001 June 30, 2000 2000 1999
-----------------------------------------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Federal $ (5,648) $ (1,114) $ (4,841) $ (2,561)
State (1,557) (215) (968) (518)
-----------------------------------------------------------
$ (7,205) $ (1,329) $ (5,809) $ (3,079)
===========================================================
F-22
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. 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):
July 1, 2000 April 1, 2000
to to Year Ended March 31,
March 31, June 30,
2001 2000 2000 1999
-------------------------------------------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Expected tax benefit $ (11,485) $ (2,093) $ (7,839) $ (5,144)
State tax benefit, net of
federal taxes (1,009) (140) (629) (314)
Permanent book/tax differences:
Goodwill 3,843 653 2,600 2,552
Alternative minimum tax 913 - - -
Other 533 251 59 (173)
-----------------------------------------------------------
Tax provision/(benefit) $ (7,205) $ (1,329) $ (5,809) $ (3,079)
===========================================================
8. 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.
F-23
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Related Party Transactions (continued)
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 fair market value of such grant of the 1997 Options was $21.25 per share as
reported as the closing price by the Nasdaq Stock Market. 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.
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. The fair market value of the May
1998 grant of such options was $25.938 per share as reported as the closing
price by the Nasdaq Stock Market, and the fair market value of the July 1998
grant of such options was $23.125 per share as reported as the closing price by
the Nasdaq Stock Market. 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. The fair market value of the May 1999 grant of such options
was $10.56 per share, as reported as the closing price by the Nasdaq Stock
Market, and the Fair Market Value of the July 1999 grant of such options was
$11.69 per share, as reported as the closing price by the Nasdaq Stock Market.
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.
F-24
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Related Party Transactions (continued)
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 period from April 1, 2000 to June 30, 2000 (pre-transaction) and for the
years ended March 31, 2000 (pre-transaction) and 1999 (pre-transaction) the
Company recorded stock-based compensation charges of approximately $88,000,
$588,000 and $1,036,000, respectively, relating to the options mentioned above.
In future years there will be no stock compensation expense relating to the
above-mentioned options.
As of March 31, 2001, there were no outstanding options.
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 based on
certain conditions. The amount forgiven of $50,000 was charged to general and
administrative expenses for the period from April 1, 2000 to June 30, 2000
(pre-transaction) and for each of the years ended March 31, 2000
(pre-transaction) and 1999 (pre-transaction).
The balance of such loan of $300,000 and $350,000 is included in other assets as
of March 31, 2001 (post-transaction) and March 31, 2000 (pre-transaction),
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, 2001 (post-transaction).
F-25
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies
Rental expense for all operating leases, which principally cover office and
warehouse facilities, laundromats and vehicles, was approximately $6,433 for the
period from July 1, 2000 to March 31, 2001 (post-transaction), $2,144 for the
period from April 1, 2000 to June 30, 2000 (pre-transaction) and for the years
ended March 31, 2000 (pre-transaction) and 1999 (pre-transaction) were $8,163
and $7,227, respectively (in thousands).
Future minimum rental commitments under all capital leases and noncancelable
operating leases as of March 31, 2001 (post-transaction) are as follows (in
thousands):
Capital Operating
---------------------------------
2002 $ 2,899 $ 6,901
2003 2,110 5,814
2004 780 4,735
2005 260 3,652
2006 88 2,844
Thereafter - 5,888
---------------------------------
Total minimum lease payments 6,137 $ 29,834
=============
Less amounts representing interest 471
---------------
$ 5,666
===============
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, 2001 (post-transaction) and 2000
(pre-transaction) were approximately $2.7 million and $3.4 million,
respectively.
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 defendant's time to respond to the
complaint has been adjourned indefinitely by agreement of the parties. Given
that such acquisition proposal was not accepted by CLC, the Company believes
this class action is without merit and that the ultimate disposition of such
action will not have a material adverse effect on the Company (see Note 1).
F-26
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments and Contingencies (continued)
The Company is a 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 or results of operations 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.
10. 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, 2001.
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, 2001
(post-transaction)(including premium of $5,555) $302,210 $299,622
11-3/4% Senior Notes at March 31, 2000
(pre-transaction)(including premium of $6,789) $303,444 $292,205
The fair value of the 11-3/4% Senior Notes is based on quoted market prices.
F-27
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Segment Information
The Company reports segment information for its only reportable segment, the
Route Segment, and provides information for its non-reportable segments as All
Other. The Route Segment, which comprises the Company's core business, provides
outsourced laundry equipment services to locations by leasing laundry rooms from
building owners and property management companies typically on a long-term,
renewal basis. All Other includes the following businesses aggregated: (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 through the Appliance Warehouse division, (ii)
operating, maintaining and servicing retail Laundromats through the Kwik Wash
division, 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,
through its Super Laundry distribution subsidiary. The Company evaluates
performance and allocates resources based on EBITDA (earnings before interest,
taxes, depreciation and amortization), cash flow and growth opportunity. The
accounting policies of the segments are the same as those described in Note 2,
Summary of Significant Accounting Policies.
The table below presents information about the Company's segments (in
thousands):
July 1, 2000 to April 1 to
March 31, June 30, Year ended March 31,
2001 2000 2000 1999
------------------------------- ---------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Revenue:
Route $337,257 $112,671 $446,370 $435,409
All other:
Retail laundromat 16,508 5,073 20,577 20,240
Distribution 26,026 12,256 46,279 38,587
Rental 14,099 4,225 13,853 11,087
------------ ------------ ------------ -----------
Subtotal other 56,633 21,554 80,709 69,914
------------ ------------ ------------ -----------
Total $393,890 $134,225 $527,079 $505,323
============ ============ ============ ===========
F-28
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Segment Information (continued)
July 1, 2000 April 1,
to to
March 31, June 30, Year Ended March 31
2001 2000 2000 1999
------------------------------- --------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
EBITDA:
Route $ 119,915 $ 40,493 $ 161,228 $ 157,492
All other 9,136 3,888 15,926 16,184
Reconciling item:
Corporate expenses (6,741) (2,144) (8,808) (9,024)
-------------- --------------- -------------- ---------------
Total $ 122,310 $ 42,237 $ 168,346 $ 164,652
============== =============== ============== ===============
Depreciation and
amortization expense:
Route $ 83,511(a) $ 27,699 $ 108,413 $ 100,492
All other 6,445 1,751 6,206 4,679
Reconciling item:
Corporate 12,771(b) 2,107 8,383 8,277
-------------- -------------- -------------- ---------------
Total $ 102,727 $ 31,557 $ 123,002 $ 113,448
============== ============== ============== ===============
Income before taxes:
Route $ 36,404 $ 12,794 $ 52,815 $ 57,000
All other 2,691 2,137 9,720 11,505
-------------- -------------- -------------- ---------------
Subtotal 39,095 14,931 62,535 68,505
Reconciling items:
Corporate expense 19,512 4,251 17,191 17,301
Interest expense 52,391 16,661 67,232 65,901
-------------- -------------- -------------- --------------
Loss before taxes $ (32,808) $ (5,981) $ (21,888) $ (14,697)
============== ============== ============== ===============
F-29
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Segment Information (continued)
July 1, 2000 April 1,
to to
March 31, June 30, Year Ended March 31
2001 2000 2000 1999
------------------------------- -----------------------------
Post- Pre- Pre- Pre-
Transaction Transaction Transaction Transaction
Expenditures for
addition of
long-lived assets:
Route $ 53,610 $ 20,759 $ 77,644 $ 173,062(c)
All other 12,592 3,514 10,760 8,603
-------------- -------------- -------------- --------------
Total $ 66,202 $ 24,273 $ 88,404 $ 181,665
============== ============== =============== ==============
Segment assets:
Route $ 737,699 $ 816,170 $ 849,203
All other 54,160 44,421 37,612
Corporate assets 222,502(d) 15,034 13,844
--------------- -------------- --------------
Total $ 1,014,361 $ 875,625 $ 900,659
=============== ============== ==============
(a) 2001 route depreciation and amortization expense includes $5.9 million
representing the value of contract rights relating to locations not
renewed.
(b) 2001 corporate depreciation and amortization expense includes amortization
of goodwill arising from the Transaction (see Note 1).
(c) 1999 expenditures for additions of long-lived route assets includes $97,531
relating to acquisitions and related transaction costs, primarily due
to the acquisition of G&T.
(d) 2001 corporate assets include goodwill arising from the Transaction
(see Note 1).
F-30
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COINMACH CORPORATION AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
--------------------------------------
Balance at Charged to other Balance at
Beginning of Charged to Costs Accounts-- Deductions-- Beginning of
Description Period and Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM JULY 1, 2000
TO MARCH 31, 2001:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollected accounts $723,717 $274,283 $998,000
PERIOD FROM APRIL 1, 2000
TO JUNE 30, 2000:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollected accounts $638,000 $ 85,717 $723,717
YEAR ENDED MARCH 31, 2000:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollected accounts $618,000 $ 20,000 $638,000
YEAR ENDED MARCH 31, 1999:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollected accounts $325,000 $293,000 $618,000
F-31
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