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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2002
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.)
303 SUNNYSIDE BLVD., SUITE 70, PLAINVIEW, NEW YORK 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8555
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 6, 2002, the registrant had outstanding 100 shares of common
stock, par value $.01 per share.
No market value can be determined for the Company's common stock. See
Item 5 of this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
Unless otherwise expressly indicated herein, the descriptions of the
company contained herein are as of March 31, 2002.
DESCRIPTION OF THE BUSINESS
GENERAL
Coinmach Corporation, a Delaware corporation (the "Company") is the leading
supplier of outsourced laundry equipment services for multi-family housing
properties in North America. The Company's core business (which the Company
refers to as the "route" business) involves leasing laundry rooms from building
owners and property management companies, installing and servicing laundry
equipment, collecting revenues generated from laundry machines, and operating
retail laundromats. For the fiscal year ended March 31, 2002, the Company's core
business represented approximately 90% of its total revenues and approximately
95% of its total EBITDA. The existing customer base for the Company's core
business is comprised of landlords, property management companies, 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. The Company's size and scale offer significant
advantages over its competitors in terms of marketing, operating efficiencies
and the quality of service the Company provides its customers.
The Company has selectively acquired certain related businesses in order to
expand and diversify the types of services it provides. Through its Appliance
Warehouse division, the Company leases laundry equipment and other household
appliances to property owners, managers of multi-family housing properties, and
to a lesser extent, individuals and corporate relocation entities. Through its
wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super Laundry"), the
Company is also a laundromat equipment distribution company. The Company
believes that these non-core businesses provide a platform for expansion and
diversification of the Company's services. 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. See "BUSINESS - DESCRIPTION OF
BUSINESS - COMPLEMENTARY OPERATIONS."
The Company maintains its headquarters in Plainview, 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.
At March, 31, 2002, the Company owned and operated approximately 835,000
washers and dryers in approximately 80,000 locations throughout North America of
which (i) approximately 676,000 are located in leased laundry rooms in
approximately 70,000 locations, (ii) approximately 12,000 are located in 167
retail laundromats in Texas and Arizona, and (iii) approximately 147,000 are
installed with its rental customers.
BUSINESS AND GROWTH STRATEGY
The Company's business strategy is to maintain its market leadership
position as the leading supplier of outsourced laundry equipment services for
multi-family housing properties in North America. The Company's growth strategy
is to increase its cash flow from operations and profitability through a
combination of internal expansion and selective acquisitions designed to achieve
economies of scale and increase its operating efficiencies. Furthermore,
management believes that its existing sales, service, collections and security
infrastructure could potentially be extended into other collections-based route
businesses that are unrelated to its existing laundry business.
2
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; and (iii) improving the net contribution per machine
through operating efficiencies and selective price increases.
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 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 enhance its ability to gain new customers and
additional locations from its existing customers.
CONVERSIONS. According to information provided by the Multi-housing
Laundry Association, there are approximately 1.2 million machines installed
in locations that continue to be managed by owner-operators. Building
owners or managers can forego significant cash outlays and servicing costs
by contracting with the Company to purchase, service and maintain laundry
equipment. Accordingly, the Company markets its services to building owners
and managers, encouraging them 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 by increasing operating
efficiencies and implementing selective price increases. With respect to
operating efficiencies, each additional route added to its existing base
provides the Company the ability to further leverage its well-developed
operating infrastructure and positions the Company to achieve higher
returns on its established base. In terms of pricing, management actively
monitors its installed base to identify those locations in which to
implement 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.
SELECTIVE ACQUISITIONS
From January 1995 to June 1998, the Company pursued a strategy of rapid
growth through acquisitions of local, regional and multi-regional route
operators. As a result, the Company has become the leading provider of
outsourced laundry equipment services in North America. As the number of
significant acquisition opportunities has diminished over the past several
years, due in part to the Company's successful execution of its acquisition
strategy, the Company has focused its efforts on selectively acquiring smaller
routes within its fragmented industry. The Company believes that there are
numerous private, family-owned businesses that often lack the financial
resources to compete effectively with larger independent operators such as
Coinmach to secure new or existing contracts. Consequently, such independent
operators, especially those that are undergoing generational ownership changes,
continue to represent potential acquisition opportunities. 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.
DEVELOP COMPLEMENTARY LINES OF BUSINESS
While the Company intends to focus on increasing its installed machine
base, the Company believes that its leading market position and access to over
six million housing units provide the Company with additional growth and
diversification opportunities within its existing laundry business. These
opportunities include the distribution of laundry equipment to the retail
coin-operated laundromat segment (through its distribution operations) and the
rental
3
of laundry equipment to various end customers (through its rental operations).
Furthermore, the Company believes that its existing sales, service, collections
and security infrastructure could potentially be extended into other
collections-based route businesses that are unrelated to its existing laundry
business. The Company regularly explores strategic alliances with other
companies in an effort to develop these ancillary revenue streams. 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.
CONTINUE DEVELOPMENT OF INTEGRATED COMPUTER SYSTEMS.
The Company's business strategy also includes the continued development of
its integrated computer systems. As the industry leader, the Company works
closely with its equipment vendors to assess ongoing technological changes and
implement those that the Company believes are beneficial to its customers and to
its operating efficiencies and financial performance. The Company's integrated
computer systems are capable of being tailored to a specific region's needs
while continuing to communicate with central management systems at its
headquarters.
INDUSTRY
The outsourced laundry equipment services industry is characterized by
stable operating cash flows generated by long-term, renewable lease contracts
with multi-family housing property owners and management companies. Based upon
industry estimates, management believes there are approximately 3.5 million
installed machines in multi-family properties throughout the United States,
approximately 2.3 million of which have been outsourced to independent operators
such as the Company and approximately 1.2 million of which continue to be
operated by the owners of such locations. The outsourced laundry equipment
services industry remains highly fragmented, with many small, private and
family-owned route businesses operating throughout all major metropolitan areas
in the United States. According to information provided by the Multi-housing
Laundry Association, the industry consists of over 280 independent operators.
Industry participants often incur significant capital costs upon the
procurement of new leases and the renewal of existing leases. Initial costs may
include replacing 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 are minimal. In
addition, the useful life of the Company's equipment typically extends
throughout the term of the contract under which it is installed. Furthermore,
maintenance of the facilities where the laundry machines are located is
typically performed by the property manager or landlord.
Historically, the industry has been characterized by stable demand and has
been resistant to changing market conditions and general economic cycles. The
Company believes that the industry's consistent and predictable revenue and
operating cash flows 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 leasing; (iii) service; (iv) information management;
(v) remanufacturing and (vi) revenue collection and security.
SALES AND MARKETING
The Company markets its products and services through a sales staff with an
average industry experience of over ten years. The principal responsibility of
the sales staff is to solicit customers and negotiate lease arrangements with
building owners and managers. Sales personnel are paid commissions that comprise
50% or more of their annual compensation. Selling commissions are based on a
percentage of a location's annualized earnings before interest and 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. The
Company believes that its sales staff is among the most competent and effective
in the industry.
4
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 it 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.
The Company 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. Most of the Company's leases
renew automatically or have a right of first refusal provision. 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, 2002, the Company's leases had an average remaining life to maturity of
approximately 51 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. The Company
estimates that less than 1% of its 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.
In a business that emphasizes prompt and efficient service, the Company
believes that its 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
5
call analysis and monitoring of service areas. These systems coordinate the
Company's radio-equipped service vehicles and allow it 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 Company's 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 Company's sales staff to
forecast revenue by location. The Company is able to obtain daily, monthly,
quarterly and annual reports on location performance, coin collection, service
and sales activity by salesperson.
The Company's integrated computer systems also provide the Company's 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.
The Company also believes that its integrated computer systems enhance its
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
The Company 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 and
extensive monitoring of collections and personnel. 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.
COMPLEMENTARY OPERATIONS
In addition to its route business, the Company has expanded its breadth of
operations to related, complementary lines of businesses:
6
RENTAL OPERATIONS
The Company, through its Appliance Warehouse division, is involved in the
business of leasing 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.
DISTRIBUTION OPERATIONS
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.
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, 2002, the Company employed 2,049 employees (including 308
laundromat attendants in the Company's retail laundromats in Texas and Arizona).
In the Northeast region, 127 hourly workers are represented by Local 966,
affiliated with the International Brotherhood of Teamsters (the "Union"). The
Company believes that it 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.
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
transaction 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."
7
The Company's headquarters are located at 303 Sunnyside Blvd., Suite 70,
Plainview, New York 11803, and its telephone number is (516) 349-8555. 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
On January 25, 2002, the Company issued $450 million of 9% Senior Notes due
2010 (the "9% Senior Notes") and entered into a new $355 million senior secured
credit facility (the "New Senior Secured Credit Facility") comprised of: (i)
$280 million in aggregate principal amount of term loans and (ii) a revolving
credit facility with a maximum borrowing limit of $75 million. The New Senior
Secured 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 $7.5
million. The term loans under the New Senior Secured Credit Facility, in
aggregate principal amounts outstanding of $30 million and $250 million, are
scheduled to be fully repaid by January 25, 2008 and July 25, 2009,
respectively. As of March 31, 2002, the Company had no amounts outstanding under
its revolving credit facility, which is scheduled to expire on January 25, 2008.
The Company used the net proceeds from the 9% Senior Notes, together with
borrowings under the New Senior Secured Credit Facility, to (i) redeem all of
its outstanding 11 3/4% Senior Notes (including accrued interest and the
resulting call premium), (ii) repay outstanding indebtedness under its prior
senior credit facility, and (iii) pay related fees and expenses. The 11 3/4%
Senior Notes were redeemed on February 25, 2002 with the funds that were set
aside in escrow on January 25, 2002. See Item 7 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND
CAPITAL RESOURCES - FINANCING ACTIVITIES" for more information about the 9%
Senior Notes and the New Senior Secured Credit Facility.
ITEM 2. PROPERTIES
As of March 31, 2002, the Company leased 61 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, revenue collection and warehousing. A significant portion of
the Company's leased properties service the Company's core route operations.
The Company presently maintains its headquarters in Plainview, New York,
leasing approximately 11,600 square feet pursuant to a ten-year lease scheduled
to terminate September 30, 2011. The Company's Plainview facility is used for
general and administrative purposes.
The Company also maintains a corporate office in Charlotte, North Carolina,
leasing approximately 3,000 square feet pursuant to a five-year lease scheduled
to terminate September 30, 2006.
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. This matter was stayed by mutual agreement of the parties due to
the subsequent cash tender offer and merger transaction which were approved by
Coinmach Laundry's board of directors, that have since been consummated. 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
Company's financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
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
Company's common stock, all of which is held beneficially and of record by
Coinmach Laundry.
HOLDERS
As of March 31, 2002, there was one holder of record of the Company's
common stock.
DIVIDENDS
The Company has not paid any dividends on its common stock during the past
fiscal year and does not intend to pay dividends on its 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."
EQUITY PARTICIPATION PURCHASE PLAN
Pursuant to Coinmach Laundry's equity participation purchase plan, certain
employees of the Company are eligible to acquire common stock of Coinmach
Laundry at a fixed price per share determined by the board of directors of
Coinmach Laundry. Such shares are paid for by each participating employee and
vest over a specified period, typically over 4 years. As of March 31, 2002,
Coinmach Laundry had issued 16,356,894 shares of its common stock to
participants under the plan. Additionally, in connection with the going private
transaction, members of senior management of the Company were eligible to
acquire preferred stock of Coinmach Laundry. As of March 31, 2002, Coinmach
Laundry had issued 693 shares of its preferred stock to certain members of
senior management of the Company.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios)
The following table presents summary historical consolidated financial data
of the Company. Such table includes the consolidated financial data for the year
ended March 31, 2002 ("2002 Fiscal Year"), 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"), and March 31, 1998 ("1998 Fiscal Year").
The financial data set forth below should be read in conjunction with the
Company's audited historical 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 APRIL 1, 2002
TO MARCH 31, TO JUNE 30,
YEAR ENDED 2001 2000 YEAR ENDED
----------- ------------- ------------- -----------------------------------
MARCH 31, POST- PRE- MARCH 31, MARCH 31, MARCH 31,
2002 TRANSACTION(7) TRANSACTION(8) 2000 1999 1998
----------- --------------- -------------- --------- --------- ---------
OPERATIONS DATA:
Revenues................................ $538,895 $393,608 $134,042 $527,079 $505,323 $324,887
Operating, general and administrative
expenses.............................. 371,830 271,298 91,805 358,733 340,671 224,752
Depreciation and amortization........... 129,529 102,727 31,557 123,002 113,448 75,453
Operating income........................ 37,536 19,583 10,680 45,344 51,204 24,682
Interest expense........................ 73,036 52,391 16,661 67,232 65,901 44,668
Loss before extraordinary item.......... (34,620) (25,603) (4,652) (16,079) (11,618) (14,652)
Extraordinary loss, net of income taxes(1) (6,745) -- -- -- -- --
Net loss................................ (41,365) (25,603) (4,652) (16,079) (11,618) (14,652)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............... $ 27,820 $25,859 -- $23,174 $26,515 $22,451
Property and equipment, net............. 284,413 276,004 -- 237,160 223,610 194,328
Contract rights, net.................... 351,609 376,779 -- 384,680 413,014 366,762
Advance location payments............... 69,257 74,233 -- 77,212 79,705 74,026
Goodwill, net........................... 201,137 215,317 -- 101,253 109,025 110,424
Total assets............................ 989,321 1,014,074 -- 875,625 900,660 816,232
Total debt (2).......................... 737,305 697,969 -- 683,819 685,741 598,700
Stockholder's equity (deficit).......... 50,423 91,788 -- (30,143) (14,128) (2,594)
FINANCIAL INFORMATION AND OTHER DATA:
Cash flow provided by operating
activities............................ $ 78,411 $71,955 $17,407 $90,743 $103,041 $ 58,686
Cash flow used for investing activities. (82,011) (66,202) (24,273) (88,404) (181,665) (350,875)
Cash flow provided by (used for)
financing activities.................. 5,561 (4,471) 8,269 (5,680) 82,688 304,530
EBITDA (3).............................. 167,065 122,310 42,237 168,346 164,652 100,135
EBITDA margin (4)....................... 31.0% 31.1% 31.5% 31.9% 32.6% 30.8%
Operating margin (5).................... 7.0% 5.0% 8.0% 8.6% 10.1% 7.6%
Capital expenditures (6)
Capital expenditures.................. $79,072 $60,620 $24,273 $88,404 $84,134 $58,728
Acquisition capital expenditures...... 3,723 5,582 -- -- 97,531 294,996
-------- -------- -------- -------- -------- --------
Total Capital Expenditures.............. $82,795 $66,202 $24,273 $88,404 $181,665 $353,724
======== ======== ======== ======== ======== ========
_________
(1) The extraordinary loss, net of income taxes, in the 2002 Fiscal Year
consists of costs related to the early extinguishments of debt in connection
with the Company's refinancing on January 25, 2002.
(2) Total debt at March 31, 2001, March 31, 2000, March 31, 1999 and March
31, 1998 does not include the unamortized premium on the 11 3/4% Series C Senior
Notes 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. The 11 3/4% Series C Senior
Notes were redeemed on February 25, 2002 and the unamortized premium on such
date was included in the determination of the extraordinary loss.
10
(3) 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 accounting principles generally accepted in the United
States) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by accounting
principles generally accepted in the United States) as a measure of liquidity.
Given that EBITDA is not a measurement determined in accordance with accounting
principles generally accepted in the United States and is thus susceptible to
varying calculations, EBITDA may not be comparable to other similarly titled
measures of other companies.
(4) 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 accounting
principles generally accepted in the United States.
(5) Operating margin represents operating income as a percentage of
revenues.
(6) 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 year ended March 31, 1998, acquisition
capital expenditures include approximately $2.3 million of promissory notes
issued by Coinmach Laundry related to certain acquisitions.
(7) Includes the results of operations for the period July 1, 2000 to March
31, 2001, representing the results subsequent to the Transaction. Certain
revenues and operating, general and administrative expenses have been
reclassified for presentation purposes.
(8) As a result of the Transaction that was accounted for using the
purchase method of accounting and, due 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. Therefore,
the financial statements presented for the Post-Transaction period are not
comparable to the financial statements presented for the Pre-Transaction period.
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. This
includes the results of operations for the period April 1, 2000 to June 30,
2000, representing the results prior to the Transaction. Certain revenues and
operating, general and administrative expenses have been reclassified for
presentation purposes.
11
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 2002 Fiscal Year, the period from
April 1, 2000 to March 31, 2001 (the "2001 12-Month Period"), and the 2000
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, collecting
revenues generated from laundry machines and operating retail laundromats. The
Company also leases laundry machines and other household appliances to property
owners, managers of multi-family housing properties and to a lesser extent,
individuals and corporate relocation entities. At March 31, 2002, the Company
owned and operated approximately 835,000 washers and dryers in approximately
80,000 locations throughout North America, including in 167 retail laundromats
located throughout Texas and Arizona. The Company, through Super Laundry, its
wholly-owned subsidiary, is also a laundromat equipment distribution company.
SOURCES OF REVENUE
The Company's primary financial objective is to increase its cash flow from
operations. Cash flow from operations represents a source of funds available to
service indebtedness and for investment in both internal growth and growth
through acquisitions. The Company has experienced net losses during the past
three fiscal years. Such net losses are attributable in part to significant
non-cash charges associated with the Company's acquisitions and the related
amortization of contract rights and goodwill accounted for under the purchase
method of accounting.
The Company's most significant revenue source is its route business, which
over the last three fiscal years has accounted for approximately 90% of its
revenue. Through its route operations, 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 percentages of revenues and
are generally paid monthly. In addition to commission payments, many of the
Company's leases require it to make advance location payments to location
owners, which are capitalized and amortized over the life of the applicable
leases. Through the Company's route business, the Company also currently
operates 167 retail laundromats throughout Texas and Arizona. The operation of
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. Laundry
operating expenses include, in addition to commission payments, (i) the cost of
machine maintenance and revenue collection in the route and retail laundromat
business, including payroll, parts, insurance and other related expenses, (ii)
costs and expenses incurred in maintaining the Company's retail laundromats,
including utilities and related expenses, (iii) the cost of sales associated
with the equipment distribution business and (iv) certain expenses related to
the operation of the Company's rental business.
In addition to its route business, the Company operates an equipment
distribution business through Super Laundry, its wholly-owned subsidiary. Super
Laundry's business consists of constructing and designing complete turnkey
retail laundromats, retrofitting existing retail laundromats, distributing
exclusive lines of commercial coin and non-coin operated machines and parts, and
selling service contracts.
12
The Company also operates an equipment rental business through its
Appliance Warehouse division, which rents laundry equipment and other household
appliances and electronic items to corporate relocation entities, owners and
managers of multi-family housing properties as well as to individuals.
The Company's discussion and analysis of segment information for the route,
distribution and rental segments for the 2001 12-Month Period and the 2000
Fiscal Year presented has been restated to combine its operations of the retail
laundromats with the route segment. Prior to the quarter ended September 30,
2001, the operations of the Company's retail laundromats were separately
discussed and analyzed. The Company believes that aggregating its retail
operations with the route segment is more representative of the Company's core
business.
ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
The Company's financial statements are based on the selection and
application of significant accounting policies, which require management to make
significant estimates and assumptions. The Company believes that the following
are some of the more critical judgment areas in the application of its
accounting policies that currently affect its financial condition and results of
operations.
Revenue and cash and cash equivalents include an estimate of cash and coin
not yet collected at the end of a reporting period which remained at laundry
room locations.
The Company is required to estimate the collectibility of its receivables.
A considerable amount of judgment is required in assessing the ultimate
realization of these receivables including the current credit-worthiness of each
customer. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
The Company currently has significant deferred tax assets, which are
subject to periodic recoverability assessments. Realization of the Company's
deferred tax assets is principally dependent upon its achievement of projected
future taxable income. Management's judgments regarding future profitability may
change due to future market conditions and other factors. These changes, if any,
may require possible material adjustments to these deferred tax asset balances.
The Company has significant intangible assets related to goodwill and
other acquired intangibles. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant judgments.
Changes in strategy and/or market conditions, including estimated future cash
flows, could significantly impact these judgments and require adjustments to
recorded asset balances.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected
statement of operations data and EBITDA, as percentages of revenue:
YEAR ENDED YEAR ENDED
MARCH 31, JULY 1, 2000 TO APRIL 1, 2000 TO MARCH 31,
2002 MARCH 31, 2001 JUNE 30, 2000 2000
---------- --------------- ---------------- ----------
(POST- (PRE-
TRANSACTION) TRANSACTION)
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
Laundry operating expenses................ 67.4 67.2 66.9 66.4
General and administrative expenses....... 1.6 1.7 1.6 1.7
Depreciation and amortization............. 24.0 26.1 23.5 23.3
Operating income.......................... 7.0 5.0 8.0 8.6
Interest expense, net..................... 13.6 13.3 12.4 12.8
EBITDA.................................... 31.0 31.1 31.5 31.9
13
FISCAL YEAR ENDED MARCH 31, 2002 COMPARED TO THE 12-MONTH PERIOD ENDED
MARCH 31, 2001
The following table sets forth the Company's revenues for the periods
indicated:
(dollars in millions)
----------------------------
2002 2001 CHANGE
------ ------- ------
Route................................. $478.1 $ 471.0 $ 7.1
Distribution.......................... 38.4 38.3 0.1
Rental................................ 22.4 18.3 4.1
------ ------ -----
$538.9 $527.6 $11.3
====== ====== =====
Revenue increased by approximately $11.3 million or 2% for the 2002 Fiscal
Year as compared to the 2001 12-Month Period.
Route revenue for the 2002 Fiscal Year increased by approximately $7.1
million or 2% over the prior year. Management believes that the improvement
in route revenue for the 2002 Fiscal Year as compared to the 2001 12-Month
Period was the result of a combination of (i) increased revenue from the
existing machine base due primarily to price changes and machine
installations, (ii) the timing of price changes and internal growth in
machine count during the 2002 Fiscal Year and the 2001 12-Month Period and
(iii) greater same store revenues due primarily to pricing strategies
implemented to address increased competition in retail laundromats.
Distribution revenue for the 2002 Fiscal Year increased slightly as
compared to the 2001 12-Month Period. Sales from the distribution business
unit are sensitive to general market and economic conditions and as a
result have experienced fluctuations during such periods.
Rental revenue for the 2002 Fiscal Year increased by approximately $4.1
million or 22% over the 2001 12-Month Period. 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 $8.9 million or 3%
for the 2002 Fiscal Year, as compared to the 2001 12-Month Period. This increase
in laundry operating expenses was due primarily to (i) an increase in commission
expense related to increased route revenue, and (ii) costs associated with
expansion into new markets in the rental and distribution businesses. As a
percentage of revenues, laundry operating expenses were approximately 67% for
both the 2002 Fiscal Year and the 2001 12-Month Period.
General and administrative expenses decreased by approximately 2% for the
2002 Fiscal Year, as compared to the 2001 12-Month Period. The decrease in
general and administrative expenses was primarily due to a slight reduction in
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
1.6% and 1.7% for the 2002 Fiscal Year and the 2001 12-Month Period,
respectively.
Depreciation and amortization expense decreased by approximately 4% for the
2002 Fiscal Year as compared to the 2001 12-Month Period. This decrease was due
primarily to a write-off of contract rights values relating to certain locations
not renewed of approximately $5.9 million during the 2001 12-Month Period.
Operating income margins were approximately 7% for the 2002 Fiscal Year, as
compared to approximately 6% for the 2001 12-Month Period. The increase in
operating income margin for the 2002 Fiscal Year was primarily due to increased
revenue in the route and rental businesses, as well as decreased depreciation
and amortization expense, which were partially offset by increased commission
expense and costs associated with the expansion into new rental and distribution
markets.
14
Interest expense, net, increased by approximately 6% for the 2002 Fiscal
Year, as compared to the 2001 12-Month Period. The increase was primarily due to
(i) the cost of the termination of the interest rate swap agreements in the
amount of approximately $4.2 million, (ii) the combination of interest paid on
the 11 3/4% Senior Notes from January 25 to February 25, 2002 with the interest
expense on the 9% Senior Notes for the same period and (iii) an increase in
amortization of deferred financing costs relating to the issuance of the 9%
Senior Notes and the New Senior Secured Credit Facility.
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 accounting principles generally accepted in the United States) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by accounting principles
generally accepted in the United States) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with accounting principles
generally accepted in the United States 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)
------------------------
2002 2001 CHANGE
------- ------ ------
Route..................................... $166.0 $164.4 $ 1.6
Distribution.............................. 1.1 1.8 (0.7)
Rental.................................... 8.7 7.2 1.5
General and administrative expenses....... (8.7) (8.9) 0.2
------- ------- ------
$167.1 $164.5 $ 2.6
======= ======= ======
EBITDA was approximately $167.1 million for the 2002 Fiscal Year, as
compared to approximately $164.5 million for the 2001 12-Month Period,
representing an increase of approximately 2%. EBITDA margins declined slightly
to approximately 31.0% for the 2002 Fiscal Year, as compared to approximately
31.2% for the 2001 12-Month Period. The increase in EBITDA was primarily the
result of increased revenues in the route and rental businesses offset partially
by the increase in commission expense related to increased route revenue, as
well as an increase in the costs associated with the expansion into new rental
and distribution markets in the rental and distribution businesses.
2001 12-MONTH PERIOD COMPARED TO THE FISCAL YEAR ENDED MARCH 31, 2000
The following table sets forth the Company's revenues for the years
indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
--------------------------
2001 2000 CHANGE
------ -------- -------
Route..................................... $471.0 $ 467.0 $ 4.0
Distribution.............................. 38.3 46.3 (8.0)
Rental.................................... 18.3 13.8 4.5
------ ------- ------
$527.6 $ 527.1 $ 0.5
====== ======= ======
15
Revenues increased by approximately $0.5 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
$4.0 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 United States, 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 was 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.
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 was primarily the result of certain of the Company's
large retail laundromat customers experiencing financial difficulty,
resulting in reduced machine purchases. In addition, sales from the
distribution business unit were sensitive to general market conditions and
as a result experienced fluctuations. The Company made a strategic change
in product lines during the 2001 12-Month Period, 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
increased the Company's presence in the Midwest region of the United
States.
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 $4.3 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 and distribution businesses as well as
increased utility costs relating to the operation of retail laundromats. 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 9% for the
2001 12-Month Period as compared to the prior year as the result of the
application of push-down accounting resulting from the going-private
transaction. Increases in depreciation and amortization other than from the
going-private 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.
16
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 Company's 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 accounting principles generally accepted in the United States) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by accounting principles
generally accepted in the United States) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with accounting principles
generally accepted in the United States 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 years
indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
-------------------------
2001 2000 CHANGE
------- ------- ------
Route..................................... $164.4 $166.3 $(1.9)
Distribution.............................. 1.8 5.0 (3.2)
Rental.................................... 7.2 5.8 1.4
General and administrative expenses....... (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 31.2%
for the 2001 12-Month Period, as compared to approximately 31.9% for the prior
year. These decreases were the result of the combination of decreased revenues
and increased operating expenses, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 2002, the Company had outstanding long-term debt of
approximately $737.3 million, which included $450 million of 9% Senior Notes and
$280 million of borrowings under the New Senior Secured Credit Facility. The
Company's stockholder's equity was approximately $50.4 million as of March 31,
2002.
The Company's liquidity requirements arise from capital expenditures,
interest expense and, to a lesser extent, principal payments on its indebtedness
and working capital requirements. The Company has met these requirements in each
fiscal year since 1995 primarily from cash flow generated from operations. The
Company's primary source of liquidity as of March 31, 2002 consisted of cash and
cash equivalents of $27.8 million and available borrowings under its New Senior
Secured Credit Facility of approximately $74.0 million.
17
FINANCING ACTIVITIES
SENIOR NOTES OFFERING AND EXCHANGE OFFER
On January 25, 2002, the Company issued $450 million of 9% Senior Notes and
entered into the $355 million Senior Secured Credit Facility comprised of (i)
$280 million in aggregate principal amount of term loans and (ii) a revolving
credit facility, which has a maximum borrowing limit of $75 million. The term
loans under the Company's New Senior Secured Credit Facility, in aggregate
principal amounts outstanding of $30.0 million and $250.0 million, are scheduled
to be fully repaid by January 25, 2008 and July 25, 2009, respectively. As of
March 31, 2002, the Company had no amounts outstanding under its revolving
credit facility, which is scheduled to expire on January 25, 2008. The Company
used the net proceeds from its 9% Senior Notes, together with borrowings under
its New Senior Secured Credit Facility, to (i) redeem all of its outstanding 11
3/4% Senior Notes (including accrued interest and the resulting call premium),
(ii) repay outstanding indebtedness under its prior senior credit facility, and
(iii) pay related fees and expenses. The 11 3/4% Senior Notes were redeemed on
February 25, 2002 with the funds that were set aside in escrow on January 25,
2002. The Company recognized an extraordinary loss, net of income tax, of
approximately $6.7 million as a result of the early extinguishment of debt
relating to the redemption of the 11 3/4% Senior Notes and the refinancing of
its prior senior credit facility (see Recently Issued Accounting Pronouncements
relating to Statement of Financial Accounting Standard No. 145). The Company
also used a portion of the net proceeds and borrowings to terminate interest
rate swap agreements entered into in connection with its prior senior credit
facility. The cost of terminating the interest rate swap agreements was
approximately $4.2 million and was recorded as interest expense in the 2002
Fiscal Year.
The 9% Senior Notes, which are to mature on February 1, 2010, 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 or after February 1,
2006, upon not less than 30 nor more than 60 days' notice, at the redemption
prices set forth in that certain indenture, dated January 25, 2002, by and
between the Company and U.S. Bank, N.A. as Trustee (the "Indenture") plus, in
each case, accrued and unpaid interest thereon, if any, to the date of
redemption. In addition, the Company has the option to redeem, on or before
February 1, 2005, up to 35% of the outstanding notes with money that the Company
raises in one or more equity offerings, provided that certain requirements set
forth in the Indenture are satisfied. The 9% Senior Notes are guaranteed on an
unsecured senior basis by the Company's domestic subsidiaries.
The Indenture contains a number of restrictive covenants and agreements,
including covenants with respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on certain payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of the Company, the purchase, redemption or other acquisition of any
capital stock of the Company, 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 the issuance of
preferred stock by non-guarantor subsidiaries; (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 9% Senior Notes may declare all unpaid
principal and accrued interest on all of the 9% Senior Notes to be immediately
due and payable.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of 9% Senior Notes will have the right to require that the Company
purchase all or a portion of such holder's 9% 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 New Senior Secured Credit Facility is comprised of an
aggregate of $355 million of secured financing consisting of: (i) $280 million
in aggregate principal amount of term loans and (ii) a revolving credit facility
with a maximum borrowing limit of $75 million. The New Senior Secured 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 $7.5 million. The
term loans under the New Senior Secured Credit Facility, in aggregate principal
amounts outstanding of $30 million and $250 million, are scheduled to be fully
repaid by January 25, 2008 and July 25, 2009, respectively. As of March 31,
2002, there was no principal amount outstanding on the revolving portion of the
New Senior Secured Credit Facility, which will expire on January 25, 2008.
The Company is required to make (i) quarterly amortization payments under
the New Senior Secured Credit Facility commencing on March 31, 2003 with respect
to the $30 million term loan and semi-annual amortization payments commencing on
June 30, 2002 with respect to the $250 million term loan, and (ii) semi-annual
cash interest payments under the 9% Senior Notes on February 1 and August 1,
commencing August 1, 2002.
The Company's indebtedness under the New Senior Secured Credit Facility is
secured by all of the Company's real and personal property and is guaranteed by
the Company's domestic subsidiaries. Under the New Senior Secured Credit
Facility, the Company and Coinmach Laundry pledged to Bankers Trust Company, as
Collateral Agent, their interests in all of the issued and outstanding shares of
capital stock of the Company and the Company's domestic subsidiaries.
The New Senior Secured 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 the Company or its
subsidiaries or the purchase, redemption or other acquisition of any capital
stock of the Company or its subsidiaries); (iii) voluntary prepayments of
previously existing indebtedness; (iv) Investments (as defined in the New Senior
Secured 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 New Senior Secured
Credit Facility also requires that the Company satisfy certain financial ratios,
including a maximum leverage ratio and a minimum consolidated interest coverage
ratio.
The New Senior Secured Credit Facility contains certain events of default,
including the following: (i) the failure of the Company to pay any of its
obligations under the New Senior Secured Credit Facility when due; (ii) certain
failures by the Company or its subsidiaries 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 or Coinmach Laundry in the
performance or observance of the agreements or covenants under the New Senior
Secured Credit Facility or related agreements, beyond any applicable cure
periods; (iv) the falsity in any material respect of the Company's or its
subsidiaries' representations or warranties under the New Senior Secured Credit
Facility; (v) certain judgments against the Company; and (vi) certain events of
bankruptcy or insolvency of the Company, its subsidiaries or Coinmach Laundry.
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.
19
As the Company has focused on increasing its cash flow from operating
activities, it has made significant capital investments, primarily consisting of
capital expenditures related to acquisitions, renewals and growth. The Company
anticipates that it will continue to utilize cash flows from operations to
finance its capital expenditures and working capital needs, including interest
payments on its outstanding indebtedness. Capital expenditures consists of
expenditures (i) on the Company's installed machine base and (ii) for other
general corporate purposes.
Capital expenditures for the 2002 Fiscal Year were approximately $79.1
million (excluding payments of approximately $3.7 million relating to capital
lease obligations and excluding approximately $3.7 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 4,100 for the 2002 Fiscal
Year. The growth in the rental business machine base was approximately 22,300
for the 2002 Fiscal Year. 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 $72.0 million for the
twelve months ending March 31, 2003. 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 and business acquisitions) for
the years indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
-------------------------
2002 2001 CHANGE
------ ------ ------
Route..................................... $71.0 $75.2 $(4.2)
Distribution.............................. -- 0.1 (0.1)
Rental.................................... 8.1 9.6 (1.5)
----- ----- ------
$79.1 $84.9 $(5.8)
===== ===== ======
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.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the 9%
Senior Notes and borrowings under the New Senior Secured 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 indenture
governing the 9% Senior Notes or in the credit agreement evidencing the New
Senior Secured 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 New Senior Secured Credit Facility, or the indenture
governing the 9% Senior Notes.
CERTAIN ACCOUNTING TREATMENT
The Company's depreciation and amortization expense, which aggregated
approximately $129.5 million for the 2002 Fiscal Year, reduces 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". Management evaluates the realizability of 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
contract rights has occurred.
20
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. The Company's business generally is not
seasonal.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning on April 1, 2002. Application of the nonamortization
provisions of Statement No. 142 is expected to result in an increase in net
income of approximately $15 million per year. During the first two fiscal
quarters of 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of April 1, 2002.
The Company has not yet determined what the effect of these tests will be on its
earnings and financial position. In connection with SFAS No. 142, the Company
has reassessed the useful lives of contract rights and has determined that such
contract rights should be amortized using accelerated methods over periods
ranging from 30 to 35 years. This change will take effect beginning with the
quarter ended June 30, 2002 and is expected to result in an increase in
operating income of approximately $11 million for the year ended March 31, 2003.
In October 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001, with transition provisions
for certain matters. The Financial Accounting Standards Board's new rules on
asset impairment supersede SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and provide a
single accounting model for long-lived assets to be disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
No. 121, the new rules significantly change the criteria that would have to be
met to classify an asset as held-for-sale. The new rules supersede the
provisions of Accounting Principles Board Opinion No. 30 with regard to
reporting the effects of a disposal of a segment of a business and require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period in which the losses are incurred rather
than as of the measurement date as presently required by APB No. 30. In
addition, more dispositions will qualify for discontinued operations treatment
in the income statement. We are currently evaluating the impact, if any, SFAS
No. 144 will have on our financial statements as of and for the year ending
March 31, 2003.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 62, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. SFAS No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under SFAS No. 4. Gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 are not to be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS -
REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY,
UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS ("APB No. 30"). Upon
adoption, any gain or loss on extinguishment of debt previously classified, as
an extraordinary item in prior periods presented that does not meet the criteria
of APB No. 30 for such classification will be reclassified to conform to the
provisions of SFAS No. 145. Upon adoption of SFAS No. 145, which will be
reflected in the Company's year ending March 31, 2004 consolidated financial
statements, the Company will classify the extraordinary loss to continuing
operations resulting in total pre-tax loss of approximately $46.9 million for
the year ended March 31, 2002.
21
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. Other risks and uncertainties also include changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's future performance
and actual results of operations may vary significantly from those anticipated,
projected, believed, estimated, expected, intended or planned.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal exposure to market risk relates to changes in
interest rates on its borrowings. The Company's cash flow would be adversely
affected by an increase in interest rates. As of March 31, 2002, the Company had
approximately $280 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 $5.6 million, assuming the amount outstanding was $280 million,
the balance as of March 31, 2002. Historically, the Company has utilized
interest rate swap agreements to manage its exposure to certain market rate
risks.
The Company used a portion of the net proceeds for the 9% Senior Notes
together with borrowings under its New Senior Secured Credit Facility to
terminate all of its interest rate swap agreements. The cost of termination was
approximately $4.2 million and was recorded as interest expense in the 2002
Fiscal Year.
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-39 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 48
Mitchell Blatt Director 50
Robert M. Doyle Director 45
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
1986 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 48
Mitchell Blatt President, Chief Operating Officer 50
Robert M. Doyle Chief Financial Officer, Senior Vice
President, Treasurer, Secretary 45
John E. Denson Senior Vice President 64
Michael E. Stanky Senior Vice President 50
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 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 $100,000 for all services rendered in
all capacities for the fiscal year ended March 31, 2000, and the 2001 12-Month
Period, and the fiscal year ended March 31, 2002.
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------------------------------------- --------------
COMMON STOCK
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION (16)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------- ------ ------- -------- ------------- ------------- -----------------
Stephen R. Kerrigan 2002 425,000 285,000 112,067 (1) -- 2,334
Chief Executive Officer 2001 404,617 275,000 70,266 (2) -- 2,631
2000 350,000 400,000 115,956 (3) 50,000 2,972
Mitchell Blatt 2002 300,753 90,000 45,583 (4) -- 2,334
President, Chief 2001 301,731 120,000 27,671 (5) -- 2,352
Operating Officer 2000 300,000 250,000 66,281 (6) 30,000 2,553
Robert M. Doyle 2002 248,076 80,000 24,419 (7) -- 2,944
Chief Financial Officer 2001 200,673 85,000 7,034 (8) -- 2,347
2000 193,942 125,000 12,052 (9) 20,000 2,124
John E. Denson 2002 140,000 21,000 31,039 (10) -- 1,925
Senior Vice President 2001 139,720 28,000 26,228 (11) -- 1,927
2000 125,500 32,500 26,863 (12) 10,000 1,456
Michael E. Stanky 2002 195,000 44,500 21,364 (13) -- 2,335
Senior Vice President 2001 195,684 50,000 3,800 (14) -- 2,421
2000 175,000 87,500 3,526 (15) 10,000 2,009
____________
(1) Includes $81,968 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; $14,451 in interest calculated at a rate of 7% per annum on a loan
made in connection with the purchase of common stock of Coinmach Laundry
relating to the Transaction; $2,175 in automobile allowances; $8,230 in club
membership fees; and $1,493 in life insurance premiums paid by the Company on
behalf of Mr. Kerrigan.
(2) 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.
(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; $12,660 in club membership fees; and $1,428 in life insurance premiums
paid by the Company on behalf of Mr. Kerrigan.
(4) Includes $23,301 in forgiven indebtedness; $4,258 in automobile
allowances; $16,346 in club membership fees; and $1,678 in life insurance
premiums paid by the Company on behalf of Mr. Blatt.
25
(5) 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.
(6) 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.
(7) Includes $14,859 in forgiven indebtedness; $6,643 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock of Coinmach Laundry relating to the Transaction; $2,083
in automobile allowances; and $834 in life insurance premiums paid by the
Company on behalf of Mr. Doyle.
(8) 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.
(9) 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.
(10) Includes $24,622 in forgiven indebtedness; $2,943 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock and preferred stock of Coinmach Laundry relating to the
Transaction; $950 in interest expense calculated at a rate of 9.5% per annum on
a loan made by the Company to Mr. Denson; $1,025 in automobile allowances; and
$1,499 in life insurance premiums paid by the Company on behalf of Mr. Denson.
(11) 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.
(12) 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.
(13) Includes $13,029 in forgiven indebtedness; $6,732 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock and preferred stock of Coinmach Laundry relating to the
Transaction; $438 in automobile allowances; and $1,165 in life insurance
premiums paid by the Company on behalf of Mr. Stanky.
(14) 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.
(15) 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.
(16) Represents matching contributions made by the Company to the 401(k)
Plan.
EMPLOYMENT CONTRACTS
EMPLOYMENT AGREEMENTS OF STEPHEN R. KERRIGAN, MITCHELL BLATT AND ROBERT M.
DOYLE. On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell Blatt
and Robert M. Doyle (each, a "Senior Manager"), entered into Senior Management
Agreements (collectively, the "Senior Management Agreements"). In connection
with the Solon Merger, the obligations of TCC under the Senior Management
Agreements were assumed by the Company 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
26
Messrs. Kerrigan, Blatt and Doyle, respectively, which amounts are reviewed
annually by the board of directors of Coinmach Laundry (the "CLC Board"). During
the fiscal year ended March 31, 2002, the CLC Board approved annual base
salaries for each of Messrs. Kerrigan, Blatt and Doyle of $425,000, $300,000 and
$250,000, respectively. The CLC 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 of
directors of the Company (the "Company 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, which was
subsequently replaced with an employment agreement dated December 17, 2000. Mr.
Denson's current employment agreement has a term of one year and 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 Company Board. During the
fiscal year ended March 31, 2002, the Company Board approved an annual base
salary for Mr. Denson of $140,000. The Company 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 Company 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 his annual base salary then in effect.
EMPLOYMENT AGREEMENT OF MICHAEL E. STANKY. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky which provided for an
annual base salary of $150,000. The terms and conditions of Mr. Stanky's
employment agreement are substantially similar to those contained in the Senior
Management Agreements. During the fiscal year ended March 31, 2002, the Company
Board 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 ($11,000
in 2002). 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 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 fiscal
year ended March 31, 2002 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $2,334; Mr. Blatt $2,334; Mr.
Doyle $2,944; Mr. Denson $1,925; and Mr. Stanky $2,335.
27
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 Company Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 31, 2002, all compensation matters with
respect to the Company were, and continue to be, addressed by the Company Board,
the CLC Board or the Chief Executive Officer, as appropriate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
As of March 31, 2002, the Company had 100 shares of common stock, par value
$.01 per share, issued and outstanding, all of which were owned by Coinmach
Laundry. Coinmach Laundry completed a going private transaction in July 2000,
pursuant to which it was acquired by an affiliate of GTCR Fund IV. For more
information concerning such transaction, see Item 1 -- "BUSINESS - GENERAL
DEVELOPMENT OF BUSINESS."
The following table sets forth certain information regarding the common
stock of Coinmach Laundry beneficially owned as of March 31, 2002 by (i) each of
Coinmach Laundry's directors, (ii) each of the Named Executive Officers, and
(iii) all directors of Coinmach Laundry and the Named Executive Officers as a
group.
NAME AND ADDRESS(1) OF
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
---------------------- ---------------- ----------------
Stephen R. Kerrigan 8,320,914 (2) 4.97%
Mitchell Blatt 7,376,400 4.41%
Robert M. Doyle 3,165,898 1.89%
Michael E. Stanky 2,058,122 1.23%
John E. Denson 396,984 *
James N. Chapman 756,436 *
Bruce V. Rauner 116,133,474 (3) 69.43%
David A. Donnini 116,133,474 (4) 69.43%
Vincent J. Hemmer 116,133,474 (5) 69.43%
All Officers and
Directors as a group
(9 persons) 138,208,228 (6) 82.63%
_____________
* Percentage of shares beneficially owned does not exceed 1% of common
stock outstanding.
(1) All addresses are c/o Coinmach Laundry Corporation, 303 Sunnyside
Blvd., Suite 70, Plainview, New York 11803.
(2) Includes shares of common stock beneficially owned by MCS Capital,
Inc., a corporation controlled by Mr. Kerrigan.
(3) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Rauner is a principal of GTCR Golder Rauner, L.L.C.,
the General Partner of GTCR Partners VII, L.P., which is the General Partner of
GTCR Fund VII, L.P. Mr. Rauner disclaims beneficial ownership of such shares.
28
(4) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Donnini is a principal of GTCR Golder Rauner,
L.L.C., the General Partner of GTCR Partners VII, L.P., which is the General
Partner of GTCR Fund VII, L.P. Mr. Donnini disclaims beneficial ownership of
such shares.
(5) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Hemmer is a principal of GTCR Golder Rauner, L.L.C.,
the General Partner of GTCR Partners VII, L.P., which is the General Partner of
GTCR Fund VII, L.P. Mr. Hemmer disclaims beneficial ownership of such shares.
(6) In calculating the shares of common stock beneficially owned by
executive officers and directors as a group, 116,133,474 shares owned by
GTCR-CLC, LLC and included in the beneficial ownership amounts of each of
Messrs. Rauner, Donnini and Hemmer are included only once.
CHANGE OF CONTROL
Pursuant to the terms of the credit agreement governing the New Senior
Secured 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 of the Company
issued to Coinmach Laundry and pledged to such lenders by Coinmach Laundry
pursuant to the terms and conditions of such credit agreement.
EQUITY PARTICIPATION PURCHASE PLAN
Pursuant to Coinmach Laundry's equity participation purchase plan, certain
employees of the Company are eligible to acquire common stock of Coinmach
Laundry at a fixed price per share determined by the CLC Board. Such shares are
paid for by each participating employee and vest over a specified period,
typically over 4 years. As of March 31, 2002, Coinmach Laundry had issued
16,356,894 shares of its common stock to participants under the plan.
Additionally, in connection with the going private transaction, members of
senior management of the Company were eligible to acquire preferred stock of
Coinmach Laundry. As of March 31, 2002, Coinmach Laundry had issued 693 shares
of its preferred stock to certain members of senior management of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AND CONSULTING SERVICES
During the last fiscal year, the Company paid Mr. Chapman, a director of
Coinmach Laundry, $480,000 for general financial advisory and investment banking
services.
REGISTRATION RIGHTS AGREEMENT
Coinmach Laundry, GTCR Fund IV, MCS and Messrs. Blatt, Doyle, Stanky and
Chapman are parties to a registration rights agreement, dated July 26, 1995 (the
"CLC Registration Agreement"), pursuant to which Coinmach Laundry 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 CLC Registration Agreement). The CLC 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 CLC 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 Coinmach Laundry of the holders of
Registrable Securities.
CERTAIN LOANS TO MEMBERS OF MANAGEMENT
As of June 6, 2002, Mr. Kerrigan (directly and indirectly through MCS, an
entity controlled by Mr. Kerrigan), Mr. Blatt, Mr. Doyle, Mr. Stanky and Mr.
Denson owed the Company and/or Coinmach Laundry $705,234, $551,746, $209,388,
$205,811 and $87,807, 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
29
MCS), Mr. Blatt, Mr. Doyle, Mr. Stanky, and Mr. Denson equaled $787,202,
$575,047, $224,247, $218,040, and $107,807, respectively, plus interest accrued
thereon.
The indebtedness of each of MCS and Mr. Blatt is evidenced by (i) two
promissory notes each dated July 26, 1995, each in the original principal amount
of $52,370, and (ii) two promissory notes each dated May 3, 1996, each 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 Coinmach Laundry in connection with
the purchase of Coinmach Laundry'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, 1997,
respectively. During the 2002 Fiscal Year, Coinmach Laundry forgave the
repayment of approximately (i) $6,546 by each of MCS and Mr. Blatt, which
amounts represent the aggregate amount of the sixth installment of principal and
interest owed by MCS and Mr. Blatt under the note dated July 26, 1995, and (ii)
$2,725 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 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.
In connection with the Transaction, certain loans were extended by Coinmach
Laundry to MCS, Mr. Blatt, Mr. Doyle, Mr. Stanky, and Mr. Denson for the
purchase of preferred and/or common stock in the principal amounts of $453,941,
$311,786, $208,664, $211,477, and $92,429, respectively. Such loans are payable
in installments over ten years and accrue interest at a rate of 7% per annum.
During the 2002 Fiscal Year, Coinmach Laundry forgave the repayment of
approximately $37,149, $14,030, $17,076, $17,306, and $7,564, which amounts
represent the aggregate amount of the first installment of principal and
interest owed by MCS, Mr. Blatt, Mr. Doyle, Mr. Stanky, and Mr. Denson,
respectively.
RELOCATION LOANS
In connection with the Company's establishment of a corporate 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 ($250,000 of which is reflected in the $705,234 owed by Mr. Kerrigan to
the Company as of June 6, 2002) and $80,000, respectively. The loan to Mr.
Denson (the "Denson Loan") is an interest free demand loan. The Company forgave
an aggregate of $80,000 on the Denson Loan, $20,000 of which was forgiven during
the 2002 Fiscal Year and $20,000 of which was forgiven during the 2001 12-Month
Period. 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 Company
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.
30
STOCKHOLDERS AGREEMENT
In connection with the going-private transaction, Coinmach Laundry, certain
of the Company's executive officers, GTCR-CLC, LLC and certain other investors
entered into a stockholders agreement, dated as of July 5, 2000. The
stockholders agreement provides: (i) GTCR with the ability to designate for
election a majority of Coinmach Laundry's directors; (ii) for certain
restrictions on transfers of any of Coinmach Laundry's capital stock purchased
or otherwise acquired by any stockholder party to the agreement including, but
not limited to, provisions providing (A) stockholders party to the agreement
with certain limited participation rights in certain proposed transfers and (B)
Coinmach Laundry, GTCR-CLC and certain other stockholders with certain limited
first refusal rights in certain proposed transfers; (iii) that if Coinmach
Laundry authorizes the issuance or sale of any shares of common stock or any
securities convertible, exchangeable or exercisable for common stock, Coinmach
Laundry will first offer to sell to stockholders party to the agreement a
specified percentage of the shares sold in such issuance; and (iv) that upon
approval by the CLC Board and holders of a majority of the shares of common
stock of Coinmach Laundry then outstanding of a sale of all or substantially all
of Coinmach Laundry's assets or outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise), each
stockholder party to such agreement shall vote for such sale and waive any
dissenters rights, appraisal rights or similar rights in connection therewith.
31
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 January 25, 2002, by and between Coinmach,
as Issuer, and U.S. Bank, N.A., as Trustee (incorporated by
reference from exhibit number 4.8 to Coinmach's report on Form
10-Q for the nine-month period ended December 31, 2001)
4.2 Registration Rights Agreement, dated as of January 25, 2002, by
and between Coinmach, the Guarantors (as defined therein) and the
Initial Purchasers (as defined therein) (incorporated by reference
from exhibit number 4.9 to Coinmach's report on Form 10-Q for the
nine-month period ended December 31, 2001)
4.3 Form of 9% Senior Note (included as an exhibit to Exhibit 4.1
hereto) (incorporated by reference from exhibit number 4.10 to
Coinmach's report on Form 10-Q for the nine-month period ended
December 31, 2001)
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)
32
10.5 Stock Pledge Agreement, dated as of January 31, 1995, by and
between TCC and MCS Capital, Inc. ("MCS") (incorporated by
reference from exhibit number 10.5 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
10.6 Stock Pledge Agreement, dated as of January 31, 1995, by and
between TCC and Mitchell Blatt (incorporated by reference from
exhibit number 10.6 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.7 Promissory Note, dated January 31, 1995, of MCS in favor of TCC,
subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.7 to
Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.8 Promissory Note, dated January 31, 1995, of Mitchell Blatt in
favor of TCC, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.8 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.9 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Stephen R. Kerrigan, MCS and GTCR, subsequently
amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.10 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.10 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Mitchell Blatt and
GTCR, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.11 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.11 Senior Management Agreement, dated January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Robert M. Doyle and
GTCR, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.12 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.12 Employment Agreement, dated as of 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)
10.13 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)
10.14 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)
10.15 Registration Rights Agreement, dated as of March 14, 1997, between
Coinmach and Atlanta Washer & Dryer Leasing, Inc. (incorporated by
reference from exhibit 10.33 to Coinmach's Form 10-K for the
fiscal year ended March 28, 1997, file number 0-7694)
10.16 Senior Management Employment Agreement, dated as of December 17,
2000, by and between Coinmach and John E. Denson (incorporated by
reference from exhibit number 10.19 to Coinmach's Registration
Statement on Form S-4, file number 333-86998)
33
10.17 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)
10.18 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)
10.19 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)
10.20 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)
10.21 Credit Agreement dated January 25, 2002, among Coinmach, Coinmach
Laundry, the Subsidiary Guarantors party thereto, the Lending
Institutions listed therein, Bankers Trust, Deutsche Bank Alex.
Brown Inc., J.P. Morgan Securities Inc., First Union Securities,
Inc. and Credit Lyonnais New York Branch (incorporated by
reference from exhibit number 10.24 to Coinmach's Registration
Statement on Form S-4, file number 333-86998)
10.22 Holdings Pledge Agreement, dated January 25, 2002, made by
Coinmach Laundry to Bankers Trust (incorporated by reference from
exhibit number 10.25 to Coinmach's Registration Statement on Form
S-4, file number 333-86998)
10.23 Credit Party Pledge Agreement, dated January 25, 2002, made by
Coinmach and each of the Guarantors party thereto to Bankers Trust
(incorporated by reference from exhibit number 10.26 to Coinmach's
Registration Statement on Form S-4, file number 333-86998)
10.24 Security Agreement, dated January 25, 2002, among Coinmach, each
of the Guarantors party thereto and Bankers Trust (incorporated by
reference from exhibit number 10.27 to Coinmach's Registration
Statement on Form S-4, file number 333-86998)
10.25 Collateral Assignment of Leases, dated January 25, 2002, by
Coinmach in favor of Bankers Trust (incorporated by reference from
exhibit number 10.28 to Coinmach's Registration Statement on Form
S-4, file number 333-86998)
10.26 Collateral Assignment of Location Leases, dated January 25, 2002,
by Coinmach in favor of Bankers Trust (incorporated by reference
from exhibit number 10.29 to Coinmach's Registration Statement on
Form S-4, file number 333-86998)
10.27 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)
34
10.28 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)
10.29 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)
10.30 Supply Agreement, dated as of May 13, 1997, by and among Coinmach,
SLEC and Raytheon Appliances, Inc. (incorporated by reference from
exhibit 10.58 to Coinmach's Form 10-Q for the quarterly period
ended December 26, 1997, file number 0-7694) (superceded by
exhibit 10.57 of this report)
10.31 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)
10.32 Purchase Agreement, dated as of January 17, 2002, by and among
Coinmach, as Issuer, the Guarantors (as defined therein), and the
Initial Purchasers (as defined therein) (incorporated by reference
from exhibit number 10.59 to Coinmach's report on Form 10-Q for
the nine-month period ended December 31, 2001)
12.1 Statement re Computation of Earnings to Fixed Charges
(incorporated by reference from exhibit number 12.1 to Coinmach's
Registration Statement on Form S-4, file number 333-86998)
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
- --------
*Filed herewith.
(b) Reports on Form 8-K.
During the 2002 Fiscal Year, the Company did not file any reports on
Form 8-K.
(c) Exhibits -- See (a)(2) above.
(d) None.
35
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 6, 2002.
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 6, 2002 By: /s/ STEPHEN R. KERRIGAN
---------------------------------------
Stephen R. Kerrigan
Chairman of the Board of Directors and
Chief Executive Officer (Principal
Executive Officer)
Date: June 6, 2002 By: /s/ MITCHELL BLATT
------------------------------
Mitchell Blatt
Director, President and Chief
Operating Officer
Date: June 6, 2002 By: /s/ ROBERT M. DOYLE
------------------------------
Robert M. Doyle
Chief Financial Officer, Senior Vice President
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Date: June 6, 2002 By: /s/ JOHN E. DENSON
---------------------------------
John E. Denson
Senior Vice President - Corporate Development
Date: June 6, 2002 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, 2002 and March 31, 2001:
Consolidated Balance Sheets..............................................F-3
For the year ended March 31, 2002 and for the periods
from July 1, 2000 to March 31, 2001 and from April 1, 2000
to June 30, 2000 and for the year ended March 31, 2000:
Consolidated Statements of Operations....................................F-5
Consolidated Statements of Stockholder's Equity..........................F-6
Consolidated Statements of Cash Flows....................................F-7
Notes to Consolidated Financial Statements..................................F-9
Schedule II - Valuation and Qualifying Accounts:
For the year ended March 31, 2002 and for the periods
from July 1, 2000 to March 31, 2001 and from April 1, 2000
to June 30, 2000 and for the year ended March 31, 2000...................F-39
(All other financial schedules have been 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, 2002 and March 31,
2001, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the year ended March 31, 2002 and 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 the year ended
March 31, 2000. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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, 2002 and March 31, 2001, and the
consolidated results of their operations and their cash flows for the year ended
March 31, 2002 and 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 the
year 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
May 15, 2002
F-2
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
March 31,
2002 2001
--------------------------
Assets
Cash and cash equivalents $ 27,820 $ 25,859
Receivables, less allowance of $1,342 and $998 11,883 10,070
Inventories 13,109 13,362
Prepaid expenses 7,166 7,755
Advance location payments 69,257 74,233
Land, property and equipment:
Laundry equipment and fixtures 363,183 306,479
Land, building and improvements 18,743 12,484
Trucks and other vehicles 18,848 13,023
----------- -----------
400,774 331,986
Less accumulated depreciation and amortization
(116,361) (55,982)
----------- -----------
Net property and equipment 284,413 276,004
Contract rights, net of accumulated amortization
of $59,967 and $33,404 351,609 376,779
Goodwill, net of accumulated amortization
of $29,781 and $14,529 201,137 215,317
Other assets 22,927 14,695
----------- ------------
Total assets $ 989,321 $ 1,014,074
=========== ============
See accompanying notes.
F-3
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
(In thousands of dollars)
March 31,
2002 2001
---------------------------
Liabilities and stockholder's equity
Accounts payable and accrued expenses $ 31,775 $ 35,332
Accrued rental payments 28,576 28,482
Accrued interest 7,540 15,939
Deferred income taxes 81,850 85,801
9% Senior Notes due 2010 450,000 -
11-3/4% Senior Notes due 2005 - 296,655
Premium on 11-3/4% Senior Notes - 5,555
Credit facility indebtedness 280,000 395,331
Other long-term debt 7,305 5,983
Due to parent 51,852 53,208
Stockholder's equity:
Common stock, par value $.01:
1,000 shares authorized, 100 shares issued and
outstanding - -
Capital in excess of par value 117,391 117,391
Accumulated deficit (66,968) (25,603)
------------ ------------
Total stockholder's equity 50,423 91,788
------------ ------------
Total liabilities and stockholder's equity $ 989,321 $ 1,014,074
============ ============
See accompanying notes.
F-4
Coinmach Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands of dollars)
April 1,
Year ended July 1, 2000 to 2000 to Year ended
March 31, March 31, June 30, March 31,
2002 2001 2000 2000
---------------------------------------------------------------------
Post- Pre-Transaction
Transaction
Revenues $ 538,895 $ 393,608 $ 134,042 $ 527,079
Costs and expenses:
Laundry operating expenses 363,126 264,557 89,661 349,925
General and administrative 8,704 6,741 2,144 8,808
Depreciation and amortization 129,529 102,727 31,557 123,002
------------ ------------ ------------ ------------
501,359 374,025 123,362 481,735
------------ ------------ ------------ ------------
Operating income 37,536 19,583 10,680 45,344
Interest expense 65,889 52,391 16,661 67,232
Interest expense - escrow and interest rate
swap termination costs (see Note 3a) 7,147 -- -- --
------------ ------------ ------------ ------------
Total interest expense, net 73,036 52,391 16,661 67,232
------------ ------------ ------------ ------------
Loss before income taxes and
extraordinary item (35,500) (32,808) (5,981) (21,888)
------------ ------------ ------------ ------------
Provision (benefit) for income taxes:
Current (1,586) (145) 544 1,743
Deferred 706 (7,060) (1,873) (7,552)
------------ ------------ ------------ ------------
(880) (7,205) (1,329) (5,809)
------------ ------------ ------------ ------------
Loss before extraordinary item (34,620) (25,603) (4,652) (16,079)
Extraordinary item, net of income
tax benefit of $4,657 (6,745) -- -- --
------------ ------------ ------------ ------------
Net loss $ (41,365) $ (25,603) $ (4,652) $ (16,079)
============ ============ ============ ============
See accompanying notes.
F-5
Coinmach Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity
(In thousands of dollars, except share data)
Common Stock Total
------------------- Capital in Stockholder's
Shares Amount Excess of Accumulated Receivables Equity
Par Value Deficit from Management (Deficit)
------ -------- ---------- ----------- --------------- --------------
Balance, March 31, 1999 100 $ - $ 41,391 $ (55,434) $ (85) $ (14,128)
Forgiveness of receivables
from management - - - - 64 64
Net loss - - - (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, July 1, 2000 100 $ - $117,391 $ - $ - $ 117,391
Net loss (post-transaction) - - - (25,603) - (25,603)
----- ------ --------- ---------- ------ ----------
Balance, March 31, 2001 100 - 117,391 (25,603) - 91,788
Net loss - - - (41,365) - (41,365)
----- ------ --------- ---------- ------ ----------
Balance, March 31, 2002 100 $ - $117,391 $ (66,968) $ - $ 50,423
===== ====== ========= ========== ====== ==========
See accompanying notes.
F-6
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of dollars)
Year ended July 1, 2000 to April 1, 2000 to Year ended March
March 31, March 31, June 30, 31,
2002 2001 2000 2000
------------- ---------------- ---------------- ----------------
Post-Transaction Pre-Transaction
Operating activities
Net loss $ (41,365) $ (25,603) $ (4,652) $ (16,079)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary item 6,745 - - -
Depreciation and amortization 61,212 45,124 15,214 56,601
Amortization of advance
location payments 23,437 19,063 6,122 24,622
Amortization of intangibles 44,880 38,540 10,221 41,779
Deferred income taxes 706 (7,060) (1,873) (7,552)
Amortization of debt discount and
deferred issue costs 2,008 981 431 1,681
Amortization of premium on
113/4% Senior Notes (1,009) (925) (309) (1,234)
Stock based compensation - - 88 652
Change in operating assets and
liabilities, net of businesses
acquired:
Other assets (2,104) (1,582) (1,295) (2,733)
Receivables, net (1,813) 3,205 (1,536) (2,099)
Inventories and prepaid expenses 842 (837) 910 (1,582)
Accounts payable and accrued
expenses, net (6,729) (8,105) 3,087 (3,583)
Accrued interest (8,399) 9,154 (9,001) 270
------------- ------------- ------------ ------------
Net cash provided by operating activities 78,411 71,955 17,407 90,743
------------- ------------- ------------ ------------
Investing activities
Additions to property and equipment (63,603) (46,917) (18,063) (69,317)
Advance location payments
to location owners (15,469) (13,703) (6,210) (19,087)
Additions to net assets related to
acquisitions of businesses (3,723) (5,582) - -
Proceeds from sale of property and equipment 784 - - -
------------- ------------- ------------ -----------
Net cash used in investing activities (82,011) (66,202) (24,273) (88,404)
------------- ------------- ------------ -----------
F-7
Coinmach Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands of dollars)
Year ended July 1, 2000 April 1, 2000 to Year ended March
March 31, to March 31, June 30, 31,
2002 2001 2000 2000
---------- ---------------- ---------------- ----------------
Post-Transaction Pre-Transaction
Financing activities
Proceeds from credit facility $ 319,489 $ 27,242 $ 15,500 $ 40,936
Repayments to credit facility (434,820) (23,082) (6,349) (42,919)
Proceeds from issuance of
9% Senior Notes 450,000 - - -
Repayment of 113/4% Senior Notes (296,655) - - -
Premium on 113/4% Senior Notes (8,714) - - -
Net repayments to parent (1,356) (6,313) (47) (397)
Repayments of bank and
other borrowings (143) (74) (4) (398)
Principal payments on capitalized
lease obligations (3,745) (2,244) (831) (2,902)
Deferred debt issuance costs (18,495) - - -
---------- ----------- ---------- ------------
Net cash provided by (used in)
financing activities 5,561 (4,471) 8,269 (5,680)
---------- ----------- ---------- ------------
Net increase (decrease) in cash
and cash equivalents 1,961 1,282 1,403 (3,341)
Cash and cash equivalents, beginning of
period 25,859 24,577 23,174 26,515
---------- ----------- ---------- ------------
Cash and cash equivalents, end of period $ 27,820 $ 25,859 $ 24,577 $ 23,174
========== =========== ========== ============
Supplemental disclosure of
cash flow information
Interest paid $ 80,800 $ 42,898 $ 25,772 $ 66,543
========== =========== ========== ============
Income taxes paid $ 694 $ 1,015 $ 629 $ 2,829
========== =========== ========== ============
Noncash financing activities
Acquisition of fixed assets
through capital leases $ 5,334 $ 2,458 $ 1,534 $ 3,361
========== =========== ========== ============
See accompanying notes.
F-8
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2002
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 (which the Company refers to as
the "route" business) involves leasing laundry rooms from building owners and
property management companies, installing and servicing laundry equipment,
collecting revenues generated from laundry machines, and operating retail
laundromats. The Company also leases laundry equipment and other household
appliances (through its Appliance Warehouse division) to property owners,
managers of multi-family housing properties, and to a lesser extent, individuals
and corporate relocation entities. At March 31, 2002, the Company owned and
operated approximately 835,000 washers and dryers (herein after referred to as
"laundry machines" or "machines") in approximately 80,000 locations throughout
North America and in 167 retail laundromats throughout Texas and Arizona. The
Company provides laundromat services at all such retail locations. Super Laundry
Equipment Corp. ("Super Laundry"), a wholly-owned subsidiary of the Company,
constructs, designs and retrofits retail laundromats and distributes laundromat
equipment. 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, Cressey, 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, which
was completed on July 13, 2000 (collectively, the "Transaction").
F-9
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BASIS OF PRESENTATION (CONTINUED)
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. 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 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
=============
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.
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 $30.2 million for the year ended March 31, 2002, $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 for the year ended March 31, 2000.
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
2002 2001
-------------------------
Laundry equipment $ 9,280 $ 9,505
Machine repair parts 3,829 3,857
--------- ---------
$ 13,109 $ 13,362
========= =========
IMPAIRMENT OF LONG-LIVED ASSETS
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001, with transition provisions
for certain matters. FASB's new rules on asset impairment supersede SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, and provide a single accounting model for long-lived
assets to be disposed of. Although retaining many of the fundamental recognition
and measurement provisions of SFAS No. 121, the new rules significantly change
the criteria that would have to be met to classify an asset as held-for-sale.
The new rules supersede the provisions of Accounting Principles Board Opinion
No. 30 ("APB No. 30") with regard to reporting the effects of a disposal of a
segment of a business and require expected future operating losses from
discontinued operations to be displayed in discontinued operations in the period
in which the losses are incurred rather than as of the measurement date as
presently required by APB No. 30. In addition, more dispositions will qualify
for discontinued operations treatment in the income statement. The Company is
currently evaluating the impact, if any, SFAS No. 144 will have on its financial
statements as of and for the year ending March 31, 2003.
F-12
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
GOODWILL AND CONTRACT RIGHTS
Goodwill, under purchase accounting, represents the excess of cost over fair
values of net assets acquired and is being amortized on a straight-line basis
over a period of 15 years. Such goodwill was adjusted to a new basis as the
result of pushdown accounting as described in Note 1. In June 2001, the
Financial Accounting Standards Board ("FASB") issued two statements: Statement
of Financial Accounting Standards ("SFAS") No. 141, BUSINESS COMBINATIONS, and
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the statements. Other
intangible assets will continue to be amortized over their useful lives.
F-13
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND CONTRACT RIGHTS (CONTINUED)
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning on April 1, 2002. Applications of the non
amortization provisions of SFAS No. 142 are expected to result in an increase in
net income of approximately $15.3 million per year. During 2002, the Company
will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of April 1, 2002. The Company has not yet
determined what the effect of these tests will be on its financial position or
results of operations.
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 acquisitions based on
independent appraisals, have been amortized on a straight-line basis over
approximately 15 years. Amortization of contract rights for the year ended March
31, 2002 amounted to approximately $26.6 million. The Company does not record
contract rights relating to new locations signed in the ordinary course of
business. In connection with adopting SFAS No. 142, the Company has reassessed
the useful economic life of contract rights and has determined that such
contract rights should be amortized using accelerated methods over periods
ranging from 30-35 years. This change will take effect beginning with the
quarter ending June 30, 2002 and is expected to result in an increase in
operating income of approximately $11 million for the year ended March 31, 2003.
Management evaluates the realizability of goodwill and contract rights balances
(if there are indicators of impairment) based upon the Company's forecasted
undiscounted cash flows and operating income. Based upon present operations and
strategic plans, management believes that no impairment of goodwill or contract
rights has occurred.
ADVANCE LOCATION PAYMENTS
Advance location payments to location owners are 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 included on the Balance Sheet as a
component of Prepaid Expenses.
F-14
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, established 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. The Company does not have 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 operations in the period that includes the enactment
date.
EXTRAORDINARY ITEM
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 62, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. SFAS No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under SFAS No. 4. Gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 are not to be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS -
REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY,
UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS ("APB No. 30"). Upon
adoption, any gain or loss on extinguishment of debt previously classified, as
an extraordinary item in prior periods presented that does not meet the criteria
of APB
F-15
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXTRAORDINARY ITEM (CONTINUED)
No. 30 for such classification will be reclassified to conform to the provisions
of SFAS No. 145. Upon adoption of SFAS No. 145, which will be reflected in the
Company's year ending March 31, 2004 consolidated financial statements, the
Company will classify the extraordinary loss to continuing operations resulting
in total pre-tax loss of approximately $46.9 million for the year ended March
31, 2002.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On April 1, 2001, the Company adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 138, ACCOUNTING FOR
CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES. These statements
established accounting and reporting standards for derivative instruments and
for hedging activities. In accordance with SFAS No. 133, all derivative
instruments are recognized in the balance sheet at their fair values. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. For a derivative designated
as a hedge of future cash flows, the effective portion of the derivative's gain
or loss is reported as a component of "Other Comprehensive Income" and
subsequently reclassified into "Earnings" along with the related effects of the
hedged item. The ineffective portion of the gain or loss is reported in
"Earnings" immediately. At March 31, 2002, the Company has no exposure to
derivative instruments and is not involved in hedging activities (see Note 3c).
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
F-16
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DEBT
Debt consists of the following (in thousands):
MARCH 31
2002 2001
-------- ---------
9 % Senior Notes due 2010 $450,000 $ -
11-3/4% Senior Notes due 2005 - 296,655
Premium on 11-3/4% Senior Notes, net - 5,555
Credit facility indebtedness 280,000 395,331
Obligations under capital leases 7,255 5,666
Other long-term debt with varying terms and maturities 50 317
-------- --------
$737,305 $703,524
======== ========
a. 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 "11 3/4% Senior Notes") on substantially identical
terms as its then outstanding Series B 11 3/4% Senior Notes due 2005. 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 11 3/4% Senior Notes. The premium was being
amortized by the Company utilizing the interest method, as a reduction of
interest expense through November 2005.
On January 25, 2002, the Company issued $450 million of 9% Senior Notes due 2010
(the "Senior Notes") and entered into a new senior secured credit facility (the
"New Senior Secured Credit Facility") (see Note 3b). The Company used the net
proceeds from the Senior Notes, together with borrowings under its New Senior
Secured Credit Facility to (i) redeem all of its outstanding 11 3/4% Senior
Notes (including accrued interest and the related call premium), (ii) to repay
outstanding indebtedness under its prior senior credit facility, and (iii) pay
related fees and expenses. The 11 3/4% Senior Notes were redeemed on February
25, 2002 with the funds that were set aside in escrow on January 25, 2002.
F-17
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DEBT (CONTINUED)
a. SENIOR NOTES (CONTINUED)
The Company recognized an extraordinary loss, net of income taxes, of
approximately $6.7 million as a result of the early extinguishment of debt
relating to the redemption of the 11 3/4% Senior Notes and the refinancing of
its prior senior credit facility. The Company also used a portion of the net
proceeds and borrowings to terminate interest rate swap agreements entered into
in connection with its prior senior credit facility (see Note 3c). The
Consolidated Statement of Operations for the year ended March 31, 2002 contains
Interest Expense - escrow and interest rate swap termination costs, which
includes (i) the termination cost of the interest rate swap agreement of
approximately $4.2 million and (ii) interest paid on the 11 3/4% Senior Notes
for the period from January 25, 2002 through February 25, 2002 of approximately
$2.9 million.
Interest on the Senior Notes is payable semi-annually on February 1 and August
1, commencing August 1, 2002. The Senior Notes are redeemable at the option of
the Company in whole or in part at any time or from time to time, on or after
February 1, 2006, upon not less than 30 nor more than 60 days notice at the
redemption prices set forth in the indenture agreement, dated January 25, 2002,
by and between the Company and U.S. Bank, N.A. as Trustee (the "Indenture"). The
Senior Notes contain certain financial covenants and restrict the payment of
certain dividends, distributions or other payments from the Company to CLC.
b. CREDIT FACILITY
The Company's New Senior Secured Credit Facility entered into on January 25,
2002 is comprised of an aggregate of $355 million of secured financing
consisting of: (i) a revolving credit facility which has a maximum borrowing
limit of $75 million bearing interest at a monthly Eurodollar Rate plus 2.75%
expiring on January 25, 2008; (ii) a $30 million Tranche A ("Tranche A") term
loan facility bearing interest at a monthly Eurodollar Rate plus 2.75% and (iii)
a $250 million Tranche B ("Tranche B") term loan facility bearing interest at a
monthly Eurodollar Rate plus 2.75%. The New Senior Secured Credit Facility
(revolving credit facility portion) also provides for up to $10 million of
letter of credit financings and short term borrowings under a swing line
facility of up to $7.5 million. 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 New Senior Secured
Credit Facility agreement.
F-18
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DEBT (CONTINUED)
b. CREDIT FACILITY (CONTINUED)
As of March 31, 2002, there was $30 million outstanding under Tranche A with
quarterly amortization payments commencing on March 31, 2003, $250 million
outstanding under Tranche B with semi-annual amortization payments commencing on
June 30, 2002, and no principal amount outstanding on the revolving portion of
the New Senior Secured Credit Facility.
Interest on the Company's borrowings under the New Senior Secured 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 not greater than the base rate or the Eurodollar rate (in
each case, as defined in the New Senior Secured Credit Facility). Subject to the
terms and conditions of the New Senior Secured Credit Facility, the Company may,
at its option convert base rate loans into Eurodollar loans. At March 31, 2002,
the monthly variable Eurodollar interest rate was approximately 1.90%.
Indebtedness under the New Senior Secured Credit Facility is secured by all of
the Company's real and personal property and is guaranteed by the Company's
domestic subsidiaries. Under the New Senior Secured Credit Facility, the Company
and CLC pledged to Bankers Trust, as Collateral Agent, their interests in all of
the issued and outstanding shares of capital stock of the Company and the
Company's domestic subsidiaries. In addition to certain terms and provisions,
events of default, as defined, and customary restrictive covenants and
agreements, the New Senior Secured Credit Facility contains certain covenants
including, but not limited to, a maximum leverage ratio, a minimum consolidated
earnings before interest, taxes, depreciation and amortization coverage ratio,
and limitations on indebtedness, capital expenditures, advances, investments and
loans, mergers and acquisitions, dividends, stock issuances and transactions
with affiliates. Also, the indenture governing the Senior Notes and the New
Senior Secured Credit Facility limits the Company's ability to pay dividends. At
March 31, 2002, the Company was in compliance with its covenants.
F-19
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DEBT (CONTINUED)
b. CREDIT FACILITY (CONTINUED)
Debt outstanding under the New Senior Secured Credit Facility and the prior
senior credit facility, respectively, consisted of the following (in thousands):
MARCH 31
2002 2001
----------------------------
Tranche term loan A, quarterly payments of $1,250 commencing on
March 31, 2003, increasing to $1,875 on March 31, 2006 (Interest
rate of approximately 4.65% at March 31, 2002) $ 30,000 $ -
Tranche term loan A, (repaid January 25, 2002) - 71,750
Tranche term loan B, semi-annual payments of $1,250 commencing
on June 30, 2002, increasing to $6,250 on June 30, 2007 with the
final payment of $212,500 on July 25, 2009 (Interest rate of
approximately 4.65% at March 31, 2002) 250,000 -
Tranche term loan B, (repaid January 25, 2002) - 243,875
Revolving line of credit - 79,706
----------- -----------
$ 280,000 $ 395,331
=========== ===========
In addition, as of March 31, 2002, the amount available on the revolving credit
facility portion of the New Senior Secured Credit Facility was approximately
$74.0 million. The aggregate maturities of debt during the next five years and
thereafter as of March 31, 2002 are as follows (in thousands):
YEARS ENDING PRINCIPAL
MARCH 31, AMOUNT
---------------------------------------
2003 $ 6,841
2004 9,480
2005 9,024
2006 8,761
2007 10,074
Thereafter 693,125
-----------
Total debt $ 737,305
===========
F-20
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DEBT (CONTINUED)
c. INTEREST RATE SWAPS
As of March 31, 2002, the Company does not have any interest rate swap
agreements. Previously, the Company had entered into swap agreements to reduce
its exposure to fluctuations in interest rates on its variable rate debt
portfolio related to its prior senior credit facility.
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 its prior senior 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 consisting of: (i) a
notional amount of $75 million with a fixed monthly LIBOR interest rate at
5.515% and expiring on November 15, 2001 and (ii) a notional amount of $100
million with a fixed monthly LIBOR interest rate at 5.515% and expiring on
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.
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 its prior senior 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.
The Company used a portion of the net proceeds and borrowings from the Senior
Notes and the New Senior Secured Credit Facility to terminate all interest rate
swap agreements entered into in connection with its prior senior credit
facility. The cost of terminating the interest rate swap agreements was
approximately $4.2 million which was recorded as interest expense for the year
ended March 31, 2002.
4. 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-21
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT SAVINGS PLAN (CONTINUED)
Contributions to such plan amounted to approximately $487,000 for the year ended
March 31, 2002, $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 for the year ended March 31, 2000.
The Company does not provide any other post-retirement benefits.
5. INCOME TAXES
The components of the Company's deferred tax liabilities and assets are as
follows (in thousands):
MARCH 31
2002 2001
-----------------------
Deferred tax liabilities:
Accelerated tax depreciation and contract
rights $ 110,864 $ 112,551
Other, net 925 1,714
--------- ---------
111,789 114,265
--------- ---------
Deferred tax assets:
Net operating loss carryforwards 28,906 25,991
AMT credit - 1,696
Covenant not to compete 1,033 777
--------- ---------
29,939 28,464
--------- ---------
Net deferred tax liability $ 81,850 $ 85,801
========= =========
The net operating loss carryforwards of approximately $71.9 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 2003
through 2022. The majority of the Company's net operating loss carryforwards
begin to expire after five years. In addition, the net operating losses are
subject to annual limitations imposed under the provisions of the Internal
Revenue Code regarding changes in ownership.
F-22
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The benefit for income taxes consists of (in thousands):
YEAR ENDED JULY 1, 2000 APRIL 1, 2000 YEAR ENDED
MARCH 31, TO TO MARCH 31,
2002 MARCH 31, 2001 JUNE 30, 2000 2000
------------ ---------------- --------------- -----------
POST-TRANSACTION PRE-TRANSACTION
Federal $ (4,293) $ (5,648) $ (1,114) $ (4,841)
State (1,244) (1,557) (215) (968)
--------- --------- --------- ---------
$ (5,537) $ (7,205) $ (1,329) $ (5,809)
========= ========= ========= =========
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
YEAR ENDED TO TO YEAR ENDED
MARCH 31, MARCH 31, JUNE 30, MARCH 31,
2002 2001 2000 2000
---------- ------------ ------------- -----------
POST- PRE-
TRANSACTION TRANSACTION
Expected tax benefit $(16,372) $(11,485) $(2,093) $(7,839)
State tax benefit, net of federal taxes (141) (1,009) (140) (629)
Permanent book/tax differences:
Goodwill 5,075 3,843 653 2,600
Alternative minimum tax - 913 - -
NOL expiration 5,874 - - -
Other 27 533 251 59
--------- -------- -------- --------
Tax benefit $ (5,537) $(7,205) $(1,329) $(5,809)
======== ======== ======== ========
F-23
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
The Company extended a loan to an executive 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 amounts forgiven
are charged to general and administrative expenses. The balance of such loan of
$250,000 and $300,000 is included in other assets as of March 31, 2002 and March
31, 2001, respectively.
During 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,
2002 and March 31, 2001.
During the year ended March 31, 2002, the Company paid a director of CLC
$480,000 for general financial advisory and investment services.
For the period from April 1, 2000 to June 30, 2000 (pre-transaction) and for the
years ended March 31, 2000 (pre-transaction) the Company recorded stock-based
compensation charges of approximately $88,000, and $588,000, respectively,
relating to the options outstanding at that time. The Company recorded the
difference between the exercise price of all options granted and the respective
initial offering price or the fair market value of the common stock of CLC on
the date of grant as a stock-based compensation charge over the applicable
vesting period. As of March 31, 2001, there were no outstanding options.
F-24
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY
The Company's domestic subsidiaries ("Guarantor Subsidiaries") have guaranteed
the Company's 9% Senior Notes and New Senior Secured Credit Facility referred to
in Note 3. The Company has not included separate financial statements of the
Guarantor Subsidiaries because they are wholly-owned by the Company and the
guarantees issued are full and unconditional. Condensed consolidating financial
information for the Company and its Guarantor Subsidiaries is as follows:
CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2002
---------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------
ASSETS
Cash, receivables, inventory and prepaid expenses $ 44,666 $ 15,312 $ - $ 59,978
Advance location payments 69,257 - - 69,257
Land, property and equipment, net 283,268 1,145 - 284,413
Intangible assets, net 550,743 2,003 - 552,746
Investment in subsidiaries 4,252 (1,300) (2,952) -
Other assets 22,261 666 - 22,927
---------- -------- -------- ----------
Total assets $ 974,447 $ 17,826 $(2,952) $ 989,321
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses $ 60,131 $ 7,760 $ - $ 67,891
Deferred income taxes 82,036 (186) - 81,850
Debt 730,005 7,300 - 737,305
Due to parent 51,852 - - 51,852
Total stockholder's equity 50,423 2,952 (2,952) 50,423
---------- --------- -------- ----------
Total liabilities and stockholder's equity $ 974,447 $ 17,826 $(2,952) $ 989,321
========== ========= ======== ==========
F-25
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS (continued)
MARCH 31, 2001
------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
ASSETS
Cash, receivables, inventory and prepaid expenses $ 43,515 $ 13,531 $ - $ 57,046
Advance location payments 74,233 - - 74,233
Land, property and equipment, net 274,664 1,340 - 276,004
Intangible assets, net 589,953 2,143 - 592,096
Investment in subsidiaries 4,290 (78) (4,212) -
Other assets 13,812 883 - 14,695
---------- ---------- -------- ----------
Total assets $1,000,467 $ 17,819 $(4,212) $1,014,074
========== ========== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses $ 70,050 $ 9,703 $ - $ 79,753
Deferred income taxes 85,850 (49) - 85,801
Debt 699,571 3,953 - 703,524
Due to parent 53,208 - - 53,208
Total stockholder's equity 91,788 4,212 (4,212) 91,788
---------- ---------- -------- ----------
Total liabilities and stockholder's equity $1,000,467 $ 17,819 $(4,212) $1,014,074
========== ========== ======== ==========
F-26
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 2002
----------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Revenues $ 500,476 $ 38,419 $ - $ 538,895
Costs and expenses 462,250 39,109 - 501,359
----------- ---------- -------- -----------
Operating income (loss) 38,226 (690) - 37,536
Interest expense 72,298 738 - 73,036
----------- ---------- -------- -----------
(34,072) (1,428) - (35,500)
Income taxes (674) (206) - (880)
----------- ---------- -------- -----------
(33,398) (1,222) - (34,620)
Equity in loss of subsidiaries (1,222) - 1,222 -
----------- ---------- -------- -----------
(34,620) (1,222) 1,222 (34,620)
Extraordinary item, net of income tax (6,745) - - (6,745)
----------- ---------- -------- -----------
Net loss $ (41,365) $ (1,222) $ 1,222 $ (41,365)
=========== ========== ======== ===========
F-27
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (continued)
JULY 1, 2000 TO MARCH 31, 2001 (Post-Transaction)
-------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Revenues $ 367,583 $ 26,025 $ - $ 393,608
Costs and expenses 347,612 26,413 - 374,025
---------- ---------- --------- ------------
Operating income (loss) 19,971 (388) - 19,583
Interest expense 51,871 520 - 52,391
---------- ---------- --------- ------------
(31,900) (908) - (32,808)
Income taxes (7,005) (200) - (7,205)
---------- ---------- --------- ------------
(24,895) (708) - (25,603)
Equity in loss of subsidiaries (708) - 708 -
---------- ---------- --------- ------------
Net loss $ (25,603) $ (708) $ 708 $ (25,603)
========== ========== ========= ============
APRIL 1, 2000 TO JUNE 30, 2000 (Pre-Transaction)
-------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Revenues $ 121,786 $ 12,256 $ - $ 134,042
Costs and expenses 112,080 11,282 - 123,362
---------- --------- ---------- -----------
Operating income 9,706 974 - 10,680
Interest expense 16,497 164 - 16,661
---------- --------- ---------- -----------
(6,791) 810 - (5,981)
Income taxes (1,509) 180 - (1,329)
---------- --------- ---------- -----------
(5,282) 630 - (4,652)
Equity in earnings of subsidiaries 630 - (630) -
---------- --------- ---------- -----------
Net (loss) income $ (4,652) $ 630 $ (630) $ (4,652)
========== ========= ========== ===========
F-28
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (continued)
YEAR ENDED MARCH 31, 2000
--------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Revenues $ 480,800 $ 46,279 $ - $ 527,079
Costs and expenses 439,321 42,414 - 481,735
---------- --------- ---------- -----------
Operating income 41,479 3,865 - 45,344
Interest expense 66,569 663 - 67,232
---------- --------- ---------- -----------
(25,090) 3,202 - (21,888)
Income taxes (6,659) 850 - (5,809)
---------- --------- ---------- -----------
(18,431) 2,352 - (16,079)
Equity in earnings of subsidiaries 2,352 - (2,352) -
---------- --------- ---------- -----------
Net (loss) income $ (16,079) $ 2,352 $ (2,352) $ (16,079)
========== ========= ========== ===========
F-29
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 2002
----------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (41,365) $ (1,222) $ 1,222 $ (41,365)
Noncash adjustments 136,493 1,486 - 137,979
Change in operating assets and liabilities (14,070) (4,133) - (18,203)
---------- --------- ---------- ----------
Net cash provided by (used in) operating activities 81,058 (3,869) 1,222 78,411
---------- --------- ---------- ----------
INVESTING ACTIVITIES
Investment in and advances to subsidiaries 1,222 - (1,222) -
Capital expenditures (78,239) (49) - (78,288)
Acquisition of assets (3,723) - - (3,723)
---------- --------- ---------- ----------
Net cash used in investing activities (80,740) (49) (1,222) (82,011)
---------- --------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from debt 761,767 7,722 - 769,489
Repayment of debt (730,988) (4,375) - (735,363)
Other financing items (28,953) 388 - (28,565)
---------- --------- ---------- ----------
Net cash provided by financing activities 1,826 3,735 - 5,561
---------- --------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 2,144 (183) - 1,961
Cash and cash equivalents, beginning of year 25,418 441 - 25,859
---------- --------- ---------- ----------
Cash and cash equivalents, end of year $ 27,562 $ 258 $ - $ 27,820
========== ========= ========== ==========
F-30
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued)
JULY 1, 2000 TO MARCH 31, 2001
---------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (25,603) $ (708) $ 708 $ (25,603)
Noncash adjustments 95,227 496 - 95,723
Change in operating assets and liabilities 2,104 (269) - 1,835
------------ --------- ---------- ------------
Net cash provided by (used in) operating activities 71,728 (481) 708 71,955
------------ --------- ---------- ------------
INVESTING ACTIVITIES
Investments in and advances to subsidiaries 708 - (708) -
Capital expenditures (60,573) (47) - (60,620)
Acquisition of assets (1,251) (4,331) - (5,582)
------------ --------- ---------- ------------
Net cash used in investing activities (61,116) (4,378) (708) (66,202)
------------ --------- ---------- ------------
FINANCING ACTIVITIES
Proceeds from debt 26,970 272 - 27,242
Repayment of debt (25,169) (231) - (25,400)
Other financing items (9,136) 2,823 - (6,313)
------------ --------- ---------- ------------
Net cash (used in) provided by financing activities (7,335) 2,864 - (4,471)
------------ --------- ---------- ------------
Net increase (decrease) in cash and cash equivalents 3,277 (1,995) - 1,282
Cash and cash equivalents, beginning of period 22,141 2,436 - 24,577
------------ --------- ---------- ------------
Cash and cash equivalents, end of period $ 25,418 $ 441 $ - $ 25,859
============ ========= ========== ============
F-31
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued)
APRIL 1, 2000 TO JUNE 30, 2000
-----------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net (loss) income $ (4,652) $ 630 $ (630) $ (4,652)
Noncash adjustments 29,299 595 - 29,894
Change in operating assets and liabilities (8,111) 276 - (7,835)
----------- --------- --------- -----------
Net cash provided by operating activities 16,536 1,501 (630) 17,407
----------- --------- --------- -----------
INVESTING ACTIVITIES
Investments to and advances to subsidiaries (630) - 630 -
Capital expenditures (24,210) (63) - (24,273)
----------- --------- -------- -----------
Net cash used in investing activities (24,840) (63) 630 (24,273)
----------- --------- -------- -----------
FINANCING ACTIVITIES
Proceeds from debt 15,345 155 - 15,500
Repayment of debt (7,121) (63) - (7,184)
Other financing items (377) 330 - (47)
----------- --------- -------- -----------
Net cash provided by financing activities 7,847 422 - 8,269
----------- --------- -------- -----------
Net (decrease) increase in cash and cash equivalents (457) 1,860 - 1,403
Cash and cash equivalents, beginning of period 22,598 576 - 23,174
----------- --------- -------- -----------
Cash and cash equivalents, end of period $ 22,141 $ 2,436 $ - $ 24,577
=========== ========= ======== ===========
F-32
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GUARANTOR SUBSIDIARY (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued)
YEAR ENDED MARCH 31, 2000
-----------------------------------------------------------------
COINMACH
AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net (loss) income $ (16,079) $ 2,352 $ (2,352) $ (16,079)
Noncash adjustments 116,556 (7) - 116,549
Change in operating assets and liabilities (9,002) (725) - (9,727)
------------ --------- --------- -----------
Net cash provided by operating activities 91,475 1,620 (2,352) 90,743
------------ --------- --------- -----------
INVESTING ACTIVITIES
Ivestments in and advances to subsidiaries (2,352) - 2,352 -
Capital expenditures (87,788) (616) - (88,404)
------------ --------- --------- ------------
Net cash used in investing activities (90,140) (616) (2,352) (88,404)
------------ --------- --------- ------------
FINANCING ACTIVITIES
Proceeds from debt (45,790) (429) - (46,219)
Repayment of debt 40,527 409 - 40,936
Other financing items 437 (834) - (397)
------------ --------- --------- ------------
Net cash used in financing activities (4,826) (854) - (5,680)
------------ --------- --------- ------------
Net (decrease) increase in cash and cash equivalents (3,491) 150 - (3,341)
Cash and cash equivalents, beginning of year 26,089 426 - 26,515
------------ --------- --------- ------------
Cash and cash equivalents, end of year $ 22,598 $ 576 $ - $ 23,174
============ ========= ========= ============
F-33
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
Rental expense for all operating leases, which principally cover office and
warehouse facilities, laundromats and vehicles, was approximately $8,852 for
year ended March 31, 2002, $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 $8,163 for the year ended March 31, 2000 (in
thousands).
Future minimum rental commitments under all capital leases and noncancelable
operating leases as of March 31, 2002 are as follows (in thousands):
CAPITAL OPERATING
------- ---------
2003 $ 3,464 $ 7,567
2004 2,186 6,076
2005 1,618 4,970
2006 657 4,060
2007 75 3,155
Thereafter - 6,282
--------- ---------
Total minimum lease payments 8,000 $ 32,110
=========
Less amounts representing interest 745
---------
$ 7,255
=========
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, 2002 and March 31, 2001 were approximately $1.0
million and $2.7 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 matter was stayed by mutual agreement
of the parties due to the subsequent cash tender offer and merger transaction
which were approved by the CLC's Board of Directors and have since been
consummated (see Note 1). 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.
F-34
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. 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, results of operations or cash flows of the Company. In
connection with insurance coverages, which include workers' compensation,
general liability and other coverages, annual premiums are subject to limited
retroactive adjustment based on actual loss experience.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate the value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques.
The carrying amounts of cash and cash equivalents, receivables, the New Senior
Secured Credit Facility, and other long-term debt approximate their fair value
at March 31, 2002. The carrying amount and related estimated fair value for the
Senior Notes and the 11 3/4% Senior Notes, respectively, are as follows (in
thousands):
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------------------------
9% Senior Notes at March 31, 2002 $ 450,000 $ 463,500
11 3/4% Senior Notes at March 31, 2001
(including premium of $5,555) $ 302,210 $ 299,622
The fair values of the Senior Notes and the 11 3/4% Senior Notes are based on
quoted market prices.
10. 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".
F-35
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. SEGMENT INFORMATION (CONTINUED)
The route segment, which comprises the Company's core business, involves leasing
laundry rooms from building owners and property management companies typically
on a long-term, renewal basis, installing and servicing the laundry equipment,
collecting revenues generated from laundry machines, and operating retail
laundromats. The "All other" segment includes the aggregation of the
distribution (Super Laundry) and rental (Appliance Warehouse) businesses. The
rental business involves the leasing of laundry machines and other household
appliances to property owners, managers of multi-family housing properties and
to a lesser extent, individuals and corporate relocation entities through the
Appliance Warehouse division and the distribution business involves constructing
complete turnkey retail laundromats, retrofitting existing retail laundromats,
distributing exclusive lines of coin and non-coin machines and parts and selling
service contracts through Super Laundry. Prior to the quarter ending September
30, 2001, the "All Other" segment included the operations of the Company's
retail laundromats . The Company's segment information for all periods presented
has been restated to combine the Company's operation of the retail laundromats
with the route segment as this is more representative of its core business. 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):
YEAR ENDED JULY 1, 2000 APRIL 1 TO YEAR ENDED
MARCH 31, TO MARCH 31, JUNE 30, MARCH 31,
2002 2001 2000 2000
---------------- --------------- ---------------- ---------------
POST- PRE-
TRANSACTION TRANSACTION
Revenue:
Route $478,106 $353,483 $117,561 $466,947
All other:
Distribution 38,419 26,026 12,256 46,279
Rental 22,370 14,099 4,225 13,853
---------------- --------------- ---------------- ---------------
Subtotal other 60,789 40,125 16,481 60,132
---------------- --------------- ---------------- ---------------
Total $538,895 $393,608 $134,042 $527,079
================ =============== ================ ===============
F-36
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. SEGMENT INFORMATION (CONTINUED)
YEAR ENDED JULY 1, 2000 TO APRIL 1 TO YEAR ENDED
MARCH 31, MARCH 31, JUNE 30, MARCH 31,
2002 2001 2000 2000
---------------- ----------------- ---------------- ----------------
POST-TRANSACTION PRE-TRANSACTION
EBITDA:
Route $ 165,999 $ 123,005 $ 41,437 $ 166,343
All other 9,770 6,046 2,944 10,811
Reconciling item:
Corporate expenses (8,704) (6,741) (2,144) (8,808)
--------------- --------------- --------------- ---------------
Total $ 167,065 $ 122,310 $ 42,237 $ 168,346
=============== =============== =============== ===============
Depreciation and
amortization expense:
Route $ 121,568 $ 97,370(a) $ 29,967 $ 117,704
All other 7,961 5,357 1,590 5,298
--------------- --------------- -------------- ---------------
Total $ 129,529 $ 102,727 $ 31,557 $ 123,002
=============== =============== ============== ===============
Income before taxes
and extraordinary item:
Route $ 44,431 $ 25,635 $ 11,470 $ 48,639
All other 1,809 689 1,354 5,513
--------------- --------------- -------------- ---------------
Subtotal 46,240 26,324 12,824 54,152
Reconciling items:
Corporate expense 8,704 6,741 2,144 8,808
Interest expense 73,036 52,391 16,661 67,232
--------------- --------------- -------------- ---------------
Loss before income taxes and
extraordinary item $ (35,500) $ (32,808) $ (5,981) $ (21,888)
=============== =============== ============== ===============
(a)July 1, 2000 to March 31, 2001 (post transaction) route depreciation and
amortization expense includes $5.9 million representing the value of contract
rights relating to locations not renewed.
F-37
Coinmach Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. SEGMENT INFORMATION (CONTINUED)
YEAR ENDED JULY 1, 2000 TO APRIL 1 TO YEAR ENDED
MARCH 31, MARCH 31, JUNE 30, MARCH 31,
2002 2001 2000 2000
----------------- ----------------- ----------------- ---------------
POST-TRANSACTION PRE-TRANSACTION
Expenditures for addition of
long-lived assets:
Route $ 74,350 $ 55,039 $ 21,440 $ 80,703
All other 8,445 11,163 2,833 7,701
----------------- ----------------- ----------------- ---------------
Total $ 82,795 $ 66,202 $ 24,273 $ 88,404
================= ================= ================= ===============
Segment assets:
Route $956,438 $ 992,024 $ 816,170
All other 15,113 14,074 44,421
Corporate assets 17,770 7,976 15,034
----------------- ----------------- ---------------
Total $989,321 $ 1,014,074 $ 875,625
================= ================= ===============
F-38
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- End of
Description Period and Expenses Describe Describe Period
- -------------------------------------------------------- ------------- ---------------- ------------------- ----------- -----------
YEAR ENDED MARCH 31, 2002:
Reserves and allowances deducted from asset accounts:
Allowance for uncollected accounts $998,000 $ 344,000 $1,342,000
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
F-39
EXHIBIT 21.1
SUBSIDIARIES
NAME DOMESTIC JURISDICTION
- ---- ---------------------
Super Laundry Equipment Corp. New York
Grand Wash & Dry Launderette, Inc. New York
American Laundry Corp. Delaware
Maquilados Automaticos, SA de CV Mexico
Automaticos, SA de CV Mexico