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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 28, 1997
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 33-49830
COINMACH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 53-0188589
(State of incorporation) (I.R.S. Employer Identification No.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of May 26, 1997, the registrant had outstanding 100 shares of common
stock, par value $.01 per share (the "Common Stock").
No market value can be determined for the Common Stock. See Item 5 of this
Form 10-K Report.
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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 28, 1997 and do not give effect to the
acquisition of Reliable Holding Corp. (the "Reliable Acquisition"), completed on
April 23, 1997, or the amendment to the Company's New Credit Facility (defined
herein), completed on June 2, 1997. For a description of such acquisition and
amendment to the New Credit Facility, see "Business - General Development of
Business - Recent Developments" and "Business - General Development of Business
- - Credit Facility."
GENERAL DEVELOPMENT OF BUSINESS
Coinmach Corporation, a Delaware corporation (the "Company" or the
"Registrant"), is a leading national supplier of coin-operated laundry equipment
services for multi-family housing properties. Prior to giving effect to the
Reliable Acquisition, the Company owns and operates approximately 337,000 coin-
operated washers and dryers (sometimes hereinafter referred to as "machines") in
over 30,000 multi-family housing properties on routes located in 30 states and
the District of Columbia and in 150 retail laundromats located throughout Texas.
The Company's routes are located throughout the Northeast, Mid-Atlantic,
Southeast, South-Central and Midwest regions of the United States. The Company,
through its wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super
Laundry"), is also a construction and laundromat equipment distribution company.
The Company is a wholly-owned subsidiary of Coinmach Laundry Corporation, a
Delaware corporation ("CLC"). Unless otherwise specified herein, references to
the Company shall mean Coinmach Corporation and its subsidiaries.
The Company's executive offices are located at 55 Lumber Road, Roslyn, New
York 11576, and its telephone number is (516) 484-2300. The Company's mailing
address is the same as that of its executive offices. In September 1996, the
Company opened a corporate development office in Charlotte, North Carolina.
SIGNIFICANT ACQUISITIONS
On April 1, 1996, the Company acquired substantially all of the assets of
Allied Laundry Equipment Company, a regional route operator located in St.
Louis, Missouri for $15.5 million in cash (the "Allied Acquisition"). The
Allied Acquisition adds approximately 24,000 machines to the Company's base and
provides the Company with a larger market presence in the Mid-West.
On January 8, 1997, the Company acquired 100% of the outstanding voting
securities of each of KWL, Inc., a Nevada corporation ("KWL"), and Kwik-Wash
Laundries, Inc., a Nevada corporation ("Kwik Wash"), for $125 million in cash
and a $15 million promissory note (the "Kwik Wash Note") issued by CLC (the
"Kwik Wash Acquisition"). KWL and Kwik Wash are the sole partners of Kwik Wash
Laundries, L.P. (the "Kwik Wash Partnership"), a Texas limited partnership. The
Kwik Wash Acquisition increases the Company's presence in the South-Central
region by adding approximately 74,000 machines to the Company's base and enables
the Company to provide coin-operated laundry equipment services to multi-family
housing properties in Texas, Louisiana, Arkansas and Oklahoma and to operate 150
retail laundromats throughout Texas. Upon consummation of the Kwik Wash
Acquisition, KWL, Kwik Wash and the Kwik Wash Partnership were merged with and
into the Company.
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On March 14, 1997, the Company acquired substantially all of the assets of
Atlanta Washer & Dryer Leasing, Inc. (d/b/a Appliance Warehouse) for
approximately $6.3 million in cash and promissory notes (the "AW Notes") issued
by CLC aggregating $1.2 million (the "Appliance Warehouse Acquisition"). The
Appliance Warehouse Acquisition increases the Company's presence in the South by
adding approximately 14,000 machines to the Company's base and expands the
Company's core operations into the related machine rental market, creating
valuable operating synergies for the Company. At any time after March 14, 1998,
the holders of the AW Notes may convert such notes, subject to terms and
conditions therein, into a specified number of shares of CLC's Class A Common
Stock, par value $.01 per share (the "CLC Common Stock").
CREDIT FACILITY
Concurrent with the Kwik Wash Acquisition, the Company entered into a
credit agreement (the "Credit Agreement") with Bankers Trust Company, First
Union National Bank of North Carolina, Lehman Commercial Paper, Inc. and certain
other lending institutions named therein providing for, among other things, a
$130 million term loan facility and a $70 million revolving credit facility (the
"New Credit Facility"). The New Credit Facility, which replaced the Company's
then existing credit facility, funded the Kwik Wash Acquisition and provides
financing to support the Company's acquisition strategy. Effective June 2,
1997, the Credit Agreement was amended to, among other things, increase the term
loan facility by $60.0 million, of which $50.0 million was used to repay
outstanding revolver borrowings under the New Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - New Credit Facility."
RECENT DEVELOPMENTS
On April 23, 1997, the Company acquired the route business of Reliable
Holding Corp. ("Reliable") through a series of merger transactions for a cash
purchase price of approximately $44.0 million funded by revolver borrowings
under the New Credit Facility. The Reliable Acquisition provides the Company
with a strong foothold into the California market and adds approximately 49,000
machines to the Company's base.
Effective June 2, 1997, the New Credit Facility was amended to, among other
things, increase the term loan facility by $60.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - New Credit Facility."
DESCRIPTION OF THE BUSINESS
OVERVIEW
The coin-operated laundry equipment services industry provides coin-
operated washer and dryer services to individuals living in multi-family housing
properties. The Company's core business involves leasing laundry rooms from
building owners and management companies, installing and servicing laundry
equipment and collecting revenues generated from laundry machines. The Company
typically sets pricing for the use of laundry machines on location, and the
owner or property manager maintains the premises and provides utilities such as
gas, electricity and water.
The Company's existing customer base for its core business is comprised of
landlords, property management companies, and owners of rental apartment
buildings, condominiums and cooperatives, university and institutional housing
and other multi-family housing properties. Prior to giving effect to
-3-
the Reliable Acquisition, the Company owns and operates approximately 337,000
coin-operated washers and dryers in over 30,000 multi-family housing properties
on routes located in 30 states and the District of Columbia and in 150 retail
laundromats located throughout Texas. The Company's routes are located
throughout the Northeast, Mid-Atlantic, Southeast, South-Central and Mid-West
regions of the United States. Management believes, based on its knowledge of
the industry and after giving effect to the Reliable Acquisition, that the
Company is the largest supplier of coin-operated laundry equipment services for
multi-family housing properties throughout the United States.
As a result of its strategy to acquire route operators that contribute to
the Company's core operations, the Company has also selectively acquired certain
related businesses which expand and diversify the types of services provided by
the Company. Through Super Laundry, the Company constructs and finances turnkey
laundromat operations, and sells and distributes coin-operated washers, dryers
and laundry equipment. With the Kwik Wash Acquisition, the Company now operates
150 retail laundromats throughout Texas and provides laundromat services at all
such locations. As a result of the Appliance Warehouse Acquisition, the Company
leases laundry equipment and other household appliances to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties. The Company believes that these non-core businesses, although not
material to the Company's operations, provide a significant platform for
expansion and diversification of the Company's services. See "Business -
Description of Business - Super Laundry" and "Business - Description of Business
- - Laundromat Operations".
The Company maintains its executive offices in Roslyn, New York, a
corporate development office in Charlotte, North Carolina and regional offices
in each of the major regions in which it conducts operating activities,
including sales, service and collections. The following table sets forth
certain information relating to the Company's regional operations as of March
28, 1997:
MID-
NORTHEAST ATLANTIC SOUTHEAST SOUTH-CENTRAL MID-WEST TOTAL
-------------- ------------- ------------------- ---------------- --------------- ---------
States....................... NY, NJ, CT D.C., MD, VA, WV, NC, SC, TX, LA, FL, IL, IA, SD, 31
PA, DE GA, KY, AL, TN AK, MS, OK NE MO, KS,
IN, MI, WI,
OH
Approximate Revenue (in $ 79.6 $29.3 $ 25.1 $62.4/5/ $10.5 $206.9
millions).................
Employees.................... 255/1/ 81 145/2,3/ 657/4/ 42 1,180
____________________
1 Includes 36 executive, financial and administrative personnel at the
Company's headquarters located in Roslyn, New York.
2 Includes five executive, financial and administrative personnel at the
Company's corporate development office located in Charlotte, North
Carolina.
3 Includes 24 contract employees employed by the Company through a lease
arrangement with an independent employment company in connection with the
Appliance Warehouse Acquisition.
4 Includes 280 laundromat attendants in the Company's retail laundromats in
Texas.
5 Includes revenue resulting from the Kwik Wash Acquisition for the period
subsequent to January 8, 1997.
BUSINESS STRATEGY
The Company's business strategy is to increase operating cash flow and
profitability through a combination of internal expansion and selective
acquisitions. Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers, (ii) converting owner-operated facilities
to Company-managed facilities; and (iii) implementing selective price increases
within the Company's operating regions. The Company's acquisition strategy is
to acquire additional local, regional and multi-regional route businesses from
independent operators. Management believes that by pursuing its business
-4-
strategy the Company will be positioned to realize: (i) additional operating
leverage and economies of scale associated with expanding its installed base of
machines, including without limitation, reduced equipment and parts costs on a
per unit basis due to increased purchasing requirements and (ii) reduced
operating expenses through consolidation of overhead functions and facilities.
In January 1995, management, with its equity sponsor, Golder, Thoma,
Cressey, Rauner Fund IV, L.P., acquired Coinmach Industries Co., L.P. and Super
Laundry Co., L.P. and initiated a strategy of growth through acquisitions. On
April 5, 1995, CLC (formerly SAS Acquisitions Inc.) acquired (the "Solon
Acquisition") all of the voting capital stock of Solon Automated Services, Inc.
("Solon"). On November 30, 1995, The Coinmach Corporation ("TCC") merged with
and into Solon (the "Merger"), whereby Solon was the surviving corporation and
changed its name to Coinmach Corporation.
This acquisition strategy was designed to increase the installed machine
base of the Company in its existing operating regions (initially throughout the
Northeast region) and to provide the Company with a strong market presence in
new regions. Since January 1995, the Company has expanded into the Mid-
Atlantic, Southeast, South-Central and Midwest regions of the United States and
grown its installed base from approximately 54,000 machines to approximately
337,000 machines as of March 28, 1997. Revenues and EBITDA/1/ have grown from
approximately $72.9 million and approximately $13.6 million, respectively, for
the twelve months ended March 31, 1995, to approximately $206.9 million and
approximately $62.8 million (before deducting non-cash stock based compensation
charges), respectively, for the twelve months ended March 28, 1997. These
acquisitions have enabled the Company to improve its operating margins and to
expand internally by competing more aggressively for new business.
Internal Expansion
New Locations. The Company's aggressive sales and marketing efforts focus
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on two areas of expansion within its existing operating regions. The Company's
primary means of internal expansion is by marketing the Company's products and
services to building managers and property owners whose leases with other
laundry equipment services providers are near expiration. Many large customers
require competitive bids for expiring lease contracts. The Company's
proprietary, fully-automated management information and control systems (the
"Integrated Computer Systems") track information on the lease expirations of its
competitors. The Company secures leases with new customers through aggressive
bidding for new contracts and its long standing industry reputation for prompt
and reliable service, effective data management on competition, and its ability
in coordinating and targeting its marketing efforts.
Conversions. Management believes, based on industry estimates, that there
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are approximately 1.0 million machines installed in locations that are managed
by owner-operators. Building owners or managers can forgo significant cash
outlays by contracting with the Company to purchase, service and maintain
laundry equipment. Accordingly, the Company aggressively pursues building
owners and managers to convert from owner-operated laundry facilities. The
Company offers a full range of services
- -------------------------
/1/ EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the period
ending March 28, 1997 is before the deduction for stock based compensation
charges. EBITDA is used by management and certain investors as an indicator of
a company's historical ability to service debt. Management believes that an
increase in EBITDA is an indication of a company's improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either (a)
operating income (as determined by generally accepted accounting principles) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by generally accepted
accounting principles) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
-5-
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.
Price Increases. In addition to growing the Company's installed base of
---------------
machines, management regularly reviews its pricing policies and procedures under
existing leases. Management expects that the Company should realize increases
in revenue and cash flow from operations through selective price increases and
other pricing procedures in the forthcoming year.
Management believes that its strategy of growth within its existing
operating regions will result in additional economies of scale and operating
efficiencies associated with an expanded machine base. Such growth, however,
will be dependent upon a number of factors beyond the Company's control, such as
the Company's ability to secure new contracts from owner-operators on
commercially favorable terms and competitive forces that may reduce the number
of opportunities to secure new locations or to effect price increases.
Selective Acquisitions
The Company intends to continue to capitalize on opportunities within the
fragmented laundry services industry through selective acquisitions of local,
regional and multi-regional route businesses. In particular, there are numerous
private, family-owned businesses that may lack the financial resources to
provide advance rental payments, install new equipment, make laundry room
improvements or otherwise compete effectively with larger independent operators
such as the Company to secure new or renewal locations. Consequently, such
independent operators, many of which are undergoing generational ownership
changes, may represent potential acquisition opportunities for the Company
within its operating regions.
Management believes the Company is well positioned to continue to
capitalize on such opportunities for growth and expansion due to its operating
efficiencies, its access to capital resources, and senior management's extensive
experience and relationships in the industry. The Company evaluates potential
acquisitions based on certain criteria, including the size of the business (in
terms of revenues 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. The
Company considers three types of acquisition candidates: (i) small, local route
operators; (ii) regional route operators; and (iii) large, multi-regional route
operators.
Local route operators. The acquisition of small, local operators
---------------------
(businesses operating within one of the Company's existing regions) results in a
reduction of the target's existing cost structure through the complete
absorption of the machine base into the Company's operations. The Company
evaluates opportunities to acquire route businesses from independent operators
to further increase operating leverage within its operating regions. In many
regions, the Company may be able to acquire routes adjacent to its existing
areas of operation without incurring significant incremental operating,
collection, security, service and maintenance costs. During the past fiscal
year, the Company acquired several local route operators.
Regional route operators. The Company's acquisition of regional route
------------------------
operators provides opportunities to improve its cash flow by eliminating
duplicative corporate and administrative functions, reducing capital
expenditures through improved purchasing power and implementing the Company's
Integrated Computer Systems. One such regional acquisition, the Allied
Acquisition, was part of the
-6-
Company's plan to establish a larger market presence in the Mid-West. See
"Business - General Development of Business - Selective Acquisitions."
Multi-regional route operators. The acquisition of a large, multi-regional
------------------------------
route operator may result in a number of operating efficiencies, including
significant cost savings through the elimination of duplicative financial and
administrative functions and related fixed costs. In addition, the increased
volume of equipment purchases may result in reduced per unit capital
expenditures. Moreover, as is the case with all types of acquisitions, the
Company's Integrated Computer Systems would be utilized to provide further
operating efficiencies and related cost savings. On January 8, 1997, the
Company completed the Kwik Wash Acquisition. Management expects to integrate
substantially all of the operations formerly conducted by the Kwik Wash
Partnership into the Company's operations during 1997 and to achieve significant
targeted cost savings as a result of such integration. The combination of the
Company with the Kwik Wash Partnership for the twelve months ended March 28,
1997, assuming no cost savings, results in combined pro forma revenues of
approximately $255.7 million and pro forma EBITDA of approximately $78.8 million
(before deducting non-cash stock based compensation charges). See "Business -
General Development of Business - Selective Acquisitions." On April 23, 1997,
the Company also completed the Reliable Acquisition. See "Business - General
Development of Business -Recent Developments."
INDUSTRY
The coin-operated laundry services industry is fragmented nationally with
many small, private and family-owned route businesses continuing to operate
throughout all major metropolitan areas. According to information provided by
the Multi-housing Laundry Association, the industry is comprised of over 280
independent operators. Based upon industry estimates, management believes there
are approximately 3.5 million machines installed throughout the United States,
approximately 2.5 million of which are managed by independent operators such as
the Company and approximately 1.0 million of which are managed by owner-
operators. Despite the overall fragmentation of the industry, there are
currently three companies including the Company with significant operations in
multiple regions throughout the United States. Management believes that its two
major multi-regional competitors are strongest in California and Chicago,
Illinois. See "Business - Description of Business - Competition."
The industry is highly capital intensive, and customers require prompt and
reliable service. The majority of capital costs are incurred upon procurement
of new leases. Such initial costs include replacing or repairing existing
washers and dryers, refurbishing laundry rooms and making advance rental
payments to secure long-term, renewable leases. After the initial expenditures,
ongoing working capital requirements are minimal, since machines operate for
many years if serviced properly, and variable costs are paid out of revenues
collected from the machines.
Historically, the industry has been characterized by stable demand and has
proven to be resistant to changing market conditions and general economic
cycles. Management believes that this is due to the consistent demand for
laundry services by building occupants.
Management believes that the industry's consistent and predictable revenue
and cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
-7-
DESCRIPTION OF PRINCIPAL OPERATIONS
The principal aspects of the Company's operations include: (i) location
leasing; (ii) service; (iii) remanufacturing; (iv) security; (v) information
management; and (vi) sales and marketing.
Location Leasing
The Company's leases provide the Company the exclusive right to operate and
service the laundry equipment, including repairs and maintenance. The Company
typically sets pricing for the use of the machines on location, and the property
owner or 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 rental 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 regional competitive factors, may vary the terms and
conditions of a lease, including commission rates and advance rental payments.
The Company evaluates each lease opportunity through its Integrated Computer
Systems, which are designed to achieve certain targeted levels of profitability.
Management estimates that approximately 90% of its locations are subject to
long-term leases with initial terms of three 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
intends to continue to service such customers. Approximately 75% of the
Company's leases renew automatically, and the Company has a right of first
refusal on termination in approximately 45% of its leases. The Company's
automatic renewal clause typically provides that, if the building owner fails to
take any action prior to the end of the original lease term or any renewal term,
the lease will automatically renew on substantially similar terms. As of March
28, 1997, the Company's leases have an average remaining life to maturity of
approximately 40 months (without giving effect to automatic renewals).
Service
The Company's employees deliver, install, service and collect from coin-
operated washers and dryers in laundry facilities at its leased locations.
The Company's fleet of 314 radio-equipped service vehicles allows 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 2,200 service calls.
Management estimates that less than 1% of the Company's machines are out of
service on any given day. The ability to reduce machine down time, especially
during peak usage, serves to enhance revenue and improve the Company's
reputation with its customers.
In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of
-8-
responding promptly to customer needs. Computer-generated service calls for
preventive maintenance are based on previous service history, repeat service
call analysis and monitoring of service areas. These operations coordinate the
Company's radio-equipped service vehicles that allow the Company to address
customer needs quickly and efficiently.
Remanufacturing
The Company's remanufacturing operations provide approximately one-third of
its anticipated annual machine installation requirements. The Company rebuilds
and reinstalls a portion of its machines at approximately one-third the cost of
acquiring new machines, providing significant cost savings. Remanufactured
machines are restored to virtually new condition with the same estimated average
life and service requirements as new machines. Machines that can no longer be
remanufactured are stripped and added to the Company's inventory of spare parts,
generating additional cost savings.
The Company maintains three regional remanufacturing facilities which
provide for consistent machine quality and efficient operations and are
strategically located to service each of its operating regions.
Security
Management believes that it provides the highest level of security control
in the laundry equipment services industry. The Company utilizes numerous
precautionary procedures with respect to cash collection, including frequent
alteration of collection patterns, extensive monitoring of collections and other
control mechanisms. The Company enforces stringent employee standards and
screening procedures with 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.
Information Management
Management believes that the Company's Integrated Computer Systems
significantly enhance its operating efficiencies, its ability to successfully
integrate acquired businesses into its existing operations as well as its sales
and marketing efforts. The Integrated Computer Systems provide speed and
accuracy throughout the entire service cycle by integrating the functions of
service call entry, dispatching service personnel, parts and equipment
purchasing, installation, distribution and collection. Management is able to
obtain daily, monthly, quarterly and annual reports on location performance,
coin collection, service and sales activity by salesperson.
In addition to coordinating all aspects of the service cycle, the Company's
Integrated Computer Systems track contract performance which indicate unreported
machine failure or pilferage and provide data to forecast future equipment
problems. Data on machine performance are used by the sales staff to forecast
revenue by location. The purchasing department tracks bids on the Company's
equipment requirements to support an aggressive competitive bidding process.
The Integrated Computer Systems also provide the sales staff with an extensive
database essential to the Company's marketing strategy to obtain new business
through competitive bidding or owner-operator conversion opportunities.
-9-
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 and negotiate lease arrangements with building
owners and managers. All 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 to achieve their targeted goals in securing location contracts and
renewals. Management believes that its sales staff is among the most competent
and effective in the industry.
The Company's marketing strategy emphasizes service excellence offered by
its experienced, highly skilled personnel and its quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. Additionally,
the Integrated Computer Systems monitor performance, repairs and maintenance, as
well as the profitability of locations on a daily basis. The Company's sales
staff targets potential new and renewal lease locations by utilizing its
Integrated Computer Systems' extensive database that provides information on the
Company's, as well as its competitors' locations. All sales activity, from sale
entries to data on service and installation 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 revenues.
LAUNDROMAT OPERATIONS
In connection with the Kwik Wash Acquisition, the Company acquired 150
retail laundromats located throughout Texas. The operation of the retail
laundromats involves leasing store locations in desired geographic areas,
maintaining an appropriate mix of washers and dryers at each store location and
servicing such washers and dryers at such locations. The Company is also
responsible for maintaining the premises at each laundromat and paying for
utilities and related expenses.
SUPER LAUNDRY
Super Laundry, a wholly-owned subsidiary of the Company, is a construction
and laundromat equipment distribution company. Super Laundry's business
consists of constructing complete turnkey retail laundromats, retrofitting
existing retail laundromats, distributing exclusive lines of commercial coin and
non-coin machines and parts, and selling service contracts. The construction of
laundromats and related equipment sales constitute approximately 90% of the
revenues of Super Laundry. 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 coin-operated laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, there are currently three companies
including the Company with significant operations in multiple regions throughout
the United States. Management believes that the Company's two major multi-
regional competitors, Web
-10-
Service Company, Inc. and Macke Laundry Service, L.P., are strongest in
California and Chicago, Illinois, respectively. The Company has a minimal
presence in Chicago, Illinois and after consummation of the Reliable
Acquisition, competes with Web Service Company, Inc. in California.
EMPLOYEES
As of March 28, 1997, the Company employed 1,180 full time employees
(including 24 contract employees employed by the Company through a lease
arrangement with an independent employment company in connection with the
Appliance Warehouse Acquisition and 280 laundromat attendants in the Company's
retail laundromats in Texas). Approximately 140 hourly workers in the Northeast
region are represented by Local 966, affiliated with the International
Brotherhood of Teamsters (the "Union"). Management believes that the Company
has maintained a good relationship with the Union employees and has never
experienced a work stoppage since its inception.
SEASONALITY
The Company's business is generally not seasonal.
ITEM 2. PROPERTIES.
As of March 28, 1997, the Company leases 26 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, collections and warehousing. The Company presently
maintains its headquarters in Roslyn, New York, leasing approximately 40,000
square feet pursuant to a five year lease terminating April 30, 2001. The
Company's Roslyn facility is used for general corporate purposes, as well as for
remanufacturing and warehouse space for the Northeast operating region. The
Company has an option to purchase the Roslyn facility, which it presently does
not intend to exercise. The Company also maintains a facility in Charlotte,
North Carolina as its corporate development office, leasing approximately 3,000
square feet pursuant to a five year lease.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its predecessors have been named as defendants in a number
of legal actions arising in the ordinary course of business. Although the
amount of any liability that could arise with respect to these actions cannot be
accurately predicted, management believes that any such liabilities,
individually or in the aggregate, will not have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-11-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
There currently exists no established public trading market for the Common
Stock, all of which is held beneficially and of record by CLC.
HOLDERS
As of March 28, 1997, there was one holder of record of the Common Stock.
DIVIDENDS
The Company has not paid any dividends on the Common Stock during the past
fiscal year and does not intend to pay dividends on the Common Stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained in
certain of its outstanding debt and financing agreements relating to the payment
of cash dividends on its Common Stock, and 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."
-12-
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents summary historical consolidated financial
information of the Company. Such table includes the combined and consolidated
financial information for the year ended March 28, 1997 ("1997 Fiscal Year"),
for the six month transition period ended March 29, 1996, the period from April
5, 1995 to September 29, 1995 and the consolidated financial information for the
period from October 1, 1994 to April 4, 1995, and for each of the fiscal years
ended the Friday closest to September 30, 1994, 1993 and 1992. All financial
data therein are in thousands. The financial data set forth below should be
read in conjunction with the Company's audited historical combined and
consolidated financial statements and the related notes thereto included in Item
8 "Financial Statements and Supplementary Data" and with the information
presented in Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Form 10-K.
Successor /1/ Predecessor /1/
----------------------------------------- ---------------------------------------------
SIX MONTH YEAR ENDED
TRANSITION APRIL 5, OCTOBER -----------------------------------
PERIOD 1995 1, 1994
ENDED TO TO OCTOBER
YEAR ENDED MARCH 29, SEPTEMBER APRIL 4, SEPTEMBER OCTOBER 2,
MARCH 28, 1997 1996 29, 1995 1995 30, 1994 1, 1993 1992/2/
--------------- ---- -------- ---- -------- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 206,852 $ 89,070 $ 89,719 $52,207 $104,553 $104,888 $104,311
Laundry operating expenses........... 139,446 60,536 62,905 33,165 66,418 67,420 67,138
General and administrative expenses.. 4,520 2,024 2,458 1,539 2,839 2,576 3,125
Depreciation and amortization........ 46,316 18,212 18,423 10,304 21,347 21,002 20,745
Stock based compensation charge...... 1,768 -- -- -- -- -- --
Restructuring expenses............... -- -- 2,200 -- -- -- --
--------- -------- -------- ------- -------- -------- --------
Operating income..................... 14,802 8,298 3,733 7,199 13,949 13,890 13,303
Interest expense..................... 27,417 11,830 11,541 8,928 18,105 17,453 15,857
Income taxes (benefits).............. (2,307) (998) (1,862) 50 2,762 (768) (416)
--------- -------- -------- ------- -------- -------- --------
Loss before extraordinary item....... (10,308) (2,534) (5,946) (1,779) (6,918) (2,795) (2,138)
Extraordinary loss (net of tax)/3/... (296) (8,925) -- (848) -- -- (833)
--------- -------- -------- ------- -------- -------- --------
Net loss............................. $ (10,604) $(11,459) $ (5,946) $(2,627) $ (6,918) $ (2,795) $ (2,971)
========= ======== ======== ======= ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Property and equipment, net.......... $ 112,116 $ 82,699 $ 80,706 -- $ 48,727 $ 50,593 $ 50,679
Total assets......................... 467,550 248,167 239,943 -- 143,589 150,402 155,827
Total debt........................... 351,710 202,765 176,415 -- 128,487 128,299 128,737
Stockholders' equity (deficit)....... 11,973 (2,148) 13,783 -- (8,721) (1,636) 1,004
FINANCIAL INFORMATION AND OTHER DATA:
Cash flow from operating activities.. $ 34,305 $ 12,100 $ 12,639 $10,216 $ 17,914 $ 16,547 $ 11,842
Cash flow used for investing (196,698) (14,162) (13,114) (6,537) (16,763) (18,500) (16,168)
activities..........................
Cash flow from (used for) financing 152,780 12,503 (1,017) (1,068) (270) (636) 10,272
activities..........................
EBITDA/4/............................ 62,886 26,510 24,356 17,503 35,296 34,892 34,048
Capital expenditures/5/.............. 41,588 14,219 13,119 6,944 16,779 18,556 16,563
____________________
1 On November 30, 1995, Solon completed the Merger with TCC, which transaction
was accounted for in a manner similar to a pooling of interests. As a result
of the common investor group control over both entities, the term "Successor"
will refer to such common control periods; that is, the period in time after
the Solon Acquisition, and includes the historical results of Solon which
have been restated to include the pooling of interests of TCC. The term
"Predecessor" refers to the period in time prior to the Solon Acquisition.
Successor is presented
-13-
on a different basis of accounting and, therefore, is not comparable to the
Predecessor. Historical financial data for Solon (for periods prior to April
5, 1995) are contained in the financial statements and related notes thereto
presented elsewhere in this Form 10-K.
2 Fiscal year 1992 was a 53-week year. All other fiscal years were 52-week
years.
3 Represents extraordinary loss on the early extinguishment of debt on February
14, 1997 and November 30, 1995, on the change in control in the Solon
Acquisition on April 5, 1995, and on the early extinguishment of debt in
1992.
4 EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the period
ending March 28, 1997 is before the deduction for the stock based
compensation charges, and EBITDA for the period ending September 29, 1995 is
before the deduction for restructuring costs. EBITDA is used by management
and certain investors as an indication of a company's improved ability to
service existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
either (a) operating income (as determined by generally accepted accounting
principles) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by generally
accepted accounting principles) as a measure of liquidity. Given that EBITDA
is not a measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying calculations, EBITDA
as presented may not be comparable to other similarly titled measures of
other companies.
5 Capital expenditures include additions to property and equipment and advance
rental payments to location owners.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Business and Sources of Revenue
The Company is principally engaged in the business of supplying coin-
operated laundry equipment services to multi-family housing properties. Prior
to giving effect to the Reliable Acquisition, the Company owns and operates
approximately 337,000 coin-operated washers and dryers in approximately 30,000
multi-family housing properties on routes located in 30 states and the District
of Columbia and in 150 retail laundromats throughout Texas. The Company's
routes are located throughout the Northeast, Mid-Atlantic, Southeast, South-
Central and Midwest regions of the United States. The Company, through Super
Laundry, its wholly-owned subsidiary, is also a construction and laundromat
equipment distribution company.
The Company's most significant revenue source is derived from its route
business. The Company provides coin-operated laundry equipment services to
locations by leasing designated laundry rooms in buildings, typically on a long-
term, renewable basis. In return for the exclusive right to provide laundry
equipment services, most of the Company's leases provide for commission payments
to the location owners. Commission expense (also referred to as rent expense),
the Company's single largest expense item, is included in laundry operating
expenses and represents payments to location owners. Commissions may be fixed
amounts or percentages of revenues and are generally paid monthly. Also
included in laundry operating expenses are the cost of servicing and collections
in the route business, including, payroll, parts, vehicles and other related
items, the cost of sales associated with Super Laundry and certain expenses
related to the operation of retail laundromats acquired in the Kwik Wash
Acquisition.
In addition to commission payments, many of the Company's leases require
the Company to make advance rental payments to the location owners. These
advance payments are capitalized and amortized over the life of the applicable
lease.
Other revenue sources for the Company include (i) leasing laundry equipment
and other household appliances and electronic items to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties; (ii) operating, maintaining and servicing retail laundromats; and
(iii) constructing complete turnkey retail laundromats, retrofitting existing
retail laundromats, distributing exclusive lines of commercial coin and non-coin
machines and parts, and selling service contracts.
Certain Other Transactions
On January 31, 1995, in connection with the acquisition of Coinmach
Industries Co., L.P. and Super Laundry Co., L.P., certain asset values,
primarily contract rights and fixed assets, were recorded at their then fair
market value, adjusted to reflect a pro rata allocation of the excess of fair
market value of net assets acquired, based on an independent appraisal, over the
purchase price.
In connection with a series of refinancing transactions on November 30,
1995, the Company issued approximately $196.7 million of Senior Notes (as
hereinafter defined) which enabled the Company to, among other things, extend
the maturity of its debt obligations, retire the remaining debt of TCC and
provide additional working capital.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the combined and consolidated financial statements and related notes thereto
included in Item 8 and the Selected Historical Consolidated Financial Data
included in Item 6 of this Form 10-K.
-15-
FISCAL YEAR ENDED MARCH 28, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 29, 1996
The discussion below should be read in conjunction with the following
table, which combines the six month transition period ended March 29, 1996 and
the period from April 5, 1995 to September 29, 1995 and the combined periods to
be referred to as the prior fiscal year (in thousands):
SIX MONTH
TRANSITION PERIOD
YEAR ENDED PERIOD ENDED APRIL 5, 1995 TO
MARCH 28, 1997 MARCH 29, 1996 SEPTEMBER 29, 1995 COMBINED
-------------- ---------------- ------------------- ---------
Revenues.......................................... $206,852 $ 89,070 $89,719 $178,789
Laundry operating expenses........................ 139,446 60,536 62,905 123,441
General and administrative expenses............... 4,520 2,024 2,458 4,482
Depreciation and amortization..................... 46,316 18,212 18,423 36,635
Stock based compensation charge................... 1,768 -- -- --
Restructuring expenses............................ -- -- 2,200 2,200
-------- -------- ------- --------
Operating income (loss)........................... 14,802 8,298 3,733 12,031
Interest expense, net............................. 27,417 11,830 11,541 23,371
-------- -------- ------- --------
Loss before extraordinary items and income taxes.. (12,615) (3,532) (7,808) (11,340)
Income tax (benefit) expense...................... (2,307) (998) (1,862) (2,860)
-------- -------- ------- --------
Loss before extraordinary items................... (10,308) (2,534) (5,946) (8,480)
Extraordinary items, net of tax................... (296) (8,925) -- (8,925)
-------- -------- ------- --------
Net loss.......................................... $(10,604) $(11,459) $(5,946) $(17,405)
======== ======== ======= ========
Revenues increased by approximately 16% for the 1997 Fiscal Year as
compared to the prior fiscal year. The improvement in revenues was primarily
attributable to increased route revenues resulting from internal expansion, the
Allied Acquisition, the Kwik Wash Acquisition and an increase in revenues from
Super Laundry. During the 1997 Fiscal Year, the Company's installed base
increased by approximately 7,500 machines from internal growth due primarily to
the elimination of capital constraints existing at Solon prior to the Merger, as
compared to a reduction of approximately 750 machines during the twelve months
ended March 29, 1996.
Laundry operating expenses increased by approximately 13% for the 1997
Fiscal Year, as compared to the prior fiscal year. The increase was due
primarily to the Allied Acquisition and the Kwik Wash Acquisition as well as an
increase in the cost of sales related to Super Laundry's increased sales volume.
Such increase in laundry operating expenses was offset by the implementation of
cost savings programs in the Company's field operations and the consolidation of
certain operating regions.
General and administrative expenses increased slightly for the 1997 Fiscal
Year as compared to the prior fiscal year. The increase for the period was due
to expenses associated with (i) the implementation of the Company's acquisition
strategy, including legal and financial due diligence investigations of
potential targets and related costs, (ii) the development and implementation of
procedures for the management of investor relations, and (iii) systems
development, refinement and integration. This increase includes a reduction of
certain expenses resulting from the consolidation of the Company's corporate
staff into its existing facility in Roslyn, New York on September 29, 1995.
Depreciation and amortization increased by approximately 27% for the 1997
Fiscal Year, as compared to the prior fiscal year, due primarily to the Allied
Acquisition and the Kwik Wash Acquisition, as well as an increase in capital
expenditures for the installed base of machines resulting from the elimination
of capital constraints existing at Solon prior to the Merger. As a result of
the Company's acquisition activity since early 1995, the Company incurred
approximately $26.8 million in non-cash purchase accounting related depreciation
and amortization charges for the 1997 Fiscal Year as compared to $23.6 million
for the prior fiscal year.
-16-
The Company incurred restructuring costs of approximately $2.2 million
during the twelve months ended March 29, 1996 to cover severance obligations to
certain personnel, costs to relocate certain corporate functions to Roslyn, New
York, systems integration costs, and expenses related to the consolidation of
certain of its regional offices, in each case, as a result of the Solon
Acquisition and the Merger.
The extraordinary items for the 1997 Fiscal Year consisted of costs related
to the extinguishment of debt in February, 1997 and the termination of the then
existing revolving credit facility. The extraordinary items for the six month
period ending March 29, 1996 consisted of costs related to the extinguishment of
debt in connection with the Company's refinancing in November 1995.
Prior to the Offering, CLC issued, in privately negotiated transactions,
79,029 shares of its Class B common stock to certain members of management. The
Company recorded a stock-based compensation charge of approximately $887,000
attributable to the issuance of such stock. In addition, approximately $83,000
of receivables relating to loans to management in connection with prior
purchases of CLC' common stock were forgiven and have been recorded as a stock-
based compensation charge.
CLC also granted options to management and certain other individuals to
purchase shares of CLC Common Stock at a 15% discount to the initial offering
price of the CLC Common Stock. With respect to such options granted to its
employees, CLC will record such discount as a stock-based compensation charge
over the applicable four year vesting period. During the 1997 Fiscal Year, CLC
recorded a stock-based compensation charge of approximately $798,000 relating to
such options.
The Company's operating income margin, approximately 7% of revenues for the
1997 Fiscal Year, was equal to that for the twelve month's ended March 29, 1996.
Interest expense, net, increased by approximately 17% for the 1997 Fiscal
Year as compared to the prior year due primarily to the Company's refinancing in
November 1995 as well as entering into the Credit Agreement in January 1997.
Partially offsetting this increase in interest expense was the decrease in the
effective interest rate applied against outstanding borrowings as the result of
such refinancing, as well as interest income earned on excess cash balances
generated from operations.
EBITDA/2/ was approximately $62.9 million (before deduction for stock-based
compensation charges) for the 1997 Fiscal Year as compared to approximately
$50.9 million (before deduction for restructuring costs) for the prior fiscal
year, representing an improvement of approximately 24%. EBITDA margins improved
to approximately 30% of revenues for the current year compared to approximately
28% of revenues for the prior year.
SIX MONTH TRANSITION PERIOD ENDED MARCH 29, 1996 COMPARED TO THE PERIOD OCTOBER
1, 1994 TO APRIL 4, 1995
Prior to the merger of Solon and TCC, Solon's fiscal year was the fifty-two
or fifty-three week period ended on the Friday nearest September 30. Effective
upon the Merger, the Company changed its fiscal year end to the Friday nearest
to March 31.
- -----------------------------
/2/ EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA is used by
management and certain investors as an indicator of a company's historical
ability to service debt. Management believes that an increase in EBITDA is an
indication of a company's improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements.
However, EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to either (a) operating income (as
determined by generally accepted accounting principles) as an indicator of
operating performance or (b) cash flows from operating, investing and financing
activities (as determined by generally accepted accounting principles) as a
measure of liquidity. Given that EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is thus susceptible
to varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
-17-
The discussion below should be read in conjunction with the following table
which combines the operating results of Solon and TCC for the period October 1,
1994 to April 4, 1995 (the predecessor period) (in thousands). The operating
results of TCC are reflected in order to present comparable data.
PERIOD FROM OCTOBER 1, 1994 TO APRIL 4,
1995
SIX MONTH ---------------------------------------------
TRANSITION PERIOD (PREDECESSOR)/1,2/
ENDED
MARCH 29, 1996
(SUCCESSOR)/1/ TCC SOLON COMBINED
----------------- ------------ ------------ ------------
Revenues......................................... $ 89,070 $35,789 $52,207 $87,996
Laundry operating expenses....................... 60,536 28,253 33,165 61,418
General and administrative expenses.............. 2,024 1,345 1,539 2,884
Depreciation and amortization.................... 18,212 6,009 10,304 16,313
-------- ------- ------- -------
Operating income................................. 8,298 182 7,199 7,381
Interest expense, net............................ 11,830 2,464 8,928 11,392
Other expense.................................... - 1,341 - 1,341
-------- ------- ------- -------
Loss before extraordinary item and income taxes.. (3,532) (3,623) (1,729) (5,352)
Income tax (benefit) expense..................... (998) 4 50 54
-------- ------- ------- -------
Loss before extraordinary item................... (2,534) (3,627) (1,779) (5,406)
Extraordinary item, net of tax................... (8,925) - (848) (848)
-------- ------- ------- -------
Net loss......................................... $(11,459) $(3,627) $(2,627) $(6,254)
======== ======= ======= =======
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have been
restated to include the pooling of interests of TCC. Successor is presented
on a different basis of accounting and, therefore, is not comparable to the
Predecessor.
2 Certain reclassifications have been made to conform to the 1996 presentation.
Revenues for the six month transition period ended March 29, 1996 were
approximately 1.2% higher than combined revenues for the prior period. The
improvement in revenues consisted primarily of increased revenues from Super
Laundry of approximately $2.5 million. Such improvement was partially offset by
a decrease of approximately $1.4 million in revenues from the route business.
The average machine base for the six month transition period ended March 29,
1996 was approximately 1.4% lower than the prior period primarily as the result
of constraints on available capital prior to the Merger. From September 30,
1995, through March 29, 1996, the Company successfully implemented a program to
maintain its base of installed machines and eliminate any additional erosion.
The effect of the decreased number of machines was partially offset by increased
revenue per machine from price increases.
Laundry operating expenses decreased by approximately 1.4% primarily as the
result of decreased expenses of approximately $0.8 million related to
implementation of cost savings programs in the Company's field operations and a
decrease in commission expense of approximately 2.3%. These decreases were
partially offset by an increase in the cost of sales related to the increased
volume of Super Laundry.
General and administrative expenses decreased by approximately $.9 million,
or 29.8%, primarily due to the consolidation of corporate staff by closing
Solon's Philadelphia, Pennsylvania office and combining its operations into the
Company's existing facility in Roslyn, New York on September 29, 1995.
-18-
Depreciation and amortization increased by approximately $1.9 million or
11.6% due primarily to purchase accounting adjustments resulting from the Solon
Acquisition.
Interest expense, net, increased by approximately 3.8%. Approximately $1.8
million of such increase was due primarily to the increased debt level that
resulted from the Company's refinancing in November 1995. Offsetting this
increase is approximately $0.8 million due to the decrease in the effective
interest rate as the result of such refinancing. The increased debt resulted in
an excess cash balance, which was contemplated to be used for working capital
purposes and for future acquisition opportunities.
The extraordinary item for the six month transition period ending March 29,
1996, consisted of costs related to the extinguishment of debt in connection
with the Company's refinancing in late 1995. The extraordinary item for the
period ended April 4, 1995, consisted of costs related to the change in control
in connection with the Solon Acquisition.
PERIOD APRIL 4, 1995 TO SEPTEMBER 29, 1995 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1994
The discussion below should be read in conjunction with the following table
which combines the Predecessor period for the six months ended September 30,
1994 (in thousands):
PERIOD APRIL 5, 1995 SIX MONTHS ENDED
TO
SEPTEMBER 29, 1995 SEPTEMBER 30, 1994
--------------------- ----------------------------
(SUCCESSOR)/1/ (PREDECESSOR)/1,//2/
TCC SOLON COMBINED
-------- -------- ---------
Revenues............................. $89,719 $37,154 $51,577 $88,731
Laundry operating expenses........... 62,905 28,576 32,337 60,913
General and administrative expenses.. 2,458 1,123 1,444 2,567
Depreciation and amortization........ 18,423 7,576 10,966 18,542
Restructuring costs.................. 2,200 -- -- --
------- ------- ------- --------
Operating income (loss).............. 3,733 (121) 6,830 6,709
Interest expense, net................ 11,541 2,214 9,053 11,267
------- ------- ------- -------
Loss before income taxes............. (7,808) (2,335) (2,223) (4,558)
Income tax (benefit) expense......... (1,862) 24 3,208 3,232
------- ------- ------- -------
Net Loss............................. $(5,946) $(2,359) $(5,431) $(7,790)
======= ======= ======= =======
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not comparable
to the Predecessor.
2 Certain reclassifications have been made to conform to the 1995
presentation.
Revenues for the period April 5, 1995 to September 29, 1995 were
approximately 1.1% higher than combined revenues for the prior period. The
improvement in revenues consisted primarily of increased revenues from Super
Laundry of approximately $1.3 million. Such improvement was partially offset by
a decrease of approximately $0.3 million in revenues from routes, primarily due
to a 2.0% decline in the average number of laundry machines on location, due to
constraints on capital prior to the Merger. The effect of the decreased number
of machines was partially offset by increased revenue per machine of
approximately 1.6% primarily due to price increases.
-19-
Laundry operating expenses increased by approximately 3.3%, primarily due
to an increase of $1.0 million in the cost of sales related to the increase in
Super Laundry revenue. The remaining increase is primarily the result of the
method of accounting for installation costs applied in the Successor period.
This increase is the result of increased cost of sales related to the increased
volume of Super Laundry. In addition, the Company's commission expense
decreased by approximately 1.0%.
General and administrative expenses decreased by approximately $0.1
million, or 4.2% primarily due to a decrease in the corporate staff.
The Company provided for restructuring costs of approximately $2.2 million
to cover severance payments to certain of Solon's management, administrative and
regional personnel, costs to relocate Solon's financial and administrative
functions to Roslyn, New York, costs to integrate certain financial and
operating systems, and costs related to the consolidation of certain of Solon's
regional offices.
Interest expense, net, increased to approximately 2.4% primarily due to an
increase in the interest rate on TCC's revolver, which was based on the prime
lending rate.
FISCAL YEAR ENDED SEPTEMBER 29, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
The discussion should be read in conjunction with the following table which
combines the Predecessor and Successor periods for fiscal 1995 (in thousands).
As previously disclosed, Solon had completed a merger with TCC on November 30,
1995, whereby such transaction was accounted for in a manner similar to a
pooling of interests. As a result of the common investor group control over
both entities, the term "Successor" will refer to such common control periods.
FISCAL YEAR ENDED SEPTEMBER 29, 1995
-------------------------------------------
APRIL 5, OCTOBER 1, FISCAL YEAR
1995 TO 1994 TO ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1995 1995 TOTAL 1994
--------------- --------------- --------- -----------------
SUCCESSOR/1/ PREDECESSOR/1/ PREDECESSOR/1,2/
Revenues......................................... $89,719 $52,207 $141,926 $104,553
Laundry operating expenses....................... 62,905 33,165 96,070 66,527
Depreciation and amortization.................... 18,423 10,304 28,727 21,347
General and administrative expenses.............. 2,458 1,539 3,997 2,839
Gain on sale of equipment........................ -- -- -- (109)
Restructuring costs.............................. 2,200 -- 2,200 --
------- ------- -------- --------
Operating income................................. 3,733 7,199 10,932 13,949
Interest expense, net............................ 11,541 8,928 20,469 18,105
------- ------- -------- --------
Loss before income taxes and extraordinary item.. (7,808) (1,729) (9,537) (4,156)
Income tax (benefit) expense (1,862) 50 (1,812) 2,762
------- ------- -------- --------
Loss before extraordinary item................... (5,946) (1,779) (7,725) (6,918)
Extraordinary item, net of income taxes of $0.... -- (848) (848) --
------- ------- -------- --------
Net loss......................................... $(5,946) $(2,627) $ (8,573) $ (6,918)
======= ======= ======== ========
-20-
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not comparable
to the Predecessor.
2 Certain reclassifications have been made to conform to the 1995 presentation.
Excluding revenues of TCC of approximately $38.5 million for the Successor
period, revenues of approximately $103.4 million for fiscal 1995 were
approximately $1.1 million or 1.1% lower than revenues for fiscal 1994. A
favorable change of approximately $1.8 million in revenues resulting from
increases in revenue per machine was offset by approximately $2.9 million in
losses caused by a decline in the average number of laundry machines on location
primarily due to the lack of available capital prior to the Refinancing Plan.
Revenue per machine rose slightly primarily because of price increases and
improved occupancy levels in the Southeast and South-Central regions.
Excluding laundry operating expenses of TCC of approximately $29.8 million
for the Successor period, laundry operating expenses of approximately $66.3
million for fiscal 1995 were approximately $0.2 million or 0.3% lower than
laundry operating expenses for fiscal 1994. Commission expense decreased by
approximately $1.0 million due to lower revenues and a reduction in the average
commission rate from approximately 44.7% of revenue during fiscal 1994 to
approximately 44.1% of revenues during fiscal 1995. The decrease in the
commissions rate was primarily attributable to the Company's ongoing commission
control programs and a shift away from higher commission locations primarily in
the Washington, D.C. Metropolitan area. Laundry operating expenses other than
commissions expense rose by approximately $0.8 million in fiscal 1995 compared
to fiscal 1994 primarily due to inflationary increases.
Excluding depreciation and amortization expense of TCC of approximately
$5.5 million for the Successor period, depreciation and amortization expense
increased by approximately $1.9 million or 8.6% for fiscal 1995, as compared to
the prior year due primarily to purchase accounting adjustments resulting from
the Solon Acquisition.
Excluding general and administrative expenses of TCC of approximately $0.9
million for the Successor period, general and administrative expenses of
approximately $3.1 million for fiscal 1995 were approximately $0.3 million or
10.7% higher than such expenses for fiscal 1994. For fiscal 1995, general and
administrative expenses include a charge of approximately $0.3 million for the
cost of a severance agreement with the former chief executive officer of Solon.
The Company provided for restructuring costs of approximately $2.2 million
to cover severance payments to certain of Solon's management, administrative and
regional personnel, costs to relocate Solon's financial and administrative
functions to Roslyn, New York, costs to integrate certain financial and
operating systems of Solon and TCC, and costs related to the consolidation of
certain of Solon's regional offices.
Excluding interest expense of TCC of approximately $2.7 million for the
Successor period, interest expense for fiscal 1995 decreased by approximately
$0.3 million or 1.7% as compared to the prior year, primarily due to an increase
in interest income, and to a lesser extent, a decrease in interest caused by a
repurchase and retirement of $1.0 million of the Old Senior Notes in November
1994.
-21-
The Company's income tax benefit was approximately $1.8 million in fiscal
1995 compared to a tax provision of approximately $2.8 million for fiscal 1994.
As further discussed in the consolidated financial statements, the tax provision
for fiscal 1994 included a $3.7 million charge to establish a valuation
allowance for previously recorded deferred tax assets. The deferred tax asset
of $2.0 million recorded in the Successor period does not reflect a valuation
allowance because the loss can be utilized against the deferred tax liabilities
in the carryforward periods. In addition to this benefit, the Company's
effective income tax rate differs from the amount computed by applying the U.S.
federal statutory rate to loss before income taxes as a result of state taxes
and permanent book/tax differences.
The Company incurred costs aggregating approximately $0.8 million in
connection with the Solon Acquisition, including a total of $0.4 million in lump
sum payments made to fourteen management employees pursuant to certain
contractual arrangements relating to the acquisition. The total costs have been
reflected as an extraordinary item in the financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective March 30, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. FAS
121 also addresses the accounting treatment for long-lived assets that are
expected to be disposed of. The effect of the Company's adoption of FAS 121 did
not have an effect on the Company's results of operations or financial condition
for the 1997 Fiscal Year.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. FAS 123 is effective for transactions entered into
in fiscal years beginning after December 15, 1995. The Company has elected to
account for stock-based compensation awards pursuant to the provisions of
Accounting Principles Board Opinion No. 25, as permitted by FAS 123.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At March 28, 1997, the Company had outstanding long-term debt
(excluding advances from CLC) of approximately $329.3 million and stockholders'
equity of approximately $12.0 million.
FINANCING ACTIVITIES
Senior Notes
In December 1995, the Company issued 11 3/4% Senior Notes due 2005 pursuant
to the terms of an indenture, between the Company and Fleet Bank of Connecticut
(formerly Shawmut Bank Connecticut, National Association) (as amended, the
"Indenture") in an aggregate principal amount of $196,655,000. On March 28,
1996, the Company consummated a registered exchange offer, pursuant to which all
issued and outstanding 11 3/4% Senior Notes due 2005 were exchanged for Series B
11 3/4% Senior Notes due 2005 (the "Senior Notes").
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The Senior Notes, which mature on November 15, 2005, are unsecured senior
obligations of the Company and are redeemable, at the Company's option, in whole
or in part at any time or from time to time, on and after November 15, 2000,
upon not less than 30 nor more than 60 days notice, at the redemption prices set
forth in the Indenture, plus, in each case, accrued and unpaid interest thereon,
if any, to the date of redemption.
The Indenture contains a number of restrictive covenants and agreements,
including covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on certain payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of the Company or its subsidiaries, 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 sale
and leaseback transactions; (vii) limitation on conduct of business; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) limitation on consolidations, mergers and sales of substantially all of
the assets of the Company.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and
continuance of certain events of default, the trustee or the holders of not less
than 25% in aggregate principal amount of outstanding Senior Notes may declare
all unpaid principal and accrued interest on all of the Senior Notes to be
immediately due and payable.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Senior Notes will have the right to require that the Company
purchase all or a portion of such holder's 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.
Redemption of 12 3/4% Senior Notes due 2001
On February 18, 1997, the Company redeemed its outstanding 12 3/4% Senior
Notes due 2001 at a redemption price of 106.375% of the principal amount
thereof, together with accrued interest from January 15, 1997 to February 18,
1997, in an aggregate amount of approximately $5.4 million.
New Credit Facility
On January 8, 1997, the Company entered into the Credit Agreement with
Bankers Trust Company, First Union National Bank of North Carolina, Lehman
Commercial Paper, Inc. and other lending institutions named therein
(collectively, the "Banks"), which provides for the New Credit Facility. The
New Credit Facility replaced the Company's then existing credit facility. The
New Credit Facility, as amended effective June 2, 1997, and prior to any
principal installment payments, consists of a $70 million revolving credit
facility and a $190 million term loan facility, which is comprised of a Tranche
A term loan in the amount of $30.0 million, payable quarterly commencing March
1997, and a Tranche B term loan in the amount of $160.0 million, payable semi-
annually commencing June 1997. The New Credit Facility also provides for up to
$10 million of letter of credit financings and short term borrowings under a
swing line facility of up to $5 million.
At March 28, 1997, $130 million was outstanding under the Credit Agreement.
Effective June 2, 1997, the Credit Agreement was amended to, among other things,
increase the Tranche B portion of the term loan facility to $160.0 million.
-23-
Subject to the terms and conditions of the Credit Agreement, the Company
may, at its option, convert Base Rate Loans (as defined in the Credit Agreement)
into Eurodollar Loans (as defined in the Credit Agreement). Interest on the
Company's borrowings under the Credit Agreement is payable at a rate per annum
no greater than the sum of the Applicable Base Rate Margin plus the Base Rate or
the sum of the Applicable Eurodollar Margin plus the Eurodollar Rate (in each
case, as defined in the Credit Agreement).
Indebtedness under the Credit Agreement is secured by all of the Company's
real and personal property. CLC has guaranteed the indebtedness under the
Credit Agreement and pledged to Bankers Trust Company, as Collateral Agent, its
interests in all of the issued and outstanding shares of capital stock of the
Company.
The Credit Agreement 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 CLC or its subsidiaries or
the purchase, redemption or other acquisition of any capital stock of CLC or its
subsidiaries); (iii) voluntary prepayments of previously existing indebtedness;
(iv) Investments (as defined in the Credit Agreement); (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 Credit Agreement also requires that the Company satisfy certain financial
ratios, including a maximum leverage ratio and a minimum consolidated interest
coverage ratio.
The Credit Agreement contains certain events of default, including the
following: (i) the failure of the Company to pay any of its obligations under
the Credit Agreement when due; (ii) certain failures by the Company to pay
principal or interest on indebtedness or certain breaches or defaults by the
Company in respect of certain indebtedness, in each case, after the expiration
of any applicable grace periods; (iii) certain defaults by the Company in the
performance or observance of the agreements or covenants under the Credit
Agreement or related agreements, beyond any applicable cure periods; (iv) the
falsity in any material respect of certain of the Company's representations or
warranties under the Credit Agreement; (v) certain judgments against the
Company; and (vi) certain events of bankruptcy or insolvency of the Company.
OPERATING 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 and will not be available for other
purposes; (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 will 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 coin-operated laundry equipment services industry and to economic
conditions in general could be limited.
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the 1997 Fiscal Year were approximately $213.0 million
(including approximately $16.2 million of promissory notes, consisting of the
Kwik Wash Note and the
-24-
AW Notes). Of such amount, the Company spent approximately $171.5 million
(including approximately $16.2 million of promissory notes, consisting of the
Kwik Wash Note and the AW Notes) in acquisition and related transaction costs,
including the Kwik Wash Acquisition and the Allied Acquisition, and
approximately $12.4 million related to a net increase in the installed base of
machines. The balance was used to maintain the existing base and for general
corporate purposes. The full impact on revenues and EBITDA generated from
capital expended on acquisitions and the net increase in the installed base are
not expected to be reflected in the Company's financial results until subsequent
reporting periods, depending on the timing of the capital expended. The Company
anticipates that capital expenditures, excluding acquisitions and internal
growth, will be approximately $38.0 million for the twelve months ending March
31, 1998. While the Company estimates that it will generate sufficient cash
flows from operations to finance anticipated capital expenditures, there can be
no assurances that it will be able to do so.
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
The Company is required to make monthly cash interest payments pursuant to the
Credit Agreement and semi-annual cash interest payments on the Senior Notes.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay borrowings under the Senior Notes, the
New Credit Facility, the Kwik Wash Note and the AW Notes and to permit any
necessary refinancings thereof. An inability of the Company, however, to comply
with covenants or other conditions contained in the Indenture or in the Credit
Agreement could result in an acceleration of all amounts due under the Senior
Notes and the New Credit Facility. 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 Credit Agreement
or the Indenture.
CERTAIN ACCOUNTING TREATMENT
The Company's depreciation and amortization expenses, aggregating
approximately $46.3 million for the 1997 Fiscal Year, have the effect of
reducing net income but not operating cash flow. In accordance with generally
accepted accounting principles, a significant amount of the purchase price of
businesses acquired by the Company is allocated to "contract rights", which
costs are amortized over periods of up to 15 years. Although such accounting
treatment can have a favorable effect on operating cash flow by reducing taxes,
such treatment also reduces net income.
INFLATION AND SEASONALITY
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
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FORWARD LOOKING STATEMENTS
This report 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. When used in SEC Filings, the words "anticipate,"
"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, including, in addition to any uncertainties specifically
identified in the text surrounding such statements, uncertainties with respect
to 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 the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended or
planned.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-34 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As previously reported on the Company's Current Report on Form 8-K, dated
June 2, 1995, the Board of the Directors of the Company appointed Ernst & Young
LLP to succeed Arthur Andersen LLP as the Company's principal independent
accountants effective May 30, 1995.
There has not been any disagreements with the Company's accountants on any
matter of accounting principles or practices, financial statement disclosures or
audit scope or procedure in the last two fiscal years.
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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 the Directors has been furnished by such
Directors of the Company.
Name Title Age
---- ----- ---
Stephen R. Kerrigan.. Chairman of the Board and Director 43
Mitchell Blatt....... Director 45
Robert M. Doyle...... Director 40
At a regular meeting of the Board held on November 1, 1996, the Board
unanimously resolved, subject to obtaining shareholder approval of CLC, to
reconstitute the Board so that the number of directors constituting the Board
would be three, consisting initially of Messrs. Kerrigan, Blatt and Doyle.
Effective November 4, 1996, upon obtaining the approval of CLC, Messrs. James N.
Chapman, David A. Donnini and Bruce V. Rauner were removed from the Board, and
Mr. Doyle was appointed to the Board. Each of Messrs. Chapman, Donnini and
Rauner are presently members of the board of directors of CLC.
Effective as of July 23, 1996, that certain stockholders' agreement,
dated July 26, 1995, as amended and restated as of November 30, 1995, which
provided, among other things, for the composition of the Board and of the board
of directors of CLC, was terminated.
Mr. Kerrigan has been Chief Executive Officer of CLC since April 1996
and of the Company since November 1995. Mr. Kerrigan was President and
Treasurer of Solon Automated Services, Inc. ("Solon") and CLC from April 1995
until April 1996, and Chief Executive Officer of TCC from January 1995 until
November 1995./3/ Mr. Kerrigan has been a director and Chairman of the Board of
CLC 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
until 1994. Mr. Kerrigan was an executive officer of CIC I Acquisition Corp.
("CIC"), which filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code in 1993.
- --------------------------
/3/ On November 30, 1995, TCC merged with and into Solon (the "Merger") and
entered into a series of refinancing transactions, whereupon the surviving
corporation changed its name to "Coinmach Corporation."
-27-
Mr. Blatt has been President and Chief Operating Officer of CLC 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 CLC 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 January 1988 to February 1994. Mr. Blatt was an
executive officer of CIC, which filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in 1993.
Mr. Doyle has been Chief Financial Officer, Senior Vice President, Treasurer
and Secretary of CLC since April 1996 and 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 the Company's predecessor in 1987 as Controller. In
1988, Mr. Doyle became Director of Accounting, and was promoted in 1989 to Vice
President and Controller. Mr. Doyle was an executive officer of CIC, which
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in 1993.
EXECUTIVE OFFICERS
The Executive Officers of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company and the periods during which they have served as such and other
information. The term of office of each Executive Officer continues until the
election of Executive Officers to be held at the next Annual Meeting of
Directors or until his successor has been elected. There is no family
relationship between any Executive Officer and any other Executive Officer or
Director of the Company.
Name Title Age
---- ----- ---
Stephen R. Kerrigan.. Chairman of the Board and Chief
Executive Officer 43
Mitchell Blatt....... President, Chief Operating Officer 45
Robert M. Doyle...... Chief Financial Officer, Senior
Vice President, Treasurer, Secretary 40
John E. Denson....... Senior Vice President 59
Michael E. Stanky.... Senior Vice President 45
R. Daniel Osborne.... Area Vice President 41
David A. Siegel...... Area Vice President 39
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- Directors"
above.
Mr. Denson has been Senior Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Denson was Senior Vice President, Finance of
Solon from June 1987 until November 1995. Mr. Denson has served as an officer
of Solon under various titles since 1973, and served as a director and Co-Chief
Executive Officer of Solon from November 1994 to April 1995.
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Mr. Stanky has been Senior Vice President of CLC 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.
Mr. Osborne has been Area Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Osborne served Solon in various capacities
from 1987 to November 1995. In July 1995, Mr. Osborne was promoted to Area Vice
President of the Company responsible for the Company's Southeast region.
Mr. Siegel has been Area Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Siegel served Solon in various capacities
since 1985, and in August 1995 was promoted to Area Vice President of the
Company responsible for the Company's Mid-Atlantic region.
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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 (the "Named Executive Officers") for all
services rendered in all capacities for the fiscal years ended March 31, 1995,
March 29, 1996 and March 28, 1997. In connection with the Merger, Solon and
Coinmach Industries Co., L.P., predecessors of the Company, changed their fiscal
years from September 30, 1995 and December 31, 1995, respectively, to the last
Friday in March 1996. Accordingly, (i) fiscal years prior to March 28, 1997
have been restated to conform such periods to fiscal years ending the last
Friday in March, and (ii) compensation for the Named Executive Officers has been
adjusted to reflect the amount of compensation awarded to, earned by or paid in
each of the fiscal periods shown.
ANNUAL COMPENSATION
------------------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPEN-
OCCUPATION YEAR ($) ($) ($) (#) SATION/1/
- -------------------- -------- --------- -------- --------------- ------------- ----------------
Stephen R. Kerrigan 1997 330,841 400,000 40,385/2/ 308,098/3/ 60,839/4/
Chief Executive 1996 290,000 91,250 __ __ 13,024/5/
Officer 1995 200,763 -- __ __ 14,898/5/
Mitchell Blatt 1997 238,942 112,000 __ 100,000 61,548/6/
President, Chief 1996 215,000 91,250 __ __ 22,849/7/
Operating Officer 1995 197,497 -- __ __ 20,942/7/
Robert M. Doyle 1997 149,997 62,500 __ 71,890 17,825/8/
Chief Financial 1996 110,577 25,000 __ __ 2,338/9/
Officer 1995 84,281 -- __ __ 3,238/9/
John E. Denson 1997 125,859 25,000 __ 28,756 2,327/10/
Senior Vice President 1996 125,300 -- __ __ 2,233/11/
1995 124,900 35,295 __ __ 67,752/11,12/
Michael E. Stanky 1997 150,500 37,500 __ 153,521 5,462/13/
Senior Vice President 1996 141,425 -- __ __ 1,253/14/
1995 127,373 53,628 __ __ 65,183/14,15/
___________________
/1/ The Company has not previously offered and presently does not have a long
term incentive program. The Company does not presently intend to offer any
such program to its executive officers or other employees.
/2/ Represents reimbursement of certain out-of-pocket relocation expenses.
/3/ Options are held by MCS, a corporation controlled by Mr. Kerrigan.
/4/ Includes $45,109 in forgiven indebtedness; $5,938 in imputed interest,
calculated at a rate of 9.5% per annum, on an interest free loan made by
the Company to Mr. Kerrigan; $4,554 in automobile allowances; $2,424 in
club membership fees; $1,875 in contributions to the Company Profit Sharing
Plan; and $939 in life insurance premiums paid for Mr. Kerrigan.
/5/ Includes club membership fees for fiscal years 1996 and 1995 of $4,600 each
year; expense allowances for fiscal years 1996 and 1995 of $3,596 and
$5,472, respectively; automobile allowances for fiscal years 1996 and 1995
of $2,688 and $2,688,
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respectively; and contribution by TCC to the Company Profit Sharing Plan
for fiscal years 1996 and 1995 of $2,140 and $2,138, respectively.
/6/ Includes $45,109 in forgiven indebtedness; $4,231 in automobile allowances;
$9,600 in club membership fees; $1,875 in contributions to the Company
Profit Sharing Plan; and $733 in life insurance premiums paid for Mr.
Blatt.
/7/ Includes club membership fees for fiscal years 1996 and 1995 of $10,000
each year; expense allowances for fiscal years 1996 and 1995 of $7,310 and
$7,779, respectively; automobile allowances for fiscal years 1996 and 1995
of $3,417 and $1,025, respectively; and contribution by TCC to the Company
Profit Sharing Plan for fiscal years 1996 and 1995 of $2,122 and $2,138,
respectively.
/8/ Includes $13,703 in forgiven indebtedness; $1,762 in automobile allowances;
$1,875 in contributions to the Company Profit Sharing Plan; and $485 in
life insurance premiums paid for Mr. Doyle.
/9/ Includes automobile allowances for fiscal years 1996 and 1995, of $1,004
and $2,169 respectively; and contributions by TCC to the Company Profit
Sharing Plan for fiscal years 1996 and 1995 of $1,334 and $1,069,
respectively.
/10/ Includes $104 in imputed interest, calculated at a rate of 9.5% per annum,
on an interest free loan made by the Company to Mr. Denson; $233 in
automobile allowances; and $1,149 in contributions to the Company Profit
Sharing Plan.
/11/ Includes automobile allowances for fiscal years 1996 and 1995, of $1,150
and $3,085, respectively; and contributions by Solon to the Solon
Retirement Savings Plan for fiscal years 1996 and 1995 of $1,083 and
$2,167, respectively.
/12/ Includes a $62,500 lump sum payment to Mr. Denson on April 6, 1995 due to a
change in control of Solon.
/13/ Includes $3,919 in forgiven indebtedness; $355 in automobile allowances;
and $1,188 in contributions to the Company Profit Sharing Plan.
/14/ Includes contributions by Solon to the Solon Retirement Savings Plan for
fiscal years 1996 and 1995 of $1,253 and $2,433, respectively.
/15/ Includes a $62,750 lump sum payment to Mr. Stanky on April 6, 1995 due to a
change in control of Solon.
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 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 provide for annual base
salaries of $225,000, $225,000 and $100,000 for each of Messrs. Kerrigan, Blatt
and Doyle, respectively, which amounts are reviewed annually by the Board. In
1996, the Board approved increases in annual salaries for each of Messrs.
Kerrigan, Blatt and Doyle to $350,000, $250,000 and $150,000, respectively,
which, in the case of Messrs. Kerrigan and Blatt, became effective in July 1996.
The Board, in its sole discretion, may grant each Senior Manager an annual
bonus. Each Senior Management Agreement is terminable at the will of the Senior
Managers or at the discretion of the Board. Senior Managers are entitled to
severance pay upon termination of their employment. If employment is terminated
by the Company without Cause (as defined in the Senior Management Agreements)
and no event of default has occurred under any bank credit facility to which the
Company is a party, Senior Managers are entitled to receive severance pay in an
amount equal to 1.5 times their respective annual base salaries then in effect,
payable in 18 equal monthly installments. If employment is terminated by the
Company and an event of default has occurred and is continuing under any bank
credit facility to which the Company is a party, Senior Managers are entitled to
receive severance pay in an amount equal to their respective annual base
salaries then in effect, payable in 12 equal monthly installments. Under
limited circumstances, Senior Managers are entitled to receive half of the
severance pay to which they are otherwise entitled if employment with the
Company is terminated by them.
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EMPLOYMENT AGREEMENT OF JOHN E. DENSON
The Company entered into an employment agreement with Mr. Denson, dated as
of September 5, 1996, for a term of one year which is automatically renewable
each year for successive one-year terms. Such agreement provides for an annual
base salary of $110,000, commencing January 1, 1997, which amount is to be
reviewed each December by the Board. The Board may, in its discretion, grant
Mr. Denson a performance-based annual bonus. The agreement is terminable at the
will of Mr. Denson or at the discretion of the Board. Under the terms of such
employment agreement, Mr. Denson is entitled to receive severance pay upon
termination of employment by the Company without Cause (as defined in such
agreement) in an amount equal to the greater of $110,000 or his annual base
salary then in effect.
EMPLOYMENT AGREEMENT OF MICHAEL E. STANKY
On July 1, 1995, the Company entered into an employment agreement with Mr.
Stanky providing 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.
PROFIT SHARING AND RETIREMENT SAVINGS PLAN
The Company offers a profit sharing and retirement savings plan (the
"Profit Sharing Plan") to all current eligible employees of the Company who have
completed one year of service. Pursuant to the Profit Sharing Plan, eligible
employees may defer from 2% up to 15% of their salaries up to a maximum level
imposed by applicable federal law ($9,500 in 1996). 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 Profit Sharing Plan, the Company contributes increasing
matching contribution amounts, based upon the number of years of service
completed by eligible participants, up to a maximum contribution of 1.5% of an
eligible employee's salary (subject to the Internal Revenue Code limitation on
compensation taken into account for such purpose). Matching contribution
percentages range from 5% for one to two years of service up to 25% for five or
more years of service, of the amount contributed to the Profit Sharing Plan by
the respective eligible employee. Eligible employees become vested with respect
to matching contributions made by the Company pursuant to a vesting schedule
based upon an eligible employee's years of service. After two years of service,
an eligible employee is 20% vested in all matching contributions made to the
Profit Sharing Plan. Such employee becomes vested in equal increments
thereafter through the sixth year of service, at which time such employee
becomes 100% vested. Eligible participants are always 100% vested in their own
contributions, including investment earnings on such amounts.
The Company made the following matching contributions during its fiscal
year ended March 28, 1997 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $1,875; Mr. Doyle $1,875; Mr.
Blatt $1,875; Mr. Denson $1,149; and Mr. Stanky $1,188.
COMPENSATION OF DIRECTORS
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Board meetings. The Company has granted Mr. Chapman, a director
of the Company until November 1996, options to purchase 28,756 shares of CLC
Common Stock at an exercise price of $11.90 per share, 5,752 of which are
currently exercisable and the remainder of which vest in four equal annual
installments commencing on the first anniversary of the date of grant. Mr.
Chapman has not exercised any options to date.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 28, 1997, Mr. Kerrigan, Chairman of the
Board and Chief Executive Officer of the Company, served on the Compensation
Committee of the board of directors of CLC from its formation in September 1996
to November 1996, together with Dr. Arthur B. Laffer and Mr. Stephen G. Cerri,
each a member of the board of directors of CLC. At the Board's direction, the
Compensation Committee was reconstituted and is presently comprised of Dr.
Laffer, Mr. Stephen G. Cerri and Mr. David A. Donnini, a member of the Board
until November 1996.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 28, 1997, the Company had 100 shares of Common Stock issued and
outstanding, 100% of which was owned by CLC. The information in the following
table sets forth, as of May 26, 1997, certain information with respect to the
beneficial ownership of CLC Common Stock by (a) each director, (b) each Named
Executive Officer of the Company who is a stockholder, (c) each person known to
the Company to own beneficially more than 5% of any class of voting stock of
CLC, and (d) all directors and Named Executive Officers as a group. No director
or executive officer of the Company owns any shares of CLC's Class B non-voting
common stock. To the best knowledge of the Company, unless otherwise indicated,
the beneficial holders listed below have sole voting and investment power
regarding the shares of CLC Common Stock owned by them.
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS /1/
---------------- -------------------- -----------
Golder, Thoma, Cressey, 4,556,114 45.5%
Rauner, Fund IV, L.P.
6100 Sears Tower
Chicago, IL 60606
MCS Capital, Inc. 566,010/2/ 5.7%
c/o Coinmach Corporation
521 East Morehead, Suite 590
Charlotte, NC 28202
OFFICERS AND DIRECTORS
Stephen R. Kerrigan 566,010/3/ 5.7%
Mitchell Blatt 416,313/4/ 4.2%
Robert M. Doyle 137,964/5/ 1.4%
Michael E. Stanky 98,284/6/ *
John E. Denson 11,503/7/ *
Bruce J. Rauner 4,556,114/8/ 45.5%
David A. Donnini 4,556,114/9/ 45.5%
James N. Chapman 30,386/10/ *
Arthur B. Laffer 15,000/11/ *
Stephen G. Cerri 15,000/12/ *
All Officers and Directors 5,846,574/13/ 58.4%
as a group (10 persons)
The Company believes that none of the executive officers and directors of
the Company have engaged in securities transactions for which they have failed
to file, or failed to file on a timely basis, Forms 4 or 5 with the Securities
and Exchange Commission.
-34-
___________________
* Percentage of shares beneficially owned does not exceed 1% of CLC Common Stock
outstanding.
/1/ Share percentage ownership is rounded to nearest tenth of 1% and reflects
the effect of dilution as a result of outstanding options to the extent
such options are, or within 60 days will become, exercisable. Shares
underlying any option which was exercisable on May 26, 1997 or becomes
exercisable within the next 60 days are deemed outstanding only for
purposes of computing the share ownership and share ownership percentage of
the holder of such option.
/2/ Includes shares underlying options to purchase an aggregate of 123,241
shares of CLC Common Stock at an exercise price of $11.90 per share, of
which 61,622 are currently exercisable and 61,619 become exercisable within
the next 60 days. Does not include shares underlying options to purchase an
aggregate of 184,857 shares of CLC Common Stock at an exercise price of
$11.90 per share, which options are not currently exercisable nor become
exercisable within the next 60 days.
/3/ The shares are owned beneficially by MCS, a corporation controlled by Mr.
Kerrigan. Includes shares underlying options held by MCS to purchase an
aggregate of 123,241 shares of CLC Common Stock at an exercise price of
$11.90 per share, of which 61,622 are currently exercisable and 61,619
become exercisable within the next 60 days. Does not include shares
underlying options held by MCS to purchase an aggregate of 184,857 shares
of CLC Common Stock at an exercise price of $11.90 per share, which options
are not currently exercisable nor become exercisable within the next 60
days.
/4/ Includes shares underlying options to purchase an aggregate of 20,000
shares of CLC Common Stock at an exercise price of $14.00 per share. Does
not include shares underlying options to purchase an aggregate of 80,000
shares of CLC Common Stock at an exercise price of $14.00 per share, which
options are not currently exercisable nor become exercisable within the
next 60 days.
/5/ Includes shares underlying options to purchase an aggregate of 28,756
shares of CLC Common Stock at an exercise price of $11.90 per share, of
which 14,378 are currently exercisable and 14,378 become exercisable within
the next 60 days. Does not include shares underlying options to purchase an
aggregate of 43,134 shares of CLC Common Stock at an exercise price of
$11.90 per share, which options are not currently exercisable nor become
exercisable within the next 60 days.
/6/ Includes shares underlying options to purchase an aggregate of 41,409
shares of CLC Common Stock at an exercise price of $11.90 per share, of
which 20,705 are currently exercisable and 20,704 become exercisable within
the next 60 days. Does not include shares underlying options to purchase an
aggregate of 62,112 shares of CLC Common Stock at an exercise price of
$11.90 per share, which options are not currently exercisable nor become
exercisable within the next 60 days. Also includes shares underlying
options to purchase an aggregate of 10,000 shares of CLC Common Stock at an
exercise price of $14.00 per share. Does not include shares underlying
options to purchase an aggregate of 40,000 shares of CLC Common Stock at an
exercise price of $14.00 per share, which options are not currently
exercisable nor become exercisable within the next 60 days.
/7/ Represents shares underlying options to purchase an aggregate of 11,503
shares of CLC Common Stock at an exercise price of $11.90 per share, of
which 5,752 shares are currently exercisable and 5,751 shares become
exercisable within the next 60 days. Does not include shares underlying
options to purchase an aggregate of 17,253 shares of CLC Common Stock at an
exercise price of $11.90 per share, which options are not currently
exercisable nor become exercisable within the next 60 days.
/8/ All such shares are held by GTCR, of which GTCR IV, L.P. ("GTCR IV"), is
the general partner. Mr. Rauner is a principal of Golder, Thoma, Cressey,
Rauner, Inc., the general partner of GTCR IV. Mr. Rauner disclaims
beneficial ownership of such shares.
/9/ All such shares are held by GTCR, of which GTCR IV is the general partner.
Mr. Donnini is a principal of Golder, Thoma, Cressey, Rauner, Inc., the
general partner of GTCR IV. Mr. Donnini disclaims beneficial ownership of
such shares.
/10/ Includes shares underlying options to purchase an aggregate of 11,503
shares of CLC Common Stock at an exercise price of $11.90 per share. Does
not include shares underlying options to purchase an aggregate of 17,253
shares of CLC Common Stock at an exercise price of $11.90 per share, which
options are not currently exercisable nor become exercisable within the
next 60 days.
/11/ Represents shares underlying options to purchase an aggregate of 15,000
shares of CLC Common Stock at an exercise price of $14.00 per share. Does
not include shares underlying options to purchase an aggregate of 45,000
shares of CLC Common Stock at an exercise price of $14.00 per share, which
options are not currently exercisable nor become exercisable within the
next 60 days.
/12/ Represents shares underlying options to purchase an aggregate of 15,000
shares of CLC Common Stock at an exercise price of $14.00 per share. Does
not include shares underlying options to purchase an aggregate of 45,000
shares of CLC Common Stock at an exercise price of $14.00 per share, which
options are not currently exercisable nor become exercisable within the
next 60 days.
-35-
/13/ In calculating the shares beneficially owned by executive officers and
directors as a group, (i) 4,556,114 shares of CLC Common Stock owned by
GTCR and included in the beneficial ownership amounts of each of Messrs.
Rauner and Donnini, and (ii) 566,010 shares of CLC Common Stock owned by
MCS and included in the beneficial ownership amount of Mr. Kerrigan, in
each case as set forth in the table above, are included only once. In
calculating the percentage of shares owned by executive officers and
directors as a group, the shares of CLC Common Stock underlying all options
which are beneficially owned by executive officers and directors and which
are currently exercisable or become exercisable within the next 60 days are
deemed outstanding.
CHANGE OF CONTROL
Pursuant to the terms of the Credit Agreement relating to the New Credit
Facility, which replaced the Company's then existing credit facility in January
1997, upon the occurrence of an Event of Default (as defined in such Credit
Agreement), the lenders under such New Credit Facility have the right to
foreclose on all of the outstanding shares of Common Stock issued in CLC's name
and pledged to such lenders by CLC pursuant to the terms and conditions of the
Credit Agreement and the Holdings Pledge Agreement (as defined in the Credit
Agreement).
-36-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT AND CONSULTING SERVICES
On July 17, 1996, the Company paid GTCR IV, L.P., the general partner of
GTCR, a $500,000 fee in connection with the termination of the Management and
Consulting Services Agreement entered into between the Company and GTCR, IV,
L.P. on July 26, 1995 (the "Management Agreement"). No other fees were paid to
GTCR, IV, L.P. pursuant to the Management Agreement during the fiscal year ended
March 28, 1997.
During the 1997 fiscal year, the Company agreed to pay Mr. Chapman, a
director of the Company until November 1996, $250,000 in 25 equal monthly
installments of $10,000 per month for general financial advisory and investment
banking services. Additionally, the Company paid Mr. Chapman a fee of $125,000
in January 1997 for services provided in arranging bank financing relating to
the Company's January 1997 acquisition of Kwik Wash Laundries, L.P.
CERTAIN LOANS TO MEMBERS OF MANAGEMENT
As of May 26, 1997, Mr. Kerrigan (directly and indirectly through MCS, an
entity controlled by Mr. Kerrigan), and Mr. Blatt owed the Company $672,620 and
$172,620, respectively, plus interest accrued thereon. During the 1997 fiscal
year, the largest aggregate amount owed to the Company by Mr. Kerrigan (directly
and indirectly through MCS) and Mr. Blatt equalled $672,620 and $214,166,
respectively, plus interest accrued thereon. The indebtedness of each of MCS
and Mr. Blatt is evidenced by promissory notes dated (i) January 31, 1995 in the
original principal amount of $140,000; (ii) July 26, 1995 in the original amount
of $52,370; and (iii) May 3, 1996 in the original amount of $21,797. Each such
note accrues interest at a rate of 8% per annum and was delivered to the Company
in connection with the purchase of Company securities by MCS and Mr. Blatt. The
promissory notes dated January 31, 1995 are payable in four equal annual
installments commencing on January 31, 1996. The promissory notes dated July
26, 1995 and May 3, 1996 are payable in eight equal annual installments
commencing on July 26, 1996 and May 3, 1997, respectively. During the 1997
fiscal year, the Company forgave the repayment of approximately $45,109 by each
of MCS and Mr. Blatt, which amounts represent the aggregate amount of the first
installment of principal and interest owed by MCS and Mr. Blatt under the notes
dated January 31, 1995 and July 26, 1995.
In connection with the Company's establishment of a corporate development
office in Charlotte, North Carolina and the relocation of Messrs. Kerrigan and
Denson to such office in September 1996 and March 1997, respectively, the
Company extended loans to each of Messrs. Kerrigan and Denson in the principal
amounts of $500,000 and $80,000, respectively. The loan to Mr. Denson (the
"Denson Loan") is an interest free demand loan that is secured by certain real
property owned by Mr. Denson. 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. 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 for a reason other than (i) a
change in control of the Company, (ii) the death or disability of Mr. Kerrigan
while employed by the Company, or (iii) cause (each, a "Termination Event"),
then all outstanding amounts due under the
-37-
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.
INTERCOMPANY LOAN
During the past fiscal year, the Company repaid the remaining balance on an
intercompany loan in an original principal amount of $2.0 million made by TCC to
CLC on July 26, 1995 as part of the financing for the Solon Acquisition.
-38-
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/1/ 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
333-00620)
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 333-00620)
4.1 Indenture, dated as of November 30, 1995, by and between Coinmach, as
Issuer, and Fleet National Bank of Connecticut (formerly, Shawmut Bank
Connecticut, National Association), as Trustee (incorporated by reference
from exhibit number 4.1 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
4.2 First Supplemental Indenture, dated as of December 11, 1995, by and between
Coinmach, as Issuer, and Fleet National Bank of Connecticut (formerly,
Shawmut Bank Connecticut, National Association), as Trustee (incorporated
by reference from exhibit number 4.2 to Coinmach's Registration Statement
on Form S-1, file number 333-00620)
4.3 First Supplemental Indenture, dated as of November 28, 1995, by and
between Solon Automated Services, Inc. ("Solon") and U.S. Trust Company
of New York, as Trustee (incorporated by reference from exhibit number 4.3
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-39-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
4.4 Registration Rights Agreement, dated as of November 30, 1995, by and
between Coinmach and Lazard Freres & Co. LLC ("Lazard"), as Initial
Purchaser (incorporated by reference from exhibit number 4.6 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
4.5 Addendum to Registration Rights Agreement, dated December 14, 1995, by
and between Coinmach and Lazard, as Initial Purchaser (incorporated by
reference from exhibit number 4.8 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
4.6 Form of Global Note (included as an exhibit to Exhibit 4.1 hereto)
(incorporated by reference from exhibit number 4.4 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
Form of Physical Note (included as an exhibit to Exhibit 4.1 hereto)
4.7 (incorporated by reference from exhibit number 4.5 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.1 Purchase Agreement, dated as of January 31, 1995, by and among The
Coinmach Corporation ("TCC"), CIC I Acquisition Corp. ("CIC"), the
stockholders of CIC and Coinmach Holding Corp. (incorporated by reference
from exhibit number 10.1 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
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 Fund
IV"), 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 January 31, 1995, by and between
TCC, GTCR Fund IV and President and Fellows of Harvard College,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.3 to the Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.4 Investor Purchase Agreement, dated as January 31, 1995, by and between
TCC, GTCR Fund IV, 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)
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-40-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.5 Stock Pledge Agreement, dated as of January 31, 1995, by and between TCC
and MCS Capital, Inc. (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 Capital, Inc. 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 Capital, Inc. and GTCR Fund IV,
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 Fund
IV, 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 Fund IV,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.12 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.12 Employment Agreement, dated as of August 4, 1995, by and between Solon
and John E. Denson (incorporated by reference from exhibit number 10.13 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-41-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.13 Employment Agreement, dated as of July 1, 1995, by and between Solon,
Michael E. Stanky and GTCR Fund IV (incorporated by reference from
exhibit number 10.14 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.14 Stock Purchase Agreement, dated as of March 7, 1995, by and among Ford
Coin Laundries, Inc., Kwik Wash Laundries, Inc., Solon and the Sellers
(incorporated by reference from exhibit number 10.15 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.15 Supply Agreement, dated July 26, 1995, by and among SAS, Solon and Speed
Queen Company (incorporated by reference from exhibit number 10.16 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.16 Dealer Manager Agreement, dated October 20, 1995, by and among TCC,
Solon, Lazard and Fieldstone Private Capital Group, L.P. (incorporated by
reference from exhibit number 10.17 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.17 Purchase Agreement, dated November 15, 1995, by and among TCC, Solon
and Lazard (incorporated by reference from exhibit number 10.18 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.18 Addendum to Purchase Agreement, dated December 11, 1995, by and
between Coinmach and Lazard (incorporated by reference from exhibit
number 10.19 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.19 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)
10.20 Credit Agreement, dated as of November 30, 1995, by and between
Coinmach, as Borrower and Heller Financial, Inc. ("Heller") (incorporated by
reference from exhibit number 10.21 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.21 First Amendment to Credit Agreement, dated as of December 9, 1995, by and
among Coinmach, Heller, SAS, and Super Laundry Equipment Corp.
("SLEC") (incorporated by reference from exhibit number 10.22 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-42-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.22 Form of Note, dated November 30, 1995, of Coinmach in favor of Heller
(included as an exhibit to Exhibit 10.26 hereto) (incorporated by reference
from exhibit number 10.23 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.23 Pledge Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number 10.24 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.24 Guaranty, dated as of January 31, 1995, by Super Laundry Management
Corp. in favor of Heller (incorporated by reference from exhibit number
10.25 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.25 Guaranty, dated as of November 30, 1995, by SLEC in favor of Heller
(incorporated by reference from exhibit number 10.26 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.26 Security Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number 10.27 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.27 Security Agreement, dated as of November 30, 1995, by and between SLEC
and Heller (incorporated by reference from exhibit number 10.28 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.28 Collateral Assignment of Leases of Coinmach to Heller, dated as of
November 30, 1995 (incorporated by reference from exhibit number 10.29 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.29 Collateral Assignment of Leases of SLEC to Heller, dated as of November
30, 1995 (incorporated by reference from exhibit number 10.30 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.30 Commitment Letter, dated November 22, 1996, from Bankers Trust Company
("Bankers Trust"), First Union Bank of North Carolina ("First Union") and
Lehman Commercial Paper, Inc. ("Lehman"), addressed to CLC (incorporated
by reference from exhibit 10.1 to Coinmach's Form 10-Q for the quarterly
period ended December 27, 1996, file number 333-00620)
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-43-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.31 Stock Purchase Agreement, dated November 25, 1996, by and among Tamara
Lynn Ford, Robert Kyle Ford, Traci Lea Ford, Tucker F. Enthoven, Richard
F. Enthoven, Richard Franklin Ford, Jr., Trustee u/d/t February 4, 1994,
KWL, Inc., Kwik-Wash Laundries, Inc., Kwik Wash Laundries, L.P. and
Coinmach (the "Stock Purchase Agreement") (incorporated by reference from
exhibit 10.2 to Coinmach's Form 10-Q for the quarterly period ended
December 27, 1996, file number 333-00620)
10.32 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 333-00620)
10.33 Registration Rights Agreement, dated as of March 14, 1997, between
Coinmach and Atlanta Washer & Dryer Leasing, Inc.
10.34 Amended and Restated Employment Agreement, dated as of June 1, 1996, by
and between Coinmach and John E. Denson
10.35 Promissory Note, dated February 11, 1997, of Stephen R. Kerrigan in favor
of Coinmach
10.36 Underwriting Agreement, dated July 17, 1996, by and among CLC and
Lehman Brothers, Inc., Dillon, Read & Co., Inc., Lazard and Fieldstone
FPCG Services, L.P. (collectively, the "Representatives")
10.37 Lock-Up Agreements, dated July 23, 1996, among CLC and the
Representatives
10.38 Promissory Note, dated January 8, 1997, of CLC 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
10.39 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
10.40 Consulting Services Agreement, dated as of January 8, 1997, by and between
Richard F. Enthoven and Coinmach
10.41 Credit Agreement dated January 8, 1997, among Coinmach, the Lending
Institutions listed therein, Bankers Trust Company ("Bankers Trust"), First
Union National Bank of North Carolina ("First Union") and Lehman
Commercial Paper, Inc. ("Lehman")
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-44-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.42 Tranche A Term Notes, each dated January 8, 1997, by Coinmach in favor of
each of Bankers Trust, First Union, Lehman, Heller, The Nippon Credit
Bank, Ltd., Credit Lyonnais New York Branch, Bank of Scotland and Bank of
Boston
10.43 Tranche B Term Notes, each dated January 8, 1997, by Coinmach in favor of
each of Bankers Trust, First Union, Lehman, Fleet National Bank, Heller,
The Nippon Credit Bank, Ltd., Bank of Scotland, Bank of Boston,
Massachusetts Mutual Life Insurance Company, Pilgrim America Prime Rate
Trust, Prime Income Trust, The Ing Capital Senior Secured High Income
Fund, L.P., and Merrill Lynch Senior Floating Rate Fund, Inc.
10.44 Revolving Notes, each dated January 8, 1997, by Coinmach in favor of each
of Bank of Boston, Bankers Trust, First Union, Lehman, Fleet National Bank,
Heller, The Nippon Credit Bank, Ltd., Credit Lyonnais New York Branch,
and Bank of Scotland
10.45 Swing Line Note, dated January 8, 1997, in the principal amount of
$5,000,000 in favor of Bankers Trust
10.46 Holdings Pledge Agreement, dated January 8, 1997, made by CLC to Bankers
Trust and Richard F. Enthoven, as Seller Agent
10.47 Borrower Pledge Agreement, dated January 8, 1997, made by Coinmach to
Bankers Trust
10.48 Security Agreement, dated January 8, 1997, between Coinmach and Bankers
Trust and the Assignment of Security Interest in United States Trademarks and
Patents
10.49 Collateral Assignment of Leases, dated January 8, 1997, by Coinmach in
favor of Bankers Trust
10.50 Collateral Assignment of Location Leases, dated January 8, 1997, by
Coinmach in favor of Bankers Trust
10.51 Amendment to Investor Purchase Agreements, dated January 8, 1997, by and
among CLC, GTCR Fund IV, 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
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-45-
EXHIBIT
NUMBER/1/ DESCRIPTION
- --------- -----------
10.52 Amendment to Investor Purchase Agreement, dated January 8, 1997, by and
among CLC, GTCR Fund IV, Heller, JNL, Harvard, MCS Capital, Inc.,
James N. Chapman, Michael E. Marrus, Mitchell Blatt and Michael Stanky
10.53 Promissory Note, dated March 24, 1997, of John E. Denson in favor of
Coinmach
10.54 Deed of Trust, Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement and Fixture Filing, made by Coinmach to Bankers Trust,
as executed on March 27, 1997 and recorded with the County Clerk of Dallas
County, Texas on April 7, 1997
16.1 Letter, dated June 29, 1995, from Arthur Andersen LLP to the Securities and
Exchange Commission regarding change in certifying accountants
(incorporated by reference from exhibit number 16.1 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
21.1 Subsidiaries of Coinmach Corporation
27.1 Financial Data Schedule
- --------------------------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
-46-
(b) Reports on Form 8-K:
Registrant filed a report on Form 8-K, dated January 8, 1997, as
amended by a Form 8-K/A and Form 8-K/A Amendment No. 2, reporting the Kwik Wash
Acquisition and New Credit Facility. Such Form 8-K, as amended, also included
the following financial statements:
1. Financial Statements.
The audited combined financial statements of Kwik Wash Laundries, Inc.
and KWL, Inc. for the years ended December 31, 1996, 1995 and 1994,
together with auditors' report thereon.
2. Pro forma financial information.
The unaudited pro forma combined financial statements of Coinmach
Laundry Corporation for the nine-month period ended December 27, 1996
and for the year ended March 29, 1996.
-47-
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 25, 1997.
COINMACH CORPORATION
/s/ STEPHEN R. KERRIGAN
By:
-----------------------------------
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 25, 1997
By: /s/ STEPHEN R. KERRIGAN
---------------------------------------
Stephen R. Kerrigan
Chairman of the Board of Directors and
Chief Executive Officer (Principal Executive Officer)
Date: June 25, 1997
By: /s/ MITCHELL BLATT
---------------------------------------
Mitchell Blatt
Director, President and Chief Operating Officer
Date: June 25, 1997
By: /s/ ROBERT M. DOYLE
---------------------------------------
Robert M. Doyle
Chief Financial Officer, Senior Vice President
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Date: June 25, 1997
By: /s/ JOHN E. DENSON
---------------------------------------
John E. Denson
Senior Vice President - Corporate Development
Date: June 25, 1997
By: /s/ MICHAEL STANKY
---------------------------------------
Michael Stanky
Senior Vice President
COINMACH CORPORATION AND SUBSIDIARIES
Index of Financial Statements
The following combined and consolidated financial statements of Coinmach
Corporation and Subsidiaries are included in Item 8 of this Form 10-K:
Reports of Independent Auditors............................................F- 2
Consolidated Balance Sheets--March 28, 1997 and March 29, 1996.............F- 5
Combined and Consolidated Statements of Operations--Year ending March 28,
1997, six month transition period ended March 29, 1996, the periods from
April 5, 1995 to September 29, 1995, and from October 1, 1994 to April 4,
1995, and the year ended September 30, 1994................................F- 7
Combined and Consolidated Statements of Stockholders Equity (Deficit)--
Year ending March 28, 1997, six month transition period ended March 29,
1996, the periods from April 5, 1995 to September 29, 1995, and from
October 1, 1994 to April 4, 1995, and the year ended September 30, 1994....F- 8
Combined and Consolidated Statements of Cash Flows--Year ending March 28,
1997, six month transition period ended March 29, 1996, the periods from
April 5, 1995 to September 29, 1995, and from October 1, 1994 to April 4,
1995, and the year ended September 30, 1994................................F- 9
Notes to Combined and Consolidated Financial Statements....................F-11
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
Report 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 28, 1997 and March 29,
1996, and the related combined and consolidated statements of operations,
stockholder's equity (deficit), and cash flows for the year ending March 28,
1997, the six-month transition period ended March 29, 1996, and the period from
April 5, 1995 to September 29, 1995 ("Successor period") and the related
consolidated statements of operations, stockholder's equity (deficit) and cash
flows for the period from October 1, 1994 to April 4, 1995 ("Predecessor
period"). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 28, 1997 and March 29, 1996, and the
combined and consolidated results of their operations and their cash flows for
years ending March 28, 1997, the six-month transition period ended March 29,
1996 and for the Successor period from April 5, 1995 to September 29, 1995 and
the consolidated results of their operations and their cash flows for the
Predecessor period from October 1, 1994 to April 4, 1995, in conformity with
generally accepted accounting principles.
F-2
As more fully described in Note 2 to the combined and consolidated financial
statements, Coinmach Laundry Corporation purchased Solon Automated Services,
Inc. ("Solon") as of April 5, 1995 in a business combination accounted for as a
purchase. Subsequent thereto, on November 30, 1995, The Coinmach Corporation, a
company under common control with Solon, was merged into Solon, who thereupon
changed its name to Coinmach Corporation, in a business combination accounted
for as though it were a pooling of interests. As a result, the combined and
consolidated financial statements for the periods subsequent to April 5, 1995
are presented on a different basis of accounting than that of the Predecessor
periods and, therefore, are not comparable.
ERNST & YOUNG LLP
Melville, NY
May 13, 1997, except for Note 7b., as
to which the date is June 2, 1997
F-3
LETTERHEAD OF ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Solon Automated Services, Inc.:
We have audited the consolidated balance sheet of Solon Automated Services, Inc.
(a Delaware corporation) and subsidiaries as of September 30, 1994 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the fiscal year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solon Automated Services, Inc.
and subsidiaries as of September 30, 1994, and the results of their operations
and their cash flows for the fiscal year then ended, in conformity with
generally accepted accounting principles.
As further discussed in Note 1 to the consolidated financial statements,
effective October 2, 1993, the Company implemented the provisions of Statement
of Financial Accounting standards No. 109, "Accounting for Income Taxes."
/s/ Arthur Andersen LLP
Philadelphia, PA.,
December 19, 1994
F-4
Coinmach Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands of dollars)
MARCH 28, MARCH 29,
1997 1996
-----------------------
ASSETS
Cash and cash equivalents $ 10,110 $ 19,723
Receivables, less allowance of $555 and
$454 6,894 5,260
Inventories 7,959 4,443
Prepaid expenses 3,170 2,641
Advance rental payments 38,472 20,320
Property and equipment:
Laundry equipment and fixtures 135,656 89,394
Land, building and improvements 14,266 10,965
Trucks and other vehicles 4,211 1,849
-----------------------
154,133 102,208
Less accumulated depreciation (42,017) (19,509)
-----------------------
Net property and equipment 112,116 82,699
Contract rights, net of accumulated
amortization of $19,815 and $8,925 180,557 59,745
Goodwill, net of accumulated
amortization of $5,574 and $2,386 95,771 44,071
Other assets 12,501 9,265
-----------------------
Total assets $467,550 $248,167
=======================
See accompanying notes.
F-5
Coinmach Corporation and Subsidiaries
Combined and Consolidated Balance Sheets
(In thousand of dollars, except par value and share data)
MARCH 28, MARCH 29,
1997 1996
-----------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Accounts payable $ 8,946 $ 5,944
Accrued commissions 10,573 7,380
Accrued interest 9,712 7,745
Other accrued expenses 8,986 7,557
Due to parent 22,432 --
Deferred income taxes 65,650 18,924
11 3/4% senior notes 196,655 196,655
Credit facility 130,000 --
12 3/4% senior notes -- 5,000
Other long-term debt 2,623 1,110
Stockholder's equity (deficit):
Common stock, par value $.01:
1,000 shares authorized, 100 shares
issued at March 28, 1997 and
March 29, 1996 -- --
Capital in excess of par value 41,391 18,104
Accumulated deficit (29,164) (18,560)
-----------------------
12,227 (456)
Notes receivable from management (254) (1,692)
-----------------------
Total stockholder's equity (deficit) 11,973 (2,148)
-----------------------
Total liabilities and stockholder's
equity (deficit) $467,550 $248,167
=======================
See accompanying notes.
F-6
Coinmach Corporation and Subsidiaries
Combined and Consolidated Statements of Operations
(In thousands of dollars, except per share data)
SIX-MONTH
TRANSITION
YEAR PERIOD APRIL 5, OCTOBER 1, YEAR
ENDED ENDED 1995 TO 1994 TO ENDED
MARCH 28, MARCH 29, SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1997 1996 1995 1995 1994
------------------------------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR
Revenues $206,852 $ 89,070 $89,719 $52,207 $104,553
Costs and expenses:
Laundry operating expenses 139,446 60,536 62,905 33,165 66,527
General and administrative 4,520 2,024 2,458 1,539 2,839
Depreciation and
amortization 46,316 18,212 18,423 10,304 21,347
Gain on sale of equipment -- -- -- -- (109)
Stock based compensation
charge 1,768 -- -- -- --
Restructuring expenses -- -- 2,200 -- --
------------------------------------------------------------------------------------------------------
192,050 80,772 85,986 45,008 90,604
------------------------------------------------------------------------------------------------------
Operating income 14,802 8,298 3,733 7,199 13,949
Interest expense, net 27,417 11,830 11,541 8,928 18,105
------------------------------------------------------------------------------------------------------
Loss before income taxes and
extraordinary items (12,615) (3,532) (7,808) (1,729) (4,156)
------------------------------------------------------------------------------------------------------
Provision (benefit) for
income taxes:
Currently payable 200 50 420 270 200
Deferred (2,507) (1,048) (2,282) (220) 2,562
------------------------------------------------------------------------------------------------------
(2,307) (998) (1,862) 50 2,762
------------------------------------------------------------------------------------------------------
Loss before extraordinary
items (10,308) (2,534) (5,946) (1,779) (6,918)
Extraordinary items, net of
income tax benefits of
$206 and $5,305 for the
year ended March 28, 1997
and for the six-month
transition period
ended March 29, 1996 (296) (8,925) -- 848 --
------------------------------------------------------------------------------------------------------
Net loss $(10,604) $(11,459) $(5,946) $(2,627) $ (6,918)
======================================================================================================
Loss per share:
Before extraordinary item $ (.12) $ (.44)
Extraordinary item (.05) --
-----------------------------------
Net loss per share $ (.17) $(.44)
===================================
See accompanying notes.
F-7
Coinmach Corporation and Subsidiaries
Combined and Consolidated Statements of Stockholder's Equity (Deficit)
(In thousands of dollars, except par value and shares)
CLASS A CAPITAL IN RECEIVABLES TOTAL
COMMON COMMON EXCESS OF ACCUMULATED FROM STOCKHOLDER'S
STOCK STOCK PAR VALUE DEFICIT MANAGEMENT EQUITY (DEFICIT)
-------------------------------------------------------------------------------------------------------
Balance, October 1, 1993 $ 124 $ 33 $14,386 $(16,179) $ -- $ (1,636)
Net loss -- -- -- (6,918) -- (6,918)
Repurchase of 270,000
shares of common stock (3) -- (267) -- -- (270)
Contribution to
retirement savings plan 1 -- 102 -- -- 103
-------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 122 33 14,221 (23,097) -- (8,721)
Net loss--Predecessor
period -- -- -- (2,627) -- (2,627)
Repurchase of 45,459
shares of common stock -- -- (68) -- -- (68)
Purchase accounting
adjustments -- -- (2,308) 25,724 -- 23,416
Recapitalization of
common stock (122) (33) 155 -- -- --
Merger of TCC -- -- 11,222 (1,155) (338) 9,729
Advance to Coinmach
Laundry Corporation -- -- -- -- (2,000) (2,000)
Net loss--Successor period -- -- -- (5,946) -- (5,946)
-------------------------------------------------------------------------------------------------------
Balance, September 29, 1995 -- -- 23,222 (7,101) (2,338) 13,783
Dividend to Coinmach
Laundry Corporation -- -- (5,118) -- -- (5,118)
Repayment of receivables
from stockholder -- -- -- -- 646 646
Net loss -- -- -- (11,459) -- (11,459)
-------------------------------------------------------------------------------------------------------
Balance, March 29, 1996 -- -- 18,104 (18,560) (1,692) (2,148)
Net loss -- -- -- (10,604) -- (10,604)
Investment by Coinmach
Laundry Corporation -- -- 23,287 -- -- 23,287
Repayment of receivables
from stockholder -- -- -- -- 1,355 1,355
Forgiveness of
stockholder's receivables -- -- -- -- 83 83
-------------------------------------------------------------------------------------------------------
Balance, March 28, 1997 $ -- $ -- $41,391 $(29,164) $ (254) $ 11,973
=======================================================================================================
See accompanying notes.
F-8
Coinmach Corporation and Subsidiaries
Combined and Consolidated Statements of Cash Flows
(In thousands of dollars)
SIX-MONTH
TRANSITION
YEAR PERIOD APRIL 5, OCTOBER 1, YEAR
ENDED ENDED 1995 TO 1994 TO ENDED
MARCH 28, MARCH 29, SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1997 1996 1995 1995 1994
-------------------------------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR
OPERATING ACTIVITIES
Net loss $ (10,604) $(11,459) $ (5,946) $(2,627) $ (6,918)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization 46,316 18,212 18,423 10,304 21,347
Deferred income taxes (2,507) (1,048) (2,000) (220) 2,649
Amortization of debt
discount and
deferred issue costs 533 414 735 440 878
Stock based compensation 1,768 -- -- -- --
Extraordinary charges
for early extinguishment of
debt, net of taxes 296 8,925 -- -- --
Increase or decrease in
operating assets and
liabilities, net of
businesses acquired:
(Increase) decrease
in other assets (2,462) 24 (717) 106 (233)
(Increase) decrease
in receivables, net (1,100) (1,489) (73) 164 78
(Increase) decrease
in inventories and
prepayments (3,008) (1,100) 930 (676) 2,074
Increase (decrease)
in accounts payable 2,144 (272) (668) 1,725 (2,173)
Increase (decrease)
in accrued interest 1,956 3,193 (25) (81) (24)
Increase (decrease)
in other accrued
expenses, net 973 (3,300) 1,980 1,081 236
-------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 34,305 12,100 12,639 10,216 17,914
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property and
equipment (29,779) (10,757) (9,550) (4,815) (11,224)
Advance rental payments to
location owners (11,809) (3,462) (3,569) (2,129) (5,555)
Additions to net assets
related to acquisitions
of businesses (155,247) -- -- -- --
Sales of property and
equipment 137 57 5 407 16
-------------------------------------------------------------------------------------------------------
Net cash used in investing
activities (196,698) (14,162) (13,114) (6,537) (16,763)
-------------------------------------------------------------------------------------------------------
F-9
Coinmach Corporation and Subsidiaries
Combined and Consolidated Statements of Cash Flows (continued)
(In thousands of dollars)
SIX-MONTH
TRANSITION
YEAR PERIOD APRIL 5, OCTOBER 1, YEAR
ENDED ENDED 1995 TO 1994 TO ENDED
MARCH 28, MARCH 29, SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1997 1996 1995 1995 1994
------------------------------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR
FINANCING ACTIVITIES
Proceeds from issuance of
11 3/4% senior notes $ -- $ 72,655 $ -- $ -- $ --
Proceeds from issuance of
term loans from
credit facility 130,000 -- -- -- --
Deferred debt issuance
costs (178) (4,794) -- -- --
Debt extinguishment costs (319) (6,909) -- -- --
Net advances from (to)
parent 29,609 646 (2,000) -- --
Dividends to Coinmach
Laundry Corporation -- (5,118) -- -- --
Repurchase of 12 3/4%
senior notes (5,000) -- -- (1,000) --
Net (repayments)
borrowings of bank and
other borrowings (325) (43,715) 1,126 -- --
Principal payments of
capitalized lease
obligations (1,007) (262) (143) -- --
Repurchases of common stock -- -- -- (68) (270)
------------------------------------------------------------------------------------------------------
Net cash provided by (used
in) financing
activities 152,780 12,503 (1,017) (1,068) (270)
------------------------------------------------------------------------------------------------------
Net (decrease) increase in
cash (9,613) 10,441 (1,492) 2,611 881
Cash and cash equivalents,
beginning of period 19,723 9,282 10,774 7,241 6,360
------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 10,110 $ 19,723 $ 9,282 $ 9,852 $ 7,241
======================================================================================================
Supplemental disclosure of
cash flow
information:
Interest paid $ 24,845 $ 8,500 $10,900 $ 8,500 $17,100
======================================================================================================
See accompanying notes.
F-10
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements
March 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The accompanying financial statements combine the consolidated accounts of
Coinmach Corporation and Subsidiaries, (formerly Solon Automated Services, Inc.
("Solon")) with the consolidated accounts of The Coinmach Corporation ("TCC")
(collectively, the "Company") for the periods under common control. The
Predecessor financial statements reflect the consolidated accounts of Solon
only. Solon was acquired on April 5, 1995 by Coinmach Laundry Corporation
("CLC") (the "Solon Acquisition"), a company controlled by Golder Thoma Cressey
Rauner, Inc. ("GTCR"). TCC was formed in January 1995 by an investor group,
comprised principally of the same investors who formed CLC, and acquired
Coinmach Industries Co., L.P. ("Industries") and Super Laundry Equipment Co.,
L.P. ("Super Laundry LP") on January 31, 1995 (the "TCC Acquisition"). Both the
Solon Acquisition and the TCC Acquisition were accounted for as purchases and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values at the respective acquisition dates.
As described in Note 2e, Solon completed a merger with TCC on November 30, 1995.
This transaction was accounted for in a manner similar to a pooling of
interests. As a result of the common investor groups control over both Solon and
TCC, the accompanying financial statements have been prepared to reflect the
accounts of Solon and TCC and their wholly-owned subsidiaries on a combined
basis since the date of common control, April 5, 1995.
References to the Successor period refer to the Company during the common
control period, while references to the Predecessor period refer to Solon for
prior periods. The Predecessor period from October 1, 1994 to April 4, 1995 is
referred to as 1995P while the Successor period from April 5, 1995 to September
29, 1995 is referred to as 1995S, the transition period for the six-months ended
March 29, 1996 is referred to as 1996T and the year ended March 28, 1997 is
referred to as 1997. As a result of the acquisition of Solon by CLC and the
subsequent merger with TCC, the combined and consolidated financial statements
for the Successor are presented on a different basis of accounting than that for
the Predecessor and therefore, are not comparable.
F-11
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company is primarily engaged in providing coin-operated laundry equipment
services to multi-family housing properties throughout the United States. The
Company owns and operates approximately 337,000 coin-operated washers and dryers
on routes in over 30,000 multi-family housing complexes in 30 states and the
District of Columbia and in 150 retail laundromats throughout Texas. The
Company's wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super
Laundry"), also is a construction and laundromat equipment distribution company.
All material intercompany accounts and transactions have been eliminated in
consolidation and combination.
FISCAL YEAR
Prior to the merger with TCC, Solon's fiscal year was the fifty-two or fifty-
three week period which ended on the Friday nearest September 30th. Effective
with the merger of Solon and TCC, the Company has changed its fiscal year end to
the last Friday in March.
RECOGNITION OF LAUNDRY REVENUES
The Company has agreements with various property owners which 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
computed to be in the machines at the end of the fiscal period.
Super Laundry's customers generally sign sales contracts pursuant to which Super
Laundry constructs and equips complete laundromat operations, including location
identification, construction, plumbing, electrical wiring and all required
permits. Revenue is recognized on the completed contract method. A contract is
considered complete when all costs have been incurred and either the
installation is operating according to specifications or has been accepted by
the customer. The duration of such contracts is normally less than six months.
Sales of laundromats were approximately $18.8 million, $7.8 million and $7.9
million for 1997, 1996T and 1995S, respectively.
F-12
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
MARCH 28, MARCH 29,
1997 1996
----------------------
Laundry equipment $6,198 $3,774
Machine repair parts 1,761 669
----------------------
$7,959 $4,443
======================
F-13
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are carried at cost and are
depreciated on a straight-line basis over the lesser of the estimated useful
lives or lease life:
Laundry equipment and fixtures 3 to 10 years
Leasehold improvements 4 to 10 years
Trucks and other vehicles 3 to 4 years
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.
Depreciation expense was $22.6 million, $9.4 million, $9.5 million, $6.2
million, and $13.0 million for 1997, 1996T, 1995S, 1995P, and fiscal year 1994,
respectively.
On April 5, 1995, TCC revised its estimate of the useful life of its laundry
equipment from 5 to 8 years. The effect of this change in estimate was to
decrease loss before extraordinary item and net loss for the Successor period by
approximately $470,000.
GOODWILL AND CONTRACT RIGHTS
Goodwill represents the excess of cost over fair value of net assets acquired.
Goodwill as of September 30, 1994 arose primarily as a result of the purchase of
Solon in 1987 by an investor group (not affiliated with the Company) and which
was amortized over 40 years for the predecessor periods. Goodwill recorded as
the result of the Solon Acquisition on April 5, 1995 (see Note 2e) is being
amortized on a straight-line basis over 20 years. Goodwill recorded in
acquisitions subsequent thereto is being amortized on a straight-line basis over
15 years.
Contract rights represent amounts expended for location contracts arising from
the acquisition of laundry machines on location. These amounts, which arose
solely from purchase price allocations, are amortized on a straight-line basis
over the period of expected benefit of approximately 13 years for the
Predecessor, and ranging from 3 to 15 years for the Successor based on
independent appraisals or present valued future cash flows at prevailing
discount rates.
F-14
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management periodically evaluates the realizability of the goodwill and contract
rights balances based upon the Company's expectations of undiscounted cash flows
and operating income. Based upon present operations and strategic plans,
management believes that no impairment of goodwill nor contract rights has
occurred.
ADVANCE RENTAL PAYMENTS
Advance rental payments to location owners are amortized on a straight-line
basis over the contract term, which generally ranges from 5 to 10 years.
INTEREST EXPENSE
Interest expense is reported net of interest income of approximately $966,000,
$277,000, $148,000, $112,000, and $75,000 for 1997, 1996T, 1995S, 1995P, and
fiscal year 1994, respectively.
RECLASSIFICATION
Certain 1996T balances have been reclassified to conform with the 1997
presentation.
LOSS PER SHARE
In the 1995P period and in fiscal year 1994, loss per share for the Predecessor
company was calculated based upon the weighted average number of common shares
and Class A common shares outstanding. Weighted average shares outstanding were
15,455,000 for 1995P, and 15,559,000 for fiscal 1994. Loss per share data is not
presented for the Successor as the Company is a wholly-owned subsidiary of CLC.
TRANSACTIONS WITH AFFILIATES
During 1995S, the Company reimbursed CLC $114,000 for certain restructuring
costs, incurred by CLC relating to the restructuring of Solon.
F-15
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective October 2, 1993, Solon implemented the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109") "Accounting for Income
Taxes." The accounting change had an immaterial effect on the consolidated
financial statements. SFAS No. 109 requires the asset and liability method of
accounting for income taxes pursuant to which 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. SFAS No. 109 requires that any
tax benefits recognized for net operating loss carryforwards and other items be
reduced by a valuation allowance where 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. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective March 30, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of SFAS No. 121 did not
have an effect on the results of operations or financial condition of the
Company.
2. BUSINESS COMBINATIONS
a. THE KWIK WASH ACQUISITION
On January 8, 1997, pursuant to the terms and conditions of a Stock Purchase
Agreement, dated as of November 25, 1996, the Company completed the
acquisition of 100% of the outstanding voting securities of each of KWL, Inc.
("KWL"), a Nevada corporation, and Kwik-Wash Laundries, Inc. ("Kwik Wash"), a
Nevada corporation, for $125 million in cash (excluding transaction expenses)
and a $15 million promissory note issued by CLC
F-16
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
(the "Kwik Wash Acquisition"). KWL and Kwik Wash are the sole partners of Kwik
Wash Laundries, L.P. (the "Kwik Wash Partnership"), a Texas limited
partnership. The Kwik Wash Partnership, based in Dallas, Texas, provides coin-
operated laundry equipment services to multi-family dwellings in Texas,
Louisiana, Arkansas and Oklahoma and operates approximately 150 retail
laundromats located throughout Texas. Simultaneously with the acquisition,
KWL, Kwik Wash and the Kwik Wash Partnership merged with and into the Company.
Concurrently with the Kwik Wash Acquisition, the Company entered into a new
senior financing arrangement providing up to $200 million (the "New Credit
Facility") (see Note 7). The New Credit Facility, proceeds of which were used
in part to fund the Kwik Wash Acquisition, replaced the Company's then
existing credit facility and will provide financing to support the Company's
acquisition strategy.
The Kwik Wash Acquisition has been accounted for as a purchase and
accordingly, assets and liabilities were recorded at fair value at the date of
acquisition and the results of operations are included subsequent to that
date. The excess cost over net tangible assets acquired was allocated to
contract rights of approximately $123.3 million, goodwill of $49.4 million and
deferred taxes payable of approximately $49.4 million.
The following table reflects unaudited pro forma combined results of
operations of the Company and Kwik Wash as if such acquisition had taken place
at the beginning of the fiscal year for each of the periods presented (in
thousands except per share data):
SIX-MONTH
TRANSITION PERIOD
YEAR ENDED ENDED
MARCH 28, MARCH 29,
1997 1996
--------------------------------
Revenues $255,605 $121,687
Loss from operation before
extraordinary items (11,148) (3,190)
Net loss (11,444) (12,115)
F-17
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as increased interest expense on
the related acquisition debt and additional amortization expense of intangible
assets, offset by the capitalization of installation and decorating costs to
conform to the accounting policy of the Company.
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of each period or of the
results of future operations of the combined companies under the ownership and
management of the Company.
b. OTHER ACQUISITIONS
During the 1997 fiscal year, the Company made acquisitions of certain small
route businesses or assets of businesses, with purchase prices aggregating
approximately $26.3 million, of which the Company paid approximately $25.2
million in cash and $1.2 million in promissory notes issued by CLC.
c. THE SOLON ACQUISITION
Solon entered into a Stock Purchase Agreement, dated as of March 7, 1995, with
Ford Coin Laundries, Inc. ("Ford"), and certain other parties named therein,
whereby Ford purchased all of Solon's outstanding Common Stock (the "Common
Stock") and substantially all of Solon's Class A Common Stock (the "Class A
Common Stock") (collectively, the "Shares"). The purchase price for the Shares
was $11.5 million. The foregoing transaction closed on April 5, 1995. The
source of funds used by Ford for the Shares was the cash proceeds from the
sales by Ford to CLC of (i) the Ford's non-voting Class A common stock (the
"Ford Non-Voting Common Stock") pursuant to a Stock Purchase Agreement, dated
April 4, 1995, and (ii) an option to purchase Ford's voting Common Stock (the
"Ford Voting Common Stock") pursuant to a Letter Agreement dated April 4,
1995. As of April 5, 1995, Ford beneficially owned, and had the sole power to
dispose of, the Shares. The Shares beneficially owned by Ford represented 100%
of the outstanding Common Stock and approximately 97% of the outstanding Class
A Common Stock.
F-18
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
Pursuant to the Stock Purchase Agreement with Ford, CLC purchased from Ford
all of the outstanding shares of Ford Non-Voting Common Stock. The purchase
price for the Ford Non-Voting Common Stock was $11.4 million. The sources of
the funds used by CLC for the Ford Non-Voting Common Stock were certain
shareholders of TCC, including GTCR. As of April 5, 1995, CLC beneficially
owned, and had the sole power to dispose of, 1,000 shares of Ford Non-Voting
Common Stock.
Pursuant to the Letter Agreement dated April 4, 1995, Ford granted to CLC,
among other things, an option (the "Option") to purchase, subject to the terms
and conditions contained therein, all of the Ford Voting Common Stock for an
aggregate purchase price of $100,000. On April 28, 1995, CLC exercised the
Option. The sources of funds used by CLC to exercise the Option were
substantially the same sources used to purchase the Ford Non-Voting Common
Stock. As of April 28, 1995, CLC beneficially owned, and had the sole power to
vote and dispose of, ten shares of Ford Voting Common Stock.
The then current shareholders of TCC and their respective affiliates were
entitled to participate in the equity of CLC (formerly SAS Acquisitions Inc.,
and the parent of Solon) on a pro rata basis, generally in accordance with
their respective equity interests in TCC.
Solon incurred costs aggregating $848,000 in connection with the foregoing
transactions (collectively, the "Change of Control"), including a total of
$387,000 in lump sum payments made to fourteen management employees pursuant
to certain contractual arrangements relating to the Change of Control. The
total costs have been reflected as an extraordinary item in the accompanying
financial statements.
F-19
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
The Stock Purchase Agreement was accounted for as a purchase and, according to
a practice known as "push-down" accounting, as of April 5, 1995, Solon
adjusted its consolidated assets and liabilities to their estimated fair
values, based on independent appraisals, evaluations, estimations and other
studies. Reflected below is a summary of these adjustments (in thousands):
Increase in property and equipment $ 9,065
Increase in contract rights 34,063
Increase in goodwill 1,268
Increase in deferred income taxes (19,465)
Other (1,515)
----------
Increase in shareholders' equity $ 23,416
==========
d. THE TCC ACQUISITION
TCC was incorporated in January 1995 and was capitalized primarily through an
equity investment by an investor group led by the majority shareholder, GTCR,
and senior management and bank financing.
TCC was a holding company formed to acquire partnership interests in
Industries and Super Laundry LP. On January 31, 1995, TCC acquired the
partnership interests in Industries and Super Laundry L.P. from CIC I
Acquisition Corp. ("CIC I"). The transaction resulted in TCC owning 100% of
all the partnership interests in Industries and Super Laundry L.P. The
aggregate purchase price for these interests was $8.57 million, paid in cash.
The acquisition was accounted for using the purchase method of accounting. The
fair value of assets acquired (based on an independent appraisal for certain
assets) less liabilities assumed exceeded the purchase price by approximately
$7.7 million. The excess was allocated to property, equipment and intangible
assets ratably based on their respective fair values.
F-20
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
e. THE MERGER WITH TCC
On November 30, 1995, Solon completed a merger ("Merger") with TCC through an
exchange of stock pursuant to which TCC merged with and into Solon. Shares of
common stock of CLC were issued in exchange for all of the issued and
outstanding shares of common stock of TCC. CLC then contributed its stock of
TCC to Solon. Solon became the surviving corporation after the merger,
whereupon it changed its name to Coinmach Corporation. Details of the results
of operations of TCC and Solon for the period prior to the merger are as
follows (in thousands):
SEPTEMBER
30, 1995 TO APRIL 5, 1995
NOVEMBER TO SEPTEMBER
29, 1995 29, 1995
----------------------------------------
REVENUES
Solon $ 17,909 $ 51,256
TCC 13,018 38,463
----------------------------------------
Combined $ 30,927 $ 89,719
========================================
NET (LOSS) INCOME
Solon $ (525) $ (5,496)
TCC 49 (450)
----------------------------------------
Combined $ (476) $ (5,946)
========================================
The combined financial results presented above include an adjustment to
decrease TCC's net loss by approximately $185,000 in 1995 and $70,000 for the
period from September 30, 1995 to November 29, 1995, to conform its
accounting policy for the capitalization of machine installation costs to
that of Solon. Intercompany transactions between the two companies for the
period presented were not material.
F-21
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
3. TRANSITION PERIOD COMPARATIVE FINANCIAL INFORMATION
Presented below is comparative financial information for the six-month
transition period ended March 29, 1996 compared to the six-month transition
period ended March 31, 1995:
SIX MONTH PERIOD ENDED
MARCH 29, MARCH 31,
1996 1995
-----------------------------
(Unaudited)
Revenues $ 89,070 $87,996
Laundry operating expenses 60,536 61,418
-----------------------------
28,534 26,578
-----------------------------
Income taxes (benefit) expense (998) 54
-----------------------------
Loss before extraordinary item (2,534) (5,406)
Extraordinary item, net of tax (8,925) (848)
-----------------------------
Net loss $(11,459) $(6,254)
=============================
4. RECEIVABLES
Receivables consist of the following
(in thousands):
MARCH 28, MARCH 29,
1997 1996
-----------------------------
Trade receivables $ 5,551 $ 3,113
Notes receivable 1,225 1,811
Finance lease receivables 380 625
Other 293 165
-----------------------------
7,449 5,714
Allowance for doubtful accounts 555 454
-----------------------------
$ 6,894 $ 5,260
=============================
F-22
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
4. RECEIVABLES (CONTINUED)
Notes receivable, which arise from the sale of laundromats, bear interest at a
weighted average rate of approximately 10% per annum and mature through 1998.
The notes are collateralized by the underlying laundry equipment. The Company
periodically sells notes receivable arising from the sale of laundromats to
third party finance companies. Included in other receivables are finance
reserves, which arise when the Company sells notes and a portion of the proceeds
are retained by the finance company. As the notes are collected, the finance
companies remit a portion of the collections to the Company. Many of the notes
receivable are sold with recourse to the Company (see Note 14). Control of the
notes sold with recourse is surrendered by the Company on the date of transfer.
The Company generally sells its receivables with recourse at cost; recognizing
no gain or loss.
5. SALE OF EQUIPMENT
Effective September 30, 1994, Solon sold approximately 600 machines for a total
of $407,000 resulting in a pretax gain of $109,000 and a related tax of $84,000.
Prior to the sale, these machines contributed revenues of $343,000 and operating
income of $78,000 for fiscal year 1994.
6. RESTRUCTURING COSTS
Restructuring charges for 1995S consist of costs aggregating approximately $2.2
million, which included approximately $1.3 million of severance payments for 55
of Solon's management, administrative and regional personnel, approximately
$300,000 of costs to relocate Solon's financial and administrative functions to
Roslyn, New York, approximately $100,000 of costs to integrate certain financial
and operating systems, and approximately $500,000 of costs related to the
consolidation of certain of Solon's regional offices. Of the total restructuring
costs of $2.2 million, approximately $300,000 was paid during the period ended
September 29, 1995, approximately $1.3 million was paid during the six months
ended March 29, 1996, and the remaining portion of approximately $600,000 was
paid during the fiscal year ended March 28, 1997. The 55 employee terminations
include 5 management employees, 17 corporate staff financial and administrative
employees and 33 regional laundry operational employees. Notifications to
employees were made on various dates through September 1995.
F-23
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
7. DEBT
Debt consists of the following (in
thousands):
MARCH 28, MARCH 29,
1997 1996
-----------------------
TRANSITION
11-3/4% Senior Notes due 2005 $196,655 $196,655
12-3/4% Senior Notes due 2001 -- 5,000
Credit facility 130,000 --
Obligations under capital leases 1,711 686
Other long-term debt with varying terms
and maturities 912 424
-----------------------
$329,278 $202,765
=======================
a. SENIOR NOTES
On November 30, 1995, the Company completed an exchange offer with
substantially all the holders of certain 12 3/4% Senior Notes due 2001 (the
"Senior Notes") and certain 13 3/4% Senior Subordinated Debentures due 2002
(the "Subordinated Debentures"). Through December 14, 1995, the Company issued
a total of $196.7 million of 11 3/4% Senior Notes due 2005 (the "Notes") which
enabled it to complete this exchange offer, consummate the merger with TCC,
retire its remaining debt, and provide additional working capital. The Company
incurred costs of approximately $4.0 million, net of income taxes, related to
a 5.5% premium paid to retire its Senior Notes and Subordinated Debentures,
wrote-off the unamortized balance of the related original issue discount and
deferred finance costs of approximately $1.3 million and $1.8 million, net of
income taxes, respectively, and also incurred costs related to the retirement
of a revolving credit facility of TCC of approximately $1.8 million, net of
income taxes. The aggregate of the foregoing items totaling $8.9 million, net
of income taxes, is shown as an extraordinary item in 1996T.
Interest on the Notes is payable semi-annually on May 15 and November 15. The
Notes are redeemable at the option of the Company at any time after November
15, 2000 at a price equal to 105 7/8% declining to par if redeemed after
November 15, 2002. The Notes contain certain financial covenants and were
exchanged for identical notes in a registered exchange offer in April 1996.
Additionally, the Notes restrict the payment of cash dividends and certain
other distributions from the Company to CLC.
F-24
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
7. DEBT (CONTINUED)
In February 1997, the Company redeemed all of its outstanding Senior Notes at
a redemption price of 106.375% of the principal amount thereof, together with
accrued interest from January 15, 1997 to February 18, 1997, in an aggregate
amount of approximately $5.4 million. As part of the premium paid to redeem
the Senior Notes, together with the writeoff of all unamortized financing
costs associated with these Senior Notes, the Company recognized an
extraordinary charge of $502,000 (net of a tax benefit of $206,000).
b. CREDIT FACILITY
On November 30, 1995, the Company entered into a revolving credit facility,
("Credit Facility"), which provided up to a maximum of $35 million and which
replaced certain credit facilities of both Solon and TCC. Availability under
the Credit Facility was limited by an amount equal to one semi-annual interest
payment on the Notes. Interest on the borrowings was payable monthly at a rate
per annum no greater than the sum of LIBOR plus 2.50%. The Company was
obligated to pay an unused line fee in an amount equal to 0.5% of the unused
availability payable monthly in arrears. Borrowings under the Credit Facility
were secured by real and personal property of the Company and also required
the Company, among other things, to maintain certain financial ratios and
restrict additional investments and indebtedness.
On January 8, 1997, the Company entered into a senior financing arrangement
under the New Credit Facility, with Bankers Trust Company, First Union
National Bank of North Carolina, Lehman Commercial Paper, Inc. and other
certain lending institutions named therein (collectively, the "Banks"),
replacing the Company's then existing credit facility. The New Credit
Facility, as amended effective June 2, 1997 and prior to giving effect to
payment of principal installments, consists of a $70 million revolving credit
facility and a $190 million term loan facility, which is comprised of a
Tranche A term loan in the amount of $30 million and a Tranche B term loan in
the amount of $160 million. The Tranche B term loan was increased by $60
million effective June 2, 1997. The New Credit Facility also provides for up
to $10 million of letter of credit financing and short term borrowings under a
swing line facility of up to $5 million.
F-25
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
7. DEBT (CONTINUED)
Interest on the Company's borrowings under the New Credit Facility is payable
quarterly in arrears with respect to Base Rate Loans and the last day of each
applicable interest period with respect to Eurodollar Loans and at a rate per
annum no greater than the sum of the Applicable Base Rate Margin plus the Base
Rate or the sum of the Applicable Eurodollar Margin plus the Eurodollar Rate
(in each case, as defined in the New Credit Facility).
Indebtedness under the New Credit Facility is secured by all of the Company's
real and personal property. CLC has guaranteed the indebtedness under the New
Credit Facility and pledged to Bankers Trust Company, as Collateral Agent,
its interests in all of the issued and outstanding shares of capital stock of
the Company. In addition to certain terms and provisions, events of default,
as defined, and customary restrictive covenants and agreements, the New Credit
Facility contains certain covenants including, but not limited to, a maximum
leverage ratio, a minimum consolidated interest coverage ratio, and
limitations on indebtedness, capital expenditures, advances, investments and
loans, mergers and acquisitions, dividends, stock issuances and transactions
with affiliates.
Debt outstanding under the New Credit Facility as of March 28, 1997, consisted
of the following (in thousands):
Term loan A, quarterly payments of $750
commencing March 31, 1997, and
increasing to $1,000 March 31, 1998,
$1,250 March 31, 1999, and $2,000
March 31, 2002. (Interest rate of
7.6875% at March 28, 1997) $ 30,000
Term loan B, semi-annual payments of
$500 commencing June 30, 1997 with the
final three payments of $31,333 on
June 30, 2003, December 31, 2003 and
June 30, 2004. (Interest rate of 8.125%
at March 28, 1997) 100,000
Revolving line of credit --
-----------
$130,000
===========
F-26
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
8. RETIREMENT SAVINGS PLAN
Coinmach maintains several defined contribution plans (including the "Coinmach
Plan," "Solon Plan" and "Kwik Wash Plan," collectively, the "Plans") meeting the
guidelines of Section 401(k) of the Internal Revenue Code. All of the Plans
require employees meeting certain age, employment status and minimum entry
requirements as allowed by law.
Contributions to the plans for 1997, 1996T, 1995S and 1995P amounted to
approximately $140,000, $43,000, $43,000, and $0, respectively. Contributions to
the Solon Plan during fiscal 1994, which under the terms of the Solon Plan is
matched at a percentage determined annually by the Solon Board of Directors,
amounted to $103,000. Solon issued $103,000 of its common stock to satisfy its
accrued obligation to the Plan.
The Company does not provide for any other postretirement benefits.
9. STOCK OPTION PLAN
Solon had adopted a stock option plan (the "Option Plan") in September 1987. The
Option Plan authorized the granting of incentive stock options, nonqualified
options, or a combination of the foregoing, to certain key employees and
directors.
Under the terms of the Option Plan, 1,250,000 common shares were reserved for
issuance upon exercise of options. Shares for options that had expired or had
been surrendered or canceled without having been exercised may again have been
optioned under the Option Plan.
Each option granted was exercisable into one common share of Solon. In general,
50% of stock options granted became exercisable five years after the date of
grant, with 12 1/2% of the options becoming exercisable in each of the
subsequent four years.
As of September 29, 1995 and September 30, 1994, there was a total of 212,000
and 970,000, stock options outstanding, respectively, exercisable at prices
between $.98 and $1.23 per common share. No options had been exercised since
Solon adopted the Option Plan. As a result of the merger with TCC, the Option
Plan was canceled; participants in the Option Plan received in aggregate
consideration of approximately $34,000.
F-27
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
10. INCOME TAXES
The components of the Company's net deferred tax liabilities were as follows (in
thousands):
MARCH 28, 1997 MARCH 29, 1996
---------------------------------
Deferred tax liabilities:
Accelerated tax depreciation and
contract rights $73,809 $26,537
Other, net 1,516 1,449
---------------------------------
75,325 27,986
---------------------------------
Deferred tax assets:
Net operating loss carryforwards 9,544 8,549
Stock compensation expense 476 --
Other 115 973
Valuation allowance for deferred tax
assets (460) (460)
---------------------------------
9,675 9,062
---------------------------------
Net deferred tax liabilities $65,650 $18,924
=================================
Deferred taxes arise primarily from timing differences resulting from using
accelerated depreciation for tax purposes and straight-line depreciation for
financial reporting purposes and contract rights acquired which are not
deductible for tax purposes.
As of April 5, 1995, the deferred tax asset and related valuation allowance
relating to Solon were netted and reduced to $2.6 million to reflect the net
operating loss available pursuant to limitations imposed under provisions of the
Internal Revenue Code regarding changes in ownership. In addition, as of April
5, 1995, TCC had recorded a deferred tax asset of $460,000 with a valuation
allowance of the same amount. The deferred tax asset recorded subsequently do
not reflect a valuation allowance because the loss can be utilized against the
deferred tax liabilities in the carryforward period. The net operating loss
carryforwards, which expire between fiscal years 2001 through 2008, consist of
approximately $7 million (after the limitation) relating to the Predecessor
company and approximately $16.3 million relating to the Company.
During the fourth quarter of fiscal 1994, Solon evaluated the realizability of
previously recorded deferred tax assets and concluded that due to certain
transactions which have
F-28
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
occurred subsequent to October 1, 1993, it was more likely than not that such
assets would not be fully realizable. Accordingly, Solon established a $3.7
million valuation allowance as of September 30, 1994. The charge for this
valuation allowance is included in the deferred tax provision in the
accompanying Combined and Consolidated Statement of Operations.
The (benefit) provision for income taxes consists of (in thousands):
SIX-MONTH
TRANSITION
YEAR PERIOD APRIL 5, OCTOBER 1, YEAR
ENDED ENDED 1995 TO 1994 TO ENDED
MARCH 28, MARCH 29, SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1997 1996 1995 1995 1994
--------------------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR
Federal $(2,039) $(5,215) $(1,760) $ -- $2,517
State (474) (1,088) (102) 50 245
--------------------------------------------------------------------------------------------
$(2,513) $(6,303) $(1,862) $ 50 $2,762
============================================================================================
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):
SIX-MONTH OCTOBER 1, YEAR
YEAR TRANSITION PERIOD APRIL 5, 1994 TO ENDED
ENDED ENDED 1995 TO APRIL 4, SEPTEMBER 30,
MARCH 28, 1997 MARCH 29, 1996 SEPTEMBER 29, 1995 1995 1994
---------------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR
Expected tax benefit $(4,563) $(1,201) $(2,655) $(588) $(1,413)
State tax benefit, net of federal taxes (308) (170) (320) (69) (55)
Permanent book/tax differences:
Goodwill 1,100 373 1,000 394 530
Stock compensation expense 311 -- -- -- --
Other 947 -- 113 -- --
Valuation allowance -- -- -- 313 3,700
---------------------------------------------------------------------------------------
Tax (benefit)/provision $(2,513) $ (998) $(1,862) $ 50 $ 2,762
=======================================================================================
F-29
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The Company made cash payments for income taxes of approximately $204,000,
$36,000, $194,000, and $29,000 for 1997 1996T, 1995S and fiscal year 1994,
respectively. There were no income tax payments made in 1995P.
11. COMMON STOCK
Solon and its stockholders had entered into a Stockholders' Agreement dated as
of September 28, 1987. Pursuant to this Agreement, Solon was required to
purchase shares of its common stock from selling management stockholders or
their estates in the event of death, disability, termination of employment, and
certain other circumstances. Pursuant to the terms of the Stockholders'
Agreement, such purchases were made based on the higher of the stockholders'
cost or by an earnings related formula defined in the Agreement. During fiscal
1994, Solon acquired 270,000 shares, pursuant to this Agreement at a total cost
of $270,000, from management stockholders. Such shares have been retired and
canceled. The Stockholders' Agreement was terminated effective July 12, 1994.
On November 30, 1995, the Company effected a recapitalization, whereby it
reduced its authorized $.01 par value common stock to 1,000 shares and issued
100 of such shares to CLC. All references in the Successor periods reflect this
recapitalization.
As of September 29, 1995, receivables from stockholders reflect advances to CLC
of $2,000,000 and notes receivable from management stockholders of CLC of
$338,000. During the year ended March 28, 1997 and the six-month transition
period ending March 29, 1996, approximately $1.4 million and $.6 million,
respectively, was repaid by CLC. Such amounts have been reflected as reductions
of stockholder's equity (deficit) in the accompanying Successor periods balance
sheets.
F-30
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
12. INITIAL PUBLIC OFFERING OF COINMACH LAUNDRY CORP.
During July and August 1996, CLC completed its initial public offering (the
"Offering") (including an over-allotment option) of 4,183,642 shares of its
Class A common stock, par value $.01 per share (the "CLC Common Stock") at an
initial public offering price of $14.00 per share.
Proceeds from the Offering and over allotment option were approximately $54.5
million, after underwriting discounts and commissions and before expenses.
Proceeds from the Offering were approximately $35.3 million, before expenses.
Part of the proceeds from the Offering were invested in the Company.
13. RELATED PARTY TRANSACTIONS
Prior to the Offering, CLC issued, in privately negotiated transactions, 79,029
shares of its Class B common stock to certain members of management of the
Company. The Company recorded a stock based compensation charge in an amount of
approximately $887,000 attributable to the issuance of such stock in 1997. In
addition, approximately $83,000 of outstanding receivables relating to loans to
management in connection with prior purchases of common stock of CLC were
forgiven and have been accounted for as a stock-based compensation charge in
1997.
During July and September 1996, in connection with the Offering, CLC granted
certain nonqualified options (the "Options") to certain members of management
(collectively, the "Option Holders") to purchase up to 739,437 shares of CLC
Common Stock at 85% of the initial offering price of the CLC Common Stock. The
Options vest in equal annual installments (20% vest on the date of grant and the
remainder over a four year period) commencing on July 23, 1996, the effective
date of the Offering. With respect to Options granted to employees of the
Company, the Company will record the difference between the exercise price and
the initial offering price of CLC Common Stock as a stock-based compensation
charge over the applicable vesting period.
F-31
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
For the year ended March 28, 1997, the Company has recorded a stock-based
compensation charge of approximately $798,000 relating to the Options.
To finance certain acquisitions and provide working capital, CLC advanced to the
Company approximately $23.8 million net, during 1997. Such advances are
noninterest bearing and have no repayment terms.
14. COMMITMENTS AND CONTINGENCIES
Rental expense for all operating leases, which principally cover office
facilities, laundromats and vehicles, was approximately $2,307, $1,235, $1,139,
$807, and $1,577 for 1997, 1996T, 1995S, 1995P, and fiscal year 1994,
respectively (in thousands).
Future minimum rental commitments under all noncancelable operating leases as of
March 28, 1997 are as follows (in thousands):
1998 $ 4,140
1999 3,668
2000 3,056
2001 2,287
2002 1,218
2003 and future periods 1,096
----------
$15,465
==========
The Company is contingently liable on receivables sold with recourse to finance
companies. The total amount of such receivables outstanding as of March 28, 1997
is approximately $1.6 million.
The Company is party to various legal proceedings incidental to its business.
Although the ultimate disposition of these proceedings is not presently
determinable, management does not believe that adverse determinations in any or
all such proceedings would have a material adverse effect upon the financial
condition or results of operations of the Company.
F-32
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Under the provision of SFAS No. 107, "Disclosures about 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 equivalents, receivables, the New Credit Facility,
and other long-term debt approximates their fair value at March 28, 1997. The
carrying amount and related estimated fair value for the Company's Senior Notes
at March 28, 1997 (the carrying amount approximated the estimated fair market at
March 29, 1996) are as follows (in thousands):
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-----------------------------
11 3/4% Senior Notes $196,655 $216,320
The fair value of the Senior Notes has been determined through information
obtained from quoted market prices.
16. OTHER ASSETS
In connection with the Company's establishment of a corporate development office
in Charlotte, North Carolina and the relocation of an executive officer of the
Company to such office in September 1996, the Company extended a loan to such
officer in the principal amount of $500,000 payable in five equal annual
installments commencing in July 1997, with interest accruing at a rate of 7.5%
per annum. The amount of such a loan is included in other assets as of March 28,
1997.
F-33
Coinmach Corporation and Subsidiaries
Notes to Combined and Consolidated Financial Statements (continued)
17. SUBSEQUENT EVENTS
Through May 1997, the Company completed certain acquisitions of businesses or
assets of businesses, with purchase prices aggregating $46.0 million, utilizing
funds available under the New Credit Facility.
F-34