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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-7694
Coinmach Corporation
(Exact name of registrant as specified in its charter)
Delaware 53-0188589
(State of incorporation) (I.R.S. Employer Identification No.)
55 Lumber Road, Roslyn, New York 11576
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 484-2300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 12, 2001, the registrant had outstanding 100 shares of
common stock, par value $.01 per share (the "Common Stock").
No market value can be determined for the Common Stock. See Item 5 of
this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
Unless otherwise expressly indicated herein, the descriptions of the
Company contained herein are as of March 31, 2001.
Description of the Business
General
Coinmach Corporation, a Delaware corporation (the "Company" or the
"Registrant"), is the leading supplier of outsourced laundry equipment services
for multi-family housing properties in the United States. The Company's core
business involves leasing laundry rooms from building owners and property
management companies, installing and servicing the laundry equipment and
collecting revenues generated from laundry machines. The Company also leases
laundry machines and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. At March 31, 2001, the Company owned and operated approximately
820,000 washers and dryers (sometimes hereinafter referred to as "laundry
machines" or "machines") in approximately 80,000 locations on routes located
throughout the United States and in 181 retail laundromats located throughout
Texas and Arizona. The Company, through its wholly-owned subsidiary, Super
Laundry Equipment Corp. ("Super Laundry"), is a laundromat equipment
distribution company. The Company is a wholly-owned subsidiary of Coinmach
Laundry Corporation, a Delaware corporation ("Coinmach Laundry"). Unless
otherwise specified herein, references to the Company shall mean Coinmach
Corporation and its subsidiaries.
Overview
The outsourced laundry equipment services industry provides washer and
dryer services to individuals living in multi-family housing properties. The
Company's existing customer base for its core business is comprised of
landlords, property management companies, and owners of rental apartment
buildings, condominiums and cooperatives, university and institutional housing
and other multi-family housing properties. The Company typically sets pricing
for the use of laundry machines on location, and the owner or property manager
maintains the premises and provides utilities such as gas, electricity and
water.
As a result of its strategy to acquire route operators that contribute
to the Company's core operations, the Company has selectively acquired certain
related businesses which expand and diversify the types of services provided by
the Company. The Company operates 181 retail laundromats throughout Texas and
Arizona and provides laundromat services at all such locations. The Company also
leases laundry equipment and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. The Company believes that these non-core businesses, although not
material to the Company's operations, provide a platform for expansion and
diversification of the Company's services. See "Business - Description of
Business - Complementary Operations."
The Company maintains its headquarters in Roslyn, New York, a corporate
office in Charlotte, North Carolina and regional offices throughout the United
States through which it conducts operating activities, including sales, service
and collections.
Business Strategy
Commencing with Golder, Thoma, Cressey, Rauner Fund IV L.P.'s ("GTCR
Fund IV") acquisition of an interest in the Company in January 1995, an integral
component of the Company's business strategy had been growth through a
combination of internal growth and selective acquisitions designed to increase
the Company's machine base and to achieve economies of scale, increase its
operating efficiencies and improve its financial
2
performance. From January 1995 to June 1998, the Company pursued a strategy of
rapid growth through acquisitions of local route operators, regional route
operators and multi-regional route operators. The Company continued to expand
its geographic presence to gain additional regional and multi-regional account
opportunities with large multi-family housing property managers and owners. As a
result, the Company has become the largest provider of outsourced laundry
equipment services in the United States. At the present time, however, the
number of significant acquisition opportunities is limited due in part to the
Company's successful execution of its acquisition strategy over the past several
years. Against this background of limited opportunities for significant
acquisitions, and in an effort to preserve capital and reduce its level of
indebtedness, the Company has determined to slow its rate of growth by
acquisitions; however, the Company may pursue opportunities to acquire
additional route businesses within the fragmented outsourced laundry equipment
services industry. The Company believes that there are numerous private,
family-owned businesses that often lack the financial resources to provide
advance location payments, install new equipment, make laundry room improvements
or otherwise compete effectively with larger independent operators such as the
Company to secure new or existing contracts. Consequently, such independent
operators, especially those which are undergoing generational ownership changes,
continue to represent potential acquisition opportunities for the Company. The
Company evaluates potential acquisitions based on the size of the business (in
terms of revenues, cash flow and machine base), the geographic concentration of
the business, market penetration, service history, customer relations, existing
contract terms and potential operating efficiencies and cost savings. There can
be no assurance, however, that the Company will be able to take advantage of
these opportunities on commercially reasonable terms, if at all.
The Company's business strategy also includes the continued development
of its management information systems (the "Integrated Computer Systems"), which
management believes are the most advanced in the industry. The Integrated
Computer Systems provide real-time operational and competitive data which, in
conjunction with the Company's multi-regional service capabilities, enhance the
Company's operating efficiencies throughout its operating regions and enable the
Company to deliver superior customer service. The Integrated Computer Systems
also provide the Company with the flexibility to integrate acquisitions on a
timely basis, including key functions such as sales, service, collections and
security. Finally, as the industry leader, the Company works closely with its
equipment vendors to assess ongoing technological changes and implements those
which the Company believes are beneficial to its customers and to the Company's
operating efficiencies and financial performance.
Growth Strategy
The Company's growth strategy is to increase its cash flow from
operations and profitability through a combination of internal expansion and
acquisitions. For information about the Company's growth through acquisitions,
see "Business - Business Strategy" above.
Internal Expansion
Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers in existing regions and increasing the
number of locations with existing customers; (ii) converting owner-operated
facilities to Company managed facilities; (iii) improving the net contribution
per machine through operating efficiencies and selective price increases; and
(iv) pursuing additional growth opportunities presented by its leading market
position and access to approximately six million individual housing units.
New Customers and Locations. The Company's sales and marketing
efforts focus on adding new customers and increasing the number of
locations from existing customers within its existing operating
regions. The Company's primary means of internal expansion is by
marketing the Company's products and services to building managers and
property owners whose leases with other laundry equipment services
providers are near expiration. The Company's Integrated Computer
Systems track information on the lease expirations of its competitors.
The Company believes that its leading market position and expanding
geographic presence, primarily achieved through acquisitions, enhance
its ability to gain new customers and additional locations from its
existing customers.
3
Conversions. Management believes that there are approximately one
million machines installed in locations which continue to be managed by
owner-operators. Building owners or managers can forgo significant cash
outlays and servicing costs by contracting with the Company to
purchase, service and maintain laundry equipment. Accordingly, the
Company pursues building owners and managers to outsource their laundry
facilities. The Company offers a full range of services from the
design, construction and installation of new laundry facilities to the
refurbishment of existing facilities. Management believes these
services provide a competitive advantage in securing new customers.
Operating Efficiencies and Price Increases. The Company focuses on
improving its net contribution per machine through achieving operating
efficiencies and selective price increases. Due to local competition
and other factors beyond the Company's control, however, there can be
no assurance that such efficiencies or price increases will occur.
Other Growth Opportunities. While management intends to continue
its focus on increasing its installed machine base, management believes
that its leading market position and its access to over six million
housing units provide the Company with additional growth and
diversification opportunities. These opportunities include laundry
equipment rental as well as other route-based facilities management
services. The Company regularly explores strategic alliances with
vendors of products complementary to its customer base. There can be no
assurance, however, that the Company will be able to take advantage of
these opportunities on commercially reasonable terms, if at all.
Industry
The outsourced laundry equipment services industry is characterized by
stable cash flows generated by long-term, renewable lease contracts with
multi-family housing property owners and management companies. The industry
remains highly fragmented, with many small, private and family-owned route
businesses operating throughout all major metropolitan areas. According to
information provided by the Multi-housing Laundry Association, the industry
consists of over 280 independent operators. Based upon industry estimates,
management believes there are approximately 3.5 million installed machines in
multi-family properties throughout the United States, approximately 2.5 million
of which have been outsourced to independent operators such as the Company and
approximately one million of which continue to be operated by the owners of such
locations.
The industry is highly capital intensive with the most significant
capital costs incurred upon procurement of new leases and the renewal of
existing leases. Initial costs may include replacing or repairing existing
washers and dryers, refurbishing laundry rooms and making advance location
payments to secure long-term, renewable leases. After the initial expenditures,
ongoing working capital requirements, which consist mainly of providing service
and revenue collection, are minimal, since machines typically operate throughout
the term of the contract under which they are installed, and variable costs are
paid out of revenues collected from the machines.
Historically, the industry has been characterized by stable demand and
has been resistant to changing market conditions and general economic cycles.
Management believes that the industry's consistent and predictable revenue and
cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
Description of Principal Operations
The principal aspects of the Company's operations include: (i) sales
and marketing; (ii) location leases; (iii) service; (iv) information management;
(v) remanufacturing and (vi) revenue collection and security.
Sales and Marketing
The Company markets its products and services through a sales staff
with an average industry experience of over ten years. The principal
responsibility of the sales staff is to solicit customers and negotiate lease
arrangements with building owners and managers. Sales personnel are paid
commissions that comprise 50% or
4
more of their annual compensation. Selling commissions are based on a percentage
of a location's annualized earnings before interest and taxes. Sales personnel
must be proficient with the application of sophisticated financial analyses
which calculate minimum returns on investments to achieve the Company's targeted
goals in securing location contracts and renewals. Management believes that its
sales staff is among the most competent and effective in the industry.
The Company's marketing strategy emphasizes excellent service offered
by its experienced, highly-skilled personnel and quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. The Company's
sales staff targets potential new and renewal lease locations by utilizing the
Integrated Computer Systems' extensive database to provide information on the
Company's, as well as its competitors', locations. Additionally, the Integrated
Computer Systems monitor performance, repairs and maintenance, as well as the
profitability of locations on a daily basis. All sales, service and installation
data is recorded and monitored daily on a custom-designed, computerized sales
planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenue.
Location Leasing
The Company's leases provide the Company the exclusive right to operate
and service the installed laundry machines, including repairs, revenue
collection and maintenance. The Company typically sets pricing for the use of
the machines on location, and the property owner or property manager maintains
the premises and provides utilities such as gas, electricity and water.
In return for the exclusive right to provide laundry equipment
services, most of the Company's leases provide for monthly commission payments
to the location owners. Under the majority of leases, these commissions are
based on a percentage of the cash collected from the laundry machines. Many of
the Company's leases require the Company to make advance location payments to
the location owner in addition to commissions. The Company's leases typically
include provisions that allow for unrestricted price increases, a right of first
refusal (an opportunity to match competitive bids at the expiration of the lease
term) and termination rights if the Company does not receive minimum net
revenues from a lease. The Company has some flexibility in negotiating its
leases and, subject to local and regional competitive factors, may vary the
terms and conditions of a lease, including commission rates and advance location
payments. The Company evaluates each lease opportunity through its Integrated
Computer Systems to achieve a desired level of return on investments.
Management estimates that approximately 90% of its locations are under
long-term leases with initial terms of five to ten years. Of the remaining
locations not subject to long-term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
expects to continue to service such customers. A majority of the Company's
leases renew automatically, and the Company has a right of first refusal upon
termination in over 40% of its leases. The Company's automatic renewal clause
typically provides that, if the building owner fails to take any action prior to
the end of the original lease term or any renewal term, the lease will
automatically renew on substantially similar terms. As of March 31, 2001, the
Company's leases had an average remaining life to maturity of approximately 47
months (without giving effect to automatic renewals).
Service
The Company's employees deliver, install, service and collect revenue
from washers and dryers in laundry facilities at the Company's leased locations.
The Company's Integrated Computer Systems allow for the quick dispatch
of service technicians in response to both computer-generated (for preventive
maintenance) and customer-generated service calls. On a daily basis, the Company
receives and responds to approximately 3,000 service calls. Management estimates
that less than 1% of the Company's machines are out of service on any given day.
The ability to reduce machine down-time, especially during peak usage, enhances
revenue and improves the Company's reputation with its customers.
5
In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of responding promptly to customer needs.
Computer-generated service calls for preventive maintenance are based on
previous service history, repeat service call analysis and monitoring of service
areas. These systems coordinate the Company's radio-equipped service vehicles
and allow the Company to address customer needs quickly and efficiently.
Information Management
The Company's Integrated Computer Systems serve three major functions:
(i) tracing the service cycle of equipment; (ii) monitoring revenues and costs
by location, customer and salesperson; and (iii) providing information on
competitors' and the Company's lease renewal schedules.
The Integrated Computer Systems provide speed and accuracy throughout
the entire service cycle by integrating the functions of service call entry,
dispatching service personnel, parts and equipment purchasing, installation,
distribution and collection. In addition to coordinating all aspects of the
service cycle, the Company's Integrated Computer Systems track contract
performance, which indicate potential machine problems or pilferage and provide
data to forecast future equipment servicing requirements.
Data on machine performance is used by the sales staff to forecast
revenue by location. Management is able to obtain daily, monthly, quarterly and
annual reports on location performance, coin collection, service and sales
activity by salesperson.
The Integrated Computer Systems also provide the sales staff with an
extensive database essential to the Company's marketing strategy to obtain new
business through competitive bidding or owner-operator conversion opportunities.
Management also believes that the Integrated Computer Systems enhance
the Company's ability to successfully integrate acquired businesses into its
existing operations. Regional or certain multi-regional acquisitions have
typically been substantially integrated within 90 to 120 days, while a local
acquisition can be integrated almost immediately.
Remanufacturing
The Company rebuilds and reinstalls a portion of its machines at
approximately one-third the cost of acquiring new machines, providing cost
savings. Remanufactured machines are restored to virtually new condition with
the same estimated average life and service requirements as new machines.
Machines that can no longer be remanufactured are added to the Company's
inventory of spare parts.
The Company maintains three regional remanufacturing facilities,
strategically located to service each of its operating regions, which provide
for consistent machine quality and efficient operations.
Revenue Collection and Security
Management believes that it provides the highest level of security for
revenue collection control in the outsourced laundry equipment services
industry. The Company utilizes numerous precautionary procedures with respect to
cash collection, including frequent alteration of collection patterns, extensive
monitoring of collections and other control mechanisms. The Company enforces
stringent employee standards and screening procedures for prospective employees.
Employees responsible for, or who have access to, the collection of funds are
tested randomly and frequently. Additionally, the Company's security department
performs trend and variance analyses of daily collections by location. Security
personnel monitor locations, conduct investigations, and implement additional
security procedures as necessary.
6
Complementary Operations
In addition to supplying outsourced laundry equipment services, the
Company has expanded its breadth of operations to related, complementary lines
of businesses:
Individual Multi-Housing Units
The Company, through its Appliance Warehouse division, is involved in
the business of renting laundry equipment and other household appliances and
electronic items to corporate relocation entities, property owners, managers of
multi-family housing properties and individuals. With access to approximately
six million individual housing units, the Company believes this business line
represents an opportunity for growth in a new market segment which is
complementary to its core business.
Laundromat Equipment Distribution
Super Laundry, a wholly-owned subsidiary of the Company, is a
laundromat equipment distribution company. Super Laundry's business consists of
constructing complete turnkey retail laundromats, retrofitting existing retail
laundromats, distributing exclusive and non-exclusive lines of commercial coin
and non-coin operated machines and parts, and selling service contracts. Super
Laundry's customers generally enter into sales contracts pursuant to which Super
Laundry constructs and equips a complete laundromat operation, including
location identification, construction, plumbing, electrical wiring and all
required permits.
Retail Laundromat Operations
The Company, through its Kwik Wash division, operates 181 retail
laundromats located throughout Texas and Arizona. The operation of the retail
laundromats involves leasing store locations in desirable geographic areas,
maintaining an appropriate mix of washers and dryers at each store location and
servicing the washers and dryers at such locations. The Company is also
responsible for maintaining the premises at each retail laundromat and for
paying for utilities and related expenses.
Competition
The outsourced laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, the Company believes there are
currently three multi-regional route operators, including the Company, with
significant operations throughout the United States. The two other major
multi-regional competitors are Web Service Company, Inc. and Mac-Gray Corp.
Employees
As of March 31, 2001, the Company employed 2,119 employees (including
346 laundromat attendants in the Company's retail laundromats in Texas and
Arizona). In the Northeast region, 132 hourly workers are represented by Local
966, affiliated with the International Brotherhood of Teamsters (the "Union").
Management believes that the Company has maintained a good relationship with the
Union employees and has never experienced a work stoppage since its inception.
General Development of Business
Coinmach Laundry was incorporated on March 31, 1995 under the name SAS
Acquisitions Inc. in the State of Delaware and is the sole shareholder of all of
the Common Stock of the Company, its primary operating subsidiary. In November
1995, The Coinmach Corporation ("TCC"), a Delaware corporation and predecessor
of the Company, merged (the "Solon Merger") with and into Solon Automated
Services, Inc. ("Solon"). In connection with the Solon Merger, Coinmach Laundry
changed its name from SAS Acquisitions Inc., and Solon, the surviving
corporation in the Solon Merger, changed its name to Coinmach Corporation.
7
On May 12, 2000, Coinmach Laundry entered into an Agreement and Plan of
Merger (the "Merger Agreement") with CLC Acquisition Corporation ("CLC
Acquisition"), a newly formed Delaware corporation formed by Bruce V. Rauner, a
director of Coinmach Laundry and a principal of the indirect general partner of
GTCR Fund IV, Coinmach Laundry's then-largest stockholder. Pursuant to the
Merger Agreement, CLC Acquisition acquired all of Coinmach Laundry's outstanding
common stock and non-voting common stock for $14.25 per share in a two-step
going-private transaction consisting of a tender offer followed by a merger of
CLC Acquisition with and into Coinmach Laundry. Effective July 13, 2000, CLC
Acquisition was merged with and into Coinmach Laundry pursuant to the terms of
the Merger Agreement. Coinmach Laundry's Class A common stock was delisted from
The Nasdaq Stock Market and Coinmach Laundry is no longer subject to the
reporting requirements of the Securities Exchange Act of 1934. The foregoing
transactions are collectively referred to herein as the "Transaction."
The Company's headquarters are located at 55 Lumber Road, Roslyn, New
York 11576, and its telephone number is (516) 484-2300. The Company's mailing
address is the same as that of its headquarters. The Company also maintains a
corporate office in Charlotte, North Carolina.
Credit Facility and Senior Notes
In November 2000, the Company's existing credit facility (of which
Bankers Trust Company and First Union National Bank of North Carolina are the
primary lending institutions) was amended to provide for an aggregate of $485
million of secured financing consisting of: (i) a $160 million revolving credit
facility currently bearing interest at a monthly Eurodollar rate offered by the
administrative agent to financial institutions in New York (the "Eurodollar
Rate") plus 2.00%; (ii) a $75 million Tranche A term loan facility currently
bearing interest at a monthly Eurodollar Rate plus 2.50%; and (iii) a $250
million Tranche B term loan facility currently bearing interest at a monthly
Eurodollar Rate plus 2.75%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - Financing Activities - Senior Credit Facility."
On March 28, 1996, the Company consummated a registered exchange offer,
pursuant to which all issued and outstanding 11 3/4% Senior Notes due 2005 were
exchanged for the Company's Series B 11 3/4% Senior Notes due 2005 (the "Series
B Notes"). On October 8, 1997, the Company completed a private placement of $100
million aggregate principal amount of its 11 3/4% Series C Senior Notes due 2005
(the "Series C Notes") on substantially identical terms as its Series B Notes.
On December 23, 1997, the Company commenced a registered exchange offer pursuant
to which all issued and outstanding Series B Notes and Series C Notes were
exchanged for the Company's 11 3/4% Series D Senior Notes due 2005 (the "11 3/4%
Senior Notes"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Financing
Activities - Senior Note Offering and Exchange Offer."
ITEM 2. PROPERTIES
As of March 31, 2001, the Company leased 64 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, revenue collection and warehousing.
The Company presently maintains its headquarters in Roslyn, New York,
leasing approximately 40,000 square feet pursuant to a five year lease scheduled
to terminate July 31, 2001. The Company's Roslyn facility has been used for
general and administrative purposes and is the operational headquarters for the
Northeast regional branch. The Company has signed two separate leases, one in
Syosset, New York to be used for the operational headquarters for the Northeast
regional branch and one in Plainview, New York to be used for general and
administrative purposes. The Company's Plainview facility covers approximately
11,600 square feet and is pursuant to a ten year lease scheduled to terminate in
2011.
The Company also maintains a corporate office in Charlotte, North
Carolina, leasing approximately 3,000 square feet pursuant to a five year lease
terminating September 30, 2001.
8
ITEM 3. LEGAL PROCEEDINGS
On November 18, 1999, K. Reed Hinrichs v. Stephen R. Kerrigan, et al.,
a purported class action lawsuit, was filed in the Delaware Court of Chancery,
Newcastle County naming Coinmach Laundry, GTCR Fund IV, GTCR Golder Rauner,
L.L.C. and certain of its executive officers as defendants. Plaintiffs allege
that the defendants' proposal to acquire between 80% and 90% of Coinmach
Laundry's common stock for $13.00 per share was inadequate and that the
defendants breached their fiduciary duty to Coinmach Laundry's public
shareholders. The defendant's time to respond to the complaint has been
adjourned indefinitely by agreement of the parties. Given that such acquisition
proposal was not accepted by Coinmach Laundry, the Company believes this class
action is without merit and that the ultimate disposition of such action will
not have a material adverse effect on the Company.
See "Business -- Recent Developments."
The Company is party to various legal proceedings arising in the
ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe that
adverse determinations in any or all such proceedings would have a material
adverse effect upon the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
There currently exists no established public trading market for the
Common Stock, all of which is held beneficially and of record by Coinmach
Laundry.
Holders
As of March 31, 2001, there was one holder of record of the Common
Stock.
Dividends
The Company has not paid any dividends on the Common Stock during the
past fiscal year and does not intend to pay dividends on the Common Stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained
in certain of its outstanding debt and financing agreements relating to the
payment of cash dividends on its Common Stock. The Company may in the future
enter into loan or other agreements or issue debt securities or preferred stock
that restrict the payment of cash dividends or certain other distributions. See
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources."
10
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios)
The following table presents summary historical consolidated financial
information of the Company. Such table includes the consolidated financial
information for the period from July 1, 2000 to March 31, 2001
("Post-Transaction") and the period from April 1, 2000 to June 30, 2000
("Pre-Transaction"), and the years ended March 31, 2000 ("2000 Fiscal Year"),
March 31, 1999 ("1999 Fiscal Year"), March 31, 1998 ("1998 Fiscal Year") and
March 28, 1997 ("1997 Fiscal Year"). The financial data set forth below should
be read in conjunction with the Company's audited historical combined and
consolidated financial statements and the related notes thereto included in Item
8 - "Financial Statements and Supplementary Data" and with the information
presented in Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Form 10-K.
July 1, 2000 to April 1, 2000 to
March 31, 2001 June 30, 2000 Year Ended
--------------- --------------- ---------------------------------------------
Post- Pre- March 31, March 31, March 31, March 28,
Transaction(6) Transaction(7) 2000 1999 1998 1997
------------- ------------- --------- ---------- ---------- ---------
Operations Data:
Revenues ..................................... $ 393,890 $134,225 $527,079 $505,323 $324,887 $206,852
Operating, general and administrative ........
expenses 271,580 91,988 358,733 340,671 224,752 145,734
Depreciation and amortization ................ 102,727 31,557 123,002 113,448 75,453 46,316
Operating income ............................. 19,583 10,680 45,344 51,204 24,682 14,802
Interest expense ............................. 52,391 16,661 67,232 65,901 44,668 27,417
Loss before extraordinary item ............... (25,603) (4,652) (16,079) (11,618) (14,652) (10,308)
Net loss ..................................... (25,603) (4,652) (16,079) (11,618) (14,652) (10,604)
Balance Sheet Data (at end of period):
Cash and cash equivalents .................... $ 25,859 -- $ 23,174 $ 26,515 $ 22,451 $ 10,110
Property and equipment, net .................. 276,004 -- 237,160 223,610 194,328 112,116
Contract rights, net ......................... 376,779 -- 384,680 413,014 366,762 180,557
Advance location payments .................... 74,233 -- 77,212 79,705 74,026 38,472
Goodwill, net ................................ 215,317 -- 101,253 109,025 110,424 95,771
Total assets ................................. 1,014,074 -- 875,625 900,660 816,232 467,550
Total debt(1)................................. 697,969 -- 683,819 685,741 598,700 329,278
Stockholder's equity (deficit) ............... 91,788 -- (30,143) (14,128) (2,594) 11,973
Financial Information and Other Data:
Cash flow provided by operating activities ... $ 71,955 $ 17,407 $ 90,743 $103,041 $ 58,686 $ 34,305
Cash flow used for investing activities ...... (66,202) 24,273 (88,404) (181,665) (350,875) (196,698)
Cash flow (used for) provided by
financing activities ....................... (4,471) 8,269 (5,680) 82,688 304,530 152,780
EBITDA(2)..................................... 122,310 42,237 168,346 164,652 100,135 61,118
EBITDA margin(3) ............................. 31.1% 31.5% 31.9% 32.6% 30.8% 29.5%
Operating margin(4) .......................... 5.0% 7.9% 8.6% 10.1% 7.6% 7.2%
Capital expenditures(5)
Growth capital expenditures ................ $ 8,676 $ 2,770 $ 25,272 $ 24,096 $ 21,119 $ 12,563
Renewal capital expenditures ............... 51,944 21,503 63,132 60,038 37,609 29,025
Acquisition capital expenditures ........... 5,582 -- -- 97,531 294,996 171,455
---------- -------- -------- -------- -------- --------
Total Capital Expenditures ................... $ 66,202 $ 24,273 $ 88,404 $181,665 $353,724 $213,043
========== ======== ======== ======== ======== ========
- ------------
1 Total debt at March 31, 2001, March 31, 2000, March 31, 1999 and March 31,
1998 does not include the premium, net, of $5,555, $6,789, $8,023 and $9,258,
respectively, recorded as a result of the issuance by the Company of $100
million aggregate principal amount of 11 3/4% Series C Senior Notes due 2005 in
October 1997.
2 EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization for the period from
July 1, 2000 to March 31, 2001, the period from April 1, 2000
11
to June 30, 2000, and the years ended March 31, 2000, March 31, 1999, March 31,
1998 and March 28, 1997. EBITDA is used by certain investors as an indication of
a company's ability to service existing debt, to sustain potential future
increases in debt and to satisfy capital requirements. However, EBITDA is not
intended to represent cash flows for the period, nor has it been presented as an
alternativeto either (a) operating income (as determined by generally accepted
accounting principles) as an indicator of operating performance or (b) cash
flows from operating, investing and financing activities (as determined by
generally accepted accounting principles) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying calculations, EBITDA
may not be comparable to other similarly titled measures of other companies.
3 EBITDA margin represents EBITDA as a percentage of revenues. Management
believes that EBITDA margin is a useful measure to evaluate the Company's
performance over various sales levels. EBITDA margin should not be considered as
an alternative for measurements determined in accordance with generally accepted
accounting principles.
4 Operating margin represents operating income as a percentage of revenues.
5 Capital expenditures represent amounts expended for property and
equipment, for advance location payments to location owners and for
acquisitions. Acquisition capital expenditures represent the amounts expended to
acquire local, regional and multi-regional route operators, as well as
complementary businesses. For the fiscal years ended March 31, 1998 and March
28, 1997, acquisition capital expenditures include approximately $2.3 million
and $16.2 million, respectively, of promissory notes issued by Coinmach Laundry
related to certain acquisitions. Growth capital expenditures represent the
amount of capital expended that reflects a net increase in the installed base of
machines, excluding acquisitions. Renewal capital expenditures represent the
amount of capital expended assuming no net increase in the installed base of
machines.
6 Includes the results of operations for the period July 1, 2000 to March
31, 2001, representing the results subsequent to the Transaction.
7 Includes the results of operations for the period April 1, 2000 to June
30, 2000, representing the results prior to the Transaction.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis pertains to the results of
operations and financial position of the Company for the period from April 1,
2000 to March 31, 2001 (the "2001 12-Month Period"), the 2000 Fiscal Year and
the 1999 Fiscal Year and should be read in conjunction with the consolidated
financial statements and related notes thereto included in Item 8. The 2001
12-Month Period is comprised of the Pre-Transaction period combined with the
Post-Transaction period, and is not adjusted for the pro-forma effect that
additional depreciation and amortization would have on the Pre-Transaction
period had the Transaction occurred at the beginning of the 2001 12-Month
Period.
General
The Company is principally engaged in the business of supplying
outsourced laundry equipment services to multi-family housing properties. The
Company's core business involves leasing laundry rooms from building owners and
property management companies, installing and servicing the laundry equipment
and collecting revenues generated from laundry machines. The Company also leases
laundry machines and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. At March 31, 2001, the Company owned and operated approximately
820,000 washers and dryers in approximately 80,000 multi-family housing
properties on routes throughout the United States and in 181 retail laundromats
located throughout Texas and Arizona. The Company, through Super Laundry, its
wholly-owned subsidiary, is a laundromat equipment distribution company.
Sources of Revenue
The Company's primary financial objective is to increase its cash flow
from operations. Cash flow from operations represents a source of funds
available to service indebtedness and for investment in both internal growth and
growth through acquisitions. The Company has experienced net losses during the
past three fiscal years. Such net losses are attributable in part to significant
non-cash charges associated with the Company's acquisitions and the related
amortization of contract rights and goodwill and accounted for under the
purchase method of accounting.
The Company's most significant revenue source is its route business,
accounting for approximately 85% of its revenue. The Company provides outsourced
laundry equipment services to locations by leasing laundry rooms from building
owners and property management companies, typically on a long-term, renewable
basis. In return for the exclusive right to provide these services, most of the
Company's contracts provide for commission payments to the location owners.
Commission expense (also referred to as rent expense), the Company's single
largest expense item, is included in laundry operating expenses and represents
payments to location owners. Commissions may be fixed amounts or percentage of
revenues and are generally paid monthly. Also included in laundry operating
expenses are (i) the costs of machine maintenance and revenue collection in the
route business, including payroll, parts, insurance and other related expenses,
(ii) the costs of sales associated with the equipment distribution business and
(iii) certain expenses related to the operation of the Company's rental business
and retail laundromats. In addition to commission payments, many of the
Company's leases require the Company to make advance location payments to the
location owners. These advance payments are capitalized and amortized over the
life of the applicable lease.
Other revenue sources for the Company include: (i) leasing laundry
equipment and other household appliances and electronic items to corporate
relocation entities, property owners, managers of multi-family housing
properties and individuals through its Appliance Warehouse division, (ii)
operating, maintaining and servicing retail laundromats through its Kwik Wash
division, and (iii) constructing complete turnkey retail laundromats,
retrofitting existing retail laundromats, distributing exclusive lines of
commercial coin and non-coin machines and parts, and selling service contracts,
through its Super Laundry subsidiary.
13
Results of Operations
The following table sets forth for the periods indicated, selected
statement of operations data and EBITDA, as percentages of revenue:
July 1, April 1,
2000 to 2000 to
March 31, June 30,
2001 2000 Year Ended March 31,
----------- ----------- --------------------
Post- Pre-
Transaction Transaction 2000 1999
----------- ----------- ------ -----
Revenues.................................. 100.0% 100.0% 100.0 % 100.0%
Laundry operating expenses................ 67.2 66.9 66.4 65.6
General and administrative expenses....... 1.7 1.6 1.7 1.8
Depreciation and amortization............. 26.0 23.5 23.3 22.5
Operating income.......................... 5.0 7.9 8.6 10.1
Interest expense, net..................... 13.3 12.4 12.8 13.0
EBITDA.................................... 31.1 31.5 31.9 32.6
12-Month Period Ended March 31, 2001 Compared to the Fiscal Year Ended March 31,
2000
The following table sets forth the Company's net revenues for the
periods indicated:
(dollars in millions)
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $ 449.9 $ 446.4 $ 3.5
Distribution......................... 38.3 46.3 (8.0)
Retail Laundromat.................... 21.6 20.6 1.0
Rental............................... 18.3 13.8 4.5
======= ======= ======
$ 528.1 $ 527.1 $ 1.0
Revenue increased by approximately $1.0 million or less than 1% for the
2001 12-Month Period, as compared to the prior year.
Route revenue for the 2001 12-Month Period increased by
approximately $3.5 million or less than 1% over the prior year. During
the prior year, the Company experienced excessive vandalism, primarily
in the South-Central region of the U.S., which adversely impacted the
Company's second, third and fourth fiscal quarters' results of
operations for the prior year. Management believes that the improvement
in route revenue for the 2001 12-Month Period as compared to the prior
year is the result of the combination of (i) increased revenue from the
existing machine base due primarily to price changes and machine
installations, (ii) a reduction in vandalism as a result of heightened
security measures and (iii) the timing of price changes and internal
growth in machine count during the 2001 12-Month Period and the 2000
Fiscal Year. Internal growth in route revenue has been partially offset
by the removal of approximately 2,900 non-productive machines from the
base during the 2001 12-Month Period.
Distribution revenue for the 2001 12-Month Period decreased by
approximately $8.0 million or 17% from the prior year. The decrease for
the 2001 12-Month Period is primarily the result of certain of
14
our large retail laundromat customers experiencing financial
difficulty, resulting in reduced machine purchases. In addition, sales
from the distribution business unit are sensitive to general market
conditions and as a result may experience fluctuations. The Company has
made a strategic change in product lines during the current fiscal
year, which created a lag in revenue as sales and service personnel
became acquainted with the new product lines. In addition, in January
2001 the Company purchased a distribution business for approximately
$4.3 million. This acquisition increases the Company's presence in the
Midwest region.
Retail laundromat revenue for the 2001 12-Month Period
increased by approximately $1.0 million or 5% over the prior year. The
increase for the 2001 12-Month Period was primarily due to an increase
in the number of laundromats, which increase was partially offset by
reduced same store revenues due to increased competition in this
market. Same store retail laundromat revenue for the last six months of
the 2001 12-Month Period has increased as compared to the prior year's
corresponding period due primarily to pricing strategies implemented to
address increased competition in this market.
Rental revenue for the 2001 12-Month Period increased by
approximately $4.5 million or 32% over the prior year. The increase was
primarily the result of the internal growth of the machine base in
existing areas of operations and expansion into new territories.
Laundry operating expenses increased by approximately $4.8 million or
1% for the 2001 12-Month Period, as compared to the prior year. This increase in
laundry operating expenses was due primarily to additional costs associated with
expansion into new markets in the rental, distribution and retail laundromat
businesses as well as increased utility costs in the retail laundromat business.
This increase was partially offset by a decrease in cost of sales resulting from
reduced sales in the distribution business. As a percentage of revenues, laundry
operating expenses were approximately 67% and 66% for the 2001 12-Month Period
and the 2000 Fiscal Year, respectively.
General and administrative expenses increased by approximately 1% for
the 2001 12-Month Period, as compared to the prior year. The increase in general
and administrative expenses was primarily due to various costs and expenses
related to accounting, management information systems and other administrative
functions associated with the Company's growth. As a percentage of revenues,
general and administrative expenses were approximately 1.7% for both the 2001
12-Month Period and the 2000 Fiscal Year.
Depreciation and amortization expense increased by approximately $10.5
million in the Post-Transaction period from July 1, 2000 to March 31, 2001, as
the result of the application of push-down accounting resulting from the
Transaction. Increases in depreciation and amortization other than from the
Transaction were primarily due to capital expenditures required by historical
increases in the Company's installed base of machines, as well as a write-off of
contract rights values relating to certain locations not renewed of
approximately $5.9 million.
Operating income margins were approximately 6% for the 2001 12-Month
Period, as compared to approximately 9% for the 2000 Fiscal Year. The decrease
in operating income margin for the 2001 12-Month Period was primarily due to an
increase in depreciation and amortization expense in such period.
Interest expense, net, increased by approximately 3% for the 2001
12-Month Period, as compared to the prior year. The increase was primarily due
to the increased borrowing levels under the Senior Credit Facility as well as to
an increase in interest rates on such credit facility as a result of general
market rate increases.
EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization. EBITDA is used by
certain investors as an indication of a company's ability to service existing
debt, to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to either (a) operating
income (as determined by generally accepted accounting principles) as an
indicator of operating performance or (b) cash flows from operating, investing
and financing activities (as determined by generally accepted accounting
principles) as a measure of liquidity. Given that EBITDA is not a measurement
determined in
15
accordance with generally accepted accounting principles and is thus susceptible
to varying calculations, EBITDA may not be comparable to other similarly titled
measures of other companies.
The following table sets forth the Company's EBITDA for the periods
indicated:
(dollars in millions)
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $160.4 $ 161.2 $(0.8)
Distribution......................... 1.8 5.0 (3.2)
Retail Laundromat.................... 4.0 5.1 (1.1)
Rental............................... 7.2 5.8 1.4
G&A.................................. (8.9) (8.8) (0.1)
====== ====== ======
$164.5 $ 168.3 $(3.8)
EBITDA was approximately $164.5 million for the 2001 12-Month Period,
as compared to approximately $168.3 million for the 2000 Fiscal Year,
representing a decrease of approximately 2%. EBITDA margins declined to
approximately 31.1% for the 2001 12-Month Period, as compared to approximately
31.9% for the prior year. These decreases are the result of the combination of
decreased revenues and increased operating expenses, as discussed above.
Fiscal Year Ended March 31, 2000 Compared to the Fiscal Year Ended March 31,
1999
The following table sets forth the Company's net revenues for the years
indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2000 1999 Change
------ ------ ------
Route................................ $ 446.4 $ 435.4 $ 11.0
Distribution......................... 46.3 38.6 7.7
Retail Laundromat.................... 20.6 20.2 0.4
Rental............................... 13.8 11.1 2.7
======= ======= ======
$ 527.1 $ 505.3 $ 21.8
Revenues increased by approximately 4% for the 2000 Fiscal Year as
compared to the 1999 Fiscal Year. The improvement in revenues is attributable
primarily to (i) increased route and retail laundromat business resulting from
internal expansion of approximately $11 million, despite an estimated $2 million
reduction in revenues in the South Central region due to excessive vandalism and
increased retail laundromat competition in Texas; (ii) increased revenues
generated from the distribution business of approximately $8 million; and (iii)
increased revenues generated from the rental business of approximately $3
million.
Laundry operating expenses increased by approximately 6% for the 2000
Fiscal Year as compared to the 1999 Fiscal Year. This increase was primarily the
result of an increase in commission and operating expenses related to an
improvement in route revenue as well as an increase in cost of sales related to
higher volume in the distribution business and an increase in expenses
associated with the expansion into new markets in the rental, retail laundromat
and distribution businesses. As a percentage of revenues, laundry operating
expenses have remained relatively constant at approximately 66% for the 2000
Fiscal Year and the 1999 Fiscal Year.
16
General and administrative expenses decreased nominally for the 2000
Fiscal Year as compared to the 1999 Fiscal Year. However, as a percentage of
revenues, general and administrative expenses remained relatively constant at
approximately 1.7% for the 2000 Fiscal Year as compared to approximately 1.8%
for the 1999 Fiscal Year.
Depreciation and amortization expense increased by approximately 8% for
the 2000 Fiscal Year as compared to the 1999 Fiscal Year, due in part to an
increase in capital expenditures with respect to the Company's installed base of
machines. The increase for the 2000 Fiscal Year was also attributable to
contract rights and goodwill associated with acquisitions during the 1999 Fiscal
Year.
Interest expense, net, increased by approximately 2% for the 2000
Fiscal Year as compared to the 1999 Fiscal Year due primarily to increased
borrowing levels under the Senior Credit Facility in connection with certain
acquisitions made during the prior year.
The following table sets forth the Company's EBITDA for the years
indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2000 1999 Change
------ ------ ------
Route................................ $ 161.2 $ 157.5 $ 3.7
Distribution......................... 5.0 4.6 0.4
Retail Laundromat.................... 5.1 6.4 (1.3)
Rental............................... 5.8 5.2 0.6
G&A.................................. (8.8) (9.0) 0.2
======= ======= ======
$ 168.3 $ 164.7 $ 3.6
EBITDA(1) was approximately $168.3 million for the 2000 Fiscal Year as
compared to approximately $164.7 million for the 1999 Fiscal Year, representing
an improvement of approximately $3.6 million or 2%. The major sources of this
EBITDA improvement resulted from a combined net increase in revenue of
approximately $2 million from the route and retail laundromat businesses, and
the remainder from the distribution business and the rental business. As
mentioned above, the route and retail laundromat businesses were negatively
impacted during the 2000 Fiscal Year by excessive vandalism in the South Central
region and increased competition in the retail laundromat business in Texas. In
addition, during the 2000 Fiscal Year, a new distribution office was opened in
Southern California and the rental business was expanded into four new markets,
which contributed to increased costs in the 2000 Fiscal Year.
- --------
1 EBITDA represents earnings from continuing operations before
deductions for interest, income taxes, depreciation and amortization. EBITDA is
used by certain investors as an indication of a company's ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either (a)
operating income (as determined by generally accepted accounting principles) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by generally accepted
accounting principles) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA may not be
comparable to other similarly titled measures of other companies.
17
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 2001, the Company had outstanding long-term debt
(excluding the premium, net, of approximately $5.6 million) of approximately
$698.0 million, which includes $296.7 million of 11 3/4% Senior Notes and $395.3
million of borrowings under the Senior Credit Facility. The Company's
stockholder's equity was approximately $15.8 million as of March 31, 2001.
Financing Activities
Senior Note Offering and Exchange Offer
On October 8, 1997, the Company completed a private placement (the
"Bond Offering") of $100 million aggregate principal amount of Series C Notes on
substantially identical terms as its Series B Notes. The gross proceeds from the
Bond Offering were $109.875 million, of which $100.0 million represented the
principal amount outstanding and $9.875 million represented the payment of a
premium for the Series C Notes. The Company used approximately $105.4 million of
the net proceeds from the Bond Offering to repay indebtedness outstanding under
its senior financing arrangement.
On December 23, 1997, the Company commenced an offer to exchange (the
"Exchange Offer") up to $296.7 million (excluding the premium on the Series C
Notes discussed above) of its 11 3/4% Senior Notes for any and all of its Series
B Notes and its Series C Notes. The Exchange Offer expired on February 6, 1998,
and, as of such date, the holders of 100% of the outstanding Series B Notes and
Series C Notes tendered such notes in the Exchange Offer for the 11 3/4% Senior
Notes.
The 11 3/4% Senior Notes, which mature on November 15, 2005, are
unsecured senior obligations of the Company and are redeemable, at the Company's
option, in whole or in part at any time or from time to time, on and after
November 15, 2000, upon not less than 30 nor more than 60 days notice, at the
redemption prices set forth in that certain Indenture, dated as of November 30,
1995, by and between the Company and Fleet National Bank of Connecticut
(formerly Shawmut Bank Connecticut, National Associates) as Trustee (the
"Indenture") plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption.
The Indenture contains a number of restrictive covenants and
agreements, including covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on certain payments (in the form of
the declaration or payment of certain dividends or distributions on the capital
stock of Coinmach Laundry or its subsidiaries, the purchase, redemption or other
acquisition of any capital stock of Coinmach Laundry, the voluntary prepayment
of subordinated indebtedness, or an Investment (as defined in the Indenture) in
any other person or entity); (iii) limitation on transactions with affiliates;
(iv) limitation on liens; (v) limitation on sales of assets; (vi) limitation on
sale and leaseback transactions; (vii) limitation on conduct of business; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) limitation on consolidations, mergers and sales of substantially all of
the assets of the Company.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and continuance
of certain events of default, the trustee or the holders of not less than 25% in
aggregate principal amount of outstanding 11 3/4% Senior Notes may declare all
unpaid principal and accrued interest on all of the 11 3/4% Senior Notes to be
immediately due and payable.
Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of 11 3/4% Senior Notes will have the right to require
that the Company purchase all or a portion of such holder's 11 3/4% Senior Notes
pursuant to the offer described in the Indenture, at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase.
18
Senior Credit Facility
The Company's existing credit facility with Bankers Trust Company
("Banker's Trust"), First Union National Bank of North Carolina ("First Union")
and certain other lending institutions, as amended (the "Senior Credit
Facility"), provides for an aggregate of $485 million of secured financing
consisting of: (i) a revolving credit facility which has a maximum borrowing
limit of $160 million bearing interest at a monthly Eurodollar Rate plus 2.00%;
(ii) a $75 million Tranche A term loan facility bearing interest at a monthly
Eurodollar Rate plus 2.50% and (iii) a $250 million Tranche B term loan facility
bearing interest at a monthly Eurodollar Rate plus 2.75%. The Senior Credit
Facility also provides for up to $10 million of letter of credit financings and
short term borrowings under a swing line facility of up to $5 million. As of
March 31, 2001, the Company had approximately $79.7 million in aggregate
principal amount outstanding on the revolving portion of the Senior Credit
Facility, which will expire on December 31, 2003.
On January 12, 2000, the Senior Credit Facility was amended to provide,
among other things, that the $35 million working capital revolving credit
facility and the $125 million acquisition revolving credit facility be combined
into a single revolving credit facility without increasing the total aggregate
amount of such revolving credit facility ($160 million), which revolving credit
facility is available for general corporate purposes, including acquisitions.
On November 21, 2000, the Senior Credit Facility was amended to provide
for an additional $50.0 million in the form of a Tranche B term loan payable on
terms identical to the original Tranche B term loan. Such funds were used to
reduce the amount outstanding under the revolving line of credit by $50.0
million.
Interest on the Company's borrowings under the Senior Credit Facility
is payable quarterly in arrears with respect to base rate loans and the last day
of each applicable interest period with respect to Eurodollar loans and at a
rate per annum no greater than a base rate or Eurodollar rate, in each case as
defined in the Senior Credit Facility.
At March 31, 2001, the monthly variable Eurodollar interest rate was
approximately 5.12%.
As of March 31, 2001, the Company had $225 million in aggregate
notional amount of interest rate swap agreements with First Union to manage its
variable rate debt liabilities and consisting of: (i) a notional amount of $175
million swap transaction effectively fixing the one-month LIBOR interest rate
(as determined therein) at 5.515% and expiring on November 15, 2002 and (ii) a
notional amount of $50 million swap transaction effectively fixing the one-month
LIBOR interest rate (as determined therein) at 6.14% and expiring on November
15, 2002.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
Indebtedness under the Senior Credit Facility is secured by all of the
Company's real and personal property. Under the Senior Credit Facility, the
Company has pledged to Bankers Trust, as Collateral Agent, its interests in all
of the issued and outstanding shares of capital stock of the Company.
The Senior Credit Facility contains a number of restrictive covenants
and agreements, including covenants with respect to limitations on (i)
indebtedness; (ii) certain payments (in the form of the declaration or payment
of certain dividends or distributions on the capital stock of Coinmach Laundry
or its subsidiaries or the purchase, redemption or other acquisition of any
capital stock of Coinmach Laundry or its subsidiaries); (iii) voluntary
prepayments of previously existing indebtedness; (iv) Investments (as defined in
the Senior Credit Facility); (v) transactions with affiliates; (vi) liens; (vii)
sales or purchases of assets; (viii) conduct of business; (ix) dividends and
other payment restrictions affecting subsidiaries; (x) consolidations and
mergers; (xi) capital expenditures; (xii) issuances of certain equity securities
of the Company; and (xiii) creation of subsidiaries. The Senior Credit Facility
also requires that the Company satisfy certain financial ratios, including a
maximum leverage ratio and a minimum consolidated interest coverage ratio.
19
The Senior Credit Facility contains certain events of default,
including the following: (i) the failure of the Company to pay any of its
obligations under the Senior Credit Facility when due; (ii) certain failures by
the Company to pay principal or interest on indebtedness or certain breaches or
defaults by the Company in respect of certain indebtedness, in each case, after
the expiration of any applicable grace periods; (iii) certain defaults by the
Company in the performance or observance of the agreements or covenants under
the Senior Credit Facility or related agreements, beyond any applicable cure
periods; (iv) the falsity in any material respect of certain of the Company's
representations or warranties under the Senior Credit Facility; (v) certain
judgments against the Company; and (vi) certain events of bankruptcy or
insolvency of the Company.
Operating and Investing Activities
The Company's level of indebtedness will have several important effects
on its future operations including, but not limited to, the following: (i) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (ii) the financial covenants contained in
certain of the agreements governing the Company's indebtedness will require the
Company to meet certain financial tests and may limit its ability to borrow
additional funds or to dispose of assets; (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; and (iv) the
Company's ability to adapt to changes in the outsourced laundry equipment
services industry and to economic conditions in general could be limited.
As the Company has focused on increasing its cash flow from operating
activities, it has made significant capital investments, primarily consisting of
capital expenditures related to acquisitions, renewals and growth. Renewal
capital is the amount of capital required to maintain the existing machine base
in current locations, as well as replacement of discontinued locations. Growth
capital is the amount of capital, in excess of renewal capital, that is expended
to increase the installed base from period to period. The Company anticipates
that it will continue to utilize cash flows from operations to finance its
capital expenditures and working capital needs, including interest payments on
its outstanding indebtedness. Capital expenditures for the 2001 12-Month Period
were approximately $88.0 million (including approximately $3.1 million relating
to capital lease obligations and excluding approximately $5.6 million relating
to acquisition capital expenditures). The primary components of the Company's
capital expenditures are (i) machine expenditures, (ii) advance location
payments, and (iii) laundry room improvements. The growth in the installed base
of machines for the route business was approximately 3,700 for the 2001 12-Month
Period. The growth in the rental business machine base was approximately 31,400
for the 2001 12-Month Period. The full impact on revenues and cash flow
generated from capital expended on the net increase in the installed base of
machines are not expected to be reflected in the Company's financial results
until subsequent reporting periods, depending on certain factors, including the
timing of the capital expended. The Company anticipates that capital
expenditures, excluding acquisitions and internal growth, will be approximately
$70.0 million for the twelve months ending March 31, 2002. While the Company
estimates that it will generate sufficient cash flows from operations to finance
anticipated capital expenditures, there can be no assurances that it will be
able to do so.
The following table sets forth the Company's capital expenditures
(excluding payments for capital lease obligations) for the years indicated:
(dollars in millions)
Year Ended March 31,
---------------------------------
2001 2000 Change
------ ------ ------
Route................................ $73.1 $77.6 $(4.5)
Distribution......................... 0.1 0.6 (0.5)
Retail Laundromat.................... 2.1 3.1 (1.0)
Rental............................... 9.6 7.1 2.5
====== ====== ======
$84.9 $88.4 $(3.5)
20
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
Under the Company's existing financing arrangements, the Company is required to
make monthly cash interest payments under its Senior Credit Facility and
semi-annual cash interest payments under its 11 3/4% Senior Notes.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the 11
3/4% Senior Notes and borrowings under the Senior Credit Facility or to permit
any necessary refinancings thereof. An inability of the Company, however, to
comply with covenants or other conditions contained in the indentures governing
the 11 3/4% Senior Notes or in the credit agreement evidencing the Senior Credit
Facility could result in an acceleration of all amounts thereunder. If the
Company is unable to meet its debt service obligations, it could be required to
take certain actions such as reducing or delaying capital expenditures, selling
assets, refinancing or restructuring its indebtedness, selling additional equity
capital or other actions. There is no assurance that any of such actions could
be effected on commercially reasonable terms or on terms permitted under the
Senior Credit Facility, or the indentures governing the 11 3/4% Senior Notes.
Certain Accounting Treatment
The Company's depreciation and amortization expenses, aggregating
approximately $134.3 million for the 2001 12-Month Period, reduce the Company's
net income, but not its cash flow from operations. In accordance with accounting
principles generally accepted in the United States, a significant amount of the
purchase price related to businesses acquired by the Company is allocated to
"contract rights", which costs are amortized over 15 years. The Company
amortizes the goodwill related to acquisitions over a 15 year period.
Inflation and Seasonality
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation and the effects of inflation
that may be experienced by the Company in future periods. Management believes
that such effects will not be material to the Company. The Company's business
generally is not seasonal.
Forward Looking Statements
Certain statements and information contained in this Form 10-K and
other reports and statements filed by the Company from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain certain forward looking statements and information that are based on the
beliefs of the Company's management as well as estimates and assumptions made
by, and information currently available to, the Company's management. Forward
looking statements are those that are not historical facts. When used in SEC
Filings, the words "anticipate," "project," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to the
Company or the Company's management, identify forward looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, competitive factors,
shifts in market demand, and other risks and uncertainties that may be beyond
the Company's control. Such risks and uncertainties, together with any risks and
uncertainties specifically identified in the text surrounding such forward
looking statements, include, but are not limited to, the Company's ability to
satisfy its debt service requirements, the costs of integration of acquired
businesses and realization of anticipated synergies, increased competition,
availability of capital to finance capital expenditures necessary to increase
and maintain the Company's operating machine base, the rate of growth in general
and administrative expenses due to the Company's business expansion, the
Company's dependence upon lease renewals, risks of extended periods of reduced
occupancy levels, and the ability of the Company to implement its business
strategy, including the acquisition and successful integration and operation of
acquired businesses. Other risks and uncertainties also include changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's future performance
and actual results
21
of operations may vary significantly from those anticipated, projected,
believed, estimated, expected, intended or planned.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal exposure to market risk relates to changes in
interest rates on its borrowings. The Company's cash flow would be adversely
affected by an increase in interest rates. As of March 31, 2001, the Company had
approximately $170.0 million outstanding relating to its variable rate debt
portfolio.
The Company's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. If
market rates of interest on the Company's variable rate debt increased by 2.0%
(or 200 basis points), the Company's annual interest expense would change by
approximately $3.4 million, assuming the amount outstanding was $170.0 million,
the balance as of March 31, 2001. The Company utilizes interest rate swap
agreements to manage its exposure to these risks.
As of March 31, 2001, the Company had $225 million in aggregate
notional amount of interest rate swap agreements with First Union to manage its
variable rate debt liabilities consisting of: (i) a notional amount of $175
million swap transaction effectively fixing the one-month LIBOR interest rate
(as determined therein) at 5.515% and expiring on November 15, 2002 and (ii) a
notional amount of $50 million swap transaction effectively fixing the one-month
LIBOR interest rate (as determined therein) at 6.14% and expiring on November
15, 2002.
The Company's fixed debt instruments are not generally affected by a
change in the market rates of interest, and therefore, such instruments
generally do not have an impact on future earnings. However, as fixed rate debt
matures, future earnings and cash flows may be impacted by changes in interest
rates related to debt acquired to fund repayments under maturing facilities.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-31 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors
The directors of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company, the periods during which they have served as such and certain other
information. The term of office of each director continues until the election of
directors to be held at the next annual meeting of stockholders or until his
successor has been elected. There is no family relationship between any director
and any other director or executive officer of the Company. The information set
forth below concerning such directors has been furnished by such directors.
Name Title Age
---- ----- ---
Stephen R. Kerrigan Chairman of the Board and Director 47
Mitchell Blatt Director 49
Robert M. Doyle Director 44
Mr. Kerrigan. Mr. Kerrigan has been Chief Executive Officer of Coinmach
Laundry since April 1996 and of the Company since November 1995. Mr. Kerrigan
was President and Treasurer of Solon Automated Services, Inc. ("Solon") and
Coinmach Laundry from April 1995 until April 1996, and Chief Executive Officer
of TCC from January 1995 until November 1995. Mr. Kerrigan has been a director
and Chairman of the Board of Coinmach Laundry since April 1995 and of the
Company since November 1995. Mr. Kerrigan was a director of TCC from January
1995 to November 1995 and a director of Solon from April 1995 to November 1995.
Mr. Kerrigan served as Vice President and Chief Financial Officer of TCC's
predecessor, Coinmach Industries Co., L.P. from 1987 to 1994.
Mr. Blatt. Mr. Blatt has been President and Chief Operating Officer of
Coinmach Laundry since April 1996 and of the Company since November 1995. Mr.
Blatt was the President and Chief Operating Officer of TCC from January 1995 to
November 1995. Mr. Blatt has been a director of Coinmach Laundry and the Company
since November 1995. Mr. Blatt joined TCC as Vice President-General Manager in
1982 and was Vice President and Chief Operating Officer from 1988 to 1994.
Mr. Doyle. Mr. Doyle has been Chief Financial Officer, Senior Vice
President, Treasurer and Secretary of Coinmach Laundry since April 1996 and of
the Company since November 1995. Mr. Doyle has been a director of the Company
since November 1995. Mr. Doyle served as Vice President, Treasurer and Secretary
of TCC from January 1995 to November 1995. Mr. Doyle joined TCC's predecessor in
1987 as Controller. In 1988, Mr. Doyle became Director of Accounting, and was
promoted in 1989 to Vice President and Controller.
Executive Officers
The executive officers of the Company are listed on the table below
which is followed by descriptions of all positions and offices held by such
persons with the Company and the periods during which they have served as such
and other information. The term of office of each executive officer continues
until the election of executive officers to be held at the next annual meeting
of directors or until his successor has been elected. There is no family
relationship between any executive officer and any other executive officer or
director of the Company.
23
Name Title Age
---- ----- ---
Stephen R. Kerrigan Chairman of the Board and Chief Executive Officer 47
Mitchell Blatt President, Chief Operating Officer 49
Robert M. Doyle Chief Financial Officer, Senior Vice President, 44
Treasurer, Secretary
John E. Denson Senior Vice President 63
Michael E. Stanky Senior Vice President 49
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- Directors"
above.
Mr. Denson. Mr. Denson has been Senior Vice President of Coinmach
Laundry since April 1996 and of the Company since November 1995. Mr. Denson was
Senior Vice President, Finance of Solon from June 1987 until November 1995. Mr.
Denson has served as an officer of Solon under various titles since 1973, and
served as a director and Co-Chief Executive Officer of Solon from November 1994
to April 1995.
Mr. Stanky. Mr. Stanky has been Senior Vice President of Coinmach
Laundry since April 1996 and of the Company since November 1995. Mr. Stanky was
a Senior Vice President of Solon from July 1995 to November 1995. Mr. Stanky
served Solon in various capacities since 1976, and in 1985 was promoted to Area
Vice President responsible for Solon's South-Central region. Mr. Stanky served
as a Co-Chief Executive Officer of Solon from November 1994 to April 1995.
24
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
who had annual compensation in excess of $100,000 for all services rendered in
all capacities for the fiscal years ended March 31, 1999 and March 31, 2000, and
the 2001 12-Month Period.
Annual Long-Term
Compensation Compensation
------------------------------------------------- --------------------------------
Common Stock
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation(14)
Name and Principal Position Year ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------- -------- ------------ ---------------
Stephen R. Kerrigan 2001 404,617 275,000 70,266(1) -- 2,631
Chief Executive Officer 2000 350,000 400,000 115,956(2) 50,000 2,972
1999 350,000 400,000 121,740(3) 50,000 2,121
Mitchell Blatt 2001 301,731 120,000 27,671(4) -- 2,352
President, Chief 2000 300,000 250,000 66,281(5) 30,000 2,553
Operating Officer 1999 300,773 150,000 65,575(6) 30,000 1,957
Robert M. Doyle 2001 200,673 85,000 7,034(7) -- 2,347
Chief Financial Officer 2000 193,942 125,000 12,052(8) 20,000 2,124
1999 175,000 87,500 -- 20,000 1,190
John E. Denson 2001 139,720 28,000 26,228(9) -- 1,927
Senior Vice President 2000 125,000 32,500 26,863(10) 10,000 1,456
1999 125,500 25,000 47,868(11) 5,000 1,359
Michael E. Stanky 2001 195,684 50,000 3,800(12) -- 2,421
Senior Vice President 2000 175,000 87,500 3,526(13) 10,000 2,009
1999 175,000 87,500 -- 10,000 1,928
- ----------------------
1 Includes $59,271 in forgiven indebtedness; $3,750 in interest calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$5,950 in club membership fees; and $1,295 in life insurance premiums paid by
the Company on behalf of Mr. Kerrigan.
2 Includes $98,118 in forgiven indebtedness; $3,750 in interest, calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$12,660 in club membership fees; and $1,428 in life insurance premiums paid by
the Company on behalf of Mr. Kerrigan.
3 Includes $98,118 in forgiven indebtedness; $3,750 in interest, calculated
at a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$4,265 in automobile allowances; $14,500 in club membership fees; and $1,107 in
life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
4 Includes $9,271 in forgiven indebtedness; $2,813 in automobile allowances;
$14,450 in club membership fees; and $1,137 in life insurance premiums paid by
the Company on behalf of Mr. Blatt.
25
5 Includes $48,118 in forgiven indebtedness; $2,813 in automobile
allowances; $14,050 in club membership fees; and $1,300 in life insurance
premiums paid by the Company on behalf of Mr. Blatt.
6 Includes $48,118 in forgiven indebtedness; $3,312 in automobile
allowances; $13,300 in club membership fees; and $845 in life insurance premiums
paid by the Company on behalf of Mr. Blatt.
7 Includes $4,426 in forgiven indebtedness; $2,098 in automobile allowances;
and $510 in life insurance premiums paid by the Company on behalf of Mr. Doyle.
8 Includes $10,259 in forgiven indebtedness; $1,213 in automobile
allowances; and $580 in life insurance premiums paid by the Company on behalf of
Mr. Doyle.
9 Includes $20,000 in forgiven indebtedness; $2,900 in interest calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson; $1,275
in automobile allowances; and $2,053 in life insurance premiums paid by the
Company on behalf of Mr. Denson.
10 Includes $20,000 in forgiven indebtedness; $3,800 in interest, calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson; $1,463
in automobile allowances; and $1,600 in life insurance premiums paid by the
Company on behalf of Mr. Denson.
11 Includes $20,000 in forgiven indebtedness; $5,700 in interest, calculated
at a rate of 9.5% per annum on a loan made by the Company to Mr. Denson; $19,577
for reimbursement of certain out-of-pocket relocation expenses; $1,525 in
automobile allowances; and $1,066 in life insurance premiums paid by the Company
on behalf of Mr. Denson.
12 Includes $2,455 in forgiven indebtedness; $551 in automobile allowances;
and $794 in life insurance premiums paid by the Company on behalf of Mr. Stanky.
13 Includes $2,455 in forgiven indebtedness; $243 in automobile allowances;
and $828 in life insurance premiums paid by the Company on behalf of Mr. Stanky.
14 Represents matching contributions made by the Company to the 401(k) Plan.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Value
Table
The following table sets forth the number of stock options in respect
of Class A common stock of Coinmach Laundry exercised by the Named Executive
Officers listed below during the 2001 12-Month Period.
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options At Fiscal Options At Fiscal
Shares Year-End Year-End
Acquired Value (#) ($)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------- ------------ -------- --------------- -----------------
Stephen R. Kerrigan 358,098 908,380 0* --
Robert M. Doyle 191,890 477,682 0* --
John E. Denson 36,299 98,673 0* --
Michael E. Stanky 163,521 292,644 0* --
- --------------------
* All options not exrcised in the Transaction (all of which consisted of
out-of-the money options) were cancelled following consummation of the
Transaction.
26
Employment Contracts
Employment Agreements of Stephen R. Kerrigan, Mitchell Blatt and Robert
M. Doyle. On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell
Blatt and Robert M. Doyle (each, a "Senior Manager"), entered into Senior
Management Agreements (collectively, the "Senior Management Agreements"). In
connection with the Solon Merger, the obligations of TCC under the Senior
Management Agreements were assumed by Coinmach Laundry and certain amendments to
such agreements were effected pursuant to the Omnibus Agreement, dated as of
November 30, 1995 (the "Omnibus Agreement"). The Senior Management Agreements
(after giving effect to base salary increases thereunder) provide for annual
base salaries of $350,000, $300,000 and $200,000 for each of Messrs. Kerrigan,
Blatt and Doyle, respectively, which amounts are reviewed annually by the board
of directors of the Company (the "Board"). During the 2001 12-Month Period, the
compensation committee of Coinmach Laundry (the "Compensation Committee")
approved annual base salaries for each of Messrs. Kerrigan, Blatt and Doyle of
$425,000, $300,000 and $200,000, respectively. The Board, in its sole
discretion, may grant each Senior Manager an annual bonus. Each Senior
Management Agreement is terminable at the will of the Senior Managers or at the
discretion of the Board. Senior Managers are entitled to severance pay upon
termination of their employment. If employment is terminated by the Company
without Cause (as defined in the Senior Management Agreements) and no event of
default has occurred under any bank credit facility to which the Company is a
party, Senior Managers are entitled to receive severance pay in an amount equal
to 1.5 times their respective annual base salaries then in effect, payable in 18
equal monthly installments. If employment is terminated by the Company and an
event of default has occurred and is continuing under any bank credit facility
to which the Company is a party, Senior Managers are entitled to receive
severance pay in an amount equal to their respective annual base salaries then
in effect, payable in 12 equal monthly installments. Under limited
circumstances, Senior Managers are entitled to receive half of the severance pay
to which they are otherwise entitled if employment with the Company is
terminated by them.
Employment Agreement of John E. Denson. The Company entered into an
employment agreement with Mr. Denson, dated as of September 5, 1996, for a term
of one year which is automatically renewable each year for successive one-year
terms. Such agreement provided for an annual base salary of $110,000, commencing
January 1, 1997, which amount is to be reviewed each December by the Board.
During the 2001 12-Month Period, the Compensation Committee approved an annual
base salary for Mr. Denson of $140,000. The Board may, in its discretion, grant
Mr. Denson a performance-based annual bonus. The agreement is terminable at the
will of Mr. Denson or at the discretion of the Board. Under the terms of such
employment agreement, Mr. Denson is entitled to receive severance pay upon
termination of employment by the Company without Cause (as defined in such
agreement) in an amount equal to the greater of $140,000 or his annual base
salary then in effect.
Employment Agreement of Michael E. Stanky. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky which provided for an
annual base salary of $150,000. The terms and conditions of Mr. Stanky's
employment agreement are substantially similar to those contained in the Senior
Management Agreements. During the 2001 12-Month Period, the Compensation
Committee approved an annual base salary for Mr. Stanky of $195,000.
401(k) Savings Plan
The Company offers a 401(k) savings plan (the "401(k) Plan") to all
current eligible employees of the Company who have completed three months of
service. Pursuant to the 401(k) Plan, eligible employees may defer from 2% up to
15% of their salaries up to a maximum level imposed by applicable federal law
($10,500 in 2001). The percentage of compensation contributed to the plan is
deducted from each eligible employee's salary and considered tax-deferred
savings under applicable federal income tax law. Pursuant to the 401(k) Plan,
the Company contributes matching contribution amounts (subject to the Internal
Revenue Code limitation on compensation taken into account for such purpose) of
25% contributed to the 401(k) Plan by the respective eligible employee up to the
first 6% of the amount contributed by such employee. Eligible employees become
vested with respect to matching contributions made by the Company pursuant to a
vesting schedule based upon an eligible employee's years of service. After two
years of service, an eligible employee is 20% vested in all matching
contributions made to the 401(k) Plan. Such employee becomes vested in equal
increments thereafter through the sixth year of service, at
27
which time such employee becomes 100% vested. Eligible participants are always
100% vested in their own contributions, including investment earnings on such
amounts.
The Company made the following matching contributions during the 2001
12-Month Period to the Named Executive Officers appearing in the Summary
Compensation Table above: Mr. Kerrigan $2,631; Mr. Blatt $2,352; Mr. Doyle
$2,347; Mr. Denson $1,927; and Mr. Stanky $2,421.
Compensation of Directors
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Board meetings.
Compensation Committee Interlocks and Insider Participation
During the 2001 12-Month Period, the Compensation Committee was
composed of Dr. Arthur B. Laffer, Mr. Stephen G. Cerri and Mr. David A. Donnini.
None of Dr. Laffer or Messrs. Cerri and Donnini have been an employee or officer
of the Company or any of its subsidiaries. Mr. Donnini is a director of Coinmach
Laundry. Prior to the Transaction, Mr. Donnini was a principal of Golder, Thoma,
Cressey, Rauner, Inc., the general partner of GTCR Fund IV, and presently is a
principal of the majority stockholder of Coinmach Laundry. During the past
fiscal year, Dr. Laffer and Mr. Cerri were directors of Coinmach Laundry until
their respective resignations from the board of directors of Coinmach Laundry
and the Compensation Committee on July 13, 2000. Following their resignations,
all compensation matters with respect to the Company were, and continue to be,
addressed by the Board or the Chief Executive Officer, as appropriate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 2001, the Company had 100 shares of Common Stock issued
and outstanding, all of which were owned by Coinmach Laundry. Coinmach Laundry
completed the Transaction in July 2000, pursuant to which it was acquired by an
affiliate of GTCR Fund IV. For more information concerning the Transaction, see
Item 1 -- "Business - General Development of Business."
Change of Control
Pursuant to the terms of the Credit Agreement relating to the Senior
Credit Facility, upon the occurrence of an Event of Default (as defined in such
Credit Agreement), the lenders under such credit facility have the right to
foreclose on all of the outstanding shares of Common Stock issued to Coinmach
Laundry and pledged to such lenders by Coinmach Laundry pursuant to the terms
and conditions of the Credit Agreement and the Holdings Pledge Agreement (as
defined in the Credit Agreement).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management and Consulting Services
During the last fiscal year, the Company paid Mr. Chapman, a director
of the Company, $180,000 for general financial advisory and investment banking
services.
Registration Rights Agreement
The Company, GTCR Fund IV, MCS and Messrs. Blatt, Doyle, Stanky and
Chapman are parties to a registration rights agreement, dated July 26, 1995 (the
"Company Registration Agreement"), pursuant to which the Company granted such
parties certain rights with respect to the registration under the Securities
Act, for resale to the public, of their respective Registrable Securities (as
defined in the Company Registration Agreement). The Company Registration
Agreement provides that, among other things, GTCR Fund IV has the right to
"demand" registrations under the Securities Act with respect to all or a portion
of GTCR Fund IV's Registrable Securities. The
28
Company Registration Agreement also provides for customary provisions regarding
the priority among holders of securities with respect to the number of shares to
be registered pursuant to any demand or piggyback registration and
indemnification by the Company of the holders of Registrable Securities.
Certain Loans to Members of Management
As of June 8, 2001, Mr. Kerrigan (directly and indirectly through MCS,
an entity controlled by Mr. Kerrigan) and Mr. Blatt owed the Company $333,261
and $263,261, respectively, plus interest accrued thereon. During the last
fiscal year, the largest aggregate amount owed to the Company by Mr. Kerrigan
(directly and indirectly through MCS) and Mr. Blatt equaled $395,257 and
$275,257, respectively, plus interest accrued thereon. The indebtedness of each
of MCS and Mr. Blatt is evidenced by (i) two promissory notes dated July 26,
1995 in the original principal amount of $52,370, and (ii) two promissory notes
dated May 3, 1996 in the original principal amount of $21,797. Each such note
(i) accrues interest at a rate of 8% per annum, (ii) was delivered to the
Company in connection with the purchase of the Company's securities by MCS and
Mr. Blatt and (iii) is secured by pledges of all the Coinmach Laundry common
stock held by MCS and Mr. Blatt. The promissory notes dated July 26, 1995 and
May 3, 1996 are payable in eight equal annual installments commencing on July
26, 1996 and May 3, 1996, respectively. During the 2001 12-Month Period, the
Company forgave the repayment of approximately (i) $6,546 by each of MCS and Mr.
Blatt, which amounts represent the aggregate amount of the fifth installment of
principal and interest owed by MCS and Mr. Blatt under the notes dated January
31, 1995 and July 26, 1995, and (ii) $2,725 by each of MCS and Mr. Blatt, which
amounts represent the aggregate amount of the third installment of principal and
interest owed by MCS and Mr. Blatt under the note dated May 3, 1996. On May 5,
1999, the Company agreed to extend a loan of $250,000 to Mr. Blatt, which loan
is evidenced by a promissory note providing, among other things, that such loan
(i) be repaid in a single payment on the third anniversary of such loan and (ii)
accrue interest at a rate of 8% per annum. A principal payment of $20,000 was
made by Mr. Blatt on June 7, 1999. Such loan is also secured by a pledge of all
the Coinmach Laundry common stock held by Mr. Blatt.
Relocation Loans
In connection with the Company's establishment of a corporate
development office in Charlotte, North Carolina and the relocation of Messrs.
Kerrigan and Denson to such office in September 1996 and March 1997,
respectively, the Company extended loans to each of Messrs. Kerrigan and Denson
in the principal amounts of $500,000 ($300,000 of which is reflected in the
$333,261 owed by Mr. Kerrigan to the Company as of June 8, 2001) and $80,000,
respectively. The loan to Mr. Denson (the "Denson Loan") is an interest free
demand loan. The Company forgave an aggregate of $60,000 on the Denson Loan,
$20,000 of which was forgiven during the 2001 12-Month Period and $20,000 of
which was forgiven during the 2000 Fiscal Year. The loan to Mr. Kerrigan (the
"Kerrigan Loan") provides for the repayment of principal and interest in five
equal annual installments commencing in July 1997 (each payment date, a "Payment
Date") and accrual of interest at a rate of 7.5% per annum. During the fiscal
year ended March 31, 1998, the Board determined to extend the Kerrigan loan an
additional five years providing for repayment of outstanding principal and
interest in equal annual installments ending July 2006. The Kerrigan Loan
provides that payments of principal and interest will be forgiven on each
Payment Date provided that Mr. Kerrigan is employed by the Company on such
Payment Date. If Mr. Kerrigan ceases to be employed by the Company as a result
of (i) a change in control of the Company, (ii) the death or disability of Mr.
Kerrigan while employed by the Company or (iii) a termination by Mr. Kerrigan
for cause (as defined in the Kerrigan Loan) (each, a "Termination Event"), then
all outstanding amounts due under the Kerrigan Loan will be forgiven as of the
date of the Termination Event. If Mr. Kerrigan's employment is terminated upon
the occurrence of any event that is not a Termination Event, then all
outstanding amounts due under the Kerrigan Loan will become due and payable
within 30 business days following the termination of Mr. Kerrigan's employment.
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements -- see Index to Financial Statements
appearing on Page F-1.
(2) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Certificate of Incorporation of Coinmach
Corporation ("Coinmach") (incorporated by reference from
exhibit 3.1 to Coinmach's Form 10-K for the transition
period from September 30, 1995 to March 29, 1996, file
number 0-7694)
3.2 Bylaws of Coinmach (incorporated by reference from exhibit
3.2 to Coinmach's Form 10-K for the transition period from
September 30, 1995 to March 29, 1996, file number 0-7694)
4.1 Indenture, dated as of November 30, 1995, by and between
Coinmach, as Issuer, and Fleet National Bank of Connecticut
(formerly, Shawmut Bank Connecticut, National Association)
("Fleet"), as Trustee (incorporated by reference from
exhibit number 4.1 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
4.2 First Supplemental Indenture, dated as of December 11, 1995,
by and between Coinmach, as Issuer, and Fleet, as Trustee
(incorporated by reference from exhibit number 4.2 to
Coinmach's Registration Statement on Form S-1, file number
333-00620)
4.3 First Supplemental Indenture, dated as of November 28, 1995,
by and between Solon Automated Services, Inc. ("Solon") and
U.S. Trust Company of New York, as Trustee (incorporated by
reference from exhibit number 4.3 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
4.4 Registration Rights Agreement, dated as of November 30,
1995, by and between Coinmach and Lazard Freres & Co. LLC
("Lazard"), as Initial Purchaser (incorporated by reference
from exhibit number 4.6 to Coinmach's Registration Statement
on Form S-1, file number 333-00620)
4.5 Addendum to Registration Rights Agreement, dated December
14, 1995, by and between Coinmach and Lazard, as Initial
Purchaser (incorporated by reference from exhibit number 4.8
to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
4.6 Form of Global Note (included as an exhibit to Exhibit 4.1
hereto) (incorporated by reference from exhibit number 4.4
to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
4.7 Form of Physical Note (included as an exhibit to Exhibit 4.1
hereto) (incorporated by reference from exhibit number 4.5
to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
30
10.1 Purchase Agreement, dated as of January 31, 1995, by and
among The Coinmach Corporation ("TCC"), CIC I Acquisition
Corp. ("CIC"), the stockholders of CIC and Coinmach Holding
Corp. (incorporated by reference from exhibit number 10.1 to
Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.2 Equity Purchase Agreement, dated as of January 31, 1995, by
and between TCC and Golder, Thoma, Cressey, Rauner Fund IV,
L.P. ("GTCR"), subsequently amended by the Omnibus Agreement
(as hereinafter defined) (incorporated by reference from
exhibit number 10.2 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.3 Investor Purchase Agreement, dated as of January 31, 1995,