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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-7694
COINMACH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 53-0188589
(State of incorporation) (I.R.S. Employer Identification No.)
303 SUNNYSIDE BLVD., SUITE 70, PLAINVIEW, NEW YORK 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8555
Securities registered pursuant to Section 12 (b) of the act: None
Securities registered pursuant to Section 12 (g) of the act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 6, 2002, the registrant had outstanding 100 shares of common
stock, par value $.01 per share.
No market value can be determined for the Company's common stock. See
Item 5 of this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
Unless otherwise expressly indicated herein, the descriptions of the
company contained herein are as of March 31, 2002.
DESCRIPTION OF THE BUSINESS
GENERAL
Coinmach Corporation, a Delaware corporation (the "Company") is the leading
supplier of outsourced laundry equipment services for multi-family housing
properties in North America. The Company's core business (which the Company
refers to as the "route" business) involves leasing laundry rooms from building
owners and property management companies, installing and servicing laundry
equipment, collecting revenues generated from laundry machines, and operating
retail laundromats. For the fiscal year ended March 31, 2002, the Company's core
business represented approximately 90% of its total revenues and approximately
95% of its total EBITDA. The existing customer base for the Company's core
business is comprised of landlords, property management companies, owners of
rental apartment buildings, condominiums and cooperatives, university and
institutional housing and other multi-family housing properties. The Company
typically sets pricing for the use of laundry machines on location, and the
owner or property manager maintains the premises and provides utilities such as
gas, electricity and water. The Company's size and scale offer significant
advantages over its competitors in terms of marketing, operating efficiencies
and the quality of service the Company provides its customers.
The Company has selectively acquired certain related businesses in order to
expand and diversify the types of services it provides. Through its Appliance
Warehouse division, the Company leases laundry equipment and other household
appliances to property owners, managers of multi-family housing properties, and
to a lesser extent, individuals and corporate relocation entities. Through its
wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super Laundry"), the
Company is also a laundromat equipment distribution company. The Company
believes that these non-core businesses provide a platform for expansion and
diversification of the Company's services. The Company is a wholly-owned
subsidiary of Coinmach Laundry Corporation, a Delaware corporation ("Coinmach
Laundry"). Unless otherwise specified herein, references to the Company shall
mean Coinmach Corporation and its subsidiaries. See "BUSINESS - DESCRIPTION OF
BUSINESS - COMPLEMENTARY OPERATIONS."
The Company maintains its headquarters in Plainview, New York, a corporate
office in Charlotte, North Carolina and regional offices throughout the United
States through which it conducts operating activities, including sales, service
and collections.
At March, 31, 2002, the Company owned and operated approximately 835,000
washers and dryers in approximately 80,000 locations throughout North America of
which (i) approximately 676,000 are located in leased laundry rooms in
approximately 70,000 locations, (ii) approximately 12,000 are located in 167
retail laundromats in Texas and Arizona, and (iii) approximately 147,000 are
installed with its rental customers.
BUSINESS AND GROWTH STRATEGY
The Company's business strategy is to maintain its market leadership
position as the leading supplier of outsourced laundry equipment services for
multi-family housing properties in North America. The Company's growth strategy
is to increase its cash flow from operations and profitability through a
combination of internal expansion and selective acquisitions designed to achieve
economies of scale and increase its operating efficiencies. Furthermore,
management believes that its existing sales, service, collections and security
infrastructure could potentially be extended into other collections-based route
businesses that are unrelated to its existing laundry business.
2
INTERNAL EXPANSION
Internal expansion is comprised of: (i) increasing the installed machine
base by adding new customers in existing regions and increasing the number of
locations with existing customers; (ii) converting owner-operated facilities to
Company-managed facilities; and (iii) improving the net contribution per machine
through operating efficiencies and selective price increases.
NEW CUSTOMERS AND LOCATIONS. The Company's sales and marketing efforts
focus on adding new customers and increasing the number of locations from
existing customers within existing operating regions. The Company's primary
means of internal expansion is by marketing the Company's products and
services to building managers and property owners whose leases with other
laundry equipment services providers are near expiration. The Company's
integrated computer systems track information on the lease expirations of
its competitors. The Company believes that its leading market position and
expanding geographic presence enhance its ability to gain new customers and
additional locations from its existing customers.
CONVERSIONS. According to information provided by the Multi-housing
Laundry Association, there are approximately 1.2 million machines installed
in locations that continue to be managed by owner-operators. Building
owners or managers can forego significant cash outlays and servicing costs
by contracting with the Company to purchase, service and maintain laundry
equipment. Accordingly, the Company markets its services to building owners
and managers, encouraging them to outsource their laundry facilities. The
Company offers a full range of services from the design, construction and
installation of new laundry facilities to the refurbishment of existing
facilities. Management believes these services provide a competitive
advantage in securing new customers.
OPERATING EFFICIENCIES AND PRICE INCREASES. The Company focuses on
improving its net contribution per machine by increasing operating
efficiencies and implementing selective price increases. With respect to
operating efficiencies, each additional route added to its existing base
provides the Company the ability to further leverage its well-developed
operating infrastructure and positions the Company to achieve higher
returns on its established base. In terms of pricing, management actively
monitors its installed base to identify those locations in which to
implement selective price increases. Due to local competition and other
factors beyond the Company's control, however, there can be no assurance
that such efficiencies or price increases will occur.
SELECTIVE ACQUISITIONS
From January 1995 to June 1998, the Company pursued a strategy of rapid
growth through acquisitions of local, regional and multi-regional route
operators. As a result, the Company has become the leading provider of
outsourced laundry equipment services in North America. As the number of
significant acquisition opportunities has diminished over the past several
years, due in part to the Company's successful execution of its acquisition
strategy, the Company has focused its efforts on selectively acquiring smaller
routes within its fragmented industry. The Company believes that there are
numerous private, family-owned businesses that often lack the financial
resources to compete effectively with larger independent operators such as
Coinmach to secure new or existing contracts. Consequently, such independent
operators, especially those that are undergoing generational ownership changes,
continue to represent potential acquisition opportunities. The Company evaluates
potential acquisitions based on the size of the business (in terms of revenues,
cash flow and machine base), the geographic concentration of the business,
market penetration, service history, customer relations, existing contract terms
and potential operating efficiencies and cost savings.
DEVELOP COMPLEMENTARY LINES OF BUSINESS
While the Company intends to focus on increasing its installed machine
base, the Company believes that its leading market position and access to over
six million housing units provide the Company with additional growth and
diversification opportunities within its existing laundry business. These
opportunities include the distribution of laundry equipment to the retail
coin-operated laundromat segment (through its distribution operations) and the
rental
3
of laundry equipment to various end customers (through its rental operations).
Furthermore, the Company believes that its existing sales, service, collections
and security infrastructure could potentially be extended into other
collections-based route businesses that are unrelated to its existing laundry
business. The Company regularly explores strategic alliances with other
companies in an effort to develop these ancillary revenue streams. There can be
no assurance, however, that the Company will be able to take advantage of these
opportunities on commercially reasonable terms, if at all.
CONTINUE DEVELOPMENT OF INTEGRATED COMPUTER SYSTEMS.
The Company's business strategy also includes the continued development of
its integrated computer systems. As the industry leader, the Company works
closely with its equipment vendors to assess ongoing technological changes and
implement those that the Company believes are beneficial to its customers and to
its operating efficiencies and financial performance. The Company's integrated
computer systems are capable of being tailored to a specific region's needs
while continuing to communicate with central management systems at its
headquarters.
INDUSTRY
The outsourced laundry equipment services industry is characterized by
stable operating cash flows generated by long-term, renewable lease contracts
with multi-family housing property owners and management companies. Based upon
industry estimates, management believes there are approximately 3.5 million
installed machines in multi-family properties throughout the United States,
approximately 2.3 million of which have been outsourced to independent operators
such as the Company and approximately 1.2 million of which continue to be
operated by the owners of such locations. The outsourced laundry equipment
services industry remains highly fragmented, with many small, private and
family-owned route businesses operating throughout all major metropolitan areas
in the United States. According to information provided by the Multi-housing
Laundry Association, the industry consists of over 280 independent operators.
Industry participants often incur significant capital costs upon the
procurement of new leases and the renewal of existing leases. Initial costs may
include replacing existing washers and dryers, refurbishing laundry rooms and
making advance location payments to secure long-term, renewable leases. After
the initial expenditures, ongoing working capital requirements are minimal. In
addition, the useful life of the Company's equipment typically extends
throughout the term of the contract under which it is installed. Furthermore,
maintenance of the facilities where the laundry machines are located is
typically performed by the property manager or landlord.
Historically, the industry has been characterized by stable demand and has
been resistant to changing market conditions and general economic cycles. The
Company believes that the industry's consistent and predictable revenue and
operating cash flows are primarily due to: (i) the long-term nature of location
leases; (ii) the stable demand for laundry services; and (iii) minimal ongoing
working capital requirements.
DESCRIPTION OF PRINCIPAL OPERATIONS
The principal aspects of the Company's operations include: (i) sales and
marketing; (ii) location leasing; (iii) service; (iv) information management;
(v) remanufacturing and (vi) revenue collection and security.
SALES AND MARKETING
The Company markets its products and services through a sales staff with an
average industry experience of over ten years. The principal responsibility of
the sales staff is to solicit customers and negotiate lease arrangements with
building owners and managers. Sales personnel are paid commissions that comprise
50% or more of their annual compensation. Selling commissions are based on a
percentage of a location's annualized earnings before interest and taxes. Sales
personnel must be proficient with the application of sophisticated financial
analyses, which calculate minimum returns on investments to achieve the
Company's targeted goals in securing location contracts and renewals. The
Company believes that its sales staff is among the most competent and effective
in the industry.
4
The Company's marketing strategy emphasizes excellent service offered by
its experienced, highly-skilled personnel and quality equipment that maximizes
efficiency and revenue and minimizes machine down-time. The Company's sales
staff targets potential new and renewal lease locations by utilizing the
integrated computer systems' extensive database to provide information on the
Company's, as well as its competitors', locations. Additionally, the integrated
computer systems monitor performance, repairs and maintenance, as well as the
profitability of locations on a daily basis. All sales, service and installation
data is recorded and monitored daily on a custom-designed, computerized sales
planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenue.
LOCATION LEASING
The Company's leases provide it the exclusive right to operate and service
the installed laundry machines, including repairs, revenue collection and
maintenance. The Company typically sets pricing for the use of the machines on
location, and the property owner or property manager maintains the premises and
provides utilities such as gas, electricity and water.
In return for the exclusive right to provide laundry equipment services,
most of the Company's leases provide for monthly commission payments to the
location owners. Under the majority of leases, these commissions are based on a
percentage of the cash collected from the laundry machines. Many of the
Company's leases require the Company to make advance location payments to the
location owner in addition to commissions. The Company's leases typically
include provisions that allow for unrestricted price increases, a right of first
refusal (an opportunity to match competitive bids at the expiration of the lease
term) and termination rights if the Company does not receive minimum net
revenues from a lease. The Company has some flexibility in negotiating its
leases and, subject to local and regional competitive factors, may vary the
terms and conditions of a lease, including commission rates and advance location
payments. The Company evaluates each lease opportunity through its integrated
computer systems to achieve a desired level of return on investments.
The Company estimates that approximately 90% of its locations are under
long-term leases with initial terms of five to ten years. Of the remaining
locations not subject to long-term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
expects to continue to service such customers. Most of the Company's leases
renew automatically or have a right of first refusal provision. The Company's
automatic renewal clause typically provides that, if the building owner fails to
take any action prior to the end of the original lease term or any renewal term,
the lease will automatically renew on substantially similar terms. As of March
31, 2002, the Company's leases had an average remaining life to maturity of
approximately 51 months (without giving effect to automatic renewals).
SERVICE
The Company's employees deliver, install, service and collect revenue from
washers and dryers in laundry facilities at the Company's leased locations.
The Company's integrated computer systems allow for the quick dispatch of
service technicians in response to both computer-generated (for preventive
maintenance) and customer-generated service calls. On a daily basis, the Company
receives and responds to approximately 3,000 service calls. The Company
estimates that less than 1% of its machines are out of service on any given day.
The ability to reduce machine down-time, especially during peak usage, enhances
revenue and improves the Company's reputation with its customers.
In a business that emphasizes prompt and efficient service, the Company
believes that its integrated computer systems provide a significant competitive
advantage in terms of responding promptly to customer needs. Computer-generated
service calls for preventive maintenance are based on previous service history,
repeat service
5
call analysis and monitoring of service areas. These systems coordinate the
Company's radio-equipped service vehicles and allow it to address customer needs
quickly and efficiently.
INFORMATION MANAGEMENT
The Company's integrated computer systems serve three major functions: (i)
tracing the service cycle of equipment; (ii) monitoring revenues and costs by
location, customer and salesperson; and (iii) providing information on
competitors' and the Company's lease renewal schedules.
The Company's integrated computer systems provide speed and accuracy
throughout the entire service cycle by integrating the functions of service call
entry, dispatching service personnel, parts and equipment purchasing,
installation, distribution and collection. In addition to coordinating all
aspects of the service cycle, the Company's integrated computer systems track
contract performance, which indicate potential machine problems or pilferage and
provide data to forecast future equipment servicing requirements.
Data on machine performance is used by the Company's sales staff to
forecast revenue by location. The Company is able to obtain daily, monthly,
quarterly and annual reports on location performance, coin collection, service
and sales activity by salesperson.
The Company's integrated computer systems also provide the Company's sales
staff with an extensive database essential to the Company's marketing strategy
to obtain new business through competitive bidding or owner-operator conversion
opportunities.
The Company also believes that its integrated computer systems enhance its
ability to successfully integrate acquired businesses into its existing
operations. Regional or certain multi-regional acquisitions have typically been
substantially integrated within 90 to 120 days, while a local acquisition can be
integrated almost immediately.
REMANUFACTURING
The Company rebuilds and reinstalls a portion of its machines at
approximately one-third the cost of acquiring new machines, providing cost
savings. Remanufactured machines are restored to virtually new condition with
the same estimated average life and service requirements as new machines.
Machines that can no longer be remanufactured are added to the Company's
inventory of spare parts.
The Company maintains three regional remanufacturing facilities,
strategically located to service each of its operating regions, which provide
for consistent machine quality and efficient operations.
REVENUE COLLECTION AND SECURITY
The Company believes that it provides the highest level of security for
revenue collection control in the outsourced laundry equipment services
industry. The Company utilizes numerous precautionary procedures with respect to
cash collection, including frequent alteration of collection patterns and
extensive monitoring of collections and personnel. The Company enforces
stringent employee standards and screening procedures for prospective employees.
Employees responsible for, or who have access to, the collection of funds are
tested randomly and frequently. Additionally, the Company's security department
performs trend and variance analyses of daily collections by location. Security
personnel monitor locations, conduct investigations, and implement additional
security procedures as necessary.
COMPLEMENTARY OPERATIONS
In addition to its route business, the Company has expanded its breadth of
operations to related, complementary lines of businesses:
6
RENTAL OPERATIONS
The Company, through its Appliance Warehouse division, is involved in the
business of leasing laundry equipment and other household appliances and
electronic items to corporate relocation entities, property owners, managers of
multi-family housing properties and individuals. With access to approximately
six million individual housing units, the Company believes this business line
represents an opportunity for growth in a new market segment which is
complementary to its core business.
DISTRIBUTION OPERATIONS
Super Laundry, a wholly-owned subsidiary of the Company, is a laundromat
equipment distribution company. Super Laundry's business consists of
constructing complete turnkey retail laundromats, retrofitting existing retail
laundromats, distributing exclusive and non-exclusive lines of commercial coin
and non-coin operated machines and parts, and selling service contracts. Super
Laundry's customers generally enter into sales contracts pursuant to which Super
Laundry constructs and equips a complete laundromat operation, including
location identification, construction, plumbing, electrical wiring and all
required permits.
COMPETITION
The outsourced laundry equipment services industry is highly competitive,
capital intensive and requires reliable, quality service. Despite the overall
fragmentation of the industry, the Company believes there are currently three
multi-regional route operators, including the Company, with significant
operations throughout the United States. The two other major multi-regional
competitors are Web Service Company, Inc. and Mac-Gray Corp.
EMPLOYEES
As of March 31, 2002, the Company employed 2,049 employees (including 308
laundromat attendants in the Company's retail laundromats in Texas and Arizona).
In the Northeast region, 127 hourly workers are represented by Local 966,
affiliated with the International Brotherhood of Teamsters (the "Union"). The
Company believes that it has maintained a good relationship with the Union
employees and has never experienced a work stoppage since its inception.
GENERAL DEVELOPMENT OF BUSINESS
Coinmach Laundry was incorporated on March 31, 1995 under the name SAS
Acquisitions Inc. in the State of Delaware and is the sole shareholder of all of
the common stock of the Company, its primary operating subsidiary. In November
1995, The Coinmach Corporation ("TCC"), a Delaware corporation and predecessor
of the Company, merged (the "Solon Merger") with and into Solon Automated
Services, Inc. ("Solon"). In connection with the Solon Merger, Coinmach Laundry
changed its name from SAS Acquisitions Inc., and Solon, the surviving
corporation in the Solon Merger, changed its name to Coinmach Corporation.
On May 12, 2000, Coinmach Laundry entered into an Agreement and Plan of
Merger (the "Merger Agreement") with CLC Acquisition Corporation ("CLC
Acquisition"), a newly-formed Delaware corporation formed by Bruce V. Rauner, a
director of Coinmach Laundry and a principal of the indirect general partner of
GTCR Fund IV, Coinmach Laundry's then-largest stockholder. Pursuant to the
Merger Agreement, CLC Acquisition acquired all of Coinmach Laundry's outstanding
common stock and non-voting common stock for $14.25 per share in a two-step
going-private transaction consisting of a tender offer followed by a merger
transaction of CLC Acquisition with and into Coinmach Laundry. Effective July
13, 2000, CLC Acquisition was merged with and into Coinmach Laundry pursuant to
the terms of the Merger Agreement. Coinmach Laundry's Class A common stock was
delisted from The Nasdaq Stock Market and Coinmach Laundry is no longer subject
to the reporting requirements of the Securities Exchange Act of 1934. The
foregoing transactions are collectively referred to herein as the "Transaction."
7
The Company's headquarters are located at 303 Sunnyside Blvd., Suite 70,
Plainview, New York 11803, and its telephone number is (516) 349-8555. The
Company's mailing address is the same as that of its headquarters. The Company
also maintains a corporate office in Charlotte, North Carolina.
CREDIT FACILITY AND SENIOR NOTES
On January 25, 2002, the Company issued $450 million of 9% Senior Notes due
2010 (the "9% Senior Notes") and entered into a new $355 million senior secured
credit facility (the "New Senior Secured Credit Facility") comprised of: (i)
$280 million in aggregate principal amount of term loans and (ii) a revolving
credit facility with a maximum borrowing limit of $75 million. The New Senior
Secured Credit Facility also provides for up to $10 million of letter of credit
financings and short term borrowings under a swing line facility of up to $7.5
million. The term loans under the New Senior Secured Credit Facility, in
aggregate principal amounts outstanding of $30 million and $250 million, are
scheduled to be fully repaid by January 25, 2008 and July 25, 2009,
respectively. As of March 31, 2002, the Company had no amounts outstanding under
its revolving credit facility, which is scheduled to expire on January 25, 2008.
The Company used the net proceeds from the 9% Senior Notes, together with
borrowings under the New Senior Secured Credit Facility, to (i) redeem all of
its outstanding 11 3/4% Senior Notes (including accrued interest and the
resulting call premium), (ii) repay outstanding indebtedness under its prior
senior credit facility, and (iii) pay related fees and expenses. The 11 3/4%
Senior Notes were redeemed on February 25, 2002 with the funds that were set
aside in escrow on January 25, 2002. See Item 7 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND
CAPITAL RESOURCES - FINANCING ACTIVITIES" for more information about the 9%
Senior Notes and the New Senior Secured Credit Facility.
ITEM 2. PROPERTIES
As of March 31, 2002, the Company leased 61 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, revenue collection and warehousing. A significant portion of
the Company's leased properties service the Company's core route operations.
The Company presently maintains its headquarters in Plainview, New York,
leasing approximately 11,600 square feet pursuant to a ten-year lease scheduled
to terminate September 30, 2011. The Company's Plainview facility is used for
general and administrative purposes.
The Company also maintains a corporate office in Charlotte, North Carolina,
leasing approximately 3,000 square feet pursuant to a five-year lease scheduled
to terminate September 30, 2006.
ITEM 3. LEGAL PROCEEDINGS
On November 18, 1999, K. REED HINRICHS V. STEPHEN R. KERRIGAN, ET AL., a
purported class action lawsuit, was filed in the Delaware Court of Chancery,
Newcastle County naming Coinmach Laundry, GTCR Fund IV, GTCR Golder Rauner,
L.L.C. and certain of its executive officers as defendants. Plaintiffs allege
that the defendants' proposal to acquire between 80% and 90% of Coinmach
Laundry's common stock for $13.00 per share was inadequate and that the
defendants breached their fiduciary duty to Coinmach Laundry's public
shareholders. This matter was stayed by mutual agreement of the parties due to
the subsequent cash tender offer and merger transaction which were approved by
Coinmach Laundry's board of directors, that have since been consummated. The
Company believes this class action is without merit and that the ultimate
disposition of such action will not have a material adverse effect on the
Company. See "BUSINESS -- RECENT DEVELOPMENTS."
The Company is party to various legal proceedings arising in the ordinary
course of business. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that adverse determinations
in any or all such proceedings would have a material adverse effect upon the
Company's financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There currently exists no established public trading market for the
Company's common stock, all of which is held beneficially and of record by
Coinmach Laundry.
HOLDERS
As of March 31, 2002, there was one holder of record of the Company's
common stock.
DIVIDENDS
The Company has not paid any dividends on its common stock during the past
fiscal year and does not intend to pay dividends on its common stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained in
certain of its outstanding debt and financing agreements relating to the payment
of cash dividends on its common stock. The Company may in the future enter into
loan or other agreements or issue debt securities or preferred stock that
restrict the payment of cash dividends or certain other distributions. See Item
7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -- LIQUIDITY AND CAPITAL RESOURCES."
EQUITY PARTICIPATION PURCHASE PLAN
Pursuant to Coinmach Laundry's equity participation purchase plan, certain
employees of the Company are eligible to acquire common stock of Coinmach
Laundry at a fixed price per share determined by the board of directors of
Coinmach Laundry. Such shares are paid for by each participating employee and
vest over a specified period, typically over 4 years. As of March 31, 2002,
Coinmach Laundry had issued 16,356,894 shares of its common stock to
participants under the plan. Additionally, in connection with the going private
transaction, members of senior management of the Company were eligible to
acquire preferred stock of Coinmach Laundry. As of March 31, 2002, Coinmach
Laundry had issued 693 shares of its preferred stock to certain members of
senior management of the Company.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios)
The following table presents summary historical consolidated financial data
of the Company. Such table includes the consolidated financial data for the year
ended March 31, 2002 ("2002 Fiscal Year"), the period from July 1, 2000 to March
31, 2001 ("Post-Transaction") and the period from April 1, 2000 to June 30, 2000
("Pre-Transaction"), and the years ended March 31, 2000 ("2000 Fiscal Year"),
March 31, 1999 ("1999 Fiscal Year"), and March 31, 1998 ("1998 Fiscal Year").
The financial data set forth below should be read in conjunction with the
Company's audited historical consolidated financial statements and the related
notes thereto included in Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA"
and with the information presented in Item 7 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Form 10-K.
JULY 1, 2000 APRIL 1, 2002
TO MARCH 31, TO JUNE 30,
YEAR ENDED 2001 2000 YEAR ENDED
----------- ------------- ------------- -----------------------------------
MARCH 31, POST- PRE- MARCH 31, MARCH 31, MARCH 31,
2002 TRANSACTION(7) TRANSACTION(8) 2000 1999 1998
----------- --------------- -------------- --------- --------- ---------
OPERATIONS DATA:
Revenues................................ $538,895 $393,608 $134,042 $527,079 $505,323 $324,887
Operating, general and administrative
expenses.............................. 371,830 271,298 91,805 358,733 340,671 224,752
Depreciation and amortization........... 129,529 102,727 31,557 123,002 113,448 75,453
Operating income........................ 37,536 19,583 10,680 45,344 51,204 24,682
Interest expense........................ 73,036 52,391 16,661 67,232 65,901 44,668
Loss before extraordinary item.......... (34,620) (25,603) (4,652) (16,079) (11,618) (14,652)
Extraordinary loss, net of income taxes(1) (6,745) -- -- -- -- --
Net loss................................ (41,365) (25,603) (4,652) (16,079) (11,618) (14,652)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............... $ 27,820 $25,859 -- $23,174 $26,515 $22,451
Property and equipment, net............. 284,413 276,004 -- 237,160 223,610 194,328
Contract rights, net.................... 351,609 376,779 -- 384,680 413,014 366,762
Advance location payments............... 69,257 74,233 -- 77,212 79,705 74,026
Goodwill, net........................... 201,137 215,317 -- 101,253 109,025 110,424
Total assets............................ 989,321 1,014,074 -- 875,625 900,660 816,232
Total debt (2).......................... 737,305 697,969 -- 683,819 685,741 598,700
Stockholder's equity (deficit).......... 50,423 91,788 -- (30,143) (14,128) (2,594)
FINANCIAL INFORMATION AND OTHER DATA:
Cash flow provided by operating
activities............................ $ 78,411 $71,955 $17,407 $90,743 $103,041 $ 58,686
Cash flow used for investing activities. (82,011) (66,202) (24,273) (88,404) (181,665) (350,875)
Cash flow provided by (used for)
financing activities.................. 5,561 (4,471) 8,269 (5,680) 82,688 304,530
EBITDA (3).............................. 167,065 122,310 42,237 168,346 164,652 100,135
EBITDA margin (4)....................... 31.0% 31.1% 31.5% 31.9% 32.6% 30.8%
Operating margin (5).................... 7.0% 5.0% 8.0% 8.6% 10.1% 7.6%
Capital expenditures (6)
Capital expenditures.................. $79,072 $60,620 $24,273 $88,404 $84,134 $58,728
Acquisition capital expenditures...... 3,723 5,582 -- -- 97,531 294,996
-------- -------- -------- -------- -------- --------
Total Capital Expenditures.............. $82,795 $66,202 $24,273 $88,404 $181,665 $353,724
======== ======== ======== ======== ======== ========
_________
(1) The extraordinary loss, net of income taxes, in the 2002 Fiscal Year
consists of costs related to the early extinguishments of debt in connection
with the Company's refinancing on January 25, 2002.
(2) Total debt at March 31, 2001, March 31, 2000, March 31, 1999 and March
31, 1998 does not include the unamortized premium on the 11 3/4% Series C Senior
Notes of $5,555, $6,789, $8,023 and $9,258, respectively, recorded as a result
of the issuance by the Company of $100 million aggregate principal amount of 11
3/4% Series C Senior Notes due 2005 in October 1997. The 11 3/4% Series C Senior
Notes were redeemed on February 25, 2002 and the unamortized premium on such
date was included in the determination of the extraordinary loss.
10
(3) EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization. EBITDA is used by
certain investors as an indication of a company's ability to service existing
debt, to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to either (a) operating
income (as determined by accounting principles generally accepted in the United
States) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by accounting
principles generally accepted in the United States) as a measure of liquidity.
Given that EBITDA is not a measurement determined in accordance with accounting
principles generally accepted in the United States and is thus susceptible to
varying calculations, EBITDA may not be comparable to other similarly titled
measures of other companies.
(4) EBITDA margin represents EBITDA as a percentage of revenues. Management
believes that EBITDA margin is a useful measure to evaluate the Company's
performance over various sales levels. EBITDA margin should not be considered as
an alternative for measurements determined in accordance with accounting
principles generally accepted in the United States.
(5) Operating margin represents operating income as a percentage of
revenues.
(6) Capital expenditures represent amounts expended for property and
equipment, for advance location payments to location owners and for
acquisitions. Acquisition capital expenditures represent the amounts expended to
acquire local, regional and multi-regional route operators, as well as
complementary businesses. For the fiscal year ended March 31, 1998, acquisition
capital expenditures include approximately $2.3 million of promissory notes
issued by Coinmach Laundry related to certain acquisitions.
(7) Includes the results of operations for the period July 1, 2000 to March
31, 2001, representing the results subsequent to the Transaction. Certain
revenues and operating, general and administrative expenses have been
reclassified for presentation purposes.
(8) As a result of the Transaction that was accounted for using the
purchase method of accounting and, due to a practice known as "push down"
accounting, as of July 1, 2000 (the beginning of the accounting period closest
to the date on which control was effective), the Company adjusted its
consolidated assets and liabilities to their estimated fair values, based on
independent appraisals, evaluations, estimations and other studies. Therefore,
the financial statements presented for the Post-Transaction period are not
comparable to the financial statements presented for the Pre-Transaction period.
Had the transaction taken place at April 1, 2000, on an unaudited pro-forma
basis, depreciation and amortization and net loss would have been $3.5 million
higher than reported for the Pre-Transaction period ended June 30, 2000. This
includes the results of operations for the period April 1, 2000 to June 30,
2000, representing the results prior to the Transaction. Certain revenues and
operating, general and administrative expenses have been reclassified for
presentation purposes.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis pertains to the results of operations
and financial position of the Company for the 2002 Fiscal Year, the period from
April 1, 2000 to March 31, 2001 (the "2001 12-Month Period"), and the 2000
Fiscal Year and should be read in conjunction with the consolidated financial
statements and related notes thereto included in Item 8. The 2001 12-Month
Period is comprised of the Pre-Transaction period combined with the
Post-Transaction period, and is not adjusted for the pro-forma effect that
additional depreciation and amortization would have on the Pre-Transaction
period had the Transaction occurred at the beginning of the 2001 12-Month
Period.
GENERAL
The Company is principally engaged in the business of supplying outsourced
laundry equipment services to multi-family housing properties. The Company's
core business involves leasing laundry rooms from building owners and property
management companies, installing and servicing the laundry equipment, collecting
revenues generated from laundry machines and operating retail laundromats. The
Company also leases laundry machines and other household appliances to property
owners, managers of multi-family housing properties and to a lesser extent,
individuals and corporate relocation entities. At March 31, 2002, the Company
owned and operated approximately 835,000 washers and dryers in approximately
80,000 locations throughout North America, including in 167 retail laundromats
located throughout Texas and Arizona. The Company, through Super Laundry, its
wholly-owned subsidiary, is also a laundromat equipment distribution company.
SOURCES OF REVENUE
The Company's primary financial objective is to increase its cash flow from
operations. Cash flow from operations represents a source of funds available to
service indebtedness and for investment in both internal growth and growth
through acquisitions. The Company has experienced net losses during the past
three fiscal years. Such net losses are attributable in part to significant
non-cash charges associated with the Company's acquisitions and the related
amortization of contract rights and goodwill accounted for under the purchase
method of accounting.
The Company's most significant revenue source is its route business, which
over the last three fiscal years has accounted for approximately 90% of its
revenue. Through its route operations, the Company provides outsourced laundry
equipment services to locations by leasing laundry rooms from building owners
and property management companies, typically on a long-term, renewable basis. In
return for the exclusive right to provide these services, most of the Company's
contracts provide for commission payments to the location owners. Commission
expense (also referred to as rent expense), the Company's single largest expense
item, is included in laundry operating expenses and represents payments to
location owners. Commissions may be fixed amounts or percentages of revenues and
are generally paid monthly. In addition to commission payments, many of the
Company's leases require it to make advance location payments to location
owners, which are capitalized and amortized over the life of the applicable
leases. Through the Company's route business, the Company also currently
operates 167 retail laundromats throughout Texas and Arizona. The operation of
retail laundromats involves leasing store locations in desirable geographic
areas, maintaining an appropriate mix of washers and dryers at each store
location and servicing the washers and dryers at such locations. Laundry
operating expenses include, in addition to commission payments, (i) the cost of
machine maintenance and revenue collection in the route and retail laundromat
business, including payroll, parts, insurance and other related expenses, (ii)
costs and expenses incurred in maintaining the Company's retail laundromats,
including utilities and related expenses, (iii) the cost of sales associated
with the equipment distribution business and (iv) certain expenses related to
the operation of the Company's rental business.
In addition to its route business, the Company operates an equipment
distribution business through Super Laundry, its wholly-owned subsidiary. Super
Laundry's business consists of constructing and designing complete turnkey
retail laundromats, retrofitting existing retail laundromats, distributing
exclusive lines of commercial coin and non-coin operated machines and parts, and
selling service contracts.
12
The Company also operates an equipment rental business through its
Appliance Warehouse division, which rents laundry equipment and other household
appliances and electronic items to corporate relocation entities, owners and
managers of multi-family housing properties as well as to individuals.
The Company's discussion and analysis of segment information for the route,
distribution and rental segments for the 2001 12-Month Period and the 2000
Fiscal Year presented has been restated to combine its operations of the retail
laundromats with the route segment. Prior to the quarter ended September 30,
2001, the operations of the Company's retail laundromats were separately
discussed and analyzed. The Company believes that aggregating its retail
operations with the route segment is more representative of the Company's core
business.
ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
The Company's financial statements are based on the selection and
application of significant accounting policies, which require management to make
significant estimates and assumptions. The Company believes that the following
are some of the more critical judgment areas in the application of its
accounting policies that currently affect its financial condition and results of
operations.
Revenue and cash and cash equivalents include an estimate of cash and coin
not yet collected at the end of a reporting period which remained at laundry
room locations.
The Company is required to estimate the collectibility of its receivables.
A considerable amount of judgment is required in assessing the ultimate
realization of these receivables including the current credit-worthiness of each
customer. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
The Company currently has significant deferred tax assets, which are
subject to periodic recoverability assessments. Realization of the Company's
deferred tax assets is principally dependent upon its achievement of projected
future taxable income. Management's judgments regarding future profitability may
change due to future market conditions and other factors. These changes, if any,
may require possible material adjustments to these deferred tax asset balances.
The Company has significant intangible assets related to goodwill and
other acquired intangibles. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant judgments.
Changes in strategy and/or market conditions, including estimated future cash
flows, could significantly impact these judgments and require adjustments to
recorded asset balances.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected
statement of operations data and EBITDA, as percentages of revenue:
YEAR ENDED YEAR ENDED
MARCH 31, JULY 1, 2000 TO APRIL 1, 2000 TO MARCH 31,
2002 MARCH 31, 2001 JUNE 30, 2000 2000
---------- --------------- ---------------- ----------
(POST- (PRE-
TRANSACTION) TRANSACTION)
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
Laundry operating expenses................ 67.4 67.2 66.9 66.4
General and administrative expenses....... 1.6 1.7 1.6 1.7
Depreciation and amortization............. 24.0 26.1 23.5 23.3
Operating income.......................... 7.0 5.0 8.0 8.6
Interest expense, net..................... 13.6 13.3 12.4 12.8
EBITDA.................................... 31.0 31.1 31.5 31.9
13
FISCAL YEAR ENDED MARCH 31, 2002 COMPARED TO THE 12-MONTH PERIOD ENDED
MARCH 31, 2001
The following table sets forth the Company's revenues for the periods
indicated:
(dollars in millions)
----------------------------
2002 2001 CHANGE
------ ------- ------
Route................................. $478.1 $ 471.0 $ 7.1
Distribution.......................... 38.4 38.3 0.1
Rental................................ 22.4 18.3 4.1
------ ------ -----
$538.9 $527.6 $11.3
====== ====== =====
Revenue increased by approximately $11.3 million or 2% for the 2002 Fiscal
Year as compared to the 2001 12-Month Period.
Route revenue for the 2002 Fiscal Year increased by approximately $7.1
million or 2% over the prior year. Management believes that the improvement
in route revenue for the 2002 Fiscal Year as compared to the 2001 12-Month
Period was the result of a combination of (i) increased revenue from the
existing machine base due primarily to price changes and machine
installations, (ii) the timing of price changes and internal growth in
machine count during the 2002 Fiscal Year and the 2001 12-Month Period and
(iii) greater same store revenues due primarily to pricing strategies
implemented to address increased competition in retail laundromats.
Distribution revenue for the 2002 Fiscal Year increased slightly as
compared to the 2001 12-Month Period. Sales from the distribution business
unit are sensitive to general market and economic conditions and as a
result have experienced fluctuations during such periods.
Rental revenue for the 2002 Fiscal Year increased by approximately $4.1
million or 22% over the 2001 12-Month Period. The increase was primarily
the result of the internal growth of the machine base in existing areas of
operations and expansion into new territories.
Laundry operating expenses increased by approximately $8.9 million or 3%
for the 2002 Fiscal Year, as compared to the 2001 12-Month Period. This increase
in laundry operating expenses was due primarily to (i) an increase in commission
expense related to increased route revenue, and (ii) costs associated with
expansion into new markets in the rental and distribution businesses. As a
percentage of revenues, laundry operating expenses were approximately 67% for
both the 2002 Fiscal Year and the 2001 12-Month Period.
General and administrative expenses decreased by approximately 2% for the
2002 Fiscal Year, as compared to the 2001 12-Month Period. The decrease in
general and administrative expenses was primarily due to a slight reduction in
various costs and expenses related to accounting, management information systems
and other administrative functions associated with the Company's growth. As a
percentage of revenues, general and administrative expenses were approximately
1.6% and 1.7% for the 2002 Fiscal Year and the 2001 12-Month Period,
respectively.
Depreciation and amortization expense decreased by approximately 4% for the
2002 Fiscal Year as compared to the 2001 12-Month Period. This decrease was due
primarily to a write-off of contract rights values relating to certain locations
not renewed of approximately $5.9 million during the 2001 12-Month Period.
Operating income margins were approximately 7% for the 2002 Fiscal Year, as
compared to approximately 6% for the 2001 12-Month Period. The increase in
operating income margin for the 2002 Fiscal Year was primarily due to increased
revenue in the route and rental businesses, as well as decreased depreciation
and amortization expense, which were partially offset by increased commission
expense and costs associated with the expansion into new rental and distribution
markets.
14
Interest expense, net, increased by approximately 6% for the 2002 Fiscal
Year, as compared to the 2001 12-Month Period. The increase was primarily due to
(i) the cost of the termination of the interest rate swap agreements in the
amount of approximately $4.2 million, (ii) the combination of interest paid on
the 11 3/4% Senior Notes from January 25 to February 25, 2002 with the interest
expense on the 9% Senior Notes for the same period and (iii) an increase in
amortization of deferred financing costs relating to the issuance of the 9%
Senior Notes and the New Senior Secured Credit Facility.
EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA is used by certain
investors as an indication of a company's ability to service existing debt, to
sustain potential future increases in debt and to satisfy capital requirements.
However, EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to either (a) operating income (as
determined by accounting principles generally accepted in the United States) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by accounting principles
generally accepted in the United States) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with accounting principles
generally accepted in the United States and is thus susceptible to varying
calculations, EBITDA may not be comparable to other similarly titled measures of
other companies.
The following table sets forth the Company's EBITDA for the periods
indicated:
(dollars in millions)
------------------------
2002 2001 CHANGE
------- ------ ------
Route..................................... $166.0 $164.4 $ 1.6
Distribution.............................. 1.1 1.8 (0.7)
Rental.................................... 8.7 7.2 1.5
General and administrative expenses....... (8.7) (8.9) 0.2
------- ------- ------
$167.1 $164.5 $ 2.6
======= ======= ======
EBITDA was approximately $167.1 million for the 2002 Fiscal Year, as
compared to approximately $164.5 million for the 2001 12-Month Period,
representing an increase of approximately 2%. EBITDA margins declined slightly
to approximately 31.0% for the 2002 Fiscal Year, as compared to approximately
31.2% for the 2001 12-Month Period. The increase in EBITDA was primarily the
result of increased revenues in the route and rental businesses offset partially
by the increase in commission expense related to increased route revenue, as
well as an increase in the costs associated with the expansion into new rental
and distribution markets in the rental and distribution businesses.
2001 12-MONTH PERIOD COMPARED TO THE FISCAL YEAR ENDED MARCH 31, 2000
The following table sets forth the Company's revenues for the years
indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
--------------------------
2001 2000 CHANGE
------ -------- -------
Route..................................... $471.0 $ 467.0 $ 4.0
Distribution.............................. 38.3 46.3 (8.0)
Rental.................................... 18.3 13.8 4.5
------ ------- ------
$527.6 $ 527.1 $ 0.5
====== ======= ======
15
Revenues increased by approximately $0.5 million or less than 1% for the
2001 12-Month Period as compared to the prior year.
Route revenue for the 2001 12-Month Period increased by approximately
$4.0 million or less than 1% over the prior year. During the prior year,
the Company experienced excessive vandalism, primarily in the South Central
region of the United States, which adversely impacted the Company's second,
third and fourth fiscal quarters' results of operations for the prior year.
Management believes that the improvement in route revenue for the 2001
12-Month Period as compared to the prior year was the result of the
combination of (i) increased revenue from the existing machine base due
primarily to price changes and machine installations, (ii) a reduction in
vandalism as a result of heightened security measures and (iii) the timing
of price changes and internal growth in machine count during the 2001
12-Month Period and the 2000 Fiscal Year.
Distribution revenue for the 2001 12-Month Period decreased by
approximately $8.0 million or 17% from the prior year. The decrease for the
2001 12-Month Period was primarily the result of certain of the Company's
large retail laundromat customers experiencing financial difficulty,
resulting in reduced machine purchases. In addition, sales from the
distribution business unit were sensitive to general market conditions and
as a result experienced fluctuations. The Company made a strategic change
in product lines during the 2001 12-Month Period, which created a lag in
revenue as sales and service personnel became acquainted with the new
product lines. In addition, in January 2001 the Company purchased a
distribution business for approximately $4.3 million. This acquisition
increased the Company's presence in the Midwest region of the United
States.
Rental revenue for the 2001 12-Month Period increased by approximately
$4.5 million or 32% over the prior year. The increase was primarily the
result of the internal growth of the machine base in existing areas of
operations and expansion into new territories.
Laundry operating expenses increased by approximately $4.3 million or 1%
for the 2001 12-Month Period, as compared to the prior year. This increase in
laundry operating expenses was due primarily to additional costs associated with
expansion into new markets in the rental and distribution businesses as well as
increased utility costs relating to the operation of retail laundromats. This
increase was partially offset by a decrease in cost of sales resulting from
reduced sales in the distribution business. As a percentage of revenues, laundry
operating expenses were approximately 67% and 66% for the 2001 12-Month Period
and the 2000 Fiscal Year, respectively.
General and administrative expenses increased by approximately 1% for the
2001 12-Month Period, as compared to the prior year. The increase in general and
administrative expenses was primarily due to various costs and expenses related
to accounting, management information systems and other administrative functions
associated with the Company's growth. As a percentage of revenues, general and
administrative expenses were approximately 1.7% for both the 2001 12-Month
Period and the 2000 Fiscal Year.
Depreciation and amortization expense increased by approximately 9% for the
2001 12-Month Period as compared to the prior year as the result of the
application of push-down accounting resulting from the going-private
transaction. Increases in depreciation and amortization other than from the
going-private transaction were primarily due to capital expenditures required by
historical increases in the Company's installed base of machines, as well as a
write-off of contract rights values relating to certain locations not renewed of
approximately $5.9 million.
Operating income margins were approximately 6% for the 2001 12-Month
Period, as compared to approximately 9% for the 2000 Fiscal Year. The decrease
in operating income margin for the 2001 12-Month Period was primarily due to an
increase in depreciation and amortization expense in such period.
16
Interest expense, net, increased by approximately 3% for the 2001 12-Month
Period, as compared to the prior year. The increase was primarily due to the
increased borrowing levels under the Company's senior credit facility as well as
to an increase in interest rates on such credit facility as a result of general
market rate increases.
EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA is used by certain
investors as an indication of a company's ability to service existing debt, to
sustain potential future increases in debt and to satisfy capital requirements.
However, EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to either (a) operating income (as
determined by accounting principles generally accepted in the United States) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by accounting principles
generally accepted in the United States) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with accounting principles
generally accepted in the United States and is thus susceptible to varying
calculations, EBITDA may not be comparable to other similarly titled measures of
other companies.
The following table sets forth the Company's EBITDA for the years
indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
-------------------------
2001 2000 CHANGE
------- ------- ------
Route..................................... $164.4 $166.3 $(1.9)
Distribution.............................. 1.8 5.0 (3.2)
Rental.................................... 7.2 5.8 1.4
General and administrative expenses....... (8.9) (8.8) (0.1)
------- ------- ------
$164.5 $168.3 $(3.8)
======= ======= ======
EBITDA was approximately $164.5 million for the 2001 12-Month Period, as
compared to approximately $168.3 million for the 2000 Fiscal Year, representing
a decrease of approximately 2%. EBITDA margins declined to approximately 31.2%
for the 2001 12-Month Period, as compared to approximately 31.9% for the prior
year. These decreases were the result of the combination of decreased revenues
and increased operating expenses, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 2002, the Company had outstanding long-term debt of
approximately $737.3 million, which included $450 million of 9% Senior Notes and
$280 million of borrowings under the New Senior Secured Credit Facility. The
Company's stockholder's equity was approximately $50.4 million as of March 31,
2002.
The Company's liquidity requirements arise from capital expenditures,
interest expense and, to a lesser extent, principal payments on its indebtedness
and working capital requirements. The Company has met these requirements in each
fiscal year since 1995 primarily from cash flow generated from operations. The
Company's primary source of liquidity as of March 31, 2002 consisted of cash and
cash equivalents of $27.8 million and available borrowings under its New Senior
Secured Credit Facility of approximately $74.0 million.
17
FINANCING ACTIVITIES
SENIOR NOTES OFFERING AND EXCHANGE OFFER
On January 25, 2002, the Company issued $450 million of 9% Senior Notes and
entered into the $355 million Senior Secured Credit Facility comprised of (i)
$280 million in aggregate principal amount of term loans and (ii) a revolving
credit facility, which has a maximum borrowing limit of $75 million. The term
loans under the Company's New Senior Secured Credit Facility, in aggregate
principal amounts outstanding of $30.0 million and $250.0 million, are scheduled
to be fully repaid by January 25, 2008 and July 25, 2009, respectively. As of
March 31, 2002, the Company had no amounts outstanding under its revolving
credit facility, which is scheduled to expire on January 25, 2008. The Company
used the net proceeds from its 9% Senior Notes, together with borrowings under
its New Senior Secured Credit Facility, to (i) redeem all of its outstanding 11
3/4% Senior Notes (including accrued interest and the resulting call premium),
(ii) repay outstanding indebtedness under its prior senior credit facility, and
(iii) pay related fees and expenses. The 11 3/4% Senior Notes were redeemed on
February 25, 2002 with the funds that were set aside in escrow on January 25,
2002. The Company recognized an extraordinary loss, net of income tax, of
approximately $6.7 million as a result of the early extinguishment of debt
relating to the redemption of the 11 3/4% Senior Notes and the refinancing of
its prior senior credit facility (see Recently Issued Accounting Pronouncements
relating to Statement of Financial Accounting Standard No. 145). The Company
also used a portion of the net proceeds and borrowings to terminate interest
rate swap agreements entered into in connection with its prior senior credit
facility. The cost of terminating the interest rate swap agreements was
approximately $4.2 million and was recorded as interest expense in the 2002
Fiscal Year.
The 9% Senior Notes, which are to mature on February 1, 2010, are unsecured
senior obligations of the Company and are redeemable, at the Company's option,
in whole or in part at any time or from time to time, on or after February 1,
2006, upon not less than 30 nor more than 60 days' notice, at the redemption
prices set forth in that certain indenture, dated January 25, 2002, by and
between the Company and U.S. Bank, N.A. as Trustee (the "Indenture") plus, in
each case, accrued and unpaid interest thereon, if any, to the date of
redemption. In addition, the Company has the option to redeem, on or before
February 1, 2005, up to 35% of the outstanding notes with money that the Company
raises in one or more equity offerings, provided that certain requirements set
forth in the Indenture are satisfied. The 9% Senior Notes are guaranteed on an
unsecured senior basis by the Company's domestic subsidiaries.
The Indenture contains a number of restrictive covenants and agreements,
including covenants with respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on certain payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of the Company, the purchase, redemption or other acquisition of any
capital stock of the Company, the voluntary prepayment of subordinated
indebtedness, or an Investment (as defined in the Indenture) in any other person
or entity); (iii) limitation on transactions with affiliates; (iv) limitation on
liens; (v) limitation on sales of assets; (vi) limitation on the issuance of
preferred stock by non-guarantor subsidiaries; (vii) limitation on conduct of
business; (viii) limitation on dividends and other payment restrictions
affecting subsidiaries; and (ix) limitation on consolidations, mergers and sales
of substantially all of the assets of the Company.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and continuance
of certain events of default, the trustee or the holders of not less than 25% in
aggregate principal amount of outstanding 9% Senior Notes may declare all unpaid
principal and accrued interest on all of the 9% Senior Notes to be immediately
due and payable.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of 9% Senior Notes will have the right to require that the Company
purchase all or a portion of such holder's 9% Senior Notes pursuant to the offer
described in the Indenture, at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase.
18
SENIOR CREDIT FACILITY
The Company's New Senior Secured Credit Facility is comprised of an
aggregate of $355 million of secured financing consisting of: (i) $280 million
in aggregate principal amount of term loans and (ii) a revolving credit facility
with a maximum borrowing limit of $75 million. The New Senior Secured Credit
Facility also provides for up to $10 million of letter of credit financings and
short term borrowings under a swing line facility of up to $7.5 million. The
term loans under the New Senior Secured Credit Facility, in aggregate principal
amounts outstanding of $30 million and $250 million, are scheduled to be fully
repaid by January 25, 2008 and July 25, 2009, respectively. As of March 31,
2002, there was no principal amount outstanding on the revolving portion of the
New Senior Secured Credit Facility, which will expire on January 25, 2008.
The Company is required to make (i) quarterly amortization payments under
the New Senior Secured Credit Facility commencing on March 31, 2003 with respect
to the $30 million term loan and semi-annual amortization payments commencing on
June 30, 2002 with respect to the $250 million term loan, and (ii) semi-annual
cash interest payments under the 9% Senior Notes on February 1 and August 1,
commencing August 1, 2002.
The Company's indebtedness under the New Senior Secured Credit Facility is
secured by all of the Company's real and personal property and is guaranteed by
the Company's domestic subsidiaries. Under the New Senior Secured Credit
Facility, the Company and Coinmach Laundry pledged to Bankers Trust Company, as
Collateral Agent, their interests in all of the issued and outstanding shares of
capital stock of the Company and the Company's domestic subsidiaries.
The New Senior Secured Credit Facility contains a number of restrictive
covenants and agreements, including covenants with respect to limitations on (i)
indebtedness; (ii) certain payments (in the form of the declaration or payment
of certain dividends or distributions on the capital stock of the Company or its
subsidiaries or the purchase, redemption or other acquisition of any capital
stock of the Company or its subsidiaries); (iii) voluntary prepayments of
previously existing indebtedness; (iv) Investments (as defined in the New Senior
Secured Credit Facility); (v) transactions with affiliates; (vi) liens; (vii)
sales or purchases of assets; (viii) conduct of business; (ix) dividends and
other payment restrictions affecting subsidiaries; (x) consolidations and
mergers; (xi) capital expenditures; (xii) issuances of certain equity securities
of the Company; and (xiii) creation of subsidiaries. The New Senior Secured
Credit Facility also requires that the Company satisfy certain financial ratios,
including a maximum leverage ratio and a minimum consolidated interest coverage
ratio.
The New Senior Secured Credit Facility contains certain events of default,
including the following: (i) the failure of the Company to pay any of its
obligations under the New Senior Secured Credit Facility when due; (ii) certain
failures by the Company or its subsidiaries to pay principal or interest on
indebtedness or certain breaches or defaults by the Company in respect of
certain indebtedness, in each case, after the expiration of any applicable grace
periods; (iii) certain defaults by the Company or Coinmach Laundry in the
performance or observance of the agreements or covenants under the New Senior
Secured Credit Facility or related agreements, beyond any applicable cure
periods; (iv) the falsity in any material respect of the Company's or its
subsidiaries' representations or warranties under the New Senior Secured Credit
Facility; (v) certain judgments against the Company; and (vi) certain events of
bankruptcy or insolvency of the Company, its subsidiaries or Coinmach Laundry.
OPERATING AND INVESTING ACTIVITIES
The Company's level of indebtedness will have several important effects on
its future operations including, but not limited to, the following: (i) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (ii) the financial covenants contained in
certain of the agreements governing the Company's indebtedness will require the
Company to meet certain financial tests and may limit its ability to borrow
additional funds or to dispose of assets; (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; and (iv) the
Company's ability to adapt to changes in the outsourced laundry equipment
services industry and to economic conditions in general could be limited.
19
As the Company has focused on increasing its cash flow from operating
activities, it has made significant capital investments, primarily consisting of
capital expenditures related to acquisitions, renewals and growth. The Company
anticipates that it will continue to utilize cash flows from operations to
finance its capital expenditures and working capital needs, including interest
payments on its outstanding indebtedness. Capital expenditures consists of
expenditures (i) on the Company's installed machine base and (ii) for other
general corporate purposes.
Capital expenditures for the 2002 Fiscal Year were approximately $79.1
million (excluding payments of approximately $3.7 million relating to capital
lease obligations and excluding approximately $3.7 million relating to
acquisition capital expenditures). The primary components of the Company's
capital expenditures are (i) machine expenditures, (ii) advance location
payments, and (iii) laundry room improvements. The growth in the installed base
of machines for the route business was approximately 4,100 for the 2002 Fiscal
Year. The growth in the rental business machine base was approximately 22,300
for the 2002 Fiscal Year. The full impact on revenues and cash flow generated
from capital expended on the net increase in the installed base of machines are
not expected to be reflected in the Company's financial results until subsequent
reporting periods, depending on certain factors, including the timing of the
capital expended. The Company anticipates that capital expenditures, excluding
acquisitions and internal growth, will be approximately $72.0 million for the
twelve months ending March 31, 2003. While the Company estimates that it will
generate sufficient cash flows from operations to finance anticipated capital
expenditures, there can be no assurances that it will be able to do so.
The following table sets forth the Company's capital expenditures
(excluding payments for capital lease obligations and business acquisitions) for
the years indicated:
(dollars in millions)
YEAR ENDED MARCH 31,
-------------------------
2002 2001 CHANGE
------ ------ ------
Route..................................... $71.0 $75.2 $(4.2)
Distribution.............................. -- 0.1 (0.1)
Rental.................................... 8.1 9.6 (1.5)
----- ----- ------
$79.1 $84.9 $(5.8)
===== ===== ======
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the 9%
Senior Notes and borrowings under the New Senior Secured Credit Facility or to
permit any necessary refinancings thereof. An inability of the Company, however,
to comply with covenants or other conditions contained in the indenture
governing the 9% Senior Notes or in the credit agreement evidencing the New
Senior Secured Credit Facility could result in an acceleration of all amounts
thereunder. If the Company is unable to meet its debt service obligations, it
could be required to take certain actions such as reducing or delaying capital
expenditures, selling assets, refinancing or restructuring its indebtedness,
selling additional equity capital or other actions. There is no assurance that
any of such actions could be effected on commercially reasonable terms or on
terms permitted under the New Senior Secured Credit Facility, or the indenture
governing the 9% Senior Notes.
CERTAIN ACCOUNTING TREATMENT
The Company's depreciation and amortization expense, which aggregated
approximately $129.5 million for the 2002 Fiscal Year, reduces the Company's net
income, but not its cash flow from operations. In accordance with accounting
principles generally accepted in the United States, a significant amount of the
purchase price related to businesses acquired by the Company is allocated to
"contract rights". Management evaluates the realizability of contract rights
balances (if there are indicators of impairment) based upon the Company's
forecasted undiscounted cash flows and operating income. Based upon present
operations and strategic plans, management believes that no impairment of
contract rights has occurred.
20
INFLATION AND SEASONALITY
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation and the effects of inflation
that may be experienced by the Company in future periods. Management believes
that such effects will not be material. The Company's business generally is not
seasonal.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning on April 1, 2002. Application of the nonamortization
provisions of Statement No. 142 is expected to result in an increase in net
income of approximately $15 million per year. During the first two fiscal
quarters of 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of April 1, 2002.
The Company has not yet determined what the effect of these tests will be on its
earnings and financial position. In connection with SFAS No. 142, the Company
has reassessed the useful lives of contract rights and has determined that such
contract rights should be amortized using accelerated methods over periods
ranging from 30 to 35 years. This change will take effect beginning with the
quarter ended June 30, 2002 and is expected to result in an increase in
operating income of approximately $11 million for the year ended March 31, 2003.
In October 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001, with transition provisions
for certain matters. The Financial Accounting Standards Board's new rules on
asset impairment supersede SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and provide a
single accounting model for long-lived assets to be disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
No. 121, the new rules significantly change the criteria that would have to be
met to classify an asset as held-for-sale. The new rules supersede the
provisions of Accounting Principles Board Opinion No. 30 with regard to
reporting the effects of a disposal of a segment of a business and require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period in which the losses are incurred rather
than as of the measurement date as presently required by APB No. 30. In
addition, more dispositions will qualify for discontinued operations treatment
in the income statement. We are currently evaluating the impact, if any, SFAS
No. 144 will have on our financial statements as of and for the year ending
March 31, 2003.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 62, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. SFAS No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under SFAS No. 4. Gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 are not to be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS -
REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY,
UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS ("APB No. 30"). Upon
adoption, any gain or loss on extinguishment of debt previously classified, as
an extraordinary item in prior periods presented that does not meet the criteria
of APB No. 30 for such classification will be reclassified to conform to the
provisions of SFAS No. 145. Upon adoption of SFAS No. 145, which will be
reflected in the Company's year ending March 31, 2004 consolidated financial
statements, the Company will classify the extraordinary loss to continuing
operations resulting in total pre-tax loss of approximately $46.9 million for
the year ended March 31, 2002.
21
FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this Form 10-K and other
reports and statements filed by the Company from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain certain forward-looking statements and information that are based on the
beliefs of the Company's management as well as estimates and assumptions made
by, and information currently available to, the Company's management.
Forward-looking statements are those that are not historical facts. When used in
SEC Filings, the words "anticipate," "project," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to the
Company or the Company's management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, competitive factors,
shifts in market demand, and other risks and uncertainties that may be beyond
the Company's control. Such risks and uncertainties, together with any risks and
uncertainties specifically identified in the text surrounding such
forward-looking statements, include, but are not limited to, the Company's
ability to satisfy its debt service requirements, the costs of integration of
acquired businesses and realization of anticipated synergies, increased
competition, availability of capital to finance capital expenditures necessary
to increase and maintain the Company's operating machine base, the rate of
growth in general and administrative expenses due to the Company's business
expansion, the Company's dependence upon lease renewals, risks of extended
periods of reduced occupancy levels, and the ability of the Company to implement
its business strategy. Other risks and uncertainties also include changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's future performance
and actual results of operations may vary significantly from those anticipated,
projected, believed, estimated, expected, intended or planned.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal exposure to market risk relates to changes in
interest rates on its borrowings. The Company's cash flow would be adversely
affected by an increase in interest rates. As of March 31, 2002, the Company had
approximately $280 million outstanding relating to its variable rate debt
portfolio.
The Company's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. If
market rates of interest on the Company's variable rate debt increased by 2.0%
(or 200 basis points), the Company's annual interest expense would change by
approximately $5.6 million, assuming the amount outstanding was $280 million,
the balance as of March 31, 2002. Historically, the Company has utilized
interest rate swap agreements to manage its exposure to certain market rate
risks.
The Company used a portion of the net proceeds for the 9% Senior Notes
together with borrowings under its New Senior Secured Credit Facility to
terminate all of its interest rate swap agreements. The cost of termination was
approximately $4.2 million and was recorded as interest expense in the 2002
Fiscal Year.
The Company's fixed debt instruments are not generally affected by a change
in the market rates of interest, and therefore, such instruments generally do
not have an impact on future earnings. However, as fixed rate debt matures,
future earnings and cash flows may be impacted by changes in interest rates
related to debt acquired to fund repayments under maturing facilities.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-39 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
The directors of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company, the periods during which they have served as such and certain other
information. The term of office of each director continues until the election of
directors to be held at the next annual meeting of stockholders or until his
successor has been elected. There is no family relationship between any director
and any other director or executive officer of the Company. The information set
forth below concerning such directors has been furnished by such directors.
NAME TITLE AGE
---- ----- ---
Stephen R. Kerrigan Chairman of the Board and Director 48
Mitchell Blatt Director 50
Robert M. Doyle Director 45
MR. KERRIGAN. Mr. Kerrigan has been Chief Executive Officer of Coinmach
Laundry since April 1996 and of the Company since November 1995. Mr. Kerrigan
was President and Treasurer of Solon Automated Services, Inc. ("Solon") and
Coinmach Laundry from April 1995 until April 1996, and Chief Executive Officer
of TCC from January 1995 until November 1995. Mr. Kerrigan has been a director
and Chairman of the Board of Coinmach Laundry since April 1995 and of the
Company since November 1995. Mr. Kerrigan was a director of TCC from January
1995 to November 1995 and a director of Solon from April 1995 to November 1995.
Mr. Kerrigan served as Vice President and Chief Financial Officer of TCC's
predecessor, Coinmach Industries Co., L.P. from 1987 to 1994.
MR. BLATT. Mr. Blatt has been President and Chief Operating Officer of
Coinmach Laundry since April 1996 and of the Company since November 1995. Mr.
Blatt was the President and Chief Operating Officer of TCC from January 1995 to
November 1995. Mr. Blatt has been a director of Coinmach Laundry and the Company
since November 1995. Mr. Blatt joined TCC as Vice President-General Manager in
1982 and was Vice President and Chief Operating Officer from 1988 to 1994.
MR. DOYLE. Mr. Doyle has been Chief Financial Officer, Senior Vice
President, Treasurer and Secretary of Coinmach Laundry since April 1996 and of
the Company since November 1995. Mr. Doyle has been a director of the Company
since November 1995. Mr. Doyle served as Vice President, Treasurer and Secretary
of TCC from January 1995 to November 1995. Mr. Doyle joined TCC's predecessor in
1986 as Controller. In 1988, Mr. Doyle became Director of Accounting, and was
promoted in 1989 to Vice President and Controller.
EXECUTIVE OFFICERS
The executive officers of the Company are listed on the table below which
is followed by descriptions of all positions and offices held by such persons
with the Company and the periods during which they have served as such and other
information. The term of office of each executive officer continues until the
election of executive officers to be held at the next annual meeting of
directors or until his successor has been elected. There is no family
relationship between any executive officer and any other executive officer or
director of the Company.
23
NAME TITLE AGE
---- ----- ---
Stephen R. Kerrigan Chairman of the Board and Chief
Executive Officer 48
Mitchell Blatt President, Chief Operating Officer 50
Robert M. Doyle Chief Financial Officer, Senior Vice
President, Treasurer, Secretary 45
John E. Denson Senior Vice President 64
Michael E. Stanky Senior Vice President 50
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- DIRECTORS"
above.
MR. DENSON. Mr. Denson has been Senior Vice President of Coinmach Laundry
since April 1996 and of the Company since November 1995. Mr. Denson was Senior
Vice President of Solon from June 1987 until November 1995. Mr. Denson has
served as an officer of Solon under various titles since 1973, and served as a
director and Co-Chief Executive Officer of Solon from November 1994 to April
1995.
MR. STANKY. Mr. Stanky has been Senior Vice President of Coinmach Laundry
since April 1996 and of the Company since November 1995. Mr. Stanky was a Senior
Vice President of Solon from July 1995 to November 1995. Mr. Stanky served Solon
in various capacities since 1976, and in 1985 was promoted to Area Vice
President responsible for Solon's South-Central region. Mr. Stanky served as a
Co-Chief Executive Officer of Solon from November 1994 to April 1995.
24
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
who had annual compensation in excess of $100,000 for all services rendered in
all capacities for the fiscal year ended March 31, 2000, and the 2001 12-Month
Period, and the fiscal year ended March 31, 2002.
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------------------------------------- --------------
COMMON STOCK
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION (16)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------- ------ ------- -------- ------------- ------------- -----------------
Stephen R. Kerrigan 2002 425,000 285,000 112,067 (1) -- 2,334
Chief Executive Officer 2001 404,617 275,000 70,266 (2) -- 2,631
2000 350,000 400,000 115,956 (3) 50,000 2,972
Mitchell Blatt 2002 300,753 90,000 45,583 (4) -- 2,334
President, Chief 2001 301,731 120,000 27,671 (5) -- 2,352
Operating Officer 2000 300,000 250,000 66,281 (6) 30,000 2,553
Robert M. Doyle 2002 248,076 80,000 24,419 (7) -- 2,944
Chief Financial Officer 2001 200,673 85,000 7,034 (8) -- 2,347
2000 193,942 125,000 12,052 (9) 20,000 2,124
John E. Denson 2002 140,000 21,000 31,039 (10) -- 1,925
Senior Vice President 2001 139,720 28,000 26,228 (11) -- 1,927
2000 125,500 32,500 26,863 (12) 10,000 1,456
Michael E. Stanky 2002 195,000 44,500 21,364 (13) -- 2,335
Senior Vice President 2001 195,684 50,000 3,800 (14) -- 2,421
2000 175,000 87,500 3,526 (15) 10,000 2,009
____________
(1) Includes $81,968 in forgiven indebtedness; $3,750 in interest,
calculated at a rate of 7.5% per annum on a loan made by the Company to Mr.
Kerrigan; $14,451 in interest calculated at a rate of 7% per annum on a loan
made in connection with the purchase of common stock of Coinmach Laundry
relating to the Transaction; $2,175 in automobile allowances; $8,230 in club
membership fees; and $1,493 in life insurance premiums paid by the Company on
behalf of Mr. Kerrigan.
(2) Includes $59,271 in forgiven indebtedness; $3,750 in interest
calculated at a rate of 7.5% per annum on a loan made by the Company to Mr.
Kerrigan; $5,950 in club membership fees; and $1,295 in life insurance premiums
paid by the Company on behalf of Mr. Kerrigan.
(3) Includes $98,118 in forgiven indebtedness; $3,750 in interest,
calculated at a rate of 7.5% per annum on a loan made by the Company to Mr.
Kerrigan; $12,660 in club membership fees; and $1,428 in life insurance premiums
paid by the Company on behalf of Mr. Kerrigan.
(4) Includes $23,301 in forgiven indebtedness; $4,258 in automobile
allowances; $16,346 in club membership fees; and $1,678 in life insurance
premiums paid by the Company on behalf of Mr. Blatt.
25
(5) Includes $9,271 in forgiven indebtedness; $2,813 in automobile
allowances; $14,450 in club membership fees; and $1,137 in life insurance
premiums paid by the Company on behalf of Mr. Blatt.
(6) Includes $48,118 in forgiven indebtedness; $2,813 in automobile
allowances; $14,050 in club membership fees; and $1,300 in life insurance
premiums paid by the Company on behalf of Mr. Blatt.
(7) Includes $14,859 in forgiven indebtedness; $6,643 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock of Coinmach Laundry relating to the Transaction; $2,083
in automobile allowances; and $834 in life insurance premiums paid by the
Company on behalf of Mr. Doyle.
(8) Includes $4,426 in forgiven indebtedness; $2,098 in automobile
allowances; and $510 in life insurance premiums paid by the Company on behalf of
Mr. Doyle.
(9) Includes $10,259 in forgiven indebtedness; $1,213 in automobile
allowances; and $580 in life insurance premiums paid by the Company on behalf of
Mr. Doyle.
(10) Includes $24,622 in forgiven indebtedness; $2,943 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock and preferred stock of Coinmach Laundry relating to the
Transaction; $950 in interest expense calculated at a rate of 9.5% per annum on
a loan made by the Company to Mr. Denson; $1,025 in automobile allowances; and
$1,499 in life insurance premiums paid by the Company on behalf of Mr. Denson.
(11) Includes $20,000 in forgiven indebtedness; $2,900 in interest
calculated at a rate of 9.5% per annum on a loan made by the Company to Mr.
Denson; $1,275 in automobile allowances; and $2,053 in life insurance premiums
paid by the Company on behalf of Mr. Denson.
(12) Includes $20,000 in forgiven indebtedness; $3,800 in interest,
calculated at a rate of 9.5% per annum on a loan made by the Company to Mr.
Denson; $1,463 in automobile allowances; and $1,600 in life insurance premiums
paid by the Company on behalf of Mr. Denson.
(13) Includes $13,029 in forgiven indebtedness; $6,732 in interest expense
calculated at a rate of 7% per annum on a loan made in connection with the
purchase of common stock and preferred stock of Coinmach Laundry relating to the
Transaction; $438 in automobile allowances; and $1,165 in life insurance
premiums paid by the Company on behalf of Mr. Stanky.
(14) Includes $2,455 in forgiven indebtedness; $551 in automobile
allowances; and $794 in life insurance premiums paid by the Company on behalf of
Mr. Stanky.
(15) Includes $2,455 in forgiven indebtedness; $243 in automobile
allowances; and $828 in life insurance premiums paid by the Company on behalf of
Mr. Stanky.
(16) Represents matching contributions made by the Company to the 401(k)
Plan.
EMPLOYMENT CONTRACTS
EMPLOYMENT AGREEMENTS OF STEPHEN R. KERRIGAN, MITCHELL BLATT AND ROBERT M.
DOYLE. On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell Blatt
and Robert M. Doyle (each, a "Senior Manager"), entered into Senior Management
Agreements (collectively, the "Senior Management Agreements"). In connection
with the Solon Merger, the obligations of TCC under the Senior Management
Agreements were assumed by the Company and certain amendments to such agreements
were effected pursuant to the Omnibus Agreement, dated as of November 30, 1995
(the "Omnibus Agreement"). The Senior Management Agreements (after giving effect
to base salary increases thereunder) provide for annual base salaries of
$350,000, $300,000 and $200,000 for each of
26
Messrs. Kerrigan, Blatt and Doyle, respectively, which amounts are reviewed
annually by the board of directors of Coinmach Laundry (the "CLC Board"). During
the fiscal year ended March 31, 2002, the CLC Board approved annual base
salaries for each of Messrs. Kerrigan, Blatt and Doyle of $425,000, $300,000 and
$250,000, respectively. The CLC Board, in its sole discretion, may grant each
Senior Manager an annual bonus. Each Senior Management Agreement is terminable
at the will of the Senior Managers or at the discretion of the board of
directors of the Company (the "Company Board"). Senior Managers are entitled to
severance pay upon termination of their employment. If employment is terminated
by the Company without Cause (as defined in the Senior Management Agreements)
and no event of default has occurred under any bank credit facility to which the
Company is a party, Senior Managers are entitled to receive severance pay in an
amount equal to 1.5 times their respective annual base salaries then in effect,
payable in 18 equal monthly installments. If employment is terminated by the
Company and an event of default has occurred and is continuing under any bank
credit facility to which the Company is a party, Senior Managers are entitled to
receive severance pay in an amount equal to their respective annual base
salaries then in effect, payable in 12 equal monthly installments. Under limited
circumstances, Senior Managers are entitled to receive half of the severance pay
to which they are otherwise entitled if employment with the Company is
terminated by them.
EMPLOYMENT AGREEMENT OF JOHN E. DENSON. The Company entered into an
employment agreement with Mr. Denson, dated as of September 5, 1996, which was
subsequently replaced with an employment agreement dated December 17, 2000. Mr.
Denson's current employment agreement has a term of one year and is
automatically renewable each year for successive one-year terms. Such agreement
provided for an annual base salary of $110,000, commencing January 1, 1997,
which amount is to be reviewed each December by the Company Board. During the
fiscal year ended March 31, 2002, the Company Board approved an annual base
salary for Mr. Denson of $140,000. The Company Board may, in its discretion,
grant Mr. Denson a performance-based annual bonus. The agreement is terminable
at the will of Mr. Denson or at the discretion of the Company Board. Under the
terms of such employment agreement, Mr. Denson is entitled to receive severance
pay upon termination of employment by the Company without Cause (as defined in
such agreement) in an amount equal to his annual base salary then in effect.
EMPLOYMENT AGREEMENT OF MICHAEL E. STANKY. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky which provided for an
annual base salary of $150,000. The terms and conditions of Mr. Stanky's
employment agreement are substantially similar to those contained in the Senior
Management Agreements. During the fiscal year ended March 31, 2002, the Company
Board approved an annual base salary for Mr. Stanky of $195,000.
401(K) SAVINGS PLAN
The Company offers a 401(k) savings plan (the "401(k) Plan") to all current
eligible employees of the Company who have completed three months of service.
Pursuant to the 401(k) Plan, eligible employees may defer from 2% up to 15% of
their salaries up to a maximum level imposed by applicable federal law ($11,000
in 2002). The percentage of compensation contributed to the plan is deducted
from each eligible employee's salary and considered tax-deferred savings under
applicable federal income tax law. Pursuant to the 401(k) Plan, the Company
contributes matching contribution amounts (subject to the Internal Revenue Code
limitation on compensation taken into account for such purpose) of 25%
contributed to the 401(k) Plan by the respective eligible employee up to the
first 6% of the amount contributed by such employee. Eligible employees become
vested with respect to matching contributions made by the Company pursuant to a
vesting schedule based upon an eligible employee's years of service. After two
years of service, an eligible employee is 20% vested in all matching
contributions made to the 401(k) Plan. Such employee becomes vested in equal
increments thereafter through the sixth year of service, at which time such
employee becomes 100% vested. Eligible participants are always 100% vested in
their own contributions, including investment earnings on such amounts.
The Company made the following matching contributions during the fiscal
year ended March 31, 2002 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $2,334; Mr. Blatt $2,334; Mr.
Doyle $2,944; Mr. Denson $1,925; and Mr. Stanky $2,335.
27
COMPENSATION OF DIRECTORS
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Company Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 31, 2002, all compensation matters with
respect to the Company were, and continue to be, addressed by the Company Board,
the CLC Board or the Chief Executive Officer, as appropriate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
As of March 31, 2002, the Company had 100 shares of common stock, par value
$.01 per share, issued and outstanding, all of which were owned by Coinmach
Laundry. Coinmach Laundry completed a going private transaction in July 2000,
pursuant to which it was acquired by an affiliate of GTCR Fund IV. For more
information concerning such transaction, see Item 1 -- "BUSINESS - GENERAL
DEVELOPMENT OF BUSINESS."
The following table sets forth certain information regarding the common
stock of Coinmach Laundry beneficially owned as of March 31, 2002 by (i) each of
Coinmach Laundry's directors, (ii) each of the Named Executive Officers, and
(iii) all directors of Coinmach Laundry and the Named Executive Officers as a
group.
NAME AND ADDRESS(1) OF
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
---------------------- ---------------- ----------------
Stephen R. Kerrigan 8,320,914 (2) 4.97%
Mitchell Blatt 7,376,400 4.41%
Robert M. Doyle 3,165,898 1.89%
Michael E. Stanky 2,058,122 1.23%
John E. Denson 396,984 *
James N. Chapman 756,436 *
Bruce V. Rauner 116,133,474 (3) 69.43%
David A. Donnini 116,133,474 (4) 69.43%
Vincent J. Hemmer 116,133,474 (5) 69.43%
All Officers and
Directors as a group
(9 persons) 138,208,228 (6) 82.63%
_____________
* Percentage of shares beneficially owned does not exceed 1% of common
stock outstanding.
(1) All addresses are c/o Coinmach Laundry Corporation, 303 Sunnyside
Blvd., Suite 70, Plainview, New York 11803.
(2) Includes shares of common stock beneficially owned by MCS Capital,
Inc., a corporation controlled by Mr. Kerrigan.
(3) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Rauner is a principal of GTCR Golder Rauner, L.L.C.,
the General Partner of GTCR Partners VII, L.P., which is the General Partner of
GTCR Fund VII, L.P. Mr. Rauner disclaims beneficial ownership of such shares.
28
(4) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Donnini is a principal of GTCR Golder Rauner,
L.L.C., the General Partner of GTCR Partners VII, L.P., which is the General
Partner of GTCR Fund VII, L.P. Mr. Donnini disclaims beneficial ownership of
such shares.
(5) All such shares are held by GTCR-CLC, LLC, of which GTCR Fund VII, L.P.
is the Managing Member. Mr. Hemmer is a principal of GTCR Golder Rauner, L.L.C.,
the General Partner of GTCR Partners VII, L.P., which is the General Partner of
GTCR Fund VII, L.P. Mr. Hemmer disclaims beneficial ownership of such shares.
(6) In calculating the shares of common stock beneficially owned by
executive officers and directors as a group, 116,133,474 shares owned by
GTCR-CLC, LLC and included in the beneficial ownership amounts of each of
Messrs. Rauner, Donnini and Hemmer are included only once.
CHANGE OF CONTROL
Pursuant to the terms of the credit agreement governing the New Senior
Secured Credit Facility, upon the occurrence of an Event of Default (as defined
in such credit agreement), the lender