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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-7694
Coinmach Corporation
(Exact name of registrant as specified in its charter)
Delaware 53-0188589
(State of incorporation) (I.R.S. Employer Identification No.)
55 Lumber Road, Roslyn, New York 11576
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 484-2300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
As of June 10, 1999, the registrant had outstanding 100 shares of
common stock, par value $.01 per share (the "Common Stock").
No market value can be determined for the Common Stock. See Item 5 of
this Form 10-K Report.
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PART I
ITEM 1. BUSINESS.
Unless otherwise expressly indicated herein, the descriptions of the
Company contained herein are as of March 31, 1999.
Description of the Business
General
Coinmach Corporation, a Delaware corporation (the "Company" or the
"Registrant"), is the leading supplier of outsourced laundry equipment services
for multi-family housing properties in the United States. At March 31, 1999, the
Company owned and operated approximately 765,000 washers and dryers (sometimes
hereinafter referred to as "laundry machine" or "machines") in approximately
75,000 locations on routes located throughout the United States and in 163
retail laundromats located throughout Texas and Arizona. The Company, through
its wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super Laundry"), is
also a laundromat equipment distribution company. The Company is a wholly-owned
subsidiary of Coinmach Laundry Corporation, a Delaware corporation ("Coinmach
Laundry"). Unless otherwise specified herein, references to the Company shall
mean Coinmach Corporation and its subsidiaries.
Overview
The outsourced laundry equipment services industry provides washer and
dryer services to individuals living in multi-family housing properties. The
Company's existing customer base for its core business is comprised of
landlords, property management companies, and owners of rental apartment
buildings, condominiums and cooperatives, university and institutional housing
and other multi-family housing properties. The Company's core business involves
leasing laundry rooms from building owners and property management companies,
installing and servicing the laundry equipment and collecting revenues generated
from laundry machines. The Company typically sets pricing for the use of laundry
machines on location, and the owner or property manager maintains the premises
and provides utilities such as gas, electricity and water.
As a result of its strategy to acquire route operators that contribute
to the Company's core operations, the Company has selectively acquired certain
related businesses which expand and diversify the types of services provided by
the Company. The Company operates 163 retail laundromats throughout Texas and
Arizona and provides laundromat services at all such locations. The Company also
leases laundry equipment and other household appliances to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. The Company believes that these non-core businesses, although not
material to the Company's operations, provide a platform for expansion and
diversification of the Company's services. See "Business - Description of
Business - Complementary Operations."
The Company maintains its headquarters in Roslyn, New York, a corporate
office in Charlotte, North Carolina and regional offices throughout the United
States through which it conducts operating activities, including sales, service
and collections.
Business Strategy
The Company's business strategy is to enhance its position as the
largest provider of outsourced laundry equipment services in the United States.
Management intends to continue to grow the Company's installed machine base both
internally and through selective acquisitions to achieve economies of scale,
increase its operating efficiencies and improve its financial performance.
Internal growth is comprised of: (i) adding new customers in existing regions
and securing contracts for additional locations from current customers; (ii)
converting owner-operated facilities to Company managed facilities; (iii)
improving the net contribution per machine through operating efficiencies and
selective price increases; and (iv) pursuing additional growth opportunities
presented by the Company's leading market position and access to approximately
six million individual housing units. The Company's acquisition strategy is to
continue to selectively acquire local, regional and multi-regional route
businesses from independent operators at attractive prices.
An important element of the Company's business strategy is to continue
to expand its geographic presence to gain additional regional and multi-regional
account opportunities with large multi-family housing property managers and
owners. Management believes that a significant portion of its customer base,
which manages multi-family housing and other residential properties, is
consolidating. Consequently, management believes that opportunities for
outsourcing laundry equipment services to professionally managed,
multi-regional, well-capitalized independent operators such as the Company are
increasing.
The Company's business strategy also includes the continued development
of its management information systems (the "Integrated Computer Systems"), which
management believes are the most advanced in the industry. The Integrated
Computer Systems provide real-time operational and competitive data which, in
conjunction with the Company's multi-regional service capabilities, enhances the
Company's operating efficiencies throughout its operating regions and enables
the Company to deliver superior customer service. The Integrated Computer
Systems also provide the Company with the flexibility to integrate acquisitions
on a timely basis, including key functions such as sales, service, collections
and security. Finally, as the industry leader, the Company works closely with
its equipment vendors to assess ongoing technological changes and implements
those which the Company believes are beneficial to its customers and to the
Company's operating efficiencies and financial performance.
In January 1995, management, with its equity sponsor, Golder, Thoma,
Cressey, Rauner Fund IV, L.P., acquired the Company and initiated a strategy of
growth through acquisitions. This strategy was designed to increase the
installed machine base in its existing operating regions and to provide the
Company with a strong market presence in new regions. Since January 1995, the
Company has enhanced its national presence by completing ten significant
acquisitions, adding annualized revenue of approximately $395 million and
increasing its installed base from approximately 55,000 machines to
approximately 765,000 machines as of March 31, 1999. Revenues have grown from
approximately $72.9 million for the year ended March 31, 1995, to approximately
$505.3 million for the year ended March 31, 1999, while EBITDA(1) has grown from
approximately $13.6 million for the year ended March 31,
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1 EBITDA represents earnings from continuing operations before deductions
for interest, income taxes, depreciation and amortization. EBITDA for the period
ending March 31, 1999 is before the deduction for stock based compensation
charges. EBITDA is used by management and certain investors as an indicator of a
company's historical ability to service debt. Management believes that an
increase in EBITDA is an indication of a company's improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either (a)
operating income (as determined by generally accepted accounting principles) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by generally accepted
accounting principles) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
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1995 to approximately $165.8 million (before deducting non-cash stock-based
compensation charges) for the year ended March 31, 1999. These acquisitions have
enabled the Company to improve its operating margins and to expand internally by
competing more aggressively for new business.
Growth Strategy
The Company's growth strategy is to increase operating cash flow and
profitability through a combination of internal expansion and acquisitions.
Internal Expansion. Internal expansion is comprised of: (i) increasing
the installed machine base by adding new customers (including the acquisition of
certain small, local route operations) and increasing the number of locations
with existing customers; (ii) converting owner-operated facilities to Company
managed facilities, (iii) improving the net contribution per machine through
operating efficiencies and selective price increases; and (iv) pursuing
additional growth opportunities presented by its leading market position and
access to approximately six million individual housing units.
New Customers and Locations. The Company's sales and marketing efforts
focus on adding new customers and increasing the number of locations from
existing customers within its existing operating regions. The Company's primary
means of internal expansion is by marketing the Company's products and services
to building managers and property owners whose leases with other laundry
equipment services providers are near expiration. The Company's Integrated
Computer Systems track information on the lease expirations of its competitors.
The Company believes that its leading market position and expanding geographic
presence, primarily achieved through acquisitions, enhances its ability to gain
new customers and additional locations from its existing customers.
Conversions. Management believes that there are approximately
one million machines installed in locations which continue to be
managed by owner-operators. Building owners or managers can forgo
significant cash outlays and servicing costs by contracting with the
Company to purchase, service and maintain laundry equipment.
Accordingly, the Company pursues building owners and managers to
outsource their laundry facilities. The Company offers a full range of
services from the design, construction and installation of new laundry
facilities to the refurbishment of existing facilities. Management
believes these services provide a competitive advantage in securing new
customers.
Operating Efficiencies and Price Increases. The Company
focuses on improving its net contribution per machine through achieving
operating efficiencies and selective price increases. Due to local
competition and other factors beyond the Company's control, however,
there can be no assurance that such efficiencies or price increases
will occur.
Other Growth Opportunities. While management intends to
continue its focus on increasing its installed machine base, management
believes that its leading market position and its access to over six
million housing units provides the Company with additional growth and
diversification opportunities. These opportunities include laundry
equipment rental as well as other route-based facilities management
services. The Company regularly explores strategic alliances with
vendors of products complementary to its customer base.
Management believes that its strategy of growth within its existing
operating regions will result in additional economies of scale and operating
efficiencies associated with an expanded machine base.
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Such growth, however, will be dependent upon a number of factors beyond the
Company's control, such as the Company's ability to secure new contracts from
owner-operators on commercially favorable terms and competitive forces that may
reduce the number of opportunities to secure new locations or to effect price
increases.
Acquisitions. While the pace of acquisitions has slowed during the last
fiscal year, the Company intends to continue to pursue opportunities to acquire
additional route businesses within the fragmented outsourced laundry equipment
services industry. It has been the Company's experience that there are numerous
private, family-owned businesses that often lack the financial resources to
provide advance location payments, install new equipment, make laundry room
improvements or otherwise compete effectively with larger independent operators
such as the Company to secure new or existing contracts. Consequently, such
independent operators, especially those which are undergoing generational
ownership changes, represent potential acquisition opportunities for the
Company.
Management believes the Company is well positioned to capitalize on
acquisition opportunities due to its operating efficiencies, its access to
capital resources and senior management's extensive experience and relationships
in the industry. The Company evaluates potential acquisitions based on 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. The Company considers three types of acquisition candidates:
(i) local route operators; (ii) regional route operators; and (iii)
multi-regional route operators.
Local route operators. The purchase of local operators
(businesses operating within one of the Company's existing operating
regions) results in eliminating most of the target's existing cost
structure through the absorption of its machine base into the Company's
operations. The Company's experience has been that the acquisition of
local route operators has increased operating leverage within its
operating regions. Moreover, the Company is able in many instances to
acquire routes adjacent to its existing areas of operation without
incurring significant incremental operating costs.
Regional route operators. The Company's acquisition of
regional route operators provides opportunities to improve its cash
flow by eliminating duplicative corporate and administrative functions,
reducing capital expenditures through improved purchasing power and
implementing the Company's Integrated Computer Systems. During the past
fiscal year, the Company completed the acquisitions of two regional
route operators, Cleanco and G&T (each, as defined). Both of these
acquisitions have been fully integrated into the Company's operations.
Multi-regional route operators. Management believes that the
acquisition of large, multi-regional route operators results in a
number of operating efficiencies, including significant cost savings
through the elimination of duplicative financial and administrative
functions and related fixed costs. In addition, the increased volume of
equipment purchases usually results in reduced per unit capital
expenditures. As is the case with all acquisitions, the Company's
Integrated Computer Systems are utilized to provide further operating
efficiencies and related cost savings. The Kwik Wash Acquisition (as
defined) and the Macke Acquisition (as defined) are examples of
multi-regional acquisitions which enabled the Company to substantially
increase its operating base, add several experienced regional managers,
penetrate new markets and, along with the aforementioned regional
acquisitions, become the largest industry participant.
The number of multi-regional route acquisition opportunities
is limited, however, due to the Company's successful execution of its
acquisition strategy over the past several years.
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Accordingly, there can be no assurance that the Company will complete
any such acquisitions in the near future, if at all.
Industry
The outsourced laundry equipment services industry is characterized by
stable cash flows generated by long-term, renewable lease contracts with
multi-family housing property owners and management companies. The industry
remains highly fragmented, with many small, private and family-owned route
businesses operating throughout all major metropolitan areas. According to
information provided by the Multi-housing Laundry Association, the industry
consists of over 280 independent operators. Based upon industry estimates,
management believes there are approximately 3.5 million installed machines in
multi-family properties throughout the United States, approximately 2.5 million
of which have been outsourced to independent operators such as the Company and
approximately one million of which continue to be operated by the owners of such
locations.
The industry is highly capital intensive with the most significant
capital costs incurred upon procurement of new leases and the renewal of
existing leases. Initial costs may include replacing or repairing existing
washers and dryers, refurbishing laundry rooms and making advance location
payments to secure long-term, renewable leases. After the initial expenditures,
ongoing working capital requirements, which consist mainly of providing service
and revenue collection, are minimal, since machines typically operate throughout
the term of the contract under which they are installed, and variable costs are
paid out of revenues collected from the machines.
Historically, the industry has been characterized by stable demand and
has been resistant to changing market conditions and general economic cycles.
Management believes that the industry's consistent and predictable revenue and
cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
Description of Principal Operations
The principal aspects of the Company's operations include: (i) sales
and marketing; (ii) location leases; (iii) service; (iv) information management;
(v) remanufacturing and (vi) revenue collection and security.
Sales and Marketing
The Company markets its products and services through a sales staff
with an average industry experience of over ten years. The principal
responsibility of the sales staff is to solicit customers and negotiate lease
arrangements with building owners and managers. All sales personnel are paid
commissions that comprise 50% or more of their annual compensation. Selling
commissions are based on a percentage of a location's annualized earnings before
interest and taxes. Sales personnel must be proficient with the application of
sophisticated financial analyses which calculate minimum returns on investments
to achieve the Company's targeted goals in securing location contracts and
renewals. Management believes that its sales staff is among the most competent
and effective in the industry.
The Company's marketing strategy emphasizes excellent service offered
by its experienced, highly skilled personnel and quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. The Company's
sales staff targets potential new and renewal lease locations by utilizing the
Integrated Computer Systems' extensive database to provide information on the
Company's,
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as well as its competitors', locations. Additionally, the Integrated Computer
Systems monitor performance, repairs and maintenance, as well as the
profitability of locations on a daily basis. All sales, service and installation
data is recorded and monitored daily on a custom-designed, computerized sales
planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenue.
Location Leasing
The Company's leases provide the Company the exclusive right to operate
and service the installed laundry machines, including repairs, revenue
collection and maintenance. The Company typically sets pricing for the use of
the machines on location, and the property owner or property manager maintains
the premises and provides utilities such as gas, electricity and water.
In return for the exclusive right to provide laundry equipment
services, most of the Company's leases provide for monthly commission payments
to the location owners. Under the majority of leases, these commissions are
based on a percentage of the cash collected from the laundry machines. Many of
the Company's leases require the Company to make advance location payments to
the location owner in addition to commissions. The Company's leases typically
include provisions that allow for unrestricted price increases, a right of first
refusal (an opportunity to match competitive bids at the expiration of the lease
term) and termination rights if the Company does not receive minimum net
revenues from a lease. The Company has some flexibility in negotiating its
leases and, subject to local and regional competitive factors, may vary the
terms and conditions of a lease, including commission rates and advance location
payments. The Company evaluates each lease opportunity through its Integrated
Computer Systems to achieve a desired level of return on investments.
Management estimates that approximately 90% of its locations are under
long-term leases with initial terms of five to ten years. Of the remaining
locations not subject to long term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
expects to continue to service such customers. A majority of the Company's
leases renew automatically, and the Company has a right of first refusal on
termination on approximately 40% of its leases. The Company's automatic renewal
clause typically provides that, if the building owner fails to take any action
prior to the end of the original lease term or any renewal term, the lease will
automatically renew on substantially similar terms. As of March 31, 1999, the
Company's leases have an average remaining life to maturity of approximately 48
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 its leased locations.
The Company's fleet of radio-equipped service vehicles allows for the
quick dispatch of service technicians in response to both computer-generated
(for preventive maintenance) and customer-generated service calls. On a daily
basis, the Company receives and responds to approximately 3,000 service calls.
Management estimates that less than 1% of the Company's machines are out of
service on any given day. The ability to reduce machine down time, especially
during peak usage, enhances revenue and improves the Company's reputation with
its customers.
In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of
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responding promptly to customer needs. Computer-generated service calls for
preventive maintenance are based on previous service history, repeat service
call analysis and monitoring of service areas. These systems coordinate the
Company's radio-equipped service vehicles and allow the Company to address
customer needs quickly and efficiently.
Remanufacturing
The Company rebuilds and reinstalls a portion of its machines at
approximately one-third the cost of acquiring new machines, providing
significant cost savings. Remanufactured machines are restored to virtually new
condition with the same estimated average life and service requirements as new
machines. Machines that can no longer be remanufactured are added to the
Company's inventory of spare parts.
The Company maintains four regional remanufacturing facilities,
strategically located to service each of its operating regions, which provide
for consistent machine quality and efficient operations.
Revenue Collection and Security
Management believes that it provides the highest level revenue of
collection security control in the outsourced laundry equipment services
industry. The Company utilizes numerous precautionary procedures with respect to
cash collection, including frequent alteration of collection patterns, extensive
monitoring of collections and other control mechanisms. The Company enforces
stringent employee standards and screening procedures for prospective employees.
Employees responsible for or who have access to the collection of funds are
tested randomly and frequently. Additionally, the Company's security department
performs trend and variance analyses of daily collections by location. Security
personnel monitor locations, conduct investigations, and implement additional
security procedures as necessary.
Information Management. The Company's Integrated Computer Systems serve
three major functions: (i) tracing the service cycle of equipment; (ii)
monitoring revenues and costs by location, customer and salesperson; and (iii)
providing information on competitors' and the Company's lease renewal schedules.
The Integrated Computer Systems provide speed and accuracy throughout
the entire service cycle by integrating the functions of service call entry,
dispatching service personnel, parts and equipment purchasing, installation,
distribution and collection. In addition to coordinating all aspects of the
service cycle, the Company's Integrated Computer Systems track contract
performance, which indicate potential machine problems or pilferage and provide
data to forecast future equipment servicing requirements.
Data on machine performance is used by the sales staff to forecast
revenue by location. Management is able to obtain daily, monthly, quarterly and
annual reports on location performance, coin collection, service and sales
activity by salesperson.
The Integrated Computer Systems also provide the sales staff with an
extensive database essential to the Company's marketing strategy to obtain new
business through competitive bidding or owner-operator conversion opportunities.
Management also believes that the Integrated Computer Systems enhance
the Company's ability to successfully integrate acquired businesses into its
existing operations. Regional or certain multi-regional
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acquisitions have typically been substantially integrated within 90 to 120 days,
while a local acquisition can be integrated almost immediately.
Complementary Operations
In addition to supplying outsourced laundry equipment services, the
Company has expanded its breadth of operations to related, complementary lines
of businesses:
Individual Multi-Housing Units
The Company is involved in the business of renting laundry equipment
and other household appliances and electronic items to corporate relocation
entities, property owners, managers of multi-family housing properties and
individuals. With access to approximately six million individual housing units,
the Company believes this business line represents an opportunity for growth in
a new market segment which is complementary to its core business.
Laundromat Equipment Distribution
Super Laundry, a wholly-owned subsidiary of Coinmach Corporation, is a
laundromat equipment distribution company. Super Laundry's business consists of
constructing complete turnkey retail laundromats, retrofitting existing retail
laundromats, distributing exclusive lines of commercial coin and non-coin
operated machines and parts, and selling service contracts. Super Laundry's
customers generally enter into sales contracts pursuant to which Super Laundry
constructs and equips a complete laundromat operation, including location
identification, construction, plumbing, electrical wiring and all required
permits.
Retail Laundromat Operations
The Company operates 163 retail laundromats located throughout Texas
and Arizona. The operation of the retail laundromats involves leasing store
locations in desirable geographic areas, maintaining an appropriate mix of
washers and dryers at each store location and servicing the washers and dryers
at such locations. The Company is also responsible for maintaining the premises
at each retail laundromat and paying for utilities and related expenses.
Competition
The outsourced laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, the Company believes there are
currently three multi-regional route operators, including the Company with
significant operations throughout the United States. The two other major
multi-regional competitors are Web Service Company, Inc. and Mac-Gray Corp.
Employees
As of March 31, 1999, the Company employed 2,045 employees (including
359 laundromat attendants in the Company's retail laundromats in Texas and
Arizona). Approximately 136 hourly workers in the Northeast region are
represented by Local 966, affiliated with the International Brotherhood of
Teamsters (the "Union"). Management believes that the Company has maintained a
good relationship with the Union employees and has never experienced a work
stoppage since its inception.
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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 Coinmach Corporation ("Coinmach"), its primary operating
subsidiary. In November 1995, The Coinmach Corporation ("TCC"), a Delaware
corporation, merged (the "Merger") with and into Solon Automated Services, Inc.
("Solon"). In connection with the Merger, Coinmach Laundry changed its name from
SAS Acquisitions Inc., and Solon, the surviving corporation in the Merger,
changed its name to Coinmach Corporation.
The Company's headquarters are located at 55 Lumber Road, Roslyn, New
York 11576, and its telephone number is (516) 484-2300. The Company's mailing
address is the same as that of its headquarters. The Company also maintains a
corporate office in Charlotte, North Carolina.
Credit Facility and Senior Notes
In March 1998, the Company's credit facility (of which Bankers Trust
Company and First Union National Bank of North Carolina are the primary lending
institutions) was amended to provide for an aggregate of $435 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility currently bearing interest at an annual rate of LIBOR plus 1.75%; (ii)
a $125 million acquisition revolving credit facility currently bearing interest
at an annual rate of LIBOR plus 1.75%; and (iii) a $75 million Tranche A term
loan facility currently bearing interest at an annual rate of LIBOR plus 2.25%;
and (iv) a $200 million Tranche B term loan facility currently bearing interest
at an annual rate of LIBOR plus 2.50%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources - Financing Activities - Amended and Restated Credit Facility."
On March 28, 1996, Coinmach consummated a registered exchange offer,
pursuant to which all issued and outstanding 11 3/4% Senior Notes due 2005 were
exchanged for Coinmach's Series B 11 3/4% Senior Notes due 2005 (the "Series B
Notes"). On October 8, 1997, Coinmach completed a private placement of $100
million aggregate principal amount of its 11 3/4% Series C Senior Notes due 2005
(the "Series C Notes") on substantially identical terms as its Series B Notes.
On December 23, 1997, Coinmach commenced a registered exchange offer pursuant to
which all issued and outstanding Series B Notes and Series C Notes were
exchanged for Coinmach's 11 3/4% Series D Senior Notes due 2005 (the "11 3/4%
Series Notes"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Financing
Activities - Senior Note Offering and Exchange Offer."
Selected Historical Acquisitions
On January 8, 1997, Coinmach completed the acquisition of Kwik Wash
Laundries, L.P. and certain related parties (the "Kwik Wash Acquisition") for a
purchase price consisting of approximately $125 million in cash, excluding
transaction expenses, and a $15 million promissory note (the "Kwik Wash Note")
issued by Coinmach Laundry which was repaid in December 1997. The Kwik Wash
Acquisition increased the Company's presence in the South-Central region by
adding approximately 74,000 machines to the Company's base and enabled the
Company to provide outsourced laundry equipment services to multi-family housing
properties in Texas, Louisiana, Arkansas and Oklahoma and to operate 150 retail
laundromats throughout Texas at the time of the acquisition.
On March 14, 1997, Coinmach acquired substantially all of the assets of
Atlanta Washer & Dryer Leasing, Inc. (d/b/a Appliance Warehouse) (the "Appliance
Warehouse Acquisition") for approximately $6.3 million in cash and promissory
notes (the "AW Notes") issued by Coinmach Laundry aggregating $1.2
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million, excluding transaction expenses. The Appliance Warehouse Acquisition
increased the Company's presence in the South by adding approximately 14,000
machines to the Company's base and expanding the Company's core operations into
the related machine rental market, creating valuable operating synergies for the
Company. The AW Notes were fully repaid as of March 31, 1999.
On April 23, 1997, Coinmach completed the acquisition of Reliable
Holding Corp., Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V. and Automatica S.A. de C.V. and certain
other related parties (the "Reliable Acquisition") for a cash purchase price of
approximately $44 million, excluding transaction expenses. The Reliable
Acquisition was financed through borrowings under the Company's then existing
credit facility. The Reliable Acquisition provided the Company with a strong
foothold in the California market and added approximately 49,000 machines to the
Company's machine base.
On July 17, 1997, Coinmach completed the acquisition of National
Laundry Equipment Company, Whitmer Vend-O-Mat Laundry Services, Inc. and certain
other related parties (the "National Coin Acquisition") for an aggregate
purchase price of approximately $19 million, excluding transaction expenses. The
National Coin Acquisition, which was financed through borrowings under the
Company's then existing credit facility, enabled the Company to further expand
its operations by providing laundry equipment services to multi-family housing
properties in the states of Ohio, Indiana, Kentucky, Michigan, West Virginia,
Pennsylvania, Georgia, Tennessee, Illinois and Florida, as well as by
distributing exclusive lines of commercial coin and non-coin laundry machines
and parts.
On January 15, 1998, Coinmach completed the acquisition of the route
business of Apartment Laundries, Inc., ("ALI") (the "ALI Acquisition"), pursuant
to which Coinmach acquired substantially all the assets of ALI for a cash
purchase price of $16.2 million, excluding transaction expenses, and financed
through working capital and borrowings under the Company's then existing credit
facility. ALI provided outsourced laundry equipment services for multi-family
housing units in Oklahoma, Texas, Kansas and Arkansas.
On March 2, 1998, Coinmach completed the acquisition of Macke Laundry
Service, L.P. and substantially all of the assets of certain related entities
(collectively, "Macke") (the "Macke Acquisition") for a cash purchase price of
approximately $213 million, excluding transaction expenses. The Macke
Acquisition was financed with cash and borrowings under the Amended and Restated
Credit Facility (as defined) which was amended and restated in connection with
such acquisition to provide for additional borrowing capacity on substantially
similar terms as its then existing credit facility. The Macke Acquisition
enabled the Company to further expand its route operations by providing
outsourced laundry equipment services to multi-family housing properties
throughout the United States and added approximately 236,000 machines to the
Company's base. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Financing
Activities - Amended and Restated Credit Facility."
On May 19, 1998, Coinmach completed the acquisition of Cleanco, Inc.
and certain of its affiliates (collectively "Cleanco") (the "Cleanco
Acquisition") for a cash purchase price of approximately $23.0 million excluding
transaction expenses, financed with cash and borrowings under the Amended and
Restated Credit Facility. Cleanco, headquartered in Miami, Florida, was a
leading provider of coin-operated laundry equipment services in southern
Florida. The Cleanco Acquisition added approximately 21,000 machines to the
Company's installed base.
On June 5, 1998, Coinmach completed the acquisition of Gordon & Thomas
Companies, Inc. ("G&T") for a cash purchase price of approximately $58 million,
excluding transaction expenses, and
-10-
the assumption of certain liabilities. The G&T Acquisition was financed with
cash and borrowings under the Amended and Restated Credit Facility. G&T,
headquartered in New Jersey, was a leading provider of outsourced laundry
equipment services in the New York metropolitan area. The G&T Acquisition
strengthened the Company's presence in the northeastern United States by adding
approximately 36,000 machines to the Company's installed base.
ITEM 2. PROPERTIES
As of March 31, 1999, the Company leased 64 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, revenue collection and warehousing.
The Company presently maintains its headquarters in Roslyn, New York,
leasing approximately 40,000 square feet pursuant to a five year lease
terminating April 30, 2001. The Company's Roslyn facility is used for general
and administrative purposes and is the operational headquarters for the
Northeast regional branch. The Company has an option to purchase the Roslyn
facility, which it presently does not intend to exercise.
The Company also maintains a corporate office in Charlotte, North
Carolina, leasing approximately 3,000 square feet pursuant to a five year lease
terminating September 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
On April 8, 1999, Sand v. Coinmach Laundry Corporation, et. al, a
purported class action securities fraud lawsuit, was filed in the Federal
District Court for the Eastern District of New York (the "Federal Securities
Action") naming the Company and certain of its executive officers as defendants.
The Federal Securities Action was purportedly brought on behalf of all
shareholders of the Company who purchased or otherwise acquired the Company's
common stock during the period August 6, 1997 to September 29, 1998. The
complaint in the Federal Securities Action alleges violations of various federal
securities laws, including misrepresentations fo certain information about the
Company. The complaint in the Federal Securities Action seeks damages in
unspecified amounts. Although the outcome of this proceeding cannot be
predicted, based on the allegations contained in the complaint, management
believes that the Federal Securities Action will not have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company.
The Company is party to various legal proceedings arising in the
ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe that
adverse determinations in any or all such proceedings would have a material
adverse effect upon the financial condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-11-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
There currently exists no established public trading market for the
Common Stock, all of which is held beneficially and of record by Coinmach
Laundry.
Holders
As of March 31, 1999, there was one holder of record of the Common
Stock.
Dividends
The Company has not paid any dividends on the Common Stock during the
past fiscal year and does not intend to pay dividends on the Common Stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained
in certain of its outstanding debt and financing agreements relating to the
payment of cash dividends on its Common Stock. The Company may in the future
enter into loan or other agreements or issue debt securities or preferred stock
that restrict the payment of cash dividends or certain other distributions. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operation -- Liquidity and Capital Resources."
-12-
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios)
The following table presents summary historical consolidated financial
information of the Company. Such table includes the consolidated financial
information for the years ended March 31, 1999 ("1999 Fiscal Year"), March 31,
1998 ("1998 Fiscal Year"), and March 28, 1997 ("1997 Fiscal Year"), for the six
month transition period ended March 29, 1996, the period from April 5, 1995 to
September 29, 1995 and the consolidated financial information for the period
from October 1, 1994 to April 4, 1995, and for the fiscal year ended September
30, 1994. The financial data set forth below should be read in conjunction with
the Company's audited historical combined and consolidated financial statements
and the related notes thereto included in Item 8 "Financial Statements and
Supplementary Data" and with the information presented in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
this Form 10-K.
Successor(1) Predecessor(1)
------------------------------------------------------------- --------------------------
Six-Month
Transition Year Ended
Year Ended Period April 5, October 1, ----------
---------- Ended 1995 to 1994 to
March 31, March 31, March 28, March 29, September 29, April 4, September 30,
1999 1998 1997 1996 1995 1995 1994
---- ---- ---- ---- ---- ---- ----
Operations Data:
Revenues....................... $505,323 $324,887 $206,852 $89,070 $89,719 $52,207 $104,553
Operating general and
administrative expenses...... 339,551 223,491 143,966 62,560 65,363 34,704 69,257
Depreciation and amortization.. 113,448 75,453 46,316 18,212 18,423 10,304 21,347
Operating income............... 51,204 24,682 14,802 8,298 3,733 7,199 13,949
Interest expense............... 65,901 44,668 27,417 11,830 11,541 8,928 18,105
Loss before extraordinary item. (11,618) (14,652) (10,308) (2,534) (5,946) (1,779) (6,918)
Net loss....................... (11,618) (14,652) (10,604) (11,459) (5,946) (2,627) (6,918)
Balance Sheet Data (at end of period):
Cash and cash equivalents...... $26,515 $ 22,451 $ 10,110 $19,72 $ 9,282 -- $ 7,241
Property and equipment, net.... 223,610 194,328 112,116 82,699 80,706 -- 48,727
Contract rights, net........... 413,014 366,762 180,557 59,745 63,801 -- 15,432
Advance location payments...... 79,705 74,026 38,472 20,320 19,772 -- 17,646
Goodwill, net.................. 109,025 110,424 95,771 44,071 45,071 -- 45,881
Total assets ................ 900,660 816,232 467,550 248,167 239,943 -- 143,589
Total debt(5).................. 685,741 598,700 329,278 202,765 176,415 -- 128,487
Stockholder's (deficit) equity. (14,128) (2,594) 11,973 (2,148) 13,783 -- (8,721)
Financial Information and Other Data:
Cash flow from operating
activities................... $103,041 $58,686 $34,305 $12,100 $12,639 $10,216 $17,914
Cash flow used for investing
activities................... (181,665) (350,875) (196,698) (14,162) (13,114) (6,537) (16,763)
Cash flow from (used for)
financing activities......... 82,688 304,530 152,780 12,503 (1,017) (1,068) (270)
EBITDA(2)...................... 165,772 101,396 62,886 26,510 24,356 17,503 35,296
EBITDA margin(3)............... 32.8% 31.2% 30.4% 29.8% 27.2% 33.5% 33.8%
Capital expenditures(4)........
Growth capital expenditures.. $24,096 $21,119 $12,563 -- -- -- --
Renewal capital expenditures. 60,038 37,609 29,025 $14,219 $13,119 $6,944 $16,779
Acquisition capital
expenditures............... 97,531 294,996 171,455 -- -- -- --
Total Capital Expenditures..... $181,665 $353,724 $213,043 $14,219 $13,119 $6,944 $16,779
- --------------------
1 On November 30, 1995, Solon completed the Merger with TCC, which transaction
was accounted for in a manner similar to a pooling of interests. As a result
of the common investor group control over both entities, the term
"Successor" will refer to such common control periods; that is, the period
in time after the Solon Acquisition, and includes the historical results of
Solon which have been restated to include the pooling of interests of TCC.
The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. Successor is presented on a different basis of accounting and,
therefore, is not comparable to the Predecessor. Historical financial data
for Solon (for periods prior to April 5, 1995) are contained in the
financial statements and related notes thereto presented elsewhere in this
Form 10-K.
2 EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the fiscal
years ended March 31, 1999, March 31, 1998 and March 28, 1997 is before the
deduction for the stock based compensation charges,
-13-
and EBITDA for the period ending September 29, 1995 is before the deduction
for restructuring costs. EBITDA is used by management and certain investors
as an indication of a company's improved ability to service existing debt,
to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to either (a)
operating income (as determined by generally accepted accounting principles)
as an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by generally accepted
accounting principles) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as
presented may not be comparable to other similarly titled measures of other
companies.
3 EBITDA margin represents EBITDA as a percentage of revenues. Management
believes that EBITDA margin is a useful measure to evaluate the Company's
performance over various sales levels. EBITDA margin should not be
considered as an alternative for measurements determined in accordance with
generally accepted accounting principles.
4 Capital expenditures represent amounts expended for property and equipment,
for advance location payments to location owners and for acquisitions.
Acquisition capital expenditures represent the amounts expended to acquire
local, regional and multi-regional route operators, as well as complementary
businesses. For the fiscal years ended March 31, 1998 and March 28, 1997,
acquisition capital expenditures include approximately $2.3 million and
$16.2 million, respectively, of promissory notes issued by Coinmach Laundry
related to certain acquisitions. Growth capital expenditures represent the
amount of capital expended that reflects a net increase in the installed
base of machines, excluding acquisitions. Renewal capital expenditures
represent the amount of capital expended assuming no net increase in the
installed base of machines.
5 Total debt at March 31, 1999 and March 31, 1998 does not include the
premium, net, of $8,023 and $9,258, respectively, recorded as a result of
the issuance by Coinmach of $100 million aggregate principal amount of 11
3/4% Series C Senior Notes due 2005 in October 1997.
-14-
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 1999 Fiscal Year, 1998
Fiscal Year and the 1997 Fiscal Year and should be read in conjunction with the
consolidated financial statements and related notes thereto included in Item 8.
General
The Company is principally engaged in the business of supplying
outsourced laundry equipment services to multi-family housing properties. At
March 31, 1999, the Company owned and operated approximately 765,000 washers and
dryers in approximately 75,000 multi-family housing properties on routes
throughout the United States and in 163 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 execution of its growth strategy,
namely, high levels of amortization of contract rights and goodwill related to
the addition of new machines and customers through acquisitions accounted for
under the purchase method of accounting.
The Company's most significant revenue source is its route business,
accounting for approximately 86% of its revenue. The Company provides outsourced
laundry equipment services to locations by leasing laundry rooms from building
owners and property management companies, typically on a long-term, renewable
basis. In return for the exclusive right to provide these services, most of the
Company's contracts provide for commission payments to the location owners.
Commission expense (also referred to as rent expense), the Company's single
largest expense item, is included in laundry operating expenses and represents
payments to location owners. Commissions may be fixed amounts or percentages of
revenues and are generally paid monthly. Also included in laundry operating
expenses are the costs of machine maintenance and revenue collection in the
route business, including, payroll, parts, insurance and other related expenses,
the costs of sales associated with the equipment distribution business and
certain expenses related to the operation of retail laundromats. In addition to
commission payments, many of the Company's leases require the Company to make
advance location payments to the location owners. These advance payments are
capitalized and amortized over the life of the applicable lease.
Other revenue sources for the Company include: (i) leasing laundry
equipment and other household appliances and electronic items to corporate
relocation entities, property owners, managers of multi-family housing
properties and individuals (approximately $11.1 million for the 1999 Fiscal Year
and $2.9 million for the 1998 Fiscal Year); (ii) operating, maintaining and
servicing retail laundromats (approximately $20.2 million for the 1999 Fiscal
Year and $21.0 million for the 1998 Fiscal Year); and (iii) constructing
complete turnkey retail laundromats, retrofitting existing retail laundromats,
distributing exclusive lines of commercial coin and non-coin machines and parts,
and selling service contracts (approximately $33.3 million for the 1999 Fiscal
Year and $26.6 million for the 1998 Fiscal Year).
-15-
Results of Operations
The following table sets forth the periods indicated, selected
statement of operations data and EBITDA margin, as percentages of revenue:
Year Ended Year Ended Year Ended
March 31, March 31, March 28,
1999 1998 1997
----------- ------------ -----------
Revenues............................ 100% 100% 100%
Laundry operating expenses.......... 65.6 66.9 67.4
General and administrative expenses. 1.6 1.9 2.2
Depreciation and amortization....... 22.5 23.2 22.4
Operating income.................... 10.1 7.6 7.2
Interest expense, net............... 13.0 13.8 13.3
EBITDA margin....................... 32.8 31.2 30.4
Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998
Revenues increased by approximately 56% for the 1999 Fiscal Year as
compared to the 1998 Fiscal Year. This improvement in revenues resulted
primarily from the Company's execution of its acquisition strategy and increased
route revenues resulting from internal expansion. Based on the historical
revenues of acquired businesses, the Company estimates that approximately $162.0
million or 90% of its revenue increase for the 1999 Fiscal Year is primarily due
to the National Coin Acquisition (July 1997), the ALI Acquisition (January
1998), the Macke Acquisition (March 1998), the Cleanco Acquisition (May 1998)
and the G&T Acquisition (June 1998). In addition, during the 1999 Fiscal Year,
the Company's installed machine base increased by approximately 23,300 machines
from internal growth (excluding the machines added from the above-mentioned
acquisitions during such period) as compared to an increase of approximately
19,500 machines from internal growth during the prior year's corresponding
period. Included in internal growth are acquisitions of small, local route
operators and new customers secured by the Company's sales force.
Laundry operating expenses increased by approximately 53% for the 1999
Fiscal Year, as compared to the 1998 Fiscal Year. This increase was due
primarily to an increase in commission expense, related to the acquisitions
mentioned above. However, as a percentage of revenues, laundry operating
expenses were approximately 65.6% for the 1999 Fiscal Year as compared to 66.9%
for the 1998 Fiscal Year. This change was primarily due to cost efficiencies
related to the consolidation of the acquisitions noted above into the Company's
operations.
General and administrative expenses increased by approximately $1.7
million or 28% for the 1999 Fiscal Year as compared to the 1998 Fiscal Year. The
increase for the year was due to various costs and expenses related to (i) the
Company's acquisition strategy, including systems development and refinement
relating to the integration of prior acquisitions and (ii) accounting,
management information systems and other administrative functions associated
with the Company's growth. However, as a percentage of revenues, general and
administrative expenses were 1.6% for the 1999 Fiscal Year as compared to 1.9%
for the 1998 Fiscal Year. This change was primarily due to cost efficiencies
related to the consolidation of the acquisitions noted above into the Company's
operations.
Depreciation and amortization increased by approximately 50% for the
1999 Fiscal Year, as compared to the 1998 Fiscal Year, due primarily to contract
rights and goodwill associated with the acquisitions mentioned above, as well as
an increase in capital expenditures with respect to the Company's installed base
of machines.
-16-
Interest expense, net, increased by approximately 48% for the 1999
Fiscal Year, as compared to the 1998 Fiscal Year, due primarily to increased
borrowing levels under the Amended and Restated Credit Facility in connection
with certain acquisitions, as well as the increased interest expense due to the
Bond Offering (as defined herein). See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital Resources
- - Financing Activities - Senior Note Offering and Exchange Offer."
EBITDA(2) before deduction for stock-based compensation charges was
approximately $165.8 million for the 1999 Fiscal Year as compared to
approximately $101.4 million for the 1998 Fiscal Year, representing an
improvement of approximately 63%. EBITDA margins improved to approximately 32.8%
of revenues for the current year compared to approximately 31.2% of revenues for
the prior year. These increases were primarily due to the effect of cost
efficiencies related to the consolidation of the above-mentioned acquisitions
into the Company's operations, as well as internal growth.
Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 28, 1997
Revenues increased by approximately 57% for the 1998 Fiscal Year as
compared to 1997 Fiscal Year. This improvement in revenues resulted primarily
from the Company's execution of its acquisition strategy and increased route
revenues resulting from internal expansion. Based on the historical revenues of
acquired businesses, the Company estimates that approximately $103.0 million of
its revenue increase for the 1998 Fiscal Year was primarily due to the Kwik Wash
Acquisition (January 1997), the Reliable Acquisition (April 1997), and the
National Coin Acquisition (July 1997). The ALI Acquisition (January 1998) and
the Macke Acquisition (March 1998) also contributed to the revenue increase, but
had minimal impact due to the timing of these transactions. In addition, during
the 1998 Fiscal Year, the Company's installed machine base increased by
approximately 19,500 machines from internal growth (excluding the machines added
from the Macke Acquisition, the Reliable Acquisition, the ALI Acquisition and
the National Coin Acquisition during such period) as compared to an increase of
approximately 7,500 machines from internal growth during the prior year's
corresponding period. Included in internal growth are acquisitions of small,
local route operators and new customers secured by the Company's sales force.
Laundry operating expenses increased by approximately 56% for the 1998
Fiscal Year, as compared to the 1997 Fiscal Year. This increase was due
primarily to an increase in commission expense, related to the Macke
Acquisition, the Kwik Wash Acquisition, the Reliable Acquisition, the ALI
Acquisition and the National Coin Acquisition.
General and administrative expenses increased by approximately $1.6
million or 36% for the 1998 Fiscal Year as compared to the 1997 Fiscal Year. The
increase for the year was due to various expenses associated with (i) costs and
expenses relating to the Company's acquisition strategy, including systems
development and refinement relating to the integration of prior acquisitions,
and (ii) additional expenses, such as accounting, management information systems
and other administrative functions related to the
- --------
2 EBITDA represents earnings from continuing operations before
deductions for interest, income taxes, depreciation and amortization. EBITDA is
used by management and certain investors as an indicator of a company's
historical ability to service debt. Management believes that an increase in
EBITDA is an indication of a company's improved ability to service existing
debt, to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to either (a) operating
income (as determined by generally accepted accounting principles) as an
indicator of operating performance or (b) cash flows from operating, investing
and financing activities (as determined by generally accepted accounting
principles) as a measure of liquidity. Given that EBITDA is not a measurement
determined in accordance with generally accepted accounting principles and is
thus susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
-17-
Company's growth. However, as a percentage of revenues, general and
administrative expenses were 1.9% for the 1998 Fiscal Year as compared to 2.2%
for the 1997 Fiscal Year.
Depreciation and amortization increased by approximately 63% for the
1998 Fiscal Year, as compared to the 1997 Fiscal Year, due primarily to contract
rights and goodwill associated with the Macke Acquisition, the Kwik Wash
Acquisition, the Reliable Acquisition, the ALI Acquisition and the National Coin
Acquisition, as well as an increase in capital expenditures in respect of the
Company's installed base of machines.
The extraordinary items for the 1997 Fiscal Year consisted of costs
related to the extinguishment of debt in February 1997 and the termination of
the then existing revolving credit facility.
Interest expense, net, increased by approximately 63% for the 1998
Fiscal Year, as compared to the prior year, due primarily to increased borrowing
levels under the Amended and Restated Credit Facility in connection with certain
acquisitions, as well as the increased interest due to the Bond Offering. See
"Management's Discussions and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources Financing Activities -- Senior
Note Offering and Exchange Offer."
EBITDA(3) before deduction for stock-based compensation charges was
approximately $101.4 million for the 1998 Fiscal Year as compared to
approximately $62.9 million for the 1997 Fiscal Year, representing an
improvement of approximately 61%. EBITDA margins improved to approximately 31.2%
of revenues for the current year compared to approximately 30.4% of revenues for
the prior year.
Liquidity and Capital Resources
The Company continues to have substantial indebtedness and debt service
requirements. At March 31, 1999, the Company had outstanding long-term debt of
approximately $685.7 million (excluding the premium, net, of approximately $8.0
million) and stockholder's deficit of approximately $14.1 million.
Financing Activities
Senior Note Offering and Exchange Offer
On October 8, 1997, Coinmach completed a private placement (the "Bond
Offering") of $100 million aggregate principal amount of Series C Notes on
substantially identical terms as its Series B Notes. The gross proceeds from the
Bond Offering were $109.875 million, of which $100.0 million represented the
principal amount outstanding and $9.875 million represented the payment of a
premium for the Series C Notes. Coinmach used approximately $105.4 million of
the net proceeds from the Bond Offering to repay indebtedness outstanding under
its senior financing arrangement.
- --------
3 EBITDA represents earnings from continuing operations before
deductions for interest, income taxes, depreciation and amortization. EBITDA is
used by management and certain investors as an indicator of a company's
historical ability to service debt. Management believes that an increase in
EBITDA is an indication of a company's improved ability to service existing
debt, to sustain potential future increases in debt and to satisfy capital
requirements. However, EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to either (a) operating
income (as determined by generally accepted accounting principles) as an
indicator of operating performance or (b) cash flows from operating, investing
and financing activities (as determined by generally accepted accounting
principles) as a measure of liquidity. Given that EBITDA is not a measurement
determined in accordance with generally accepted accounting principles and is
thus susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
-18-
On December 23, 1997, Coinmach commenced an offer to exchange (the
"Exchange Offer") up to $296.7 million (excluding the premium on the Series C
Notes discussed above) of its 11 3/4% Senior Notes for any and all of its Series
B Notes and its Series C Notes. The Exchange Offer expired on February 6, 1998,
and, as of such date, the holders of 100% of the outstanding Series B Notes and
Series C Notes tendered such notes in the Exchange Offer for the 11 3/4% Senior
Notes.
The 11 3/4% Senior Notes, which mature on November 15, 2005, are
unsecured senior obligations of Coinmach and are redeemable, at the Company's
option, in whole or in part at any time or from time to time, on and after
November 15, 2000, upon not less than 30 nor more than 60 days notice, at the
redemption prices set forth in that certain Indenture, dated as of November 30,
1995, by and between Coinmach Corporation and Fleet National Bank of Connecticut
(formerly Shawmut Bank Connecticut, National Associates) as Trustee (the
"Indenture") plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption.
The Indenture contains a number of restrictive covenants and
agreements, including covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on certain payments (in the form of
the declaration or payment of certain dividends or distributions on the capital
stock of Coinmach Laundry or its subsidiaries, the purchase, redemption or other
acquisition of any capital stock of Coinmach Laundry, the voluntary prepayment
of subordinated indebtedness, or an Investment (as defined in the Indenture) in
any other person or entity); (iii) limitation on transactions with affiliates;
(iv) limitation on liens; (v) limitation on sales of assets; (vi) limitation on
sale and leaseback transactions; (vii) limitation on conduct of business; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) limitation on consolidations, mergers and sales of substantially all of
the assets of Coinmach.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and continuance
of certain events of default, the trustee or the holders of not less than 25% in
aggregate principal amount of outstanding 11 3/4% Senior Notes may declare all
unpaid principal and accrued interest on all of the 11 3/4% Senior Notes to be
immediately due and payable.
Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of 11 3/4% Senior Notes will have the right to require
that the Company purchase all or a portion of such holder's 11 3/4% Senior Notes
pursuant to the offer described in the Indenture, at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase.
Amended and Restated Credit Facility
The Company's existing credit facility with Bankers Trust Company
("Banker's Trust"), First Union National Bank of North Carolina ("First Union")
and certain other lending institutions, as amended (the "Amended and Restated
Credit Facility"), provides for an aggregate of $435 million of secured
financing consisting of: (i) a $35 million working capital revolving credit
facility currently bearing interest at an annual rate of LIBOR plus 1.75%; (ii)
a $125 million acquisition revolving credit facility currently bearing interest
at an annual rate of LIBOR plus 1.75%; (iii) a $75 million Tranche A term loan
facility currently bearing interest at an annual rate of LIBOR plus 2.25% and
(iv) a $200 million Tranche B term loan facility currently bearing interest at
an annual rate of LIBOR plus 2.50%. The Amended and Restated Credit Facility
also provides for up to $10 million of letter of credit financings. These
interest rates are subject to change from time to time and may increase by 25
basis points or decrease up to 75 basis points based on certain financial ratios
set forth in the Amended and Restated Credit Facility.
-19-
Under the Amended and Restated Credit Facility, the working capital revolver and
the acquisition revolver mature on December 31, 2003, the Tranche A term loan
matures on December 31, 2004 and the Tranche B term loan matures on June 30,
2005. In May 1999, the lenders under the Amended and Restated Credit Facility
gave their consent to permit the Company to borrow on or prior to May 28, 1999
up to $12.5 million under the existing acquisition revolver for working capital
purposes.
Interest on the Company's borrowings under the Amended and Restated
Credit Facility is payable quarterly in arrears with respect to Base Rate Loans
and the last day of each applicable interest period with respect to Eurodollar
Loans and at a rate per annum no greater than the sum of the Applicable Base
Rate Margin plus the Base Rate or the sum of the Applicable Eurodollar Margin
plus the Eurodollar Rate (in each case, as defined in the Amended and Restated
Credit Facility).
At March 31, 1999, the monthly variable LIBOR interest rate was
approximately 4.94%.
To manage its exposure to fluctuations in interest rates, the Company
entered into interest rate swap agreements, relating to its variable rate debt
portfolio. On February 23, 1998, the Company entered into a 33 month $75 million
notional amount interest rate swap transaction with Bankers Trust to fix the
monthly LIBOR interest rate under the Amended and Restated Credit Facility at
5.71%. On March 2, 1998, the Company entered into a 32 month, $100 million
notional amount interest rate swap transaction with First Union to fix the
monthly LIBOR interest rate under a portion of the Amended and Restated Credit
Facility at 5.83% (the "March Swap Agreement"). On April 7, 1998, the Company
entered into a 31 month, $75 million notional amount interest rate swap
transaction with Bankers Trust to fix the monthly LIBOR interest rate under a
portion of the Amended and Restated Credit Facility at 5.75%. On September 15,
1998, the Company amended the March Swap Agreement to increase the notional
amount to $175 million and to reduce the fixed monthly LIBOR interest rate to
5.515%. The new expiration date is November 15, 2002. The Company does not use
derivative financial instruments for trading purposes.
Indebtedness under the Amended and Restated Credit Facility is secured
by all of the Company's real and personal property. Under the Amended and
Restated Credit Facility, the Company has pledged to Bankers Trust, as
Collateral Agent, its interests in all of the issued and outstanding shares of
capital stock of the Company.
Subject to the terms and conditions of the Amended and Restated Credit
Facility, the Company may, at its option, convert Base Rate Loans (as defined in
the Amended and Restated Credit Facility) into Eurodollar Loans (as defined in
the Amended and Restated Credit Facility). Interest on the Company's borrowings
under the Amended and Restated Credit Facility is payable at a rate per annum no
greater than the sum of the Applicable Base Rate Margin plus the Base Rate or
the sum of the Applicable Eurodollar Margin plus the Eurodollar Rate (in each
case, as defined in the Amended and Restated Credit Facility).
The Amended and Restated Credit Facility contains a number of
restrictive covenants and agreements, including covenants with respect to
limitations on (i) indebtedness; (ii) certain payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of Coinmach Laundry or its subsidiaries or the purchase, redemption or
other acquisition of any capital stock of Coinmach Laundry or its subsidiaries);
(iii) voluntary prepayments of previously existing indebtedness; (iv)
Investments (as defined in the Amended and Restated 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 Amended and
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Restated Credit Facility also requires that the Company satisfy certain
financial ratios, including a maximum leverage ratio and a minimum consolidated
interest coverage ratio.
The Amended and Restated Credit Facility contains certain events of
default, including the following: (i) the failure of the Company to pay any of
its obligations under the Amended and Restated Credit Facility when due; (ii)
certain failures by the Company to pay principal or interest on indebtedness or
certain breaches or defaults by the Company in respect of certain indebtedness,
in each case, after the expiration of any applicable grace periods; (iii)
certain defaults by the Company in the performance or observance of the
agreements or covenants under the Amended and Restated Credit Facility or
related agreements, beyond any applicable cure periods; (iv) the falsity in any
material respect of certain of the Company's representations or warranties under
the Amended and Restated Credit Facility; (v) certain judgments against the
Company; and (vi) certain events of bankruptcy or insolvency of the Company.
Operating and Investing Activities
The Company's level of indebtedness will have several important effects
on its future operations including, but not limited to, the following: (i) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness; (ii) the financial covenants contained in
certain of the agreements governing the Company's indebtedness will require the
Company to meet certain financial tests and may limit its ability to borrow
additional funds or to dispose of assets; (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; and (iv) the
Company's ability to adapt to changes in the outsourced laundry equipment
services industry and to economic conditions in general could be limited.
As the Company has focused on increasing its cash flow from operating
activities, it has made significant capital investments, primarily consisting of
capital expenditures related to acquisitions, renewals and growth. The Company
anticipates that it will continue to utilize cash flows from operations to
finance its capital expenditures and working capital needs, including interest
payments on its outstanding indebtedness. Capital expenditures for the 1999
Fiscal Year were approximately $184.6 million (including approximately $2.9
million relating to capital lease obligations). Of such amount, the Company
spent approximately $97.5 million in acquisition and related transaction costs,
primarily due to the G&T Acquisition and the Cleanco Acquisition and
approximately $24.1 million related to the net increase in the installed base of
machines of 23,300 machines. The balance of approximately $60.0 million (which
consists of machine expenditures, advance location payments and laundry room
improvements) was used to maintain the existing machine base in current
locations and through replacement of discontinued locations and for general
corporate purposes. The full impact on revenues and cash flow generated from
capital expended on acquisitions and the net increase in the installed based 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 $64.0 million for the
twelve months ending March 31, 2000. Such increase relative to the 1999 Fiscal
Year is primarily attributable to the Company's recent acquisition activities.
While the Company estimates that it will generate sufficient cash flows from
operations to finance anticipated capital expenditures, there can be no
assurances that it will be able to do so.
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
In connection with certain of the financing agreements governing the Company's
indebtedness, the Company is required to make monthly cash interest payments as
required
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by the Amended and Restated Credit Facility and semi-annual cash interest
payments as required by the 11 3/4% Senior Notes.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay indebtedness outstanding under the 11
3/4% Senior Notes and borrowings under the Amended and Restated Credit Facility
or to permit any necessary refinancings thereof. An inability of the Company,
however, to comply with covenants or other conditions contained in the
indentures governing the 11 3/4% Senior Notes or in the credit agreement
evidencing the Amended and Restated 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 Amended and
Restated Credit Facility, or the indentures governing the 11 3/4% Senior Notes.
Certain Accounting Treatment
The Company's depreciation and amortization expenses, aggregating
approximately $113.4 million for the 1999 Fiscal Year, have the effect of
reducing net income but not operating cash flow. In accordance with generally
accepted accounting principles, a significant amount of the purchase price of
businesses acquired by the Company is allocated to "contract rights", which
costs are amortized over periods of up to 15 years.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. The Company's comprehensive year 2000
initiative is being managed by a team of internal staff and outside consultants.
The team's activities are designed to ensure that there is no adverse effect on
the Company's core business operations and that transactions with customers,
suppliers and financial institutions are fully supported.
During the 1999 Fiscal Year, the Company assessed the year 2000
readiness of its information technology ("IT") and non-IT systems. The Company
determined that it needed to modify significant portions of its IT systems so
that such systems will function properly with respect to dates in the year 2000
and beyond. The Company has substantially completed its IT systems
transformation and is currently verifying the year 2000 compliance of these
systems.
In addition, as part of its year 2000 initiative, the Company has
contacted its significant suppliers, customers and financial institutions to
ensure that those parties have appropriate plans to remedied year 2000 issues
where their systems interface with the Company's systems or otherwise impact its
operations. The Company is continuing to assess the extent to which its
operations are vulnerable should those organizations fail to properly address
their year 2000 readiness. Based on this review, the Company does not expect the
computer systems of those operations to have a material adverse effect on the
Company's operations.
While the Company believes its planning efforts are adequate to address
the year 2000 issue, there can be no guarantee that its computer systems or the
computer systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not have a material
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effect on the operations of the Company. The cost of the year 2000 initiative is
not expected to be material to the Company's results of operation, financial
condition or cash flows.
Inflation and Seasonality
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects will not be material to the Company. The Company's business
generally is not seasonal.
Forward Looking Statements
Certain statements and information contained in this Form 10-K and
other reports and statements filed by the Company from time to time with the
Securities and Exchange Commission (collectively, "SEC Filings") contain or may
contain certain forward looking statements and information that are based on the
beliefs of the Company's management as well as estimates and assumptions made
by, and information currently available to, the Company's management. Forward
looking statements are those that are not historical facts. When used in SEC
Filings, the words "anticipate," "project," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to the
Company or the Company's management, identify forward looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, competitive factors,
shifts in market demand, and other risks and uncertainties that may be beyond
the Company's control. Such risks and uncertainties, together with any risks and
uncertainties specifically identified in the text surrounding such forward
looking statements, include, but are not limited to, the Company's ability to
satisfy its debt service requirements, the costs of integration of acquired
businesses and realization of anticipated synergies, increased competition,
availability of capital to finance capital expenditures necessary to increase
and maintain the Company's operating machine base, the rate of growth in general
and administrative expenses due to the Company's business expansion, the
Company's dependence upon lease renewals, risks of extended periods of reduced
occupancy levels, and the ability of the Company to implement its business
strategy, including the acquisition and successful integration and operation of
acquired businesses. Other risks and uncertainties also include changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's future performance
and actual results 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, 1999, the Company had
$59.0 million outstanding relating to its variable rate debt portfolio.
The Company's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. If
market rates of interest on the Company's variable rate debt increased by 2.0%
(or 200 basis points), the Company's annual interest expense would change by
approximately $1.2
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million, assuming the amount outstanding was $59.0 million, the balance as of
March 31, 1999. The Company utilizes interest rate swap agreements to manage its
exposure to these risks.
On February 23, 1998, the Company entered into a 33-month $75 million
notional amount interest rate swap transaction with Bankers Trust to fix the
monthly LIBOR interest rate under the Amended and Restated Credit Facility at
5.71%. On March 2, 1998, the Company entered into a 32-month, $100 million
notional amount interest rate swap transaction with First Union to fix the
monthly LIBOR interest rate under a portion of the Amended and Restated Credit
Facility at 5.83%. On April 7, 1998, the Company entered into a 31-month, $75
million notional amount interest rate swap transaction with Bankers Trust to fix
the monthly LIBOR interest rate under a portion of the Amended and Restated
Credit Facility at 5.75%. On September 15, 1998, the Company amended the March
2, 1998 swap agreement with First Union to increase the notional amount to $175
million and to reduce the fixed monthly LIBOR interest rate to 5.515%. The new
expiration date is November 15, 2002.
The Company's fixed debt instruments are not generally affected by a
change in the market rates of interest, and therefore, such instruments
generally do not have an impact on future earnings. However, as fixed rate debt
matures, future earnings and cash flows may be impacted by changes in interest
rates related to debt acquired to fund repayments under maturing facilities.
The Company does not use derivative financial instruments for trading
purposes and is not exposed to foreign currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-25 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Directors
The Directors of Coinmach are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company, the periods during which they have served as such and certain other
information. The term of office of each Director continues until the election of
Directors to be held at the next Annual Meeting of Stockholders or until his
successor has been elected. There is no family relationship between any Director
and any other Director or Executive Officer of the Company. The information set
forth below concerning the Coinmach Directors has been furnished by such
Directors.
Name Title Age
---- ----- ---
Stephen R. Kerrigan........ Chairman of the Board and Director 45
Mitchell Blatt............. Director 47
Robert M. Doyle............ Director 42
Mr. Kerrigan has been Chief Executive Officer of Coinmach Laundry since
April 1996 and of Coinmach 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.(4) Mr. Kerrigan has been a director and Chairman of
the Board of Coinmach Laundry since April 1995 and of Coinmach 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 has been President and Chief Operating Officer of Coinmach
Laundry since April 1996 and of Coinmach 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
- --------
4 On November 30, 1995, TCC merged with and into Solon (the "Merger")
and entered into a series of refinancing transactions, whereupon the surviving
corporation changed its name to "Coinmach Corporation."
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Coinmach 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 has been Chief Financial Officer, Senior Vice President,
Treasurer and Secretary of Coinmach Laundry since April 1996 and Coinmach since
November 1995. Mr. Doyle has been a director of Coinmach since November 1995.
Mr. Doyle served as Vice President, Treasurer and Secretary of TCC from January
1995 to November 1995. Mr. Doyle joined TCC's predecessor in 1987 as Controller.
In 1988, Mr. Doyle became Director of Accounting, and was promoted in 1989 to
Vice President and Controller.
Executive Officers
The Executive Officers of Coinmach are listed on the table below which
is followed by descriptions of all positions and offices held by such persons
with Coinmach and the periods during which they have served as such and other
information. The term of office of each Executive Officer continues until the
election of Executive Officers to be held at the next Annual Meeting of
Directors or until his successor has been elected. There is no family
relationship between any Executive Officer and any other Executive Officer or
Director of the Company.
Name Title Age
---- ----- ---
Stephen R. Kerrigan........ Chairman of the Board and Chief
Executive Officer 45
Mitchell Blatt............. President, Chief Operating Officer 47
Robert M. Doyle............ Chief Financial Officer, Senior Vice
President, Treasurer, Secretary 42
John E. Denson............. Senior Vice President 61
Michael E. Stanky.......... Senior Vice President 47
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "--
Directors" above.
Mr. Denson has been Senior Vice President of Coinmach Laundry since
April 1996 and of Coinmach since November 1995. Mr. Denson was Senior Vice
President, Finance of Solon from June 1987 until November 1995. Mr. Denson has
served as an officer of Solon under various titles since 1973, and served as a
director and Co-Chief Executive Officer of Solon from November 1994 to April
1995.
Mr. Stanky has been Senior Vice President of Coinmach Laundry since
April 1996 and of Coinmach 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.
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ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
for all services rendered in all capacities for the fiscal years ended March 28,
1997, March 31, 1998 and March 31, 1999. In March 1998, the Company changed its
fiscal year end from the 52 or 53 week period ending on the last Friday of March
to the twelve consecutive months ending March 31.
Long-term
Annual Compensation Compensation
------------------- ------------
Common Stock
Other Annual Underlying All other
Name and Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (#) ($)
- ---------------------- ------- --------- --------- ----------------- ----------------- --------------------
Stephen R. Kerrigan 1999 350,000 400,000 121,740(1) 50,000 2,121(10)
Chief Executive 1998 350,000 400,000 83,870(2) - 1,929(10)
Officer 1997 330,841 400,000 97,161(3) 308,098(4) 1,875(10)
Mitchell Blatt 1999 300,773 150,000 65,575(5) 30,000 1,957(10)
President, Chief 1998 268,530 280,000 62,680(6) 100,000 2,073(10)
Operating Officer 1997 238,942 112,000 59,693(7) 100,000 1,875(10)
Robert M. Doyle 1999 175,000 87,500 - 20,000 1,190(10)
Chief Financial 1998 169,438 175,000 - 100,000 2,030(10)
Officer 1997 149,997 62,500 - 71,890 1,875(10)
John E. Denson 1999 125,500 25,000 44,068(8) 5,000 1,359(10)
Senior Vice 1998 125,000 30,000 68,768(9) - 1,586(10)
President 1997 125,859 25,000 - 28,756 1,149(10)
Michael E. Stanky 1999 175,000 87,500 - 10,000 1,928(10)
Senior Vice 1998 164,793 175,000 - 153,521 2,145(10)
President 1997 150,500 37,500 - - 1,188(10)
- -------------------
1 Includes $98,118 in forgiven indebtedness; $3,750 in interest, calculated at
a rate of 7.5% per annum on a loan made by the Company to Mr. Kerrigan;
$4,265 in automobile allowance; $14,500 in club membership; and $1,107 in
life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
2 Includes $45,393 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;
$26,593 for reimbursement of certain out-of-pocket relocation expenses;
$3,643 in automobile allowances; $3,335 in club membership fees; and $1,156
in life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
-27-
3 Includes $45,109 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;
$40,385 for reimbursement of certain out-of-pocket relocation expenses;
$4,554 in automobile allowances; $2,424 in club membership fees; and $939 in
life insurance premiums paid by the Company on behalf of Mr. Kerrigan.
4 Options are held by MCS, a corporation controlled by Mr. Kerrigan.
5 Includes $48,118 in forgiven indebtedness; $3,312 in automobile allowances;
$13,300 in club membership fees; and $845 in life insurance premiums paid by
the Company on behalf of Mr. Blatt.
6 Includes $45,393 in forgiven indebtedness; $3,687 in automobile allowances;
$12,700 in club membership fees; and $900 in life insurance premiums paid by
the Company on behalf of Mr. Blatt.
7 Includes $45,109 in forgiven indebtedness; $4,231 in automobile allowances;
$9,600 in club membership fees; and $733 in life insurance premiums paid by
the Company on behalf of Mr. Blatt.
8 Includes $20,000 in forgiven indebtedness; $1,900 in interest, calculated at
a rate of 9.5% per annum on a loan made by the Company to Mr. Denson;
$19,577 for reimbursement of certain out-of-pocket relocation expenses;
$1,525 in automobile allowances; and $1,066 in life insurance premiums paid
by the Company on behalf of Mr. Denson.
9 Includes $1,520 in imputed interest, calculated at a rate of 9.5% per annum,
on an interest free loan made by the Company to Mr. Denson; $48,691 for
reimbursement of certain out-of-pocket relocation expenses; $796 in
automobile allowances; $984 in life insurance premiums paid by the Company
on behalf of Mr. Denson; and $16,757 in net proceeds from the exercise of
options and sale of 2,457 underlying shares of Common Stock in the Secondary
Offering in December 1997 (equal to the difference between the applicable
exercise price of such options and the sale price of the underlying shares
of Common Stock, net of commissions).
10 Represents matching contributions made by the Company to the Profit Sharing
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 Merger, the obligations of TCC under the Senior Management
Agreements were assumed by Coinmach 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) provided for annual base salaries of
$350,000, $300,000 and $175,000 for each of Messrs. Kerrigan, Blatt and Doyle,
respectively, which amounts are reviewed annually by the Board. During the
fiscal year ended March 31, 1999, the Compensation Committee approved of annual
base salaries for each of Messrs. Blatt and Doyle of $300,000 and $175,000,
respectively. The Board, in its sole discretion, may grant each Senior Manager
an annual bonus. Each Senior Management Agreement is terminable at the will of
the Senior Managers or at the discretion of the Board. Senior Managers are
entitled to severance pay upon termination of their employment. If employment is
terminated by the Company without Cause (as defined in the Senior Management
Agreements) and no event of default has occurred under any bank credit facility
to which the Company is a party, Senior Managers are entitled to receive
severance pay in an amount equal to 1.5 times their respective annual base
salaries then in effect, payable in 18 equal monthly installments. If employment
is terminated by the Company and an event of default has occurred and is
continuing under any bank credit facility to which the Company is a party,
Senior Managers are entitled to receive severance pay in an amount equal to
their respective annual base salaries then in effect, payable in 12 equal
monthly installments. Under limited circumstances, Senior Managers are entitled
to receive half of the severance pay to which they are otherwise entitled if
employment with the Company is terminated by them.
Employment Agreement of John E. Denson. The Company entered into an
employment agreement with Mr. Denson, dated as of September 5, 1996, for a term
of one year which is automatically renewable
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each year for successive one-year terms. Such agreement provided for an annual
base salary of $110,000, commencing January 1, 1997, which amount is to be
reviewed each December by the Board. During the fiscal year ended March 31,
1999, the Compensation Committee approved an annual base salary for Mr. Denson
of $125,000. The Board may, in its discretion, grant Mr. Denson a
performance-based annual bonus. The agreement is terminable at the will of Mr.
Denson or at the discretion of the Board. Under the terms of such employment
agreement, Mr. Denson is entitled to receive severance pay upon termination of
employment by the Company without Cause (as defined in such agreement) in an
amount equal to the greater of $110,000 or his annual base salary then in
effect.
Employment Agreement of Michael E. Stanky. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky 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, 1999, the
Compensation Committee approved an annual base salary for Mr. Stanky of
$175,000.
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 one year of
service. Pursuant to the 401(k) Plan, eligible employees may defer from 2% up to
15% of their salaries up to a maximum level imposed by applicable federal law
($10,000 in 1999). 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 increasing matching contribution amounts, based upon the
number of years of service completed by eligible participants, up to a maximum
contribution of 1.5% of an eligible employee's salary (subject to the Internal
Revenue Code limitation on compensation taken into account for such purpose).
Matching contribution percentages range from 5% for one to two years of service
up to 25% for five or more years of service, of the amount contributed to the
401(k) Plan by the respective eligible employee. Eligible employees become
vested with respect to matching contributions made by the Company pursuant to a
vesting schedule based upon an eligible employee's years of service. After two
years of service, an eligible employee is 20% vested in all matching
contributions made to the 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 its fiscal
year ended March 31, 1999 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $2,219; Mr. Blatt $1,957; Mr.
Doyle $1,190; Mr. Denson $1,359; and Mr. Stanky $1,928.
Compensation of Directors
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Board meetings. The Company has granted Mr. Chapman, presently a
director of Coinmach Laundry and a director of the Company since November 1996,
options to purchase 28,756 shares of Coinmach Laundry's common stock at an
exercise price of $11.90 per share, 23,005 of which are currently exercisable
and the remainder of which vest in November 1999. Mr. Chapman has not exercised
any options to date.
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Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 1999, the Compensation Committee
was composed of Dr. Laffer, Mr. Stephen G. Cerri and Mr. David A. Donnini. None
of Dr. Laffer or Messrs. Cerri and Donnini have been an employee or officer of
the Company or any of its subsidiaries. Mr. Donnini is a principal of Golder,
Thoma, Cressey, Rauner, Inc., the general partner of GTCR IV.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 31, 1999, the Company had 100 shares of Common Stock issued
and outstanding, 100% of which was owned by Coinmach Laundry. The information in
the following table sets forth, as of June 10, 1999, certain information with
respect to the beneficial ownership of Coinmach Laundry's common stock by (a)
each director, (b) each Named Executive Officer of the Company who is a
stockholder, (c) each person known to the Company to own beneficially more than
5% of any class of voting stock of Coinmach Laundry, and (d) all directors and
Named Executive Officers as a group. No director or executive officer of the
Company owns any shares of Coinmach Laundry's Class B non-voting common stock.
The Company believes that except as otherwise indicated, the beneficial holders
listed below have sole voting and investment power regarding the shares of
Coinmach Laundry's common stock owned by them.
Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class(1)
- ---------------- -------------------- -------
Golder, Thoma, Cressey, Rauner, Fund IV, L.P. 3,008,402 23.3%
6100 Sears Tower
Chicago, IL 60606
Strong Capital Management, Inc. 1,609,800(2) 12.5%
100 Heritage Reserve
Menomonee Falls, WI 53051
Prudential Insurance Company of America 1,268,900(3) 9.8%
751 Broad Street
Newark, NJ 07102-3777
Robert Fleming, Inc. 869,519(4) 6.7%
320 Park Avenue, 11th Floor
New York, NY 10022
Capital Guardian Trust Company 737,800(5) 5.7%
333 South Hope Street, 52nd Flr.
Los Angeles, CA 90071
The Goldman Sachs Group, L.P. 722,600(6) 5.6%
85 Broad Street
New York, NY 10004
Officers and Directors
Stephen R. Kerrigan 605,848(7) 4.4%
-30-
Mitchell Blatt 436,845(8) 3.3%
Robert M. Doyle 184,979(9) 1.3%
Michael E. Stanky 152,563(10) 1.1%
John E. Denson 24,548(11) *
Bruce V. Rauner 3,008,402(12) 23.3%
David A. Donnini 3,008,402(13) 23.3%
James N. Chapman 45,066(14) *
Arthur B. Laffer 45,000(15) *
Stephen G. Cerri 50,500(16) *
All Officers and Directors
as a group (10 persons) 4,553,751(17) 33.2%
- ----------
* Percentage of shares beneficially owned does not exceed 1% of Common
Stock outstanding.
1 Share percentage ownership is rounded to nearest tenth of 1% and
reflects the effect of dilution as a result of outstanding options to
the extent such options are, or within 60 days from June 10, 1999 will
become, exercisable. Shares underlying any option which was exercisable
on June 10, 1999 or becomes exercisable within the 60 day period
thereafter are deemed outstanding only for purposes of computing the
share ownership and share ownership percentage of the holder of such
option.
2 Based on a report on Schedule 13G filed by Strong Capital Management,
Inc. ("Strong") with the Securities and Exchange Commission ("SEC") on
February 11, 1999. Strong has sole voting power as to 1,13