Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 33-49830
COINMACH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 53-0188589
(State of incorporation) (I.R.S. Employer Identification No.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of May 26, 1997, the registrant had outstanding 100 shares of common
stock, par value $.01 per share (the "Common Stock").
No market value can be determined for the Common Stock. See Item 5 of this
Form 10-K Report.
================================================================================
PART I
ITEM 1. BUSINESS.
Unless otherwise expressly indicated herein, the descriptions of the
Company contained herein are as of March 28, 1997 and do not give effect to the
acquisition of Reliable Holding Corp. (the "Reliable Acquisition"), completed on
April 23, 1997, or the amendment to the Company's New Credit Facility (defined
herein), completed on June 2, 1997. For a description of such acquisition and
amendment to the New Credit Facility, see "Business - General Development of
Business - Recent Developments" and "Business - General Development of Business
- - Credit Facility."
GENERAL DEVELOPMENT OF BUSINESS
Coinmach Corporation, a Delaware corporation (the "Company" or the
"Registrant"), is a leading national supplier of coin-operated laundry equipment
services for multi-family housing properties. Prior to giving effect to the
Reliable Acquisition, the Company owns and operates approximately 337,000 coin-
operated washers and dryers (sometimes hereinafter referred to as "machines") in
over 30,000 multi-family housing properties on routes located in 30 states and
the District of Columbia and in 150 retail laundromats located throughout Texas.
The Company's routes are located throughout the Northeast, Mid-Atlantic,
Southeast, South-Central and Midwest regions of the United States. The Company,
through its wholly-owned subsidiary, Super Laundry Equipment Corp. ("Super
Laundry"), is also a construction and laundromat equipment distribution company.
The Company is a wholly-owned subsidiary of Coinmach Laundry Corporation, a
Delaware corporation ("CLC"). Unless otherwise specified herein, references to
the Company shall mean Coinmach Corporation and its subsidiaries.
The Company's executive offices are located at 55 Lumber Road, Roslyn, New
York 11576, and its telephone number is (516) 484-2300. The Company's mailing
address is the same as that of its executive offices. In September 1996, the
Company opened a corporate development office in Charlotte, North Carolina.
SIGNIFICANT ACQUISITIONS
On April 1, 1996, the Company acquired substantially all of the assets of
Allied Laundry Equipment Company, a regional route operator located in St.
Louis, Missouri for $15.5 million in cash (the "Allied Acquisition"). The
Allied Acquisition adds approximately 24,000 machines to the Company's base and
provides the Company with a larger market presence in the Mid-West.
On January 8, 1997, the Company acquired 100% of the outstanding voting
securities of each of KWL, Inc., a Nevada corporation ("KWL"), and Kwik-Wash
Laundries, Inc., a Nevada corporation ("Kwik Wash"), for $125 million in cash
and a $15 million promissory note (the "Kwik Wash Note") issued by CLC (the
"Kwik Wash Acquisition"). KWL and Kwik Wash are the sole partners of Kwik Wash
Laundries, L.P. (the "Kwik Wash Partnership"), a Texas limited partnership. The
Kwik Wash Acquisition increases the Company's presence in the South-Central
region by adding approximately 74,000 machines to the Company's base and enables
the Company to provide coin-operated laundry equipment services to multi-family
housing properties in Texas, Louisiana, Arkansas and Oklahoma and to operate 150
retail laundromats throughout Texas. Upon consummation of the Kwik Wash
Acquisition, KWL, Kwik Wash and the Kwik Wash Partnership were merged with and
into the Company.
-2-
On March 14, 1997, the Company acquired substantially all of the assets of
Atlanta Washer & Dryer Leasing, Inc. (d/b/a Appliance Warehouse) for
approximately $6.3 million in cash and promissory notes (the "AW Notes") issued
by CLC aggregating $1.2 million (the "Appliance Warehouse Acquisition"). The
Appliance Warehouse Acquisition increases the Company's presence in the South by
adding approximately 14,000 machines to the Company's base and expands the
Company's core operations into the related machine rental market, creating
valuable operating synergies for the Company. At any time after March 14, 1998,
the holders of the AW Notes may convert such notes, subject to terms and
conditions therein, into a specified number of shares of CLC's Class A Common
Stock, par value $.01 per share (the "CLC Common Stock").
CREDIT FACILITY
Concurrent with the Kwik Wash Acquisition, the Company entered into a
credit agreement (the "Credit Agreement") with Bankers Trust Company, First
Union National Bank of North Carolina, Lehman Commercial Paper, Inc. and certain
other lending institutions named therein providing for, among other things, a
$130 million term loan facility and a $70 million revolving credit facility (the
"New Credit Facility"). The New Credit Facility, which replaced the Company's
then existing credit facility, funded the Kwik Wash Acquisition and provides
financing to support the Company's acquisition strategy. Effective June 2,
1997, the Credit Agreement was amended to, among other things, increase the term
loan facility by $60.0 million, of which $50.0 million was used to repay
outstanding revolver borrowings under the New Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - New Credit Facility."
RECENT DEVELOPMENTS
On April 23, 1997, the Company acquired the route business of Reliable
Holding Corp. ("Reliable") through a series of merger transactions for a cash
purchase price of approximately $44.0 million funded by revolver borrowings
under the New Credit Facility. The Reliable Acquisition provides the Company
with a strong foothold into the California market and adds approximately 49,000
machines to the Company's base.
Effective June 2, 1997, the New Credit Facility was amended to, among other
things, increase the term loan facility by $60.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - New Credit Facility."
DESCRIPTION OF THE BUSINESS
OVERVIEW
The coin-operated laundry equipment services industry provides coin-
operated washer and dryer services to individuals living in multi-family housing
properties. The Company's core business involves leasing laundry rooms from
building owners and management companies, installing and servicing laundry
equipment and collecting revenues generated from laundry machines. The Company
typically sets pricing for the use of laundry machines on location, and the
owner or property manager maintains the premises and provides utilities such as
gas, electricity and water.
The Company's existing customer base for its core business is comprised of
landlords, property management companies, and owners of rental apartment
buildings, condominiums and cooperatives, university and institutional housing
and other multi-family housing properties. Prior to giving effect to
-3-
the Reliable Acquisition, the Company owns and operates approximately 337,000
coin-operated washers and dryers in over 30,000 multi-family housing properties
on routes located in 30 states and the District of Columbia and in 150 retail
laundromats located throughout Texas. The Company's routes are located
throughout the Northeast, Mid-Atlantic, Southeast, South-Central and Mid-West
regions of the United States. Management believes, based on its knowledge of
the industry and after giving effect to the Reliable Acquisition, that the
Company is the largest supplier of coin-operated laundry equipment services for
multi-family housing properties throughout the United States.
As a result of its strategy to acquire route operators that contribute to
the Company's core operations, the Company has also selectively acquired certain
related businesses which expand and diversify the types of services provided by
the Company. Through Super Laundry, the Company constructs and finances turnkey
laundromat operations, and sells and distributes coin-operated washers, dryers
and laundry equipment. With the Kwik Wash Acquisition, the Company now operates
150 retail laundromats throughout Texas and provides laundromat services at all
such locations. As a result of the Appliance Warehouse Acquisition, the Company
leases laundry equipment and other household appliances to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties. The Company believes that these non-core businesses, although not
material to the Company's operations, provide a significant platform for
expansion and diversification of the Company's services. See "Business -
Description of Business - Super Laundry" and "Business - Description of Business
- - Laundromat Operations".
The Company maintains its executive offices in Roslyn, New York, a
corporate development office in Charlotte, North Carolina and regional offices
in each of the major regions in which it conducts operating activities,
including sales, service and collections. The following table sets forth
certain information relating to the Company's regional operations as of March
28, 1997:
MID-
NORTHEAST ATLANTIC SOUTHEAST SOUTH-CENTRAL MID-WEST TOTAL
-------------- ------------- ------------------- ---------------- --------------- ---------
States....................... NY, NJ, CT D.C., MD, VA, WV, NC, SC, TX, LA, FL, IL, IA, SD, 31
PA, DE GA, KY, AL, TN AK, MS, OK NE MO, KS,
IN, MI, WI,
OH
Approximate Revenue (in $ 79.6 $29.3 $ 25.1 $62.4/5/ $10.5 $206.9
millions).................
Employees.................... 255/1/ 81 145/2,3/ 657/4/ 42 1,180
____________________
1 Includes 36 executive, financial and administrative personnel at the
Company's headquarters located in Roslyn, New York.
2 Includes five executive, financial and administrative personnel at the
Company's corporate development office located in Charlotte, North
Carolina.
3 Includes 24 contract employees employed by the Company through a lease
arrangement with an independent employment company in connection with the
Appliance Warehouse Acquisition.
4 Includes 280 laundromat attendants in the Company's retail laundromats in
Texas.
5 Includes revenue resulting from the Kwik Wash Acquisition for the period
subsequent to January 8, 1997.
BUSINESS STRATEGY
The Company's business strategy is to increase operating cash flow and
profitability through a combination of internal expansion and selective
acquisitions. Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers, (ii) converting owner-operated facilities
to Company-managed facilities; and (iii) implementing selective price increases
within the Company's operating regions. The Company's acquisition strategy is
to acquire additional local, regional and multi-regional route businesses from
independent operators. Management believes that by pursuing its business
-4-
strategy the Company will be positioned to realize: (i) additional operating
leverage and economies of scale associated with expanding its installed base of
machines, including without limitation, reduced equipment and parts costs on a
per unit basis due to increased purchasing requirements and (ii) reduced
operating expenses through consolidation of overhead functions and facilities.
In January 1995, management, with its equity sponsor, Golder, Thoma,
Cressey, Rauner Fund IV, L.P., acquired Coinmach Industries Co., L.P. and Super
Laundry Co., L.P. and initiated a strategy of growth through acquisitions. On
April 5, 1995, CLC (formerly SAS Acquisitions Inc.) acquired (the "Solon
Acquisition") all of the voting capital stock of Solon Automated Services, Inc.
("Solon"). On November 30, 1995, The Coinmach Corporation ("TCC") merged with
and into Solon (the "Merger"), whereby Solon was the surviving corporation and
changed its name to Coinmach Corporation.
This acquisition strategy was designed to increase the installed machine
base of the Company in its existing operating regions (initially throughout the
Northeast region) and to provide the Company with a strong market presence in
new regions. Since January 1995, the Company has expanded into the Mid-
Atlantic, Southeast, South-Central and Midwest regions of the United States and
grown its installed base from approximately 54,000 machines to approximately
337,000 machines as of March 28, 1997. Revenues and EBITDA/1/ have grown from
approximately $72.9 million and approximately $13.6 million, respectively, for
the twelve months ended March 31, 1995, to approximately $206.9 million and
approximately $62.8 million (before deducting non-cash stock based compensation
charges), respectively, for the twelve months ended March 28, 1997. These
acquisitions have enabled the Company to improve its operating margins and to
expand internally by competing more aggressively for new business.
Internal Expansion
New Locations. The Company's aggressive sales and marketing efforts focus
-------------
on two areas of expansion within its existing operating regions. The Company's
primary means of internal expansion is by marketing the Company's products and
services to building managers and property owners whose leases with other
laundry equipment services providers are near expiration. Many large customers
require competitive bids for expiring lease contracts. The Company's
proprietary, fully-automated management information and control systems (the
"Integrated Computer Systems") track information on the lease expirations of its
competitors. The Company secures leases with new customers through aggressive
bidding for new contracts and its long standing industry reputation for prompt
and reliable service, effective data management on competition, and its ability
in coordinating and targeting its marketing efforts.
Conversions. Management believes, based on industry estimates, that there
-----------
are approximately 1.0 million machines installed in locations that are managed
by owner-operators. Building owners or managers can forgo significant cash
outlays by contracting with the Company to purchase, service and maintain
laundry equipment. Accordingly, the Company aggressively pursues building
owners and managers to convert from owner-operated laundry facilities. The
Company offers a full range of services
- -------------------------
/1/ EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the period
ending March 28, 1997 is before the deduction for stock based compensation
charges. EBITDA is used by management and certain investors as an indicator of
a company's historical ability to service debt. Management believes that an
increase in EBITDA is an indication of a company's improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either (a)
operating income (as determined by generally accepted accounting principles) as
an indicator of operating performance or (b) cash flows from operating,
investing and financing activities (as determined by generally accepted
accounting principles) as a measure of liquidity. Given that EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
-5-
from the design, construction and installation of new laundry facilities to the
refurbishment of existing facilities. Management believes these services
provide a competitive advantage in securing new customers.
Price Increases. In addition to growing the Company's installed base of
---------------
machines, management regularly reviews its pricing policies and procedures under
existing leases. Management expects that the Company should realize increases
in revenue and cash flow from operations through selective price increases and
other pricing procedures in the forthcoming year.
Management believes that its strategy of growth within its existing
operating regions will result in additional economies of scale and operating
efficiencies associated with an expanded machine base. Such growth, however,
will be dependent upon a number of factors beyond the Company's control, such as
the Company's ability to secure new contracts from owner-operators on
commercially favorable terms and competitive forces that may reduce the number
of opportunities to secure new locations or to effect price increases.
Selective Acquisitions
The Company intends to continue to capitalize on opportunities within the
fragmented laundry services industry through selective acquisitions of local,
regional and multi-regional route businesses. In particular, there are numerous
private, family-owned businesses that may lack the financial resources to
provide advance rental payments, install new equipment, make laundry room
improvements or otherwise compete effectively with larger independent operators
such as the Company to secure new or renewal locations. Consequently, such
independent operators, many of which are undergoing generational ownership
changes, may represent potential acquisition opportunities for the Company
within its operating regions.
Management believes the Company is well positioned to continue to
capitalize on such opportunities for growth and expansion due to its operating
efficiencies, its access to capital resources, and senior management's extensive
experience and relationships in the industry. The Company evaluates potential
acquisitions based on certain criteria, including the size of the business (in
terms of revenues and machine base), the geographic concentration of the
business, market penetration, service history, customer relations, existing
contract terms and potential operating efficiencies and cost savings. The
Company considers three types of acquisition candidates: (i) small, local route
operators; (ii) regional route operators; and (iii) large, multi-regional route
operators.
Local route operators. The acquisition of small, local operators
---------------------
(businesses operating within one of the Company's existing regions) results in a
reduction of the target's existing cost structure through the complete
absorption of the machine base into the Company's operations. The Company
evaluates opportunities to acquire route businesses from independent operators
to further increase operating leverage within its operating regions. In many
regions, the Company may be able to acquire routes adjacent to its existing
areas of operation without incurring significant incremental operating,
collection, security, service and maintenance costs. During the past fiscal
year, the Company acquired several local route operators.
Regional route operators. The Company's acquisition of regional route
------------------------
operators provides opportunities to improve its cash flow by eliminating
duplicative corporate and administrative functions, reducing capital
expenditures through improved purchasing power and implementing the Company's
Integrated Computer Systems. One such regional acquisition, the Allied
Acquisition, was part of the
-6-
Company's plan to establish a larger market presence in the Mid-West. See
"Business - General Development of Business - Selective Acquisitions."
Multi-regional route operators. The acquisition of a large, multi-regional
------------------------------
route operator may result in a number of operating efficiencies, including
significant cost savings through the elimination of duplicative financial and
administrative functions and related fixed costs. In addition, the increased
volume of equipment purchases may result in reduced per unit capital
expenditures. Moreover, as is the case with all types of acquisitions, the
Company's Integrated Computer Systems would be utilized to provide further
operating efficiencies and related cost savings. On January 8, 1997, the
Company completed the Kwik Wash Acquisition. Management expects to integrate
substantially all of the operations formerly conducted by the Kwik Wash
Partnership into the Company's operations during 1997 and to achieve significant
targeted cost savings as a result of such integration. The combination of the
Company with the Kwik Wash Partnership for the twelve months ended March 28,
1997, assuming no cost savings, results in combined pro forma revenues of
approximately $255.7 million and pro forma EBITDA of approximately $78.8 million
(before deducting non-cash stock based compensation charges). See "Business -
General Development of Business - Selective Acquisitions." On April 23, 1997,
the Company also completed the Reliable Acquisition. See "Business - General
Development of Business -Recent Developments."
INDUSTRY
The coin-operated laundry services industry is fragmented nationally with
many small, private and family-owned route businesses continuing to operate
throughout all major metropolitan areas. According to information provided by
the Multi-housing Laundry Association, the industry is comprised of over 280
independent operators. Based upon industry estimates, management believes there
are approximately 3.5 million machines installed throughout the United States,
approximately 2.5 million of which are managed by independent operators such as
the Company and approximately 1.0 million of which are managed by owner-
operators. Despite the overall fragmentation of the industry, there are
currently three companies including the Company with significant operations in
multiple regions throughout the United States. Management believes that its two
major multi-regional competitors are strongest in California and Chicago,
Illinois. See "Business - Description of Business - Competition."
The industry is highly capital intensive, and customers require prompt and
reliable service. The majority of capital costs are incurred upon procurement
of new leases. Such initial costs include replacing or repairing existing
washers and dryers, refurbishing laundry rooms and making advance rental
payments to secure long-term, renewable leases. After the initial expenditures,
ongoing working capital requirements are minimal, since machines operate for
many years if serviced properly, and variable costs are paid out of revenues
collected from the machines.
Historically, the industry has been characterized by stable demand and has
proven to be resistant to changing market conditions and general economic
cycles. Management believes that this is due to the consistent demand for
laundry services by building occupants.
Management believes that the industry's consistent and predictable revenue
and cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
-7-
DESCRIPTION OF PRINCIPAL OPERATIONS
The principal aspects of the Company's operations include: (i) location
leasing; (ii) service; (iii) remanufacturing; (iv) security; (v) information
management; and (vi) sales and marketing.
Location Leasing
The Company's leases provide the Company the exclusive right to operate and
service the laundry equipment, including repairs and maintenance. The Company
typically sets pricing for the use of the machines on location, and the property
owner or manager maintains the premises and provides utilities such as gas,
electricity and water.
In return for the exclusive right to provide laundry equipment services,
most of the Company's leases provide for monthly commission payments to the
location owners. Under the majority of leases, these commissions are based on a
percentage of the cash collected from the laundry machines. Many of the
Company's leases require the Company to make advance rental payments to the
location owner in addition to commissions. The Company's leases typically
include provisions that allow for unrestricted price increases, a right of first
refusal (an opportunity to match competitive bids at the expiration of the lease
term) and termination rights if the Company does not receive minimum net
revenues from a lease. The Company has some flexibility in negotiating its
leases and, subject to regional competitive factors, may vary the terms and
conditions of a lease, including commission rates and advance rental payments.
The Company evaluates each lease opportunity through its Integrated Computer
Systems, which are designed to achieve certain targeted levels of profitability.
Management estimates that approximately 90% of its locations are subject to
long-term leases with initial terms of three to ten years. Of the remaining
locations not subject to long term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
intends to continue to service such customers. Approximately 75% of the
Company's leases renew automatically, and the Company has a right of first
refusal on termination in approximately 45% of its leases. The Company's
automatic renewal clause typically provides that, if the building owner fails to
take any action prior to the end of the original lease term or any renewal term,
the lease will automatically renew on substantially similar terms. As of March
28, 1997, the Company's leases have an average remaining life to maturity of
approximately 40 months (without giving effect to automatic renewals).
Service
The Company's employees deliver, install, service and collect from coin-
operated washers and dryers in laundry facilities at its leased locations.
The Company's fleet of 314 radio-equipped service vehicles allows the quick
dispatch of service technicians in response to both computer-generated (for
preventive maintenance) and customer-generated service calls. On a daily basis,
the Company receives and responds to approximately 2,200 service calls.
Management estimates that less than 1% of the Company's machines are out of
service on any given day. The ability to reduce machine down time, especially
during peak usage, serves to enhance revenue and improve the Company's
reputation with its customers.
In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of
-8-
responding promptly to customer needs. Computer-generated service calls for
preventive maintenance are based on previous service history, repeat service
call analysis and monitoring of service areas. These operations coordinate the
Company's radio-equipped service vehicles that allow the Company to address
customer needs quickly and efficiently.
Remanufacturing
The Company's remanufacturing operations provide approximately one-third of
its anticipated annual machine installation requirements. The Company rebuilds
and reinstalls a portion of its machines at approximately one-third the cost of
acquiring new machines, providing significant cost savings. Remanufactured
machines are restored to virtually new condition with the same estimated average
life and service requirements as new machines. Machines that can no longer be
remanufactured are stripped and added to the Company's inventory of spare parts,
generating additional cost savings.
The Company maintains three regional remanufacturing facilities which
provide for consistent machine quality and efficient operations and are
strategically located to service each of its operating regions.
Security
Management believes that it provides the highest level of security control
in the laundry equipment services industry. The Company utilizes numerous
precautionary procedures with respect to cash collection, including frequent
alteration of collection patterns, extensive monitoring of collections and other
control mechanisms. The Company enforces stringent employee standards and
screening procedures with prospective employees. Employees responsible for or
who have access to the collection of funds are tested randomly and frequently.
Additionally, the Company's security department performs trend and variance
analyses of daily collections by location. Security personnel monitor
locations, conduct investigations, and implement additional security procedures
as necessary.
Information Management
Management believes that the Company's Integrated Computer Systems
significantly enhance its operating efficiencies, its ability to successfully
integrate acquired businesses into its existing operations as well as its sales
and marketing efforts. The Integrated Computer Systems provide speed and
accuracy throughout the entire service cycle by integrating the functions of
service call entry, dispatching service personnel, parts and equipment
purchasing, installation, distribution and collection. Management is able to
obtain daily, monthly, quarterly and annual reports on location performance,
coin collection, service and sales activity by salesperson.
In addition to coordinating all aspects of the service cycle, the Company's
Integrated Computer Systems track contract performance which indicate unreported
machine failure or pilferage and provide data to forecast future equipment
problems. Data on machine performance are used by the sales staff to forecast
revenue by location. The purchasing department tracks bids on the Company's
equipment requirements to support an aggressive competitive bidding process.
The Integrated Computer Systems also provide the sales staff with an extensive
database essential to the Company's marketing strategy to obtain new business
through competitive bidding or owner-operator conversion opportunities.
-9-
Sales and Marketing
The Company markets its products and services through a sales staff with an
average industry experience of over ten years. The principal responsibility of
the sales staff is to solicit and negotiate lease arrangements with building
owners and managers. All sales personnel are paid commissions that comprise 50%
or more of their annual compensation. Selling commissions are based on a
percentage of a location's annualized earnings before interest and taxes. Sales
personnel must be proficient with the application of sophisticated financial
analyses to achieve their targeted goals in securing location contracts and
renewals. Management believes that its sales staff is among the most competent
and effective in the industry.
The Company's marketing strategy emphasizes service excellence offered by
its experienced, highly skilled personnel and its quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. Additionally,
the Integrated Computer Systems monitor performance, repairs and maintenance, as
well as the profitability of locations on a daily basis. The Company's sales
staff targets potential new and renewal lease locations by utilizing its
Integrated Computer Systems' extensive database that provides information on the
Company's, as well as its competitors' locations. All sales activity, from sale
entries to data on service and installation is recorded and monitored daily on a
custom-designed, computerized sales planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenues.
LAUNDROMAT OPERATIONS
In connection with the Kwik Wash Acquisition, the Company acquired 150
retail laundromats located throughout Texas. The operation of the retail
laundromats involves leasing store locations in desired geographic areas,
maintaining an appropriate mix of washers and dryers at each store location and
servicing such washers and dryers at such locations. The Company is also
responsible for maintaining the premises at each laundromat and paying for
utilities and related expenses.
SUPER LAUNDRY
Super Laundry, a wholly-owned subsidiary of the Company, is a construction
and laundromat equipment distribution company. Super Laundry's business
consists of constructing complete turnkey retail laundromats, retrofitting
existing retail laundromats, distributing exclusive lines of commercial coin and
non-coin machines and parts, and selling service contracts. The construction of
laundromats and related equipment sales constitute approximately 90% of the
revenues of Super Laundry. Super Laundry's customers generally enter into sales
contracts pursuant to which Super Laundry constructs and equips a complete
laundromat operation, including location identification, construction, plumbing,
electrical wiring and all required permits.
COMPETITION
The coin-operated laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, there are currently three companies
including the Company with significant operations in multiple regions throughout
the United States. Management believes that the Company's two major multi-
regional competitors, Web
-10-
Service Company, Inc. and Macke Laundry Service, L.P., are strongest in
California and Chicago, Illinois, respectively. The Company has a minimal
presence in Chicago, Illinois and after consummation of the Reliable
Acquisition, competes with Web Service Company, Inc. in California.
EMPLOYEES
As of March 28, 1997, the Company employed 1,180 full time employees
(including 24 contract employees employed by the Company through a lease
arrangement with an independent employment company in connection with the
Appliance Warehouse Acquisition and 280 laundromat attendants in the Company's
retail laundromats in Texas). Approximately 140 hourly workers in the Northeast
region are represented by Local 966, affiliated with the International
Brotherhood of Teamsters (the "Union"). Management believes that the Company
has maintained a good relationship with the Union employees and has never
experienced a work stoppage since its inception.
SEASONALITY
The Company's business is generally not seasonal.
ITEM 2. PROPERTIES.
As of March 28, 1997, the Company leases 26 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, collections and warehousing. The Company presently
maintains its headquarters in Roslyn, New York, leasing approximately 40,000
square feet pursuant to a five year lease terminating April 30, 2001. The
Company's Roslyn facility is used for general corporate purposes, as well as for
remanufacturing and warehouse space for the Northeast operating region. The
Company has an option to purchase the Roslyn facility, which it presently does
not intend to exercise. The Company also maintains a facility in Charlotte,
North Carolina as its corporate development office, leasing approximately 3,000
square feet pursuant to a five year lease.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its predecessors have been named as defendants in a number
of legal actions arising in the ordinary course of business. Although the
amount of any liability that could arise with respect to these actions cannot be
accurately predicted, management believes that any such liabilities,
individually or in the aggregate, will not have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-11-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
There currently exists no established public trading market for the Common
Stock, all of which is held beneficially and of record by CLC.
HOLDERS
As of March 28, 1997, there was one holder of record of the Common Stock.
DIVIDENDS
The Company has not paid any dividends on the Common Stock during the past
fiscal year and does not intend to pay dividends on the Common Stock in the
foreseeable future.
Dividend payments by the Company are subject to restrictions contained in
certain of its outstanding debt and financing agreements relating to the payment
of cash dividends on its Common Stock, and the Company may in the future enter
into loan or other agreements or issue debt securities or preferred stock that
restrict the payment of cash dividends or certain other distributions. See Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
-12-
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents summary historical consolidated financial
information of the Company. Such table includes the combined and consolidated
financial information for the year ended March 28, 1997 ("1997 Fiscal Year"),
for the six month transition period ended March 29, 1996, the period from April
5, 1995 to September 29, 1995 and the consolidated financial information for the
period from October 1, 1994 to April 4, 1995, and for each of the fiscal years
ended the Friday closest to September 30, 1994, 1993 and 1992. All financial
data therein are in thousands. The financial data set forth below should be
read in conjunction with the Company's audited historical combined and
consolidated financial statements and the related notes thereto included in Item
8 "Financial Statements and Supplementary Data" and with the information
presented in Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Form 10-K.
Successor /1/ Predecessor /1/
----------------------------------------- ---------------------------------------------
SIX MONTH YEAR ENDED
TRANSITION APRIL 5, OCTOBER -----------------------------------
PERIOD 1995 1, 1994
ENDED TO TO OCTOBER
YEAR ENDED MARCH 29, SEPTEMBER APRIL 4, SEPTEMBER OCTOBER 2,
MARCH 28, 1997 1996 29, 1995 1995 30, 1994 1, 1993 1992/2/
--------------- ---- -------- ---- -------- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 206,852 $ 89,070 $ 89,719 $52,207 $104,553 $104,888 $104,311
Laundry operating expenses........... 139,446 60,536 62,905 33,165 66,418 67,420 67,138
General and administrative expenses.. 4,520 2,024 2,458 1,539 2,839 2,576 3,125
Depreciation and amortization........ 46,316 18,212 18,423 10,304 21,347 21,002 20,745
Stock based compensation charge...... 1,768 -- -- -- -- -- --
Restructuring expenses............... -- -- 2,200 -- -- -- --
--------- -------- -------- ------- -------- -------- --------
Operating income..................... 14,802 8,298 3,733 7,199 13,949 13,890 13,303
Interest expense..................... 27,417 11,830 11,541 8,928 18,105 17,453 15,857
Income taxes (benefits).............. (2,307) (998) (1,862) 50 2,762 (768) (416)
--------- -------- -------- ------- -------- -------- --------
Loss before extraordinary item....... (10,308) (2,534) (5,946) (1,779) (6,918) (2,795) (2,138)
Extraordinary loss (net of tax)/3/... (296) (8,925) -- (848) -- -- (833)
--------- -------- -------- ------- -------- -------- --------
Net loss............................. $ (10,604) $(11,459) $ (5,946) $(2,627) $ (6,918) $ (2,795) $ (2,971)
========= ======== ======== ======= ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Property and equipment, net.......... $ 112,116 $ 82,699 $ 80,706 -- $ 48,727 $ 50,593 $ 50,679
Total assets......................... 467,550 248,167 239,943 -- 143,589 150,402 155,827
Total debt........................... 351,710 202,765 176,415 -- 128,487 128,299 128,737
Stockholders' equity (deficit)....... 11,973 (2,148) 13,783 -- (8,721) (1,636) 1,004
FINANCIAL INFORMATION AND OTHER DATA:
Cash flow from operating activities.. $ 34,305 $ 12,100 $ 12,639 $10,216 $ 17,914 $ 16,547 $ 11,842
Cash flow used for investing (196,698) (14,162) (13,114) (6,537) (16,763) (18,500) (16,168)
activities..........................
Cash flow from (used for) financing 152,780 12,503 (1,017) (1,068) (270) (636) 10,272
activities..........................
EBITDA/4/............................ 62,886 26,510 24,356 17,503 35,296 34,892 34,048
Capital expenditures/5/.............. 41,588 14,219 13,119 6,944 16,779 18,556 16,563
____________________
1 On November 30, 1995, Solon completed the Merger with TCC, which transaction
was accounted for in a manner similar to a pooling of interests. As a result
of the common investor group control over both entities, the term "Successor"
will refer to such common control periods; that is, the period in time after
the Solon Acquisition, and includes the historical results of Solon which
have been restated to include the pooling of interests of TCC. The term
"Predecessor" refers to the period in time prior to the Solon Acquisition.
Successor is presented
-13-
on a different basis of accounting and, therefore, is not comparable to the
Predecessor. Historical financial data for Solon (for periods prior to April
5, 1995) are contained in the financial statements and related notes thereto
presented elsewhere in this Form 10-K.
2 Fiscal year 1992 was a 53-week year. All other fiscal years were 52-week
years.
3 Represents extraordinary loss on the early extinguishment of debt on February
14, 1997 and November 30, 1995, on the change in control in the Solon
Acquisition on April 5, 1995, and on the early extinguishment of debt in
1992.
4 EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the period
ending March 28, 1997 is before the deduction for the stock based
compensation charges, and EBITDA for the period ending September 29, 1995 is
before the deduction for restructuring costs. EBITDA is used by management
and certain investors as an indication of a company's improved ability to
service existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
either (a) operating income (as determined by generally accepted accounting
principles) as an indicator of operating performance or (b) cash flows from
operating, investing and financing activities (as determined by generally
accepted accounting principles) as a measure of liquidity. Given that EBITDA
is not a measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying calculations, EBITDA
as presented may not be comparable to other similarly titled measures of
other companies.
5 Capital expenditures include additions to property and equipment and advance
rental payments to location owners.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Business and Sources of Revenue
The Company is principally engaged in the business of supplying coin-
operated laundry equipment services to multi-family housing properties. Prior
to giving effect to the Reliable Acquisition, the Company owns and operates
approximately 337,000 coin-operated washers and dryers in approximately 30,000
multi-family housing properties on routes located in 30 states and the District
of Columbia and in 150 retail laundromats throughout Texas. The Company's
routes are located throughout the Northeast, Mid-Atlantic, Southeast, South-
Central and Midwest regions of the United States. The Company, through Super
Laundry, its wholly-owned subsidiary, is also a construction and laundromat
equipment distribution company.
The Company's most significant revenue source is derived from its route
business. The Company provides coin-operated laundry equipment services to
locations by leasing designated laundry rooms in buildings, typically on a long-
term, renewable basis. In return for the exclusive right to provide laundry
equipment services, most of the Company's leases provide for commission payments
to the location owners. Commission expense (also referred to as rent expense),
the Company's single largest expense item, is included in laundry operating
expenses and represents payments to location owners. Commissions may be fixed
amounts or percentages of revenues and are generally paid monthly. Also
included in laundry operating expenses are the cost of servicing and collections
in the route business, including, payroll, parts, vehicles and other related
items, the cost of sales associated with Super Laundry and certain expenses
related to the operation of retail laundromats acquired in the Kwik Wash
Acquisition.
In addition to commission payments, many of the Company's leases require
the Company to make advance rental payments to the location owners. These
advance payments are capitalized and amortized over the life of the applicable
lease.
Other revenue sources for the Company include (i) leasing laundry equipment
and other household appliances and electronic items to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties; (ii) operating, maintaining and servicing retail laundromats; and
(iii) constructing complete turnkey retail laundromats, retrofitting existing
retail laundromats, distributing exclusive lines of commercial coin and non-coin
machines and parts, and selling service contracts.
Certain Other Transactions
On January 31, 1995, in connection with the acquisition of Coinmach
Industries Co., L.P. and Super Laundry Co., L.P., certain asset values,
primarily contract rights and fixed assets, were recorded at their then fair
market value, adjusted to reflect a pro rata allocation of the excess of fair
market value of net assets acquired, based on an independent appraisal, over the
purchase price.
In connection with a series of refinancing transactions on November 30,
1995, the Company issued approximately $196.7 million of Senior Notes (as
hereinafter defined) which enabled the Company to, among other things, extend
the maturity of its debt obligations, retire the remaining debt of TCC and
provide additional working capital.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the combined and consolidated financial statements and related notes thereto
included in Item 8 and the Selected Historical Consolidated Financial Data
included in Item 6 of this Form 10-K.
-15-
FISCAL YEAR ENDED MARCH 28, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 29, 1996
The discussion below should be read in conjunction with the following
table, which combines the six month transition period ended March 29, 1996 and
the period from April 5, 1995 to September 29, 1995 and the combined periods to
be referred to as the prior fiscal year (in thousands):
SIX MONTH
TRANSITION PERIOD
YEAR ENDED PERIOD ENDED APRIL 5, 1995 TO
MARCH 28, 1997 MARCH 29, 1996 SEPTEMBER 29, 1995 COMBINED
-------------- ---------------- ------------------- ---------
Revenues.......................................... $206,852 $ 89,070 $89,719 $178,789
Laundry operating expenses........................ 139,446 60,536 62,905 123,441
General and administrative expenses............... 4,520 2,024 2,458 4,482
Depreciation and amortization..................... 46,316 18,212 18,423 36,635
Stock based compensation charge................... 1,768 -- -- --
Restructuring expenses............................ -- -- 2,200 2,200
-------- -------- ------- --------
Operating income (loss)........................... 14,802 8,298 3,733 12,031
Interest expense, net............................. 27,417 11,830 11,541 23,371
-------- -------- ------- --------
Loss before extraordinary items and income taxes.. (12,615) (3,532) (7,808) (11,340)
Income tax (benefit) expense...................... (2,307) (998) (1,862) (2,860)
-------- -------- ------- --------
Loss before extraordinary items................... (10,308) (2,534) (5,946) (8,480)
Extraordinary items, net of tax................... (296) (8,925) -- (8,925)
-------- -------- ------- --------
Net loss.......................................... $(10,604) $(11,459) $(5,946) $(17,405)
======== ======== ======= ========
Revenues increased by approximately 16% for the 1997 Fiscal Year as
compared to the prior fiscal year. The improvement in revenues was primarily
attributable to increased route revenues resulting from internal expansion, the
Allied Acquisition, the Kwik Wash Acquisition and an increase in revenues from
Super Laundry. During the 1997 Fiscal Year, the Company's installed base
increased by approximately 7,500 machines from internal growth due primarily to
the elimination of capital constraints existing at Solon prior to the Merger, as
compared to a reduction of approximately 750 machines during the twelve months
ended March 29, 1996.
Laundry operating expenses increased by approximately 13% for the 1997
Fiscal Year, as compared to the prior fiscal year. The increase was due
primarily to the Allied Acquisition and the Kwik Wash Acquisition as well as an
increase in the cost of sales related to Super Laundry's increased sales volume.
Such increase in laundry operating expenses was offset by the implementation of
cost savings programs in the Company's field operations and the consolidation of
certain operating regions.
General and administrative expenses increased slightly for the 1997 Fiscal
Year as compared to the prior fiscal year. The increase for the period was due
to expenses associated with (i) the implementation of the Company's acquisition
strategy, including legal and financial due diligence investigations of
potential targets and related costs, (ii) the development and implementation of
procedures for the management of investor relations, and (iii) systems
development, refinement and integration. This increase includes a reduction of
certain expenses resulting from the consolidation of the Company's corporate
staff into its existing facility in Roslyn, New York on September 29, 1995.
Depreciation and amortization increased by approximately 27% for the 1997
Fiscal Year, as compared to the prior fiscal year, due primarily to the Allied
Acquisition and the Kwik Wash Acquisition, as well as an increase in capital
expenditures for the installed base of machines resulting from the elimination
of capital constraints existing at Solon prior to the Merger. As a result of
the Company's acquisition activity since early 1995, the Company incurred
approximately $26.8 million in non-cash purchase accounting related depreciation
and amortization charges for the 1997 Fiscal Year as compared to $23.6 million
for the prior fiscal year.
-16-
The Company incurred restructuring costs of approximately $2.2 million
during the twelve months ended March 29, 1996 to cover severance obligations to
certain personnel, costs to relocate certain corporate functions to Roslyn, New
York, systems integration costs, and expenses related to the consolidation of
certain of its regional offices, in each case, as a result of the Solon
Acquisition and the Merger.
The extraordinary items for the 1997 Fiscal Year consisted of costs related
to the extinguishment of debt in February, 1997 and the termination of the then
existing revolving credit facility. The extraordinary items for the six month
period ending March 29, 1996 consisted of costs related to the extinguishment of
debt in connection with the Company's refinancing in November 1995.
Prior to the Offering, CLC issued, in privately negotiated transactions,
79,029 shares of its Class B common stock to certain members of management. The
Company recorded a stock-based compensation charge of approximately $887,000
attributable to the issuance of such stock. In addition, approximately $83,000
of receivables relating to loans to management in connection with prior
purchases of CLC' common stock were forgiven and have been recorded as a stock-
based compensation charge.
CLC also granted options to management and certain other individuals to
purchase shares of CLC Common Stock at a 15% discount to the initial offering
price of the CLC Common Stock. With respect to such options granted to its
employees, CLC will record such discount as a stock-based compensation charge
over the applicable four year vesting period. During the 1997 Fiscal Year, CLC
recorded a stock-based compensation charge of approximately $798,000 relating to
such options.
The Company's operating income margin, approximately 7% of revenues for the
1997 Fiscal Year, was equal to that for the twelve month's ended March 29, 1996.
Interest expense, net, increased by approximately 17% for the 1997 Fiscal
Year as compared to the prior year due primarily to the Company's refinancing in
November 1995 as well as entering into the Credit Agreement in January 1997.
Partially offsetting this increase in interest expense was the decrease in the
effective interest rate applied against outstanding borrowings as the result of
such refinancing, as well as interest income earned on excess cash balances
generated from operations.
EBITDA/2/ was approximately $62.9 million (before deduction for stock-based
compensation charges) for the 1997 Fiscal Year as compared to approximately
$50.9 million (before deduction for restructuring costs) for the prior fiscal
year, representing an improvement of approximately 24%. EBITDA margins improved
to approximately 30% of revenues for the current year compared to approximately
28% of revenues for the prior year.
SIX MONTH TRANSITION PERIOD ENDED MARCH 29, 1996 COMPARED TO THE PERIOD OCTOBER
1, 1994 TO APRIL 4, 1995
Prior to the merger of Solon and TCC, Solon's fiscal year was the fifty-two
or fifty-three week period ended on the Friday nearest September 30. Effective
upon the Merger, the Company changed its fiscal year end to the Friday nearest
to March 31.
- -----------------------------
/2/ EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA is used by
management and certain investors as an indicator of a company's historical
ability to service debt. Management believes that an increase in EBITDA is an
indication of a company's improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements.
However, EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to either (a) operating income (as
determined by generally accepted accounting principles) as an indicator of
operating performance or (b) cash flows from operating, investing and financing
activities (as determined by generally accepted accounting principles) as a
measure of liquidity. Given that EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is thus susceptible
to varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
-17-
The discussion below should be read in conjunction with the following table
which combines the operating results of Solon and TCC for the period October 1,
1994 to April 4, 1995 (the predecessor period) (in thousands). The operating
results of TCC are reflected in order to present comparable data.
PERIOD FROM OCTOBER 1, 1994 TO APRIL 4,
1995
SIX MONTH ---------------------------------------------
TRANSITION PERIOD (PREDECESSOR)/1,2/
ENDED
MARCH 29, 1996
(SUCCESSOR)/1/ TCC SOLON COMBINED
----------------- ------------ ------------ ------------
Revenues......................................... $ 89,070 $35,789 $52,207 $87,996
Laundry operating expenses....................... 60,536 28,253 33,165 61,418
General and administrative expenses.............. 2,024 1,345 1,539 2,884
Depreciation and amortization.................... 18,212 6,009 10,304 16,313
-------- ------- ------- -------
Operating income................................. 8,298 182 7,199 7,381
Interest expense, net............................ 11,830 2,464 8,928 11,392
Other expense.................................... - 1,341 - 1,341
-------- ------- ------- -------
Loss before extraordinary item and income taxes.. (3,532) (3,623) (1,729) (5,352)
Income tax (benefit) expense..................... (998) 4 50 54
-------- ------- ------- -------
Loss before extraordinary item................... (2,534) (3,627) (1,779) (5,406)
Extraordinary item, net of tax................... (8,925) - (848) (848)
-------- ------- ------- -------
Net loss......................................... $(11,459) $(3,627) $(2,627) $(6,254)
======== ======= ======= =======
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have been
restated to include the pooling of interests of TCC. Successor is presented
on a different basis of accounting and, therefore, is not comparable to the
Predecessor.
2 Certain reclassifications have been made to conform to the 1996 presentation.
Revenues for the six month transition period ended March 29, 1996 were
approximately 1.2% higher than combined revenues for the prior period. The
improvement in revenues consisted primarily of increased revenues from Super
Laundry of approximately $2.5 million. Such improvement was partially offset by
a decrease of approximately $1.4 million in revenues from the route business.
The average machine base for the six month transition period ended March 29,
1996 was approximately 1.4% lower than the prior period primarily as the result
of constraints on available capital prior to the Merger. From September 30,
1995, through March 29, 1996, the Company successfully implemented a program to
maintain its base of installed machines and eliminate any additional erosion.
The effect of the decreased number of machines was partially offset by increased
revenue per machine from price increases.
Laundry operating expenses decreased by approximately 1.4% primarily as the
result of decreased expenses of approximately $0.8 million related to
implementation of cost savings programs in the Company's field operations and a
decrease in commission expense of approximately 2.3%. These decreases were
partially offset by an increase in the cost of sales related to the increased
volume of Super Laundry.
General and administrative expenses decreased by approximately $.9 million,
or 29.8%, primarily due to the consolidation of corporate staff by closing
Solon's Philadelphia, Pennsylvania office and combining its operations into the
Company's existing facility in Roslyn, New York on September 29, 1995.
-18-
Depreciation and amortization increased by approximately $1.9 million or
11.6% due primarily to purchase accounting adjustments resulting from the Solon
Acquisition.
Interest expense, net, increased by approximately 3.8%. Approximately $1.8
million of such increase was due primarily to the increased debt level that
resulted from the Company's refinancing in November 1995. Offsetting this
increase is approximately $0.8 million due to the decrease in the effective
interest rate as the result of such refinancing. The increased debt resulted in
an excess cash balance, which was contemplated to be used for working capital
purposes and for future acquisition opportunities.
The extraordinary item for the six month transition period ending March 29,
1996, consisted of costs related to the extinguishment of debt in connection
with the Company's refinancing in late 1995. The extraordinary item for the
period ended April 4, 1995, consisted of costs related to the change in control
in connection with the Solon Acquisition.
PERIOD APRIL 4, 1995 TO SEPTEMBER 29, 1995 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1994
The discussion below should be read in conjunction with the following table
which combines the Predecessor period for the six months ended September 30,
1994 (in thousands):
PERIOD APRIL 5, 1995 SIX MONTHS ENDED
TO
SEPTEMBER 29, 1995 SEPTEMBER 30, 1994
--------------------- ----------------------------
(SUCCESSOR)/1/ (PREDECESSOR)/1,//2/
TCC SOLON COMBINED
-------- -------- ---------
Revenues............................. $89,719 $37,154 $51,577 $88,731
Laundry operating expenses........... 62,905 28,576 32,337 60,913
General and administrative expenses.. 2,458 1,123 1,444 2,567
Depreciation and amortization........ 18,423 7,576 10,966 18,542
Restructuring costs.................. 2,200 -- -- --
------- ------- ------- --------
Operating income (loss).............. 3,733 (121) 6,830 6,709
Interest expense, net................ 11,541 2,214 9,053 11,267
------- ------- ------- -------
Loss before income taxes............. (7,808) (2,335) (2,223) (4,558)
Income tax (benefit) expense......... (1,862) 24 3,208 3,232
------- ------- ------- -------
Net Loss............................. $(5,946) $(2,359) $(5,431) $(7,790)
======= ======= ======= =======
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not comparable
to the Predecessor.
2 Certain reclassifications have been made to conform to the 1995
presentation.
Revenues for the period April 5, 1995 to September 29, 1995 were
approximately 1.1% higher than combined revenues for the prior period. The
improvement in revenues consisted primarily of increased revenues from Super
Laundry of approximately $1.3 million. Such improvement was partially offset by
a decrease of approximately $0.3 million in revenues from routes, primarily due
to a 2.0% decline in the average number of laundry machines on location, due to
constraints on capital prior to the Merger. The effect of the decreased number
of machines was partially offset by increased revenue per machine of
approximately 1.6% primarily due to price increases.
-19-
Laundry operating expenses increased by approximately 3.3%, primarily due
to an increase of $1.0 million in the cost of sales related to the increase in
Super Laundry revenue. The remaining increase is primarily the result of the
method of accounting for installation costs applied in the Successor period.
This increase is the result of increased cost of sales related to the increased
volume of Super Laundry. In addition, the Company's commission expense
decreased by approximately 1.0%.
General and administrative expenses decreased by approximately $0.1
million, or 4.2% primarily due to a decrease in the corporate staff.
The Company provided for restructuring costs of approximately $2.2 million
to cover severance payments to certain of Solon's management, administrative and
regional personnel, costs to relocate Solon's financial and administrative
functions to Roslyn, New York, costs to integrate certain financial and
operating systems, and costs related to the consolidation of certain of Solon's
regional offices.
Interest expense, net, increased to approximately 2.4% primarily due to an
increase in the interest rate on TCC's revolver, which was based on the prime
lending rate.
FISCAL YEAR ENDED SEPTEMBER 29, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
The discussion should be read in conjunction with the following table which
combines the Predecessor and Successor periods for fiscal 1995 (in thousands).
As previously disclosed, Solon had completed a merger with TCC on November 30,
1995, whereby such transaction was accounted for in a manner similar to a
pooling of interests. As a result of the common investor group control over
both entities, the term "Successor" will refer to such common control periods.
FISCAL YEAR ENDED SEPTEMBER 29, 1995
-------------------------------------------
APRIL 5, OCTOBER 1, FISCAL YEAR
1995 TO 1994 TO ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30,
1995 1995 TOTAL 1994
--------------- --------------- --------- -----------------
SUCCESSOR/1/ PREDECESSOR/1/ PREDECESSOR/1,2/
Revenues......................................... $89,719 $52,207 $141,926 $104,553
Laundry operating expenses....................... 62,905 33,165 96,070 66,527
Depreciation and amortization.................... 18,423 10,304 28,727 21,347
General and administrative expenses.............. 2,458 1,539 3,997 2,839
Gain on sale of equipment........................ -- -- -- (109)
Restructuring costs.............................. 2,200 -- 2,200 --
------- ------- -------- --------
Operating income................................. 3,733 7,199 10,932 13,949
Interest expense, net............................ 11,541 8,928 20,469 18,105
------- ------- -------- --------
Loss before income taxes and extraordinary item.. (7,808) (1,729) (9,537) (4,156)
Income tax (benefit) expense (1,862) 50 (1,812) 2,762
------- ------- -------- --------
Loss before extraordinary item................... (5,946) (1,779) (7,725) (6,918)
Extraordinary item, net of income taxes of $0.... -- (848) (848) --
------- ------- -------- --------
Net loss......................................... $(5,946) $(2,627) $ (8,573) $ (6,918)
======= ======= ======== ========
-20-
____________________
1 The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not comparable
to the Predecessor.
2 Certain reclassifications have been made to conform to the 1995 presentation.
Excluding revenues of TCC of approximately $38.5 million for the Successor
period, revenues of approximately $103.4 million for fiscal 1995 were
approximately $1.1 million or 1.1% lower than revenues for fiscal 1994. A
favorable change of approximately $1.8 million in revenues resulting from
increases in revenue per machine was offset by approximately $2.9 million in
losses caused by a decline in the average number of laundry machines on location
primarily due to the lack of available capital prior to the Refinancing Plan.
Revenue per machine rose slightly primarily because of price increases and
improved occupancy levels in the Southeast and South-Central regions.
Excluding laundry operating expenses of TCC of approximately $29.8 million
for the Successor period, laundry operating expenses of approximately $66.3
million for fiscal 1995 were approximately $0.2 million or 0.3% lower than
laundry operating expenses for fiscal 1994. Commission expense decreased by
approximately $1.0 million due to lower revenues and a reduction in the average
commission rate from approximately 44.7% of revenue during fiscal 1994 to
approximately 44.1% of revenues during fiscal 1995. The decrease in the
commissions rate was primarily attributable to the Company's ongoing commission
control programs and a shift away from higher commission locations primarily in
the Washington, D.C. Metropolitan area. Laundry operating expenses other than
commissions expense rose by approximately $0.8 million in fiscal 1995 compared
to fiscal 1994 primarily due to inflationary increases.
Excluding depreciation and amortization expense of TCC of approximately
$5.5 million for the Successor period, depreciation and amortization expense
increased by approximately $1.9 million or 8.6% for fiscal 1995, as compared to
the prior year due primarily to purchase accounting adjustments resulting from
the Solon Acquisition.
Excluding general and administrative expenses of TCC of approximately $0.9
million for the Successor period, general and administrative expenses of
approximately $3.1 million for fiscal 1995 were approximately $0.3 million or
10.7% higher than such expenses for fiscal 1994. For fiscal 1995, general and
administrative expenses include a charge of approximately $0.3 million for the
cost of a severance agreement with the former chief executive officer of Solon.
The Company provided for restructuring costs of approximately $2.2 million
to cover severance payments to certain of Solon's management, administrative and
regional personnel, costs to relocate Solon's financial and administrative
functions to Roslyn, New York, costs to integrate certain financial and
operating systems of Solon and TCC, and costs related to the consolidation of
certain of Solon's regional offices.
Excluding interest expense of TCC of approximately $2.7 million for the
Successor period, interest expense for fiscal 1995 decreased by approximately
$0.3 million or 1.7% as compared to the prior year, primarily due to an increase
in interest income, and to a lesser extent, a decrease in interest caused by a
repurchase and retirement of $1.0 million of the Old Senior Notes in November
1994.
-21-
The Company's income tax benefit was approximately $1.8 million in fiscal
1995 compared to a tax provision of approximately $2.8 million for fiscal 1994.
As further discussed in the consolidated financial statements, the tax provision
for fiscal 1994 included a $3.7 million charge to establish a valuation
allowance for previously recorded deferred tax assets. The deferred tax asset
of $2.0 million recorded in the Successor period does not reflect a valuation
allowance because the loss can be utilized against the deferred tax liabilities
in the carryforward periods. In addition to this benefit, the Company's
effective income tax rate differs from the amount computed by applying the U.S.
federal statutory rate to loss before income taxes as a result of state taxes
and permanent book/tax differences.
The Company incurred costs aggregating approximately $0.8 million in
connection with the Solon Acquisition, including a total of $0.4 million in lump
sum payments made to fourteen management employees pursuant to certain
contractual arrangements relating to the acquisition. The total costs have been
reflected as an extraordinary item in the financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective March 30, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. FAS
121 also addresses the accounting treatment for long-lived assets that are
expected to be disposed of. The effect of the Company's adoption of FAS 121 did
not have an effect on the Company's results of operations or financial condition
for the 1997 Fiscal Year.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. FAS 123 is effective for transactions entered into
in fiscal years beginning after December 15, 1995. The Company has elected to
account for stock-based compensation awards pursuant to the provisions of
Accounting Principles Board Opinion No. 25, as permitted by FAS 123.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At March 28, 1997, the Company had outstanding long-term debt
(excluding advances from CLC) of approximately $329.3 million and stockholders'
equity of approximately $12.0 million.
FINANCING ACTIVITIES
Senior Notes
In December 1995, the Company issued 11 3/4% Senior Notes due 2005 pursuant
to the terms of an indenture, between the Company and Fleet Bank of Connecticut
(formerly Shawmut Bank Connecticut, National Association) (as amended, the
"Indenture") in an aggregate principal amount of $196,655,000. On March 28,
1996, the Company consummated a registered exchange offer, pursuant to which all
issued and outstanding 11 3/4% Senior Notes due 2005 were exchanged for Series B
11 3/4% Senior Notes due 2005 (the "Senior Notes").
-22-
The Senior Notes, which mature on November 15, 2005, are unsecured senior
obligations of the Company and are redeemable, at the Company's option, in whole
or in part at any time or from time to time, on and after November 15, 2000,
upon not less than 30 nor more than 60 days notice, at the redemption prices set
forth in the Indenture, plus, in each case, accrued and unpaid interest thereon,
if any, to the date of redemption.
The Indenture contains a number of restrictive covenants and agreements,
including covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on certain payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of the Company or its subsidiaries, the purchase, redemption or other
acquisition of any capital stock of the Company, the voluntary prepayment of
subordinated indebtedness, or an Investment (as defined in the Indenture) in any
other person or entity); (iii) limitation on transactions with affiliates; (iv)
limitation on liens; (v) limitation on sales of assets; (vi) limitation on sale
and leaseback transactions; (vii) limitation on conduct of business; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) limitation on consolidations, mergers and sales of substantially all of
the assets of the Company.
The events of default under the Indenture include provisions that are
typical of senior unsecured debt financings. Upon the occurrence and
continuance of certain events of default, the trustee or the holders of not less
than 25% in aggregate principal amount of outstanding Senior Notes may declare
all unpaid principal and accrued interest on all of the Senior Notes to be
immediately due and payable.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Senior Notes will have the right to require that the Company
purchase all or a portion of such holder's Senior Notes pursuant to the offer
described in the Indenture, at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase.
Redemption of 12 3/4% Senior Notes due 2001
On February 18, 1997, the Company redeemed its outstanding 12 3/4% Senior
Notes due 2001 at a redemption price of 106.375% of the principal amount
thereof, together with accrued interest from January 15, 1997 to February 18,
1997, in an aggregate amount of approximately $5.4 million.
New Credit Facility
On January 8, 1997, the Company entered into the Credit Agreement with
Bankers Trust Company, First Union National Bank of North Carolina, Lehman
Commercial Paper, Inc. and other lending institutions named therein
(collectively, the "Banks"), which provides for the New Credit Facility. The
New Credit Facility replaced the Company's then existing credit facility. The
New Credit Facility, as amended effective June 2, 1997, and prior to any
principal installment payments, consists of a $70 million revolving credit
facility and a $190 million term loan facility, which is comprised of a Tranche
A term loan in the amount of $30.0 million, payable quarterly commencing March
1997, and a Tranche B term loan in the amount of $160.0 million, payable semi-
annually commencing June 1997. The New Credit Facility also provides for up to
$10 million of letter of credit financings and short term borrowings under a
swing line facility of up to $5 million.
At March 28, 1997, $130 million was outstanding under the Credit Agreement.
Effective June 2, 1997, the Credit Agreement was amended to, among other things,
increase the Tranche B portion of the term loan facility to $160.0 million.
-23-
Subject to the terms and conditions of the Credit Agreement, the Company
may, at its option, convert Base Rate Loans (as defined in the Credit Agreement)
into Eurodollar Loans (as defined in the Credit Agreement). Interest on the
Company's borrowings under the Credit Agreement is payable at a rate per annum
no greater than the sum of the Applicable Base Rate Margin plus the Base Rate or
the sum of the Applicable Eurodollar Margin plus the Eurodollar Rate (in each
case, as defined in the Credit Agreement).
Indebtedness under the Credit Agreement is secured by all of the Company's
real and personal property. CLC has guaranteed the indebtedness under the
Credit Agreement and pledged to Bankers Trust Company, as Collateral Agent, its
interests in all of the issued and outstanding shares of capital stock of the
Company.
The Credit Agreement contains a number of restrictive covenants and
agreements, including covenants with respect to limitations on (i) indebtedness;
(ii) certain payments (in the form of the declaration or payment of certain
dividends or distributions on the capital stock of CLC or its subsidiaries or
the purchase, redemption or other acquisition of any capital stock of CLC or its
subsidiaries); (iii) voluntary prepayments of previously existing indebtedness;
(iv) Investments (as defined in the Credit Agreement); (v) transactions with
affiliates; (vi) liens; (vii) sales or purchases of assets; (viii) conduct of
business; (ix) dividends and other payment restrictions affecting subsidiaries;
(x) consolidations and mergers; (xi) capital expenditures; (xii) issuances of
certain equity securities of the Company; and (xiii) creation of subsidiaries.
The Credit Agreement also requires that the Company satisfy certain financial
ratios, including a maximum leverage ratio and a minimum consolidated interest
coverage ratio.
The Credit Agreement contains certain events of default, including the
following: (i) the failure of the Company to pay any of its obligations under
the Credit Agreement when due; (ii) certain failures by the Company to pay
principal or interest on indebtedness or certain breaches or defaults by the
Company in respect of certain indebtedness, in each case, after the expiration
of any applicable grace periods; (iii) certain defaults by the Company in the
performance or observance of the agreements or covenants under the Credit
Agreement or related agreements, beyond any applicable cure periods; (iv) the
falsity in any material respect of certain of the Company's representations or
warranties under the Credit Agreement; (v) certain judgments against the
Company; and (vi) certain events of bankruptcy or insolvency of the Company.
OPERATING ACTIVITIES
The Company's level of indebtedness will have several important effects on
its future operations including, but not limited to, the following: (i) a
significant portion of the Company's cash flow from operations will be required
to pay interest on its indebtedness and will not be available for other
purposes; (ii) the financial covenants contained in certain of the agreements
governing the Company's indebtedness will require the Company to meet certain
financial tests and will limit its ability to borrow additional funds or to
dispose of assets; (iii) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (iv) the Company's ability to adapt to
changes in the coin-operated laundry equipment services industry and to economic
conditions in general could be limited.
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the 1997 Fiscal Year were approximately $213.0 million
(including approximately $16.2 million of promissory notes, consisting of the
Kwik Wash Note and the
-24-
AW Notes). Of such amount, the Company spent approximately $171.5 million
(including approximately $16.2 million of promissory notes, consisting of the
Kwik Wash Note and the AW Notes) in acquisition and related transaction costs,
including the Kwik Wash Acquisition and the Allied Acquisition, and
approximately $12.4 million related to a net increase in the installed base of
machines. The balance was used to maintain the existing base and for general
corporate purposes. The full impact on revenues and EBITDA generated from
capital expended on acquisitions and the net increase in the installed base are
not expected to be reflected in the Company's financial results until subsequent
reporting periods, depending on the timing of the capital expended. The Company
anticipates that capital expenditures, excluding acquisitions and internal
growth, will be approximately $38.0 million for the twelve months ending March
31, 1998. While the Company estimates that it will generate sufficient cash
flows from operations to finance anticipated capital expenditures, there can be
no assurances that it will be able to do so.
The Company's working capital requirements are, and are expected to
continue to be, minimal since a significant portion of the Company's operating
expenses are not paid until after cash is collected from the installed machines.
The Company is required to make monthly cash interest payments pursuant to the
Credit Agreement and semi-annual cash interest payments on the Senior Notes.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay borrowings under the Senior Notes, the
New Credit Facility, the Kwik Wash Note and the AW Notes and to permit any
necessary refinancings thereof. An inability of the Company, however, to comply
with covenants or other conditions contained in the Indenture or in the Credit
Agreement could result in an acceleration of all amounts due under the Senior
Notes and the New Credit Facility. If the Company is unable to meet its debt
service obligations, it could be required to take certain actions such as
reducing or delaying capital expenditures, selling assets, refinancing or
restructuring its indebtedness, selling additional equity capital or other
actions. There is no assurance that any of such actions could be effected on
commercially reasonable terms or on terms permitted under the Credit Agreement
or the Indenture.
CERTAIN ACCOUNTING TREATMENT
The Company's depreciation and amortization expenses, aggregating
approximately $46.3 million for the 1997 Fiscal Year, have the effect of
reducing net income but not operating cash flow. In accordance with generally
accepted accounting principles, a significant amount of the purchase price of
businesses acquired by the Company is allocated to "contract rights", which
costs are amortized over periods of up to 15 years. Although such accounting
treatment can have a favorable effect on operating cash flow by reducing taxes,
such treatment also reduces net income.
INFLATION AND SEASONALITY
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
-25-
FORWARD LOOKING STATEMENTS
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions, as they relate to the Company or the Company's management, identify
forward looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors, shifts in market demand, and other risks and
uncertainties, including, in addition to any uncertainties specifically
identified in the text surrounding such statements, uncertainties with respect
to changes or developments in social, economic, business, industry, market,
legal and regulatory circumstances and conditions and actions taken or omitted
to be taken by third parties, including the Company's stockholders, customers,
suppliers, competitors, legislative, regulatory, judicial and other governmental
authorities. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended or
planned.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Audited consolidated financial statements and the notes thereto are
contained in pages F-1 through F-34 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As previously reported on the Company's Current Report on Form 8-K, dated
June 2, 1995, the Board of the Directors of the Company appointed Ernst & Young
LLP to succeed Arthur Andersen LLP as the Company's principal independent
accountants effective May 30, 1995.
There has not been any disagreements with the Company's accountants on any
matter of accounting principles or practices, financial statement disclosures or
audit scope or procedure in the last two fiscal years.
-26-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS
The Directors of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company, the periods during which they have served as such and certain other
information. The term of office of each Director continues until the election
of Directors to be held at the next Annual Meeting of Stockholders or until his
successor has been elected. There is no family relationship between any
Director and any other Director or Executive Officer of the Company. The
information set forth below concerning the Directors has been furnished by such
Directors of the Company.
Name Title Age
---- ----- ---
Stephen R. Kerrigan.. Chairman of the Board and Director 43
Mitchell Blatt....... Director 45
Robert M. Doyle...... Director 40
At a regular meeting of the Board held on November 1, 1996, the Board
unanimously resolved, subject to obtaining shareholder approval of CLC, to
reconstitute the Board so that the number of directors constituting the Board
would be three, consisting initially of Messrs. Kerrigan, Blatt and Doyle.
Effective November 4, 1996, upon obtaining the approval of CLC, Messrs. James N.
Chapman, David A. Donnini and Bruce V. Rauner were removed from the Board, and
Mr. Doyle was appointed to the Board. Each of Messrs. Chapman, Donnini and
Rauner are presently members of the board of directors of CLC.
Effective as of July 23, 1996, that certain stockholders' agreement,
dated July 26, 1995, as amended and restated as of November 30, 1995, which
provided, among other things, for the composition of the Board and of the board
of directors of CLC, was terminated.
Mr. Kerrigan has been Chief Executive Officer of CLC since April 1996
and of the Company since November 1995. Mr. Kerrigan was President and
Treasurer of Solon Automated Services, Inc. ("Solon") and CLC from April 1995
until April 1996, and Chief Executive Officer of TCC from January 1995 until
November 1995./3/ Mr. Kerrigan has been a director and Chairman of the Board of
CLC since April 1995 and of the Company since November 1995. Mr. Kerrigan was a
director of TCC from January 1995 to November 1995 and a director of Solon from
April 1995 to November 1995. Mr. Kerrigan served as Vice President and Chief
Financial Officer of TCC's predecessor, Coinmach Industries Co., L.P. from 1987
until 1994. Mr. Kerrigan was an executive officer of CIC I Acquisition Corp.
("CIC"), which filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code in 1993.
- --------------------------
/3/ On November 30, 1995, TCC merged with and into Solon (the "Merger") and
entered into a series of refinancing transactions, whereupon the surviving
corporation changed its name to "Coinmach Corporation."
-27-
Mr. Blatt has been President and Chief Operating Officer of CLC since April
1996 and of the Company since November 1995. Mr. Blatt was the President and
Chief Operating Officer of TCC from January 1995 to November 1995. Mr. Blatt
has been a director of CLC and the Company since November 1995. Mr. Blatt
joined TCC as Vice President-General Manager in 1982 and was Vice President and
Chief Operating Officer from January 1988 to February 1994. Mr. Blatt was an
executive officer of CIC, which filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in 1993.
Mr. Doyle has been Chief Financial Officer, Senior Vice President, Treasurer
and Secretary of CLC since April 1996 and the Company since November 1995. Mr.
Doyle has been a director of the Company since November 1995. Mr. Doyle served
as Vice President, Treasurer and Secretary of TCC from January 1995 to November
1995. Mr. Doyle joined the Company's predecessor in 1987 as Controller. In
1988, Mr. Doyle became Director of Accounting, and was promoted in 1989 to Vice
President and Controller. Mr. Doyle was an executive officer of CIC, which
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in 1993.
EXECUTIVE OFFICERS
The Executive Officers of the Company are listed on the table below which is
followed by descriptions of all positions and offices held by such persons with
the Company and the periods during which they have served as such and other
information. The term of office of each Executive Officer continues until the
election of Executive Officers to be held at the next Annual Meeting of
Directors or until his successor has been elected. There is no family
relationship between any Executive Officer and any other Executive Officer or
Director of the Company.
Name Title Age
---- ----- ---
Stephen R. Kerrigan.. Chairman of the Board and Chief
Executive Officer 43
Mitchell Blatt....... President, Chief Operating Officer 45
Robert M. Doyle...... Chief Financial Officer, Senior
Vice President, Treasurer, Secretary 40
John E. Denson....... Senior Vice President 59
Michael E. Stanky.... Senior Vice President 45
R. Daniel Osborne.... Area Vice President 41
David A. Siegel...... Area Vice President 39
For information regarding Messrs. Kerrigan, Blatt and Doyle, see "-- Directors"
above.
Mr. Denson has been Senior Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Denson was Senior Vice President, Finance of
Solon from June 1987 until November 1995. Mr. Denson has served as an officer
of Solon under various titles since 1973, and served as a director and Co-Chief
Executive Officer of Solon from November 1994 to April 1995.
-28-
Mr. Stanky has been Senior Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Stanky was a Senior Vice President of Solon
from July 1995 to November 1995. Mr. Stanky served Solon in various capacities
since 1976, and in 1985 was promoted to Area Vice President responsible for
Solon's South-Central region. Mr. Stanky served as a Co-Chief Executive Officer
of Solon from November 1994 to April 1995.
Mr. Osborne has been Area Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Osborne served Solon in various capacities
from 1987 to November 1995. In July 1995, Mr. Osborne was promoted to Area Vice
President of the Company responsible for the Company's Southeast region.
Mr. Siegel has been Area Vice President of CLC since April 1996 and of the
Company since November 1995. Mr. Siegel served Solon in various capacities
since 1985, and in August 1995 was promoted to Area Vice President of the
Company responsible for the Company's Mid-Atlantic region.
-29-
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or paid
to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company (the "Named Executive Officers") for all
services rendered in all capacities for the fiscal years ended March 31, 1995,
March 29, 1996 and March 28, 1997. In connection with the Merger, Solon and
Coinmach Industries Co., L.P., predecessors of the Company, changed their fiscal
years from September 30, 1995 and December 31, 1995, respectively, to the last
Friday in March 1996. Accordingly, (i) fiscal years prior to March 28, 1997
have been restated to conform such periods to fiscal years ending the last
Friday in March, and (ii) compensation for the Named Executive Officers has been
adjusted to reflect the amount of compensation awarded to, earned by or paid in
each of the fiscal periods shown.
ANNUAL COMPENSATION
------------------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPEN-
OCCUPATION YEAR ($) ($) ($) (#) SATION/1/
- -------------------- -------- --------- -------- --------------- ------------- ----------------
Stephen R. Kerrigan 1997 330,841 400,000 40,385/2/ 308,098/3/ 60,839/4/
Chief Executive 1996 290,000 91,250 __ __ 13,024/5/
Officer 1995 200,763 -- __ __ 14,898/5/
Mitchell Blatt 1997 238,942 112,000 __ 100,000 61,548/6/
President, Chief 1996 215,000 91,250 __ __ 22,849/7/
Operating Officer 1995 197,497 -- __ __ 20,942/7/
Robert M. Doyle 1997 149,997 62,500 __ 71,890 17,825/8/
Chief Financial 1996 110,577 25,000 __ __ 2,338/9/
Officer 1995 84,281 -- __ __ 3,238/9/
John E. Denson 1997 125,859 25,000 __ 28,756 2,327/10/
Senior Vice President 1996 125,300 -- __ __ 2,233/11/
1995 124,900 35,295 __ __ 67,752/11,12/
Michael E. Stanky 1997 150,500 37,500 __ 153,521 5,462/13/
Senior Vice President 1996 141,425 -- __ __ 1,253/14/
1995 127,373 53,628 __ __ 65,183/14,15/
___________________
/1/ The Company has not previously offered and presently does not have a long
term incentive program. The Company does not presently intend to offer any
such program to its executive officers or other employees.
/2/ Represents reimbursement of certain out-of-pocket relocation expenses.
/3/ Options are held by MCS, a corporation controlled by Mr. Kerrigan.
/4/ Includes $45,109 in forgiven indebtedness; $5,938 in imputed interest,
calculated at a rate of 9.5% per annum, on an interest free loan made by
the Company to Mr. Kerrigan; $4,554 in automobile allowances; $2,424 in
club membership fees; $1,875 in contributions to the Company Profit Sharing
Plan; and $939 in life insurance premiums paid for Mr. Kerrigan.
/5/ Includes club membership fees for fiscal years 1996 and 1995 of $4,600 each
year; expense allowances for fiscal years 1996 and 1995 of $3,596 and
$5,472, respectively; automobile allowances for fiscal years 1996 and 1995
of $2,688 and $2,688,
-30-
respectively; and contribution by TCC to the Company Profit Sharing Plan
for fiscal years 1996 and 1995 of $2,140 and $2,138, respectively.
/6/ Includes $45,109 in forgiven indebtedness; $4,231 in automobile allowances;
$9,600 in club membership fees; $1,875 in contributions to the Company
Profit Sharing Plan; and $733 in life insurance premiums paid for Mr.
Blatt.
/7/ Includes club membership fees for fiscal years 1996 and 1995 of $10,000
each year; expense allowances for fiscal years 1996 and 1995 of $7,310 and
$7,779, respectively; automobile allowances for fiscal years 1996 and 1995
of $3,417 and $1,025, respectively; and contribution by TCC to the Company
Profit Sharing Plan for fiscal years 1996 and 1995 of $2,122 and $2,138,
respectively.
/8/ Includes $13,703 in forgiven indebtedness; $1,762 in automobile allowances;
$1,875 in contributions to the Company Profit Sharing Plan; and $485 in
life insurance premiums paid for Mr. Doyle.
/9/ Includes automobile allowances for fiscal years 1996 and 1995, of $1,004
and $2,169 respectively; and contributions by TCC to the Company Profit
Sharing Plan for fiscal years 1996 and 1995 of $1,334 and $1,069,
respectively.
/10/ Includes $104 in imputed interest, calculated at a rate of 9.5% per annum,
on an interest free loan made by the Company to Mr. Denson; $233 in
automobile allowances; and $1,149 in contributions to the Company Profit
Sharing Plan.
/11/ Includes automobile allowances for fiscal years 1996 and 1995, of $1,150
and $3,085, respectively; and contributions by Solon to the Solon
Retirement Savings Plan for fiscal years 1996 and 1995 of $1,083 and
$2,167, respectively.
/12/ Includes a $62,500 lump sum payment to Mr. Denson on April 6, 1995 due to a
change in control of Solon.
/13/ Includes $3,919 in forgiven indebtedness; $355 in automobile allowances;
and $1,188 in contributions to the Company Profit Sharing Plan.
/14/ Includes contributions by Solon to the Solon Retirement Savings Plan for
fiscal years 1996 and 1995 of $1,253 and $2,433, respectively.
/15/ Includes a $62,750 lump sum payment to Mr. Stanky on April 6, 1995 due to a
change in control of Solon.
EMPLOYMENT CONTRACTS
EMPLOYMENT AGREEMENTS OF STEPHEN R. KERRIGAN, MITCHELL BLATT AND ROBERT M.
DOYLE
On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell Blatt
and Robert M. Doyle (each, a "Senior Manager"), entered into Senior Management
Agreements (collectively, the "Senior Management Agreements"). In connection
with the Merger, the obligations of TCC under the Senior Management Agreements
were assumed by the Company and certain amendments to such agreements were
effected pursuant to the Omnibus Agreement, dated as of November 30, 1995 (the
"Omnibus Agreement"). The Senior Management Agreements provide for annual base
salaries of $225,000, $225,000 and $100,000 for each of Messrs. Kerrigan, Blatt
and Doyle, respectively, which amounts are reviewed annually by the Board. In
1996, the Board approved increases in annual salaries for each of Messrs.
Kerrigan, Blatt and Doyle to $350,000, $250,000 and $150,000, respectively,
which, in the case of Messrs. Kerrigan and Blatt, became effective in July 1996.
The Board, in its sole discretion, may grant each Senior Manager an annual
bonus. Each Senior Management Agreement is terminable at the will of the Senior
Managers or at the discretion of the Board. Senior Managers are entitled to
severance pay upon termination of their employment. If employment is terminated
by the Company without Cause (as defined in the Senior Management Agreements)
and no event of default has occurred under any bank credit facility to which the
Company is a party, Senior Managers are entitled to receive severance pay in an
amount equal to 1.5 times their respective annual base salaries then in effect,
payable in 18 equal monthly installments. If employment is terminated by the
Company and an event of default has occurred and is continuing under any bank
credit facility to which the Company is a party, Senior Managers are entitled to
receive severance pay in an amount equal to their respective annual base
salaries then in effect, payable in 12 equal monthly installments. Under
limited circumstances, Senior Managers are entitled to receive half of the
severance pay to which they are otherwise entitled if employment with the
Company is terminated by them.
-31-
EMPLOYMENT AGREEMENT OF JOHN E. DENSON
The Company entered into an employment agreement with Mr. Denson, dated as
of September 5, 1996, for a term of one year which is automatically renewable
each year for successive one-year terms. Such agreement provides for an annual
base salary of $110,000, commencing January 1, 1997, which amount is to be
reviewed each December by the Board. The Board may, in its discretion, grant
Mr. Denson a performance-based annual bonus. The agreement is terminable at the
will of Mr. Denson or at the discretion of the Board. Under the terms of such
employment agreement, Mr. Denson is entitled to receive severance pay upon
termination of employment by the Company without Cause (as defined in such
agreement) in an amount equal to the greater of $110,000 or his annual base
salary then in effect.
EMPLOYMENT AGREEMENT OF MICHAEL E. STANKY
On July 1, 1995, the Company entered into an employment agreement with Mr.
Stanky providing for an annual base salary of $150,000. The terms and
conditions of Mr. Stanky's employment agreement are substantially similar to
those contained in the Senior Management Agreements.
PROFIT SHARING AND RETIREMENT SAVINGS PLAN
The Company offers a profit sharing and retirement savings plan (the
"Profit Sharing Plan") to all current eligible employees of the Company who have
completed one year of service. Pursuant to the Profit Sharing Plan, eligible
employees may defer from 2% up to 15% of their salaries up to a maximum level
imposed by applicable federal law ($9,500 in 1996). The percentage of
compensation contributed to the plan is deducted from each eligible employee's
salary and considered tax-deferred savings under applicable federal income tax
law. Pursuant to the Profit Sharing Plan, the Company contributes increasing
matching contribution amounts, based upon the number of years of service
completed by eligible participants, up to a maximum contribution of 1.5% of an
eligible employee's salary (subject to the Internal Revenue Code limitation on
compensation taken into account for such purpose). Matching contribution
percentages range from 5% for one to two years of service up to 25% for five or
more years of service, of the amount contributed to the Profit Sharing Plan by
the respective eligible employee. Eligible employees become vested with respect
to matching contributions made by the Company pursuant to a vesting schedule
based upon an eligible employee's years of service. After two years of service,
an eligible employee is 20% vested in all matching contributions made to the
Profit Sharing Plan. Such employee becomes vested in equal increments
thereafter through the sixth year of service, at which time such employee
becomes 100% vested. Eligible participants are always 100% vested in their own
contributions, including investment earnings on such amounts.
The Company made the following matching contributions during its fiscal
year ended March 28, 1997 to the Named Executive Officers appearing in the
Summary Compensation Table above: Mr. Kerrigan $1,875; Mr. Doyle $1,875; Mr.
Blatt $1,875; Mr. Denson $1,149; and Mr. Stanky $1,188.
COMPENSATION OF DIRECTORS
Directors receive no cash remuneration for their service as directors,
other than reimbursement of reasonable travel and related expenses for
attendance at Board meetings. The Company has granted Mr. Chapman, a director
of the Company until November 1996, options to purchase 28,756 shares of CLC
Common Stock at an exercise price of $11.90 per share, 5,752 of which are
currently exercisable and the remainder of which vest in four equal annual
installments commencing on the first anniversary of the date of grant. Mr.
Chapman has not exercised any options to date.
-32-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 28, 1997, Mr. Ke