UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 333-56857
333-56857-01
333-56857-02
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
ALLIANCE LAUNDRY HOLDINGS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 39-1927923
DELAWARE 39-1928505
DELAWARE 52-2055893
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
P.O. BOX 990
RIPON, WISCONSIN 54971-0990
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(920) 748-3121
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 12 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 [_]
Alliance Laundry Systems LLC
Form 10-Q
For The Quarter Ended March 31, 2000
Table of Contents
Page No.
--------
PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 2000 and December 31, 1999 3
Condensed Statements of Income for the periods ended March 31, 2000 and
March 31, 1999 4
Condensed Statements of Cash Flows for the periods ended March 31, 2000 and
March 31, 1999 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
PART II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
-------------- ----------------
Assets (Unaudited)
Current assets:
Cash................................................... $ 2,330 $ 3,028
Cash-restricted........................................ 952 956
Accounts receivable, net............................... 21,074 33,578
Inventories, net....................................... 42,319 31,282
Prepaid expenses and other............................. 8,221 6,160
-------------- ----------------
Total current assets................................ 74,896 75,004
Notes receivable......................................... 18,864 18,314
Property, plant and equipment, net....................... 57,695 57,615
Goodwill, net............................................ 57,253 48,319
Debt issuance costs, net................................. 12,439 13,064
Other assets............................................. 7,660 7,550
-------------- ----------------
Total assets........................................ $ 228,807 $ 219,866
============== ================
Liabilities and Members' Deficit
Current liabilities:
Current portion of long-term debt...................... $ 750 $ 500
Accounts payable....................................... 15,267 12,362
Finance program obligation............................. 3,699 3,551
Revolving credit facility.............................. 8,000 -
Other current liabilities.............................. 31,268 21,805
-------------- ----------------
Total current liabilities........................... 58,984 38,218
Long-term debt:
Senior credit facility................................. 199,250 199,500
Senior subordinated notes.............................. 110,000 110,000
Junior subordinated note............................... 12,555 12,048
Other long-term liabilities.............................. 1,893 1,866
-------------- ----------------
Total liabilities................................... 382,682 361,632
Commitments and contingencies (See Note 6)...............
Mandatorily redeemable preferred equity.................. 6,000 6,000
Members' deficit......................................... (159,875) (147,766)
-------------- ----------------
Total liabilities and members' deficit.............. $ 228,807 $ 219,866
============== ================
3
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF INCOME
(in thousands)
Three Months Ended
---------------------------------
March 31, March 31,
2000 1999
-------------- --------------
(Unaudited)
Net sales:
Commercial laundry............................. $ 56,645 $ 51,787
Appliance Co. consumer laundry................. - 18,955
Service parts.................................. 8,994 8,546
-------------- --------------
65,639 79,288
Cost of sales.................................... 46,551 58,790
-------------- --------------
Gross profit..................................... 19,088 20,498
-------------- --------------
Selling, general and administrative expense...... 11,053 10,495
Nonrecurring costs............................... - 446
-------------- --------------
Total operating expenses......................... 11,053 10,941
-------------- --------------
Operating income............................ 8,035 9,557
Interest expense................................. 9,640 8,040
Other income (expense), net...................... 3 (27)
-------------- --------------
Income (loss) before taxes.................. (1,602) 1,490
Provision for income taxes....................... - -
-------------- --------------
Net income (loss)........................... $ (1,602) $ 1,490
============== ==============
4
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
-------------------------------
March 31, March 31,
2000 1999
-------------- --------------
(Unaudited)
Cash flows from operating activities:
Net income (loss)............................................... $ (1,602) $ 1,490
Adjustments to reconcile net income to net cash
provided by operating activities; excluding the effects of the
acquisition opening balance sheet:
Depreciation and amortization............................... 4,303 4,310
Non-cash junior subordinated note interest.................. 507 422
(Gain) loss on sale of property, plant and equipment........ (3) 27
Changes in assets and liabilities:
Accounts and notes receivable.............................. 11,954 (13,009)
Inventories................................................ (6,888) (1,331)
Other assets............................................... (2,289) 1,330
Accounts payable........................................... 2,094 7,573
Finance program obligation................................. 152 (57)
Other liabilities.......................................... (1,884) 1,403
-------------- --------------
Net cash provided by operating activities................... 6,344 2,158
-------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment...................... (1,226) (3,197)
Acquisition of business......................................... (13,356) -
Proceeds on disposal of property, plant and equipment........... 5 30
-------------- --------------
Net cash (used in) investing activities..................... (14,577) (3,167)
-------------- --------------
Cash flows from financing activities:
Proceeds from revolving line of credit.......................... 8,000 -
Distribution to Raytheon and related transaction costs.......... (465) -
-------------- --------------
Net cash provided by financing activities................... 7,535 -
-------------- --------------
Increase (decrease) in cash....................................... (698) (1,009)
Cash at beginning of quarter...................................... 3,028 4,839
-------------- --------------
Cash at end of quarter............................................ $ 2,330 $ 3,830
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest.......................................... $ 4,387 $ 4,426
Non-cash transactions:
Recapitalization price adjustment payable..................... (10,042) -
5
Notes to Unaudited Condensed Financial Statements
NOTE 1. BASIS OF PRESENTATION
The unaudited financial statements as of and for the quarter ended
March 31, 2000 present the consolidated financial position and results of
operations of Alliance Laundry Holdings LLC (the "Company"), including its
wholly-owned direct and indirect subsidiaries, Alliance Laundry Systems LLC and
Alliance Laundry Corporation.
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position and
operating results of the Company for the periods presented. The results of
operations for such interim periods are not necessarily indicative of results of
operations to be expected for the full year.
These financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such regulations, although the Company believes the
disclosures provided are adequate to prevent the information presented from
being misleading.
This report on Form 10-Q for the quarter ended March 31, 2000 should be
read in conjunction with the audited financial statements presented in the
Company's Annual Report on Form 10-K (file no. 333-56857) filed with the
Securities and Exchange Commission, which includes the audited financial
statements of the Company as of and for the year ended December 31, 1999.
NOTE 2. MERGER OF BUSINESS
On May 5, 1998, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") among Bain/RCL, L.L.C., a Delaware limited liability company
("Bain LLC"), RCL Acquisitions LLC ("MergeCo"), Raytheon Commercial Laundry LLC
and Raytheon Company ("Raytheon"), MergeCo was merged with and into Raytheon
Commercial Laundry LLC (the "Merger") with Raytheon Commercial Laundry LLC being
the surviving entity. Immediately following the merger Raytheon Commercial
Laundry LLC was renamed to "Alliance Laundry Holdings LLC". Prior to the Merger,
Raytheon owned 100% of the equity securities of Raytheon Commercial Laundry LLC,
and Bain LLC, the BRS Investors (as defined), and certain members of management
owned 100% of the equity securities of MergeCo. As a result of the Merger (i)
Raytheon's limited liability company interest in Raytheon Commercial Laundry LLC
was converted into the right to receive (a) an aggregate amount of cash equal to
$320.6 million, which includes pre-closing and post-closing adjustments
(including final settlements - see Note 6), (b) a junior subordinated promissory
note from the Company in the original principal amount of $9.0 million which
matures in 2009, (c) preferred membership interests of the Company with a
liquidation value of approximately $6.0 million which are mandatorily redeemable
in 2009, and (d) common membership units of the Company representing 7% of the
total common membership interests of the Company and (ii) Bain LLC's, the BRS
Investors' and certain management members' limited liability company interests
in MergeCo were converted into the right to receive up to 93% of the total
common membership interests of the Company.
6
Simultaneous with the consummation of the Merger and each of the other
related transactions (the "Closing"), the Company contributed substantially all
of its assets and liabilities to Alliance Laundry Systems LLC, a newly formed
limited liability company ("Alliance Laundry"). Immediately after the
consummation of the transactions, Alliance Laundry became the only direct
subsidiary of the Company and succeeded to substantially all of the assets and
liabilities of the Company. Subsequent to May 4, 1998, Alliance Laundry
comprises all of the operating activities of the Company.
The transactions contemplated by the Merger Agreement (the
"Transactions") were funded by: (i) $200.0 million of term loan borrowings by
Alliance Laundry; (ii) $110.0 million of senior subordinated notes of Alliance
Laundry and Alliance Laundry Corporation due in 2008 (substantially all of the
amounts in clauses (i) and (ii) were distributed by Alliance Laundry to the
Company to fund the Merger and to fund related fees and expenses); (iii) the
issuance by the Company of a junior subordinated promissory note in the original
principal amount of $9.0 million; (iv) the issuance by the Company of the
mandatorily redeemable preferred membership interests with a liquidation value
of $6.0 million; (v) the investors' equity contributions by Bain LLC, the BRS
Investors and certain members of management of $47.1 million and (vi) retained
equity of Raytheon of $3.5 million. Each of the transactions was conditioned
upon consummation of each of the others, and consummation of each of the
transactions occurred simultaneously.
In connection with the Merger, the Company entered into a five year
$250.0 million revolving loan agreement, which provides off-balance sheet
financing through Alliance Laundry Receivables Warehouse LLC ("ALRW"), its
special purpose single member limited liability company, to finance trade
receivables and notes receivable related to equipment loans with Lehman
Commercial Paper, Inc. (the "Facility Lender"), an affiliate of Lehman Brothers,
Inc. (the "Asset Backed Facility"). These financing programs have been and will
continue to be structured in a manner that qualifies for off-balance sheet
treatment in accordance with generally accepted accounting principles. Alliance
Laundry, as servicing agent, retains collection and administrative
responsibilities for the accounts and notes sold through the Asset Backed
Facility.
NOTE 3. NONRECURRING ITEMS
The Company entered into retention agreements with certain key
executives, managers and commissioned sales people prior to the Merger. For the
quarter ended March 31, 1999, the Company incurred approximately $0.4 million in
expense associated with payments under these agreements. Payments under this
program were completed in November of 1999.
During the fourth quarter of 1999, the Company recorded a $2.3 million
restructuring charge, of which $2.1 million was non-cash, associated with the
closing of the Company's Madisonville, Kentucky manufacturing facility. A
decision was made to close the Madisonville facility and transfer production to
the Ripon, Wisconsin manufacturing facility because of the available capacity at
the Ripon facility and the operating synergies that will be recognized. The
charge includes $1.7 million in employee termination and severance benefit
charges, $0.5 million for the estimated loss on fixed assets which were held for
disposal, and $0.1 million in miscellaneous costs. The carrying value of assets
held for disposal at March 31, 2000 is $1.0 million.
7
Balance at
1999 Utilized December 31,
Charge Cash Non-cash 1999
---------------- ---------- ---------- ----------------
Write-down of fixed assets......................... $ 485 $ - $ (485) $ -
Employee termination and severance benefits........ 1,739 (20) (1,640) 79
Other.............................................. 31 - - 31
---------------- ---------- ---------- ----------------
Total........................................... $ 2,255 $ (20) $(2,125) $ 110
================ ========== ========== ================
Balance at Balance at
December 31, Utilized March 31,
1999 Cash Non-cash 2000
---------------- ---------- ---------- ----------------
Write-down of fixed assets......................... $ - $ - $ - $ -
Employee termination and severance benefits........ 79 (22) - 57
Other.............................................. 31 - (8) 23
---------------- ---------- ---------- ----------------
Total........................................... $ 110 $ (22) $ (8) $ 80
================ ========== ========== ================
NOTE 4. INVENTORIES
Inventories are stated at cost using the first-in, first-out method but
not in excess of net realizable value, and consist of the following (in
thousands):
March 31, December 31,
2000 1999
---------------- ----------------
(Unaudited)
Materials and purchased parts..................... $ 20,156 $ 14,506
Work in process................................... 4,340 3,688
Finished goods.................................... 21,891 16,736
Less: inventory reserves.......................... (4,068) (3,648)
---------------- ----------------
$ 42,319 $ 31,282
================ ================
NOTE 5. CONDENSED FINANCIAL INFORMATION OF ALLIANCE LAUNDRY SYSTEMS LLC
As discussed more fully in Note 2, substantially all of the assets and
liabilities of the Company were transferred to Alliance Laundry, a wholly-owned
subsidiary of the Company, in connection with the Merger. Alliance Laundry is
the only direct subsidiary of the Company and comprises all of the Company's
operating activities.
In connection with the Merger, Alliance Laundry and its wholly-owned
subsidiary, Alliance Laundry Corporation, issued the $110 million of senior
subordinated notes. Alliance Laundry Corporation was incorporated for the sole
purpose of serving as a co-issuer of the senior subordinated notes in order to
facilitate their issuance. Alliance Laundry Corporation does not have any
substantial operations or assets of any kind. Alliance Laundry Holdings LLC has
provided a full and unconditional guarantee of the senior subordinated notes and
has no operating activities independent of Alliance Laundry. Separate financial
statements of Alliance Laundry are not presented because Company management has
determined that they would not be material to investors. Summarized unaudited
financial information of Alliance Laundry as of March 31, 2000 and December 31,
1999 and for the three months ended March 31, 2000 and March 31, 1999 is
presented below.
8
March 31, December 31,
2000 1999
-------------- ---------------
(Unaudited)
Current assets.................................. $ 74.9 $ 75.0
Noncurrent assets............................... 153.9 144.9
-------------- ---------------
$ 228.8 $ 219.9
============== ===============
Current liabilities............................. $ 59.0 $ 38.2
Long-term debt.................................. 309.2 309.5
Other long-term obligations..................... 1.9 1.9
Members' deficit................................ (141.3) (129.7)
-------------- ---------------
$ 228.8 $ 219.9
============== ===============
Three Months Ended
----------------------------------
March 31, March 31,
2000 1999
-------------- ---------------
(Unaudited) (Unaudited)
Net sales....................................... $ 65.6 $ 79.3
Gross profit.................................... 19.1 20.5
Selling, general and administrative expense..... 11.1 10.5
Nonrecurring costs.............................. - 0.5
-------------- ---------------
Operating income................................ 8.0 9.5
Interest expense................................ 9.1 7.6
Other income, net............................... - -
-------------- ---------------
Income (loss) before taxes...................... $ (1.1) $ 1.9
============== ===============
NOTE 6. COMMITMENTS AND CONTINGENCIES
On February 8, 1999, Raytheon commenced an arbitration under the
Commercial Arbitration Rules of the American Arbitration Association in Boston,
Massachusetts against the Company, seeking damages of $12.2 million plus
interest thereon and attorney's fees for breach of the Merger Agreement based on
Raytheon's claim for indemnification for a payment made to a third party
allegedly on behalf of the Company and Alliance Laundry following the Closing.
An arbitration was conducted pursuant to the terms of the Merger Agreement
("Arbitration"). The Company asserted in the Arbitration that Raytheon owed the
$12.2 million to the third party and that neither the Company nor Alliance
Laundry is liable for such amount. In addition, the Company and Bain LLC filed
counterclaims and claims, seeking damages in excess of $30 million
from Raytheon. On March 31, 2000 the Arbitrators issued their decision. Pursuant
to that decision Raytheon prevailed on its claim and the Company and Bain LLC
prevailed on its counterclaims. Ultimately the Company was required to pay
Raytheon $6.8 million, including interest, in full satisfaction of the
arbitration award and after offsetting the amount for price adjustments in favor
of the Company which had been agreed to during 1999. The award payment was made
on April 13, 2000. Of this amount, $9.9 million plus related costs of $0.6
million (of which $0.5 million had been expended as of March 31, 2000) was
recorded in the first
9
quarter financial statements as an adjustment of members' deficit, consistent
with the original recording of the Merger, which was accounted for as a
recapitalization. The price adjustments concluded during 1999 had been
previously recorded in the financial statements as of and for the period ended
December 31, 1999. The related net interest, including amounts related to prior
years, has been included in current year interest expense.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
ultimate liability from these proceedings is difficult to determine, in the
opinion of management, any additional liability will not have a material effect
on the Company's financial position, liquidity or results of operations.
NOTE 7. COMPREHENSIVE INCOME
Comprehensive income (loss) totaled ($1,602,000) and $1,490,000 for the
three months ended March 31, 2000 and March 31, 1999, respectively.
Comprehensive income (loss) is comprised entirely of net income for both
periods.
NOTE 8. SEGMENT INFORMATION
Based upon the information used by management for making operating
decisions and assessing performance, the Company has organized its business into
categories based upon products and services broken down primarily by markets.
Commercial laundry equipment and service parts, including sales to international
markets, are combined to form the commercial laundry segment. Commercial laundry
net sales include amounts related to the Company's finance program which
supports its commercial laundry operations. The Company's primary measure of
operating performance is gross profit which does not include an allocation of
any selling or product distribution expenses. Such amounts are reviewed on a
consolidated basis by management. In determining gross profit for its operating
units, the Company also does not allocate certain manufacturing costs, including
manufacturing variances and warranty and service support costs. Gross profit is
determined by subtracting cost of sales from net sales. Cost of sales is
comprised of the costs of raw materials and component parts, plus costs incurred
at the manufacturing plant level, including, but not limited to, labor and
related fringe benefits, depreciation, tools, supplies, utilities, property
taxes and insurance. The Company does not allocate assets internally in
assessing operating performance. Net sales and gross profit as determined by the
Company for its operating segments are as follows:
Three Months Ended
-----------------------------------------------------------------------
March 31, 2000 March 31, 1999
-----------------------------------------------------------------------
Net Gross Net Gross
Sales Profit Sales Profit
--------------- ------------- --------------- -------------
Commercial laundry........................ $65,639 $25,401 $60,333 $21,967
Appliance Co. consumer laundry............ - - 18,955 489
--------------- ------------- --------------- -------------
$65,639 25,401 $79,288 22,456
=============== ===============
Other manufacturing costs................. (6,313) (1,958)
------------- -------------
Gross profit as reported............... $19,088 $20,498
============= =============
10
NOTE 9. ACQUISITION OF AJAX PRODUCT LINE
On March 6, 2000, the Company completed the acquisition of selected
assets of American Laundry Machinery Inc.'s pressing and finishing equipment
division (d/b/a "Ajax"). Ajax, located in Cincinnati, Ohio, manufactures,
designs and markets a line of presses and finishers serving the dry cleaning and
industrial laundry markets. The cash consideration was approximately $13.3
million. The Company also assumed selective liabilities of approximately $1.2
million related to the product line and recorded estimated acquisition costs of
$0.3 million (of which $0.1 million was expended as of March 31, 2000). Assets
acquired and liabilities assumed have been recorded at their estimated fair
value, and are subject to adjustment when additional information concerning
asset and liability valuations is finalized. The excess of the purchase price
over the fair value of the net assets acquired (goodwill) was approximately $9.3
million and is being amortized on a straight-line basis over 20 years. The
purchase was financed through the proceeds of trade receivable sales and use of
the Revolving Credit Facility. As part of the Ajax acquisition, management
determined that the manufacturing facilities currently located in Cincinnati,
Ohio will be relocated within the next 18 months. As such, a $0.8 million
reserve was established primarily for the relocation of current employees.
The Ajax acquisition has been accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying consolidated
statements of income include only revenues and expenses of Ajax for the period
from March 6, 2000. On a pro-forma basis, this acquisition was not material to
the results of operations for the periods presented and, accordingly, such
information is not presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company believes it is the leading designer, manufacturer and
marketer of stand-alone commercial laundry equipment in North America and a
leader worldwide. Under the well-known brand names of Speed Queen, UniMac,
Huebsch and Ajax, the Company produces a full line of commercial washing
machines and dryers with load capacities from 16 to 250 pounds, and presses and
finishers used in the dry cleaning market. The Company's commercial products are
sold to four distinct customer groups: (i) laundromats; (ii) multi-housing
laundries, consisting primarily of common laundry facilities in apartment
buildings, universities and military installations; (iii) on-premise laundries,
consisting primarily of in-house laundry facilities of hotels, hospitals,
nursing homes and prisons; and (iv) dry cleaners. In addition, during 1999,
pursuant to a supply agreement with Appliance Co., the Company supplied consumer
washing machines to the consumer appliance business of Appliance Co. for sale at
retail. This supply agreement was completed and concluded on September 17, 1999.
This discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto included in this report and in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations set forth in the Company's Annual Report on Form 10-K
(file no. 333-56857) filed with the Securities and Exchange Commission, which
includes the audited financial position and operating results of the Company as
of and for the year ended December 31, 1999.
RESULTS OF OPERATIONS
11
The following table sets forth the Company's historical net sales for the
periods indicated:
Quarter Ended
----------------------------------------
March 31, March 31,
2000 1999
------------------ ------------------
(Dollars in millions)
Net sales
Commercial laundry $ 56.6 $ 51.8
Appliance Co. consumer laundry - 19.0
Service parts 9.0 8.5
------------------ ------------------
$ 65.6 $ 79.3
================== ==================
The following table sets forth certain condensed historical financial data for
the Company expressed as a percentage of net sales for each of the periods
indicated:
Quarter Ended
----------------------------------------
March 31, March 31,
2000 1999
------------------ ------------------
(Dollars in millions)
Net sales 100.0% 100.0%
Cost of sales 70.9% 74.1%
Gross profit 29.1% 25.9%
Selling, general and administrative expense 16.9% 13.2%
Nonrecurring costs - 0.6%
Operating income 12.2% 12.1%
Net income (2.4%) 1.9%
Net sales. Net sales for the quarter ended March 31, 2000 decreased
$13.7 million, or 17.2%, to $65.6 million from $79.3 million for the quarter
ended March 31, 1999. This decrease, attributable to consumer laundry equipment
sales of $19.0 million, was partly offset by increases in commercial laundry
sales, $4.8 million, and service part sales, $0.5 million. The decrease in
consumer laundry sales was due to the completion and conclusion of the Appliance
Co. supply agreement as of September 17, 1999. The increase in commercial
laundry sales was due primarily to higher North American equipment sales of $3.5
million, higher international sales of $0.9 million and higher earnings from the
Company's off-balance sheet equipment financing program of $0.6 million. The
increase in North American equipment sales was primarily due to higher sales for
laundromats and multi-housing laundries, and due to the additional sales
resulting from the acquisition of the Ajax pressing and finishing equipment
division on March 6, 2000. The equipment financing program earnings were higher
due primarily to an increase in the amount of loan originations.
Gross profit. Gross profit for the quarter ended March 31, 2000
decreased $1.4 million, or 6.9%, to $19.1 million from $20.5 million for the
quarter ended March 31, 1999. This decrease was attributable to the completion
of the supply agreement with Appliance Co. on September 17, 1999, which resulted
in under-absorption of overhead previously applied against consumer laundry
sales. This decrease was partially offset by volume growth in North American
equipment sales, the additional gross profit resulting from the acquisition of
the Ajax pressing and finishing equipment division, higher
12
earnings related to the Company's off-balance sheet equipment financing program
and manufacturing cost reductions implemented during 1999 and the first quarter
of 2000. Gross profit as a percentage of net sales increased to 29.1% for the
quarter ended March 31, 2000 from 25.9% for the quarter ended March 31, 1999.
The increase in gross profit as a percentage of net sales is attributable to the
termination of sales to Appliance Co. which were at margins substantially below
that of the continuing business as well as from the manufacturing cost
reductions noted above.
Selling, general and administrative expense. Selling, general and
administrative expenses for the quarter ended March 31, 2000 increased $0.6
million, or 5.3%, to $11.1 million from $10.5 million for the quarter ended
March 31, 1999. The increase in selling, general and administrative expenses was
primarily attributable to $1.4 million of expenses relating to the relocation of
tumbler manufacturing to Ripon, Wisconsin from Madisonville, Kentucky. This
increase was partially offset by decreases in employee benefit and legal
expenses. Selling, general and administrative expenses as a percentage of net
sales increased to 16.9% for the quarter ended March 31, 2000 from 13.2% for the
quarter ended March 31, 1999, as a result of the lower consumer laundry sales
which did not have a commensurate reduction in selling, general and
administrative expenses.
Nonrecurring costs. There were no nonrecurring costs for the quarter ended
March 31, 2000 as compared to $0.4 million in nonrecurring costs recorded for
the quarter ended March 31, 1999. Nonrecurring costs in 1999 were comprised
entirely of employee retention costs.
Operating income. As a result of the foregoing, operating income for the
quarter ended March 31, 2000 decreased $1.6 million, or 15.9%, to $8.0 million
from $9.6 million for the quarter ended March 31, 1999. Operating income as a
percentage of net sales increased to 12.2% for the quarter ended March 31, 2000
from 12.1% for the quarter ended March 31, 1999.
Interest expense. Interest expense for the quarter ended March 31, 2000
increased $1.6 million, or 19.9%, to $9.6 million from $8.0 million for the
quarter ended March 31, 1999. The increase is primarily attributable to the $1.5
million of net interest expense associated with the Raytheon Arbitration award.
Income taxes. There was no provision for income taxes for the quarter ended
March 31, 2000, or for the quarter ended March 31, 1999. Effective May 5, 1998
the Company is a stand-alone limited liability company and is no longer subject
to federal and most state income taxes.
Net income(loss). As a result of the foregoing, net income for the quarter
ended March 31, 2000 decreased $3.1 million to a net loss of $1.6 million as
compared to net income of $1.5 million for the quarter ended March 31, 1999. Net
income(loss) as a percentage of net sales decreased to (2.4%) for the quarter
ended March 31, 2000 from 1.9% for the quarter ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In May 1998, Alliance Laundry entered into a credit agreement (the "Senior
Credit Facility") with a syndicate of financial institutions (the "Lenders") for
which Lehman Brothers, Inc. acted as arranger and Lehman Commercial Paper, Inc.
acted as syndication agent. The Senior Credit Facility is comprised of a term
loan facility aggregating $200.0 million (the "Term Loan Facility") and a $75.0
13
million revolving credit facility (the "Revolving Credit Facility"), which was
made available in conjunction with the issuance of Alliance Laundry's senior
subordinated notes.
The Company's principal sources of liquidity are cash flows generated from
operations and borrowings under its $75.0 million Revolving Credit Facility. The
Company's principal uses of liquidity are to meet debt service requirements,
finance the Company's capital expenditures and provide working capital. The
Company expects that capital expenditures in 2000 will not exceed $12.0 million.
The Company expects the ongoing requirements for debt service, capital
expenditures and working capital will be funded by internally generated cash
flow and borrowings under the Revolving Credit Facility.
As of March 31, 2000, the Company has $330.6 million of combined
indebtedness outstanding, consisting of outstanding debt of $200.0 million under
the Term Loan Facility and $8.0 million under the Revolving Credit Facility,
$110.0 million of senior subordinated notes and $12.6 million of junior
subordinated notes, and had $52.5 million of its $75.0 million Revolving Credit
Facility available subject to certain limitations under the Senior Credit
Facility. After considering such limitations, the Company could have borrowed up
to $52.5 million at March 31, 2000 in additional indebtedness under the
Revolving Credit Facility.
The $200.0 million Term Loan Facility amortizes quarterly and is repayable
in the following aggregate annual amounts:
Year Amount Due
---- ----------
(Dollars in
millions)
2000................... $ 0.5
2001................... $ 1.0
2002................... $ 1.0
2003................... $ 20.5
2004................... $ 98.5
2005................... $ 78.5
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain debt incurrences, asset sales and a portion of Excess Cash
Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility
will terminate in 2003.
The Company's Asset Backed Facility provides $250.0 million of off-balance
sheet financing for trade receivables and equipment loans. The finance programs
have been and will continue to be structured in a manner that qualifies for off-
balance sheet treatment in accordance with generally accepted accounting
principles. It is expected that under the Asset Backed Facility, the Company
will continue to act as originator and servicer of the equipment financing
promissory notes and the trade receivables.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or liquidated damages, if any, on, or to refinance, its
indebtedness, or to fund planned capital expenditures, will depend upon its
future performance, which, in turn, is subject to general economic, financial,
competitive and other factors that are beyond its control. Based upon the
current level of operations and anticipated growth, management believes that
future cash flow from operations, together with available borrowings under the
Revolving Credit Facility, will be adequate to meet the Company's anticipated
14
requirements for capital expenditures, working capital, interest payments and
scheduled principal payments. There can be no assurance, however, that the
Company's business will continue to generate sufficient cash flow from
operations in the future to service its debt and make necessary capital
expenditures after satisfying certain liabilities arising in the ordinary course
of business. If unable to do so, the Company may be required to refinance all or
a portion of its existing debt, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
available or that any such sales of assets or additional financing could be
obtained.
Historical
Cash generated from operations for the three months ended March 31, 2000
of $6.3 million was principally derived from the Company's earnings before
depreciation and amortization partially offset by changes in working capital,
and increased sales of accounts receivable under the Asset Backed Facility. The
working capital investment in accounts receivable at March 31, 2000 of $21.1
million decreased $12.5 million as compared to the balance of $33.6 million at
December 31, 1999, which was primarily attributable to selling more accounts
receivable through Alliance Laundry Receivable Warehouse ("ALRW"), a special-
purpose single member limited liability company. The working capital investment
in accounts payable at March 31, 2000 of $15.3 million increased $2.9 million as
compared to the balance of $12.4 million at December 31, 1999. The accounts
payable balance at March 31, 2000 reflected higher purchases and production in
March of 2000 as compared to December of 1999.
Net cash provided by operating activities for the quarter ended March 31,
2000 of $6.3 million increased by $4.1 million as compared to the quarter ended
March 31, 1999. This increase was primarily due to higher net cash provided by
changes in assets and liabilities of $7.2 million, offset by a decrease in net
income of $3.1 million for the quarter ended March 31, 2000 as compared to the
quarter ended March 31, 1999. The net cash impact from changes in assets and
liabilities for the quarter ended March 31, 2000 of $7.2 million was largely due
to an increase in accounts receivable sold under the Asset Backed Facility. The
proceeds of the sale of receivables was utilized largely to finance the
acquisition of the Ajax pressing and finishing equipment division on March 6,
2000.
Capital Expenditures
The Company's capital expenditures for the three months ended March 31,
2000 and March 31, 1999 were $1.2 million and $3.2 million, respectively.
Capital spending in 2000 was principally oriented toward reducing manufacturing
costs and transitioning tumbler production from the Company's Madisonville,
Kentucky manufacturing facility to Ripon, Wisconsin (see Note 3), while spending
in 1999 was principally oriented toward reducing manufacturing costs and
transitioning dryer production from Appliance Co. to the Company's Ripon
manufacturing facility.
YEAR 2000 (Y2K) COMPLIANCE
The Company undertook various initiatives intended to ensure its computer
equipment and software would function properly with respect to the Y2K issue and
completed its Y2K remediation efforts prior to the end of 1999. In addition,
prior to the end of 1999, the Company developed various contingency plans to
address any unforeseen circumstances that may have arisen.
15
In total, the Company spent approximately $2.7 million since the second
half of 1997 to address the Y2K issue, which included significant upgrades to
current hardware and software systems. About $1.5 million was spent during 1999.
These expenditures were funded using cash flows from operations.
The Company has experienced no system failures or miscalculations as a
result of the Y2K computer issue. In addition, the Company is not aware of any
failures attributable to the Y2K problem at its customers or suppliers that
threaten to have an adverse impact on the Company's business at this time.
Even though the Company has not experienced problems related to the Y2K
issue at this time and does not expect to experience any problems in the future,
it is still remotely possible that the Company could be affected by Y2K issues
in the future. Future Y2K issues may arise due to unforeseen problems with the
Company's systems or due to Y2K issues of other entities which may affect the
Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and was effective for all fiscal years beginning
after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of SFAS No. 133," and will now be effective for fiscal years
beginning after June 15, 2000, with early adoption permitted. SFAS No. 133, as
amended, requires the Company to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Upon adoption, the
Company will be required to report derivative and hedging instruments at fair
value in the balance sheet and recognize changes in the fair value of
derivatives in net income or other comprehensive income, as appropriate. This
statement will be effective for the Company's first quarter of 2001. Given the
Company's current derivative and hedging activities, the statement is not
expected to have a material effect on the Company's results of operations or
financial position.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk associated with changes
in interest and foreign exchange rates. From time to time the Company may enter
into derivative financial instruments to hedge its interest rate exposures and
to hedge exchange rate fluctuations between United States dollars and foreign
currencies. An instrument will be treated as a hedge if it is effective in
offsetting the impact of volatility in the Company's underlying exposures. The
Company does not enter into derivatives for speculative purposes. There have
been no material changes in the Company's market risk exposures as compared to
those discussed in the Company's Annual Report on Form 10-K (file no. 333-
56857).
FORWARD-LOOKING STATEMENTS
With the exception of the reported actual results, the information
presented herein contains predictions, estimates or other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended, including
items specifically discussed in the "Note 6 - Commitments and Contingencies"
section of this document. Such forward-looking statements involve known and
unknown risks, uncertainties and other
16
factors that may cause actual results, performance or achievements of the
Company to differ materially from those expressed or implied by such forward-
looking statements. Although the Company believes that its plans, intentions and
expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that such plans, intentions,
expectations, objectives or goals will be achieved. Important factors that could
cause actual results to differ materially from those included in forward-looking
statements include: impact of competition; continued sales to key customers;
possible fluctuations in the cost of raw materials and components; possible
fluctuations in currency exchange rates, which affect the competitiveness of the
Company's products abroad; market acceptance of new and enhanced versions of the
Company's products; the impact of substantial leverage and debt service on the
Company and other risks listed from time to time in the Company's reports,
including but not limited to the Company's Annual Report on Form 10-K (file no.
333-56857).
17
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Legal actions relating to the Raytheon Arbitration are described in
Footnote 6 to the Financial Statements in Part I hereto and are incorporated by
reference into Part II.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Systems LLC has duly caused this quarterly report to be signed
on its behalf by the undersigned, thereto duly authorized, in the city of Ripon,
state of Wisconsin, on the 3rd day of May 2000.
Signature Title Date
--------- ----- ----
_____________________________ Chairman and CEO _________________
Thomas L'Esperance
_____________________________ Vice President and Chief Financial Officer _________________
Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Corp. has duly caused this quarterly report to be signed on its
behalf by the undersigned, thereto duly authorized, in the city of Ripon, state
of Wisconsin, on the 3rd day of May 2000.
Signature Title Date
--------- ----- ----
_____________________________ Chairman and CEO _________________
Thomas L'Esperance
_____________________________ Vice President and Chief Financial Officer _________________
Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934,
Alliance Laundry Holdings LLC has duly caused this quarterly report to be signed
on its behalf by the undersigned, thereto duly authorized, in the city of Ripon,
state of Wisconsin, on the 3rd day of May 2000.
Signature Title Date
--------- ----- ----
_____________________________ Chairman and CEO _________________
Thomas L'Esperance
_____________________________ Vice President and Chief Financial Officer _________________
Bruce P. Rounds
19