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 September 30, 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 Periods Ended September 30, 2000
Table of Contents
Page No.
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PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 2000 and December 31, 1999 3
Condensed Statements of Income for the periods ended September 30, 2000 and September 30,
1999 4
Condensed Statements of Cash Flows for the periods ended September 30, 2000 and September
30, 1999 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
PART II Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
----------- -----------
Assets (Unaudited)
Current assets:
Cash ........................................ $ 811 $ 3,028
Cash-restricted ............................. 233 956
Accounts receivable, net .................... 27,636 33,578
Inventories, net ............................ 41,468 31,282
Prepaid expenses and other .................. 8,449 6,160
--------- ---------
Total current assets .................... 78,597 75,004
Notes receivable ............................... 22,558 18,314
Property, plant and equipment, net ............. 53,748 57,615
Goodwill, net .................................. 56,134 48,319
Debt issuance costs, net ....................... 11,210 13,064
Other assets ................................... 7,616 7,550
--------- ---------
Total assets ............................ $ 229,863 $ 219,866
========= =========
Liabilities and Members' Deficit
Current liabilities:
Current portion of long-term debt ........... $ 1,018 $ 500
Accounts payable ............................ 14,921 12,362
Finance program obligation .................. 3,150 3,551
Revolving credit facility ................... 14,000 --
Other current liabilities ................... 24,569 21,805
--------- ---------
Total current liabilities ............... 57,658 38,218
Long-term debt:
Senior credit facility ...................... 198,750 199,500
Senior subordinated notes ................... 110,000 110,000
Junior subordinated note .................... 13,733 12,048
Other long-term debt ........................ 737 --
Other long-term liabilities .................... 1,949 1,866
--------- ---------
Total liabilities ....................... 382,827 361,632
Commitments and contingencies (See Note 6)
Manditorily redeemable preferred equity ........ 6,000 6,000
Members' deficit ............................... (158,964) (147,766)
--------- ---------
Total liabilities and members' deficit .. $ 229,863 $ 219,866
========= =========
3
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF INCOME
(in thousands)
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Net sales:
Commercial laundry .................... $ 55,784 $ 57,432 $ 178,918 $ 167,975
Appliance Co. consumer laundry ........ -- 14,582 -- 54,682
Service parts ......................... 8,382 7,836 26,142 24,626
------------- ------------ ----------- -----------
64,166 79,850 205,060 247,283
Cost of sales ............................. 44,713 59,234 143,279 183,338
------------- ------------ ----------- -----------
Gross profit .............................. 19,453 20,616 61,781 63,945
------------- ------------ ----------- -----------
Selling, general and administrative expense 11,406 10,309 35,237 31,434
Nonrecurring costs ........................ 402 730 402 1,624
------------- ------------ ----------- -----------
Total operating expenses .................. 11,808 11,039 35,639 33,058
------------- ------------ ----------- -----------
Operating income ................... 7,645 9,577 26,142 30,887
Interest expense .......................... 8,920 7,898 27,165 23,945
Other income (expense), net ............... 460 (78) 352 (222)
------------- ------------ ----------- -----------
Income before taxes ................ (815) 1,601 (671) 6,720
Provision for income taxes ................ -- -- 20 29
------------- ------------ ----------- -----------
Net income (loss) .................. $ (815) $ 1,601 $ (691) $ 6,691
============= ============ =========== ===========
4
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) .............................................. $ (691) $ 6,691
Adjustments to reconcile net income to net cash
provided by operating activities; excluding the effects of the
acquisition opening balance sheet:
Depreciation and amortization ................................ 12,943 12,692
Non-cash junior subordinated note interest ................... 1,685 1,411
(Gain) loss on sale of property, plant and equipment ......... (352) 222
Changes in assets and liabilities:
Accounts and notes receivable .............................. (2,622) (26,250)
Inventories ................................................ (6,203) 39
Other assets ............................................... (3,058) 827
Accounts payable ........................................... 1,777 7,351
Finance program obligation ................................. 98 (517)
Other liabilities .......................................... 1,318 2,917
-------- --------
Net cash provided by operating activities ................... 4,895 5,383
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment ..................... (3,622) (8,875)
Acquisition of business ........................................ (13,399) --
Proceeds on disposal of property, plant and equipment .......... 1,329 557
-------- --------
Net cash (used in) investing activities ..................... (15,692) (8,318)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt ................................... 750 --
Payments of long-term debt ..................................... (250) --
Net increase/(decrease) from revolving line of credit borrowings 14,000 --
Distribution to Raytheon and related transaction costs ......... (5,920) (686)
-------- --------
Net cash provided by financing activities ................... 8,580 (686)
-------- --------
Increase (decrease) in cash ...................................... (2,217) (3,621)
Cash at beginning of period ...................................... 3,028 4,839
-------- --------
Cash at end of period ............................................ $ 811 $ 1,218
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................... $ 21,094 $ 18,323
5
Notes to Unaudited Condensed Financial Statements
NOTE 1. BASIS OF PRESENTATION
The unaudited financial statements as of September 30, 2000 and
September 30, 1999 and for the periods ended September 30, 2000 and 1999 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 periods ended September 30, 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
period ended September 30, 1999, the Company incurred approximately $1.3 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 included $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. Subsequently, in the third
quarter of 2000, this reserve was increased by $0.4 million due to additional
medical benefits provided as part of the employee terminations.
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 Reallocation Balance at
December 31, Utilized and Reserve September 30,
1999 Cash Non-cash Addition 2000
------------ --------- --------- ------------ -------------
Write-down of fixed assets ................ $ -- $ -- $ 265 $(265) $ --
Employee termination and severance benefits 79 (777) -- 698 --
Other ..................................... 31 -- -- (31) --
--------- --------- --------- ---------- ----------
Total ................................. $ 110 $ (777) $ 265 $ 402 $ --
========= ========= ========= ========== ==========
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):
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
Materials and purchased parts $ 17,854 $ 14,506
Work in process ............. 3,763 3,688
Finished goods .............. 23,521 16,736
Less: inventory reserves .... (3,670) (3,648)
---------- ----------
$ 41,468 $ 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
8
management has determined that they would not be material to investors.
Summarized unaudited financial information of Alliance Laundry as of September
30, 2000 and December 31, 2000 and for the three months and nine months ended
September 30, 2000 and September 30, 1999 is presented below.
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Current assets ............ $ 78.6 $ 75.0
Noncurrent assets ......... 151.3 144.9
------------ ----------
$ 229.9 $ 219.9
============ ==========
Current liabilities ....... $ 57.7 $ 38.2
Long-term debt ............ 309.5 309.5
Other long-term liabilities 1.9 1.9
Members' deficit .......... (139.2) (129.7)
------------ ----------
$ 229.9 $ 219.9
============ ==========
Three Months Ended
September 30, September 30,
2000 1999
------------ ------------
(Unaudited)
Net sales ...................... $ 64.2 $ 79.9
Gross profit ..................... 19.5 20.6
Selling, general and administrative expense 11.5 10.3
Nonrecurring costs ........................ 0.4 0.7
----------- -----------
Operating income .......................... 7.6 9.6
Interest expense .......................... 8.3 7.4
Other income (expense), net ............... 0.5 (0.1)
----------- -----------
Income before taxes ....................... $ (0.2) $ 2.1
=========== ===========
9
Nine Months Ended
----------------------------
September 30, September 30,
2000 1999
------------ -------------
(Unaudited)
Net sales ................................. $ 205.1 $ 247.3
Gross profit .............................. 61.8 63.9
Selling, general and administrative expense 35.3 31.4
Nonrecurring costs ........................ 0.4 1.6
----------- -----------
Operating income .......................... 26.1 30.9
Interest expense .......................... 25.5 22.6
Other income (expense), net ............... 0.4 (0.2)
----------- -----------
Income before taxes ....................... $ 1.0 $ 8.1
=========== ===========
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 $1.5 million in 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 was recorded in the first 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 of $1.5 million,
including amounts related to prior years, has been included in current year
interest expense.
Various other 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.
On August 3, 2000, the Company received $750,000 in borrowings,
evidenced by a promissory note, pursuant to a Wisconsin Community Development
Block Grant Agreement (the "Agreement") dated July 10, 2000 between the
Wisconsin Department of Commerce, Alliance Laundry and Fond du Lac County,
Wisconsin. The promissory note bears interest at an annual rate of 4%, with
monthly
10
payments of interest and principal commencing July 1, 2001 with the
final installment paid on June 1, 2010, subject to the covenants of the
Agreement.
NOTE 7. COMPREHENSIVE INCOME
Comprehensive income totaled ($691,000) and $6,306,000 for the nine
months ended September 30, 2000 and September 30, 1999, respectively. Total
Comprehensive Income for the nine months ended September 30, 2000 is comprised
entirely of net income. Total Comprehensive Income for the nine months ended
September 30, 1999 is comprised of net income of $6,691,000 and Other
Comprehensive Income (Loss) of ($385,000). Other Comprehensive Income (Loss) in
1999 is comprised entirely of unrealized holding gains and losses on
available-for-sale securities.
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
---------------------------------------------------------------------------
September 30, 2000 September 30, 1999
--------------------------------------- -------------------------------
Net Gross Net Gross
Sales Profit Sales Profit
------------------- ---------------- ------------- -------------
Commercial laundry............................. $64,166 $24,652 $65,268 $23,871
Appliance Co. consumer laundry................ - - 14,582 411
------------------- ---------------- ------------- -------------
$64,166 24,652 $79,850 24,282
=================== =============
Other manufacturing costs...................... (5,199) (3,666)
---------------- -------------
Gross profit as reported.................. $19,453 $20,616
================ =============
11
Nine Months Ended
---------------------------------------------------------------------------
September 30, 2000 September 30, 1999
--------------------------------------- -------------------------------
Net Gross Net Gross
Sales Profit Sales Profit
------------------- ---------------- ------------- -------------
Commercial laundry............................. $205,060 $78,748 $192,601 $70,570
Appliance Co. consumer laundry................ - - 54,682 1,523
------------------- ---------------- ------------- -------------
$205,060 78,748 $247,283 72,093
=================== =============
Other manufacturing costs...................... (16,967) (8,148)
---------------- -------------
Gross profit as reported.................. $61,781 $63,945
================ =============
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 $13.1
million. The Company also assumed selective liabilities of approximately $1.2
million related to the product line and recorded acquisition costs of $0.3
million. 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 $9.2 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,
the Cincinnati facility will be closed, and production will be transferred to
the Company's Marianna, Florida manufacturing facility. As such, a $1.0 million
reserve was established primarily for employee termination and severance benefit
charges.
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
12
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
Quarter Ended September 30, 2000 Compared to the Quarter Ended September 30,
1999
The following table sets forth the Company's historical net sales for the
periods indicated:
Quarter Ended
----------------------------
September 30, September 30,
2000 1999
----------- -------------
(Dollars in millions)
Net sales
Commercial laundry ........... $ 55.8 $ 57.5
Appliance Co. consumer laundry -- 14.6
Service parts ................ 8.4 7.8
-------- --------
$ 64.2 $ 79.9
======== ========
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
----------------------------
September 30, September 30,
2000 1999
----------- -------------
Net sales ................................. 100.0% 100.0%
Cost of sales ............................. 69.7% 74.2%
Gross profit .............................. 30.3% 25.8%
Selling, general and administrative
expense................................... 17.8% 12.9%
Nonrecurring costs ........................ 0.6% 0.9%
Operating income .......................... 11.9% 12.0%
Net income ............................ (1.3%) 2.0%
Net sales. Net sales for the quarter ended September 30, 2000 decreased
$15.7 million, or 19.6%, to $64.2 million from $79.9 million for the quarter
ended September 30, 1999. This decrease, attributable to consumer laundry
equipment sales of $14.6 million, and commercial laundry sales of $1.7 million,
was partially offset by an increase in service part sales of $0.5 million. The
decrease in consumer laundry sales was due to the completion and conclusion of
the Appliance Co. supply
13
agreement as of September 17, 1999. The decrease in commercial laundry sales was
due primarily to lower North American equipment sales of $0.4 million, lower
international sales of $1.1 million and lower earnings from the Company's
off-balance sheet equipment financing program of $0.2 million. The decrease in
North American equipment sales was primarily due to a slowdown in laundromat and
multi-housing sales, which were partially offset by the additional sales
resulting from the March 6, 2000 acquisition of the Ajax pressing and finishing
equipment division. Sales to international customers, primarily in Australia and
Western Europe, were lower as the Company's products (priced in U.S. dollars)
have become less competitive due to the negative impact of foreign currency
exchange resulting from the strengthening U.S. dollar relative to other foreign
currencies.
Gross profit. Gross profit for the quarter ended September 30, 2000
decreased $1.1 million, or 5.6%, to $19.5 million from $20.6 million for the
quarter ended September 30, 1999. This decrease was primarily attributable to
under-absorption of overhead previously applied against consumer laundry sales
which was partially offset by a modest price increase and manufacturing
efficiencies implemented during 1999 and 2000. Gross profit as a percentage of
net sales increased to 30.3% for the quarter ended September 30, 2000 from 25.8%
for the quarter ended September 30, 1999. The increase in gross profit as a
percentage of net sales is attributable to the higher margins associated with
commercial laundry equipment sales as compared to low margins associated with
the previous year's sales to Appliance Co., as well as from the manufacturing
efficiencies noted above.
Selling, general and administrative expense. Selling, general and
administrative expenses for the quarter ended September 30, 2000 increased $1.1
million, or 10.6%, to $11.4 million from $10.3 million for the quarter ended
September 30, 1999. The increase in selling, general and administrative expenses
was primarily due to an increase of $1.0 million in one-time expenses related to
the relocation of Madisonville, Kentucky and Cincinnati, Ohio production lines
to Ripon, Wisconsin and Marianna, Florida, respectively, as well as incremental
selling, general and administrative expenses associated with the Ajax product
line. Selling, general and administrative expenses as a percentage of net sales
increased to 17.8% for the quarter ended September 30, 2000 from 12.9% for the
quarter ended September 30, 1999 as a result of the termination of sales to
Appliance Co. which had previously incurred very little selling, general and
administrative expense, and as a result of the production line moves noted
above.
Nonrecurring costs. Nonrecurring costs for the quarter ended September
30, 2000 decreased $0.3 million, or 44.9%, to $0.4 million from $0.7 million for
the quarter ended September 30, 1999. Nonrecurring costs in 2000 were comprised
entirely of additional employee termination and severance benefits related to
the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin.
Nonrecurring costs in 1999 were comprised of employee retention costs and a
one-time pension curtailment charge associated with a layoff which occurred
after the completion of the Appliance Co. supply agreement.
Operating income. As a result of the foregoing, operating income for
the quarter ended September 30, 2000 decreased $2.0 million, or 20.2%, to
approximately $7.6 million from $9.6 million for the quarter ended September 30,
1999. Operating income as a percentage of net sales decreased to 11.9% for the
quarter ended September 30, 2000 from 12.0% for the quarter ended September 30,
1999.
Interest expense. Interest expense for the quarter ended September 30,
2000 increased $1.0 million, or 12.9%, to $8.9 million from $7.9 million for the
quarter ended September 30, 1999. The increase is primarily attributable to
higher LIBOR based interest rates, interest expense on borrowings from the
revolving line of credit resulting from the acquisition of the Ajax product line
(see Note 9 of the financial statements) and from payment of the Raytheon
arbitration award (see Note 6 of the financial statements).
14
Net income/(loss). As a result of the foregoing, net income for the
quarter ended September 30, 2000 decreased $2.4 million to a net loss of $0.8
million as compared to net income of $1.6 million for the quarter ended
September 30, 1999. Net income/(loss) as a percentage of net sales decreased to
(1.3%) for the quarter ended September 30, 2000 from 2.0% for the quarter ended
September 30, 1999.
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999
The following table sets forth the Company's historical net sales for the
periods indicated:
Nine Months Ended
----------------------------
September 30, September 30,
2000 1999
----------- -------------
(Dollars in millions)
Net sales
Commercial laundry ........................ $178.9 $168.0
Appliance Co. consumer laundry............. -- 54.7
Service parts ............................. 26.2 24.6
-------- --------
$205.1 $247.3
======== ========
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:
Nine Months Ended
----------------------------
September 30, September 30,
2000 1999
----------- -------------
Net sales ................................. 100.0% 100.0%
Cost of sales ............................. 69.9% 74.1%
Gross profit .............................. 30.1% 25.9%
Selling, general and administrative
expense .................................. 17.2% 12.7%
Nonrecurring costs ........................ 0.2% 0.7%
Operating income .......................... 12.7% 12.5%
Net income ............................ (0.3%) 2.7%
Net sales. Net sales for the nine months ended September 30, 2000
decreased $42.2 million, or 17.1%, to $205.1 million from $247.3 million for the
nine months ended September 30, 1999. This decrease, attributable to consumer
laundry equipment sales of $54.7 million, was partly offset by increases in
commercial laundry sales, $11.0 million, and service part sales, $1.5 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 $9.5 million, higher international sales of $1.0 million and
15
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 regional laundromats and multi-housing laundries in the
first half of 2000, and due to the additional sales resulting from the March 6,
2000 acquisition of the Ajax pressing and finishing equipment division. The
equipment financing program earnings were higher due to an increase in the
amount of loan originations in the first half of the year.
Gross profit. Gross profit for the nine months ended September 30, 2000
decreased $2.1 million, or 3.4%, to $61.8 million from $63.9 million for the
nine months ended September 30, 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 under-absorption was partially offset by a modest
price increase and manufacturing efficiencies implemented during 1999 and 2000.
Gross profit as a percentage of net sales increased to 30.1% for the nine months
ended September 30, 2000 from 25.9% for the nine months ended September 30,
1999. The increase in gross profit as a percentage of net sales is attributable
to the higher margins associated with commercial laundry equipment sales as
compared to low margins associated with the previous year's sales to Appliance
Co., as well as from the manufacturing efficiencies noted above.
Selling, general and administrative expense. Selling, general and
administrative expenses for the nine months ended September 30, 2000 increased
$3.8 million, or 12.1%, to $35.2 million from $31.4 million for the nine months
ended September 30, 1999. The increase in selling, general and administrative
expenses was primarily due to an increase of approximately $3.0 million in
one-time expenses related to the relocation of Madisonville, Kentucky and
Cincinnati, Ohio production lines to Ripon, Wisconsin and Marianna, Florida,
respectively, as well as incremental selling, general and administrative
expenses associated with the Ajax product line. Selling, general and
administrative expenses as a percentage of net sales increased to 17.2% for the
nine months ended September 30, 2000 from 12.7% for the nine months ended
September 30, 1999 as a result of the termination of sales to Appliance Co.
which had previously incurred very little selling, general and administrative
expense, and as a result of the production line moves noted above.
Nonrecurring costs. Nonrecurring costs for the nine months ended
September 30, 2000 decreased $1.2 million to $0.4 million from $1.6 million for
the quarter ended September 30, 1999. Nonrecurring costs in 2000 were comprised
entirely of employee termination and severance benefits due to the relocation of
Madisonville, Kentucky production lines to Ripon, Wisconsin. Nonrecurring costs
in 1999 were comprised of employee retention costs and a one-time pension
curtailment charge associated with a layoff which occurred after the completion
of the Appliance Co. supply agreement.
Operating income. As a result of the foregoing, operating income for
the nine months ended September 30, 2000 decreased $4.8 million, or 15.4%, to
approximately $26.1 million from $30.9 million for the nine months ended
September 30, 1999. Operating income as a percentage of net sales increased to
12.7% for the nine months ended September 30, 2000 from 12.5% for the nine
months ended September 30, 1999.
Interest expense. Interest expense for the nine months ended September
30, 2000 increased $3.2 million, or 13.4%, to $27.2 million from $24.0 million
for the nine months ended September 30, 1999. The increase is attributable to
$1.5 million of net interest expense associated with the Raytheon arbitration
award, as well as borrowings from the revolving line of credit used in
connection with the Raytheon arbitration award (see Note 6 of the financial
statements) and the acquisition of the Ajax product line (see Note 9 of the
financial statements).
16
Net income/(loss). As a result of the foregoing, net income for the
nine months ended September 30, 2000 decreased $7.4 million to a net loss of
$0.7 million from net income of $6.7 million for the nine months ended September
30, 1999. Net income/(loss) as a percentage of net sales decreased to (0.3%) for
the nine months ended September 30, 2000 from 2.7% for the nine months ended
September 30, 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 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
$11.0 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 September 30, 2000, the Company has $338.2 million of combined
indebtedness outstanding, consisting of outstanding debt of $199.8 million under
the Term Loan Facility and $14.0 million under the Revolving Credit Facility,
$110.0 million of senior subordinated notes and $13.7 million of junior
subordinated notes, and $0.7 million in a promissory note from Fond du Lac
County in Wisconsin. The Company had $45.0 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 $45.0 million at September 30, 2000 in additional
indebtedness under the Revolving Credit Facility.
The remaining $199.8 million Term Loan Facility amortizes quarterly and
is repayable in the following aggregate annual amounts:
Year Amount Due
---- ----------
(Dollars in
millions)
2000.............................. $ 0.3
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
17
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.
As required by the terms of the Asset Backed Facility, the Company is
in the process of completing a securitization transaction for the sale of loans
currently held by Alliance Laundry Receivable Warehouse ("ALRW"), a
special-purpose single member limited liability company. The Company expects
this transaction to be completed during the fourth quarter and expects to
finance its net increase in related residual interests with borrowings under the
Revolving Credit Facility. The net effects resulting from the Company's
interests in this new securitization transaction will be reflected in financial
statements for the period in which the securitization transaction is completed.
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
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 nine months ended September 30,
2000 of $4.9 million was principally derived from the Company's earnings before
depreciation and amortization, and from increased sales of accounts receivable
under the Asset Backed Facility which were partially offset by changes in
working capital. The working capital investment in accounts receivable at
September 30, 2000 of $27.6 million decreased $6.0 million as compared to the
balance of $33.6 million at December 31, 1999, which was primarily attributable
to selling more accounts receivable through ALRW. The working capital investment
in inventories at September 30, 2000 of $41.5 million increased $10.2 million as
compared to the balance of $31.3 million at December 31, 1999. Inventory
balances have increased as a result of a $5.0 million increase attributable to
inventories acquired through the Ajax acquisition.
Net cash provided by operating activities for the nine months ended
September 30, 2000 of $4.9 million decreased by $0.5 million as compared to the
nine months ended September 30, 1999. This decrease was primarily due to lower
net cash used by changes in assets and liabilities of $6.9 million, offset by a
reduction in net income of $7.4 million for the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999. The net cash
impact from changes in assets and liabilities for the nine months ended
September 30, 2000 of $4.9 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 partially to finance the March 6, 2000 acquisition of
the Ajax pressing and finishing equipment division and to pay the Raytheon
award.
18
Capital Expenditures
The Company's capital expenditures for the nine months ended September
30, 2000 and September 30, 1999 were $3.6 million and $8.9 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.
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.
In October 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
as replacement of SFAS No. 125." The Statement revises certain aspects of the
current standards for accounting for securitizations and other transfers of
financial assets and collateral, and requires certain new and expanded
disclosures. The Statement is effective for transfers and servicing of financial
assets occurring after March 31, 2001. The Company is in the process of
assessing the effects of SFAS No. 140 on its financial statements.
In October 2000, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets."
The consensus concludes on how a transferor that retains an interest in a
securitization transaction, or an enterprise that purchases a beneficial
interest in securitized financial assets, should account for interest income and
impairment. Issue No. 99-20 is required to be adopted by the Company no later
than the first quarter of 2001. The Company is currently evaluating the effects
of Issue No. 99-20 on its financial statements.
19
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 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).
20
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Legal actions relating to Appliance Co. and Raytheon 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.
21
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 10th day of November 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 11-10-00
- ------------------------------------------- -----------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 11-10-00
- ------------------------------------------- -----------------------
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 10th day of November 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 11-10-00
- ------------------------------------------- -----------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 11-10-00
- ------------------------------------------- -----------------------
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 10th day of November 2000.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 11-10-00
- ------------------------------------------- -----------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 11-10-00
- ------------------------------------------- -----------------------
Bruce P. Rounds
22