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 June 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 Period Ended June 30, 2001
Table of Contents
Page No.
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PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 2001 and December 31, 2000 3
Condensed Statements of Operations for the periods ended June 30, 2001 and
June 30, 2000 4
Condensed Statements of Cash Flows for the periods ended June 30, 2001 and
June 30, 2000 5
Notes to Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
PART II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
2001 2000
--------------------- ---------------------
Assets (Unaudited)
Current assets:
Cash $ 307 $ 5,091
Cash-restricted.............................................. 623 494
Accounts receivable, net..................................... 16,109 10,575
Inventories, net............................................. 31,366 37,462
Prepaid expenses and other................................... 9,280 8,825
--------------------- ---------------------
Total current assets..................................... 57,685 62,447
Notes receivable................................................ 21,280 10,208
Property, plant and equipment, net.............................. 51,023 53,857
Goodwill, net................................................... 56,442 57,327
Debt issuance costs, net........................................ 9,329 10,583
Other assets.................................................... 15,961 18,335
--------------------- ---------------------
Total assets............................................. $ 211,720 $ 212,757
===================== =====================
Liabilities and Members' Deficit
Current liabilities:
Current portion of long-term debt............................ $ 1,074 $ 1,036
Accounts payable............................................. 14,260 8,755
Finance program obligation................................... 532 3,121
Revolving credit facility.................................... 10,000 12,000
Other current liabilities.................................... 17,888 18,466
--------------------- ---------------------
Total current liabilities................................ 43,754 43,378
Long-term debt:
Senior credit facility....................................... 198,000 198,500
Senior subordinated notes.................................... 110,000 110,000
Junior subordinated note..................................... 15,615 14,343
Other long-term debt......................................... 696 726
Other long-term liabilities..................................... 1,634 1,671
--------------------- ---------------------
Total liabilities........................................ 369,699 368,618
Mandatorily redeemable preferred equity......................... 6,000 6,000
Members' deficit................................................ (163,979) (161,861)
--------------------- ---------------------
Total liabilities and members' deficit................... $ 211,720 $ 212,757
===================== =====================
3
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended Six Months Ended
------------------------------------ -----------------------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
----------------- ----------------- ---------------- ----------------
(Unaudited) (Unaudited)
Net revenues:
Commercial laundry........................... $ 59,534 $ 66,856 $ 112,709 $ 123,994
Service parts................................ 8,612 9,057 18,103 18,233
----------------- ----------------- ---------------- ----------------
68,146 75,913 130,812 142,227
Cost of sales..................................... 51,184 55,325 97,826 104,472
----------------- ----------------- ---------------- ----------------
Gross profit...................................... 16,962 20,588 32,986 37,755
----------------- ----------------- ---------------- ----------------
Selling, general and administrative expense....... 7,619 10,126 15,090 19,258
----------------- ----------------- ---------------- ----------------
Operating income........................... 9,343 10,462 17,896 18,497
Interest expense.................................. 8,536 8,605 18,209 18,245
Other income (expense), net....................... 34 (111) 80 (108)
----------------- ----------------- ---------------- ----------------
Income (loss) before taxes................. 841 1,746 (233) 144
Provision for income taxes........................ 22 20 22 20
----------------- ----------------- ---------------- ----------------
Net income (loss) before cumulative effect of
accounting change........................ 819 1,726 (255) 124
Cumulative effect of change in accounting principle 2,043 - 2,043 -
----------------- ----------------- ---------------- ----------------
Net income (loss).......................... $ (1,224) $ 1,726 $ (2,298) $ 124
================= ================ ================ ================
4
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
---------------------------------
June 30, June 30,
2001 2000
-------------- --------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) before cumulative effect of accounting change................... $ (255) $ 124
Adjustments to reconcile net income (loss) before cumulative effect of
accounting change provided by operating activities; excluding
the effects of the acquisition opening balance sheet:
Depreciation and amortization............................................... 8,390 8,681
Non-cash interest........................................................... 2,742 1,074
(Gain) loss on sale of property, plant and equipment........................ (80) 108
Changes in assets and liabilities:
Accounts and notes receivable............................................ (16,602) 4,373
Inventories.............................................................. 6,096 (6,047)
Other assets............................................................. (823) (3,467)
Accounts payable......................................................... 5,505 821
Finance program obligation............................................... (2,718) (357)
Other liabilities........................................................ (1,561) (637)
-------------- --------------
Net cash provided by operating activities................................... 694 4,673
-------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment........................................ (3,141) (2,508)
Acquisition of business........................................................... - (13,399)
Proceeds (loss) on disposal of property, plant and equipment..................... 171 (43)
-------------- --------------
Net cash used in investing activities....................................... (2,970) (15,950)
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Cash flows from financing activities:
Net principal payments on long-term debt.......................................... (508) -
Net increase/(decrease) from revolving line of credit borrowings................. (2,000) 15,000
Distribution to Raytheon and related transaction costs............................ - (5,920)
-------------- --------------
Net cash provided by (used in) financing activities......................... (2,508) 9,080
-------------- --------------
Decrease in cash (4,784) (2,197)
Cash at beginning of period............................................................ 5,091 3,028
-------------- --------------
Cash at end of period.................................................................. $ 307 $ 831
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................ $ 14,528 $ 16,001
5
Notes to Unaudited Condensed Financial Statements
NOTE 1. BASIS OF PRESENTATION
The unaudited financial statements as of June 30, 2001 and for the periods
ended June 30, 2001 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.
Effective April 1, 2001, the Company adopted the provisions of Emerging
Issues Task Force (EITF) Issue No. 99-20 "Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets". In accordance with the provisions of EITF 99-20, the Company
recognized an approximate $2.0 million charge upon adoption and approximately
$0.4 million of interest income related to its retained interests in its
securitization transactions. The $2.0 million effect of adoption reflects the
write-down of the Company's retained interests to fair value pursuant to the
impairment provisions of EITF 99-20.
During the second quarter of 2001, the Company also adopted 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." This 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. SFAS
140 was effective for the Company in the second quarter of 2001 and did not have
a material effect on the Company's financial statements. The Company adopted
the disclosure provisions of SFAS 140 during the fourth quarter of 2000.
The Company adopted Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities" on
January 1, 2001. In accordance with the transition provisions of FAS 133, the
Company recorded a cumulative-effect-type gain adjustment of $0.7 million in
other comprehensive income (loss) in members' deficit to recognize at fair value
its interest rate swap arrangements at January 1, 2001. The Company expects to
reclassify in earnings during 2001 approximately $0.6 million of the transition
adjustment that was recorded in other comprehensive income (loss). For the six
months ended June 30, 2001, the Company recognized a loss of $1.9 million
reflecting the changes in the fair values of its interest rate swaps and a gain
of $0.4 million for the reclassification of the transition adjustment as
discussed above. The resulting loss and gain were recorded in interest expense
in the statement of operations.
6
During the fourth quarter of 2000, the Company adopted the provisions of
the Emerging Issues Task Force ("EITF") Issue No. 00-10 "Accounting for Shipping
and Handling Fees and Costs." In accordance with the provisions of EITF 00-10,
certain shipping and handling fees and costs which the Company had previously
recorded on a net basis as a component of selling, general and administrative
expenses are reflected in net revenues and cost of goods sold as appropriate.
Prior year amounts have been reclassified in the accompanying statements of
operations to conform with the requirements of EITF 00-10.
During the fourth quarter of 2000, the Company adopted the provisions of
the Emerging Issues Task Force ("EITF") Issue No. 00-14 "Accounting for Certain
Sales Incentives." In accordance with the provisions of EITF 00-14, certain
sales incentive costs which the Company had previously recorded as a component
of selling, general and administrative expenses are reflected in net revenues.
Prior year amounts have been reclassified in the accompanying statements of
operations to conform with the requirements of EITF 00-14.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
This report on Form 10-Q for the periods ended June 30, 2001 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, 2000.
NOTE 2. 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):
June 30, December 31,
2001 2000
------------------- ------------------
(Unaudited)
Materials and purchased parts... $ 12,123 $ 13,250
Work in process................. 4,056 4,907
Finished goods.................. 17,837 21,895
Less: inventory reserves........ (2,650) (2,590)
------------------- ------------------
$ 31,366 $ 37,462
=================== ==================
NOTE 3. COMMITMENTS AND CONTINGENCIES
On February 8, 1999, the Company's prior owner, Raytheon Company
("Raytheon") commenced an arbitration under the Commercial Arbitration Rules of
the American Arbitration Association in Boston, Massachusetts against the
Company (the "Raytheon Arbitration"), seeking damages of $12.2 million plus
interest thereon and attorney's fees based on Raytheon's claim for
indemnification for a payment made to a third party allegedly on behalf of the
Company and Alliance Laundry Systems LLC
7
("Alliance Laundry"). The Company asserted in the Raytheon 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 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 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. After
considering certain price adjustments previously recorded in the financial
statements as of and for the period ended December 31, 1999, the Company
recorded $9.9 million plus related costs of $0.6 million in the first quarter
2000 financial statements as an adjustment of members' deficit. This treatment
is consistent with the original recording of the May 5, 1998 Agreement and Plan
of Merger which was accounted for as a recapitalization. The related net
interest, including amounts related to prior years, was included in interest
expense in the first quarter 2000 financial statements.
In September 1999, Juan Carlos Lopez pursued an arbitration against
Alliance Laundry Sociedad Anonima, ("ALSA") a foreign subsidiary of Alliance
Laundry Systems LLC, under UNCITRAL rules in Buenos Aires, Argentina, seeking in
pertinent part, to be paid fees arising from a Consulting Agreement, and
indemnification for loss of profits in Argentina and Brazil, plus damages for
pain and suffering. An arbitration was conducted by an "ad-hoc" panel (the
"Lopez Arbitration"), during which ALSA contended that Juan Carlos Lopez failed
to fulfill responsibilities under the Consulting Agreement and was therefore not
entitled to the fees, and that ALSA was not liable for loss of profits either in
Argentina or Brazil, nor for an indemnification for pain and suffering. On
April 3, 2001, the Lopez Arbitration was concluded. The arbitration panel
awarded Argentine Pesos $1,408,900 ($1.4 million U.S. dollars), plus nine
percent interest from September 6, 1999, plus ten percent over this principal
and interest amount as moral damages, plus certain fees and costs, while
rejecting other claims of plaintiff. The Company does not believe this
arbitration award will have a material affect on the Company's operations, in as
much as ALSA is a foreign subsidiary and is responsible for its own debts and
obligations. The remaining investment on the Company's financial statements is
not material as this operation was discontinued in the fourth quarter of 1998,
at which time the Company's investment in ALSA was written down to the value of
certain remaining assets. Under the terms of the award, any such payments would
have to be forthcoming from the assets of ALSA.
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 affect
on the Company's financial position, liquidity or results of operations.
NOTE 4. COMPREHENSIVE INCOME / (LOSS)
Comprehensive income/(loss) for the six months ended June 30, 2001 and
2000 consist of the following (in thousands):
8
Six Months Ended
---------------------------------
June 30, June 30,
2001 2000
---------------- --------------
Comprehensive income (loss):
Net income (loss) $ (2,298) $ 124
Other comprehensive income (loss)
Net unrealized holding loss on residual interests (332) -
Unrealized gain on interest rate swap 424 -
---------------- --------------
Comprehensive income (loss) $ (2,206) $ 124
================ ==============
NOTE 5. ACQUISITION OF AJAX PRODUCT LINE
On March 6, 2000, the Company completed the acquisition of selected assets
of American Laundry Machinery Inc.'s press 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 drycleaning 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. The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was approximately $11.1 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 was closed, and production
was transferred to the Company's Marianna, Florida manufacturing facility. As
such, a $1.4 million reserve was established in the acquisition opening balance
sheet 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 statements
of operations include only revenue 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 as well as presses and finishing
equipment. 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.
9
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, 2000.
RESULTS OF OPERATIONS
The following table sets forth the Company's historical net revenues for the
periods indicated:
Quarter Ended
----------------------------------------------
June 30, 2001 June 30, 2000
-------------------- --------------------
(Dollars in millions)
Net revenues:
Commercial laundry................................... $ 59.5 $ 66.8
Service parts........................................ 8.6 9.1
-------------------- --------------------
$ 68.1 $ 75.9
==================== ====================
The following table sets forth certain condensed historical financial data for
the Company expressed as a percentage of net revenues for each of the periods
indicated:
Quarter Ended
----------------------------------------------
June 30, 2001 June 30, 2000
-------------------- --------------------
Net revenues....................................................... 100.0% 100.0%
Cost of sales...................................................... 75.1% 72.9%
Gross profit....................................................... 24.9% 27.1%
Selling, general and administrative expense........................ 11.2% 13.3%
Operating income................................................... 13.7% 13.8%
Net income before cumulative effect of accounting change..... 1.2% 2.3%
Net revenues. Net revenues for the quarter ended June 30, 2001 decreased
$7.8 million, or 10.2%, to $68.1 million from $75.9 million for the quarter
ended June 30, 2000. This decrease was primarily attributable to lower
commercial laundry revenue of $7.3 million and lower service parts revenue of
$0.4 million. The decrease in commercial laundry revenue was due primarily to
lower North American equipment revenue of $5.0 million, and lower international
revenue of $1.9 million. The decrease in North American equipment revenue was
primarily due to lower revenue from laundromats and drycleaners.
Gross profit. Gross profit for the quarter ended June 30, 2001 decreased
$3.6 million, or 17.6%, to $17.0 million from $20.6 million for the quarter
ended June 30, 2000. This decrease was primarily attributable to the lower
sales volume as discussed above and manufacturing variances which occurred as a
result of efforts to reduce finished goods inventories. Gross profit as a
percentage of net revenues decreased to 24.9% for the quarter ended June 30,
2001 from 27.1% for the quarter ended June 30, 2000.
10
Selling, general and administrative expense. Selling, general and
administrative expenses for the quarter ended June 30, 2001 decreased $2.5
million, or 24.8%, to $7.6 million from $10.1 million for the quarter ended June
30, 2000. The decrease in selling, general and administrative expenses was
primarily due to lower sales and marketing expenses of $0.8 million, lower
independent development expenses of $0.6 million and a lower loss on sales of
qualified accounts receivable of $0.6 million. Selling, general and
administrative expenses as a percentage of net revenues decreased to 11.2% for
the quarter ended June 30, 2001 from 13.3% for the quarter ended June 30, 2000.
Operating income. As a result of the foregoing, operating income for the
quarter ended June 30, 2001 decreased $1.2 million, or 10.7%, to $9.3 million
from $10.5 million for the quarter ended June 30, 2000. Operating income as a
percentage of net revenues decreased to 13.7% for the quarter ended June 30,
2001 from 13.8% for the quarter ended June 30, 2000.
Interest expense. Interest expense for the quarter ended June 30, 2001
decreased $0.1 million, or 0.8%, to $8.5 million from $8.6 million for the
quarter ended June 30, 2000. While interest rates declined, the related
favorability was mostly offset by a $0.3 million non-cash adjustment to reflect
changes in the fair values of the Company's interest rate swap agreements.
Net income (loss) before cumulative effect of accounting change. As a
result of the foregoing, net income before cumulative effect of accounting
change for the quarter ended June 30, 2001 decreased $0.9 million, or 52.5%, to
$0.8 million from $1.7 million for the quarter ended June 30, 2000. Net income
before cumulative effect of accounting change as a percentage of net revenues
decreased to 1.2% for the quarter ended June 30, 2001 from 2.3% for the quarter
ended June 30, 2000.
Cumulative effect of accounting change. Effective April 1, 2001, the
Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No.
99-20 "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets". In accordance with the
impairment provisions of EITF 99-20, upon adoption the Company recognized a $2.0
million non-cash write-down of the Company's retained interests in its
securitization transactions. The impairment was primarily driven by faster
prepayment trends than had been anticipated at the time of sale.
Net income (loss). As a result of the foregoing, net income for the
quarter ended June 30, 2001 decreased $2.9 million to a net loss of $1.2 million
as compared to net income of $1.7 million for the quarter ended June 30, 2000.
Net income (loss) as a percentage of net revenues decreased to (1.8%) for the
quarter ended June 30, 2001 from 2.3% for the quarter ended June 30, 2000.
The following table sets forth the Company's historical net revenues for the
periods indicated:
11
Six Months Ended
-------------------------------------------
June 30, 2001 June 30, 2000
------------------- -------------------
(Dollars in millions)
Net revenues:
Commercial laundry................................................... $ 112.7 $ 124.0
Service parts........................................................ 18.1 18.2
------------------- -------------------
$ 130.8 $ 142.2
=================== ===================
The following table sets forth certain condensed historical financial data for
the Company expressed as a percentage of net revenues for each of the periods
indicated:
Six Months Ended
-------------------------------------------
June 30, 2001 June 30, 2000
------------------- -------------------
Net revenues............................................................... 100.0% 100.0%
Cost of sales.............................................................. 74.8% 73.5%
Gross profit............................................................... 25.2% 26.5%
Selling, general and administrative expense................................ 11.5% 13.5%
Operating income........................................................... 13.7% 13.0%
Net income (loss) before cumulative effect of accounting change...... (0.2%) 0.1%
Net revenues. Net revenues for the six months ended June 30, 2001
decreased $11.4 million, or 8.0%, to $130.8 million from $142.2 million for the
six months ended June 30, 2000. This decrease was primarily attributable to
lower commercial laundry revenue of $11.3 million. The decrease in commercial
laundry revenue was due primarily to lower North American equipment revenue of
$7.2 million, and lower international revenue of $3.7 million. The decrease in
North American equipment revenues was primarily due to lower revenues from
laundromats and on-premise laundries.
Gross profit. Gross profit for the six months ended June 30, 2001
decreased $4.8 million, or 12.6%, to $33.0 million from $37.8 million for the
six months ended June 30, 2000. This decrease was primarily attributable to the
lower sales volume as discussed above and manufacturing variances which occurred
as a result of efforts to reduce finished goods inventories. Gross profit as a
percentage of net revenues decreased to 25.2% for the six months ended June 30,
2001 from 26.5% for the six months ended June 30, 2000.
Selling, general and administrative expense. Selling, general and
administrative expenses for the six months ended June 30, 2001 decreased $4.2
million, or 21.6%, to $15.1 million from $19.3 million for the six months ended
June 30, 2000. The decrease in selling, general and administrative expenses was
primarily due to lower sales and marketing expenses of $0.9 million, lower
independent development expenses of $1.2 million, a lower loss on sales of
qualified accounts receivable of $0.8 million, and lower one-time expenses
related primarily to the relocation of Madisonville, Kentucky production lines
to Ripon, Wisconsin of $1.2 million. Selling, general and administrative
expenses as a
12
percentage of net revenues decreased to 11.5% for the six months ended June 30,
2001 from 13.5% for the six months ended June 30, 2000.
Operating income. As a result of the foregoing, operating income for the
six months ended June 30, 2001 decreased $0.6 million, or 3.2%, to $17.9 million
from $18.5 million for the six months ended June 30, 2000. Operating income as
a percentage of net revenues increased to 13.7% for the six months ended June
30, 2001 from 13.0% for the six months ended June 30, 2000.
Interest expense. Interest expense for the six months ended June 30, 2001
stayed consistent at $18.2 million for the six months ended June 30, 2001 and
2000. A one-time net interest expense in 2000 of $1.5 million associated with
the Raytheon Arbitration award was offset in 2001 by $1.5 million of non-cash
adjustments to reflect changes in the fair values of the Company's interest rate
swap agreements.
Net income (loss) before cumulative effect of accounting change. As a
result of the foregoing, net income before cumulative effect of accounting
change for the six months ended June 30, 2001 decreased $0.4 million to a net
loss before cumulative effect of accounting change of $0.3 million as compared
to net income before cumulative effect of accounting change of $0.1 million for
the six months ended June 30, 2000. Net income before cumulative effect of
accounting change as a percentage of net revenues decreased to (0.2%) for the
six months ended June 30, 2001 from 0.1% for the six months ended June 30, 2000.
Cumulative effect of accounting change. Effective April 1, 2001, the
Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No.
99-20 "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets". In accordance with the
impairment provisions of EITF 99-20, upon adoption the Company recognized a $2.0
million non-cash write-down of the Company's retained interests in its
securitization transactions. The impairment was primarily driven by faster
prepayment trends than had been anticipated at the time of sale.
Net income (loss). As a result of the foregoing, net income for the six
months ended June 30, 2001 decreased $2.4 million to a net loss of $2.3 million
as compared to net income of $0.1 million for the six months ended June 30,
2000. Net income (loss) as a percentage of net revenues decreased to (1.8%) for
the six months ended June 30, 2001 from 0.1% for the six months ended June 30,
2000.
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 2001 will not exceed $9.0 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.
13
As of June 30, 2001, the Company has $335.4 million of combined
indebtedness outstanding, consisting of outstanding debt of $199.0 million under
the Term Loan Facility and $10.0 million under the Revolving Credit Facility,
$110.0 million of senior subordinated notes and $15.6 million of junior
subordinated notes, and $0.8 million of borrowings pursuant to a Wisconsin
Community Development Block Grant Agreement. The Company had $54.0 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 $8.9 million at June 30, 2001
in additional indebtedness under the Revolving Credit Facility.
The $199.0 million Term Loan Facility amortizes quarterly and is repayable
in the following aggregate annual amounts:
Year Amount Due
---- --------------
(Dollars in
millions)
2001............... $ 0.5
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
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 six months ended June 30, 2001 of
$0.7 million was principally derived from changes in working capital which were
offset by lower sales of accounts
14
receivable under the Asset Backed Facility, and an increase in ineligible loans
under the Asset Backed Facility. The working capital investment in accounts
receivable at June 30, 2001 of $16.1 million increased $5.5 million as compared
to the balance of $10.6 million at December 31, 2000, which was primarily
attributable to selling less accounts receivable through Alliance Laundry
Receivable Warehouse ("ALRW"), a special-purpose single member limited liability
company. The working capital investment in notes receivable at June 30, 2001 of
$21.3 million increased $11.1 million as compared to the balance of $10.2
million at December 31, 2000, which was primarily attributable to the retained
interests on new loans sold through ALRW, and the increase in ineligible loans
under the Asset Backed Facility. The investment in inventory at June 30, 2001 of
$31.4 million decreased $6.1 million as compared to the balance of $37.5 million
at December 31, 2000. Accounts payable at June 30, 2001 of $14.3 million
increased $5.5 million as compared to the balance of $8.8 million at December
31, 2000.
Net cash provided by operating activities for the six months ended June 30,
2001 of $0.7 million decreased by $4.0 million as compared to the six months
ended June 30, 2000. This decrease was primarily due to higher net cash used in
changes in assets and liabilities of $4.8 million, offset by an increase in net
cash provided by operations (net income (loss) before cumulative effect of
accounting change adjusted for depreciation, amortization, non-cash interest and
gains on sale of property, plant and equipment) of $0.8 million for the six
months ended June 30, 2001 as compared to the six months ended June 30, 2000.
The net cash impact from changes in assets and liabilities for the six months
ended June 30, 2001 of $4.8 million was largely due to lower sales of accounts
receivable under the Asset Backed Facility, and the increase in ineligible loans
under the Asset Backed Facility, partially offset by the increase in accounts
payable and the decrease in inventory.
Capital Expenditures
The Company's capital expenditures for the six months ended June 30, 2001
and June 30, 2000 were $3.1 million and $2.5 million, respectively. Capital
spending in 2001 was principally oriented toward reducing manufacturing costs
and transitioning press and finishing equipment production to the Company's
Marianna, Florida manufacturing facility (see Note 5), while 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." The statements eliminate the
pooling-of-interest method of accounting for business combinations and require
that goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. SFAS 141 is effective for the Company
July 1, 2001. SFAS 142 will be effective for the Company January 1, 2002. The
Company is currently evaluating the impacts of SFAS 141 and 142.
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
15
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 3 - 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).
16
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Legal actions relating to Lopez Arbitration are described in Footnote 3 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. None.
(b) Reports on Form 8-K. None.
17
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 1st day of August 2001.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8-1-01
- --------------------------------- ---------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8-1-01
- --------------------------------- ---------------------
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 1st day of August 2001.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8-1-01
- --------------------------------- ---------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8-1-01
- --------------------------------- ---------------------
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 1st day of August 2001.
Signature Title Date
--------- ----- ----
/s/ Thomas L'Esperance Chairman and CEO 8-1-01
- --------------------------------- ---------------------
Thomas L'Esperance
/s/ Bruce P. Rounds Vice President and Chief Financial Officer 8-1-01
- --------------------------------- ---------------------
Bruce P. Rounds
18