UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Alliance Laundry Systems LLC
Index to Annual Report on Form 10-K
Year Ended December 31, 2001
Page
----
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING
INFORMATION ........................................ 3
PART I.
ITEM 1. BUSINESS .............................................. 3
ITEM 2. PROPERTIES ............................................14
ITEM 3. LEGAL PROCEEDINGS .....................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS ...............................17
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS .......................17
ITEM 6. SELECTED FINANCIAL DATA ...............................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ........................................34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...........36
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE .........................................69
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS ......................69
ITEM 11. EXECUTIVE COMPENSATION ................................71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .....................................73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........76
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K ................................78
INDEX TO EXHIBITS .....................................78
2
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
This Annual Report includes "forward-looking statements" which appear
in a number of places in this Annual Report and include statements regarding the
intent, belief or current expectations with respect to, among other things, the
ability to borrow funds under the Senior Credit Facility, the ability to
successfully implement operating strategies, including trends affecting the
business, financial condition and results of operations. All statements other
than statements of historical facts included in this Annual Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," and located
elsewhere herein regarding industry prospects and the Company's financial
position are forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, they can give no assurance that
such expectations will prove to have been correct.
PART I.
ITEM 1. BUSINESS
General
As used in this Annual Report, unless the context requires otherwise,
references to "Alliance" or the "Company" (i) with respect to periods prior to
the Merger (as defined below) refer to Alliance Laundry Holdings LLC (the
"Parent," formerly known as Raytheon Commercial Laundry LLC prior to the Merger)
and its predecessors and subsidiaries, (ii) with respect to periods subsequent
to the Merger, refer collectively to Alliance Laundry Systems LLC and its
subsidiaries and (iii) when used with regard to financial data refer to the
consolidated financial results of Alliance Laundry Holdings LLC and Alliance
Laundry Systems LLC. As used herein, the term "stand alone commercial laundry
equipment" refers to commercial laundry equipment excluding drycleaning
equipment and custom engineered, continuous process laundry systems and the term
"stand alone commercial laundry industry" includes laundromats, multi-housing
laundries and on-premise laundries and excludes drycleaners and continuous
process laundries.
Alliance 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 and Huebsch, the Company
produces a full line of commercial washing machines and dryers with load
capacities from 16 to 250 pounds. The Company believes it has had the leading
market share in the North American stand alone commercial laundry equipment
industry for the last five years and has increased its market share from
approximately 34% in 1996 to 38% in 2001. The Company attributes its industry
leading position to: (i) the quality, reliability and functionality of its
products; (ii) the breadth of its product offerings; (iii) its extensive
distributor network and strategic alliances with key customers; and (iv) its
investment in new product development and manufacturing capabilities. As a
result of its market leadership, the Company has an installed base of equipment
that it believes is the largest in the industry and that generates significant
recurring sales of replacement equipment and service parts. In addition to stand
alone commercial laundry equipment, the Company also offers presses and
finishing equipment used in the drycleaning segment under the Ajax name
(acquired March, 2000). Internationally, the Company has generated revenue of
$32.5 million, $35.5 million and $36.8 million in 2001, 2000 and 1999,
respectively. In addition, pursuant to an agreement which concluded September
17, 1999, the Company supplied consumer washing machines to Amana Company, L.P.
("Appliance
3
Co.") for sale at retail. For 2001, 2000 and 1999 the Company generated net
revenues of $254.5 million, $265.4 million and $314.4 million and EBITDA (as
defined in Item 6 -- Selected Financial Data) of $50.6 million, $46.0 million
and $51.0 million, respectively.
The Company believes it has developed the most extensive distribution
networks to each of the three distinct customer groups within the North American
stand alone commercial laundry equipment industry: (i) laundromats; (ii)
multi-housing laundries, consisting primarily of common laundry facilities in
apartment buildings, universities and military installations; and (iii)
on-premise laundries, consisting primarily of in-house laundry facilities in
hotels, hospitals, nursing homes and prisons. The Company estimates that in over
80% of the North American market its laundromat and on-premise laundry
distributors are either the number one or number two distributor for their
respective selling regions. In addition, the Company's in-house sales force has
developed superior relationships with leading route operators that own, install
and maintain commercial laundry equipment in multi-housing laundries, a critical
factor in enabling the Company to grow its market share. Internationally, the
Company sells its laundry equipment through distributors and to retailers.
With an investment of over $51.4 million since 1997, the Company has
substantially completed the development of many new products, the redesign of
existing products and the modernization of its manufacturing facilities in
Wisconsin and Florida. The Company believes its considerable investment in its
product line and manufacturing capabilities has strengthened and will continue
to enhance its market leadership position.
Corporate History
On May 5, 1998, pursuant to an Agreement and Plan of Merger ("Merger
Agreement") among Bain/RCL, L.L.C., a Delaware limited liability company ("Bain
LLC"), RCL Acquisitions LLC ("MergeCo"), the Parent and Raytheon Company
("Raytheon"), MergeCo was merged with and into the Parent (the "Merger") with
the Parent being the surviving entity. Prior to the Merger, Raytheon owned 100%
of the equity securities of the Parent, and Bain LLC, the BRS Investors (as
defined below), and certain members of senior management (the "Management
Investors") of the Parent owned 100% of the equity securities of MergeCo. As a
result of the Merger, Bain LLC, the BRS Investors and the Management Investors
acquired 93% of the common equity of the Parent. Simultaneous with the
consummation of the Merger, the Parent contributed substantially all of its
assets and liabilities to the Company. Immediately after the consummation of the
Merger, the Company became the only direct subsidiary of the Parent and
succeeded to substantially all of the assets and liabilities of the Parent.
Alliance Laundry Corporation ("ALC") is a wholly owned subsidiary of
Alliance that was incorporated for the sole purpose of serving as a co-issuer of
the Series B 9 5/8% Senior Subordinated Notes (the "Notes") in order to
facilitate the Note offering. ALC does not have any substantial operations or
assets of any kind and will not have any revenue.
Company Strengths
Market Leader with Significant Installed Base. The Company believes it
led the North American industry in sales to all customer groups, with
approximately 38% market share overall in 2001. As a result of its leading
market position, the Company has achieved superior brand recognition and
extensive distribution capabilities. The Company's market position has also
allowed it to establish what it believes to be the largest installed base in its
industry, which generates a significant level of recurring sales of replacement
equipment and service parts and provides a platform for revenue growth.
4
Industry-leading Product Offering. The Company believes its product
line leads the industry in reliability, breadth of offerings, functionality and
advanced features. Its development team of more than 80 engineers and technical
personnel, together with its marketing and sales personnel, work with the
Company's major customers to redesign and enhance the Company's products to
better meet customer needs. For example, the Company's new products emphasize
efficiency and new technology, facilitating ease of use as well as improving
performance and reliability. In addition, the Company believes it is the only
manufacturer in North America to produce a full product line (including topload
washers, dryers, frontload washers, washer-extractors and tumbler dryers for all
customer groups), thereby providing customers with a single source for all their
stand alone commercial laundry equipment needs.
Extensive and Loyal Distribution Networks. The Company believes it has
developed the industry's most extensive North American distribution networks.
The Company estimates its distributors are either the number one or number two
distributor for their respective selling regions in over 80% of the North
American market. Most of the Company's distributors have been customers for over
ten years. In addition, through its in-house sales force the Company has
developed excellent relationships with industry-leading route operators, who are
direct customers of the Company. The Company believes its strong relationships
with its customers are based, in part, on the quality, breadth and performance
of its products and on its comprehensive value-added services.
Leading National Brands. The Company markets and sells its products
under the widely recognized brand names Speed Queen, UniMac, Huebsch and Ajax. A
survey commissioned by the Company in 1993 of more than 1,000 commercial laundry
distributors and end-users ranked Speed Queen as the leader in terms of brand
awareness and as an industry leader for quality and reliability. In the same
study, UniMac was ranked a leading brand in the stand alone on-premise laundry
industry; Huebsch and Speed Queen ranked first and second, respectively, in
customer satisfaction. In addition, in a survey of the drycleaning industry
commissioned in 1996 of more than 1,000 drycleaners, Ajax ranked as the leader
in terms of brand awareness.
Strong and Incentivized Management Team. Led by Chief Executive Officer
Thomas L'Esperance, the Company believes it has assembled the strongest
management team in the commercial laundry equipment industry. The Company's
seven executive officers have over 104 years of combined experience in the
commercial laundry equipment and appliance industries. This management team has
executed numerous strategic initiatives, including: (i) ongoing refinements to
its product offerings; (ii) the development of strategic alliances with key
customers; (iii) the implementation of manufacturing cost reduction and quality
improvement programs; and (iv) the acquisitions and successful integration of
the commercial washer-extractor business of the UniMac Company ("UniMac") and
the press and finishing equipment business of American Laundry Machinery Inc.
("Ajax"). In addition, management owns approximately 17% of the Company's common
units on a diluted basis.
Business Strategy
The Company's strategy is to achieve profitable growth by offering a
full line of the most reliable and functional stand alone commercial laundry
equipment and pressing and finishing equipment, along with comprehensive
value-added services. The key elements of the Company's strategy are as follows:
5
Offer Full Line of Superior Products and Services. The Company seeks to
satisfy all of a customer's stand alone commercial laundry equipment and
pressing and finishing equipment needs with its full line of products and
services. The Company seeks to compete with other manufacturers in the
commercial laundry equipment industry by introducing new products, features and
value-added services tailored to meet evolving customer requirements. In 1999,
for example, the Company introduced a new line of small-chassis frontload
washers, offering multi-housing laundries increased water and energy efficiency.
In addition, in late 2000, the Company introduced its NetMasterTM system of
technologically advanced laundry products offering multi-housing and laundromat
operators more flexibility and accountability. Now operators can program vend
prices, cycle times, rinse options and cycle selections from a remote site while
auditing machine operation. As a value added service to its customers, in 2001
the Company implemented automated PC web based business processes and electronic
delivery of marketing and technical service communications. The development and
ongoing support of the Company's Internet sites as well as the
password-protected distributor sites are internally managed to enable quick
response times and flexibility. International sites for customers, Electronic
Customer Response Service, frequently asked technical questions and the addition
of searchable marketing and technical communications have been added to the
Company's web sites in 2001.
Develop and Strengthen Alliances with Key Customers. The Company has
developed and will continue to pursue long-term alliances and multi-year supply
agreements with key customers. For example, the Company is the predominant
supplier of new laundry equipment to Coinmach Corporation ("Coinmach"), the
largest and fastest growing operator of multi-housing laundries in North
America.
Continuous Improvement in Manufacturing Operations. The Company seeks
to continuously enhance its product quality and reduce costs through refinements
to manufacturing processes. The Company achieves such improvements through
collaboration among key customers, suppliers and its engineering and marketing
personnel. Since 1995, the Company has progressively reduced manufacturing costs
through improvements in raw material usage and labor efficiency, among other
factors. In 2000 and 2001, the Company completed the consolidation from four
manufacturing facilities to two remaining locations; Ripon, Wisconsin and
Marianna, Florida. This consolidation yielded benefits in manufacturing
efficiencies, overhead reduction and asset management. In 2000, the Company
partnered with FLOW VISION Consultants to implement the Toyota Production System
on one of its product lines. Additional product lines will be converted to this
production method in 2002. Benefits derived from these process changes have
shown significant gains in assembly efficiency, inventory reductions and quality
improvement.
Industry Overview
The Company estimates that North American stand alone commercial
laundry equipment sales were approximately $452.0 million in 2001, of which the
Company's equipment revenue represented approximately $173.4 million. The
Company believes that North American sales of stand alone commercial laundry
equipment have grown at a compound annual rate of approximately 1.0% since 1993.
North American commercial laundry equipment sales historically have been
relatively insulated from business and economic cycles, given that economic
conditions do not tend to affect the frequency of use, or replacement, of
laundry equipment. Management believes industry growth will be sustained by
continued population expansion and by customers increasingly "trading up" to
equipment with enhanced functionality, raising average selling prices.
Manufacturers of stand alone commercial laundry equipment compete on
their ability to satisfy several customer criteria, including: (i) equipment
reliability and durability; (ii) performance criteria
6
such as water and energy efficiency, load capacity and ease of use; (iii)
availability of innovative technologies such as cashless payment systems and
advanced electronic controls, which improve ease of use and management audit
capabilities; and (iv) supply of value-added services such as rapid spare parts
delivery, equipment financing and computer aided assistance in the design of
commercial laundries.
Outside of the stand alone commercial laundry equipment market, the
Company does not participate in manufacturing or selling commercial custom
engineered, continuous process laundry systems. Until its March 6, 2000
acquisition of the Ajax press and finishing equipment line (see Note 3 --
Acquisition of Ajax Product Line), the Company offered only shirt laundering,
wetcleaning and drying equipment to the commercial drycleaning equipment market.
The drycleaning and continuous process laundry system segments are distinct from
the stand alone commercial laundry equipment segment, employing different
technologies and serving different customer groups.
Customer Categories. Each of the stand alone commercial laundry
equipment industry's three primary customer groups, laundromat operators,
multi-housing laundry operators and on-premise laundry operators, is served
through a different distribution channel and has different requirements with
respect to equipment load capacity, performance and sophistication. For example,
equipment purchased by multi-housing route operators is most similar to consumer
machines sold at retail, while equipment purchased by laundromats and on-premise
laundries has greater durability, delivers increased capacity and provides
superior cleaning and drying capabilities.
Laundromats. Management estimates that laundromats accounted for
approximately 51% of North American stand alone commercial laundry equipment
sales in 2001. These approximately 35,000 facilities typically provide walk-in,
self-service washing and drying. Laundromats primarily purchase commercial
topload washers, washer-extractors and tumblers. Washer-extractors and tumblers
are larger-capacity, higher-performance washing machines and dryers,
respectively. Laundromats have historically been owned and operated by sole
proprietors. Laundromat owners typically rely on distributors to provide
equipment, technical and repair support and broader business services. For
example, distributors may host seminars for potential laundry proprietors on
laundromat investment opportunities. Independent proprietors also look to
distributors and manufacturers for equipment financing. Given the laundromat
owner's reliance on the services of its local distributor, the Company believes
that a strong distributor network in local markets can differentiate
manufacturers in serving this customer group.
In addition to distributor relationships, the Company believes
laundromat owners choose among different manufacturers' products based on, among
other things: (i) availability of equipment financing; (ii) reputation,
reliability and ease and cost of repair; (iii) the water and energy efficiency
of the products (approximately 25% of annual gross wash and dry revenue of
laundromats is consumed by utility costs, according to the Coin Laundry
Association ("CLA")); and (iv) the efficient use of physical space in the store
(since 18% to 27% of annual gross revenue of laundromats is expended for rent
according to the American Coin-Op Magazine 2001 "Rent Survey").
Multi-housing Laundries. Management believes that multi-housing
laundries accounted for approximately 28% of North American stand alone
commercial laundry equipment sales in 2001. These laundries include common
laundry facilities in multi-family apartment and condominium complexes,
universities and military installations.
Most products sold to multi-housing laundries are small-chassis topload
and frontload washers and small-chassis dryers similar in appearance to those
sold at retail to the consumer market but offering a variety of enhanced
durability and performance features. For example, topload washers sold to multi-
7
housing laundries typically last up to 12,000 cycles, approximately twice as
long as the expected life of a consumer machine.
Multi-housing laundries are managed primarily by route operators who
purchase, install and service the equipment under contract with building
management. Route operators pay rent (which may include a portion of the
laundry's revenue) to building management. Route operators are typically direct
customers of commercial laundry equipment manufacturers such as the Company and
tend to maintain their own service and technical staffs. Route operators compete
for long-term contracts on the basis of, among other things: (i) the reputation
and durability of their equipment; (ii) the level of maintenance and quality of
repair service; (iii) the ability of building management to audit laundry
equipment revenue; and (iv) the water and energy efficiency of products.
The Company believes reliability and durability are key criteria for
route operators in selecting equipment, as they seek to minimize the cost of
repairs. The Company also believes route operators prefer water and energy
efficient equipment that offers enhanced electronic monitoring and tracking
features demanded by building management companies. Given their investments in
spare parts inventories and in technician training, route operators are
reluctant to change equipment suppliers. Therefore, the Company believes an
installed base gives a commercial laundry equipment manufacturer a competitive
advantage.
On-premise Laundries. Management believes that on-premise laundries
accounted for approximately 21% of North American stand alone commercial laundry
equipment sales in 2001. On-premise commercial laundries are located at a wide
variety of businesses that wash or process textiles or laundry in large
quantities, such as hotels and motels, hospitals, nursing homes, sports
facilities, car washes and prisons.
Most products sold to on-premise laundries are washer-extractors and
tumbler dryers, primarily in larger capacities up to 250 pounds. These machines
process significantly larger loads of textiles and garments in shorter times
than equipment typically sold to laundromats or multi-housing customer groups.
Effective and rapid washing (i.e., reduced cycle time) of hotel sheets, for
example, reduces both a hotel's linen requirements and labor costs of washing
and drying linens. The Company believes that in a typical hotel on-premise
laundry, up to 50% of the cost of operations is labor.
On-premise laundries typically purchase equipment through a distributor
who provides a range of selling and repair services on behalf of manufacturers.
As with laundromats, the Company believes a strong distributor network is a
critical element of sales success. On-premise laundries select their equipment
based on the availability of specified product features, including, among other
things: (i) reputation and reliability of products; (ii) load capacity and cycle
time; (iii) water and energy efficiency; and (iv) ease of use. In addition, the
availability of technical support and service is important in an on-premise
laundry operator's selection of an equipment supplier.
Drycleaning. Management estimates that North American drycleaning
equipment sales were approximately $179.0 million in 2001. The approximately
34,000 drycleaners in North America provide full-service drycleaning and
wetcleaning for households. This service includes stain removal, pressing,
finishing and packaging. In addition, many commercial drycleaners provide
laundry services for water-washable garments, rug cleaning services, and minor
alteration and repair services.
Drycleaners primarily purchase drycleaning machines, presses and
finishing equipment, washer-extractors and small-chassis topload washers and
dryers. Drycleaners primarily include independently operated neighborhood
cleaners, franchises and specialty cleaners. Drycleaners typically rely on
8
distributors and chemical supply companies to provide equipment, detergents,
stain removers, technical support and broader business services. For example,
distributors and chemical suppliers provide training seminars on the proper use
of equipment and chemicals for cleaning, stain removal and garment finishing.
As with laundromats and on-premise laundries, drycleaners typically
purchase equipment through a distributor who can provide service parts, repair
service and technical support. Drycleaners select their equipment based on the
availability of specified product features, including, among other things: (i)
reputation and reliability; (ii) load capacity and cycle time; (iii) ease of use
and (iv) solvent and energy efficiency.
Trends and Characteristics
Growth Drivers. The Company believes that continued population
expansion in North America has and will drive steady demand for garment and
textile laundering by all customer groups purchasing commercial laundry
equipment. The Company believes population growth has historically supported
replacement and some modest growth in the installed base of commercial laundry
equipment. According to the U.S. Census Bureau, the United States population has
grown at a compound annual rate of 1.2% since 1990 and is projected to grow at
approximately 0.9% per year on average over the next ten years.
In addition, customers are increasingly "trading up" to equipment with
enhanced functionality, raising average selling prices. For example, the larger
national and regional customers in the laundromat and multi-housing customer
groups are more likely to take advantage of recently available electronic
features, which the Company believes provide such customers with a competitive
advantage. Moreover, customers are moving towards equipment with increased water
and energy efficiency as the result of government and consumer pressure and a
focus on operating cost containment.
Limited Cyclicality. North American commercial laundry equipment sales
historically have been relatively insulated from business and economic cycles
because economic conditions do not tend to affect the frequency of use, or
replacement, of laundry equipment. Management believes industry growth will be
sustained by continued population expansion and by customers increasingly
"trading up" to equipment with enhanced functionality, raising average selling
prices. Under all economic conditions, owners of commercial laundries typically
delay equipment replacement until such equipment can no longer be economically
repaired or until competition forces the owner to upgrade such equipment to
provide improved appearance or functionality. The economic life of such
equipment and thus timing of replacement of such equipment are also generally
unaffected by economic conditions; the economic life of stand alone commercial
laundry equipment is generally 7-14 years.
International Growth. The Company anticipates growth in demand for
commercial laundry equipment in international markets, especially in developing
countries where laundry needs are far less sophisticated than in North America.
Reducing Customer Operating Costs. The time required to wash and dry a
given load of laundry (i.e., cycle time) has a significant impact on the
economics of a commercial laundry operation. Accordingly, commercial laundry
equipment manufacturers produce equipment that provides progressively shorter
cycle times through improved technology and product innovation. This shorter
cycle time decreases labor costs and increases the volume of laundry that can be
processed in a given time period. Examples of methods of reducing cycle time
are: (i) shortening fill, drain and wash times;
9
and (ii) decreasing water extraction time by increasing spin rate. Product
enhancements in 2000 increased the top load washer's spin speed to the fastest
in the commercial laundry industry with its 710 spin speed. The higher spin
speed substantially increases water extraction and thereby lowers moisture
retention. For coin store owners the lower moisture retention results in reduced
energy bills for clothes drying operations. Overall, this improvement provides
faster drying times, lower energy costs and the potential for increased cycles
per day.
Products
Overview. The Company offers a full line of stand alone commercial
laundry washers and dryers, with service parts and value-added services
supporting its products, under the Speed Queen, Huebsch and UniMac brands
throughout North America and in over sixty foreign countries. Additionally, the
Company offers presses and finishing equipment under the Ajax brand. The
Company's products range from small washers and dryers primarily for use in
laundromats and multi-housing laundry rooms to large laundry equipment with load
capacities of up to 250 pounds used in on-premise laundries. The Company also
benefits from domestic and international sales of service parts for its large
installed base of commercial laundry equipment. Internationally, the Company
also sells laundry equipment under private label brands.
Washers. Washers represented approximately 48% of 2001 net revenues and
include washer-extractors, topload washers and frontload washers.
Washer-Extractors. The Company manufactures washer-extractors, its
largest washer products, to process from 18 to 250 pounds of laundry per load.
Washer-extractors extract water from laundry with spin speeds that produce over
300g's of centrifugal force, thereby reducing the time and energy costs for the
drying cycle. Sold primarily under the Speed Queen, UniMac and Huebsch brands,
these products represented approximately 26% of 2001 net revenues.
Washer-extractors that process up to 80 pounds of laundry per load are sold to
laundromats, and washer-extractors that process up to 250 pounds of laundry per
load are sold to on-premises laundries. Washer-extractors are built to be
extremely durable to handle the enormous G-force generated by spinning several
hundred pounds of water-soaked laundry. Also, the equipment is in constant use
and must be durable to avoid a high cost of failure to the user.
In late 1998 the Company introduced its new Water Saving System line of
washer-extractors for on-premise laundries. This new line of washer-extractors
is designed to obtain up to 32% reduction in water consumption for some
applications. The system will also provide substantial reduction in sewer costs,
detergent and energy usage for some operators.
In 2001, the Company introduced a new 40-lb. wash load
washer-extractor. The new washer replaced the Company's 35-lb. wash load
capacity unit thereby offering customers additional wash capacity and an extra
large opening for easy loading and unloading of clothes.
Topload Washers. Topload washers are small-chassis washers with the
capability to process up to 18 pounds of laundry per load with spin speeds that
produce up to 150g's. Sold primarily to multi-housing laundries and laundromats
under the Speed Queen and Huebsch brands, these products represented
approximately 18% of 2001 net revenues.
10
In 1997, the Company introduced its Automatic Balance System ("ABS"),
which it believes provides the industry-leading out-of-balance handling. New
topload washers with ABS deliver higher G-force, reducing moisture left in the
laundry, thereby reducing drying time and energy usage.
In late 2000, the Company introduced its NetMasterTM system of
technologically advanced laundry products offering multi-housing and laundromat
operators more business flexibility and accountability. Now operators can
program vend prices, cycle times, rinse options and cycle selections from a
remote site while auditing machine operation.
Frontload Washers. In 1999, the Company introduced a new small-chassis
frontload washer with the capability to process up to 18 pounds of laundry per
load. Frontload washers are sold under the Speed Queen and Huebsch brands to
laundromat and multi-housing customers. The frontload washer's advanced design
uses 28% less water compared to commercial topload washers. Furthermore,
decreased usage of hot water and superior water extraction in the high G-force
spin cycle reduce energy consumption. This new frontload washer is available
with front controls (front accessibility complies with Americans with
Disabilities Act regulations) and can be purchased with a matching small-chassis
dryer (single or stacked).
The Company's frontload washers display the government's ENERGY STAR(R)
mark. The ENERGY STAR label was designed by the government to denote products
that use less energy, thereby saving money on utility bills while helping to
protect the environment. Along with its 18lb. wash load capacity, the Company's
frontload washer has a spin speed of over 1000 rpm, providing significant
savings in the energy required to dry wash loads.
In 2001, the Company introduced a new commercial stacked frontload
washer and dryer which takes up half the floor space compared to a conventional
washer and dryer. The pair saves on energy and water and received the
government's ENERGY STAR(R) mark. The new product is offered with either coin or
card activation.
Dryers. Dryers represented approximately 32% of 2001 net revenues and
include tumbler dryers, standard dryers and stacked dryers. The Company also
sells a new line of stacked combination frontload washers and dryers.
Tumbler Dryers. Tumblers are very large dryers with the capability of
drying up to 170 pounds of laundry per load. Tumblers represented approximately
21% of 2001 net revenues. Tumblers are sold primarily to laundromats and
on-premise laundries under all four of the Company's brands. The Company's new
tumbler dryer design, introduced in October 1997, features commonality of
internal components between models, reducing parts inventory and improving
serviceability. These units have 33% to 50% fewer moving parts as compared to
their previous design. In addition, these tumblers require 20% less drying time
as compared to the previous design and provides the fastest drying time in the
industry.
Standard Dryers. Standard dryers are small capacity dryers with the
capability to process up to 18 pounds of laundry per load. Sold under the Speed
Queen and Huebsch brands, standard dryers (including stacked dryers) represented
approximately 11% of 2001 net revenues. In 1997, the Company introduced its
newly designed standard dryer, which serves the multi-housing and international
consumer markets. The Company believes the dryer's increased capacity, measuring
7.1 cubic feet, is among the largest in the industry. The size of the loading
door opening has also been increased to improve loading
11
accessibility. The Company believes that the increased drying capacity and
enhanced operational convenience that these improvements provide are critical
factors to a customer's product satisfaction.
Stacked Dryers and Stacked Frontload Washers and Dryers. To enable its
multi-housing customers to conserve valuable floor space, the Company offers a
stacked unit consisting of two 18 pound standard dryers and offers a stacked
combination unit consisting of an 18 pound frontload washer paired with an 18
pound standard dryer.
Presses and Finishing Equipment. Such sales accounted for approximately
3% of 2001 net revenues. Presses and finishing equipment are sold primarily to
commercial drycleaners and industrial cleaning plants under the Ajax brand. The
Company offers a broad array of presses and finishing equipment such as cabinet
presses for shirt finishing; pants and linen presses; collar and cuff presses;
shirt sleevers; steam-air garment finishers; and utility presses and
accessories.
Service Parts. The Company benefits from the recurring sales of service
parts to its large installed base. Such sales accounted for approximately 14% of
2001 net revenues. The Company offers immediate response service whereby many of
its parts are available on a 24-hour turnaround for emergency repair parts
orders.
Other Value-Added Services. The Company believes its customers attach
significant importance to the value-added services it provides. The Company
offers services that it believes are significant drivers of high customer
satisfaction, such as equipment financing (which accounted for approximately 3%
of 2001 net revenues), laundromat site selection assistance, investment seminar
training materials, computer-aided commercial laundry room design, sales and
service training for distributors, technical support and service training
material. In addition, the Company believes it offers an unmatched range of
complementary customer services and support, including toll-free technical
support and on-call installation and repair service through its highly trained
distributors, and web sites which provide information on all Alliance products
and services including downloadable product literature, installation guides and
site lay-out tools. The Company believes its extensive service capabilities, in
addition to the dependability and functionality of its products, will continue
to differentiate its products from the competition.
Customers
The Company's customers include more than: (i) 100 distributors to
laundromats; (ii) 100 distributors to on-premise laundries; (iii) 45
distributors to drycleaners; (iv) 80 route operators serving multi-housing
laundries; and (v) 130 international distributors serving more than 70
countries.
The Company's top ten equipment customers accounted for approximately
34% of 2001 net revenues. Coinmach, the largest multi-housing route operator in
the United States, PWS Investments, Inc. and Metropolitan Laundry Machinery Co.,
Inc. were the Company's largest customers, the largest of which, Coinmach,
accounted for 15.7% of 2001 net revenues.
Sales and Marketing
Sales Force. The Company's sales force of 34 is structured to serve the
needs of each customer group. In addition, the Company, through a marketing
staff of approximately 37 professionals, provides customers and distributors
with a wide range of value-added services such as advertising materials,
training materials, computer-aided commercial laundry room design, product
development and technical service support.
12
Marketing Programs. The Company supports its sales force and
distributors through a balanced marketing program of advertising and industry
trade shows. Advertising expenses totaled $3.2 million in 2001 and included a
variety of forms, from print and electronic media to direct mail. In addition,
Company representatives attended over 40 trade shows in 2001 to introduce new
products, maintain contact with customers, develop new customer relationships
and generate sales leads for the Company's products.
Equipment Financing. The Company, through its special-purpose financing
subsidiaries, offers an extensive off-balance sheet equipment financing program
to end-users, primarily laundromat owners, to assist in their purchases of new
equipment. Typical terms include 2-9 year loans with an average principal amount
of approximately $85,000. Management believes that the Company's off-balance
sheet equipment financing program is among the industry's most comprehensive and
that the program is an important component of its marketing activities. In
addition, this service provides the Company with an additional source of
recurring income.
The financing program is structured to minimize risk of loss. The
Company adheres to strict underwriting procedures, including comprehensive
applicant credit analysis (generally including credit bureau, bank, trade and
landlord references, site analysis including demographics of the location and
multiple year pro-forma cash flow projections), the receipt of collateral and
distributor assistance in remarketing collateral in the event of default. As a
result of these risk management tools, losses from the program have been
minimal. Net write-offs for equipment loans have averaged less than 1% for the
five year period ended December 31, 2001, despite incurring net write-offs of
approximately 2% for the year ended December 31, 2001.
Research and Development
The Company's engineering organization is staffed with over 80
engineers and technical support staff. The Company's recent research and
development efforts have focused primarily on continuous improvement in the
reliability, performance, capacity, energy and water conservation, sound levels
and regulatory compliance of its commercial laundry equipment. The Company's
engineers and technical personnel, together with its marketing and sales
personnel, collaborate with the Company's major customers to redesign and
enhance its products to better meet customer needs. The cumulative research and
development spending exceeded $34.3 million for the period 1998 through 2001.
The Company has developed numerous proprietary innovations that the Company uses
in select products. Over the past three years, the Company has rolled out its
MicroMaster line of electronically controlled tumblers and washer-extractors
under the Speed Queen brand as well as its CardMateTM Plus and NetMasterTM debit
card cashless systems designed to replace coin operated equipment. The Company
believes this array of new products allows it to continue to be an innovative
leader in electronic controls equipment. The Company believes improvements made
to existing products and the introduction of new products have supported the
Company's market leadership position.
Competition
Within the North American stand alone commercial laundry equipment
industry, the Company competes with several large competitors. The Company
believes, however, it is the only participant in the North American stand alone
commercial laundry equipment industry to serve significantly all three customer
groups (laundromats, multi-housing laundries and on-premise laundries) with a
full line of topload washers, washer-extractors, frontload washers, tumbler
dryers and standard dryers. With respect to laundromats, the Company's principal
competitors include Wascomat (the exclusive North American
13
distributor of Electrolux AB products), Maytag Corporation and The Dexter
Company. In multi-housing, the principal competitors include Maytag Corporation
and Whirlpool Corporation. In on-premise laundry, the Company competes primarily
with Pellerin Milnor Corporation, American Dryer Corporation and Wascomat. The
Company does not believe that a significant new competitor has entered the North
American stand alone commercial laundry equipment industry during the last ten
years, however there can be no assurance that significant new competitors or
existing competitors will not compete for the business of different customer
groups in the future.
Within the drycleaning industry, the Company competes primarily with
other pressing and finishing equipment and shirt laundering equipment
manufacturers. With respect to pressing and finishing equipment, the Company's
principal competitors include Unipress Corporation, Forenta, L.P. and Cissell
Manufacturing Company (a subsidiary of Laundry Systems Group N.V.). With respect
to shirt laundering equipment (primarily washer-extractors) the Company's
principal competitors include Wascomat and Pellerin Milnor Corporation.
Manufacturing
The Company owns and operates two manufacturing facilities located in
Wisconsin and Florida with an aggregate of more than 830,000 square feet. The
facilities are organized to focus on specific product segments, although each
facility serves multiple customer groups. The Ripon plant presently produces the
Company's small-chassis topload washers, frontload washers and small chassis
dryers, and began producing the Company's tumbler dryers, beginning in the
spring of 2000. The Marianna plant produces the Company's large-chassis
washer-extractors, and began producing the Company's presses and finishing
equipment, beginning in the fall of 2000. The Company's manufacturing plants
primarily engage in fabricating, machining, painting, assembly and finishing
operations. The Company also operates three product distribution centers, all of
which are owned. The Company believes that existing manufacturing facilities
provide adequate production capacity to meet expected product demand.
The Company purchases substantially all raw materials and components
from a variety of independent suppliers. Key material inputs for manufacturing
processes include motors, stainless and carbon steels, aluminum castings,
electronic controls, corrugated boxes and plastics. The Company believes there
are readily available alternative sources of raw materials from other suppliers.
The Company has developed long-term relationships with many of its suppliers and
has sourced materials from nine of its ten largest suppliers for at least five
years.
The Company is committed to achieving continuous improvement in all
aspects of its business in order to maintain its industry leading position. All
of the Company's manufacturing facilities are ISO 9001 certified.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding
significant facilities operated by the Company as of December 31, 2001:
14
Approximate
Location Function/Products Square Feet Owned/Leased
-------- ----------------- ----------- ------------
Production Facilities
- ---------------------
Ripon, WI..................... Manufacture small washers and dryers,
and tumbler dryers 572,900 Owned
Marianna, FL.................. Manufacture washer-extractors,
presses and finishing equipment 259,200 Owned/1/
-----------
Subtotal 832,100
Regional Distribution Centers
- -----------------------------
Ripon, WI.................... Washers, dryers, tumbler dryers 147,500 Owned/2/
Marianna, FL................. Washer-extractors, presses and
finishing equipment 33,000 Owned/1,3/
Ripon, WI.................... Service parts 60,800 Owned
-----------
Subtotal 241,300
Other
- -----
Ripon, WI.................... Sales and administration 65,700 Owned
Ripon, WI.................... Engineering and procurement 43,100 Owned
-----------
Subtotal 108,800
-----------
Total 1,182,200
===========
1 The Marianna buildings are owned, however, the land is leased from the city of
Marianna.
2 This distribution facility was constructed in 2000 on property owned
by the Company.
3 This distribution facility was constructed in 2001.
The Company believes existing manufacturing facilities provide adequate
production capacity to meet product demand.
ITEM 3. LEGAL PROCEEDINGS
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
Company cannot predict the outcome of these matters, in the opinion of
management, any liability arising thereunder will not have a material adverse
effect on the Company's business, financial condition and results of operations
after giving effect to provisions already recorded.
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 at the time), 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 effect on the Company's operations, in as
much as ALSA is a foreign subsidiary and is responsible for its own debts and
15
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. In management's opinion based on the advice of
counsel, under the terms of the award, any such payments would have to be
forthcoming from the assets of ALSA. On December 20, 2001, ALSA's bankruptcy was
decreed, at the request of Mr. Lopez, on grounds of non-payment of the
arbitration award.
Since January 2002, there have been significant changes in Argentina's
monetary legislation, and the value of the Argentine Peso. The rate of exchange
of one Argentine Peso per one United States Dollar is no longer in force, and as
of February 22, 2002 the Argentine Peso was trading at .4963 per United States
Dollar. Accordingly, in the event that Mr. Lopez was ultimately successful in a
U.S. court of securing payment of this award from the Company, the U.S. dollar
value of the award (based upon the current rate of exchange) would be
substantially reduced as compared to the amount discussed above.
Environmental, Health and Safety Matters
The Company and its operations are subject to comprehensive and
frequently changing federal, state and local environmental and occupational
health and safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates and
at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquires relating
to environmental matters. There can be no assurance that the Company will not be
involved in such proceedings in the future and that the aggregate amount of
future clean-up costs and other environmental liabilities will not have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company believes that its facilities and operations
are in material compliance with all environmental, health and safety laws.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect the
demand for, the Company's products. The Company cannot predict the environmental
liabilities that may result from legislation or regulations adopted in the
future, the effect of which could be retroactive. Nor can the Company predict
how existing or future laws and regulations will be administered or interpreted
or what environmental conditions may be found to exist at the Company's
facilities or at other properties where the Company or its predecessors have
arranged for the disposal of hazardous substances.
Certain environmental investigatory and remedial work is underway or
planned at, or relating to, the Company's Marianna, Florida and Ripon, Wisconsin
manufacturing facilities. With respect to the Marianna facility, such work is
being conducted by a former owner of the property and is being funded through an
escrow account, the available balance of which the Company believes to be
substantially greater than remaining remediation costs. With respect to the
Ripon facility, such work will be conducted by the Company. The Company
currently expects to incur costs of less than $100,000 through 2002 at the Ripon
facility to complete remedial work. There can be no assurance, however, that
additional remedial costs will not be incurred by the Company in the future with
respect to the Ripon facility.
16
With respect to the Marianna, Florida facility, a former owner of the
property has agreed to indemnify the Company for certain environmental
liabilities. In the event the former owner fails to honor their respective
obligations under these indemnifications, such liabilities could be borne
directly by the Company.
The Company also received an order in 1995 from the U.S. Environmental
Protection Agency ("EPA") requiring participation in clean-up activities at the
Marina Cliffs site in South Milwaukee, Wisconsin, the location of a former drum
reconditioner. EPA asserted that the Ripon facility was a generator of wastes
that were disposed of at the Marina Cliffs site. The asserted disposal predated
the Company's and Raytheon's ownership of the Ripon facility. The Company
believes that EPA also has contacted a prior owner of the facility to assert
that the former owner may be liable. There is an established group of
potentially responsible parties that are conducting a cleanup of the site. The
group has estimated that the cleanup will cost approximately $5 million. The
group proposed to settle their alleged claims against the Company, and to
protect the Company from further liability at the site, for approximately
$100,000. The Company declined the proposal because it believes that any
liability related to the site is borne by the Ripon facility's prior owner, and
not the Company. The Company has met with EPA to explain its defenses to
enforcement of the administrative order. The Company received a General Notice
of Potential Liability on March 21, 2001 regarding an additional 5 acre parcel
at the site. The position of the Company remains that any liability related to
the site is properly borne by the Ripon facility's owner prior to Raytheon.
However, in the event that the former owner fails to honor their
respective obligation, such liabilities could be borne directly by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of common
equity of the Company. There was one holder of record of the Company's common
equity as of March 6, 2002.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical combined financial
data for the two years ended December 31, 1998 and selected historical
consolidated financial data for the years ended December 31, 1999, December 31,
2000 and December 31, 2001. For periods prior to the Merger, the historical
combined financial information represents the results of the Company. As a
result of the Merger, the Company is now a wholly-owned subsidiary of the
Parent. Because the Parent is a holding company with no operating activities and
provides certain guarantees, the financial information presented herein for
periods subsequent to the Merger represents consolidated financial information
of the Parent, rather than consolidated financial information of the Company.
The selected historical combined financial data for the year ended December
31, 1997 was derived from the audited combined financial statements of the
Company. The summary historical consolidated financial data for the years ended
17
December 31, 1998, December 31, 1999, December 31, 2000 and December 31, 2001
were derived from audited consolidated financial statements of the Company. The
following table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
financial statements and the notes related thereto of the Company included
elsewhere in this Annual Report.
Certain amounts for the years ended December 31, 1997 through 2000 have
been restated, reflecting certain reclassification changes adopted by the
Company in the current year.
Years Ended December 31,
------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Statements of Income:
Net Revenues ............................................... $ 254,548 $ 265,441 $ 314,374 $ 331,714 $ 349,651
Operating income ........................................... 36,369 31,012 38,296 28,846 42,950
Interest expense ........................................... 33,538 35,947 31,509 21,426 -
Other income (expense), net ................................ (67) 354 (1,706) 306 (243)
Income (loss) before taxes ................................. 2,764 (4,581) 5,081 7,726 42,707
Net income (loss) from operations/(1)/ .................... 2,730 (4,601) 5,052 5,335 26,276
Other Operating Data:
EBITDA/(2)/ ................................................ 50,608 46,003 50,997 44,241 57,152
EBITDA before nonrecurring and plant relocation costs/(3)/.. 52,022 51,456 55,775 51,025 57,152
Depreciation and amortization .............................. 17,026 17,155 16,969 16,671 14,445
Non-cash interest expense included in amortization above ... 2,720 2,518 2,562 1,582 -
Nonrecurring costs/(4)/ .................................... - 402 3,707 6,784 -
Plant relocation costs included in administrative
expense/(5)/ ............................................. 1,414 5,051 1,071 - -
Capital expenditures ....................................... 5,152 7,445 10,947 7,861 19,990
Total assets ............................................... 203,771 210,143 217,148 210,986 201,042
Total debt ................................................. 323,564 336,605 322,048 320,124 -
(1) Subsequent to the consummation of the Merger, the Company is not a tax
paying entity. Historical amounts represent the Company's tax attributes as
a division of Raytheon as calculated on a separate return basis.
(2) "EBITDA," as presented, represents income before income taxes plus
depreciation, amortization (including non-cash interest expense related to
amortization of debt issuance costs), cash interest expense and non-cash
interest expense on the seller subordinated note. Interest accrued on the
seller subordinated note is capitalized annually and will be repaid when
the note becomes due. EBITDA is included because management believes that
such information provides an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating
performance as determined in accordance with generally accepted accounting
principles, including
18
net income as a measure of the Company's operating results and cash flows
as a measure of the Company's liquidity. Because EBITDA is not calculated
identically by all companies, the presentation herein may not be comparable
to other similarly titled measures of other companies.
(3) "EBITDA before nonrecurring and plant relocation costs," as presented,
represents income before income taxes plus depreciation, amortization
(including non-cash interest expense related to amortization of debt
issuance costs), plant restructuring costs, other nonrecurring costs, plant
relocation costs included in administrative expenses, cash interest expense
and non-cash interest expense on the seller subordinated note. EBITDA
before nonrecurring and plant relocation costs is included because
management believes that such information provides an additional basis for
evaluating the Company's ability to pay interest, repay debt and make
capital expenditures. EBITDA before nonrecurring and plant relocation costs
should not be considered an alternative to measures of operating
performance as determined in accordance with generally accepted accounting
principles, including net income as a measure of the Company's operating
results and cash flows as a measure of the Company's liquidity. Because
EBITDA nonrecurring and plant relocation costs is not calculated
identically by all companies, the presentation herein may not be comparable
to other similarly titled measures of other companies.
(4) Nonrecurring costs in 2000 relate to additional medical benefits provided
as part of a plant closure. In 1999 such costs relate to a $2.2 million
restructuring charge associated with a plant closure and $1.5 million
associated with payments under retention agreements with certain key
employees. In 1998 such costs relate to a $4.5 million restructuring charge
associated with closing its Latin American operations and $2.3 million
associated with payments under retention agreements with certain key
employees.
(5) Plant relocation costs in 2001 and 2000 relate primarily to one-time
expenses associated with the relocation of Madisonville, Kentucky and
Cincinnati, Ohio production lines to Ripon, Wisconsin and Marianna,
Florida, respectively. Plant relocation costs in 1999 relate primarily to
the relocation of Madisonville, Kentucky production lines to Ripon,
Wisconsin and duplication of the Searcy, Arkansas standard dryer and small
capacity frontload washer production lines in Ripon, Wisconsin.
ITEM 7. 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) drycleaners. In addition, pursuant to a supply agreement with
Appliance Co., the Company supplied consumer washing machines to the consumer
appliance business of Appliance Co. for sale at retail. This supply agreement
was completed and concluded on September 17, 1999.
19
The following discussion should be read in conjunction with the
Financial Statements and Notes thereto included in this report.
RESULTS OF OPERATIONS
The following table sets forth the Company's historical net revenues for the
periods indicated:
Years Ended December 31,
------------------------
2001 2000 1999
------ ------ ------
dollars in millions
Commercial laundry......................... $219.8 $230.4 $227.0
Appliance Co. consumer laundry............. - - 54.7
Service parts.............................. 34.7 35.0 32.7
------ ------ ------
$254.5 $265.4 $314.4
====== ====== ======
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:
Years Ended December 31,
------------------------
2001 2000 1999
------ ------ ------
Net revenues .............................. 100.0% 100.0% 100.0%
Cost of sales ............................. 74.5% 74.4% 76.2%
Gross profit .............................. 25.5% 25.6% 23.8%
Selling, general and administrative
expense ................................. 11.2% 13.7% 10.4%
Nonrecurring costs ........................ 0.0% 0.2% 1.2%
Operating income .......................... 14.3% 11.7% 12.2%
Net income (loss) before cumulative
effect of accounting change ........... 1.1% -1.7% 1.6%
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Revenues. Net revenues for the year ended December 31, 2001
decreased $10.9 million, or 4.1%, to $254.5 million from $265.4 million for the
year ended December 31, 2000. This decrease was primarily attributable to lower
commercial laundry revenue of $10.6 million. The decrease in commercial laundry
revenue was due primarily to lower North American equipment revenue of $10.0
million, and lower international revenue of $3.0 million, which was partly
offset by higher earnings from the Company's off-balance sheet equipment
financing program of $2.3 million. The decrease in North American equipment
revenue was primarily due to lower revenue from laundromats, on-premise
laundries, and drycleaners resulting from a general economic slowdown. Finance
program revenue was higher primarily as a result of a $3.1 million loss
recognized in connection with a securitization transaction completed during the
fourth quarter of 2000 (see Note 5 to the Financial Statements). Revenue from
20
international customers was lower as the Company's products (priced in U.S.
dollars) have become less competitive due to unfavorable exchange rate
movements.
Gross Profit. Gross profit for the year ended December 31, 2001
decreased $2.9 million, or 4.2%, to $65.0 million from $67.9 million for the
year ended December 31, 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 25.5% for the year ended December 31,
2001 from 25.6% for the year ended December 31, 2000. This decrease was
primarily attributable to manufacturing volume inefficiencies related to the
lower sales volume and manufacturing inefficiencies related to lower
manufacturing volumes required to reduce finished goods stocking levels. These
inefficiencies were partially offset by other manufacturing cost improvements
implemented during 2000 and 2001.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the year ended December 31, 2001 decreased $7.8
million, or 21.4%, to $28.7 million from $36.5 million for the year ended
December 31, 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 $1.9 million, a lower loss on sales of
qualified accounts receivable of $2.0 million, and lower one-time expenses of
$3.4 million related to the prior year relocation of Madisonville, Kentucky and
Cincinnati, Ohio production lines to Ripon, Wisconsin and Marianna, Florida,
respectively. Selling, general and administrative expenses as a percentage of
net revenues decreased to 11.2% for the year ended December 31, 2001 from 13.7%
for the year ended December 31, 2000.
Nonrecurring Costs. There were no nonrecurring costs for the year ended
December 31, 2001 as compared to $0.4 million of nonrecurring costs for the year
ended December 31, 2000. Nonrecurring costs in 2000 were comprised entirely of
closure costs related to the Company's Madisonville, Kentucky facility.
Operating Income. As a result of the aforementioned, operating income
for the year ended December 31, 2001 increased $5.4 million, or 17.3%, to $36.4
million from $31.0 million for the year ended December 31, 2000. Operating
income as a percentage of net revenues increased to 14.3% for the year ended
December 31, 2001 from 11.7% for the year ended December 31, 2000.
Interest Expense. Interest expense for the year ended December 31, 2001
decreased $2.4 million, or 6.7%, to $33.5 million from $35.9 million for the
year ended December 31, 2000. Reductions resulting from lower interest rates
throughout 2001 and a one-time net interest expense in 2000 of $1.5 million
associated with the Raytheon Arbitration award were offset by $0.9 million of
non-cash adjustments to reflect changes in the fair values of the Company's
interest rate swap agreements for the year ended December 31, 2001.
Other Income (Expense), Net. Other expense for the year ended December
31, 2001 was $0.1 million as compared to other income of $0.4 million for the
year ended December 31, 2000. The 2001 other expense is comprised entirely of
losses on the sale of fixed assets. The 2000 other income is comprised entirely
of gains on the sale of fixed assets.
Net Income (Loss) Before Cumulative Effect of Accounting Change. As a
result of the foregoing, net income (loss) before cumulative effect of
accounting change for the year ended
21
December 31, 2001 increased $7.3 million to a net income before cumulative
effect of accounting change of $2.7 million as compared to net loss before
cumulative effect of accounting change of $4.6 million for the year ended
December 31, 2000. Net income (loss) before cumulative effect of accounting
change as a percentage of net revenues increased to 1.1% for the year ended
December 31, 2001 from (1.7%) for the year ended December 31, 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 aforementioned, net income for
the year ended December 31, 2001 increased $5.3 million to $0.7 million as
compared to a net loss of $4.6 million for the year ended December 31, 2000. Net
income as a percentage of net revenues increased to 0.3% for the year ended
December 31, 2001 from (1.7%) for the year ended December 31, 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenues. Net revenues for the year ended December 31, 2000
decreased $49.0 million, or 15.6%, to $265.4 million from $314.4 million for the
year ended December 31, 1999. This decrease, attributable to lower consumer
laundry equipment sales of $54.7 million, was partly offset by increases in
commercial laundry revenue, $3.4 million, and service part revenue, $2.3
million. The decrease in consumer laundry revenue was due to the completion and
conclusion of the Appliance Co. supply agreement as of September 17, 1999. The
increase in commercial laundry revenue was due primarily to higher North
American equipment revenue of $8.1 million, which was partly offset by lower
international revenue of $1.4 million and lower earnings from the Company's
off-balance sheet equipment financing program of $3.2 million. The increase in
North American equipment revenue was primarily due to higher revenue for
regional laundromats and multi-housing laundries in the first half of 2000, and
due to the additional revenue resulting from the March 6, 2000 acquisition of
the Ajax press and finishing equipment division. Finance program revenue was
lower as a result of a $3.1 million loss recognized in connection with a
securitization transaction completed during the fourth quarter of 2000 (see Note
5 to the Financial Statements). Revenue from international customers was lower
as the Company's products (priced in U.S. dollars) have become less competitive
due to unfavorable exchange rate movements.
Gross Profit. Gross profit for the year ended December 31, 2000
decreased $7.0 million, or 9.4%, to $67.9 million from $74.9 million for the
year ended December 31, 1999. This decrease was due to the completion and
conclusion of the Appliance Co. supply agreement as of September 17, 1999 and
lower earnings from the Company's off-balance sheet equipment financing program.
Gross profit as a percentage of net revenues increased to 25.6% for the year
ended December 31, 2000 from 23.8% for the year ended December 31, 1999. The
increase in gross profit as a percentage of net revenues is primarily
attributable to the decrease in revenue from consumer laundry equipment, which
was at margins substantially below that of the remaining business, offset in
part by higher unabsorbed overhead costs caused by lower production volumes and
transfers of production between facilities.
22
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the year ended December 31, 2000 increased $3.6
million, or 10.9%, to $36.5 million from $32.9 million for the year ended
December 31, 1999. The increase in selling, general and administrative expenses
was primarily due to an increase of $4.0 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, and partly offset by lower sales promotion, legal and pension expenses in
2000. Selling, general and administrative expenses as a percentage of net
revenues increased to 13.7% for the year ended December 31, 2000 from 10.5% for
the year ended December 31, 1999, with the increase driven primarily by the
lower revenue from Appliance Co., which incurred very little in selling, general
and administrative expenses and also driven by the higher one-time expenses
related to the product line relocations.
Nonrecurring Costs. Nonrecurring costs for the year ended December 31,
2000 decreased $3.3 million, or 89.2%, to $0.4 million from $3.7 million for the
year ended December 31, 1999. The 2000 costs are all related to the closure of
the Company's Madisonville, Kentucky manufacturing facility. The 1999 other
nonrecurring costs were comprised entirely of employee retention costs. See Note
4 -- Nonrecurring Items in notes to Financial Statements.
Operating Income. As a result of the aforementioned, operating income
for the year ended December 31, 2000 decreased $7.3 million, or 19.0%, to $31.0
million from $38.3 million for the year ended December 31, 1999. Operating
income as a percentage of net revenues decreased to 11.7% for the year ended
December 31, 2000 from 12.2% for the year ended December 31, 1999.
Interest Expense. Interest expense for the year ended December 31, 2000
increased $4.4 million, or 14.1%, to $35.9 million from $31.5 million for the
year ended December 31, 1999. The increase is primarily attributable to higher
interest rates, the $1.5 million of net interest expense associated with the
Raytheon arbitration award, and borrowings from the revolving line of credit
used in connection with the Raytheon arbitration award (see Note 12 --
Commitments and Contingencies in the Financial Statements) and the acquisition
of the Ajax product line (see Note 3 -- Acquisition of Ajax Product Line in the
Financial Statements).
Other Income (Expense), Net. Other income for the year ended December
31, 2000 was $0.4 million as compared to other expense of $1.7 million for the
year ended December 31, 1999. The 2000 other income is comprised entirely of
gains on the sale of fixed assets. The 1999 other expense is comprised of a $1.5
million legal settlement resulting from the Appliance Co. settlement agreement
(see Note 12 -- Commitments and Contingencies in the Financial Statements) and
$0.2 million related to losses on the sale of fixed assets.
Net Income (Loss). As a result of the aforementioned, net income for
the year ended December 31, 2000 decreased $9.7 million to a net loss of $4.6
million as compared to net income of $5.1 million for the year ended December
31, 1999. Net income as a percentage of net revenues decreased to (1.7%) for the
year ended December 31, 2000 from 1.6% for the year ended December 31, 1999.
23
DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
On December 12, 2001, the SEC issued FR-60, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies." FR-60 is an
intermediate step to alert companies to the need for greater investor awareness
of the sensitivity of financial statements to the methods, assumptions, and
estimates underlying their preparation including the judgments and uncertainties
affecting the application of those policies, and the likelihood that materially
different amounts would be reported under different conditions or using
different assumptions. The Company's accounting policies are disclosed in the
Notes to Financial Statements in this Annual Report on Form 10-K. The more
critical of these policies include revenue recognition and the use of estimates
in valuing inventories, notes and accounts receivable, and retained interests in
securitized notes receivable.
Revenue Recognition -- The Company continues to recognize revenues
primarily when products are shipped. The Company's revenue recognition policies
are in accordance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." In addition, warranty and sales incentive
costs are estimated and accrued at the time of sale, as appropriate.
The Company sells notes receivable and accounts receivable through its
special-purpose bankruptcy remote entities. Servicing revenue, interest income
on beneficial interests retained, and gains on the sale of notes receivable are
included in commercial laundry revenue. In determining the gain on sales of
notes receivable, the investment in the sold receivable pool is allocated
between the portion sold and the portion retained, based on their relative fair
values. The Company generally estimates the fair values of its retained
interests based on the present value of expected future cash flows to be
received, using management's best estimate of key assumptions, including credit
losses, prepayment rates, interest rates and discount rates commensurate with
the risks involved. Losses on the sale of accounts receivable are recognized in
the period in which such sales occur and are included in selling, general and
administrative expense.
Inventories -- The Company values inventories primarily at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO) method.
Valuing inventories at the lower of cost or market requires the use of estimates
and judgment. The Company's policy is to evaluate all inventory quantities for
amounts on-hand that are potentially in excess of estimated usage requirements,
and to write-down any excess quantities to estimated net realizable value.
Inherent in the estimates of net realizable value are management estimates
related to the Company's future manufacturing schedules, customer demand,
possible alternative uses and ultimate realization of potentially excess
inventory.
Notes and Accounts Receivable -- The Company values notes receivable
not sold and accounts receivable net of allowances for uncollectible accounts.
These allowances are based on estimates of the portion of the receivables that
will not be collected in the future, and in the case of notes receivable, also
considers estimated collateral liquidation proceeds. However, the ultimate
collectibility of a receivable is significantly dependent upon the financial
condition of the individual customer, which can change rapidly and without
advance warning.
Retained Interests in Securitized Notes Receivable -- The Company
values retained beneficial interests in notes receivable sold to the Company's
off-balance sheet special-purpose entities based upon the present value of
expected future cash flows to be received on the residual portion of interest
earned on the notes, using management's best estimate of key assumptions,
including credit losses, prepayment rates, interest rates and discount rates
commensurate with the risks inherent in such estimates. Unrealized gains and
losses resulting from changes in the estimated fair value of retained interests
are recorded as other comprehensive income (loss). Impairment losses are
recognized when the estimated fair value is less than the carrying amount of the
retained interest and management's most recent evaluation indicates that there
has been an adverse change in the estimated cash flows to be received by the
Company. Note 5 to the financial statements discloses the sensitivity of current
fair value estimates to immediate adverse changes in certain key valuation
assumptions.
24
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows generated
from operations, including sales of trade receivables and equipment loans, and
borrowings under the Company's $75.0 million revolving credit facility (the
"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 2002
will not exceed $7.0 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. The Company has incurred substantial indebtedness in connection with
the Merger. As of December 31, 2001, the Company has $323.6 million of
indebtedness outstanding.
At December 31, 2001 the Company had outstanding debt of $195.0 million
under the Company's term loan facility (the "Term Loan Facility"), $110.0
million of Senior Subordinated Notes, $17.1 million of junior subordinated notes
(the "Junior Subordinated Notes"), $0.7 million of borrowings pursuant to a
Wisconsin Community Development Block Grant Agreement and $0.8 million of
borrowings pursuant to an equipment financing transaction with Alliant Energy --
Wisconsin Power & Light Company. At December 31, 2001 there were no borrowings
under the Company's Revolving Credit Facility. Letters of credit issued on the
Company's behalf under the Revolving Credit Facility totaled $14.0 million at
December 31, 2001. At December 31, 2001, the Company had $61.0 million of its
$75.0 million Revolving Credit Facility available subject to certain limitations
under the Company's $275 million credit agreement dated May 5, 1998 (the "Senior
Credit Facility"). After considering such limitations, which relate primarily to
the maximum ratio of consolidated debt to EBITDA (as defined by the Senior
Credit Facility), the Company could have borrowed $6.9 million at December 31,
2001 in additional indebtedness under the Revolving Credit Facility.
Additionally, at December 31, 2001 the Company could have sold additional trade
receivables of approximately $3.5 million to finance its operations. The maximum
ratio of consolidated debt to EBITDA under the Senior Credit Facility is
scheduled to be reduced from 6.0 at December 31, 2001 to 5.25 at December 31,
2002. Management believes that future cash flows 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, scheduled principal payments and other debt
repayments that may be required as a result of the scheduled reduction in the
ratio of consolidated debt to EBITDA discussed above.
The $195.0 million Term Loan Facility is repayable in the following
aggregate annual amounts:
Year Amount Due
---- ------------
(Dollars in
millions)
2002...................... $ 1.0
2003...................... $ 20.1
2004...................... $ 96.8
2005...................... $ 77.1
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 also maintains an asset backed facility, which provides
$250.0 million of off-balance sheet financing for trade receivables and
equipment loans (the "Asset Backed Facility"). The
25
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 trade receivables.
The Company's ability to make scheduled payments of principal or to pay
the interest or liquidated damages, if any, 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. There can be no assurance, therefore, 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.
On January 22, 2002, the SEC issued FR-61, "Commission Statement about
Management's Discussion and Analysis of Financial Condition and Results of
Operations." While the SEC intends to consider rulemaking regarding the topics
addressed in this statement and other topics covered by MD&A, the purpose of
this statement is to suggest steps that issuers should consider in meeting their
current disclosure obligations with respect to the topics described.
Below are the Company's responses to each of the areas addressed by
FR-61. In addition, the Company's risk factors are separately discussed in the
succeeding section of this report on Form 10-K. Any statements in this section
which discuss or are related to future dates or periods are "forward-looking
statements."
1. Liquidity Disclosures
More specifically, FR-61 requires management to consider the following
to identify trends, demands, commitments, events and uncertainties that require
disclosure:
A. Provisions in financial guarantees or commitments, debt or lease agreements
or other arrangements that could trigger a requirement for an early
payment, additional collateral support, changes in terms, acceleration of
maturity, or the creation of an additional financial obligation, such as
adverse changes in the registrant's credit rating, financial ratios,
earnings, cash flows, or stock price or changes in the value of underlying,
linked or indexed assets. The Company's Senior Credit Facility requires the
Company to comply with certain financial ratios and tests to comply with
the terms of the agreement. The Company has continued in compliance with
these covenants as of December 31, 2001, the latest measurement date. The
occurrence of any default of these covenants could result in acceleration
of the Company's obligations under the Senior Credit Facility
(approximately $195.0 million as of December 31, 2001) and foreclosure on
the collateral securing such obligations. Further, such an acceleration
would constitute an event of default under the indenture governing the
Company's $110.0 million of Senior Subordinated Notes.
Finally, the Company, through its special-purpose entity, Alliance
Laundry Receivables Warehouse LLC ("ALRW"), a $250.0 million revolving loan
agreement ("Asset Backed Facility") as described in Notes 5 and 6 to the
financial statements. Pursuant to the terms of this agreement, ALRW
provides additional credit enhancement to the facility lender (consisting
of an irrevocable letter of credit, an unconditional lending commitment of
the lenders under the Senior Credit Facility
26
or a cash collateral account) subject to certain limits. The Company is
obligated under the reimbursement provisions of the Senior Credit Facility
to reimburse the lenders for any drawings on the credit enhancement by the
facility lender. If the credit enhancement is not replenished by the
Company after a drawing, the facility lender will not be obligated to make
further loans under the Asset Backed Facility and the Asset Backed Facility
will begin to amortize.
Early repayment of the loans under the Asset Backed Facility will be
required upon the occurrence of certain "events of default," which include:
(i) default in the payment of any principal of or interest on any loan
under the Asset Backed Facility when due, (ii) the bankruptcy of ALRW,
Alliance Laundry or the issuer of the letter of credit or provider of the
line of credit, (iii) any materially adverse change in the properties,
business, condition or prospects of, or any other condition which
constitutes a material impairment of ALRW's ability to perform its
obligations under the Asset Backed Facility and related documents, (iv)
specified defaults by ALRW or Alliance Laundry on certain of their
respective obligations, (v) delinquency, dilution or default ratios on
pledged receivables exceeding certain specified ratios in any given month
and (vi) a number of other specified events.
B. Circumstances could impair the registrant's ability to continue to engage
in transactions that have been integral to historical operations or are
financially or operationally essential, or that could render that activity
commercially impracticable, such as the inability to maintain a specified
investment grade credit rating, level of earnings, earnings per share,
financial ratios, or collateral. The Company does not believe that the risk
factors applicable to its business are reasonably likely to impair its
ability to continue to engage in its historical operations at this time.
C. Factors specific to the registrant and its markets that the registrant
expects to be given significant weight in the determination of the
registrant's credit rating or will otherwise affect the registrant's
ability to raise short-term and long-term financing. The Company does not
presently believe that the risk factors applicable to its business are
reasonably likely to materially affect its credit ratings or would
otherwise adversely affect the Company's ability to raise short-term or
long-term financing.
D. Guarantees of debt or other commitments to third parties. The Company does
not have any significant guarantees of debt or other commitments to third
parties.
E. Written options on non-financial assets (for example, real estate puts).
The Company does not have any written options on non-financial assets.
2. Off-Balance Sheet Arrangements
FR-61 indicates that registrants should consider the need to provide
disclosures concerning transactions, arrangements and other relationships with
unconsolidated entities or other persons that are reasonably likely to affect
materially liquidity or the availability of or requirements for capital
resources.
The Company has disclosed in Notes 5 and 6 to its financial statements
the nature of its off-balance sheet financing arrangements, which facilitate the
sale of equipment notes receivable and accounts receivable.
27
The Company also leases various assets under operating leases. The
future estimated payments under these arrangements are also disclosed in Note 12
to the Financial Statements.
3. Disclosures about Contractual Obligations and Commercial Commitments
In FR-61, the SEC notes that current accounting standards require
disclosure concerning a registrant's obligations and commitments to make future
payments under contracts, such as debt and lease agreements, and under
contingent commitments, such as debt guarantees. They also indicate that the
disclosures responsive to these requirements usually are located in various
parts of a registrant's filings. The SEC believes that investors would find it
beneficial if aggregated information about contractual obligations and
commercial commitments were provided in a single location so that a total
picture of obligations would be readily available. They further suggested that
one useful aid to presenting the total picture of a registrant's liquidity and
capital resources and the integral role of on- and off-balance sheet
arrangements may be schedules of contractual obligations and commercial
commitments as of the latest balance sheet date.
The Company is no different than most other registrants in that
disclosures are located in various parts of this report on Form 10-K, including
Notes 10, 11, 12 and 14 to the financial statements. The Company has prepared
schedules as of December 31, 2001 suggested by the SEC in FR-61. Information in
the following table is in thousands.
Less Than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 Year Years Years Years
-------- ------- --------- -------- --------
Long-term debt ......................... $323,564 $1,212 $117,384 $77,573 $127,395
Operating leases ....................... 668 299 343 26 -
Unconditional purchase commitments *.... - - - - -
Other long-term obligations ** .......... 7,682 - - - 7,682
-------- ------ -------- ------- --------
Total contractual cash obligations ..... $331,914 $1,511 $117,727 $77,599 $135,077
======== ====== ======== ======= ========
*There are no unconditional purchase obligations of significance other than
inventory and property, plant and equipment purchases in the ordinary course of
business.
**Other long-term obligations represent future payment requirements associated
with deferred compensation agreements and redeemable preferred equity as
discussed in Notes 13 and 11, respectively, to the financial statements.
Historical
Cash generated from operations for the twelve months ended December 31,
2001 of $21.3 million was principally derived from the Company's earnings before
depreciation and amortization partially offset by changes in working capital.
The working capital investment in accounts receivable at December 31, 2001 of
$10.4 million decreased $0.2 million as compared to the balance of $10.6 million
at December 31, 2000. The investment in notes receivable at December 31, 2001 of
$8.5 million increased $4.9 million as compared to the balance of $3.6 million
at December 31, 2000, which was primarily attributable to an increase in
ineligible loans under the Asset Backed Facility. The investment
28
in beneficial interests in securitized financial assets at December 31, 2001 of
$28.2 million increased $6.8 million as compared to the balance of $21.4 million
at December 31, 2000, which was primarily attributable to retained interests on
new loans sold under the Asset Backed Facility to Alliance Laundry Receivable
Warehouse LLC ("ALRW"). The investment in inventory at December 31, 2001 of
$29.9 million decreased $7.6 million as compared to the balance of $37.5 million
at December 31, 2000. The working capital investment in accounts payable at
December 31, 2001 of $12.2 million increased $3.4 million as compared to the
balance of $8.8 million at December 31, 2000, which resulted in part from higher
purchases and production levels in December 2001 as compared to December 2000.
Cash generated from operations for the twelve months ended December 31,
2000 of $15.3 million was principally derived from the Company's earnings before
depreciation and amortization. The working capital investment in accounts
receivable at December 31, 2000 of $10.6 million decreased $23.0 million as
compared to the balance of $33.6 million at December 31, 1999, which was
primarily attributable to selling a higher percentage of accounts receivable
through ALRW. The working capital investment in accounts payable at December 31,
2000 of $8.8 million decreased $3.6 million as compared to the balance of $12.4
million at December 31, 1999. The accounts payable balance at December 31, 1999
resulted from lower purchases and production in December 2000 as compared to
December 1999.
Capital Expenditures
The Company's capital expenditures for the twelve months ended December
31, 2001 and December 31, 2000 were $5.2 million and $7.4 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, while spending in 2000 was
principally related to transitioning tumbler production from the Madisonville
manufacturing facility to the Ripon manufacturing facility and construction of
the Ripon, Wisconsin distribution center.
RISK FACTORS
Substantial Leverage
As of December 31, 2001, the Company had outstanding indebtedness of
$323.6 million, including $195.0 million under the Term Loan Facility, $110.0
million of Senior Subordinated Notes, $17.1 million of Junior Subordinated Notes
and $1.5 million of other long-term debt, and had a significant members'
deficit. The Senior Credit Facility expires on May 5, 2005 and the Company's
scheduled Revolving Credit Facility termination date is May 5, 2003.
The Company's ability to make scheduled payments of principal and
interest thereon, or to refinance its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond the Company's control. The Company will be
required to refinance or extend its Senior Credit Facility prior to its maturity
on May 5, 2005. In addition, the Company will be required to refinance or extend
its Revolving Credit Facility prior to its expiration on May 5, 2003. There can
be no assurance, however, that such refinancings will be available on
commercially reasonable terms.
29
The degree to which the Company is leveraged could have important
consequences, including, but not limited to: (i) making it more difficult for
the Company to satisfy its obligations with respect to its indebtedness; (ii)
increasing the Company's vulnerability to general adverse economic and industry
conditions; (iii) limiting the Company's ability to obtain additional financing
to fund future working capital, capital expenditures, research and development
and other general corporate requirements; (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other general corporate purposes; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry in which it competes; and (vi) placing the Company at a
competitive disadvantage compared to less leveraged competitors. In addition,
the Senior Credit Facility and the Senior Subordinated Notes contain financial
and other restrictive covenants that limit the ability of the Company to, among
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company's business,
financial condition and results of operations. If the Company cannot generate
sufficient cash to meet its obligations as they become due or refinance such
obligations, the Company may have to sell assets or reduce capital expenditures.
Dependence Upon Significant Customers
The Company's top ten equipment customers accounted for approximately
34% of 2001 net revenues, of which one customer, Coinmach Corporation and its
subsidiary, Super Laundry Equipment Corp. ("Coinmach"), accounted for 15.7% of
such net revenues for the period. While the Company believes its relationships
with such customers are stable, many arrangements are by purchase order and are
terminable at will at the option of either party. The Company's business also
depends upon the financial viability of its customers. A significant decrease or
interruption in business from the Company's significant customers could result
in loss of future business and could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Relating to Asset Backed Facility
The Company offers an extensive financing program to end-users,
primarily laundromat owners, to assist in their purchases of new equipment from
the Company's distributors or, in the case of route operators, from the Company.
Typical terms include 2-9 year loans with an average principal amount of
approximately $85,000. The Company's Asset Backed Facility (defined below) is
utilized to finance both new equipment loans and trade receivables as well as to
effect term securitizations of equipment loans on a periodic basis through
off-balance sheet bankruptcy remote subsidiaries (the "Financing Subsidiaries").
A significant increase in the cost of funding the Financing Subsidiaries could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, if certain limits in the size of the
Asset Backed Facility are reached (either overall size or certain sublimits),
additional indebtedness may be required to fund the financing programs. The
Company's inability to incur such indebtedness to fund the financing programs or
its inability to securitize such assets through a term securitization could
result in the loss of sales and have a material adverse effect on the Company's
business, financial condition and results of operations.
30
Possible Fluctuations in the Cost of Raw Materials; Possible Loss of Suppliers
The major raw materials and components the Company purchases for its
production process are motors, stainless and carbon steel, aluminum castings,
electronic controls, corrugated boxes and plastics. The price and availability
of these raw materials and components are subject to market conditions affecting
supply and demand. There can be no assurance that increases in raw material or
component costs (to the extent the Company is unable to pass on such higher
costs to customers) or future price fluctuations in raw materials will not have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, while the Company believes alternate sources
of supply exist, there can be no assurance that the loss of suppliers or of
components would not have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition
Within the North American stand alone commercial laundry equipment
industry, the Company competes with several large competitors. With respect to
laundromats, the Company's principal competitors include Wascomat (the exclusive
North American distributor of Electrolux AB products), Maytag Corporation and
The Dexter Company. In multi-housing, key competitors include Maytag Corporation
and Whirlpool Corporation. In on-premise laundry, the Company competes primarily
with Pellerin Milnor Corporation, American Dryer Corporation, Wascomat and
Continental Girbau, Inc. There can be no assurance that significant new
competitors or increased competition from existing competitors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain of the Company's principal competitors have
greater financial resources and/or are less leveraged than the Company and may
be better able to withstand market conditions within the commercial laundry
industry. There can be no assurance that the Company will not encounter
increased competition in the future, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Foreign Sales Risk
Sales of equipment to international customers represented approximately
13.0% of 2001 net revenues. Demand for the Company's products are and may be
affected by economic and political conditions in each of the countries in which
it sells its products and by certain other risks of doing business abroad,
including fluctuations in the value of currencies (which may affect demand for
products priced in United States dollars), import duties, changes to import and
export regulations (including quotas), possible restrictions on the transfer of
funds, labor or civil unrest, long payment cycles, greater difficulty in
collecting accounts receivable and the burdens and cost of compliance with a
variety of foreign laws. Changes in policies by foreign governments could result
in, for example, increased duties, higher taxation, currency conversion
limitations, or limitations on imports or exports, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not and currently does not intend to
hedge exchange rate fluctuations between United States dollars and foreign
currencies associated with payments for equipment and service parts sales.
Dependence on Key Personnel
The Company is dependent on the continued services of its senior
management team and certain other key employees. Other than for Mr. L'Esperance,
the Company does not maintain employment
31
agreements with its senior management and the Company does not maintain
insurance policies with respect to key employees. The loss of such key employees
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Labor Relations
Approximately 566 of the Company's employees at its Wisconsin
facilities are represented by The United Steel Workers of America. The Company
is periodically in negotiations with The United Steel Workers of America, and
the collective bargaining agreement covering employees at its Wisconsin
facilities, approved in September, 1999, expires in February 2004. Although the
Company expects to renew the existing agreement or negotiate a new agreement
without a work stoppage and believes that its relations with its union employees
are generally satisfactory, there can be no assurance that the Company can
successfully negotiate a new agreement or that work stoppages by certain
employees will not occur. Any such work stoppages could have a material adverse
effect on the Company's business, financial condition and results of operations.
Controlled by Principal Securityholder
Bain/RCL, L.L.C. ("Bain LLC"), an entity controlled by Bain Capital
Partners, LLC, owns approximately 55% of the Company. Bain LLC and certain
securityholders of the Company's equity interests are parties to a
Securityholders Agreement and the Amended and Restated Limited Liability Company
Agreement dated May 5, 1998, that gives Bain LLC the ability to designate for
election a majority of the Company's Board of Managers and therefore determine
the outcome of substantially all issues submitted to the Company's
securityholders, including mergers, sales of all or substantially all of the
Company's assets and similar fundamental corporate changes. Circumstances may
arise in which the interests of Bain LLC could be in conflict with interests of
noteholders or creditors of the Company. In addition, Bain LLC may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
their judgement, could enhance their equity investment, even though such
transactions might involve risks to noteholders or creditors.
Environmental, Health and Safety Requirements
The Company and its operations are subject to comprehensive and
frequently changing federal, state and local environmental and occupational
health and safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of wastewater and storm water and the
disposal of solid and hazardous wastes. The Company is also subject to liability
for the investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates and
at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquiries relating
to environmental matters. There can be no assurance that the Company will not be
involved in such proceedings in the future and that the aggregate amount of
future clean-up costs and other environmental liabilities will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect the
demand for, the Company's products. The Company cannot predict the environmental
liabilities that may result from legislation or regulations adopted in the
future, the effect of which could be retroactive. Nor can the Company predict
how existing or future laws and regulations
32
will be administered or interpreted or what environmental conditions may be
found to exist at the Company's facilities or at other properties where the
Company or its predecessors have arranged for the disposal of hazardous
substances. The enactment of more stringent laws or regulations or stricter
interpretation of existing laws and regulations could require expenditures by
the Company, some of which could have a material adverse effect on the Company's
business, financial condition and results of operations. With respect to the
Marianna, Florida facility, a former owner of the property has agreed to
indemnify the Company for certain environmental liabilities. In the event that
the former owner fails to honor their respective obligations under the
indemnification, such liabilities could be borne directly by the Company and
could be material.
Interest Rate and Foreign Currency Risks
Such risks are addressed in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk.
DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE
The Company does not have any trading activities that include
non-exchange traded contracts accounted for at fair value.
DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
The Company disclosed the effects of transactions with related parties
in Note 14 to the financial statements. There were no other significant
transactions with related and certain other parties.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets." The statements eliminate the
pooling-of-interests 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. Goodwill amortization recognized in 2001
approximated $2.0 million. SFAS No. 141 was effective for the Company July 1,
2001. SFAS No. 142 will be effective for the Company as of January 1, 2002. The
Company does not anticipate that the initial adoption of SFAS No. 142 will have
a material effect on its financial position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company is currently reviewing this
statement to determine its effect on the Company's financial statements.
33
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement modifies and
expands the financial accounting and reporting for the impairment or disposal of
long-lived assets other than goodwill, which is specifically addressed by SFAS
No. 142. This statement supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions for the disposal of a segment of a business
of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for
the Company as of January 1, 2002. Upon adoption, SFAS No. 144 is not expected
to have a material effect on the Company's financial condition or results of
operations.
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 12 -- 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 Registration Statement on Form S-4 (file no. 333-56857).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is potentially exposed to market risk associated with
changes in interest and foreign exchange rates. The Company does not and
currently does not intend to hedge exchange rate fluctuations between United
States dollars and foreign currencies. However, from time to time, the Company
may enter into derivative financial instruments to hedge its interest rate
exposures. The Company does not enter into derivatives for speculative purposes.
Revenue from international customers represented approximately 13% of
2001 net revenues. At December 31, 2001, there were no material non-United
States dollar denominated financial instruments outstanding which exposed the
Company to foreign exchange risk.
As noted above, the Company is exposed to market risk associated with
adverse movements in interest rates. Specifically, the Company is primarily
exposed to changes in the fair value of its $110 million Senior Subordinated
Notes, and to changes in earnings and related cash flows on its variable
interest rate debt obligations outstanding under the Senior Credit Facility and
its retained interests related to trade accounts receivable and equipment loans
sold to the Company's special-purpose finance
34
subsidiaries. Borrowings outstanding under the Senior Credit Facility totaled
$195.0 million at December 31, 2001.
The fair value of the Company's Senior Subordinated Notes was
approximately $60.5 million based upon prevailing prices in recent market
transactions as of December 31, 2001. The Company estimates that this fair value
would increase/decrease by approximately $5.2 million based upon an assumed 10%
decrease/increase in interest rates compared with the effective yield on the
Senior Subordinated Notes as of December 31, 2001.
An assumed 10% increase/decrease in the variable interest rate of 5.0%
in effect at December 31, 2001 related to the term loan borrowings outstanding
under the Senior Credit Facility would decrease/increase annualized earnings and
cash flows by approximately $1.0 million.
Effective March 10, 1999 and March 14, 2001, the Company entered into
separate $67 million interest rate swap agreements with a financial institution
to hedge a portion of its interest rate risk related to its term loan borrowings
under the Senior Credit Facility. Under the swaps, which both mature in March,
2002, the Company pays a fixed rate of 4.962% and 5.05% respectively, and
receives or pays quarterly interest payments based upon LIBOR. The effect of
these agreements on the Company's cash interest paid during 2001 was an increase
of $0.6 million. The fair value of these interest rate swap agreements which
represents the amount that the Company would pay to settle the instrument is
$0.8 million at December 31, 2001.
An assumed 10% increase/decrease in interest rates under the Company's
special-purpose entities at December 31, 2001 would not have a material effect
on the fair value of the retained interest in sold trade accounts receivable due
to the short-term nature of the underlying receivables. Finally, based upon the
mix of variable and fixed rate equipment loans sold by the Company, a 10%
increase/decrease in interest rates would decrease/increase the fair value of
the Company's retained interests at December 31, 2001 of $28.2 million by less
than $1.0 million.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to 2001 Financial Statements:
Page
------
Report of Independent Accountants .................................................. 37
Consolidated Balance Sheets at December 31, 2001 and 2000 .......................... 38
Consolidated Statements of Income (Loss) for the three years ended
December 31, 2001 ............................................................ 39
Consolidated Statements of Members' Deficit and Comprehensive
Income (Loss) for three years ended December 31, 2001 ........................ 40
Consolidated Statements of Cash Flows for the three years ended December 31, 2001 .. 41
Notes to Financial Statements ...................................................... 42
Financial Statement Schedules:
For the three years ended December 31, 2001
II -- Valuation and Qualifying Accounts ...................................... 68
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
36
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Managers and Members
of Alliance Laundry Holdings LLC
In our opinion, the financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Alliance Laundry Holdings LLC at December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedules listed in the accompanying index present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, effective in 2001,
the Company changed its methods of accounting for derivative financial
instruments and retained beneficial interests in securitized financial assets.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
February 22, 2002
37
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
----------------------
2001 2000
--------- ---------
Assets
Current assets:
Cash ........................................................... $ 5,659 $ 5,091
Cash-restricted ................................................ 439 494
Accounts receivable (net of allowance for doubtful accounts of
$662 and $719 at December 31, 2001 and 2000, respectively) ... 10,440 10,575
Inventories, net ............................................... 29,862 37,462
Prepaid expenses and other ..................................... 10,093 8,825
--------- ---------
Total current assets ......................................... 56,493 62,447
Notes receivable, net ............................................ 8,512 3,551
Property, plant and equipment, net ............................... 46,909 53,857
Goodwill (net of accumulated amortization of $11,766 and $9,720
at December 31, 2001 and 2000, respectively) ................... 55,414 57,327
Beneficial interests in securitized financial assets ............. 28,227 21,388
Debt issuance costs, net ......................................... 7,863 10,583
Other assets ..................................................... 353 990
--------- ---------
Total assets ................................................. $ 203,771 $ 210,143
========= =========
Liabilities and Members' Deficit
Current liabilities:
Current portion of long-term debt .............................. $ 1,212 $ 1,036
Revolving credit facility ...................................... -- 12,000
Accounts payable ............................................... 12,194 8,755
Other current liabilities ...................................... 20,539 18,973
--------- ---------
Total current liabilities .................................... 33,945 40,764
Long-term debt:
Senior credit facility ......................................... 194,018 198,500
Senior subordinated notes ...................................... 110,000 110,000
Junior subordinated note ....................................... 17,069 14,343
Other long-term debt ........................................... 1,265 726
Other long-term liabilities ...................................... 1,682 1,671
--------- ---------
Total liabilities ............................................ 357,979 366,004
Mandatorily redeemable preferred equity .......................... 6,000 6,000
Members' deficit ................................................. (160,208) (161,861)
--------- ---------
Total liabilities and members' deficit ......................... $ 203,771 $ 210,143
========= =========
The accompanying notes are an integral part of the financial statements.
38
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands)
Years Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Net revenues:
Commercial laundry ................................. $ 219,805 $ 230,448 $ 226,976
Appliance Co. consumer laundry ..................... -- -- 54,682
Service parts ...................................... 34,743 34,993 32,716
--------- --------- ---------
254,548 265,441 314,374
Cost of sales ........................................ 189,514 197,558 239,482
--------- --------- ---------
Gross profit ......................................... 65,034 67,883 74,892
--------- --------- ---------
Selling, general and administrative expense .......... 28,665 36,469 32,889
Nonrecurring costs ................................... -- 402 3,707
--------- --------- ---------
Total operating expenses ............................. 28,665 36,871 36,596
--------- --------- ---------
Operating income ............................. 36,369 31,012 38,296
Interest expense ..................................... 33,538 35,947 31,509
Other income (expense), net .......................... (67) 354 (1,706)
--------- --------- ---------
Income (loss) before taxes ................... 2,764 (4,581) 5,081
Provision for income taxes ........................... 34 20 29
Net income (loss) before cumulative effect of
accounting change ......................... 2,730 (4,601) 5,052
Cumulative effect of change in accounting principle .. 2,043 -- --
--------- --------- ---------
Net income (loss) ............................ $ 687 $ (4,601) $ 5,052
========= ========= =========
The accompanying notes are an integral part of the financial statements.
39
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF MEMBERS' DEFICIT
AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Years Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Members' deficit, beginning of year ........................................... $(161,861) $(147,766) $(151,312)
Net income (loss) ............................................................. 687 (4,601) 5,052
Accumulated other comprehensive income (loss):
Net unrealized holding gain (loss) on residual interests,
beginning of year...................................................... 572 (127) 2,800
Unrealized gain (loss), net ............................................... 737 699 (2,927)
--------- --------- ---------
Net unrealized holding gain (loss) on residual interests, end of year ..... 1,309 572 (127)
Net unrealized gain on interest rate swaps, beginning of year ............ -- -- --
Unrealized gain (loss) .................................................... 141 -- --
--------- --------- ---------
Net unrealized gain on interest rate swaps, end of year ................... 141 -- --
Distribution from/(to) Raytheon and related transaction costs ................. -- (10,507) 1,421
Repayment on loans to management .............................................. 88 314 --
--------- --------- ---------
Members' deficit, end of year ................................................. $(160,208) $(161,861) $(147,766)
========= ========= =========
Comprehensive income (loss):
Net income (loss) ......................................................... $ 687 $ (4,601) $ 5,052
Other comprehensive income (loss):
Net unrealized holding gain (loss) on residual interests, net ......... 737 699 (2,927)
Unrealized gain on interest rate swaps ................................ 141 -- --
--------- --------- ---------
Comprehensive income (loss) ............................................... $ 1,565 $ (3,902) $ 2,125
========= ========= =========
The accompanying notes are an integral part of the financial statements.
40
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) ............................................. $ 687 $ (4,601) $ 5,052
Adjustments to reconcile net income (loss) to cash provided by
operating activities excluding, the effects of the acquisition
opening balance sheet in 2000:
Cumulative effect of change in accounting principle ......... 2,043 -- --
Depreciation and amortization ............................... 17,026 17,155 16,969
Restructuring charges ....................................... -- 402 2,255
Non-cash interest ........................................... 3,663 2,295 1,924
(Gain) loss on sale of property, plant and equipment ........ 67 (354) 215
Changes in assets and liabilities:
Accounts receivable ...................................... 139 18,685 (8,157)
Inventories .............................................. 7,600 (2,992) (839)
Other assets ............................................. (14,230) (5,554) (6,543)
Accounts payable ......................................... 3,439 (4,418) 3,745
Other liabilities ........................................ 904 (5,328) (2,959)
-------- -------- --------
Net cash provided by operating activities ................... 21,338 15,290 11,662
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment .................... (5,152) (7,445) (10,947)
Acquisition of business ....................................... -- (13,399) --
Proceeds on disposal of property, plant and equipment ......... 188 1,287 739
-------- -------- --------
Net cash used in investing activities ....................... (4,964) (19,557) (10,208)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt .................................. 812 750 --
Principal payments on long-term debt .......................... (4,618) (500) --
Net increase/(decrease) in revolving line of credit
borrowings ................................................... (12,000) 12,000 --
Debt financing costs .......................................... -- -- (686)
Distribution to Raytheon and related transaction costs ........ -- (5,920) (2,579)
-------- -------- --------
Net cash provided by (used in) financing activities ......... (15,806) 6,330 (3,265)
-------- -------- --------
Increase (decrease) in cash .................................... 568 2,063 (1,811)
Cash at beginning of year ...................................... 5,091 3,028 4,839
-------- -------- --------
Cash at end of year ............................................ $ 5,659 $ 5,091 $ 3,028
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................ $ 25,774 $ 31,283 $ 27,670
Non-cash transaction:
Recapitalization price adjustment receivable ................. -- -- 4,000
The accompanying notes are an integral part of the financial statements.
41
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands unless otherwise indicated)
Note 1 -- Description of Business and Basis of Presentation:
Description of Business
Alliance Laundry Holdings LLC (the "Company") designs, manufactures and
services a full line of commercial laundry equipment for sale in the U.S. and
for export to numerous international markets. The Company also manufactures
consumer washing machines for sale to international customers. The Company
produces all of its products in the U.S. at two manufacturing plants located in
Ripon, Wisconsin and Marianna, Florida.
The Company originated from the acquisition of Speed Queen Company
("Speed Queen") by Raytheon Company ("Raytheon") in October of 1979 and was an
operating unit of Raytheon under various names, including Speed Queen and
Raytheon Appliances, Inc. On September 10, 1997, in connection with the sale by
Raytheon of its consumer laundry business ("Appliance Co. Transaction"),
Raytheon Appliances, Inc. was dissolved. Concurrently, Raytheon Commercial
Laundry LLC was established as a limited liability company to carry on the
commercial laundry portion of Raytheon's appliance business.
Effective September 10, 1997, in connection with the Appliance Co.
Transaction, the Company and Appliance Co. entered into two supply agreements.
Under the first supply agreement, the Company agreed to purchase small chassis
front loading washing machines from Appliance Co. for one year and small chassis
dryers, stack dryers, and stack front loading washer/dryer combinations for two
years. As of September 10, 1999 the Company discontinued the purchase of all
products under this supply agreement. The Company has developed the production
capability to produce and is currently producing those products at its Ripon,
Wisconsin facility.
Under a second agreement (the "Appliance Co. Purchase Agreement"),
Appliance Co. agreed to purchase a specified quantity of top loading washing
machines from the Company annually over the term of the agreement. This
agreement was not renewed and production of washing machines under this
agreement was discontinued after September 17, 1999.
Basis of Presentation
The Company was formed in connection with a May 5, 1998
recapitalization (the "Recapitalization") and merger transaction, pursuant to
which Raytheon Commercial Laundry LLC was renamed to "Alliance Laundry Holdings
LLC." The transactions were accounted for as a recapitalization and accordingly,
the historical accounting basis of the assets and liabilities was unchanged. The
financial statements represent the consolidated financial position and results
of operations of the Company, including its wholly-owned direct and indirect
subsidiaries, Alliance Laundry Systems LLC and Alliance Laundry Corporation
which were formed in connection with the Recapitalization.
In connection with the Recapitalization and other related transactions,
the Company contributed substantially all of its assets and liabilities to
Alliance Laundry Systems LLC, a newly formed limited
42
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.
All material intercompany transactions have been eliminated in the
preparation of these financial statements.
Note 2 -- Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Cash Management
The Company considers all highly liquid debt instruments with an
initial maturity of three months or less at the date of purchase to be cash
equivalents. Restricted cash at December 31, 2001 and 2000 represent unremitted
collections on notes receivable sold prior to May 5, 1998.
Revenue Recognition
Revenue is recognized by the Company when all of the following criteria
are met: persuasive evidence of an arrangement exists; delivery has occurred and
ownership has transferred to the customer; the price to the customer is fixed or
determinable; and collectability is reasonably assured. With the exception of
certain sales to international customers, which are recognized upon receipt by
the customer, these criteria are satisfied, and accordingly, revenue is
recognized upon shipment by the Company. In December 1999, the Securities and
Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 was effective for
the Company in the fourth quarter of 2000 and did not have a material effect on
the Company's financial statements.
The Company sold consumer laundry products manufactured at its Ripon,
Wisconsin plant to Appliance Co. and its predecessor Amana until the termination
of the supply agreement on September 17, 1999. Sales of consumer laundry
products were made to Appliance Co. at amounts approximating 1997 standard costs
in accordance with the Appliance Co. Purchase Agreement.
Shipping and Handling Fees and Costs
In accordance with Emerging Issues Task Force ("EITF") Issue No. 00-10
"Accounting for Shipping and Handling Fees and Costs," shipping and handling
fees and costs are reflected in net revenues and cost of goods sold as
appropriate.
43
Sales Incentive Costs
In accordance with EITF Issue No. 00-14 "Accounting for Certain Sales
Incentives," certain sales incentive costs are reflected as a reduction of net
revenues.
Financing Program Revenue
As discussed below, the Company sells notes receivable and accounts
receivable through its special-purpose bankruptcy remote entities. The Company,
as servicing agent, retains collection and administrative responsibilities for
the notes and accounts receivable. The Company earns a servicing fee, based on
the average outstanding balance. In addition, the Company recorded gains or
losses on the sales of notes receivable and accounts receivable in the period in
which such sales occur in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" through March 31, 2001 and
subsequently in accordance with SFAS No. 140 as discussed below. The Company
also recognizes interest income on notes receivable and other beneficial
interests retained in the period the interest is earned. Servicing revenue,
interest income on beneficial interests retained, and gains on the sale of notes
receivable are included in commercial laundry revenue. Losses on the sale of
accounts receivable are recognized in the period in which such sales occur and
are included in selling, general and administrative expense.
During the second quarter of 2001, the Company adopted Statement of
Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, a Replacement of FASB
Statement No. 125." This Statement revised certain aspects of the existing
standards for accounting for securitizations and other transfers of financial
assets and collateral, and requires certain new and expanded disclosures. SFAS
No. 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 No. 140 during the fourth quarter of
2000.
Effective April 1, 2001, the Company also adopted the provisions of
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 as the cumulative effect of this
accounting change and prospectively through December 31, 2001 recognized
approximately $1.0 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.
Sales of Accounts Receivable and Notes Receivable (See Notes 5 and 6)
According to SFAS No. 125 and 140, a transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as a
sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. The Company sells a significant
portion of accounts receivable and notes receivable to third parties through
special-purpose bankruptcy remote entities designed to meet the SFAS No. 125 and
140 requirements for sale treatment. Accordingly, the Company removes these
receivables from its balance sheet at the time of transfer. In connection with
the Recapitalization, the Company established Alliance Laundry Receivables
44
Warehouse LLC ("ALRW"), a special-purpose bankruptcy remote entity, to which all
eligible notes receivable and eligible trade accounts receivable are sold.
In a subordinated capacity, the Company retains rights to the residual
portion of interest earned on the notes receivable sold. This retained
beneficial interest is recorded at its estimated fair value at the balance sheet
date. In determining the gain on sales of notes receivable, the investment in
the sold receivable pool is allocated between the portion sold and the portion
retained, based on their relative fair values. The Company generally estimates
the fair values of its retained interests based on the present value of expected
future cash flows to be received, using management's best estimate of key
assumptions, including credit losses, prepayment rates, interest rates and
discount rates commensurate with the risks involved. Unrealized gains and losses
resulting from changes in the estimated fair value of the Company's retained
interests are recorded as other comprehensive income (loss) in accordance with
SFAS No. 125 and 140. Impairment losses are recognized when the estimated fair
value is less than the carrying amount of the retained interest and management's
most recent evaluation indicates that there has been an adverse change in the
estimated cash flows to be received by the Company.
Inventories
Inventories are stated at cost using the first-in, first-out method but
not in excess of net realizable value. The Company's policy is to evaluate all
inventory including manufacturing raw material, work-in-process, finished goods,
and spare parts. Inventory in excess of the Company's estimated usage
requirements is written down to its estimated net realizable value. Inherent in
the estimates of net realizable value are management estimates related to the
Company's future manufacturing schedules, customer demand, possible alternate
uses and ultimate realization of potentially excess inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Betterments and major
renewals are capitalized and included in property, plant and equipment while
expenditures for maintenance and minor renewals are charged to expense. When
assets are retired or otherwise disposed of, the assets and related allowances
for depreciation and amortization are eliminated and any resulting gain or loss
is reflected in other income (expense). When events or changes in circumstances
indicate that assets may be impaired, an evaluation is performed comparing the
estimated future undiscounted cash flows associated with the asset to the
asset's carrying amount, including any related goodwill, to determine if a
write-down is required.
Depreciation provisions are based on the following estimated useful
lives: buildings 40 years; machinery and equipment (including production
tooling) 5 to 10 years. Leasehold improvements are amortized over the lesser of
the remaining life of the lease or the estimated useful life of the improvement.
Intangibles
Goodwill represents the excess of the acquisition cost over the fair
value of the net assets acquired in purchase transactions. Goodwill related to a
1994 acquisition is amortized using the straight-line method over approximately
40 years. Goodwill related to the Ajax acquisition (See Note 3) is amortized
using the straight-line method over 20 years. Accumulated amortization was $11.8
million and $9.7 million at December 31, 2001 and 2000, respectively. At each
balance sheet date, the Company evaluates the realizability of goodwill and
other intangibles based on expectations of non-
45
discounted cash flows and operating income. Based on its most recent analysis,
the Company believes that no impairment of recorded intangibles exists at the
balance sheet date.
Debt Issuance Costs
In conjunction with the Recapitalization, the Company recorded $17.2
million of debt issuance costs. These costs are being amortized over periods
ranging from 5 to 10 years. Accumulated amortization was $9.4 million and $6.7
million at December 31, 2001 and 2000, respectively.
Warranty Liabilities
The cost of warranty obligations are estimated and provided for at the
time of sale. Standard product warranties cover most parts for three years and
certain parts for five years. Warranty costs were $3.2 million, $3.4 million and
$5.3 million in 2001, 2000 and 1999, respectively.
Research and Development Expenses
Research and development expenditures are expensed as incurred. Research
and development costs were $5.8 million, $5.8 million and $6.8 million in 2001,
2000 and 1999, respectively.
Advertising Expenses
The Company expenses advertising costs as incurred. The Company incurred
advertising expenses of approximately $3.2 million in each of 2001, 2000 and
1999.
Income Taxes
As a result of the Recapitalization, the Company is now a stand-alone
limited liability company and is not subject to federal and most state income
taxes.
Class B and C Units
The Company issued Class B and C Unit interests (see Note 11) to
certain members of management in connection with the May 5, 1998
recapitalization transaction. These units were issued for nominal consideration
based upon the subordinated nature of such interests. The Class B and C Units
are considered to represent performance-based compensatory awards for accounting
purposes. Compensation expense will be measured each period based upon the
estimated fair value of all common units and recognized over the vesting period
when it becomes probable that certain target multiples, as defined, will be
achieved. No compensation expense related to these units was recognized in 2001,
2000 or 1999.
Fair Value of Financial Instruments
The carrying amounts reported in the statement of assets, liabilities
and members' deficit for cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term maturity of these
financial instruments. The amounts reported for borrowings under the senior
credit facility approximate fair value since the underlying instruments bear
interest at variable rates that reprice frequently. The fair value of the
Company's senior subordinated notes at December 31, 2001 is estimated based upon
prices prevailing in recent market transactions. The fair value of interest rate
swaps are obtained based upon third party quotes.
46
Interest Rate Swaps
To limit the effect of increases in interest rates, the Company has
entered into two interest rate swap arrangements. The differential between the
contract floating and fixed rates was accrued each period and recorded as an
adjustment of interest expense in 2000 and 1999.
Derivative Financial Instruments
The Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities" on
January 1, 2001. SFAS No. 133 as amended, requires the Company to recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value, and recognize changes in the fair value of derivatives in net income
or other comprehensive income, as appropriate.
In accordance with the transition provisions of SFAS 133, the Company
recorded a cumulative-effect-type gain adjustment of $0.7 million in other
comprehensive income (loss) within members' deficit to recognize at fair value
its interest rate swap arrangements at January 1, 2001. The Company reclassified
in earnings during 2001 approximately $0.6 million of the transition adjustment
that was recorded in other comprehensive income (loss). For the year ended
December 31, 2001, the Company recognized a loss of $1.5 million reflecting the
subsequent changes in the fair values of its interest rate swaps and a gain of
$0.6 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.
Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk include trade accounts receivable and notes
receivable. Concentrations of credit risk with respect to trade receivables and
notes receivable are limited, to a degree, by the large number of geographically
diverse customers that make up the Company's customer base, thus spreading the
credit risk. The Company controls credit risk through credit approvals, credit
limits and monitoring procedures.
Certain Concentrations
As discussed in Note 1, the Company had mutual supply agreements with
Appliance Co. that terminated in 1999. Consumer topload washers sold to
Appliance Co. comprised a substantial percentage of the unit volume of the Ripon
facility and represented approximately 17% of net revenues in 1999. Upon the
termination of the Appliance Co. Purchase Agreement at September 17, 1999, the
Company experienced a significant decline in unit volume. This volume decline
resulted in an increase in the Company's average cost per unit, due to, among
other factors, unabsorbed manufacturing overhead and reduced procurement and
manufacturing efficiencies.
Future Accounting Changes
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets." The statements eliminate the
pooling-of-interests 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. Goodwill amortization recognized in 2001
approximated $2.0 million. SFAS No. 141 was
47
effective for the Company July 1, 2001. SFAS No. 142 will be effective for the
Company as of January 1, 2002. The Company does not anticipate that the initial
adoption of SFAS No. 142 will have a material effect on its financial position
or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company is currently reviewing this
statement to determine its effect on the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement modifies and
expands the financial accounting and reporting for the impairment or disposal of
long-lived assets other than goodwill, which is specifically addressed by SFAS
No. 142. This statement supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions for the disposal of a segment of a business
of APB Opinion No. 30, "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for
the Company as of January 1, 2002. Upon adoption, SFAS No. 144 is not expected
to have a material effect on the Company's financial condition or results of
operations.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
Note 3 -- 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 $11.0 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 consolidated
statements of income (loss) 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.
48
Note 4 -- Nonrecurring Items:
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. All such
reserves were utilized by December 31, 2000, and no further expenditures are
anticipated.
The non-cash portion of employee termination and severance benefits
relates to plan curtailment losses recognized in connection with 1999 workforce
reductions and the portion of supplemental termination benefits to be funded out
of the Company's overfunded pension plans (see Note 13).
The Company entered into retention agreements with certain key
executives, managers and commissioned sales people prior to the
Recapitalization. During 1999, the Company incurred approximately $1.5 million
in expense associated with payments under these agreements. Payments under this
program were completed in November of 1999.
Note 5 -- Customer Financing and Sales of Notes Receivable:
General
The Company maintains an internal financing organization to originate
and administer promissory notes for financing of equipment purchases and
laundromat operations. These notes typically have terms ranging from Prime plus
1% to Prime plus 5% for variable rate notes and 8.0% to 15.8% for fixed rate
notes. The average interest rate for all notes at December 31, 2001 approximates
9.4% with terms ranging from 2 to 9 years. All notes allow the holder to prepay
outstanding principal amounts without penalty, and are therefore subject to
prepayment risk.
The Company previously offered a variety of equipment financing
programs (capital leases) to assist customers in financing equipment purchases.
These capital leases were transferred immediately to third parties who
administer the contracts and earn all associated interest revenue ("External
Financing"). These External Financings have terms ranging from 2 to 9 years and
carry market interest rates as set by the third-party lender. These third
parties have recourse against the Company ranging from 15% to 100%. At December
31, 2001 and 2000, the uncollected balance of leases with recourse under these
programs was $1.7 million and $4.4 million, respectively. In connection with the
Recapitalization, Raytheon agreed to indemnify the Company for any recourse
obligations arising from these programs.
49
Funding Facilities
In connection with the Recapitalization and related transactions, the
Company entered into a five year $250.0 million revolving loan agreement (the
"Asset Backed Facility") through ALRW, its special-purpose single member limited
liability company, to finance the sale of 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 is a
$250.0 million facility, with sublimits of $100.0 million for loans on eligible
trade receivables and $200.0 million for loans on eligible equipment loans. With
respect to loans secured by equipment loans, the Facility Lender will make loans
up to but not exceeding the lesser of 90% of the outstanding principal balance
of eligible equipment loans or 90% of the market value with respect to eligible
equipment loans, as determined by the Facility Lender in its reasonable
discretion. The eligibility of both trade receivables and equipment loans is
subject to certain concentration and other limits. In addition, after 24 months
in the Asset Backed Facility, an otherwise eligible equipment loan will no
longer be considered an eligible equipment loan, subject to two automatic
six-month extensions upon payment of a fee if such equipment loans have not been
securitized or otherwise disposed of by ALRW. The interest rate of loans under
the Asset Backed Facility is generally equal to one-month LIBOR plus 1.0% per
annum. The Company sold $108.3 million and $95.1 million of notes under this
agreement during 2001 and 2000, respectively. The amount of uncollected balances
on equipment loans sold to ALRW was $110.4 million and $40.4 million at December
31, 2001 and 2000, respectively.
ALRW provides additional credit enhancement to the Facility Lender
(consisting of an irrevocable letter of credit, an unconditional lending
commitment of the Lenders under the Senior Credit Facility or a cash collateral
account) in an amount not to exceed 10% of the aggregate principal amount of
loans outstanding under the Asset Backed Facility up to $125.0 million and 5% of
the aggregate principal amount of loans outstanding above $125.0 million. The
Company is obligated under the reimbursement provisions of the Senior Credit
Facility to reimburse the Lenders for any drawings on the credit enhancement by
the Facility Lender. If the credit enhancement is not replenished by the Company
after a drawing, the Facility Lender will not be obligated to make further loans
under the Asset Backed Facility and the Asset Backed Facility will begin to
amortize. In addition, at any time when (i) the aggregate principal amount of
loans outstanding under the Asset Backed Facility exceeds $125.0 million and
(ii) the delinquency or default ratios with respect to trade receivables or
equipment loans exceed certain specified levels (an "Excess Spread Sweep
Event"), and for four months after a cure of such excess delinquency or default
ratios, the collections on the equipment loans (after payment of accrued
interest on the loans under the Asset Backed Facility) will be directed into an
excess spread sweep account in the name of the Facility Lender until the amount
on deposit in such account is equal to five percent of the aggregate principal
amount of loans outstanding under the Asset Backed Facility.
Early repayment of the loans under the Asset Backed Facility will be
required upon the occurrence of certain "events of default," which include: (i)
default in the payment of any principal of or interest on any loan under the
Asset Backed Facility when due, (ii) the bankruptcy of ALRW, Alliance Laundry or
the issuer of the letter of credit or provider of the line of credit, (iii) any
materially adverse change in the properties, business, condition or prospects
of, or any other condition which constitutes a material impairment of ALRW's
ability to perform its obligations under the Asset Backed Facility and related
documents, (iv) specified defaults by ALRW or Alliance Laundry on certain of
their respective obligations, (v) delinquency, dilution or default ratios on
pledged receivables exceeding certain specified ratios in any given month and
(vi) a number of other specified events.
50
Prior to the Recapitalization, the Company through its special-purpose
bankruptcy remote entity Alliance Commercial Appliances Finance LLC, successor
to Raytheon Commercial Appliances Financing Corporation, had entered into an
agreement dated March 26, 1997, with Falcon Asset Securitization Corporation
(the "Bank") and Bank One, NA, formerly known as the First National Bank of
Chicago, as agent for the Bank, under which it sold defined pools of notes
receivable. Under the terms of the agreement with the Bank, the Bank is paid
interest based on the 30-day commercial paper rate plus 0.5% and has recourse
against the Company ranging from 15% to 100%. Notes were no longer sold under
this program after May 4, 1998. The total amount uncollected at December 31,
2001 and 2000, was $21.3 million and $36.1 million, respectively.
Under these arrangements the Company acts as servicer or sub-servicer
of the accounts receivable and notes receivable sold. As such, the Company
continues to administer and collect amounts outstanding on such receivables. At
December 31, 2001 and 2000, the Company had collected approximately $0.4 million
and $0.5 million, respectively, of notes receivable which were subsequently
transferred to the buyers through a monthly settlement process. At the balance
sheet dates, these amounts were recorded as finance program obligations.
Sales of Notes Receivable
Gains on sales of notes receivable and other finance program income in
2001, 2000, and 1999 of approximately $6.5 million, $7.3 million, and $7.4
million, respectively, is included in commercial laundry revenue. At December
31, 2001 and 2000, the Company has recorded $18.4 million and $7.3 million,
respectively, related to the estimated fair value of the Company's beneficial
interests in notes sold to ALRW.
Pursuant to the terms of the Asset Backed Facility, effective November
28, 2000, the Company, through a new-formed wholly-owned subsidiary, Alliance
Laundry Equipment Receivables LLC ("ALER") and Alliance Laundry Equipment
Receivable Trust 2000-A ("ALERT"), a trust formed by ALER, completed the
securitization of $137.8 million of loans held by ALRW. The transaction was
financed by the issuance of $128.2 million of equipment loan-backed notes issued
by ALERT and certain interests retained by the Company. Proceeds from the
issuance of the notes by ALERT were used by ALRW to repay amounts outstanding
under the Asset Backed Facility, with the balance received by the Company in
settlement of its related retained interests in ALRW. The Company recognized a
loss on these related transactions in the fourth quarter of 2000 of $3.1
million, reflecting primarily transaction costs incurred of approximately $1.6
million and the difference between the recorded fair values of assets relating
to the cash reserve account established in connection with the transaction and
the original amount funded by the Company of $2.4 million. The amount related to
the cash reserve account reflects the estimated present value of amounts to be
released to the Company from the account based upon the distribution priorities
established in connection with the transaction as compared to the amount funded.
The Company holds all of the residual equity interests of the trust, which it
does not consolidate based upon its special-purpose bankruptcy remote status,
and is paid a servicing fee equal to 1.0% of the aggregate balance of loans held
by the trust. At December 31, 2001 and 2000, the Company has recorded $9.8
million and $14.1 million, respectively, related to the estimated fair value of
the Company's beneficial interests in the notes sold to the trust.
51
Portfolio Information
The table below summarizes certain information regarding the Company's
equipment loan portfolio, delinquencies, and cash flows received from and paid
to the Company's special-purpose securitization entities:
December 31, 2001 December 31, 2000
------------------------------------------- ----------------------------------------------
Principal Amount of Principal Amount of
Loans 60 Days or More Loans 60 Days or
Principal Amount Past Due Principal Amount More Past Due
----------------- --------------------- --------------------- ----------------------
Total Portfolio ............... $ 234,926 $ 9,359 $ 209,848 $ 5,038
Less: Loans Sold .............. 225,598 4,103 203,683 1,348
----------------- --------------------- --------------------- ----------------------
Loans Held .................... 9,328 $ 5,256 6,165 $ 3,690
===================== ======================
Allowance for loan losses ..... (816) (2,614)
----------------- ---------------------
$ 8,512 $ 3,551
================= =====================
For The Year Ended For The Year Ended
December 31, 2001 December 31, 2000
------------------------ ------------------------
Proceeds from sales of loans ....................... $ 111,044 $ 85,572
Purchase of delinquent or foreclosed assets ........ $ (11,354) (2,989)
Servicing fees and other net cash flows received
on retained interests .......................... $ 9,551 $ 12,111
The Company's net credit losses as a percentage of average loans
outstanding during 2001, 2000 and 1999 were 2.05%, 0.31% and 0.60%,
respectively.
Valuation of Retained Interests
Under its Asset Backed Facility, the Company recognizes two forms of
beneficial interests in ALRW, a note receivable of between 10% and 25% of notes
sold and the beneficial interest representing the residual portion of net
interest realized on notes sold to ALRW. Amounts payable to the Company under
the note receivable accrue interest at the prime rate. The Company has also
recognized its interest in the residual equity of ALERT.
December 31,
2001 2000
------- -------
Note receivable from ALRW ................. $13,297 $ 4,043
Other beneficial interests in notes sold .. 14,930 17,345
------- -------
$28,227 $21,388
======= =======
Key economic assumptions used at the date of transfer in measuring
retained interests in the residual portion of net interest realized on notes
sold to ALRW and the Company's interest in the residual equity of ALERT
resulting from sales of notes receivable completed during the year ended
December 31, 2001 and 2000 were as follows:
52
2001 2000
-------------- ---------------
Average Prepayment speed (per annum) .. 25.25% 25.25%
Expected credit losses (per annum) .... 0.6% 0.6%
Residual cash flows discounted at ..... 12.5%-14.0% 12.0% - 14.0%
The weighted-average remaining life of notes receivable sold by the
Company was 19 months at December 31, 2001.
At December 31, 2001 and 2000, key economic assumptions and the
sensitivity of the current fair value estimates of such retained interests to
immediate 10 percent and 20 percent adverse changes in those assumptions are as
follows:
December 31,
------------------------
2001 2000
----------- -----------
Prepayment speed assumption:
Impact on FV 10% adverse change ... (215) (213)
Impact on FV 20% adverse change ... (412) (427)
Expected credit losses:
Impact on FV 10% adverse change ... (200) (174)
Impact on FV 20% adverse change ... (399) (348)
Residual cash flow discount rate:
Impact on FV 10% adverse change ... (304) (409)
Impact on FV 20% adverse change ... (596) (803)
These sensitivities are hypothetical and the effect of a variation in a
particular assumption on the estimated fair value of retained interests is
calculated without changing any other assumptions; in reality, changes in one
factor may result in changes in another, which may magnify or counteract the
sensitivities.
Note 6 -- Sales of Accounts Receivable:
As described in Note 5 above, the Company entered into the Asset Backed
Facility through ALRW to finance the sale of trade receivables and notes
receivable related to equipment loans. With respect to loans secured by trade
receivables, the Facility Lender will make loans up to but not exceeding 85% of
the outstanding amount of eligible trade receivables. The Company as servicing
agent retains collection and administrative responsibilities for the accounts
receivable sold. Under this agreement, the Company sold $283.8 million and
$299.4 million of accounts receivable during 2001 and 2000, respectively. The
total amount of uncollected balances on trade accounts receivable sold at
December 31, 2001 and 2000 totaled $43.5 million and $44.3 million,
respectively.
Losses on sales of trade accounts receivable and related expenses of
$1.8 million, $3.8 million and $2.6 million in 2001, 2000 and 1999,
respectively, are included in selling, general and administrative expense. The
Company's retained interest in trade accounts receivable sold to ALRW,
53
which is included in other current assets, at December 31, 2001 and 2000 is $6.9
million and $6.9 million, respectively.
Note 7 -- Inventories:
Inventories consisted of the following at:
December 31,
----------------------
2001 2000
----------------------
Materials and purchased parts ....................... $ 11,830 $ 13,250
Work in process ..................................... 4,017 4,907
Finished goods ...................................... 16,822 21,895
Less: inventory reserves ............................ (2,807) (2,590)
-------- --------
$ 29,862 $ 37,462
======== ========
Note 8 -- Property, Plant and Equipment:
Property, plant and equipment consisted of the following at:
December 31,
----------------------
2001 2000
----------------------
Land ................................................. $ 910 $ 767
Buildings and leasehold improvements ................. 29,569 25,132
Machinery and equipment .............................. 149,733 144,692
--------- ---------
180,212 170,591
Less: accumulated depreciation ....................... (134,574) (123,168)
--------- ---------
45,638 47,423
Construction in progress ............................. 1,271 6,434
--------- ---------
$ 46,909 $ 53,857
========= =========
Depreciation expense was $11.8 million, $12.2 million and $12.5 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
Note 9 -- Other Current Liabilities:
The major components of other current liabilities consisted of the
following at:
December 31,
----------------------
2001 2000
----------------------
Warranty reserve ...................................... $ 5,090 $ 4,790
Accrued sales promotion and cooperative advertising ... 3,096 3,224
Salaries, wages and other employee benefits ........... 3,600 3,189
Accrued interest ...................................... 5,161 2,893
Other current liabilities ............................. 3,592 4,877
------- -------
$20,539 $ 18,973
======= =======
54
Note 10 -- Debt:
Debt consisted of the following at:
December 31,
------------------------
2001 2000
--------- ---------
Term loan facility ............. $ 195,000 $ 199,500
Senior subordinated notes ...... 110,000 110,000
Junior subordinated note ....... 17,069 14,343
Revolving credit facility ...... -- 12,000
Other long-term debt ........... 1,495 762
--------- ---------
Gross long-term debt ........... 323,564 336,605
Less: current portion .......... (1,212) (13,036)
--------- ---------
$ 322,352 $ 323,569
========= =========
Senior Credit Facility
In connection with the Recapitalization and related transactions, the
Company 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 five year $75.0
million revolving credit facility (the "Revolving Credit Facility"), which was
made available in conjunction with the issuance of the Company's senior
subordinated notes. The Term Loan Facility required no principal payments during
the first two years followed by payments of $246 per quarter for years three
through five, beginning September 2000, $39.3 million for year six and $154.2
million for year seven. The Company is required to make prepayments with the
proceeds from the disposition of certain assets and from excess cash flow, as
defined. No excess cash flow payment was required for 2001.
The Term Loan Facility bears interest, at the Company's election, at
either the Lenders' Base Rate plus a margin ranging from 1.125% to 1.625% or the
Eurodollar Rate plus a margin ranging from 2.125% to 2.625%. The Revolving
Credit Facility bears interest, at the Company's election, at either the Base
Rate plus a margin ranging from 0.625% to 1.375% or the Eurodollar Rate plus a
margin ranging from 1.625% to 2.375%.
The interest rate on term loan borrowings outstanding at December 31,
2001 and 2000 was 5.0% and 9.2%, respectively. Borrowings outstanding under the
Senior Credit Facility are secured by substantially all of the real and personal
property of the Company and its domestic subsidiaries (other than the financing
subsidiaries). Letters of credit issued on the Company's behalf under the
Revolving Credit Facility totaled $14.0 million at December 31, 2001.
Effective March 10, 1999 and March 14, 2001, the Company entered into
separate $67 million interest rate swap agreements with a financial institution
to hedge a portion of its interest rate risk related to its term loan borrowings
under the Senior Credit Facility. Under the swaps, which both mature in March,
2002, the Company pays a fixed rate of 4.962% and 5.05% respectively, and
receives or pays quarterly interest payments based upon LIBOR. The effect of
these agreements on the Company's cash interest paid during 2001 was an increase
of $0.6 million. The fair value of these interest rate swap agreements which
represents the amount that the Company would pay to settle the instrument is
$0.8 million at December 31, 2001.
55
Senior Subordinated Notes
Also on May 5, 1998, the Company and its wholly-owned subsidiary,
Alliance Laundry Corporation, issued $110.0 million of 9 5/8% senior
subordinated notes due in 2008 (the "Notes") to Lehman Brothers Inc. and Credit
Suisse First Boston Corporation (the "Initial Purchasers"). The Initial
Purchasers subsequently resold the Notes to qualified institutional buyers
pursuant to Rule 144A of the Securities and Exchange Act and to a limited number
of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions.
The Notes are general unsecured obligations and are subordinated in
right of payment to all current and future senior debt, including permitted
borrowings under the Senior Credit Facility.
Interest on the Notes accrues at the rate of 9 5/8% per annum and is
payable semi-annually in arrears on May 1 and November 1. The fair value of the
Notes at December 31, 2001 and 2000 was approximately $60.5 million and $82.5
million, respectively, based upon prices prevailing in recent market
transactions.
The Notes are not redeemable prior to May 1, 2003. Thereafter, the
Notes are subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 1 of the years
indicated below:
Year Redemption Price
---- ----------------
2003 ....................... 104.813%
2004 ....................... 103.208%
2005 ....................... 101.604%
2006 and thereafter ........ 100.000%
The Company is required under the terms of the Notes to offer to redeem
the Notes at a redemption price of 101% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the redemption date, upon a
change of control, as defined. Further, the Company is required to offer to
redeem the Notes at a redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the redemption date, when
the amount of excess proceeds from asset sales, as defined, exceeds $10 million,
up to the maximum principal amount that may be purchased out of such excess
proceeds.
As discussed above, Alliance Laundry and its wholly-owned subsidiary,
Alliance Laundry Corporation, issued the $110.0 million senior subordinated
notes. Alliance Laundry Corporation was incorporated for the sole purpose of
serving as a co-issuer of the 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 Notes and has no operating activities independent of Alliance
Laundry.
The Senior Credit Facility and the indenture governing the Notes
contain a number of covenants that, among other things, restrict the ability of
the Company to dispose of assets, repay other indebtedness (including, in the
case of the Senior Credit Facility, the Notes), incur liens, make capital
expenditures and make certain investments or acquisitions, engage in mergers or
consolidation and otherwise restrict the activities of the Company. In addition,
under the Senior Credit Facility, the
56
Company will be required to satisfy specified financial ratios and tests,
including a maximum of total debt to EBITDA (earnings before interest, income
taxes, depreciation and amortization) and a minimum interest coverage ratio.
Junior Subordinated Promissory Note
On May 5, 1998 the Company issued a junior subordinated promissory note
(the "Junior Note") in the principal amount of $9.0 million due August 21, 2009,
to Raytheon. Pursuant to the terms of the Junior Note, interest accrues at the
rate of 19.0% per annum until the eighth anniversary of the date of issuance of
the Junior Note and at a rate of 13.0% thereafter. The Junior Note is
subordinated in priority and subject in right and priority of payment to certain
indebtedness described therein. Interest which accrues on the Junior Note is
payable in-kind.
Other Debt
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 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.
On August 14, 2001, the Company received $812,000 in effective
borrowings, evidenced by a promissory agreement, pursuant to an equipment
financing transaction with Alliant Energy - Wisconsin Power & Light Company. The
agreement requires monthly payments commencing September 14, 2001 with the final
installment paid on July 14, 2006, subject to the covenants of the Agreement.
The stated payments reflect a 3% imputed interest rate.
Debt Maturities and Liquidity Considerations
The aggregate scheduled maturities of long-term debt in subsequent
years are as follows:
2002 .................... $ 1,212
2003 .................... 20,376
2004 .................... 97,008
2005 .................... 77,369
2006 .................... 204
Thereafter .............. 127,395
--------
$323,564
========
At December 31, 2001, based upon the maximum ratio of consolidated debt
to EBITDA (as defined) allowable under the Senior Credit Facility, the Company
could have borrowed an additional $6.9 million of the total $61.0 million
unutilized under the Revolving Credit Facility, and could have sold an
additional $3.5 million of trade receivables under the Asset Backed Facility to
finance its operations. The maximum ratio of consolidated debt to EBITDA under
the Senior Credit Facility is scheduled to be reduced from 6.0 at December 31,
2001 to 5.25 at December 31, 2002. Management believes that future cash flows
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, scheduled principal
payments and other debt
57
repayments throughout 2002 that may be required as a result of the scheduled
reduction in the ratio of consolidated debt to EBITDA discussed above.
Note 11 -- Mandatorily Redeemable Preferred Equity and Members' Equity
(Deficit):
Members' deficit at December 31, 2001 and 2000 consists of the
following:
December 31,
-------------------------
2001 2000
----------- -----------
Common members' contributed capital ........... $ 50,645 $ 50,645
Retained earnings (accumulated loss) .......... (210,942) (211,629)
Accumulated other comprehensive
income (loss) ................................ 1,450 572
Management investor promissory notes .......... (1,361) (1,449)
----------- -----------
$ (160,208) $ (161,861)
=========== ===========
As discussed in Note 1, the May 5, 1998 merger was accounted for as a
recapitalization and accordingly, the historical accounting basis of assets and
liabilities was unchanged. As such, the consideration paid by the Company,
including the premium paid over the Company's May 5, 1998 net book value, was
recorded as a reduction of members' equity.
Bain/RCL, L.L.C., a Delaware limited liability company ("Bain LLC"),
certain management and other third party investors and Raytheon (collectively,
the "Members") have entered into an Amended and Restated Limited Liability
Company Agreement (the "LLC Agreement"). The LLC Agreement governs the relative
rights and duties of the Members.
The ownership interests of the Members in the Company consist of
preferred units (the "Preferred Units") and common units (the "Common Units").
Holders of the Preferred Units are entitled to a return of capital contributions
prior to any distributions made to holders of the Common Units. The Common Units
represent the common equity of the Company.
Preferred Units -- Upon consummation of the Merger, the Company issued
mandatorily redeemable preferred membership interests (the "Seller Preferred
Equity") with a liquidation value of $6.0 million to Raytheon. The Seller
Preferred Equity does not accrete, accrue or pay dividends and is redeemable at
the earlier of (i) a change of control (as defined in the LLC Agreement), (ii)
any initial public offering or (iii) 2009. The holders of the Seller Preferred
Equity are entitled to receive distributions from the Company in an amount equal
to their unreturned capital (as defined in the LLC Agreement) prior to
distributions in respect of any other membership interests of the Company.
Common Units -- The Common Units of the Company are divided into the
following four classes:
Class L Units -- These units provide a yield of 12% on the unreturned
capital and unpaid yield (as defined), compounded quarterly. Such accumulated
and unpaid amounts totaled $24.7 million and $16.9 million at December 31, 2001
and 2000, respectively. Class L Units do not provide any voting rights to the
holders.
Class A Units -- These units are the primary vehicle of equity
ownership in the Company. Class A Units are the only units that provide voting
rights. Decisions made by a majority of the voting holders
58
of Class A Units are binding on the Company, provided that members holding at
least 20% of the Class A Units are present.
Class B and C Units -- Class B Units and Class C Units do not provide
any voting rights to the holders. These units are not eligible to receive
distributions until the Company achieves the defined target multiple applicable
to each class of units. The target multiple is calculated as the sum of all
distributions to all holders of Class L and Class A Units divided by the sum of
all capital contributions made by such holders. Class B Units become eligible to
receive distributions when vested and the target multiple reaches or exceeds 1.0
and the Class C Units become eligible when vested and the target multiple
reaches or exceeds 3.0. Pursuant to agreements entered into with the members of
management who participated in the purchase of membership interests (see Note
14), the Class B and Class C Units vest ratably from May 5, 1998 through May 5,
2003. Such agreements also provide for accelerated vesting in certain
circumstances.
Distributions -- Subject to any restrictions contained in any financing
agreements to which the Company or any of its affiliates (as defined in the LLC
Agreement) is a party, the Board of Managers (the "Board") may make
distributions, whether in cash, property, or securities of the Company, at any
time in the following order of priority:
First, to the holders of Preferred Units, an amount determined by the
aggregate unreturned capital.
Second, to the holders of Class L Units, the aggregate unpaid yield
accrued on such Class L Units.
Third, to the holders of Class L Units, an amount equal to the
aggregate unreturned capital.
Fourth, ratably to the holders of Common Units, an amount equal to the
amount of such distribution that has not been distributed
pursuant to the clauses described above.
The Company may distribute to each holder of units within 75 days after
the close of each fiscal year such amounts as determined by the Board to be
appropriate to enable each holder of units to pay estimated income tax
liabilities. There were no distributions to holders of units during 2001, 2000
or 1999.
Allocations -- Profits and losses of the Company are allocated among
the various classes of units in order to adjust the capital accounts of such
holders to the amount to be distributed upon liquidation of the Company.
Restrictions on transfer of securities -- No holder of securities may
sell, assign, pledge or otherwise dispose of any interest in the holder's
securities except that (i) Bain LLC may transfer its securities to other
security holders in the same class, (ii) holders may transfer their securities
through applicable laws of descent and distribution, (iii) transfers of
securities may be made to an affiliate, and (iv) Raytheon may transfer its
Preferred Units with the consent of the Board.
59
Note 12 -- Commitments and Contingencies:
At December 31, 2001, the Company had commitments under long-term
operating leases requiring approximate annual rentals in subsequent years as
follows:
2002 ................. $ 299
2003 ................. 243
2004 ................. 100
2005 ................. 26
Thereafter ........... -
--------
$ 668
========
Rental expense for 2001, 2000 and 1999 amounted to $1.1 million, $2.0
million and $1.7 million, respectively.
The Company's Marianna, Florida plant is located on property leased
from the Marianna Municipal Airport Development Authority (acting on behalf of
the City of Marianna). The lease expires on February 28, 2005 and may be renewed
at the Company's option for five additional consecutive ten year terms.
The Company and its operations are subject to comprehensive and
frequently changing federal, state and local environmental and occupational
health and safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates and
at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquiries relating
to environmental matters. There can be no assurance that the Company will not be
involved in such proceedings in the future and that the aggregate amount of
future clean-up costs and other environmental liabilities will not have a
material adverse effect on the Company's business, financial position and
results of operations. However, in the opinion of management, any liability
related to matters presently pending will not have a material effect on the
Company's financial position, liquidity or results of operations after
considering provisions already recorded.
With respect to the Marianna, Florida facility, a former owner of the
property has agreed to indemnify the Company for certain environmental
liabilities. In the event the former owner fails to honor their respective
obligations under these indemnifications, such liabilities could be borne
directly by the Company.
In April 1998, Amana Company, L.P. ("Appliance Co.") filed suit in the
United States District Court for the Southern District of New York seeking, in
pertinent part, to prohibit the Company from competing in the U.S. consumer
retail distribution laundry market until July 2012. The Company currently does
not participate in this market. In June 1998, Appliance Co. added allegations
asserting that the Company, Alliance Laundry and Bain Capital, Inc. had
tortiously interfered with the non-compete agreement that Appliance Co. claimed
that Alliance Laundry had inherited from Raytheon. In January 1999, Appliance
Co. added claims against Raytheon and the Company in connection with the
60
Horizon washing machine, a "single-pocket" frontload washing machine that was
being readied for volume production as of the time when Raytheon (the former
parent of the Company) was completing the sale of its consumer appliances
business to Appliance Co. (the "Appliance Co. Transaction"). In January 1999,
Alliance Laundry filed a counterclaim against Appliance Co. seeking payment of
sums owed for certain top-load washing machines and parts sold pursuant to a
Supply Agreement between the companies. In May 1999, Appliance Co. filed a Reply
Counterclaim for breach of the Supply Agreement. In October 1999, Appliance Co.
added another claim that sought to revise the cross-license agreement between
the two companies to restrict the degree to which the Company can use
intellectual property whose ownership was retained by the Company as part of the
1997 transaction between Appliance Co. and Raytheon to compete against Appliance
Co. in the U.S. consumer retail distribution laundry market.
In December 1999, the parties to this lawsuit agreed to settle all of
their claims, and all claims in the action against all parties were dismissed
with prejudice. Under the terms of the settlement agreement, the Company will be
allowed to compete in the U.S. home laundry market beginning in October 2004.
The Company will also be permitted to compete in the U.S. home laundry market
beginning in October 2004 with both the intellectual property whose ownership
was retained by the Company as part of the 1997 transaction between Appliance
Co. and Raytheon and the intellectual property that was cross-licensed to the
Company by Appliance Co. pursuant to the cross-license agreement. Likewise,
Appliance Co. will be permitted to compete against the Company in the commercial
laundry market beginning in October 2004 and will be able to do so using both
the intellectual property that Appliance Co. acquired as part of the Appliance
Co. Transaction and the intellectual property to which Alliance received a
cross-license under the cross-license agreement. Additionally, pursuant to the
terms of the settlement agreement, Appliance Co. satisfied all outstanding
invoices owed to the Company for certain top-load washing machines and parts
sold pursuant to the Supply Agreement between the companies, and the Company was
required to pay Appliance Co. $3.0 million for certain Appliance Co.
manufactured inventory. The Company estimates that such inventory has a net
realizable value of approximately $1.7 million and recorded the difference ($1.3
million) as a legal settlement cost in other income (expense), net in 1999.
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 was liable for such amount. In addition, the Company and Bain LLC filed
counterclaims and claims seeking damages in excess of $30.0 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 financial statements as an adjustment of
members' deficit, consistent with the original Recapitalization accounting.
Certain price adjustments concluded during 1999 had been previously recorded in
the financial statements as of and for the period ended December 31, 1999. The
related net interest, including amounts related to prior years, has been
included in interest expense for the year ended December 31, 2000.
61
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 at the time), 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 effect 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. In management's opinion based on the advice of
counsel, under the terms of the award, any such payments would have to be
forthcoming from the assets of ALSA. On December 20, 2001, ALSA's bankruptcy was
decreed, at the request of Mr. Lopez, on grounds of non-payment of the
arbitration award.
Since January 2002, there have been significant changes in Argentina's
monetary legislation, and the value of the Argentine Peso. The rate of exchange
of one Argentine Peso per one United States Dollar is no longer in force, and as
of February 22, 2002 the Argentine Peso was trading at .4963 per United States
Dollar. Accordingly, in the event that Mr. Lopez was ultimately successful in a
U.S. court of securing payment of this award from the Company, the U.S. dollar
value of the award (based upon the current rate of exchange) would be
substantially reduced as compared to the amount discussed above.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
ultimate liability from these proceedings is difficult to determine, in the
opinion of management, any additional liability will not have a material effect
on the Company's financial position, liquidity or results of operations.
Note 13 -- Pensions and Other Employee Benefits:
The Company has several pension and retirement plans covering the
majority of its employees. The pension plan covering salaried and management
employees is a defined benefit cash balance plan whereby an account is
established for each participant, in which pay credits and interest credits are
earned as the participant provides service. Pay credits are calculated as a
pre-determined percentage of the participant's salary adjusted for age and years
of service. Interest credits are earned at the rate of a one-year U.S. Treasury
Bill, as of the last day of the prior plan year, plus 1%. The pension plan
covering hourly and union employees generally provides benefits of stated
amounts for each year of service. The Company's funding policy for the salaried
plan is to contribute annually at a rate that is intended to remain at a level
percentage of compensation for the covered employees. The Company's funding
policy for the hourly and union plan is to contribute annually at a rate that is
intended to remain level for the covered employees. Unfunded prior service costs
under the funding policy are generally amortized over periods from 10 to 30
years.
62
Total pension expense (benefit) for the Company's plans was ($1.2)
million, ($2.1) million and $0.3 million in 2001, 2000, and 1999, respectively,
including the following components:
Years Ended December 31,
-------------------------------
2001 2000 1999
------- ------- -------
Service cost benefits earned during
the period ................................... $ 1,195 $ 1,311 $ 1,455
Interest cost on projected benefit
obligation ................................... 2,327 2,413 2,197
Actual (gain) loss on assets .................. 3,520 (73) (7,387)
Net amortization and deferral ................. (8,303) (5,738) 2,688
Curtailment losses and termination benefits ... 67 -- 1,390
------- ------- -------
Net postretirement benefit cost
(benefit) ................................ $(1,194) $(2,087) $ 343
======= ======= =======
Assumptions used in the accounting were:
Discount rate ............................. 7.25% 7.50% 8.00%
Expected long-term rate of return
on assets ................................ 9.25% 9.25% 9.25%
Rate of increase in compensation levels ... N/A N/A N/A
In 2001 and 1999, various plan curtailments and supplemental
termination benefits were recognized as a result of workforce reductions.
The following table provides a reconciliation of benefit obligations,
plan assets and funded status of the plans at December 31:
2001 2000
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year ...... $ 32,321 $ 31,608
Service cost ................................. 1,195 1,311
Interest cost ................................ 2,327 2,413
Termination benefits ......................... 67 --
Acquisition .................................. -- 951
Actuarial (gain) loss ........................ 648 958
Benefits paid ................................ (2,899) (4,920)
-------- --------
Benefit obligation at end of year ........ 33,659 32,321
-------- --------
Change in plan assets:
Fair value of plan assets at beginning
of year ..................................... 45,849 50,696
Actual return on plan asset .................. (3,520) 73
Benefits paid ................................ (2,899) (4,920)
-------- --------
Fair value of plan assets at end
of year ................................. 39,430 45,849
-------- --------
Funded status ................................ 5,770 13,528
Unrecognized prior service cost .............. 623 693
Unrecognized net loss ........................ (3,913) (12,935)
-------- --------
Prepaid benefit cost ..................... $ 2,480 $ 1,286
======== ========
Plan assets primarily include equity and fixed income securities.
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially all
of the Company's employees may become eligible for these benefits if they reach
normal retirement age while working for the Company. Retiree
63
health plans are paid for in part by employee contributions, which are adjusted
annually. Benefits are provided through various insurance companies whose
charges are based either on the benefits paid during the year or annual
premiums. Health benefits are provided to retirees, their covered dependents,
and beneficiaries. Retiree life insurance plans are noncontributory and cover
the retiree only.
The net postretirement benefit cost for the Company in 2001, 2000 and
1999 included the following components:
Years Ended December 31,
-------------------------
2001 2000 1999
-------- -------- -------
Service cost benefits earned during the period .. $ 34 $ 39 $ 51
Interest cost on projected benefit obligation ... 68 90 106
Net amortization and deferral ................... 45 48 84
Curtailment losses .............................. -- -- 250
---- ---- ----
Net postretirement benefit cost ............. $147 $177 $491
==== ==== ====
Assumptions used in the accounting were:
Discount rate ............................... 7.25% 7.50% 8.00%
Rate of increase in compensation levels ..... 4.00% 4.00% 4.00%
Health care cost trend rate in the first year 7.00% 5.50% 6.50%
The following provides a reconciliation of benefit obligations, plan assets
and the funded status of the plan at December 31:
2001 2000
------- -------
Change in benefit obligation:
Benefit obligation at beginning of year ...... $ 1,092 $ 1,214
Service cost ................................. 34 39
Interest cost ................................ 68 90
Plan participants' contributions ............. 39 31
Actuarial (gain) loss ........................ (94) 70
Benefits paid ................................ (209) (352)
------- -------
Benefit obligation at end of year ........ 930 1,092
------- -------
Change in plan assets:
Fair value of plan assets at beginning
of year ..................................... -- --
Employer contributions ....................... 170 321
Plan participants' contributions ............. 39 31
Benefits paid ................................ (209) (352)
------- -------
Fair value of plan assets at end
of year ................................. -- --
------- -------
Funded status ................................ (930) (1,092)
Unrecognized transition obligation ........... 499 544
Unrecognized net loss ........................ 123 217
------- -------
Accrued benefit cost ..................... $ (308) $ (331)
======= =======
A one percentage point increase in the assumed health care cost trend
rate would increase the accumulated postretirement benefit obligation as of
December 31, 2001 by approximately $25 and the interest cost by approximately
$4. A one percentage point decrease in the assumed health care cost trend
64
rate would increase the accumulated postretirement benefit obligation as of
December 31, 2001 by approximately $22 and the interest cost by approximately
$3.
Prior to the Recapitalization, eligible employees were able to
participate in Raytheon's Savings and Investment Plan and Raytheon's Employee
Stock Ownership Plan. Subsequent to the Recapitalization, eligible employees are
able to participate in the Alliance Laundry Systems Capital Appreciation Plan
("ALCAP"). The provisions of the ALCAP are substantially the same as those of
Raytheon's Savings and Investment Plan. In addition, the Company makes an annual
contribution to the ALCAP equal to approximately one half of one percent of
salaries and wages, subject to statutory limits, of eligible employees.
Under the terms of the ALCAP, covered employees are allowed to
contribute up to 21 percent of their pay on a pre-tax basis up to the limit
established by the Internal Revenue Service. The Company contributes amounts
equal to 50 percent of the employee's contributions, up to a maximum of such
Company contributions equal to three percent of the employee's pay. Total
expense for the ALCAP totaled $0.9 million, $1.0 million and $1.1 million, for
2001, 2000 and 1999, respectively.
Deferred Compensation Agreements
In connection with the Recapitalization and related transactions, the
Company and Raytheon entered into deferred compensation agreements with certain
executives, whereby the Company assumed certain long-term compensation
obligations earned by management under programs established by Raytheon. Such
agreements provide for the deferral of compensation until the earlier of (i) the
payment of a lump sum (the "Benefit Amount") to the executive ten years after
the date of such agreement, regardless of whether the executive is employed by
the Company as of such date or (ii) the payment of the Benefit Amount upon the
occurrence of certain events described therein. The balance sheet at December
31, 2001 and 2000 includes a long-term liability of $1.7 million and $1.7
million, respectively, related to such agreements.
Note 14 -- Related Party Transactions:
Securityholders Agreement
Upon the consummation of the Recapitalization and related transactions,
the Company, Raytheon and certain securityholders entered into a securityholders
agreement (the "Securityholders Agreement"). The Securityholders Agreement (i)
restricts the transfer of the equity interests of the Company; (ii) grants
tag-along rights on certain transfers of equity interests of the Company; (iii)
requires the securityholders to consent to a sale of the Company to an
independent third party if such sale is approved by certain holders of the then
outstanding equity interests of the Company; and (iv) grants preemptive rights
on certain issuances of equity interests of the Company. Certain of the
foregoing provisions of the Securityholders Agreement will terminate upon the
consummation of an initial public offering or a liquidity event (each as defined
in the Securityholders Agreement).
Management Investor Promissory Notes
The Company entered into promissory notes (the "Promissory Notes")
aggregating approximately $1.8 million with certain members of management to
help finance the purchase of Common Units in the Company as of May 5, 1998. The
Promissory Notes bear interest at a rate of
65
5.94% per annum and mature on June 5, 2008. The Promissory Notes are classified
as a component of members' deficit at December 31, 2001 and 2000. During the
years ended December 31, 2001 and 2000, $0.1 million and $0.3 million,
respectively, of the Promissory Notes were repaid to the Company.
Executive Unit Purchase Agreements
Certain members of management of the Company (each an "Executive") have
entered into executive unit purchase agreements (the "Purchase Agreements")
which govern the Executives' investment in the common membership interests of
the Company.
The Purchase Agreements provide the Company with a repurchase option
upon the termination of each Executive. If the Executive's termination is the
result of death, permanent disability or without cause, as defined, Class A and
Class L Units, and vested Class B and Class C Units may be repurchased by the
Company at a price per unit equal to fair market value, as defined, and unvested
Class B and Class C Units may be repurchased at a price per unit equal to the
lower of fair market value or original value, as defined. If an Executive's
termination is voluntary or for cause, as defined, all units may be repurchased
at a price equal to the lower of fair market value or original value, unless an
Executive's voluntary termination occurs seven and one-half years from May 5,
1998, in which case the repurchase price shall be fair market value. The Class B
and Class C Units were purchased by the Executives at a nominal value based upon
the subordinated nature of such interests (see Note 11).
Management Services Agreement
The Company has entered into a management services agreement (the
"Management Services Agreement") with Bain LLC pursuant to which Bain LLC agreed
to provide: (i) general executive and management services; (ii) identification,
support, negotiation and analysis of acquisitions and dispositions; (iii)
support, negotiation and analysis of financial alternatives; and (iv) other
services agreed upon by the Company and Bain LLC. In exchange for services, Bain
LLC will receive (i) an annual management fee, plus reasonable out-of-pocket
expenses (payable quarterly) and (ii) a transaction fee in an amount in
accordance with the general practices of Bain LLC at the time of the
consummation of any additional acquisition or divestiture by the Company and of
each financing or refinancing (currently approximately 1.0% of total
financings). The Management Services Agreement has an initial term of ten years
subject to automatic one-year extensions unless the Company or Bain LLC provides
written notice of termination.
Note 15 -- 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 revenue includes 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 revenues. Cost of sales is
comprised of the costs of raw materials and component parts, plus costs
66
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 revenues and gross profit as determined by
the Company for its operating segments are as follows:
2001 2000 1999
--------------------------- ---------------------------- ------------------------
Net Gross Net Gross Net Gross
Revenues Profit Revenues Profit Revenues Profit
----------- ------------ ---------- ---------- ---------- ---------
Commercial laundry .............. $ 254,548 $ 91,403 $ 265,441 $ 101,609 $ 259,692 $ 96,284
Appliance Co. consumer laundry .. - - - - 54,682 1,523
----------- ------------ ---------- ---------- ---------- ---------
$ 254,548 91,403 $ 265,441 101,609 $ 314,374 97,807
=========== ========== ==========
Other manufacturing costs ....... (26,369) (33,726) (22,915)
------------ ----------- ---------
Gross profit as reported ..... $ 65,034 $ 67,883 $ 74,892
============ =========== =========
Depreciation expense allocations for each segment are presented below:
2001 2000 1999
------------- ------------ ----------
Commercial laundry ......................... $ 10,644 $ 11,141 $ 7,113
Appliance Co. consumer laundry ............. - - 4,242
------------ ----------- ---------
$ 10,644 $ 11,141 $ 11,355
============ =========== =========
The Company sells its products primarily to independent distributors.
The Company's largest customer (excluding Appliance Co.) accounted for 15.7%,
13.6% and 11.5% of net revenues in 2001, 2000 and 1999, respectively.
67
Alliance Laundry Holdings LLC
Schedule II -- Valuation and Qualifying Accounts
(Dollars in Thousands)
Accounts Receivable:
Balance at
Beginning Charges to Balance at
of Period Expense Deductions End of Period
------------ ---------- ---------- -------------
Year ended:
December 31, 1999 ...... $692 412 641 $463
December 31, 2000 ...... $463 411 155 $719
December 31, 2001 ...... $719 25 82 $662
Inventory:
Balance at Charges to Reallocation
Beginning Expense/ and Reserve Balance at
of Period (Income) Deductions Addition End of Period
------------ ---------- ---------- ------------ -------------
Year ended:
December 31, 1999 ...... $3,704 1,151 1,207 -- $3,648
December 31, 2000 ...... $3,648 (377) 1,681 1,000 $2,590
December 31, 2001 ...... $2,590 1,437 1,220 -- $2,807
Notes Receivable:
Balance at Reallocation
Beginning Charges to and Reserve Balance at
of Period Expense Deductions Deduction End of Period
----------- ---------- ---------- ------------ --------------
Year ended:
December 31, 1999 ...... $3,218 744 1,244 -- $2,718
December 31, 2000 ...... $2,718 804 608 300 $2,614
December 31, 2001 ...... $2,614 2,895 4,693 -- $ 816
68
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Managers and Executive Officers
The representatives to the Board of Managers (each, a "Manager") and
executive officers of the Company are as follows:
Name Age Position
---- --- --------
Thomas F. L'Esperance .......... 53 Chief Executive Officer and Manager
Jeffrey J. Brothers ............ 55 Senior Vice President, Sales and Marketing
Bruce P. Rounds ................ 45 Vice President, Chief Financial Officer
William J. Przybysz ............ 57 Vice President, Marianna Operations
R. Scott Gaster ................ 49 Vice President, Washer, Dryer and Tumbler Operations
Robert T. Wallace .............. 46 Vice President, Corporate Controller
Scott L. Spiller ............... 51 Vice President, Law and Human Resources
Edward W. Conard ............... 45 Manager
Robert C. Gay .................. 50 Manager
Stephen M. Zide ................ 42 Manager
Stephen C. Sherrill ............ 48 Manager
Thomas F. L'Esperance serves as a Manager. He has been Chief Executive
Officer of the Company since March 1996. He had served as President of the Amana
Home Appliance Company from 1993 to 1996 and was President of Caloric
Corporation, a manufacturer of appliances, for two years prior thereto.
Jeffrey J. Brothers has been Senior Vice President of Sales and
Marketing of the Company since October 1989. He has been employed with the
Company since 1977. Mr. Brothers has been involved in sales for the Company
since 1983 and has held other positions such as Manager of Distribution
Development, Plant Controller and Financial Analyst.
Bruce P. Rounds joined the Company in 1989 as Vice President of Finance
and was promoted to his current position in February 1998. He held the position
of Vice President, Business Development, for the Company from 1996 to 1998.
Before coming to the Company, he served in a variety of capacities for eight
years at Mueller Company and for three years with Price Waterhouse. He is a
Certified Public Accountant.
William J. Przybysz rejoined the Company in May 2000 as Vice President
and General Manager of Marianna, Florida operations. Previously he had been with
the Company as Vice President of Logistics and Material from 1990 through 1993.
From 1993 through February of 2000 he was the Vice President and General Manager
of Amana Central Heating and Air Conditioning Division based in Fayetteville,
Tennessee. Mr. Przybysz prior experience includes ten years in various
management positions
69
with Whirlpool Corporation and eight years of management experience with
Wheelhorse Products (since acquired by The Toro Company).
R. Scott Gaster joined the Company as Vice President, Procurement and
Materials, in June 1995. He took on the added responsibility of Vice President
of Washer and Dryer Operations in July 1997 and Tumbler Operations in August
1998. Mr. Gaster has also retained his former purchasing responsibilities. Prior
to joining the Company, he was employed by GKN Automotive, Inc. from 1979 to
1995 in such positions as Director of Procurement and Logistics, Corporate
Purchasing Agent and Purchasing Manager.
Robert T. Wallace has been Vice President, Corporate Controller, of the
Company since June 1996. He held positions as Controller and Manager-Reporting
and Analysis for the Company from 1990 to 1996. Mr. Wallace's previous
experience includes two years as Controller of Alcolac (chemicals), four years
as Manager of Reporting and Analysis with Mueller Company, five years with
Ohmeda and two years with Price Waterhouse. He is a Certified Public Accountant.
Scott L. Spiller has been Vice President of Law & Human Resources, and
General Counsel of the Company since February 1998. From April 1996 to February
1998, Mr. Spiller was practicing law as a sole practitioner. Prior to that, he
was General Counsel and Secretary of the Company for ten years.
Edward W. Conard serves as a Manager. He has been a Managing Director
of Bain Capital Partners, LLC ("BCP") since March 1993. From 1990 to 1992, Mr.
Conard was a director of Wasserstein Perella, an investment banking firm that
specializes in mergers and acquisitions. Previously, he was a Vice President of
Bain & Company, where he headed the management consulting firm's operations
practice area. Mr. Conard also serves as a director of Waters Corporation,
Medical Specialties, Inc., ChipPac, Ddi Corp., US Synthetic and Broder Brothers.
Robert C. Gay serves as a Manager. Mr. Gay has been a Managing
Director of BCP since 1993 and has been a General Partner of Bain Venture
Capital since 1989. From 1988 through 1989, Mr. Gay was a Principal of Bain
Venture Capital. Mr. Gay is Vice Chairman of the Board of Directors of IHF
Capital, Inc., parent of ICON Health & Fitness Inc. Mr. Gay also serves as a
Director of Alliance Entertainment Corp., GT Bicycles, Inc., Physio-Control
International Corporation, Cambridge Industries, Inc., Nutraceutical
Corporation, American Pad & Paper Company, GS Technologies and Small Fry Snack
Foods Limited.
Stephen M. Zide serves as a Manager. Mr. Zide has been a Managing
Director of BCP since 2001. From 2000 to 2001, Mr. Zide was a Principal of BCP.
From 1998 through 2000, Mr. Zide was a Managing Director of Pacific Equity
Partners. Previously, he was an Associate of BCP and a Partner at the law firm
of Kirkland & Ellis. Mr. Zide also serves as a director of DDi Corp. and Maxim
Crane Works.
Stephen C. Sherrill serves as a Manager. Mr. Sherrill has been a
Principal of Bruckmann, Rosser, Sherrill & Co. since its formation in 1995. Mr.
Sherrill was an officer of Citicorp Venture Capital, Ltd. from 1983 through
1994. Mr. Sherrill is a Director of Galey & Lord, Inc., B & G Foods, Inc., Doane
Pet Care Enterprises, Inc. and HealthPlus Corporation.
70
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company or its
predecessor for 2001 and 2000 of those persons who served as (i) the chief
executive officer during 2001 and (ii) the other four most highly compensated
executive officers of the Company for 2001 (collectively, the "Named Executive
Officers"):
Summary Compensation Table
Annual Compensation
-----------------------------------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation($)
- --------------------------- ---- ----------- ---------- ---------------
Thomas F. L'Esperance ..................... 2001 284,880 285,422 12,100 (1)
Chief Executive Officer 2000 265,008 285,422 1,020 (1)
1999 265,008 25,000 2,339 (1)
William J. Przybysz ....................... 2001 153,500 50,124
VP and General Manager, 2000 90,962 51,443 (2)
Marianna Operations
R. Scott Gaster ........................... 2001 144,464 52,048 7,263 (1)
VP, Washer, Dryer and Tumblers 2000 136,968 48,632 5,987 (1)
1999 131,700 13,170 6,986 (1)
Jeffrey J. Brothers ....................... 2001 138,516 50,735 7,140 (1)
Senior VP, Sales and Marketing 2000 133,512 47,635 3,248 (1)
1999 129,000 12,900 6,200 (1)
Bruce P. Rounds ........................... 2001 135,942 49,435 7,560 (1)
VP, Chief Financial Officer 2000 130,092 45,969 3,090 (1)
1999 124,448 12,449 6,751 (1)
(1) Represents gross-up amounts paid for non-deductible fringe benefits
provided by the Company.
(2) Represents payments for moving expenses.
Employment Agreement
In connection with the Merger, the Company entered into an employment
agreement with Thomas F. L'Esperance. Such agreement provides for: (i) a five
year employment term; (ii) a minimum base salary and bonus following the end of
each fiscal year so long as the Company employs Mr. L'Esperance; (iii) severance
benefits; (iv) non-competition, non-solicitation and confidentiality agreements;
and (v) other terms and conditions of Mr. L'Esperance's employment.
Executive Unit Purchase Agreement
In connection with the Merger, MergeCo entered into Executive Unit
Purchase Agreements with the Management Investors (each, an "Executive"),
including Mr. L'Esperance, Mr. Gaster, Mr. Brothers, and Mr. Rounds. Such
agreements govern the sale to the Executives of common membership interests of
MergeCo in exchange for cash and/or a promissory note from the Executive and
provide for
71
repurchase rights and restrictions on transfer of the common units. In
connection with the Merger, the Executives' membership interests in MergeCo were
converted into common membership interests of the Parent.
Deferred Compensation Agreement
In connection with the Merger, Raytheon, the Company and the Parent
entered into Deferred Compensation Agreements with certain Executives, including
Mr. L'Esperance, Mr. Gaster, Mr. Brothers and Mr. Rounds whereby the Company
assumed certain long-term compensation obligations earned by management under
programs established by Raytheon. Such agreements provide for the deferral of
compensation until the earlier of (i) the payment of a lump sum (the "Benefit
Amount") to the Executive ten years after the date of such agreement, regardless
of whether the Executive is employed by the Company as of such date or (ii) the
payment of the Benefit Amount upon the occurrence of certain events described
therein.
Pension Plan
Substantially all eligible salaried employees of the Company, including
executive officers of the Company, are covered under the Alliance Laundry
Systems Retirement Accumulation Plan (the "Pension Plan"). The cost of the
Pension Plan is borne entirely by the Company. The Pension Plan is a defined
benefit cash balance plan. Under this plan, an account is established for each
participant in which pay credits and interest credits are earned as the
participant provides service. Pay credits are calculated as a percentage of the
participant's remuneration adjusted for age and years of service in accordance
with the following table:
Pension Plan Pay Credits Table
----------------------------------------------------
Total of Age and Base Remuneration
Years of Service Credit Rates
-------------------------- -------------------------
Less than 45 3.0%
45 but less than 50 3.5%
50 but less than 55 4.0%
55 but less than 60 4.5%
60 but less than 65 5.0%
65 but less than 75 6.0%
75 but less than 85 7.0%
85 or more 8.0%
In addition, a supplemental pay credit is earned on remuneration in
excess of $52,992 (indexed for years after 2001) at the lesser of 5% or the
percentage used per the above table. A participant's account also increases for
interest credits each year. Interest credits are earned at the rate of a
one-year Treasury Bill as of the last day of the prior plan year plus 1% which
was 6.11% for 2001. The amount of earnings that can be recognized for plan
purposes is limited by the IRS to $170,000 in 2001. A participant vests in his
benefits accrued under the Pension Plan after five years of service.
Respective years of benefit service under the Pension Plan, through
December 31, 2001, are as follows: Mr. L'Esperance 3; Mr. Przybysz 1; Mr. Gaster
5; Mr. Brothers 22 and Mr. Rounds 12. Mr. L'Esperance was covered under Raytheon
plans through April 1998, at which time he became a participant under the
Company's Pension Plan.
72
Savings Plan
Substantially all of the salaried employees, including executive
officers of the Company, participate in a 401(k) savings plan established by the
Company (the "Company 401(k) Plan"). Prior to the Merger, such employees
participated in a 401(k) plan and an ESOP sponsored by Raytheon. As part of the
Merger, Raytheon transferred the account balances associated with the Company
employees in the Raytheon 401(k) plan to the Company 401(k) Plan. Employees are
permitted to defer a portion of their income under the Company 401(k) Plan and
the Company will match such contribution. The matching contribution is
consistent with that under the prior Raytheon plan which provided a matching
contribution equal to 50% of the first 6% of the employee's contribution.
Compensation of Managers
The Company will reimburse Managers for any out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, the Company may compensate Managers for services provided in such
capacity.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Parent owns all of the outstanding equity interests of the Company.
The following table sets forth certain information regarding the approximate
beneficial ownership of the Parent's common equity interests held by (i) each
person (other than Managers and executive officers of the Company) known to the
Company to own more than 5% of the outstanding common membership interests of
the Company, (ii) certain Managers of the Company and (iii) the Named Executive
Officers of the Company. The Parent's common equity interests are comprised of
four classes of membership units including Class A, Class L, Class B and Class
C.
Percentage of Common
Name and Address of Beneficial Owner Membership Interests
- ------------------------------------ -----------------------
Bain Funds/(1)(2)/ ... ...................... 54.9%
c/o Bain Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
BRS Investors/(3)/ .......................... 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Management Investors/(4)/ ................... 7.9%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
73
Percentage of Common
Name and Address of Beneficial Owner Membership Interests
- ------------------------------------ -----------------------
Raytheon Company .............................. 7.0%
141 Spring Street
Lexington, MA 02173
Edward Conard/(1)(2)(5)/...................... 54.9%
c/o Bain Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
Robert Gay/(1)(2)(5)/......................... 54.9%
c/o Bain Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
Stephen Sherrill/(3)(6)/...................... 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Stephen Zide/(1)(2)/ ......................... 16.3%
c/o Bain Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
Thomas F. L'Esperance/(4)/ .... ............... 3.8%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
William J. Przybysz/(4)/ ..................... 0.0%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
R. Scott Gaster/(4)/ ......................... 0.7%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Jeffrey J. Brothers/(4)/ ..................... 0.8%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
74
Percentage of Common
Name and Address of Beneficial Owner Membership Interests
- ------------------------------------ -----------------------
Bruce P. Rounds/(4)/ ............................ 0.8%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
All Managers and executive officers as a
group/(1)(2)(3)(4)/ ........................... 91.0%
(1) Amounts shown reflect interests in Bain/RCL, L.L.C. which beneficially owns
55.9% of the outstanding common membership interests of the Company through its
ownership of Class A and Class L membership units in the Parent.
(2) Amounts shown reflect the aggregate interests held by Bain Capital Fund V,
L.P. ("Fund V"), Bain Capital Fund V-B, L.P. ("Fund V-B"), BCIP Trust Associates
II ("BCIP Trust"), BCIP Trust Associates II-B ("BCIP Trust II- B"), BCIP
Associates II ("BCIP") and BCIP Associates II-B ("BCIP II-B") (collectively, the
"Bain Funds"), for the Bain Funds and Messrs. Conard and Gay and the aggregate
interests held by BCIP Trust, BCIP Trust II-B, BCIP and BCIP II-B for Mr. Zide.
(3) Amounts shown reflect the aggregate interests held by Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS"), BCB Family Partners, L.P., NAZ Family Partners,
L.P., Paul D. Kaminski, Bruce C. Bruckmann, Donald J. Bruckmann, Harold O.
Rosser, Stephen C. Sherrill, H. Virgil Sherrill, Nancy A. Zweng, John Rice
Edmonds, Susan Kaider, Marilena Tibrea, Walker C. Simmons, Beverly Place,
Elizabeth McShane and MLPF&S Custodian FBO Paul Kaminski (collectively, the "BRS
Investors").
(4) Includes Class A and Class L membership units in the Parent but excludes
Class B and Class C membership units which are subject to vesting and generally
have no voting rights, representing on a fully diluted basis approximately 9.7%
of Parent's membership units for the Management Investors, 3.1% for Mr.
L'Esperance, 0.4% for Mr. Przybysz, 1.3% for Mr. Gaster, 1.4% for Mr. Brothers
and 1.3% for Mr. Rounds.
(5) Messrs. Conard and Gay are each Managing Directors of Bain Capital Investors
V, Inc., the sole general partner of Bain Capital Partners V, L.P. ("BCPV"), and
are limited partners of BCPV, the sole general partner of Fund V and Fund V-B.
Accordingly Messrs. Conard and Gay may be deemed to beneficially own the
interests owned by Fund V and Fund V-B. Messrs. Conard and Gay are each general
partners of BCIP, BCIP II-B, BCIP Trust and BCIP Trust II-B and, accordingly,
may be deemed to beneficially own the interests owned by BCIP, BCIP II-B, BCIP
Trust and BCIP Trust II-B. Each such person disclaims beneficial ownership of
any such shares in which he does not have a pecuniary interest.
(6) Mr. Sherrill is a director of BRSE Associates, Inc., the sole general
partner of BRS Partners, L.P., the sole general partner of BRS and, accordingly,
may be deemed to beneficially own the interests owned by BRS. Mr. Sherrill
disclaims beneficial ownership of any such shares in which he does not have a
pecuniary interest.
75
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Parent Securityholders Agreement
Upon the consummation of the Merger, the Parent, Raytheon and the
securityholders entered into a securityholders agreement (the "Securityholders
Agreement"). The Securityholders Agreement: (i) restricts the transfer of the
equity interests of the Parent; (ii) grants tag-along rights on certain
transfers of equity interests of the Parent; (iii) requires the securityholders
to consent to a sale of the Parent to an independent third party if such sale is
approved by certain holders of the then outstanding equity interests of the
Parent; and (iv) grants preemptive rights on certain issuances of equity
interests of the Parent. Certain of the foregoing provisions of the
Securityholders Agreement will terminate upon the consummation of an Initial
Public Offering or a Liquidity Event (each as defined in the Securityholders
Agreement).
Management Services Agreement
In connection with the Merger, the Company entered into a Management
Services Agreement (the "Management Services Agreement") with Bain LLC pursuant
to which Bain LLC agreed to provide: (i) general executive and management
services; (ii) identification, support, negotiation and analysis of acquisitions
and dispositions; (iii) support, negotiation and analysis of financial
alternatives; and (iv) other services agreed upon by the Company and Bain LLC.
In exchange for such services, Bain LLC will receive (i) an annual management
fee of $1.0 million, plus reasonable out-of-pocket expenses (payable quarterly)
and (ii) a transaction fee in an amount in accordance with the general practices
of Bain LLC at the time of the consummation of any additional acquisition or
divestiture by the Company and of each financing or refinancing (currently
approximately 1.0% of total financings). The Management Services Agreement has
an initial term of ten years subject to automatic one-year extensions unless the
Company or Bain LLC provides written notice of termination.
Parent Registration Rights Agreement
Upon the consummation of the Merger, the Parent, Raytheon and the
securityholders, entered into a registration rights agreement (the "Parent
Registration Rights Agreement"). Under the Parent Registration Rights Agreement,
the holders of a majority of the Registrable Securities (as defined in the
Parent Registration Rights Agreement) owned by Bain LLC have the right, subject
to certain conditions, to require the Parent to register any or all of their
common equity interests of the Parent under the Securities Act at the Parent's
expense. In addition, all holders of Registrable Securities are entitled to
request the inclusion of any common equity interests of the Parent subject to
the Parent Registration Rights Agreement in any registration statement at the
Parent's expense whenever the Parent proposes to register any of its common
equity interests under the Securities Act. In connection with all such
registrations, the Parent has agreed to indemnify all holders of Registrable
Securities against certain liabilities, including liabilities under the
Securities Act.
Parent Amended and Restated Limited Liability Company Agreement
Bain LLC, the BRS Investors, the Management Investors and Raytheon
(collectively, the "Members") have entered into an Amended and Restated Limited
Liability Company Agreement (the "LLC Agreement"). The LLC Agreement governs the
relative rights and duties of the Members.
76
Membership Interests. The ownership interests of the members in the
Parent consist of preferred units (the "Preferred Units") and common units (the
"Common Units"). The Common Units represent the common equity of the Company.
Holders of the Preferred Units are entitled to the return of capital
contributions prior to any distributions made to holders of the Common Units.
Distributions. Subject to any restrictions contained in any financing
agreements to which the Company or any of its Affiliates (as defined in the LLC
Agreement) is a party, the Board of Managers (the "Board") may make
distributions, whether in cash, property or securities of the Company, at any
time or from time to time in the following order of priority:
First, to the holders of Preferred Units, an amount determined by the
aggregate unreturned capital.
Second, to the holders of Class L Common Units, the aggregate unpaid
yield accrued on such Class L Units.
Third, to the holders of Class L Units, an amount equal to the
aggregate unreturned capital.
Fourth, ratably to the holders of Common Units, an amount equal to the
amount of such distribution that has not been distributed
pursuant to clauses described above.
The Company may distribute to each holder of units within 75 days after
the close of each fiscal year such amounts as determined by the Board to be
appropriate to enable each holder of units to pay estimated income tax
liabilities. There were no distributions to holders of units during 2001.
Management. The Board consists of five individuals (each a
"Representative"). Pursuant to the Securityholders Agreement, the holder of the
majority of the Common Units held by the BRS Investors appointed one
Representative. The members of the Parent holding a majority of the Bain Units
(as defined in the LLC Agreement) appointed the remaining Representatives. The
current Board consists of Messrs. L'Esperance, Conard, Gay, Sherrill and Zide.
Junior Subordinated Promissory Note
Upon the consummation of the Merger, the Parent issued a Junior
Subordinated Promissory Note (the "Junior Note") in the principal amount of $9.0
million due August 21, 2009, to Raytheon. Pursuant to the terms of the Junior
Note, interest accrues at the rate of 19.0% per annum until the eighth
anniversary of the date of issuance of the Junior Note and at a rate of 13.0%
thereafter. The Junior Note is subordinated in priority and subject in right and
priority of payment to certain indebtedness described therein.
Parent Seller Preferred Equity
Upon the consummation of the Merger, the Parent issued mandatorily
redeemable preferred membership interests (the "Seller Preferred Equity") with a
liquidation value of $6.0 million to Raytheon. The Seller Preferred Equity does
not accrete, accrue or pay dividends and is redeemable at the earlier of (i) a
Change of Control (as defined therein), (ii) any initial public offering or
(iii) 2009. The holders of the Seller Preferred Equity are entitled to receive
distributions from the Parent in an
77
amount equal to their Unreturned Capital (as defined therein) prior to
distributions in respect of any other membership interests of the Parent.
Management Investor Promissory Notes
In connection with the Merger, the Parent entered into promissory notes
(the "Promissory Notes") aggregating approximately $1.8 million with Mr.
L'Esperance, Mr. Gaster, Mr. Brothers and Mr. Rounds to help finance the
purchase of Common Units in the Parent. The Promissory Notes bear interest at a
rate of 5.94% per annum and mature on June 5, 2008.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed as a part of
this report.
(b) Reports on 8-K. None.
INDEX TO EXHIBITS:
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
2.1 Agreement and Plan of Merger, dated as of February 21, 1998, by and Exhibit 2.1 to the Registrant's Form
among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., Raytheon S-4, Amendment #1, dated July 2, 1998
Commercial Laundry LLC and Raytheon Company. (file no. 333-56857)
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of May 2, Exhibit 2.2 to the Registrant's Form
1998, by and among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., S-4, Amendment #1, dated July 2, 1998
Raytheon Commercial Laundry LLC and Raytheon Company. (file no. 333-56857)
3.1 Certificate of Formation of Alliance Laundry Systems LLC. Exhibit 3.1 to the Registrant's Form
S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
3.2 Amended and Restated Limited Liability Company Agreement of Alliance Exhibit 3.2 to the Registrant's Form
Laundry Systems LLC. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
3.3 Certificate of Incorporation of Alliance Laundry Corporation. Exhibit 3.3 to the Registrant's Form
S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
78
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
3.4 Bylaws of Alliance Laundry Corporation. Exhibit 3.4 to the Registrant's Form
S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
4.1 Indenture, dated as of May 5, 1998, among Alliance Laundry Systems Exhibit 4.1 to the Registrant's Form
LLC, Alliance Laundry Corporation, the Guarantors and United States S-4, Amendment #1, dated July 2, 1998
Trust Company of New York. (file no. 333-56857)
10.1 Purchase Agreement, dated as of April 29, 1998, by and among Exhibit 10.1 to the Registrant's Form
Alliance Laundry Systems LLC, Alliance Laundry Corporation and the S-4, Amendment #1, dated July 2, 1998
Initial Purchasers. (file no. 333-56857)
10.2 Registration Rights Agreement, dated as of May 5, 1998, by and among Exhibit 10.2 to the Registrant's Form
Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance S-4, Amendment #1, dated July 2, 1998
Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse (file no. 333-56857)
First Boston Corporation.
10.3 Credit Agreement, dated as of May 5, 1998, among Alliance Laundry Exhibit 10.3 to the Registrant's Form
Holdings LLC, Alliance Laundry Systems LLC, the several banks or S-4, Amendment #1, dated July 2, 1998
other financial institutions or entities from time to time parties (file no. 333-56857)
to this Agreement, Lehman Brothers Inc., Lehman Commercial Paper
Inc., and General Electric Capital Corporation.
10.4 Loan and Security Agreement, dated May 5, 1998, between Alliance Exhibit 10.4 to the Registrant's Form
Laundry Receivables Warehouse LLC, the Lenders and Lehman Commercial S-4, Amendment #1, dated July 2, 1998
Paper Inc. (file no. 333-56857)
10.5 Amended and Restated Limited Liability Agreement of Alliance Laundry Exhibit 10.5 to the Registrant's Form
Holdings LLC, dated as of May 5, 1998. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as Exhibit 10.6 to the Registrant's Form
of May 5, 1998, between Alliance Laundry Holdings LLC and the S-4, Amendment #1, dated July 2, 1998
Securityholders. (file no. 333-56857)
10.7 Alliance Laundry Holdings LLC, Registration Rights Agreement, Exhibit 10.7 to the Registrant's Form
made as of May 5, 1998, by and among Alliance S-4, Amendment #1, dated July 2, 1998
Laundry Holdings LLC, Raytheon Company, Bain/RCL (file no. 333-56857)
and the Securityholders.
10.8 Employment Agreement, made as of May 5, 1998, by and between Exhibit 10.8 to the Registrant's Form
Alliance Laundry Systems LLC and Thomas F. L'Esperance. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
79
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
10.9 IRA and Executive Unit Purchase Agreement, made as of May 5, Exhibit 10.9 to the Registrant's Form
1998, by and between RCL Acquisitions, LLC, Thomas F. L'Esperance S-4, Amendment #1, dated July 2, 1998
and Stifel, Nicolaus Custodian for Thomas F. L'Esperance IRA (file no. 333-56857)
and Stifel, Nicolaus Custodian for Paula K. L'Esperance IRA.
10.10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.10 to the Registrant's Form
by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. S-4, Amendment #1, dated July 2, 1998
Baird & Co. Inc. TTEE for R. Scott Gaster IRA. (file no. 333-56857)
10.11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.11 to the Registrant's Form
by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and S-4, Amendment #1, dated July 2, 1998
Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. (file no. 333-56857)
Brothers, IRA.
10.13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.13 to the Registrant's Form
by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, S-4, Amendment #1, dated July 2, 1998
Nicolaus Custodian for Bruce P. Rounds IRA. (file no. 333-56857)
10.14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.14 to the Registrant's Form
by and between RCL Acquisitions, L.L.C., Scott L. Spiller and S-4, Amendment #1, dated July 2, 1998
Stifel, Nicolaus Custodian for Scott Spiller IRA. (file no. 333-56857)
10.16 Deferred Compensation Agreement, made and entered into as of May Exhibit 10.16 to the Registrant's Form
5, 1998, by and among Thomas F. L'Esperance, Raytheon Company, S-4, Amendment #1, dated July 2, 1998
Alliance Laundry Holdings LLC, and Alliance Laundry (file no. 333-56857)
Systems LLC.
10.17 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.17 to the Registrant's Form
1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, S-4, Amendment #1, dated July 2, 1998
and Alliance Laundry Systems LLC. (file no. 333-56857)
10.18 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.18 to the Registrant's Form
1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings S-4, Amendment #1, dated July 2, 1998
LLC, and Alliance Laundry Systems LLC. (file no. 333-56857)
10.20 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.20 to the Registrant's Form
1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, S-4, Amendment #1, dated July 2, 1998
and Alliance Laundry Systems LLC. (file no. 333-56857)
80
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
10.34 Promissory Note, dated as of May 5, 1998, from Thomas F. L'Esperance Exhibit 10.34 to the Registrant's Form
to RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to Exhibit 10.35 to the Registrant's Form
RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers Exhibit 10.36 to the Registrant's Form
to RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to Exhibit 10.38 to the Registrant's Form
RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Exhibit 10.40 to the Registrant's Form
Laundry Systems LLC, and Bain Capital, Inc. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Exhibit 10.42 to the Registrant's Form
Alliance Laundry Holdings LLC to Raytheon Company. S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
10.45 Supply Agreement, dated as of May 1,1998, by and among Coinmach Exhibit 10.45 to the Registrant's Form
Corporation, Super Laundry Equipment Corporation and Raytheon S-4, Amendment #2, dated August 4, 1998
Commercial Laundry LLC (incorporated by reference (file no. 333-56857)
from exhibit 10.57 to Coinmach Corporation's Annual Report on
Form 10-K dated as of June 29, 1998, file number 033-49830).
10.46 Receivables Purchase Agreement, dated as of May 5, 1998, between Exhibit 10.46 to the Registrant's Form
Alliance Laundry Systems LLC and Alliance Laundry Receivables S-4, Amendment #4, dated February 17,
Warehouse LLC. 1999 (file no. 333-56857)
10.47 Letter Agreement, dated as of April 29, 1998, by and among Bain/RCL, Exhibit 10.47 to the Registrant's Form
L.L.C. and RCL Acquisitions, L.L.C., Raytheon Company and Raytheon S-4, Amendment #5, dated March 3, 1999
Commercial Laundry LLC. (file no. 333-56857)
10.48 First Amendment, dated as of March 26, 1999, to Credit Agreement, Exhibit 10.48 to the Registrant's Form
dated as of May 5, 1998, among Alliance Laundry Holdings LLC, S-4, Amendment #5, dated March 3, 1999
Alliance Laundry Systems LLC, the several banks on other financial (file no. 333-56857)
institutions or entities from time to time parties to this
Agreement, Lehman Brothers Inc., Lehman Commercial Paper Inc., and
General Electric Capital Corporation.
81
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
10.49 Indenture Agreement, dated as of November 28, 2000, among Exhibit 10.49 to the Registrant's Form
Alliance Exhibit Laundry Equipment Receivables Trust 2000-A and 10-K, dated March 28, 2001 (file no.
The Bank of New York as indenture trustee. 333-56857)
10.50 Purchase Agreement, dated as of November 28, 2000, between Exhibit 10.50 to the Registrant's Form
Alliance Laundry Equipment Receivables LLC and Alliance Laundry 10-K, dated March 28, 2001 (file no.
Systems LLC, in its own capacity and as servicer. 333-56857)
10.51 Pooling and Servicing Agreement, dated November 28, 2000, among Exhibit 10.51 to the Registrant's Form
Alliance Laundry Systems LLC as servicer and originator, Alliance 10-K, dated March 28, 2001 (file no.
Laundry Equipment Receivables LLC and Alliance Laundry Equipment 333-56857)
Receivables Trust 2000-A.
10.52 Trust Agreement, dated November 28, 2000, between Alliance Laundry Exhibit 10.52 to the Registrant's Form
Equipment Receivables LLC and Wilmington Trust Company as owner 10-K, dated March 28, 2001 (file no.
trustee. 333-56857)
10.53 Administration Agreement, dated November 28, 2000, among Alliance Exhibit 10.53 to the Registrant's Form
Laundry Equipment Receivables Trust 2000-A and Alliance Laundry 10-K, dated March 28, 2001 (file no.
Systems LLC as administrator, and The Bank of New York as 333-56857)
indenture trustee.
10.54 Limited Liability Company Agreement of Alliance Laundry Equipment Exhibit 10.54 to the Registrant's Form
Receivables LLC, dated as of November 28, 2000. 10-K, dated March 28, 2001 (file no.
333-56857)
10.55 Insurance and Indemnity Agreement, dated as of November 28, 2000, Exhibit 10.55 to the Registrant's Form
between AMBAC Assurance Corporation as insurer, Alliance Laundry 10-K, dated March 28, 2001 (file no.
Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry 333-56857)
Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC
and The Bank of New York as indenture trustee.
10.56* Supply Agreement, dated as of May 1, 2001, by and among Coinmach
Corporation, Super Laundry Equipment Corporation and Alliance
Laundry Systems LLC (certain portions of this exhibit were
omitted subject to a pending request for confidential treatment).
10.57* Second Amendment, dated as of September 11, 2001, to Loan and
Security Agreement, dated May 5, 1998, between Alliance Laundry
Receivables Warehouse LLC, the Lenders and Lehman Commercial
Paper Inc.
82
Incorporated Herein By
Exhibit Description Reference To
------- ----------- -------------------------
10.58* Third Amendment, dated as of November 8, 2001, to Loan and
Security Agreement, dated May 5, 1998, between Alliance Laundry
Receivables Warehouse LLC, the Lenders and Lehman Commercial
Paper Inc.
21.1* Subsidiaries of Alliance Laundry Systems LLC.
24.1 Powers of Attorney. Exhibit 24.1 to the Registrant's Form
S-4, Amendment #1, dated July 2, 1998
(file no. 333-56857)
- --------------------
* Filed herewith
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Alliance Laundry Systems LLC has duly caused this report
to be signed on its behalf by the undersigned, thereto duly authorized, in the
city of Ripon, state of Wisconsin, on the 6th day of March 2002.
Signature Title Date
--------- ----- ----
- ------------------------------------------- Chairman and Chief Executive Officer -----------------------
Thomas L'Esperance
- ------------------------------------------- Vice President and Chief Financial Officer -----------------------
Bruce P. Rounds
Date: March 6, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below as of March 6, 2002, by the following persons
on behalf of the registrant and in the capacities indicated:
-------------------------------------------------------- ------------------------------------------------------
Thomas F. L'Esperance Stephen M. Zide
Chief Executive Officer and Manager Manager
-------------------------------------------------------- ------------------------------------------------------
Edward W. Conard Robert C. Gay
Manager Manager
--------------------------------------------------------
Stephen C. Sherrill
Manager
84