Exhibit 99.1
Alliance Laundry Holdings LLC Reports 1st Qtr 2005 Earnings
RIPON, Wis.--(BUSINESS WIRE)--May 16, 2005--Alliance Laundry
Holdings LLC announced today results for the quarter ended March 31,
2005.
Net revenues for the combined three months ended March 31, 2005
increased $3.6 million, or 5.5%, to $69.9 million from $66.3 million
for the three months ended March 31, 2004. Our net loss for the
combined three months ended March 31, 2005 was $31.3 million as
compared to net income of $4.2 million for the three months ended
March 31, 2004. Adjusted EBITDA(1) for the combined three months ended
March 31, 2005 was $12.7 million compared with Adjusted EBITDA of
$15.1 million for the three months ended March 31, 2004.
The overall net revenue increase of $3.6 million was attributable
to higher commercial and consumer laundry revenue of $2.9 million and
service parts revenue of $0.7 million. Our net loss for the combined
three months ended March 31, 2005 included certain costs and expenses
related to the acquisition of Alliance Laundry Holdings LLC
("Alliance") by ALH Holding Inc., on January 27, 2005. Included in our
net loss for the combined three months ended March 31, 2005 was the
amortization of $5.6 million related to an inventory step-up to fair
market value recorded on the acquisition date, $1.1 million of
non-cash incentive compensation resulting from the acceleration of
vesting for incentive units on the date of the acquisition, $18.8
million of seller related transaction costs associated with the sale
of business and $9.9 million from the loss on early extinguishment of
debt, with no similar costs in 2004.
In announcing the Company's results today, CEO and President
Thomas F. L'Esperance said, "We are extremely pleased with our top
line revenue growth of 5.5% for the three months ended March 31, 2005.
Leading the way for the three months was higher international
equipment revenue of $1.3 million, higher North American commercial
equipment revenue of $1.1 million and higher consumer laundry revenue
of $1.2 million."
"We are pleased to have the purchase of Alliance behind us and
look forward to focusing our efforts on growing the business and
delevering the Company," said L'Esperance.
Alliance Laundry Holdings LLC is the parent company of Alliance
Laundry Systems LLC (www.comlaundry.com), a leading North American
manufacturer of commercial laundry products and provider of services
for laundromats, multi-housing laundries, on-premise laundries and
drycleaners. Alliance offers a full line of washers and dryers for
light commercial use as well as large frontloading washers, heavy duty
tumbler dryers, and presses and finishing equipment for heavy
commercial use. The Company's products are sold under the well known
brand names Speed Queen(R), UniMac(R), Huebsch(R) and Ajax(R).
(1) Non-GAAP Financial Measures
In addition to disclosing financial results that are determined in
accordance with generally accepted accounting principles (GAAP), we
also disclose EBITDA and Adjusted EBITDA, which are non-GAAP measures.
We have presented EBITDA and Adjusted EBITDA because certain covenants
in the indenture governing our 2005 Senior Subordinated Notes are tied
to ratios based on these measures. "EBITDA" represents net income
before interest expense, income tax (provision) benefit and
depreciation and amortization, and "Adjusted EBITDA" is EBITDA as
further adjusted to exclude, among other things, certain non-recurring
expenses and other non-recurring non-cash charges. EBITDA and Adjusted
EBITDA do not represent, and should not be considered, an alternative
to net income or cash flow from operations, as determined by GAAP, and
our calculations thereof may not be comparable to similarly entitled
measures reported by other companies. Based on our industry and debt
financing experience, we believe that EBITDA and Adjusted EBITDA are
customarily used to provide useful information regarding a company's
ability to service and/or incur indebtedness. In addition, EBITDA and
Adjusted EBITDA are defined in the indenture governing our 2005 Senior
Subordinated Notes in a manner which is identical to the definition of
EBITDA and Adjusted EBITDA in our New Senior Credit Facility under
which we are required to satisfy specified financial ratios and tests,
including a maximum of total debt to Adjusted EBITDA and a minimum
interest coverage ratio. A reconciliation from Net (Loss) Income to
EBITDA and from EBITDA to Adjusted EBITDA is provided under the
heading Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Three Months Ended March 31, 2005 of
this press release.
Safe Harbor for Forward-Looking Statements
With the exception of the reported actual results, this press
release contains predictions, estimates and 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. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results,
performance or achievements of our business to differ materially from
those expressed or implied by such forward-looking statements.
Although we believe that our plans, intentions and expectations
reflected in such forward-looking statements are based on reasonable
assumptions, we 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 our products
abroad; possible fluctuation in interest rates, which affects our
earnings and cash flows; the impact of substantial leverage and debt
service on us; possible loss of suppliers; risks related to our asset
backed facilities; dependence on key personnel; labor relations;
potential liability for environmental, health and safety matters;
potential future legal proceedings and litigation; and other risks
listed from time to time in the Company's reports, including, but not
limited to the Company's most recent Annual Report on Form 10-K for
the year ended December 31, 2004.
Financial information for Alliance Laundry Holdings LLC appears on
the next two pages, followed by management's discussion and analysis
of financial condition and results of operations for the three months
ended March 31, 2005.
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
March 31, December 31,
----------- ------------
2005 2004
----------- ------------
Assets Successor Predecessor
Current assets:
Cash $ 7,091 $ 11,471
Accounts receivable, net 8,197 5,611
Inventories, net 30,844 26,761
Beneficial interests in securitized
accounts receivable 17,797 19,479
Prepaid expenses and other 2,821 1,088
----------- ------------
Total current assets 66,750 64,410
Notes receivable, net 6,161 6,742
Property, plant and equipment, net 74,162 30,481
Goodwill, net 139,903 55,414
Beneficial interests in securitized
financial assets 18,502 19,379
Deferred income tax assets 9,320 -
Debt issuance costs, net 12,839 5,751
Other intangibles, net 150,260 1,839
----------- ------------
Total assets $477,897 $184,016
=========== ============
Liabilities and Member's Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ - $ 12,036
Revolving credit facility - -
Accounts payable 8,293 11,618
Other current liabilities 22,143 24,718
----------- ------------
Total current liabilities 30,436 48,372
Long-term debt:
Senior credit facility 198,000 118,218
Senior subordinated notes 149,266 110,000
Junior subordinated note - 28,776
Other long-term debt - 529
Other long-term liabilities 6,759 7,218
Mandatorily redeemable preferred interests - 6,000
----------- ------------
Total liabilities 384,461 319,113
Commitments and contingencies
Member's equity (deficit) 93,436 (135,097)
----------- ------------
Total liabilities and member's equity
(deficit) $477,897 $184,016
=========== ============
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands)
January 28, January 1, Three Months
2005 through 2005 through Ended
March 31, January 27, March 31,
2005 2005 2004
------------- ------------ -------------
Successor Predecessor Predecessor
Net revenues:
Commercial and consumer
laundry $ 41,751 $ 17,470 $ 56,308
Service parts 7,492 3,213 9,972
------------- ------------ -------------
49,243 20,683 66,280
Cost of sales 43,337 15,585 45,521
------------- ------------ -------------
Gross profit 5,906 5,098 20,759
------------- ------------ -------------
Selling, general and
administrative expense 6,742 3,829 8,653
Transaction costs associated
with sale of business - 18,790 -
------------- ------------ -------------
Total operating expenses 6,742 22,619 8,653
------------- ------------ -------------
Operating (loss) income (836) (17,521) 12,106
Interest expense 3,764 995 7,110
Loss from early
extinguishment of debt - 9,867 -
Costs related to abandoned
public offerings - - 728
------------- ------------ -------------
(Loss) income before
taxes (4,600) (28,383) 4,268
Provision for income taxes (1,669) 9 49
------------- ------------ -------------
Net (loss) income $ (2,931) $(28,392) $ 4,219
============= ============ =============
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Months Ended March 31, 2005
OVERVIEW
As a result of the January 27, 2005 acquisition of 100% of the
outstanding equity interests in Alliance Laundry Holdings LLC by ALH
Holding Inc. ("ALH"), activity that occurred prior to January 27, 2005
has been reflected as the Predecessor and activity that occurred after
January 27, 2005 has been reflected as the Successor. We have inserted
a dark vertical line to segregate the activities of the Predecessor
and Successor. The distinction between Predecessor and Successor
relates to the application of purchase accounting in accordance with
Statement of Financial Standard (SFAS) No. 141, "Business
Combinations". The basis of the assets and liabilities have been
reflected at fair market values in the Successor financial statements.
Throughout this earnings release, we refer to Alliance Laundry
Holdings LLC, a Delaware limited liability company, as "Alliance
Holdings," and, together with its consolidated operations, as
"Alliance," "we," "our," "Predecessor," "Successor" and "us," unless
otherwise indicated. Any reference to "Alliance Laundry" refers to our
wholly-owned subsidiary, Alliance Laundry Systems LLC, a Delaware
limited liability company, and its consolidated operations, unless
otherwise indicated.
The unaudited financial statements as of and for the quarter ended
March 31, 2005 present the consolidated financial position and results
of operations of Alliance Laundry Holdings LLC, including our
wholly-owned direct and indirect subsidiaries, Alliance Laundry
Systems LLC and Alliance Laundry Corporation.
This report should be read in conjunction with the audited
financial statements presented in our Annual Report on Form 10-K (file
no. 333-56857) filed with the Securities and Exchange Commission,
which includes our audited financial statements as of and for the year
ended December 31, 2004.
SALE OF ALLIANCE LAUNDRY HOLDINGS LLC
On January 27, 2005, ALH Holding Inc. ("ALH"), an entity formed by
Teachers' Private Capital, the private equity arm of Ontario Teachers'
Pension Plan Board ("OTPP"), acquired 100% of the outstanding equity
interests in Alliance Laundry Holdings LLC pursuant to a unit purchase
agreement for aggregate consideration of $466.3 million. In connection
with such acquisition, the executive officers of Alliance Laundry
acquired $7.4 million of newly issued shares of common stock of ALH,
and our other management employees acquired $2.2 million of newly
issued shares of ALH common stock in exchange for equity interests in
Alliance Laundry Holdings LLC and cash pursuant to ALH's stock
purchase and rollover investment plan. A portion of the aggregate
acquisition consideration was used to repay our existing indebtedness,
redeem our outstanding preferred equity interests and pay certain fees
and expenses payable in connection with the consummation of the
acquisition and the financing transactions described below, and the
balance was paid to the then current equity holders of Alliance
Holdings.
We refer to the acquisition of Alliance Laundry Holdings LLC and
the related management investments in ALH as the "Acquisition." The
Acquisition was financed with $350.0 million of debt financing
described below, the management equity, approximately $107.4 million
of new equity capital from OTPP and available cash. As a result of the
Acquisition, all of the outstanding equity interests of Alliance
Laundry are owned by Alliance Laundry Holdings LLC, all of the equity
interests of Alliance Laundry Holdings LLC are owned by ALH and
approximately 91.8% of the capital stock of ALH is owned by OTPP. The
remaining capital stock of ALH is owned by our management.
In connection with the closing of the Acquisition, we consummated
the following financing transactions, (the "Financing Transactions",
which we refer to, together with the Acquisition, as the
"Transactions"):
-- the closing of the issuance of $150.0 million 8 1/2% senior
subordinated notes due January 15, 2013, the "2005 Senior
Subordinated Notes." The proceeds from the 2005 Senior
Subordinated Notes offering were $149.3 million;
-- the closing of Alliance Laundry's new $250.0 million senior
secured credit facility, which we refer to as the "New Senior
Credit Facility," consisting of a six-year $50.0 million
revolving credit facility and a seven-year $200.0 million term
loan facility. On the closing date (January 27, 2005), the
term loan facility was drawn in full, but the revolving credit
facility remained undrawn; and
-- the settlement of the tender offer and consent solicitation,
or the tender offer, initiated by us on January 4, 2005 for
the $110.0 million aggregate principal amount of our then
outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"1998 Senior Subordinated Notes"). The tender offer expired at
5:00 PM New York City time on February 2, 2005, and
approximately 5.10% of the total principal amount of the 1998
Senior Subordinated Notes remained outstanding after the
consummation of the tender offer. We redeemed the remaining
1998 Senior Subordinated Notes in accordance with the
indenture governing such notes on March 7, 2005.
In connection with the consummation of the Transactions, Alliance
Laundry and Alliance Laundry Corporation became the obligors under the
2005 Senior Subordinated Notes. Alliance Laundry is the borrower and
obligor under the New Senior Credit Facility and Alliance Laundry
Corporation became a guarantor under the New Senior Credit Facility,
and Alliance Laundry Holdings LLC became a guarantor of the New Senior
Credit Facility and the 2005 Senior Subordinated Notes.
Alliance Laundry Corporation is a wholly-owned subsidiary of
Alliance Laundry and was originally incorporated for the sole purpose
of serving as a co-issuer of the 1998 Senior Subordinated Notes.
Alliance Laundry Holdings LLC is the parent of Alliance Laundry and
has provided a full and unconditional guarantee of the 2005 Senior
Subordinated Notes. Alliance Laundry Holdings LLC and Alliance Laundry
Corporation do not have any operations or assets independent of
Alliance Laundry.
RESULTS OF OPERATIONS
As a result of the Acquisition, the Consolidated Financial
Statements present our results of operations, financial position and
cash flows prior to the date of the Acquisition transaction under
"Predecessor." The financial effects of the Acquisition transaction
and our results of operations, financial position and cash flows
following the closing of the Acquisition are presented under
"Successor." In accordance with generally accepted accounting
principles in the United States, or GAAP, our Predecessor results have
not been aggregated with our Successor results and, accordingly, our
Consolidated Financial Statements do not show results of operations or
cash flows for the three months ended March 31, 2005. However, in
order to facilitate an understanding of our results of operations for
the three months ended March 31, 2005 in comparison with the three
months ended March 31, 2004, we have presented and discussed below our
Predecessor results and our Successor results on a combined basis. The
combined results of operations are non-GAAP financial measures and
should not be considered in isolation or as a substitute for the
Predecessor and Successor results.
Below is a reconciliation of the combined results of operations
for the periods presented (in thousands):
- -0-
January 28, January 1, Three Three
2005 2005 Months Months
through through Ended Ended
March 31, January 27, March 31, March 31,
2005 2005 2005 2004
----------- ----------- --------- -----------
Successor Predecessor Combined Predecessor
Net revenues:
Commercial and
consumer laundry $ 41,751 $ 17,470 $ 59,221 $ 56,308
Service parts 7,492 3,213 10,705 9,972
----------- ----------- --------- -----------
49,243 20,683 69,926 66,280
Cost of sales 43,337 15,585 58,922 45,521
----------- ----------- --------- -----------
Gross profit 5,906 5,098 11,004 20,759
Selling, general and
administrative expense 6,742 3,829 10,571 8,653
Transaction costs
associated with sale of
business - 18,790 18,790 -
----------- ----------- --------- -----------
Total operating expense 6,742 22,619 29,361 8,653
----------- ----------- --------- -----------
Operating (loss)
income (836) (17,521) (18,357) 12,106
Interest expense 3,764 995 4,759 7,110
Loss from early
extinguishment of debt - 9,867 9,867 -
Costs related to
abandoned public
offerings - - - 728
(Loss) income before
taxes (4,600) (28,383) (32,983) 4,268
Provision for income
taxes (1,669) 9 (1,660) 49
----------- ----------- --------- -----------
Net (loss) income $ (2,931) $(28,392) $(31,323) $ 4,219
=========== =========== ========= ===========
Below is a reconciliation of certain items of the combined
statements of cash flows for the periods presented (in thousands):
January 28, January 1, Three Three
2005 2005 Months Months
through through Ended Ended
March 31, January 27, March 31, March 31,
2005 2005 2005 2004
----------- ----------- --------- -----------
Successor Predecessor Combined Predecessor
Net cash provided by
(used in) operations $ 4,291 $(20,675) $(16,384) $ 8,623
Net cash (used for)
provided by working
capital (23,078) 14,056 (9,022) (1,571)
----------- ----------- --------- -----------
Net cash (used in)
provided by operating
activities $(18,787) $ (6,619) $(25,406) $ 7,052
----------- ----------- --------- -----------
Cash flows from
investing activities:
Additions to property,
plant and equipment (514) (188) (702) (698)
----------- ----------- --------- -----------
Net cash used in
investing activities $ (514) $ (188) $ (702) $ (698)
----------- ----------- --------- -----------
Cash flows from
financing activities:
Principal payments on
long-term debt (2,000) 1 (1,999) (5,061)
Proceeds from senior
term loan 200,000 - 200,000 -
Proceeds from senior
subordinated notes 149,250 - 149,250 -
Repayment of long-term
debt (275,920) - (275,920) -
Contribution from
member 117,000 - 117,000 -
Distribution to old
unitholders (151,996) - (151,996) -
Debt financing costs (13,172) - (13,172) -
Cash paid for
capitalized offering
related costs (1,364) - (1,364) -
Net proceeds -
management note - (71) (71) -
----------- ----------- --------- -----------
Net cash provided by
(used in) financing
activities $21,798 $ (70) $21,728 $(5,061)
----------- ----------- --------- -----------
Net revenues. Net revenues for the three months ended March 31,
2005 increased $3.6 million, or 5.5%, to $69.9 million from $66.3
million for the three months ended March 31, 2004. This increase was
attributable to higher commercial and consumer laundry revenue of $2.9
million and service parts revenue of $0.7 million. The increase in
commercial and consumer laundry revenue was due to higher
international revenue of $1.3 million, higher North American
commercial equipment revenue of $1.1 million and higher consumer
laundry revenue of $1.2 million, which were partly offset by lower
earnings from our off-balance sheet equipment financing program of
$0.7 million. Revenue for North America was higher for coin-operated
laundry customers and on-premise laundries. Revenue for international
customers was higher in Europe and Latin America. Alliance re-entered
the consumer laundry marketplace in the third three months of 2004,
and as such, there was no comparable revenue recognized in the first
three months of 2004. Our off-balance sheet equipment financing
program earnings were lower due to lower net present values on notes
sold resulting from a narrower spread between interest earned and the
cost of capital and due to adjusting beneficial interests to their
respective fair market values.
Gross profit. Gross profit for the three months ended March 31,
2005 decreased $9.8 million, or 47.0%, to $11.0 million from $20.8
million for the three months ended March 31, 2004. This decrease was
primarily attributable to nickel and chrome surcharges of $1.3 million
related to stainless steel purchases, higher depreciation expense of
$1.4 million driven by the Acquisition asset write-up to fair market
values, the amortization of $5.6 million related to an inventory
step-up to fair market value recorded on the Acquisition date, lower
earnings from our off-balance sheet equipment financing program of
$0.7 million and higher medical and workers compensation costs of $0.5
million. Significant steel cost increases as compared to the prior
year were mostly offset by price increases which were effective within
the three months ended March 31, 2005. As a result of these factors,
gross profit as a percentage of net revenues decreased to 15.7% for
the three months ended March 31, 2005 from 31.3% for the three months
ended March 31, 2004.
Selling, general and administrative expense. Selling, general and
administrative expense for the three months ended March 31, 2005
increased $2.0 million, or 22.6%, to $10.6 million from $8.6 million
for the three months ended March 31, 2004. The increase in selling,
general and administrative expense was primarily due to $1.1 million
on non-cash incentive compensation resulting from the acceleration of
vesting for incentive units on the date of the Acquisition and $0.7
million of increased amortization expenses driven primarily by
Acquisition date write-ups to fair market value for customer
agreements, engineering drawings, and our distribution network. Sales
expenses also increased by $0.2 million as compared to the prior
period due to incremental costs associated with consumer laundry. As a
result of these factors, selling, general and administrative expense
as a percentage of net revenues increased to 15.1% for the three
months ended March 31, 2005 as compared to 13.0% for the three months
ended March 31, 2004.
Transaction costs associated with sale of business. Transaction
costs associated with sale of business for the three months ended
March 31, 2005 were $18.8 million, with no similar costs in 2004.
These costs are comprised of seller transaction fees including
transaction underwriting fees of $4.5 million, legal and professional
fees of $1.3 million, a management sale bonus of $6.2 million and
advisory fees to Bain Capital Partners LLC and Bruckman, Rosser,
Sherrill & Co. of $6.8 million. Offering related expense as a
percentage of net revenues was 1.1% for the three months ended March
31, 2005.
Operating (loss) income. As a result of the foregoing, operating
(loss) income for the three months ended March 31, 2005 decreased
$30.5 million, to a loss of $18.4 million as compared to operating
income of $12.1 million for the three months ended March 31, 2004.
Operating income as a percentage of net revenues decreased to negative
26.3% for the three months ended March 31, 2005 as compared to a
positive 18.3% for the three months ended March 31, 2004.
Interest expense. Interest expense for the three months ended
March 31, 2005 decreased $2.3 million, or 33.1%, to $4.8 million from
$7.1 million for the three months ended March 31, 2004. Interest
expense in 2005 includes a favorable non-cash adjustment of $1.1
million to reflect changes in the fair value of an interest rate swap
agreement entered into after the Acquisition. Interest expense in 2004
includes an unfavorable non-cash adjustment of $0.4 million to reflect
changes in the fair value of a previous interest rate swap agreement.
Interest expense in 2005 also includes the recognition of $0.7 million
of interest income related to investor promissory notes for the period
from May 5, 1998 through January 27, 2005 in accordance with
applicable accounting requirements.
Loss on early extinguishment of debt. Loss on early extinguishment
of debt for the three months ended March 31, 2005 was $9.9 million,
with no similar costs in 2004. These costs include the write-off of
$5.8 million of unamortized deferred financing costs associated with
pre-Acquisition debt, which was paid off as of the Acquisition date
and $4.1 million of call and call premium costs associated with
redeeming the 1998 Senior Subordinated Notes. Offering related expense
as a percentage of net revenues was 14.1% for the three months ended
March 31, 2005.
Net (loss) income. As a result of the foregoing, our net (loss)
for the three months ended March 31, 2005 was $31.3 million as
compared to net income of $4.2 million for the three months ended
March 31, 2004. Net (loss) as a percentage of net revenues for the
three months ended March 31, 2005 was a negative 44.8% as compared to
a positive 6.4% for the three months ended March 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the consummation of the January 27, 2005
Transactions, we refinanced substantially all of our indebtedness with
the proceeds of the offering of the 2005 Senior Subordinated Notes and
borrowings under the New Senior Credit Facility.
2002 Senior Credit Facility. All borrowings under our amended and
restated credit agreement dated as of August 2, 2002 ("2002 Senior
Credit Facility"), which was comprised of a $193.0 million term loan
facility and a $45.0 million revolving credit facility were repaid in
connection with the consummation of the Transactions and all
outstanding letters of credit under our amended and restated August
2002 credit agreement were refinanced.
New Senior Credit Facility. The New Senior Credit Facility is
comprised of a senior secured revolving credit facility in a total
principal amount of up to $50.0 million (less amounts received for
letters of credit), which we refer to as the "New Revolving Credit
Facility," and a senior secured term loan facility in an aggregate
principal amount of $200.0 million, which we refer to as the "New Term
Loan Facility." The New Revolving Credit Facility has a six-year
maturity and the New Term Loan Facility has a seven-year maturity. We
expect to use borrowings under the New Revolving Credit Facility for
general corporate purposes, including working capital, capital
expenditures and letters of credit. We used borrowings under the New
Term Loan Facility together with proceeds from the offering of the
2005 Senior Subordinated Notes to pay the adjusted equity purchase
price under the Acquisition, to repay outstanding debt, including the
2002 senior credit facility, 1998 Senior Subordinated Notes, junior
subordinated promissory notes, unreturned capital on certain preferred
units, and to pay fees and expenses related to the Financing
Transactions.
The New Senior Credit Facility requires that we meet certain
financial tests including, without limitation, a maximum total
leverage ratio and a minimum interest coverage ratio. The New Senior
Credit Facility allows a maximum ratio of consolidated debt to
Adjusted EBITDA (as defined by the New Senior Credit Facility)
beginning with the fiscal quarter ended June 30, 2005 (the first
financial condition covenant test period), of 6.50. The New Senior
Credit Facility contains customary covenants and restrictions
including, among others, limitations or prohibitions on capital
expenditures and acquisitions, declaring and paying dividends and
other distributions, redeeming and repurchasing our other
indebtedness, loans and investments, additional indebtedness, liens,
guarantees, recapitalizations, mergers, asset sales and transactions
with affiliates.
Additional borrowings and the issuance of additional letters of
credit under the New Senior Credit Facility are subject to certain
continuing representations and warranties, including the absence of
any development or event which has had or could reasonably be expected
to have a material adverse effect on our business or financial
condition.
Securitization Programs. On November 26, 2002, a trust, Alliance
Laundry Equipment Receivables Trust 2002-A ("ALERT 2002A"), formed by
a special-purpose bankruptcy remote subsidiary of ours, entered into a
$300.0 million revolving facility (the "Asset Backed Facility"),
backed by equipment loans and trade receivables originated by us.
During the first three years of the Asset Backed Facility, we are
permitted, from time to time, to sell our trade receivables and
certain equipment loans to the special purpose subsidiary, which in
turn will transfer them to the trust. The trust finances the
acquisition of the trade receivables and equipment loans through
borrowings under the Asset Backed Facility. Funding availability for
trade receivables is limited to a maximum of $60.0 million, while
funding for equipment loans is limited at $300.0 million less the
amount of funding outstanding for trade receivables. Funding for the
trade receivables and equipment loans is subject to certain
eligibility criteria standard for transactions of this type. After
December 2, 2005 (or earlier in the event of a rapid amortization
event or an event of default), the trust will not be permitted to
request new borrowings under the facility and the outstanding
borrowings will amortize over a period of up to nine years thereafter.
Based on current market conditions, we believe that we will be able to
refinance the facility. However, should market conditions change or
our financial position deteriorate, we may not be able to refinance
the facility on advantageous terms or at all.
Additional advances under the Asset Backed Facility are subject to
certain continuing conditions, including but not limited to (i) the
weighted average life, weighted average interest rate, and the amount
of fixed rate equipment loans held by the trust, (ii) the absence of a
rapid amortization event or event of default, as defined, (iii) our
compliance, as servicer, with certain financial covenants, and (iv) no
event having occurred which materially and adversely affects our
operations.
The risk of loss to the note purchasers under the new Asset Backed
Facility resulting from default or dilution on the trade receivables
and equipment loans is protected by credit enhancement, provided in
the form of cash reserves, letters of credit and
overcollateralization. Further, the timely payment of interest and the
ultimate payment of principal on the facility is guaranteed by Ambac
Assurance Corporation. All of the residual beneficial interests in the
trust and cash flows remaining from the pool of receivables and loans
after payment of all obligations under the Asset Backed Facility would
accrue to our benefit. Except for the retained interests and amounts
of the letters of credit outstanding from time to time as credit
enhancement, we provide no support or recourse for the risk of loss
relating to default on the assets transferred to the trust. In
addition, we are paid a monthly servicing fee equal to one-twelfth of
1.0% of the aggregate balance of such trade receivables and equipment
loans.
1998 Senior Subordinated Notes. On January 4, 2005, we commenced a
cash tender offer and consent solicitation with respect to all $110.0
million of our outstanding 1998 Senior Subordinated Notes. The tender
offer for the 1998 Senior Subordinated Notes expired at 5:00 p.m. New
York City time on February 2, 2005, and approximately 5.10% of the
principal amount of the 1998 Senior Subordinated Notes remained
outstanding after the consummation of the tender offer. We redeemed
the remaining 1998 Senior Subordinated Notes in accordance with the
indenture governing such notes on March 7, 2005.
2005 Senior Subordinated Notes. As part of the Financing
Transactions, we offered and sold $150.0 million of 2005 Senior
Subordinated Notes and received proceeds of approximately $149.3
million. The 2005 Notes Indenture governing the 2005 Senior
Subordinated Notes, among other things, restricts our ability and the
ability of our restricted subsidiaries to make investments, incur or
guarantee additional indebtedness, pay dividends, create liens, sell
assets, merge or consolidate with other entities, enter into
transactions with affiliates and engage in certain business
activities.
EBITDA and Adjusted EBITDA.
We have presented EBITDA below and Adjusted EBITDA below because
certain covenants in the indenture governing our 2005 Senior
Subordinated Notes are tied to ratios based on these measures.
"EBITDA" represents net income before interest expense, income tax
(provision) benefit and depreciation and amortization, and "Adjusted
EBITDA" is EBITDA as further adjusted to exclude, among other things,
certain non-recurring expenses and other non-recurring non-cash
charges. EBITDA and Adjusted EBITDA do not represent, and should not
be considered, an alternative to net income or cash flow from
operations, as determined by GAAP, and our calculations thereof may
not be comparable to similarly entitled measures reported by other
companies. Based on our industry and debt financing experience, we
believe that EBITDA and Adjusted EBITDA are customarily used to
provide useful information regarding a company's ability to service
and/or incur indebtedness. In addition, EBITDA and Adjusted EBITDA are
defined in the indenture governing our 2005 Senior Subordinated Notes
in a manner which is identical to the definition of EBITDA and
Adjusted EBITDA in our New Senior Credit Facility under which we are
required to satisfy specified financial ratios and tests, including a
maximum of total debt to Adjusted EBITDA and a minimum interest
coverage ratio. The indenture governing our 2005 Senior Subordinated
Notes also requires us to meet a fixed charge coverage ratio in order
to incur additional indebtedness, subject to certain exceptions.
The following is a reconciliation from Net (Loss) Income to EBITDA
and from EBITDA to Adjusted EBITDA for the combined periods presented:
- -0-
January 28, January 1, Three Three
2005 2005 Months Months
through through Ended Ended
March 31, January 27, March 31, March 31,
2005 2005 2005 2004
----------- ----------- --------- -----------
Successor Predecessor Combined Predecessor
Net (loss) income $ (2,931) $(28,392) $(31,323) $ 4,219
Provision for income
taxes (1,669) 9 (1,660) 49
----------- ----------- --------- -----------
Net (loss) income
before income taxes (4,600) (28,383) (32,983) 4,268
Adjustments:
Interest expense 3,764 995 4,759 7,110
Depreciation and
amortization (a) 4,141 526 4,667 2,587
Non-cash interest
expense included in
amortization above (348) - (348) (483)
----------- ----------- --------- -----------
EBITDA $ 2,957 $(26,862) $(23,905) $ 13,482
=========== =========== ========= ===========
Adjustments:
Finance program
adjustments (b) 916 31 947 644
Other non-recurring
charges (c) 193 28,657 28,850 728
Other non-cash
charges (d) 5,606 1,089 6,695 -
Management fees paid
to affiliates of
Bain - 83 83 254
----------- ----------- --------- -----------
Adjusted EBITDA $ 9,672 $ 2,998 $ 12,670 $ 15,108
=========== =========== ========= ===========
(a) Depreciation and amortization amounts include amortization of
deferred financing costs included in interest expense.
(b) We currently operate an off-balance sheet commercial equipment
finance program in which newly originated equipment loans are
sold to qualified special-purpose bankruptcy remote entities.
In accordance with GAAP, we are required to record
gains/losses on the sale of these equipment based promissory
notes. In calculating Adjusted EBITDA, management determines
the cash impact of net interest income on these notes. The
finance program adjustments are the difference between GAAP
basis revenues (as prescribed by SFAS No. 125/140) and cash
basis revenues.
(c) Other non-recurring charges include executive retention costs
included in administrative expenses and infrequently occurring
items as follows:
-- Other non-recurring charges in 2004 relate to expenses
associated with a proposed initial public offering of Income
Deposit Securities ("IDS"). In connection with the proposed
IDS offering, as of December 31, 2004 we had incurred and
recorded $1.3 million of offering related expenses in the
consolidated statement of income. In addition we had
capitalized $3.5 million of debt and offering related costs in
other assets within the consolidated balance sheet. On
December 7, 2004, we chose to abandon the proposed IDS
offering, and consequently wrote off the $3.5 million of
capitalized costs in 2004. As of March 31, 2004 we had
incurred $0.7 million of expenses associated with this
proposed transaction.
-- Other non-recurring charges for the period from January 1,
2005 through January 27, 2005 relate to seller transaction
costs of $18.8 million incurred as part of the business sale
and a loss on the early extinguishment of debt of $9.9
million. The seller transaction costs are primarily comprised
of transaction underwriting fees of $4.5 million, legal and
professional fees of $1.3 million, Bain and BRS advisory fees
of $6.8 million and a management sale bonus of $6.2 million.
The loss on early extinguishment of debt includes the
write-off of $5.8 million of unamortized deferred financing
costs associated with pre- Acquisition debt, which was paid
off as of the Acquisition date and $4.1 million of call and
call premium costs associated with redeeming the 1998 Senior
Subordinated Notes.
-- Other non-recurring charges for the period from January 28,
2005 through March 31, 2005 relate to a periodic accrual under
a one time retention bonus agreement, entered into with
certain management employees concurrent with the Acquisition.
Under the retention bonus agreements, the executives are
entitled to receive special retention bonus awards upon the
second anniversary of the closing date of the Acquisition,
subject generally to their continued employment with Alliance
Laundry through such date. The aggregate amount of retention
bonuses payable under these agreements is approximately $2.3
million.
(d) Other non-cash charges are described as follows:
-- Non-cash charges for the period from January 1, 2005 through
January 27, 2005 relate to non-cash incentive compensation
expense resulting from the acceleration of vesting for the
incentive units at the date of the Acquisition.
-- Non-cash charges for the period from January 28, 2005 through
March 31, 2005 relate to the amortization of $5.6 million
associated with the inventory step-up to fair market value
recorded at the Acquisition date.
Liquidity
After the Acquisition, our principal sources of liquidity are cash
flows generated from operations and borrowings under our $50.0 million
New Revolving Credit Facility. Our principal uses of liquidity are to
meet debt service requirements, finance our capital expenditures and
provide working capital. We expect that capital expenditures in 2005
will not exceed $6.0 million. We expect the ongoing requirements for
debt service, capital expenditures and working capital will be funded
by internally generated cash flow and borrowings under the New
Revolving Credit Facility. The aggregate scheduled maturities of
long-term debt in subsequent years after giving effect to a $2.0
million voluntary prepayment made prior to March 31, 2005 are as
follows:
- -0-
Amount Due
-----------
Year (Dollars in
- ---- millions)
2005 $ -
2006 1.5
2007 2.0
2008 2.0
2009 2.0
Thereafter 340.5
The New Senior Credit Facility and the indenture governing the
2005 Senior Subordinated Notes contain a number of covenants that,
among other things, restrict our ability to dispose of assets, repay
other indebtedness, incur liens, make capital expenditures and make
certain investments or acquisitions, engage in mergers or
consolidation and otherwise restrict our operating activities. In
addition, under the New Senior Credit Facility, the Company is
required to satisfy specified financial ratios and tests, including a
maximum of total debt to Adjusted EBITDA (as defined in the credit
agreement governing the New Senior Credit Facility) and a minimum
interest coverage ratio.
The New Senior Credit Facility requires us to comply with certain
financial ratios and tests in order to comply with the terms of the
agreement. Our first measurement date for financial covenants under
the New Senior Credit Facility is June 30, 2005. The occurrence of any
default of these covenants could result in acceleration of our
obligations under the New Senior Credit Facility (approximately $198.0
million) and foreclosure on the collateral securing such obligations.
Further, such an acceleration would constitute an event of default
under the indenture governing the 2005 Senior Subordinated Notes,
under our Asset Backed Facility and under our ALERT 2000
securitization arrangement.
The maximum ratio of consolidated debt to Adjusted EBITDA under
the New Senior Credit Facility is scheduled to be 6.50 at June 30,
2005. We believe that future cash flows from operations, together with
available borrowings under the New Revolving Credit Facility, will be
adequate to meet our 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 ratio of consolidated debt to Adjusted EBITDA discussed
above. These covenants are not applicable for the Company prior to
June 30, 2005.
At March 31, 2005, there were no borrowings under our Revolving
Credit Facility. Letters of credit issued on our behalf under the
Revolving Credit Facility totaled $27.8 million at March 31, 2005. At
March 31, 2005, we had $22.2 million of our existing $50.0 million
Revolving Credit Facility available. At June 30, 2005 and thereafter,
the amount available under the Revolving Credit Facility will also be
subject to certain limitations which relate primarily to a maximum
ratio of consolidated debt to EBITDA (as defined by the New Senior
Credit Facility).
The New Term Loan Facility is repayable in the following aggregate
annual amounts:
- -0-
Amount Due
-----------
Year (Dollars in
- ---- millions)
2005 $ -
2006 1.5
2007 2.0
2008 2.0
2009 2.0
Thereafter 190.5
The New 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 New Senior Credit
Facility). The New Revolving Credit Facility will terminate on January
27, 2011.
We believe, based on currently available information, that for the
foreseeable future, cash flows from operations, together with
available borrowings under the New Senior Credit Facility, will be
adequate to meet our anticipated requirements for capital
expenditures, working capital, interest payments, scheduled principal
payments and other debt repayments while achieving all required
covenant requirements under the New Senior Credit Facility and 2005
Senior Subordinated Notes.
Our ability to make scheduled payments of principal or to
refinance our indebtedness, or to pay the interest or liquidated
damages, if any thereon, or to fund planned capital expenditures, will
depend upon our future performance, which, in turn, is subject to
general economic, financial, competitive and other factors that are
beyond our control. There can be no assurance that our business will
continue to generate sufficient cash flow from operations in the
future to service our debt and make necessary capital expenditures
after satisfying certain liabilities arising in the ordinary course of
business. If unable to do so, we may be required to refinance all or a
portion of our 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.
Our Asset Backed Facility provides for a total of $300.0 million
in off-balance sheet financing for trade receivables and equipment
loans. The finance programs have been and will continue to be
structured in a manner that qualifies for off-balance sheet treatment
in accordance with generally accepted accounting principles. It is
expected that under the Asset Backed Facility, we will continue to act
as originator and servicer of the equipment financing promissory notes
and the trade receivables.
Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations
There have been no material changes to our off-balance sheet
arrangements and aggregate contractual obligations since the filing of
our 2004 Annual Report on Form 10-K.
Cash Flows
Cash used in operating activities for the combined three months
ended March 31, 2005 of $25.4 million was driven by cash used by
operations of $16.4 million (net income adjusted for depreciation,
amortization and non-cash interest) and higher working capital
requirements of $9.0 million. The higher cash used by operations
includes $18.8 million of transaction costs associated with the sale
of the business and $4.1 million of call and call premium costs
associated with redeeming the 1998 Senior Subordinated Notes. Working
capital requirements increased for accounts receivable and inventory
with decreases in accounts payable and other liabilities. The working
capital investment in receivables at March 31, 2005 of $8.2 million
increased $2.6 million as compared to the balance of $5.6 million at
December 31, 2004 due solely to the timing of sales of accounts
receivable to the qualified special-purpose bankruptcy remote
entities. The working capital investment in inventories of $30.8
million increased $4.1 million as compared to the balance of $26.8
million at December 31, 2004 in preparation to meet second quarter
sales needs. The working capital investment in other liabilities at
March 31, 2005 of $22.1 million decreased $2.6 million as compared to
the balance of $24.7 million at December 31, 2004 due to the payment
of annual management bonuses, payment of customer volume rebates and a
favorable interest payable adjustment to recognize the favorable
impact of an interest rate swap agreement.
Net cash used in operating activities for the combined three
months ended March 31, 2005 of $25.4 million decreased by $32.5
million as compared to the three months ended March 31, 2004. This
decrease was primarily due to lower cash provided by operations of
$25.0 million and higher net cash used in changes in assets and
liabilities of $7.5 million for the combined three months ended March
31, 2005 as compared to the three months ended March 31, 2004. The
lower cash provided by operations of $25.0 million includes $18.8
million of transaction costs associated with the sale of the business
and $4.1 million of call and call premium costs associated with
redeeming the 1998 Senior Subordinated Notes. The higher net cash used
in changes in assets and liabilities for the three months ended March
31, 2005 of $7.5 million was largely due to a $2.6 million increase in
accounts receivable for the combined three months ended March 31, 2005
as compared to a decrease of $1.6 million for the same period in 2004
and a decrease in other liabilities of $3.8 million for the combined
three months ended March 31, 2005 as compared to an increase of $2.3
million for the same period in 2004. Offsetting the above, we
increased inventory stocking levels by $3.4 million for the combined
three months ended March 31, 2005 as compared to an increase of $6.1
million for the same period in 2004.
Capital Expenditures
Our capital expenditures for the three months ended March 31, 2005
and March 31, 2004 were $0.7 million and $0.7 million, respectively.
Capital spending in both 2005 and 2004 was principally oriented toward
product enhancements and reducing manufacturing costs.
CONTACT: Alliance Laundry Holdings LLC
Bruce P. Rounds, 920-748-1634