Exhibit 99.1
Alliance Laundry Holdings LLC Reports 3rd Qtr 2005 Earnings
RIPON, Wis.--(BUSINESS WIRE)--Nov. 10, 2005--Alliance Laundry
Holdings LLC announced today results for the quarter and nine months
ended September 30, 2005.
Net revenues for the quarter ended September 30, 2005 increased
$13.2 million, or 20.3%, to $78.4 million from $65.1 million for the
quarter ended September 30, 2004. Net income for the quarter ended
September 30, 2005 increased $0.4 million to $3.4 million from $3.0
million for the quarter ended September 30, 2004. Adjusted EBITDA(a)
for the quarter ended September 30, 2005 was $14.1 million compared
with Adjusted EBITDA of $13.2 million for the quarter ended September
30, 2004.
The overall net revenue increase of $13.2 million was attributable
to higher product revenues of $12.6 million and service parts revenue
of $0.6 million. The increase in product revenue was due to higher
North American commercial equipment revenue of $7.6 million, higher
international revenue of $2.8 million and higher earnings from our
off-balance sheet equipment financing program of $2.6 million, with
lower U.S. consumer laundry revenue of $0.4 million.
Net revenues for the nine months ended September 30, 2005
increased $29.1 million, or 14.2%, to $233.9 million from $204.8
million for the nine months ended September 30, 2004. Our net loss for
the nine months ended September 30, 2005 was $30.7 million as compared
to net income of $13.5 million for the nine months ended September 30,
2004. Adjusted EBITDA(a) for the nine months ended September 30, 2005
was $43.3 million as compared with Adjusted EBITDA of $44.3 million
for the nine months ended September 30, 2004.
In announcing the Company's results today, CEO and President
Thomas F. L'Esperance said, "We are extremely pleased with our year
over year net revenue growth of 20.3% for the third quarter of 2005.
North American commercial equipment led the way for us. Additionally,
we had a very strong international performance for the third quarter."
"On October 14, 2005, we announced that we would be moving our
Marianna operations to Ripon, Wisconsin. We expect the consolidation
to be completed by the end of the third quarter of 2006. We expect
there will be efficiencies as a result of the consolidation of the
design and manufacturing of all of our product lines within one
operation," 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).
(a) 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 Quarter and Nine Months Ended
September 30, 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 quarter and
nine months ended September 30, 2005.
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
September 30, December 31,
2005 2004
------------- -------------
Successor Predecessor
Assets
Current assets:
Cash $3,579 $11,471
Accounts receivable, net 8,546 5,611
Inventories, net 28,614 26,761
Beneficial interests in securitized
accounts receivable 21,107 19,479
Deferred income tax assets 2,730 -
Prepaid expenses and other 3,433 1,088
------------- -------------
Total current assets 68,009 64,410
Notes receivable, net 4,867 6,742
Property, plant and equipment, net 69,552 30,481
Goodwill 139,903 55,414
Beneficial interests in securitized
financial assets 16,717 19,379
Deferred income tax assets 5,964 -
Debt issuance costs, net 11,740 5,751
Other intangibles, net 148,087 1,839
------------- -------------
Total assets $464,839 $184,016
============= =============
Liabilities and Member's Equity (Deficit)
Current liabilities:
Current portion of long-term debt $- $12,036
Revolving credit facility - -
Accounts payable 7,575 11,618
Other current liabilities 21,667 24,718
------------- -------------
Total current liabilities 29,242 48,372
Long-term debt:
Senior credit facility 187,000 118,218
Senior subordinated notes 149,313 110,000
Junior subordinated note - 28,776
Other long-term debt - 529
Deferred income tax liability - -
Other long-term liabilities 6,310 7,218
Mandatorily redeemable preferred
interests - 6,000
------------- -------------
Total liabilities 371,865 319,113
Commitments and contingencies (see Note)
Member's equity (deficit) 92,974 (135,097)
------------- -------------
Total liabilities and member's equity
(deficit) $464,839 $184,016
============= =============
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(in thousands)
Three Months Three Months
Ended Ended
September 30, September 30,
2005 2004
------------- -------------
Successor Predecessor
Net revenues:
Commercial and consumer laundry $68,438 $55,805
Service parts 9,914 9,341
------------- -------------
78,352 65,146
Cost of sales 55,956 47,001
------------- -------------
Gross profit 22,396 18,145
------------- -------------
Selling, general and administrative expense 9,815 8,217
Securitization and other costs 40 -
Transaction costs associated with sale of
business - -
------------- -------------
Total operating expenses 9,855 8,217
------------- -------------
Operating income (loss) 12,541 9,928
Interest expense 6,138 6,849
Loss from early extinguishment of debt - -
Costs related to abandoned public offerings - 30
------------- -------------
Other income (expense), net - -
------------- -------------
Income (loss) before taxes 6,403 3,049
Income tax (benefit) provision 3,026 10
------------- -------------
Net income (loss) $3,377 $3,039
============= =============
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(in thousands)
January 28, January 1, Nine Months
2005 through 2005 through Ended
September 30, January 27, September 30,
2005 2005 2004
------------- ------------- -------------
Successor Predecessor Predecessor
Net revenues:
Commercial and consumer
laundry $185,767 $17,470 $176,023
Service parts 27,493 3,213 28,773
------------- ------------- -------------
213,260 20,683 204,796
Cost of sales 164,374 15,585 144,761
------------- ------------- -------------
Gross profit 48,886 5,098 60,035
------------- ------------- -------------
Selling, general and
administrative expense 26,673 3,829 25,995
Securitization and other
costs 8,055 - -
Transaction costs associated
with sale of business - 18,790 -
------------- ------------- -------------
Total operating expenses 34,728 22,619 25,995
------------- ------------- -------------
Operating income (loss) 14,158 (17,521) 34,040
Interest expense 17,439 995 19,219
Loss from early
extinguishment of debt - 9,867 -
Costs related to abandoned
public offerings - - 1,298
------------- ------------- -------------
Other income (expense), net - - -
------------- ------------- -------------
Income (loss) before taxes (3,281) (28,383) 13,523
Income tax (benefit)
provision (995) 9 64
------------- ------------- -------------
Net income (loss) $(2,286) $(28,392) $13,459
============= ============= =============
ALLIANCE LAUNDRY HOLDINGS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
January 28, January 1, Nine Months
2005 through 2005 through Ended
September 30, January 27, September 30,
2005 2005 2004
------------- ------------- -------------
Successor Predecessor Predecessor
Cash flows from operating
activities:
Net income (loss) $(2,286) $(28,392) $13,459
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and
amortization 14,743 526 7,585
Non-cash interest (680) 351 3,456
Non-cash incentive unit
compensation - 1,089 540
Non-cash debt financing
write-off - 5,751 -
Non-cash loss from
early extinguishment
of debt - - -
Non-cash inventory
expense 6,246 - -
Deferred income tax
assets (1,042) - -
Loss on sale of
property, plant and
equipment 48 - -
Changes in assets and
liabilities:
Accounts receivable (2,379) (556) 203
Inventories (20) (1,833) (2,748)
Other assets 1,918 101 1,722
Accounts payable (23,119) 19,076 541
Other liabilities 644 (2,732) 1,308
------------- ------------- -------------
Net cash (used in)
provided by operating
activities (5,927) (6,619) 26,066
------------- ------------- -------------
Cash flows from investing
activities:
Additions to property,
plant and equipment (3,168) (188) (2,982)
Proceeds on disposal of
property, plant and
equipment 2 - 67
------------- ------------- -------------
Net cash used in
investing activities (3,166) (188) (2,915)
------------- ------------- -------------
Cash flows from financing
activities:
Principal payments on long-
term debt (13,000) 1 (21,183)
Net increase in revolving
line of credit borrowings - - -
Proceeds from senior term
loan 200,000 - -
Proceeds from senior
subordinated notes 149,250 - -
Repayment of long-term debt (275,920) - -
Contribution from member 117,000 - -
Distribution to old
unitholders (154,658) - -
Debt financing costs (13,230) - -
Cash paid for capitalized
offering related costs (1,364) - (1,071)
Net proceeds - management
note - (71) -
Repayment of management
note - - -
Proceeds from long-term
debt - - -
------------- ------------- -------------
Net cash provided by
(used in) financing
activities 8,078 (70) (22,254)
------------- ------------- -------------
(Decrease) increase in cash (1,015) (6,877) 897
Cash at beginning of period 4,594 11,471 7,937
------------- ------------- -------------
Cash at end of period $3,579 $4,594 $8,834
============= ============= =============
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Quarter and Nine Months Ended September
30, 2005
OVERVIEW
As a result of the January 27, 2005 transactions described further
below, 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 has been reflected at fair market
values in the Successor financial statements.
Throughout this news 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
September 30, 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 news release for the period ended September 30, 2005 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 Holdings 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 Holdings
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 Holdings 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 Holdings, all of the equity interests of Alliance Holdings
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 Holdings 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 Holdings is the parent of Alliance Laundry and has provided a
full and unconditional guarantee of the 2005 Senior Subordinated
Notes. Alliance Holdings 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 nine months ended September 30, 2005. However, in
order to facilitate an understanding of our results of operations for
the nine months ended September 30, 2005 in comparison with the nine
months ended September 30, 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.
The following table sets forth our historical net revenues for the
periods indicated:
Quarter Ended
---------------------------
September 30, September 30,
2005 2004
---------------------------
(Dollars in millions)
Net revenues:
Commercial laundry $68.5 $55.8
Service parts 9.9 9.3
------------- -------------
$78.4 $65.1
============= =============
The following table sets forth certain condensed historical financial
data for us expressed as a percentage of net revenues for each of the
periods indicated:
Quarter Ended
---------------------------
September 30, September 30,
2005 2004
------------- -------------
Net revenues 100.0% 100.0%
Cost of sales 71.4% 72.1%
Gross profit 28.6% 27.9%
Selling, general and administrative
expense 12.5% 12.7%
Securitization and other costs 0.1% -
Operating income 16.0% 15.2%
Net income 4.3% 4.7%
Net revenues. Net revenues for the quarter ended September 30,
2005 increased $13.2 million, or 20.3%, to $78.4 million from $65.1
million for the quarter ended September 30, 2004. This increase was
attributable to higher product revenues of $12.6 million, and service
parts revenue increases of $0.6 million. The increase in product
revenue was due to higher North American commercial equipment revenue
of $7.6 million, higher international revenue of $2.8 million and
higher earnings from our off-balance sheet equipment financing program
of $2.6 million, with lower U.S. consumer laundry revenue of $0.4
million. Revenue for North America was higher for coin-operated
laundry customers and on-premise laundries. Revenue for international
customers was higher primarily in Asia, Latin America and Europe. Our
off-balance sheet equipment financing program earnings were higher due
to an increase in notes sold and due to adjusting beneficial interests
to their respective fair market values. The revenue increases stated
above include net price increases of approximately $4.0 million.
Gross profit. Gross profit for the quarter ended September 30,
2005 increased $4.3 million, or 23.4%, to $22.4 million from $18.1
million for the quarter ended September 30, 2004. This increase was
primarily attributable to price increases, profit margins related to
increased sales and the higher earnings from our off-balance sheet
equipment financing program. These gross profit increases were
partially offset by material cost increases of approximately $3.2
million, mostly related to steel cost increases, and higher
depreciation expense of $0.5 million driven by the Acquisition asset
write-up to fair market values. As a result of these factors, gross
profit as a percentage of net revenues increased to 28.6% for the
quarter ended September 30, 2005 from 27.9% for the quarter ended
September 30, 2004.
Selling, general and administrative expense. Selling, general and
administrative expense for the quarter ended September 30, 2005
increased $1.6 million, or 19.4%, to $9.8 million from $8.2 million
for the quarter ended September 30, 2004. The increase in selling,
general and administrative expense was primarily due to increased
amortization expenses of $1.0 million driven by Acquisition date
write-ups to fair market value for customer agreements, engineering
drawings, and our distribution network. Expenses also increased by
$0.3 million as a result of a retention program for key executives and
increased by $0.3 million for management bonuses. Selling, general and
administrative expense as a percentage of net revenues decreased to
12.5% for the quarter ended September 30, 2005 as compared to 12.7%
for the quarter ended September 30, 2004 as these costs did not
increase as significantly as net revenues.
Operating income (loss). As a result of the foregoing, operating
income (loss) as a percentage of net revenues increased to 16.0% for
the quarter ended September 30, 2005 as compared to 15.2% for the
quarter ended September 30, 2004.
Interest expense. Interest expense for the quarter ended September
30, 2005 decreased $0.7 million, or 10.4%, to $6.1 million from $6.8
million for the quarter ended September 30, 2004. Interest expense in
2005 includes a favorable non-cash adjustment of $0.8 million to
reflect changes in the fair value of an interest rate swap agreement
entered into after the Acquisition. There was essentially no change in
the fair value of a previous interest rate swap agreement for the
quarter ended September 30, 2004.
Income tax provision. The provision for income taxes for the
quarter ended September 30, 2005 was $3.0 million, with no similar
provision for the quarter ended September 30, 2004. Prior to January
28, 2005, we did not provide for U.S. federal income taxes or tax
benefits as the Predecessor Company was a partnership for tax
reporting purposes and the payment of federal and most state taxes
were the responsibility of the partners.
Net income (loss). As a result of the foregoing, our net income
for the quarter ended September 30, 2005 increased $0.4 million, or
11.1%, to $3.4 million from $3.0 million for the quarter ended
September 30, 2004. Net income (loss) as a percentage of net revenues
for the quarter ended September 30, 2005 decreased to 4.3% for the
quarter ended September 30, 2005 as compared to 4.7% for the quarter
ended September 30, 2004.
Below is a reconciliation of the combined results of operations
for the periods presented (in thousands):
January 28, January 1, Nine Months Nine Months
2005 through 2005 through Ended Ended
September 30, January 27, September 30, September 30,
2005 2005 2005 2004
------------- ------------- ------------- -------------
Successor Predecessor Combined Predecessor
Net revenues:
Commercial
and consumer
laundry $185,767 $17,470 $203,237 $176,023
Service parts 27,493 3,213 30,706 28,773
------------- ------------- ------------- -------------
213,260 20,683 233,943 204,796
Cost of sales 164,374 15,585 179,959 144,761
------------- ------------- ------------- -------------
Gross profit 48,886 5,098 53,984 60,035
Selling,
general and
administrative
expense 26,673 3,829 30,502 25,995
Securitization
and other
costs 8,055 - 8,055 -
Transaction
costs
associated
with sale of
business - 18,790 18,790 -
------------- ------------- ------------- -------------
Total operating
expense 34,728 22,619 57,347 25,995
------------- ------------- ------------- -------------
Operating
income
(loss) 14,158 (17,521) (3,363) 34,040
Interest
expense 17,439 995 18,434 19,219
Loss from early
extinguishment
of debt - 9,867 9,867 -
Costs related
to abandoned
public
offerings - - - 1,298
------------- ------------- ------------- -------------
(Loss)
income
before
taxes (3,281) (28,383) (31,664) 13,523
Provision for
income taxes (995) 9 (986) 64
------------- ------------- ------------- -------------
Net (loss)
income $(2,286) $(28,392) $(30,678) $13,459
============= ============= ============= =============
Below is a reconciliation of certain items of the combined statements
of cash flows for the periods presented (in thousands):
January 28, January 1, Nine Months Nine Months
2005 through 2005 through Ended Ended
September 30, January 27, September 30, September 30,
2005 2005 2005 2004
------------- ------------- ------------- -------------
Successor Predecessor Combined Predecessor
Net cash (used
in) provided
by operations $17,029 $(20,675) $(3,646) $25,040
Net cash (used
for) provided
by working
capital (22,956) 14,056 (8,900) 1,026
------------- ------------- ------------- -------------
Net cash (used
in) provided
by operating
activities $(5,927) $(6,619) $(12,546) $26,066
------------- ------------- ------------- -------------
Cash flows from
investing
activities:
Additions to
property,
plant and
equipment $(3,168) $(188) $(3,356) $(2,982)
Proceeds on
disposal of
property,
plant and
equipment 2 - 2 67
------------- ------------- ------------- -------------
Net cash
used in
investing
activities $(3,166) $(188) $(3,354) $(2,915)
------------- ------------- ------------- -------------
Cash flows from
financing
activities:
Principal
payments on
long-term
debt $(13,000) $1 $(12,999) $(21,183)
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 (154,658) - (154,658) -
Debt
financing
costs (13,230) - (13,230) -
Cash paid for
capitalized
offering
related
costs (1,364) - (1,364) (1,071)
Net proceeds
- management
note - (71) (71) -
------------- ------------- ------------- -------------
Net cash
provided
by (used
in)
financing
activities $8,078 $(70) $8,008 $(22,254)
============= ============= ============= =============
Net revenues. Net revenues for the nine months ended September 30,
2005 increased $29.1 million, or 14.2%, to $233.9 million from $204.8
million for the nine months ended September 30, 2004. This increase
was attributable to higher product revenue of $27.2 million and higher
service parts revenue of $1.9 million. The increase in product revenue
was due to higher international revenue of $8.4 million, higher North
American commercial equipment revenue of $12.8 million, higher U.S.
consumer laundry revenue of $3.1 million and higher earnings from our
off-balance sheet equipment financing program of $2.9 million. Revenue
for North America was higher for coin-operated laundry customers and
on-premise laundries. Revenue for international customers was higher
in Asia, Europe, Latin America and middle eastern countries. Alliance
re-entered the U.S. consumer laundry marketplace in the third quarter
of 2004, and as such, there was no comparable revenue recognized in
the first six months of 2004. The revenue increases stated above
include net price increases of approximately $11.8 million, which were
effective during the quarter ended March 31, 2005.
Gross profit. Gross profit for the nine months ended September 30,
2005 decreased $6.0 million, or 10.1%, to $54.0 million from $60.0
million for the nine months ended September 30, 2004. This decrease
was primarily attributable to the amortization of $6.2 million related
to an inventory step-up to fair market value recorded on the
Acquisition date, higher depreciation expense of $4.2 million driven
by the Acquisition asset write-up to fair market values and material
cost increases of approximately $11.7 million, mostly related to steel
cost increases. These cost increases as compared to the prior year
were mostly offset by price increases, margins associated with higher
sales volumes and the higher earnings from our off-balance sheet
equipment financing program. As a result of these factors, gross
profit as a percentage of net revenues decreased to 23.1% for the nine
months ended September 30, 2005 from 29.3% for the nine months ended
September 30, 2004.
Selling, general and administrative expense. Selling, general and
administrative expense for the nine months ended September 30, 2005
increased $4.5 million, or 17.3%, to $30.5 million from $26.0 million
for the nine months ended September 30, 2004. The increase in selling,
general and administrative expense was primarily due to $2.8 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 and charges related
to $0.5 million of non-cash incentive compensation resulting from the
acceleration of vesting for incentive units on the date of the
Acquisition. Sales expenses also increased by $0.8 million as compared
to the prior period due to incremental costs associated with consumer
laundry and higher trade show and advertising costs. As a result of
these factors, selling, general and administrative expense as a
percentage of net revenues increased to 13.0% for the nine months
ended September 30, 2005 as compared to 12.7% for the nine months
ended September 30, 2004.
Securitization and other costs. Securitization and other costs for
the nine months ended September 30, 2005 were $8.1 million, with no
similar costs in 2004. These costs are comprised of $8.1 million of
transaction costs incurred in establishing a new asset backed facility
for the sale of equipment notes and trade receivables. Securitization
and other costs as a percentage of net revenues was 3.5% for the nine
months ended September 30, 2005. Substantially all of these costs were
incurred during the quarter ended June 30, 2005.
Transaction costs associated with sale of business. Transaction
costs associated with sale of business for the nine months ended
September 30, 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. Transaction costs associated with sale
of business as a percentage of net revenues was 8.0% for the nine
months ended September 30, 2005. All transaction costs associated with
the sale of the business were incurred during the quarter ended March
31, 2005.
Operating income (loss). As a result of the foregoing, operating
income (loss) for the nine months ended September 30, 2005 decreased
$37.4 million, to a loss of $3.4 million as compared to operating
income of $34.0 million for the nine months ended September 30, 2004.
Operating income as a percentage of net revenues decreased to negative
1.4% for the nine months ended September 30, 2005 as compared to a
positive 16.6% for the nine months ended September 30, 2004.
Interest expense. Interest expense for the nine months ended
September 30, 2005 decreased $0.8 million, or 4.1%, to $18.4 million
from $19.2 million for the nine months ended September 30, 2004. This
decrease was primarily attributable to the recognition of $0.7 million
of interest income in 2005 related to investor promissory notes for
the period from May 5, 1998 through January 27, 2005 in accordance
with applicable accounting requirements and lower average interest
rates associated with the current capital structure as compared to the
average interest rates for the Predecessor Company.
Loss on early extinguishment of debt. Loss on early extinguishment
of debt for the nine months ended September 30, 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 4.2% for the nine months ended
September 30, 2005.
Costs Related to Abandoned Public Offerings. Costs related to
abandoned public offerings for the nine months ended September 30,
2004 were $1.3 million with no similar costs in 2005. During 2004, we
pursued an initial public offering of Income Deposit Securities for
which we incurred offering related expenses and for which we
capitalized debt and offering related costs totaling $3.1 million as
of September 30, 2004. In the fourth quarter of 2004, this public
offering was abandoned and all related capitalized costs were expensed
at that time.
Income tax provision. The provision for income taxes for the nine
months ended September 30, 2005 was a benefit of $1.0 million, with no
similar provision for the quarter ended September 30, 2004. Prior to
January 28, 2005, we did not provide for U.S. federal income taxes or
tax benefits as the Predecessor Company was a partnership for tax
reporting purposes and the payment of federal and most state taxes
were the responsibility of the partners.
Net income (loss). As a result of the foregoing, our net loss for
the nine months ended September 30, 2005 was $30.7 million as compared
to net income of $13.5 million for the nine months ended September 30,
2004. Net (loss) income as a percentage of net revenues for the nine
months ended September 30, 2005 was a negative 13.1% as compared to a
positive 6.6% for the nine months ended September 30, 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. For the quarter
ended September 30, 2005, the New Senior Credit Facility allows a
maximum ratio of consolidated debt to Adjusted EBITDA (as defined by
the New Senior Credit Facility) of 6.50. We are in compliance with
this and all other debt related covenants as of September 30, 2005.
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 June 28, 2005, Alliance Laundry,
through a special-purpose bankruptcy remote subsidiary, Alliance
Laundry Equipment Receivables 2005 LLC ("ALER 2005"), and a trust,
Alliance Laundry Equipment Receivables Trust 2005-A ("ALERT 2005A"),
entered into a four year $330.0 million revolving credit facility (the
"Asset Backed Facility"), backed by equipment loans and trade
receivables originated by us. During the first four years of the new
Asset Backed Facility, Alliance Laundry is permitted, from time to
time, to sell its trade receivables and certain equipment loans to the
special-purpose subsidiary, which in turn will sell them to the trust.
The trust finances the acquisition of the trade receivables and
equipment loans through borrowings under the Asset Backed Facility in
the form of funding notes, which are limited to an advance rate of
approximately 95% for equipment loans and 60-70% for trade
receivables. Funding availability for trade receivables is limited to
a maximum of $60.0 million, while funding for equipment loans is
limited at $330.0 million less the amount of funding outstanding for
trade receivables. Funding for the trade receivables and equipment
loans is subject to certain eligibility criteria, including
concentration and other limits, standard for transactions of this
type. After four years from the closing date, which is June 27, 2009,
(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. As of September 30, 2005, the balance of
variable funding notes due to lenders under the Asset Backed Facility
for equipment loans was $219.1 million.
Additional advances under the Asset Backed Facility are subject to
certain continuing conditions, including but not limited to (i)
covenant restrictions relating to 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 variable funding notes under the Asset Backed Facility will
commence amortization and borrowings thereunder will cease prior to
four years after the closing date upon the occurrence of certain
"rapid amortization events" which include: (i) a borrowing base
shortfall exists and remains uncured, (ii) delinquency, dilution or
default ratios on pledged receivables and equipment loans exceeding
certain specified ratios in any given month, (iii) the days sales
outstanding on receivables exceed a specified number of days, (iv) the
occurrence and continuance of an event of default or servicer default
under the Asset Backed Facility, including but not limited to, as
servicer, a material adverse change in our business or financial
condition and our compliance with certain required financial
covenants, and (v) a number of other specified events.
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 by us
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 are 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 the benefit of Alliance Laundry. 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.
The estimated fair value of Alliance Laundry's beneficial
interests in the accounts receivable and notes sold to ALERT 2005A are
based on the amount and timing of expected distributions to Alliance
Laundry as the holder of the trust's residual equity interests. Such
distributions may be substantially deferred or eliminated, and result
in an impairment of our residual interests, if repayment of the
variable funding notes issued by ALERT 2005A is accelerated upon an
event of default or rapid amortization event described above.
The Asset Backed Facility replaces a similar facility previously
maintained with CDC Financial Products, Inc., Bear, Stearns & Co.,
Inc. and Altamira Funding, LLC (the "ALERT 2002A Facility"). In
connection with the establishment of the new facility, Alliance
Laundry, through its special-purpose subsidiaries, repurchased and
simultaneously resold the assets held by the ALERT 2002A Facility to
the new Asset Backed Facility.
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 (loss) 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 income (loss) to EBITDA
and from EBITDA to Adjusted EBITDA for the combined periods presented
(in thousands):
Three Months Ended
---------------------------
September 30, September 30,
2005 2004
------------- -------------
Successor Predecessor
Net income (loss) $3,377 $3,039
Provision for income taxes 3,026 10
------------- -------------
Net income (loss) before income taxes 6,403 3,049
Adjustments:
Interest expense $6,138 $6,849
Depreciation and amortization (a) 4,401 2,467
Non-cash interest (income) included
in amortization above (602) (468)
------------- -------------
EBITDA $16,340 $11,897
============= =============
Adjustments:
Finance program adjustments (b) $(2,615) $1,091
Other non-recurring charges (c) 330 30
Other non-cash charges (d) - (130)
Management fees paid to affiliates of
Bain - 262
------------- -------------
Adjusted EBITDA $14,055 $13,150
============= =============
January 28, January 1, Nine Months Nine Months
2005 through 2005 through Ended Ended
September 30, January 27, September 30, September 30,
2005 2005 2005 2004
------------- ------------- ------------- -------------
Successor Predecessor Combined Predecessor
Net income
(loss) $(2,286) $(28,392) $(30,678) $13,459
Provision for
income taxes (995) 9 (986) 64
------------- ------------- ------------- -------------
Net income
(loss) before
income taxes (3,281) (28,383) (31,664) 13,523
Adjustments:
Interest
expense $17,439 $995 $18,434 $19,219
Depreciation
and
amortization (a) 14,805 526 15,331 7,585
Non-cash
interest
(income)
included in
amortization
above (1,552) - (1,552) (1,428)
------------- ------------- ------------- -------------
EBITDA $27,411 $(26,862) $549 $38,899
============= ============= ============= =============
Adjustments:
Finance
program
adjustments (b) $(2,195) $31 $(2,164) $2,832
Other non-
recurring
charges (c) 8,828 28,657 37,485 1,298
Other non-
cash charges (d) 6,246 1,089 7,335 540
Management
fees paid to
affiliates
of Bain - 83 83 773
------------- ------------- ------------- -------------
Adjusted EBITDA $40,290 $2,998 $43,288 $44,342
============= ============= ============= =============
(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 September 30, 2004 we had
incurred $1.3 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 September 30, 2005 relate to $8.1 million of
costs associated with establishing a new asset backed facility
for the sale of equipment notes and trade receivables and a
periodic accrual of $0.8 million 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 July 1, 2004 through
September 30, 2004 relate to non- cash incentive compensation
expense adjustments related to management incentive units.
-- Non-cash charges for the period from January 28, 2005 through
September 30, 2005 relate to $6.2 million associated with the
inventory step-up to fair market value recorded at the
Acquisition date.
CONTACT: Alliance Laundry Holdings LLC
Bruce P. Rounds, 920-748-1634