Exhibit 99.1
Alliance Laundry Holdings LLC Reports 2005 Sales and Earnings
RIPON, Wis.--(BUSINESS WIRE)--March 9, 2006--Alliance Laundry
Holdings LLC announced today results for the year ended December 31,
2005.
Net revenues for the full year 2005 increased $36.3 million, or
12.9%, to $317.3 million from $281.0 million for the full year 2004.
Net loss for 2005 was $29.1 million as compared to income of $11.8
million for 2004. Adjusted EBITDA (see "About Non-GAAP Financial
Measures" below) for 2005 was $60.4 million compared with Adjusted
EBITDA of $59.5 million for 2004.
The overall net revenue increase of $36.3 million was attributable
to higher commercial laundry revenue of $29.1 million, higher U.S. and
Canadian consumer laundry revenue of $4.9 million and higher service
parts revenue of $2.3 million. Net loss for the full year 2005
included $18.8 million of transaction costs associated with the sale
of the business on January 27, 2005, $9.9 million for loss on early
extinguishment of debt and $8.1 million of transaction costs to
establish our new asset backed facility.
In announcing the Company's results today, CEO and President
Thomas F. L'Esperance said, "We are extremely pleased with our top
line performance for 2005. Throughout the year, we continued to
successfully execute our operational strategies while navigating a
challenging cost environment. Our financial performance reflects our
success in offsetting cost increases with required price increases."
"On October 14, 2005, we announced that we would be moving our
Marianna operations to Ripon, Wisconsin. This strategic project
remains on schedule and should be completed by the end of the third
quarter of 2006. We expect to begin seeing efficiencies from the
consolidation during the fourth quarter of 2006," said L'Esperance.
About 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.
About Alliance Laundry Holdings LLC
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).
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, 2005.
Financial information for Alliance Laundry Holdings LLC appears on
the next three pages, followed by management's discussion and analysis
of financial condition and results of operations for the years ended
December 31, 2005 and 2004.
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2005 2004
------------ ------------
Successor Predecessor
Assets
Current assets:
Cash $5,075 $11,471
Accounts receivable (net of allowance
for doubtful accounts of $104 and
$123 at December 31, 2005 and 2004,
respectively) 9,056 5,611
Inventories, net 29,050 26,761
Beneficial interests in securitized
accounts receivable 22,577 19,479
Deferred income taxes 433 -
Prepaid expenses and other 2,139 1,088
------------ ------------
Total current assets 68,330 64,410
Notes receivable, net 6,131 6,742
Property, plant and equipment, net 66,869 30,481
Goodwill 139,903 55,414
Beneficial interests in securitized
financial assets 16,939 19,379
Deferred income taxes 8,932 -
Debt issuance costs, net 11,172 5,751
Intangible assets, net 145,183 172
Other assets - 1,667
------------ ------------
Total assets $463,459 $184,016
============ ============
Liabilities and Member(s) Equity (Deficit)
Current liabilities:
Current portion of long-term debt $- $12,036
Revolving credit facility - -
Accounts payable 7,866 11,618
Other current liabilities 26,500 24,718
------------ ------------
Total current liabilities 34,366 48,372
Long-term debt:
Senior credit facility 177,000 118,218
Senior subordinated notes 149,336 110,000
Junior subordinated note - 28,776
Other long-term debt - 529
Other long-term liabilities 8,924 7,218
Mandatorily redeemable preferred units - 6,000
------------ ------------
Total liabilities 369,626 319,113
Commitments and contingencies
Member(s) equity (deficit) 93,833 (135,097)
------------ ------------
Total liabilities and member(s) equity
(deficit) $463,459 $184,016
============ ============
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
January 28, January 1,
2005 through 2005 through Years Ended December 31,
December 31, January 27, -------------------------
2005 2005 2004 2003
------------ ------------ ------------ ------------
Successor Predecessor Predecessor Predecessor
Net revenues $296,645 $20,683 $280,987 $267,607
Cost of sales 225,706 15,585 199,010 188,979
------------ ------------ ------------ ------------
Gross profit 70,939 5,098 81,977 78,628
------------ ------------ ------------ ------------
Selling, general
and administrative
expense 38,632 3,829 39,879 33,599
Securitization and
other costs 10,009 - - -
Transaction costs
associated with
sale of business - 18,790 - -
------------ ------------ ------------ ------------
Total operating
expenses 48,641 22,619 39,879 33,599
------------ ------------ ------------ ------------
Operating
income (loss) 22,298 (17,521) 42,098 45,029
Interest expense 24,117 995 25,439 28,258
Loss from early
extinguishment of
debt - 9,867 - -
Costs related to
abandoned public
offerings - - 4,823 -
Other income
(expense), net - - - (797)
------------ ------------ ------------ ------------
(Loss) income
before taxes (1,819) (28,383) 11,836 15,974
Provision (benefit)
for income taxes (1,158) 9 71 55
------------ ------------ ------------ ------------
Net (loss)
income $(661) $(28,392) $11,765 $15,919
============ ============ ============ ============
ALLIANCE LAUNDRY HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
January 28, January 1,
2005 through 2005 through Year Ended Year Ended
December 31, January 27, December 31, December 31,
2005 2005 2004 2003
------------ ------------ ------------ ------------
Successor Predecessor Predecessor Predecessor
Cash flows from
operating
activities:
Net (loss) income $(661) $(28,392) $11,765 $15,919
Adjustments to
reconcile net
(loss) income to
cash provided by
operating
activities:
Depreciation
and
amortization 20,187 526 9,695 10,886
Non-cash
interest (933) 351 4,415 5,290
Non-cash
executive unit
compensation 1,120 1,089 5,579 -
Non-cash
trademark
impairment 1,767 - - -
Non-cash debt
financing
write-off - 5,751 - -
Non-cash
inventory
expense 6,246 - - -
Deferred income
taxes (1,158) - - -
Loss on sale of
property,
plant and
equipment 48 - 42 33
Changes in
assets and
liabilities:
Accounts
receivable (2,889) (556) 3,546 (3,323)
Inventories (456) (1,833) (546) (518)
Other assets 246 101 344 4,346
Accounts
payable (22,828) 19,076 339 (2,518)
Other
liabilities 5,939 (2,732) (299) 278
------------ ------------ ------------ ------------
Net cash
provided by
(used in)
operating
activities 6,628 (6,619) 34,880 30,393
------------ ------------ ------------ ------------
Cash flows from
investing
activities:
Additions to
property, plant
and equipment (4,229) (188) (4,166) (3,600)
Proceeds on
disposal of
property, plant
and equipment 4 - 65 10
------------ ------------ ------------ ------------
Net cash used
in investing
activities (4,225) (188) (4,101) (3,590)
------------ ------------ ------------ ------------
Cash flows from
financing
activities:
Principal
payments on
long-term debt (23,000) 1 (27,245) (26,237)
Proceeds from
senior term loan 200,000 - - -
Proceeds from
senior
subordinate
notes 149,250 - - -
Repayment of
long-term debt (275,920) - - -
Contribution from
member 117,000 - - -
Distribution to
prior
unitholders (154,658) - - -
Debt financing
costs (13,230) - - -
Cash paid for
capitalized
offering related
costs (1,364) - - -
Net proceeds -
management note - (71) - -
Repayment of
management note - - - 32
------------ ------------ ------------ ------------
Net cash used
in financing
activities (1,922) (70) (27,245) (26,205)
------------ ------------ ------------ ------------
Increase (decrease)
in cash 481 (6,877) 3,534 598
Cash at beginning
of period 4,594 11,471 7,937 7,339
------------ ------------ ------------ ------------
Cash at end of
period $5,075 $4,594 $11,471 $7,937
============ ============ ============ ============
Supplemental
disclosure of cash
flow information:
Cash paid for
interest $19,699 $1,133 $21,876 $22,148
Cash paid for
taxes $55 $9 $71 $55
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Years Ended December 31, 2005 and 2004
OVERVIEW
We believe we are the leading designer, manufacturer and marketer
of stand-alone commercial laundry equipment in North America and that
we are similarly a leader worldwide. Under the well-known brand names
of Speed Queen, UniMac, Huebsch, and Ajax, we produce a full line of
commercial washing machines and dryers with load capacities from 16 to
250 pounds as well as presses and finishing equipment. Our commercial
products are sold to four distinct customer groups: (i) laundromats;
(ii) multi-housing laundries, consisting primarily of common laundry
facilities in apartment buildings, universities and military
installations; (iii) on-premise laundries, consisting primarily of
in-house laundry facilities of hotels, hospitals, nursing homes and
prisons and (iv) drycleaners.
The North American stand-alone commercial laundry equipment
industry's revenues are primarily driven by population growth and the
replacement cycle of laundry equipment. With economic conditions
having limited effect on the frequency of use, and therefore the
useful life of laundry equipment, industry revenues have been
relatively stable over time. Similarly, with a majority of our
revenues generated by recurring sales of replacement equipment and
service parts, we have experienced stable revenues even during
economic slowdowns.
Sales of stand-alone commercial laundry equipment are the single
most important driver of our revenues. In 2005, our net revenues from
the sale of commercial laundry equipment were approximately $268.3
million, which comprised over 84% of our total net revenues. The other
main component of our revenues is the sale of high margin service
parts. We offer immediate response service whereby many of our parts
are available on a 24-hour turnaround for emergency repair parts
orders. In 2005, our net revenues from the sale of service parts were
approximately $40.5 million, almost 13% of our total net revenues. In
addition to commercial laundry equipment and service parts, we
re-entered the U.S. consumer laundry market in October 2004, after the
expiration of a non-compete agreement. In 2005, our net revenues from
the sale of consumer laundry equipment were approximately $8.5
million, which comprised approximately 2.7% of our total net revenues.
We have achieved steady revenues by building an extensive and
loyal distribution network for our products, establishing a
significant installed base of units and developing and offering a full
innovative product line. As a result of our large installed base, a
significant majority of our revenue is attributable to replacement
sales of equipment and service parts.
We believe that continued population expansion in North America
will continue to drive steady demand for garment and textile
laundering by all customer groups that purchase commercial laundry
equipment. We anticipate growth in demand for commercial laundry
equipment in international markets as well, especially in developing
countries where laundry processing has historically been far less
sophisticated than in North America. In addition, customers are
increasingly trading up to equipment with enhanced functionality,
thereby raising average selling prices. Customers are also moving
towards equipment with increased water and energy efficiency as the
result of government and consumer pressure and a focus on operating
costs.
Recent Developments. On October 12, 2005, we announced our
intention to close our Marianna, Florida facility (the "Facility") and
consolidate the manufacture and design of the Facility's product lines
into our existing Ripon, Wisconsin operations. We expect to complete
the facility closure and consolidation by the end of the third quarter
of 2006. The decision was based on an analysis of each facility's
manufacturing capabilities as well as the continuing investment
requirements for each of the locations. We believe that efficiencies
will be gained with the consolidation of the design and manufacturing
of all of our product lines within our Ripon, Wisconsin operations.
For additional information about the Marianna, Florida facility
closure, see the discussion under Note 4 to the Financial Statements -
"Infrequently Occurring Items."
The Acquisition. 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, or OTPP, acquired 100% of the
outstanding equity interests in Alliance Holdings for aggregate
consideration of approximately $466.3 million. In connection with such
acquisition, the members of our senior management acquired
approximately $7.6 million of newly issued shares of common stock of
ALH, and our other management employees acquired approximately $2.0
million of newly issued shares of ALH common stock in exchange for
equity interests in Alliance Holdings and cash pursuant to a
management share offering. A portion of the aggregate acquisition
consideration was used to repay our then existing indebtedness, redeem
our then 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 Alliance Holdings' former equity holders. The
Acquisition was financed with approximately $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 held by management.
In connection with the closing of the Acquisition, we consummated
the following financing transactions:
-- the closing of the issuance of $150.0 million of 8 1/2% senior
subordinated notes due January 15, 2013, which we refer to as
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 "Senior
Credit Facility," consisting of a six-year $50.0 million
revolving credit facility and a seven-year $200.0 million term
loan facility; 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 1998 Senior Subordinated Notes. We redeemed the
approximately 5.10% of the total principal amount of the 1998
Senior Subordinated Notes that remained outstanding after the
consummation of the tender offer in accordance with the
indenture governing such notes.
This news release should be read in conjunction with the audited
financial statements presented in our Annual Report on Form 10-K (file
no. 333-56857-02) filed with the Securities and Exchange Commission,
effective March 9, 2006.
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 twelve months ended December 31, 2005. However, in
order to facilitate an understanding of our results of operations for
the twelve months ended December 31, 2005 in comparison with the
twelve months ended December 31, 2004, we have presented and discussed
below our Predecessor results and our Successor results on an
unaudited, combined basis under "Combined". The Combined results
represent the January 1, 2005 through January 27, 2005 Predecessor
period added to the January 28, 2005 through December 31, 2005
Successor period. 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.
January 28, January 1,
2005 through 2005 through
December 31, January 27,
2005 2005
------------- -------------
Successor Predecessor
Net revenues 296,645 20,683
Cost of sales 225,706 15,585
------------- -------------
Gross profit 70,939 5,098
Selling, general and administrative
expense 38,632 3,829
Securitization and other costs 10,009 -
Transaction costs associated with sale
of business - 18,790
------------- -------------
Total operating expense 48,641 22,619
------------- -------------
Operating income (loss) 22,298 (17,521)
Interest expense 24,117 995
Loss from early extinguishment of debt - 9,867
Costs related to abandoned public
offerings - -
Other income (expense), net - -
------------- -------------
(Loss) income before taxes (1,819) (28,383)
Provision (benefit) for income taxes (1,158) 9
------------- -------------
Net (loss) income $(661) $(28,392)
============= =============
Years Ended December 31,
--------------------------------------
2005 2004 2003
------------ ------------ ------------
Combined Predecessor Predecessor
(unaudited)
Net revenues 317,328 280,987 267,607
Cost of sales 241,291 199,010 188,979
------------ ------------ ------------
Gross profit 76,037 81,977 78,628
Selling, general and
administrative expense 42,461 39,879 33,599
Securitization and other costs 10,009 - -
Transaction costs associated
with sale of business 18,790 - -
------------ ------------ ------------
Total operating expense 71,260 39,879 33,599
------------ ------------ ------------
Operating income (loss) 4,777 42,098 45,029
Interest expense 25,112 25,439 28,258
Loss from early extinguishment
of debt 9,867 - -
Costs related to abandoned
public offerings - 4,823 -
Other income (expense), net - - (797)
------------ ------------ ------------
(Loss) income before taxes (30,202) 11,836 15,974
Provision (benefit) for income
taxes (1,149) 71 55
------------ ------------ ------------
Net (loss) income $(29,053) $11,765 $15,919
============ ============ ============
The following table provides our historical net revenues for the
periods indicated:
January 28, January 1,
2005 through 2005 through Years Ended December 31,
December 31, January 27, -----------------------------------
2005 2005 2005 2004 2003
------------ ----------- ----------- ----------- -----------
Successor Predecessor Combined Predecessor Predecessor
(unaudited)
(dollars in millions)
Commercial
laundry $251.0 $17.3 $268.3 $239.2 $230.7
Consumer
laundry 8.3 0.2 8.5 3.6 -
Service
parts 37.3 3.2 40.5 38.2 36.9
------------ ----------- ----------- ----------- -----------
$296.6 $20.7 $317.3 $281.0 $267.6
============ =========== =========== =========== ===========
The following table provides certain condensed historical
financial data expressed as a percentage of net revenues for each of
the periods indicated:
January 28, January 1,
2005 through 2005 through
December 31, January 27,
2005 2005
------------- -------------
Successor Predecessor
Net revenues 100.0% 100.0%
Cost of sales 76.1% 75.4%
Gross profit 23.9% 24.6%
Selling, general and administrative
expense 13.0% 18.5%
Securitization and other costs 3.4% 0.0%
Transaction costs associated with sale
of business 0.0% 90.8%
Operating income (loss) 7.5% -84.7%
Net (loss) income -0.2% -137.3%
Years Ended December 31,
--------------------------------------
2005 2004 2003
------------ ------------ ------------
Combined Predecessor Predecessor
Net revenues 100.0% 100.0% 100.0%
Cost of sales 76.0% 70.8% 70.6%
Gross profit 24.0% 29.2% 29.4%
Selling, general and
administrative expense 13.4% 14.2% 12.6%
Securitization and other costs 3.2% 0.0% 0.0%
Transaction costs associated
with sale of business 5.9% 0.0% 0.0%
Operating income (loss) 1.5% 15.0% 16.8%
Net (loss) income -9.2% 4.2% 5.9%
Below is a reconciliation of certain items of the consolidated
statements of cash flows for the periods presented (in thousands):
January 28, January 1,
2005 through 2005 through
December 31, January 27,
2005 2005
------------- -------------
Successor Predecessor
Net cash (used in) provided by operations $26,616 $(20,675)
Net cash (used for) provided by working
capital (19,988) 14,056
------------- -------------
Net cash (used in) provided by operating
activities $6,628 $(6,619)
------------- -------------
Cash flows from investing activities:
Additions to property, plant and
equipment $(4,229) $(188)
Proceeds on disposal of property, plant
and equipment 4 -
------------- -------------
Net cash used in investing
activities $(4,225) $(188)
------------- -------------
Cash flows from financing activities:
Principal payments on long-term debt $(23,000) $1
Proceeds from senior term loan 200,000 -
Proceeds from senior subordinate 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) -
Net proceeds - management note - (71)
Repayment of management note - -
------------- -------------
Net cash used in financing
activities $(1,922) $(70)
============= =============
Years Ended December 31,
--------------------------------------
2005 2004 2003
------------ ------------ ------------
Combined Predecessor Predecessor
(unaudited)
(dollars in thousands)
Net cash (used in) provided by
operations $5,941 $31,496 $32,128
Net cash (used for) provided by
working capital (5,932) 3,384 (1,735)
------------ ------------ ------------
Net cash (used in) provided by
operating activities $9 $34,880 $30,393
------------ ------------ ------------
Cash flows from investing
activities:
Additions to property, plant
and equipment $(4,417) $(4,166) $(3,600)
Proceeds on disposal of
property, plant and
equipment 4 65 10
------------ ------------ ------------
Net cash used in investing
activities $(4,413) $(4,101) $(3,590)
------------ ------------ ------------
Cash flows from financing
activities:
Principal payments on long-
term debt $(22,999) $(27,245) $(26,237)
Proceeds from senior term
loan 200,000 - -
Proceeds from senior
subordinate 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) - -
Net proceeds - management
note (71) - -
Repayment of management note - - 32
------------ ------------ ------------
Net cash used in financing
activities $(1,992) $(27,245) $(26,205)
============ ============ ============
Year Ended December 31, 2005 Compared to Year Ended December 31,
2004
Net Revenues. Net revenues for the year ended December 31, 2005
increased $36.3 million, or 12.9%, to $317.3 million from $281.0
million for the year ended December 31, 2004. This increase was
primarily attributable to higher commercial laundry revenue of $29.1
million, higher service parts revenue of $2.3 million and higher
consumer laundry revenue of $4.9 million. The increase in commercial
laundry revenue was due primarily to higher North American equipment
revenue of $15.1 million, higher international revenue of $10.7
million and higher earnings from our off-balance sheet equipment
financing program of $3.2 million. The increase in North American
equipment revenue was primarily due to higher revenue from coin
operated laundry customers and on-premise laundries, partially offset
by lower revenue from drycleaners. Revenue from international
customers was higher in Asia, Europe, Middle Eastern countries, Africa
and Latin America. Our off-balance sheet equipment financing program
earnings were higher due to an increase in notes sold and due to
adjustments of beneficial interests to their respective fair market
values. The increase in consumer laundry revenue resulted from our
re-entry into this marketplace, following the expiration of a
non-compete agreement in late 2004.
Gross Profit. Gross profit for the year ended December 31, 2005
decreased $6.0 million, or 7.2%, to $76.0 million from $82.0 million
for the year ended December 31, 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 $6.0 million driven by the
Acquisition asset write-up to fair market value which totaled $5.0
million and accelerated depreciation related to the planned closure of
the Marianna, Florida manufacturing facility of $1.0 million, and
material cost increases of approximately $13.0 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. The inventory step-up to fair
market value is fully amortized at December 31, 2005. Gross profit as
a percentage of net revenues decreased to 24.0% for the year ended
December 31, 2005 from 29.2% for the year ended December 31, 2004,
primarily as a result of the amortization associated with the
inventory, the higher depreciation expense and lower contribution
margins associated with consumer laundry products.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the year ended December 31, 2005 increased
$2.6 million, or 6.5%, to $42.5 million from $39.9 million for the
year ended December 31, 2004. The increase in selling, general and
administrative expense was primarily due to $3.8 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, $1.1 million of costs related to a
retention program for key executives, $0.6 million of legal costs
relating to business development initiatives and $0.4 million of costs
associated with the transition of Marianna, Florida products to Ripon,
Wisconsin. Additionally, sales expenses increased $0.9 million as a
result of bonuses related to the higher sales volumes and higher trade
show costs. These increases were partially offset by $3.4 million of
lower non-cash incentive compensation relating to incentive units and
stock option programs and lower pension expense of $0.6 million.
Selling, general and administrative expenses as a percentage of net
revenues decreased to 13.4% for the year ended December 31, 2005 from
14.2% for the year ended December 31, 2004.
Securitization and Other Costs. Securitization and other costs for
the year ended December 31, 2005 were $10.0 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, a $1.7 million
impairment charge related to the Ajax trademark and $0.2 million
related to Marianna plant closure costs. Securitization and other
costs as a percentage of net revenues was 3.2% for the year ended
December 31, 2005.
Transaction Costs Associated With Sale of Business. Transaction
costs associated with the sale of the business for the year ended
December 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. Transaction costs associated with sale
of business as a percentage of net revenues was 5.9% for the year
ended December 31, 2005.
Operating Income. As a result of the aforementioned, operating
income for the year ended December 31, 2005 decreased $37.3 million to
$4.8 million from $42.1 million for the year ended December 31, 2004.
Operating income as a percentage of net revenues decreased to 1.5% for
the year ended December 31, 2005 from 15.0% for the year ended
December 31, 2004.
Interest Expense. Interest expense for the year ended December 31,
2005 decreased $0.3 million, or 1.2%, to $25.1 million from $25.4
million for the year ended December 31, 2004. Interest expense in 2005
includes a favorable non-cash adjustment of $1.1 million to reflect
adjustments in the fair values of an interest rate swap agreement.
Interest expense in 2004 included a favorable non-cash adjustment of
$0.2 million to reflect adjustments in the fair values of an interest
rate swap agreement.
Loss on Early Extinguishment of Debt. Loss on early extinguishment
of debt for the year ended December 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 tender and call premium costs associated with
redeeming the 1998 Senior Subordinated Notes. Loss on early
extinguishment of debt expense as a percentage of net revenues was
3.1% for the year ended December 31, 2005.
Costs Related to Abandoned Public Offerings. Costs related to
abandoned public offerings for the year ended December 31, 2004 were
$4.8 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 $4.8 million. In the fourth
quarter of 2004, this public offering was abandoned and all related
capitalized costs were expensed at that time.
Income Tax Benefit. The income tax benefit for the year ended
December 31, 2005 was $1.1 million, with no similar benefit for the
year ended December 31, 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. As a result of the aforementioned, net income for the
year ended December 31, 2005 decreased $40.9 million to a loss of
$29.1 million as compared to income of $11.8 million for the year
ended December 31, 2004. Net income as a percentage of net revenues
decreased to negative 9.2% for the year ended December 31, 2005 from
4.2% for the year ended December 31, 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31,
2003
Net Revenues. Net revenues for the year ended December 31, 2004
increased $13.4 million, or 5.1%, to $281.0 million from $267.6
million for the year ended December 31, 2003. This increase was
primarily attributable to higher commercial laundry revenue of $8.6
million, higher service parts revenue of $1.3 million and higher
consumer laundry revenue of $3.6 million. The increase in commercial
laundry revenue was due primarily to higher international revenue of
$7.3 million and higher North American equipment revenue of $1.5
million, which were partly offset by lower earnings from our
off-balance sheet equipment financing program of $0.2 million. Revenue
from international customers was higher in the Middle East, Africa,
Asia and Europe and was driven by favorable selling prices resulting
from the weaker United States dollar. The increase in consumer laundry
resulted from our re-entry into this marketplace, following the
expiration of a non-compete agreement in late 2004. The increase in
North American equipment revenue was primarily due to higher revenue
from on-premise laundries and drycleaners, partially offset by lower
revenue from multi-housing laundries and laundromats.
Gross Profit. Gross profit for the year ended December 31, 2004
increased $3.4 million, or 4.3%, to $82.0 million from $78.6 million
for the year ended December 31, 2003. This increase was primarily
attributable to margins associated with higher product sales volume, a
price increase and lower depreciation expense of $1.1 million, which
were partially offset by steel cost increases, higher nickel and
chrome surcharges of $4.8 million related to stainless steel purchases
and higher employee medical expenses of $1.1 million. Gross profit was
not affected to the full extent of recent steel market conditions as
we have steel purchase agreements in place. When these agreements
expire in early 2005, we will be subject to prevailing steel prices at
that time. As a result of the recent escalation in the cost of steel
and the negative impact from nickel and chrome surcharges related to
stainless steel purchases, we published a price increase, effective on
December 1, 2004, which is expected to offset anticipated steel cost
increases. Gross profit as a percentage of net revenues decreased to
29.2% for the year ended December 31, 2004 from 29.4% for the year
ended December 31, 2003, primarily as a result of the increases in
steel related components and medical expense increases.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the year ended December 31, 2004 increased
$6.2 million, or 18.7%, to $39.8 million from $33.6 million for the
year ended December 31, 2003. The increase in selling, general and
administrative expenses was primarily due to recognition of $5.6
million of non-cash compensation expense related to incentive units
issued to our executives in 1998 and 2003, higher sales and marketing
expenses of $1.2 million and higher independent development costs of
$0.4 million, which were partially offset by lower pension expense of
$1.0 million. Selling, general and administrative expenses as a
percentage of net revenues increased to 14.2% for the year ended
December 31, 2004 from 12.6% for the year ended December 31, 2003.
Operating Income. As a result of the aforementioned, operating
income for the year ended December 31, 2004 decreased $3.0 million, or
6.5%, to $42.1 million from $45.1 million for the year ended December
31, 2003. Operating income as a percentage of net revenues decreased
to 15.0% for the year ended December 31, 2004 from 16.8% for the year
ended December 31, 2003.
Interest Expense. Interest expense for the year ended December 31,
2004 decreased $2.9 million, or 10.0%, to $25.4 million from $28.3
million for the year ended December 31, 2003. Interest expense in 2004
includes a favorable non-cash adjustment of $0.2 million to reflect
changes in the fair values of an interest rate swap agreement.
Interest expense in 2003 included an unfavorable non-cash adjustment
of $1.4 million to reflect changes in the fair values of an interest
rate swap agreement. Interest expense was also lower in 2004 as a
result of lower interest rates and a reduction in total debt
outstanding of $45.0 million, or 14.3% since December of 2002.
Costs Related to Abandoned Public Offerings. Costs related to
abandoned public offerings for the year ended December 31, 2004 were
$4.8 million with no similar costs in the prior year. 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 $4.8 million. As
a result of abandoning the Income Deposit Securities offering, we have
written off all related capitalized costs in 2004.
Other Income (Expense), Net. Other expense for the year ended
December 31, 2003 was $0.8 million with no similar expense in 2004.
The 2003 other expense is comprised of costs associated with the
settlement of a lawsuit against a former subsidiary in Argentina.
Net Income. As a result of the aforementioned, net income for the
year ended December 31, 2004 decreased $4.1 million to $11.8 million
as compared to $15.9 million for the year ended December 31, 2003. Net
income as a percentage of net revenues decreased to 4.2% for the year
ended December 31, 2004 from 5.9% for the year ended December 31,
2003.
Liquidity and Capital Resources
In connection with the consummation of the January 27, 2005
Transactions, we refinanced substantially all of our indebtedness,
which included the refinancing of our amended and restated credit
agreement dated as of August 2, 2002 (the "2002 Senior Credit
Facility") and the 1998 Senior Subordinated Notes, with borrowings
under our Senior Credit Facility and the proceeds of the offering of
the 2005 Senior Subordinated Notes.
Senior Credit Facility. The Senior Credit Facility is comprised of
a senior secured revolving credit facility in a total principal amount
of up to $50.0 million (less the then outstanding letters of credit),
which we refer to as the "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 "Term Loan Facility." The Revolving
Credit Facility has a six-year maturity and the Term Loan Facility has
a seven-year maturity. We expect to use borrowings under the Revolving
Credit Facility for general corporate purposes, including working
capital, capital expenditures and letters of credit. We used
borrowings under the 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 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 year ended December 31,
2005, the Senior Credit Facility allowed us to incur a maximum ratio
of consolidated debt to Adjusted EBITDA (the "Consolidated Leverage
Ratio" as defined by the Senior Credit Facility) of 6.50. For the year
ended December 31, 2005, the Senior Credit Facility requires us to
have a minimum ratio of Adjusted EBITDA to consolidated interest (the
"Consolidated Interest Coverage Ratio" as defined by the Senior Credit
Facility) of 1.75. We were in compliance with these and all other debt
related covenants set forth in the Senior Credit Facility as of
December 31, 2005, the latest measurement date. The maximum
Consolidated Leverage Ratio and the minimum Consolidated Interest
Coverage Ratio as set forth in the Senior Credit Facility for the
period ending December 31, 2006 are 5.75 and 2.00, respectively.
The Senior Credit Facility contains 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. The occurrence of any default of these covenants
could result in acceleration of any outstanding principal balances
under the Senior Credit Facility (approximately $177.0 million as of
December 31, 2005) and foreclosure on the collateral securing such
obligations. Further, such acceleration would constitute an event of
default under the indenture governing the 2005 Senior Subordinated
Notes.
Additional borrowings and the issuance of additional letters of
credit under the 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.
The Senior Credit Facility requires mandatory prepayments for
certain debt incurrences, asset sales and a portion of Excess Cash
Flow (as defined in the Senior Credit Facility). The Revolving Credit
Facility will terminate on January 27, 2011.
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 indenture governing the 2005 Senior Subordinated Notes
(the "Notes Indenture"), 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. The occurrence of an event of default under the Notes
Indenture covenants could result in an acceleration of the principal
amount of the 2005 Senior Subordinated Notes of approximately $150.0
million, plus any other amounts due under the Notes Indenture.
EBITDA and Adjusted EBITDA. We have presented EBITDA below and
Adjusted EBITDA below because certain covenants in the Notes 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 which are further defined in the Notes
Indenture. 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 Notes Indenture in a manner which is identical to the
definition of EBITDA and Adjusted EBITDA in our 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 Notes 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 to EBITDA and
EBITDA to Adjusted EBITDA for the periods presented:
January 28, January 1,
2005 through 2005 through
December 31, January 27,
2005 2005
------------- -------------
Successor Predecessor
Net (loss) income $(661) $(28,392)
Cumulative effect of change in accounting
principle - -
Provision (benefit) for income taxes (1,158) 9
------------- -------------
Net (loss) income before income taxes (1,819) (28,383)
Adjustments:
Interest expense $24,117 $995
Depreciation and amortization (a) 20,187 526
Non-cash interest expense included
in amortization above (2,058) -
------------- -------------
EBITDA $40,427 $(26,862)
============= =============
Adjustments:
Finance program adjustments (b) $(1,879) $31
Other non-recurring charges (c) 9,734 28,657
Other non-cash charges (d) 9,133 1,089
Management fees paid to affiliates
of Bain - 83
------------- -------------
Adjusted EBITDA $57,415 $2,998
============= =============
Years Ended December 31,
2005 2004 2003
------------ ------------ ------------
Combined Predecessor Predecessor
(unaudited)
(dollars in thousands)
Net (loss) income $(29,053) $11,765 $15,919
Cumulative effect of change in
accounting principle - - -
Provision (benefit) for income
taxes (1,149) 71 55
------------ ------------ ------------
Net (loss) income before income
taxes (30,202) 11,836 15,974
Adjustments:
Interest expense $25,112 $25,439 $28,258
Depreciation and amortization
(a) 20,713 9,695 10,886
Non-cash interest expense
included in amortization
above (2,058) (1,885) (2,017)
------------ ------------ ------------
EBITDA $13,565 $45,085 $53,101
============ ============ ============
Adjustments:
Finance program adjustments
(b) $(1,848) $2,980 $3,396
Other non-recurring charges
(c) 38,391 4,823 797
Other non-cash charges (d) 10,222 5,579 -
Management fees paid to
affiliates of Bain 83 1,033 1,020
------------ ------------ ------------
Adjusted EBITDA $60,413 $59,500 $58,314
============ ============ ============
(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 a qualified special-purpose bankruptcy remote entity. 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 are allowed based on the Notes Indenture, as follows:
-- Other non-recurring charges in 2003 relate to $0.8 million of
costs associated with the settlement of a lawsuit against a
former subsidiary in Argentina.
-- 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.
-- 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 tender and
call premium costs associated with redeeming the 1998 Senior
Subordinated Notes.
-- Other non-recurring charges for the period from January 28,
2005 through December 31, 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, a periodic
accrual of $1.1 million under a one time retention bonus
agreement and $0.5 million of expenses relate to the closure
and transition of the Marianna, Florida facility. The
retention bonus agreements were entered into with certain
Company executives concurrent with the Acquisition and entitle
the executive 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 upon the two year anniversary of the sale date
under these agreements is approximately $2.3 million.
(d) Other non-cash charges are described as follows:
-- Other non-cash charges in 2004 relate to $5.6 million of
non-cash executive unit compensation associated with incentive
units issued to our executives in 1998 and 2003.
-- 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
incentive units at the date of the Acquisition. These
incentive units were issued to our executives in 1998 and
2003.
-- Non-cash charges for the period from January 28, 2005 through
December 31, 2005 relate to $6.2 million associated with the
inventory step-up to fair market value recorded at the
Acquisition date, $1.7 million for an impairment charge
related to the Ajax trademark and $1.1 million of non-cash
incentive compensation expense resulting from an increase in
value and additional vesting of stock options granted to
certain of the Company's executive officers in 2005.
CONTACT: Alliance Laundry Holdings LLC
Bruce P. Rounds, 920-748-1634