DRY Coinmach Service Corp

Coinmach Service Corp. (Amex: "DRY"): -- Q1 Fiscal 2006 EBITDA improved to $40.4 million versus $40.0 million in Q1 Fiscal 2005 -- Q1 Fiscal 2006 Net Cash Generated improved to $7.5 million versus $7.4 million in Q1 Fiscal 2005 Coinmach Service Corp. (Amex: "DRY") (the "Company"), a leading supplier of outsourced laundry equipment services for multi-family housing properties in North America, today reported its financial results for the first quarter 2006. This quarter is in line with our expectations and demonstrates our continued ability to produce stable and predictable results. In addition, the Company will make a distribution payment of $0.375 per IDS unit. This distribution will consist of a declared dividend of approximately $0.206 per share of Class A common stock (or approximately $3.9 million in the aggregate) and an interest payment of approximately $0.169 per note underlying the IDS unit (or approximately $3.2 million in the aggregate). The dividend will be paid on September 1, 2005 to holders of record as of the close of business on August 25, 2005. This dividend represents the Company's third dividend payment consistent with that anticipated by the Company as part of its successful IDS offering consummated in November 2004. This interest and dividend payment covers the period from April 1, 2005 through June 30, 2005. Based on the closing IDS unit price of $13.59 at the end of trading on Tuesday, August 9, 2005, the total payment of approximately $0.375 per IDS unit (which includes both dividends and interest) represents an annualized yield of approximately 11.0%. The next anticipated dividend and interest payment date for the IDS unit is scheduled for December 1, 2005. We have distributed approximately $0.91 per IDS unit (including this distribution), consisting of dividends of approximately $0.50 per share and interest payments of approximately $0.41 per IDS unit. These distributions have been consistent with our anticipated annual distribution of $1.50 per IDS unit, which constitutes an 11% yield on the original price of $13.64. The Company has adopted a dividend policy pursuant to which it plans to make annual payments to IDS holders aggregating $1.50 per unit, representing approximately $0.67 per unit of interest payments and approximately $0.83 per unit of dividend payments. Net Cash Generated was $7.5 million for the 1st quarter of Fiscal 2006 as compared to $7.4 million for the 1st quarter of Fiscal 2005. Each of the Company's business segments reported improved operating results. Driving these results was continued strong performance from the Company's core business (the "route" business) and the equipment rental business. -0- *T Net Cash Generated (after capital and interest payments) The following table reflects the computation of Net Cash Generated* (in millions): Quarter ended June 30, ------------------------ 2005 2004 ------------ --------- Consolidated EBITDA: $40.4 $40.0 less: Interest Expense: Third party notes and other 12.0 14.2 IDS notes 3.3 - Capital Expenditures (1) 17.6 18.4 ------------------------ Net Cash Generated $7.5 $7.4 ======================== * For information regarding the Company's use of Net Cash Generated (after capital and interest payments) and EBITDA and for reconciliations of such non-GAAP measures to net loss and cash flow from operating activities refer to "Presentation of Non-GAAP Financial Information" below, including the tables attached hereto. (1) Represents cash used in investing activities excluding acquisition of net assets for the periods presented *T First Quarter 2006 Results The following discussion of operating results focuses on revenue and EBITDA for each of our operating segments. For information regarding the Company's use of EBITDA and for reconciliations to net loss and cash flow from operating activities refer to "Presentation of Non-GAAP Financial Information" below, including the tables attached hereto. -0- *T Quarter ended June 30, ------------------- 2005 2004 --------- --------- Revenue: Route business $119.8 $118.3 -------- Rental business 8.6 8.3 Distribution business 5.4 6.9 --------- --------- Total 133.8 133.5 --------- --------- EBITDA: ------- Route business $39.4 $39.2 Rental business 3.5 3.3 Distribution business - (0.1) Corporate (2.5) (2.4) --------- --------- Total 40.4 40.0 --------- --------- Capital Expenditures: (1) ----------------- Route business $15.1 $16.7 Rental business 0.9 0.8 Distribution business 0.1 0.1 Corporate (2) 1.5 0.8 --------- --------- Total 17.6 18.4 --------- --------- (1) Represents cash used in investing activities excluding acquisition of net assets for the periods presented. (2) Includes capital expenditures attributable to our current technology upgrade project, which relates primarily to upgrading programs for our field service management and collection systems for the periods presented. *T Route Business The Route business consists of leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment, collecting revenues generated from laundry machines and operating retail laundromats located throughout Texas and Arizona. -0- *T Quarter ended June 30, --------------------------- 2005 2004 ------------- ------------- Revenue $119.8 $118.3 ------------------------------------------------------- EBITDA $39.4 $39.2 ------------------------------------------------------- Capital Expenditures $15.1 $16.7 *T Revenue grew principally due to the net result of an increase in third party service income and price increases, offset slightly by decreased revenue primarily in the Southeast area caused by higher vacancy rates during the 2005 Fiscal Year. Capital expenditures decreased due to increased emphasis on returns on invested capital as well as the change in the mix of equipment installed. Equipment Rental Business The Equipment Rental business consists of Appliance Warehouse of America, Inc. -0- *T Quarter ended June 30, --------------------------- 2005 2004 -------------- ------------ Revenue $8.6 $8.3 ------------------------------------------------------- EBITDA $3.5 $3.3 ------------------------------------------------------- Capital Expenditures $0.9 $0.8 *T Revenue and EBITDA increased primarily due to internal growth of the machine base in existing areas of operations. Equipment Distribution Business The Equipment Distribution business consists of Super Laundry Equipment Corp. -0- *T Quarter ended June 30, ------------------------- 2005 2004 ----------- ------------- Revenue $5.4 $6.9 -------------------------------------------------------- EBITDA $- $(0.1) -------------------------------------------------------- Capital Expenditures $0.1 $0.1 *T Revenue decreased primarily due to a decrease in sales from the Northeast and Midwest operations. EBITDA decreased due to the decrease in revenue offset by a reduction in operating expenses as a result of the closing of California operations in the distribution business. Revenue and EBITDA generated from the distribution business unit are sensitive to general market and economic conditions. Corporate -0- *T Quarter ended June 30, ------------------------ 2005 2004 ----------- ------------ General and Administrative $(2.5) $(2.4) -------------------------------------------------------- Capital Expenditures $1.5 $0.8 *T The increase in general and administrative expenses was primarily due to incremental ongoing expenses associated with being a public company. Corporate capital expenditures are attributable to our current technology upgrade project, which relates primarily to upgrading programs for our field service management and collection systems. Earnings Conference Call The Company has scheduled a conference call for Wednesday, August 10, 2005 at 10:00 a.m. Eastern Standard Time to discuss its first quarter fiscal 2006 financial results. Hosting the call will be Stephen R. Kerrigan, the Company's Chairman and Chief Executive Officer and Robert M. Doyle, the Company's Chief Financial Officer. Interested parties may participate by accessing the teleconference via a webcast on the Company's Investor Relations page, www.coinmachservicecorp.com, or by dialing 866-314-4483 (1-617-213-8049 for international callers) and using the pass code 35017939 approximately 5 minutes before the start of the call. The call will be open to the public with a question and answer session at the end of the call. A replay of the conference call will be available for 7 days on the Company's Investor Relations page or by dialing 888-286-8010 (1-617-801-6888 for international callers) and using the pass code 370767760. About Coinmach Service Corp. Coinmach Service Corp., through its operating subsidiaries, is a leading supplier of outsourced laundry equipment services for multi-family housing properties in North America. The Company's core business involves leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment and collecting revenues generated from laundry machines. Presentation of Non-GAAP Financial Information Certain disclosures in this press release include "non-GAAP financial measures." A non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP (U.S. generally accepted accounting principles). Net Cash Generated (after capital and interest) is defined as EBITDA less capital expenditures (including property, plant and equipment) and interest expense. Management believes Net Cash Generated (after capital and interest) is a useful measure of the Company's ability, subject to restrictions contained in its debt agreements and those of its subsidiaries and applicable law, to pay dividends on its common stock. EBITDA represents earnings from continuing operations before deductions for interest, income taxes and depreciation and amortization. Management believes that EBITDA is useful as a means to evaluate its ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. EBITDA is also used by the Company as a measure of evaluating the performance of its three operating segments. Management further believes that EBITDA is useful to investors as a measure of comparative operating performance as it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance. The Company uses EBITDA to develop compensation plans, to measure sales force performance and to allocate capital assets. Additionally, because the Company has historically provided EBITDA to investors, Management believes that presenting this non-GAAP financial measure provides consistency in its financial reporting. The Company's use of Net Cash Generated (after capital and interest) and EBITDA, however, is not intended to represent cash flows for the period, nor has it been presented as an alternative to either (a) operating income (as determined by GAAP) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by GAAP) as a measure of liquidity. Given that Net Cash Generated (after capital and interest) and EBITDA are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, such measures may not be comparable to other similarly titled measures of other companies. Reconciliations of EBITDA to Net Cash Generated (after capital and interest) and EBITDA to net loss and cash flow provided from operating activities are included in the attached tables. Forward-Looking Statements Statements in this press release that are not statements of historical or current fact constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "expects," "intends," "anticipates", "plans" or similar terms to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's filings with the Securities and Exchange Commission. -0- *T COINMACH SERVICE CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Quarter ended June 30, ---------------------- 2005 2004 ----------- ---------- Revenues $133,830 $133,499 Operating, general and administrative expense 93,438 93,529 Depreciation and amortization 18,932 19,029 Amortization of advance location payments 4,135 4,926 Amortization of intangibles 3,485 3,680 ----------- ---------- 119,990 121,164 Operating income 13,840 12,335 Interest expense 15,331 14,227 Interest expense-non cash preferred stock dividends (1) - 6,560 ------------ --------- Loss before income taxes (1,491) (8,452) Benefit for income taxes (516) (672) ------------ --------- Net loss $(975) $(7,780) ============ ========= Weighted average common shares outstanding: Class A common stock (2) 18,911,532 18,911,532 Class B common stock 24,980,445 24,980,445 ---------- ----------- Total weighted average shares outstanding 43,891,977 43,891,977 ========== =========== Pro-forma basic and diluted net income (loss) per Class A common stock (3) $0.10 $(0.18) ========== =========== *T (1) Represents accrued dividends on Coinmach Laundry Corp.'s preferred stock previously held, that was retired in November and December 2004, as the result of the IDS transaction. (2) Assumes that the Class A common stock was outstanding at the beginning of each respective period. (3) Represents net loss per Class A common stock assuming that the Class A common stock was outstanding at the beginning of each respective period. Supplemental Disclosure Set forth below is supplemental disclosure that adjusts the Loss before Income Taxes for the periods presented by adding back interest expense - non cash preferred stock, in order to exclude these expenses. -0- *T Quarter ended June 30, ---------------------- 2005 2004 ------------ --------- Loss before income taxes $(1,491) $(8,452) Add back: Interest expense-non cash preferred stock dividends - 6,560 ------------ --------- Loss before income taxes-adjusted $(1,491) $(1,892) ============ ========= Loss before income taxes-adjusted per Class A common stock $(0.08) $(0.10) ============ ========= COINMACH SERVICE CORP. RECONCILIATION OF NET LOSS TO EBITDA (in thousands) Quarter ended June 30, ------------------- 2005 2004 -------- -------- Net loss $(975) $(7,780) Depreciation and amortization 26,552 27,635 Benefit for income taxes (516) (672) Interest expense 15,331 14,227 Interest expense-non cash preferred stock dividends - 6,560 -------- -------- EBITDA (1) $40,392 $39,970 ======== ======== RECONCILIATION OF CASH FLOW PROVIDED BY OPERATING ACTIVITIES TO EBITDA (in thousands) Quarter ended June 30, ----------------------- 2005 2004 ------------ --------- Cash flow provided by operating activities $33,520 $35,555 Benefit for income taxes (516) (672) Interest expense 15,331 14,227 Gain on sale of equipment 112 29 Stock based compensation (12) (18) Deferred income taxes 516 687 Amortization of deferred issue costs (531) (603) Changes in assets and liabilities, net of effects of business combination (8,028) (9,235) ----------------------- EBITDA (1) $40,392 $39,970 ======================= (1) EBITDA represents earnings from continuing operations before deductions for interest, income taxes and depreciation and amortization. Management believes that EBITDA is useful as a means to evaluate the Company's ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. EBITDA is also used by management as a measure of evaluating the performance of the Company's three operating segments. Management further believes that EBITDA is useful to investors as a measure of comparative operating performance as it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance. Management uses EBITDA to develop compensation plans, to measure sales force performance and to allocate capital assets. Additionally, because the Company has historically provided EBITDA to investors, management believes that presenting this non-GAAP financial measure provides consistency in our financial reporting. Management's use of EBITDA, however, is not intended to represent cash flows for the period, nor has it been presented as an alternative to either (a) operating income (as determined by U.S. generally accepted accounting principles) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by U.S. generally accepted accounting principles) as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with U.S. generally accepted accounting principles and is thus susceptible to varying calculations, EBITDA may not be comparable to other similarly titled measures of other companies. COINMACH SERVICE CORP. SELECTED CONSOLIDATED CASH FLOW DATA (in thousands) Quarter ended June 30, ------------------ 2005 2004 -------- -------- OPERATING ACTIVITIES: Net loss $(975) $(7,780) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 18,932 19,029 Amortization of advance location payments 4,135 4,926 Amortization of intangibles 3,485 3,680 Amortization of deferred issue costs 531 603 Deferred income taxes (516) (687) Interest expense-non cash preferred stock dividends - 6,560 Stock based compensation 12 18 Gain on sale of equipment (112) (29) Changes in assets and liabilities 8,028 9,235 -------- -------- Net cash provided by operating activities 33,520 35,555 -------- -------- INVESTING ACTIVITIES: Additions to property and equipment (15,008) (13,645) Advance location payments to location owners (2,904) (4,968) Acquisition of net assets related to acquisition of businesses - (366) Proceeds from sale of property and equipment 299 156 -------- -------- Net cash used in investing activities (17,613) (18,823) -------- -------- FINANCING ACTIVITIES: Repayments under credit facility (1,240) (2,153) Principal payments on capitalized lease obligations (1,438) (964) (Repayments) borrowings from bank and other borrowings (60) 279 Cash dividends paid (3,898) - Receivables from shareholders - (5) -------- -------- Net cash used in financing activities (6,636) (2,843) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 9,271 13,889 CASH AND CASH EQUIVALENTS: Beginning of period 57,271 31,620 -------- -------- End of period $66,542 $45,509 ======== ======== COINMACH SERVICE CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) June 30, March 31, 2005 2005(1) --------- --------- ASSETS: Current assets: Cash and cash equivalents $66,542 $57,271 Receivables, net 6,191 6,486 Inventories 12,186 12,432 Assets held for sale 2,103 2,475 Prepaid expenses 4,759 4,994 Interest rate swap asset 775 832 Other current assets 3,141 2,625 --------- --------- Total current assets 95,697 87,115 Advance location payments 70,991 72,222 Property, equipment and leasehold improvements, net 262,817 264,264 Contract rights, net 306,318 309,698 Goodwill 204,780 204,780 Other assets 19,138 18,597 --------- --------- TOTAL ASSETS $959,741 $956,676 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities: Accounts payable and accrued expenses $31,891 $33,983 Accrued rental payments 33,600 30,029 Accrued interest 16,606 9,512 Current portion of long-term debt 15,935 17,704 --------- --------- Total current liabilities 98,032 91,228 Deferred income taxes 65,006 65,546 Long-term debt, less current portion 692,382 690,687 --------- --------- Total liabilities 855,420 847,461 Stockholders' Equity: Class A common stock, par value $0.01, authorized 100,000,000 shares; issued and outstanding 18,911,532 shares 189 189 Class B common stock, par value $0.01, authorized 100,000,000 shares; issued and outstanding 24,980,445 shares 250 250 Additional paid-in capital 319,038 319,038 Carryover basis adjustment (7,988) (7,988) Accumulated other comprehensive income, net of tax 459 492 Accumulated deficit (207,627) (202,754) Deferred compensation - (12) --------- --------- Total stockholders' equity 104,321 109,215 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $959,741 $956,676 ========= ========= (1) The March 31, 2005 balance sheet has been derived from the audited consolidated financial statements of Coinmach Services Corp. as of that date. *T Set forth below are the consolidated financial statements of Coinmach Corporation. Coinmach Corporation is a wholly owned subsidiary of Coinmach Laundry Corporation, which in turn is a wholly owned subsidiary of the Company. Also set forth below is a reconciliation of net income (loss) to EBITDA and a reconciliation of the Company's EBITDA to that of Coinmach Corporation. -0- *T COINMACH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) Quarter ended June 30, -------------------- 2005 2004 --------- --------- Revenues $133,830 $133,499 Operating, general and administrative expense 93,037 93,405 Depreciation and amortization 18,932 19,029 Amortization of advance location payments 4,135 4,926 Amortization of intangibles 3,485 3,680 --------- --------- 119,589 121,040 Operating income 14,241 12,459 Interest expense 13,690 14,227 --------- --------- Income (loss) before income taxes 551 (1,768) Provision (benefit) for income taxes 256 (680) --------- --------- Net income (loss) $295 $(1,088) ========= ========= COINMACH CORPORATION RECONCILIATION OF NET INCOME (LOSS) TO EBITDA (in thousands) Quarter ended June 30, ------------------ 2005 2004 -------- -------- Net income (loss) $295 $(1,088) Depreciation and amortization 26,552 27,635 Provision (benefit) for income taxes 256 (680) Interest expense 13,690 14,227 -------- -------- EBITDA $40,793 $40,094 ======== ======== RECONCILIATION OF EBITDA FROM COINMACH SERVICE CORP. TO COINMACH CORPORATION (in thousands) Quarter ended June 30, ------------------ 2005 2004 -------- -------- EBITDA for Coinmach Service Corp. $40,392 $39,970 General and administrative expense 401 124 -------- -------- EBITDA for Coinmach Corp. $40,793 $40,094 ======== ======== RECONCILIATION OF CASH FLOW PROVIDED BY OPERATING ACTIVITIES TO EBITDA (in thousands) Quarter ended June 30, ------------------ 2005 2004 -------- -------- Cash flow provided by operating activities $35,419 $35,780 Provision (benefit) for income taxes 256 (680) Interest expense 13,690 14,227 Gain on sale of equipment 112 29 Deferred income taxes (256) 699 Amortization of deferred issue costs (397) (603) Changes in assets and liabilities, net of effects of business combination (8,031) (9,358) -------- -------- EBITDA $40,793 $40,094 ======== ======== COINMACH CORPORATION SELECTED CONSOLIDATED CASH FLOW DATA (in thousands) Quarter ended June 30, ------------------ OPERATING ACTIVITIES: 2005 2004 -------- -------- Net income (loss) $295 $(1,088) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 18,932 19,029 Amortization of advance location payments 4,135 4,926 Amortization of intangibles 3,485 3,680 Gain on sale of equipment (112) (29) Deferred income taxes 256 (699) Amortization of deferred issue costs 397 603 Changes in assets and liabilities 8,031 9,358 -------- -------- Net cash provided by operating activities 35,419 35,780 -------- -------- INVESTING ACTIVITIES: Additions to property and equipment (15,008) (13,645) Advance location payments to location owners (2,904) (4,968) Acquisition of net assets related to acquisition of businesses - (366) Proceeds from sale of property and equipment 299 156 -------- -------- Net cash used in investing activities (17,613) (18,823) -------- -------- FINANCING ACTIVITIES: Net repayments to Parent (392) (230) Dividends to Parent (5,405) - Repayments under credit facility (1,240) (2,153) Principal payments on capitalized lease obligations (1,438) (964) (Repayments) borrowings from bank and other borrowings (60) 279 -------- -------- Net cash used in financing activities (8,535) (3,068) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 9,271 13,889 CASH AND CASH EQUIVALENTS: Beginning of period 56,840 31,620 -------- -------- End of period $66,111 $45,509 ======== ======== COINMACH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET DATA (Dollars in thousands) June 30, March 31, 2005 2005(1) --------- --------- ASSETS: Current assets: Cash and cash equivalents $66,111 $56,840 Receivables, net 6,191 6,486 Inventories 12,186 12,432 Assets held for sale 2,103 2,475 Prepaid expenses 4,801 5,031 Interest rate swap asset 775 832 Other current assets 3,129 2,582 --------- --------- Total current assets 95,296 86,678 Advance location payments 70,991 72,222 Property, equipment and leasehold improvements, net 262,817 264,264 Contract rights, net 306,318 309,698 Goodwill 204,780 204,780 Other assets 8,295 7,619 --------- --------- TOTAL ASSETS $948,497 $945,261 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY: Current liabilities: Accounts payable and accrued expenses $31,077 $33,129 Accrued rental payments 33,600 30,029 Accrued interest 15,081 7,987 Current portion of long-term debt 15,935 17,704 --------- --------- Total current liabilities 95,693 88,849 Deferred income taxes 69,172 68,940 Long-term debt, less current portion 556,265 554,570 Loan payable to Parent 81,670 81,670 Due to Parent 51,142 51,534 --------- --------- Total liabilities 853,942 845,563 Stockholder's Equity: Common stock and additional paid-in capital 286,629 286,629 Accumulated other comprehensive income, net of tax 459 492 Accumulated deficit (192,533) (187,423) --------- --------- Total stockholder's equity 94,555 99,698 --------- --------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $948,497 $945,261 ========= ========= (1) The March 31, 2005 balance sheet has been derived from the audited consolidated financial statements of Coinmach Corp. as of that date. *T