UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) August 1, 2013
Mac-Gray Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-13495 |
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04-3361982 |
(Commission File Number) |
|
(IRS Employer Identification No.) |
404 Wyman Street, Suite 400 |
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Waltham, Massachusetts |
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02451 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(781) 487-7600
(Registrants Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On August 1, 2013, Mac-Gray Corporation (the Company) issued a press release announcing its financial results for the three months and six months ended June 30, 2013. A copy of the Companys press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information provided in this current Report is being furnished and shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, unless specifically stated so therein.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits.
Exhibit No. |
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Description |
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99.1* |
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Press Release of Mac-Gray Corporation issued on August 1, 2013. |
* This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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MAC-GRAY CORPORATION | |
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Date: August 1, 2013 |
By: |
/s/ Michael J. Shea |
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Name: Michael J. Shea |
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Title: Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit 99.1
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FOR IMMEDIATE RELEASE |
Contacts:
Michael J. Shea |
Scott Solomon |
Chief Financial Officer |
Vice President |
Mac-Gray Corporation |
Sharon Merrill |
781-487-7610 |
617-542-5300 |
Email: mshea@macgray.com |
Email: tuc@investorrelations.com |
Mac-Gray Announces Second-Quarter Financial Results
Company Increases Revenue and Net Income;
Affirms 2013 Guidance
WALTHAM, MA, August 1, 2013 Mac-Gray Corporation (NYSE: TUC), the nations premier provider of laundry facilities management services to multi-family housing, today announced its financial results for the quarter ended June 30, 2013.
Mac-Gray reported that second quarter of 2013 revenue increased to $79.2 million, compared with $77.8 million in the second quarter of 2012. Net income for the second quarter of 2013 increased to $1.2 million, or $0.08 per diluted share, compared with net income of $1.1 million, or $0.07 per diluted share, for the same period in 2012. Second-quarter 2013 net income includes a non-cash pre-tax unrealized gain of $15,000 related to interest rate derivative instruments, a pre-tax unrealized loss of $62,000 related to fuel commodity derivatives, a $54,000 loss related to early extinguishment of debt, and $713,000 in incremental proxy-related costs. Second-quarter 2012 net income includes a non-cash pre-tax unrealized gain of $146,000 related to interest rate derivative instruments, a pre-tax non-cash unrealized loss of $274,000 related to fuel commodity derivatives and $294,000 in incremental proxy-related costs. Excluding these items from both periods, adjusted net income for the second quarter of 2013 increased to $1.7 million, or $0.11 per diluted share, compared with adjusted net income for the second quarter of 2012 of $1.4 million, or $0.10 per diluted share.
Please refer to Table 1, included at the end of this news release, for a reconciliation of net income, as reported, to net income, as adjusted.
For the second quarter of 2013, Mac-Grays earnings before interest expense, income tax expense, depreciation and amortization expense (EBITDA) was $14.2 million, compared with $14.5 million in the year-earlier quarter. Excluding unrealized gains / losses related to interest rate and fuel commodity derivative instruments, loss on extinguishment of debt and incremental proxy-related costs from both periods, EBITDA was $15.1 million for the second quarter of 2013, compared with $14.9 million in the year-earlier quarter.
Please refer to Table 2, included at the end of this news release, for a reconciliation of net income to EBITDA and EBITDA, as adjusted.
Comments on the Second Quarter
Mac-Gray delivered solid second-quarter results, generating both revenue growth and our fifth consecutive quarter of increased profitability, said Chief Executive Officer Stewart G. MacDonald. Same-location multi-housing revenue grew 1.5% in the second quarter compared with the second quarter of 2012. The increase was driven primarily by our vend management capabilities, higher equipment usage year-over-year, the expansion of our proprietary technologies, which are designed to increase equipment usage and efficiency, and an increase in the number of accounts.
Mac-Gray has always been focused on introducing sophisticated technology into the laundry facilities management industry, and that commitment to innovation remains a key differentiator for the Company as we focus on growing our portfolio. More than 70% of our new installations involve one of our various card platforms, and these now run nearly 50% of our total equipment portfolio, up from 42% at year-end. Today, technologies such as Change Point®, our advanced payment and monitoring system now in its second version, are increasing revenue and creating resident loyalty, as well as enhancing collection efficiency and reporting transparency. Two years after being introduced, Change Point® has increased average monthly revenue in previously coin-only laundry rooms by over 10%.
In commercial equipment, sales increased $400,000 in the second quarter of 2013 over the same period a year ago, to $3.6 million. We are seeing strength in this sector, even though we have reduced its scope to only the New England area.
Outlook
Through the first six months of 2013 same-location revenue is up 1.5% over the comparable period of 2012, and this is the third straight quarter we have seen this indicator of usage increase, despite macroeconomic headwinds of unemployment, underemployment and rents that are rising substantially faster than wage growth, MacDonald said. These collective pressures are affecting many of the residents who are our customers. We believe our results speak to the success we are achieving in increasing the number of accounts in our portfolio, managing costs, enhancing efficiency and increasing profitability.
Looking ahead, our strategic priorities are to continue to add accounts, further refine our vend management program, continue to convert our portfolio from coin-to card-operated equipment and make accretive, tuck-in acquisitions in selected regions that would enable us to increase market density, which is another key to higher profitability.
Based on its performance for the first half of 2013 and current market conditions, the Company reiterated its 2013 financial guidance:
· Revenue in the range of $328 million to $332 million;
· Capital expenditures in the range of $36 million to $39 million, including contract incentives;
· Reduction of total funded debt in the range of $13 million to $16 million;
· Net income, as adjusted, in the range of $0.70 to $0.80 per diluted share; and
· EBITDA, as adjusted, in the range of $68 million to $71 million.
Net income, as adjusted, and EBITDA, as adjusted, exclude unrealized gains/losses related to interest rate derivative instruments and fuel commodity derivatives, and any one-time charges to income.
The foregoing estimates reflect managements view of current and future market conditions, including assumptions with respect to apartment occupancy rates, and exclude the impact of any potential acquisitions. These estimates may be subject to fluctuations as a result of a number of factors and there can be no assurance that Mac-Grays actual results will not differ from the estimates set forth above.
Conference Call Information
The Company will host a conference call at 10:00 a.m. ET today during which management will summarize the Companys financial results, review business and operating highlights from the quarter, and provide a business and financial outlook. To hear a live broadcast of the call, visit the Investor Relations section of the Companys website at www.macgray.com or dial (877) 709-8155 or (201) 689-8881. If you are unable to listen to the live call, you can access a replay at www.macgray.com.
About Mac-Gray Corporation
Founded in 1927, Mac-Gray derives its revenue principally through the contracting of debit-card- and coin-operated laundry facilities in multi-unit housing facilities such as apartment buildings, college and university residence halls, condominiums and public housing complexes. Mac-Gray manages laundry rooms located in 44 states and the District of Columbia. Mac-Gray also sells and services commercial laundry equipment to retail laundromats and other customers through its product sales division. To learn more about Mac-Gray, visit the Companys website at www.macgray.com.
Safe Harbor Statement
This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Companys plans for future growth, vend price increases, increased use of card-based platforms, potential acquisitions, increasing the size of the equipment portfolio, managing costs, enhancing efficiency and increasing profitability, as well as estimates of the Companys 2013 revenue, net income, as adjusted, EBITDA, as adjusted, capital expenditures and debt reduction. The Company intends such forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with these Safe Harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, may be identified by use of the words believe, expect, intend, anticipate, project, or similar expressions. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from such forward-looking statements. Certain factors which could cause actual results to differ materially from the forward-looking statements include, but are not limited to, general economic conditions, changes in multi-housing vacancy rates, the Companys ability to renew long-term customer contracts, and those risks set forth in the Companys Annual Report on Form 10-K for the year ended December 31, 2012 under Risk Factors and in other reports subsequently filed with the SEC. Mac-Gray undertakes no obligation to update any forward-looking statements, which speak only as of the date of this news release.
MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2012 |
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2013 |
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2012 |
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2013 |
| ||||
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Revenue |
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$ |
77,827 |
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$ |
79,221 |
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$ |
162,063 |
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$ |
160,814 |
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Cost of revenue: |
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|
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| ||||
Cost of facilities management revenue |
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53,274 |
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53,678 |
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108,240 |
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107,734 |
| ||||
Depreciation and amortization |
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10,393 |
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10,729 |
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20,830 |
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21,352 |
| ||||
Cost of products sold |
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2,651 |
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2,933 |
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5,848 |
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5,267 |
| ||||
Total cost of revenue |
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66,318 |
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67,340 |
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134,918 |
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134,353 |
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Gross margin |
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11,509 |
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11,881 |
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27,145 |
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26,461 |
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Operating expenses: |
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Selling, general and administration expenses |
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7,505 |
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7,924 |
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17,276 |
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15,956 |
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Loss (gain) on sale or disposal of assets, net |
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(54 |
) |
(121 |
) |
(40 |
) |
(155 |
) | ||||
Incremental costs of proxy contests |
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294 |
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713 |
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377 |
|
770 |
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Total operating expenses |
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7,745 |
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8,516 |
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17,613 |
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16,571 |
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Income from operations |
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3,764 |
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3,365 |
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9,532 |
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9,890 |
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Interest expense, including change in fair value of non-hedged interest rate derivative instruments and amortization of deferred financing costs |
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1,962 |
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1,288 |
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5,304 |
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2,953 |
| ||||
Loss on early extinguishment of debt |
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54 |
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3,762 |
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54 |
| ||||
Income before income tax expense |
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1,802 |
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2,023 |
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466 |
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6,883 |
| ||||
Income tax expense |
|
750 |
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811 |
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181 |
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2,753 |
| ||||
Net income |
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$ |
1,052 |
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$ |
1,212 |
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$ |
285 |
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$ |
4,130 |
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Other comprehensive gain, net of tax: |
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| ||||
Unrealized gain on derivative instruments |
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182 |
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1 |
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320 |
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130 |
| ||||
Comprehensive income |
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$ |
1,234 |
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$ |
1,213 |
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$ |
605 |
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$ |
4,260 |
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Net income per share basic |
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$ |
0.07 |
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$ |
0.08 |
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$ |
0.02 |
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$ |
0.28 |
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Net income per share diluted |
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$ |
0.07 |
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$ |
0.08 |
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$ |
0.02 |
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$ |
0.27 |
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Weighted average common shares outstanding - basic |
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14,365 |
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14,643 |
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14,370 |
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14,593 |
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Weighted average common shares outstanding diluted |
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15,055 |
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15,251 |
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15,050 |
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15,149 |
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MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
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December 31, |
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June 30, |
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2012 |
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2013 |
| ||
Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
14,328 |
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$ |
13,626 |
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Trade receivables, net of allowance for doubtful accounts |
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5,835 |
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3,457 |
| ||
Inventory of finished goods, net |
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1,284 |
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2,707 |
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Prepaid expenses, facilities management rent and other current assets |
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10,624 |
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12,495 |
| ||
Total current assets |
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32,071 |
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32,285 |
| ||
Property, plant and equipment, net |
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129,947 |
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139,049 |
| ||
Goodwill |
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57,737 |
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58,087 |
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Intangible assets, net |
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169,640 |
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166,816 |
| ||
Prepaid expenses, facilities management rent and other assets |
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12,014 |
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13,169 |
| ||
Total assets |
|
$ |
401,409 |
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$ |
409,406 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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| ||
Current portion of long-term debt and capital lease obligations |
|
$ |
1,201 |
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$ |
1,557 |
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Trade accounts payable and accrued expenses |
|
22,866 |
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27,641 |
| ||
Accrued facilities management rent |
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20,930 |
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19,941 |
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Total current liabilities |
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44,997 |
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49,139 |
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Long-term debt and capital lease obligations |
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190,969 |
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191,982 |
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Deferred income taxes |
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46,770 |
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45,657 |
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Other liabilities |
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1,386 |
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1,384 |
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Total liabilities |
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284,122 |
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288,162 |
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Commitments and contingencies |
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|
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| ||
Stockholders equity: |
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|
|
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| ||
Preferred stock ($.01 par value, 5 million shares authorized no shares issued or outstanding) |
|
|
|
|
| ||
Common stock ($.01 par value, 30 million shares authorized, 14,516,074 issued and outstanding at December 31, 2012, and 14,658,485 issued and outstanding at June 30, 2013) |
|
145 |
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147 |
| ||
Additional paid in capital |
|
89,706 |
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92,012 |
| ||
Accumulated other comprehensive loss |
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(130 |
) |
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| ||
Retained earnings |
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27,566 |
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29,085 |
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Total stockholders equity |
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117,287 |
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121,244 |
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Total liabilities and stockholders equity |
|
$ |
401,409 |
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$ |
409,406 |
|
MAC-GRAY CORPORATION
TABLE 1
Reconciliation of Reported Net Income to Adjusted Net Income
(In thousands, except per share amounts)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2012 |
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2013 |
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2012 |
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2013 |
| ||||
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Net income, as reported |
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$ |
1,052 |
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$ |
1,212 |
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$ |
285 |
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$ |
4,132 |
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|
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|
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Income before income tax expense, as reported |
|
$ |
1,802 |
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$ |
2,023 |
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$ |
466 |
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$ |
6,884 |
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Unrealized gain related to change in fair value of non-hedged interest rate derivative instruments (1) |
|
(146 |
) |
(15 |
) |
(235 |
) |
(196 |
) | ||||
Unrealized loss related to change in fair value of fuel commodity derivative instruments (2) |
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274 |
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62 |
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24 |
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9 |
| ||||
Loss on early extinguishment of debt (3) |
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54 |
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3,762 |
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54 |
| ||||
Incremental costs of proxy contests (4) |
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294 |
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713 |
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377 |
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770 |
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Income before income tax expense, as adjusted |
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2,224 |
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2,837 |
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4,394 |
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7,521 |
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Income tax expense, as adjusted |
|
782 |
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1,135 |
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1,705 |
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3,006 |
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Net income, as adjusted |
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1,442 |
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1,702 |
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2,689 |
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4,515 |
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Diluted earnings per share, as adjusted |
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$ |
0.10 |
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$ |
0.11 |
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$ |
0.18 |
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$ |
0.30 |
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(1) Represents the unrealized gain on change in fair value of interest rate protection contracts, which do not qualify for hedge accounting treatment.
(2) Represents the unrealized loss on change in fair value of fuel commodity derivatives which do not qualify for hedge accounting treatment
(3) Represents the premium paid to redeem $100,000 of senior notes as well as a writeoff of deferred financing costs associated with our senior notes and a partial writeoff of deferred financing costs associated with our 2008 Credit Facility.
(4) Represents additional costs incurred for legal advice and proxy solicitation in response to proxy contests relating to the Companys 2012 and 2013 annual meetings.
To supplement the Companys unaudited condensed consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, management has used a non-GAAP measure of net income. Management believes that the presentation of Net Income as adjusted is useful to investors to enhance an overall understanding of our historical financial performance and future prospects. Net income, as adjusted to exclude certain gains and losses from the comparable GAAP net income, is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the primary indicators management uses as a basis for evaluating the Companys financial performance as well as for forecasting future periods. Management establishes performance targets, annual budgets and makes critical operating decisions based upon these metrics. Accordingly, disclosure of these non-GAAP measures provides investors with the same information that management uses to understand the Companys true economic performance year over year. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or other measures prepared in accordance with GAAP.
MAC-GRAY CORPORATION
TABLE 2
Reconciliation of Reported Net Income to Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) and EBITDA, as adjusted
(In thousands)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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|
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2012 |
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2013 |
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2012 |
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2013 |
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Net income |
|
$ |
1,052 |
|
$ |
1,212 |
|
$ |
285 |
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$ |
4,130 |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
2,018 |
|
1,215 |
|
5,273 |
|
2,971 |
| ||||
Income tax expense |
|
750 |
|
811 |
|
181 |
|
2,753 |
| ||||
Depreciation and amortization |
|
10,602 |
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10,914 |
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21,240 |
|
21,732 |
| ||||
Amortization of deferred financing costs |
|
90 |
|
88 |
|
266 |
|
178 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
EBITDA |
|
14,512 |
|
14,240 |
|
27,245 |
|
31,764 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain related to change in fair value of non-hedged interest rate derivative instruments (1) |
|
(146 |
) |
(15 |
) |
(235 |
) |
(196 |
) | ||||
Unrealized loss related to change in fair value of fuel commodity derivative instruments (2) |
|
274 |
|
62 |
|
24 |
|
9 |
| ||||
Loss on early extinguishment of debt (3) |
|
|
|
54 |
|
3,762 |
|
54 |
| ||||
Incremental costs of proxy contests (4) |
|
294 |
|
713 |
|
377 |
|
770 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
EBITDA, as adjusted |
|
$ |
14,934 |
|
$ |
15,054 |
|
$ |
31,173 |
|
$ |
32,401 |
|
(1) Represents the unrealized gain on change in fair value of interest rate protection contracts which do not qualify for hedge accounting treatment.
(2) Represents the unrealized loss on change in fair value of fuel commodity derivatives which do not qualify for hedge accounting treatment.
(3) Represents the partial writeoff of deferred financing costs associated with our 2008 Credit Facility.
(4) Represents additional costs incurred for legal advice and proxy solicitation in response to proxy contests relating to the Companys 2012 and 2013 annual meetings.
EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. EBITDA, as adjusted, is EBITDA further adjusted to exclude the items described in the table above. We have excluded these items because we believe they are not reflective of our ongoing operating performance. EBITDA and EBITDA, as adjusted, are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity.
Our management believes EBITDA and EBITDA, as adjusted, are useful to investors because they help enable investors to evaluate our business in the same manner as our management. Management uses EBITDA and EBITDA, as adjusted, as follows: (a) to evaluate the Companys historical and prospective financial performance, (b) to set internal revenue targets and spending budgets, (c) to measure operational profitability and the accuracy of forecasting, and (d) as an important factor in determining variable compensation for management. In addition, these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies with substantial financial leverage. Moreover, investors have historically requested and the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.
While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These measures are not prepared in accordance with GAAP and may not be directly comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation. Further, EBITDA and EBITDA, as adjusted, exclude interest expense and depreciation and amortization expense, which represent significant and unavoidable operating costs given the level of indebtedness and the capital expenditures needed to maintain our business. In addition, our measures of
EBITDA and EBITDA, as adjusted, are different from those used in the covenants contained in our senior credit facilities. Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA and EBITDA, as adjusted, only supplementally and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Companys non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Companys consolidated financial statements prepared in accordance with GAAP.