10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________ to___________ COMMISSION FILE NUMBER 333-56857 333-56857-01 333-56857-02 ALLIANCE LAUNDRY SYSTEMS LLC ALLIANCE LAUNDRY CORPORATION ALLIANCE LAUNDRY HOLDINGS LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 39-1927923 DELAWARE 39-1928505 DELAWARE 52-2055893 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) P.O. BOX 990 RIPON, WISCONSIN 54971-0990 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (920) 748-3121 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [_] Alliance Laundry Systems LLC Form 10-Q For The Period Ended September 30, 2001 Table of Contents
Page No. -------- PART I Financial Information Item 1. Financial Statements Condensed Balance Sheets as of September 30, 2001 and December 31, 2000 3 Condensed Statements of Operations for the periods ended September 30, 2001 and September 30, 2000 4 Condensed Statements of Cash Flows for the periods ended September 30, 2001 and September 30, 2000 5 Notes to Unaudited Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALLIANCE LAUNDRY HOLDINGS LLC CONDENSED BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 ------------- ------------ Assets (Unaudited) Current assets: Cash ....................................................................... $ 323 $ 5,091 Cash-restricted ............................................................ 446 494 Accounts receivable, net ................................................... 17,057 10,575 Inventories, net ........................................................... 31,801 37,462 Prepaid expenses and other ................................................. 9,944 8,825 --------- --------- Total current assets .................................................... 59,571 62,447 Notes receivable ............................................................... 22,488 10,208 Property, plant and equipment, net ............................................. 49,552 53,857 Goodwill, net .................................................................. 55,928 57,327 Debt issuance costs, net ....................................................... 8,702 10,583 Other assets ................................................................... 15,153 18,335 --------- --------- Total assets ............................................................ $ 211,394 $ 212,757 ========= ========= Liabilities and Members' Deficit Current liabilities: Current portion of long-term debt .......................................... $ 1,228 $ 1,036 Accounts payable ........................................................... 14,574 8,755 Finance program obligation ................................................. 1,707 3,121 Revolving credit facility .................................................. 4,000 12,000 Other current liabilities .................................................. 21,625 18,466 --------- --------- Total current liabilities ............................................... 43,134 43,378 Long-term debt: Senior credit facility ..................................................... 197,750 198,500 Senior subordinated notes .................................................. 110,000 110,000 Junior subordinated note ................................................... 16,342 14,343 Other long-term debt ....................................................... 1,323 726 Other long-term liabilities .................................................... 1,658 1,671 --------- --------- Total liabilities ....................................................... 370,207 368,618 Mandatorily redeemable preferred equity ........................................ 6,000 6,000 Members' deficit ............................................................... (164,813) (161,861) --------- --------- Total liabilities and members' deficit .................................. $ 211,394 $ 212,757 ========= =========
3 ALLIANCE LAUNDRY HOLDINGS LLC CONDENSED STATEMENTS OF OPERATIONS (in thousands)
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- (Unaudited) (Unaudited) Net revenues: Commercial laundry ......................................... $ 51,792 $ 55,911 $ 164,501 $ 179,905 Service parts .............................................. 8,531 8,651 26,634 26,884 --------- --------- --------- ------------- 60,323 64,562 191,135 206,789 Cost of sales .................................................. 45,495 47,387 143,321 151,859 --------- --------- --------- ------------- Gross profit ................................................... 14,828 17,175 47,814 54,930 --------- --------- --------- ------------- Selling, general and administrative expense .................... 7,380 9,128 22,470 28,386 Nonrecurring costs ............................................. - 402 - 402 --------- --------- --------- ------------- Total operating expenses ....................................... 7,380 9,530 22,470 28,788 --------- --------- --------- ------------- Operating income ......................................... 7,448 7,645 25,344 26,142 Interest expense ............................................... 8,138 8,920 26,347 27,165 Other income (expense), net .................................... (3) 460 77 352 --------- --------- --------- ------------- Loss before taxes ........................................ (693) (815) (926) (671) Provision for income taxes ..................................... - - 22 20 --------- --------- --------- ------------- Net loss before cumulative effect of accounting change ...................................... (693) (815) (948) (691) Cumulative effect of change in accounting principle ............ - - 2,043 - --------- --------- --------- ------------- Net loss ................................................. $ (693) $ (815) $ (2,991) $ (691) ========= ========= ========= =============
4 ALLIANCE LAUNDRY HOLDINGS LLC CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended --------------------------------- September 30, September 30, 2001 2000 -------------- -------------- (Unaudited) Cash flows from operating activities: Net loss before cumulative effect of accounting change ................................ $ (948) $ (691) Adjustments to reconcile net loss before cumulative effect of accounting change to cash provided by operating activities; excluding the effects of the acquisition opening balance sheet: Depreciation and amortization .................................................. 12,625 12,943 Non-cash interest .............................................................. 3,566 1,685 Gain on sale of property, plant and equipment .................................. (77) (352) Changes in assets and liabilities: Accounts and notes receivable ............................................... (18,758) (2,622) Inventories ................................................................. 5,661 (6,203) Other assets ................................................................ (771) (3,058) Accounts payable ............................................................ 5,819 1,777 Finance program obligation .................................................. (1,366) 98 Other liabilities ........................................................... 1,972 1,318 -------- -------- Net cash provided by operating activities ...................................... 7,723 4,895 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment ............................................ (4,675) (3,622) Acquisition of business ............................................................... -- (13,399) Proceeds on disposal of property, plant and equipment ................................. 171 1,329 -------- -------- Net cash used in investing activities .......................................... (4,504) (15,692) -------- -------- Cash flows from financing activities: Proceeds from long-term debt .......................................................... 812 750 Principal payments on long-term debt .................................................. (799) (250) Net increase/(decrease) from revolving line of credit borrowings ..................... (8,000) 14,000 Distribution to Raytheon and related transaction costs ................................ -- (5,920) -------- -------- Net cash provided by (used in) financing activities ............................ (7,987) 8,580 -------- -------- Decrease in cash ........................................................................... (4,768) (2,217) Cash at beginning of period ................................................................ 5,091 3,028 -------- -------- Cash at end of period ...................................................................... $ 323 $ 811 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest ................................................................ $ 18,563 $ 21,094
5 Notes to Unaudited Condensed Financial Statements NOTE 1. BASIS OF PRESENTATION The unaudited financial statements as of September 30, 2001 and for the periods ended September 30, 2001 present the consolidated financial position and results of operations of Alliance Laundry Holdings LLC (the "Company"), including its wholly-owned direct and indirect subsidiaries, Alliance Laundry Systems LLC and Alliance Laundry Corporation. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary (consisting only of normal recurring adjustments) to present fairly the financial position and operating results of the Company for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year. These financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations, although the Company believes the disclosures provided are adequate to prevent the information presented from being misleading. Effective April 1, 2001, the Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". In accordance with the provisions of EITF 99-20, the Company recognized an approximate $2.0 million charge upon adoption, reflecting the write-down of the Company's retained interests to fair value pursuant to the impairment provisions of EITF 99-20. The year-to-date net effects on operating income of adopting EITF 99-20 are not material. During the second quarter of 2001, the Company also adopted Statement of Financial Accounting Standards (SFAS) No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as replacement of SFAS No. 125." This Statement revises certain aspects of the current standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain new and expanded disclosures. SFAS 140 was effective for the Company in the second quarter of 2001 and did not have a material effect on the Company's financial statements. The Company adopted the disclosure provisions of SFAS 140 during the fourth quarter of 2000. The Company adopted Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. In accordance with the transition provisions of FAS 133, the Company recorded a cumulative-effect-type gain adjustment of $0.7 million in other comprehensive income (loss) in members' deficit to recognize at fair value its interest rate swap arrangements at January 1, 2001. The Company expects to reclassify in earnings during 2001 approximately $0.6 million of the transition adjustment that was recorded in other comprehensive income (loss). For the nine months ended September 30, 2001, the Company recognized a loss of $2.1 million reflecting the changes in the fair values of its interest rate swaps and a gain of $0.5 million for the reclassification of the transition adjustment as discussed above. The resulting loss and gain were recorded in interest expense in the statement of operations. 6 During the fourth quarter of 2000, the Company adopted the provisions of the Emerging Issues Task Force ("EITF") Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." In accordance with the provisions of EITF 00-10, certain shipping and handling fees and costs which the Company had previously recorded on a net basis as a component of selling, general and administrative expenses are reflected in net revenues and cost of goods sold as appropriate. Prior year amounts have been reclassified in the accompanying statements of operations to conform with the requirements of EITF 00-10. During the fourth quarter of 2000, the Company adopted the provisions of the Emerging Issues Task Force ("EITF") Issue No. 00-14 "Accounting for Certain Sales Incentives." In accordance with the provisions of EITF 00-14, certain sales incentive costs which the Company had previously recorded as a component of selling, general and administrative expenses are reflected in net revenues. Prior year amounts have been reclassified in the accompanying statements of operations to conform with the requirements of EITF 00-14. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. This report on Form 10-Q for the periods ended September 30, 2001 should be read in conjunction with the audited financial statements presented in the Company's Annual Report on Form 10-K (file no. 333-56857) filed with the Securities and Exchange Commission, which includes the audited financial statements of the Company as of and for the year ended December 31, 2000. NOTE 2. INVENTORIES Inventories are stated at cost using the first-in, first-out method but not in excess of net realizable value, and consist of the following (in thousands): September 30, December 31, 2001 2000 --------------- --------------- (Unaudited) Materials and purchased parts......... $ 12,457 $ 13,250 Work in process....................... 4,677 4,907 Finished goods........................ 17,607 21,895 Less: inventory reserves.............. (2,940) (2,590) --------------- --------------- $ 31,801 $ 37,462 =============== =============== NOTE 3. COMMITMENTS AND CONTINGENCIES On February 8, 1999, the Company's prior owner, Raytheon Company ("Raytheon") commenced an arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Boston, Massachusetts against the Company (the "Raytheon Arbitration"), seeking damages of $12.2 million plus interest thereon and attorney's fees based on Raytheon's claim for indemnification for a payment made to a third party allegedly on behalf of the Company and Alliance Laundry Systems LLC ("Alliance Laundry"). The Company asserted in the Raytheon Arbitration that Raytheon owed the $12.2 7 million to the third party and that neither the Company nor Alliance Laundry is liable for such amount. In addition, the Company filed counterclaims and claims seeking damages in excess of $30 million from Raytheon. On March 31, 2000 the arbitrators issued their decision. Pursuant to that decision Raytheon prevailed on its claim and the Company prevailed on its counterclaims. Ultimately the Company was required to pay Raytheon $6.8 million, including interest, in full satisfaction of the arbitration award and after offsetting the amount for price adjustments in favor of the Company which had been agreed to during 1999. The award payment was made on April 13, 2000. After considering certain price adjustments previously recorded in the financial statements as of and for the period ended December 31, 1999, the Company recorded $9.9 million plus related costs of $0.6 million in the first quarter 2000 financial statements as an adjustment of members' deficit. This treatment is consistent with the original recording of the May 5, 1998 Agreement and Plan of Merger which was accounted for as a recapitalization. The related net interest of $1.5 million, including amounts related to prior years, was included in interest expense in the first quarter 2000 financial statements. In September 1999, Juan Carlos Lopez pursued an arbitration against Alliance Laundry Sociedad Anonima, ("ALSA") a foreign subsidiary of Alliance Laundry Systems LLC, under UNCITRAL rules in Buenos Aires, Argentina, seeking in pertinent part, to be paid fees arising from a Consulting Agreement, and indemnification for loss of profits in Argentina and Brazil, plus damages for pain and suffering. An arbitration was conducted by an "ad-hoc" panel (the "Lopez Arbitration"), during which ALSA contended that Juan Carlos Lopez failed to fulfill responsibilities under the Consulting Agreement and was therefore not entitled to the fees, and that ALSA was not liable for loss of profits either in Argentina or Brazil, nor for an indemnification for pain and suffering. On April 3, 2001, the Lopez Arbitration was concluded. The arbitration panel awarded Argentine Pesos $1,408,900 ($1.4 million U.S. dollars), plus nine percent interest from September 6, 1999, plus ten percent over this principal and interest amount as moral damages, plus certain fees and costs, while rejecting other claims of plaintiff. The Company does not believe this arbitration award will have a material effect on the Company's operations, in as much as ALSA is a foreign subsidiary and is responsible for its own debts and obligations. The remaining investment on the Company's financial statements is not material as this operation was discontinued in the fourth quarter of 1998, at which time the Company's investment in ALSA was written down to the value of certain remaining assets. Under the terms of the award, any such payments would have to be forthcoming from the assets of ALSA. Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against the Company. While the ultimate liability from these proceedings is difficult to determine, in the opinion of management, any additional liability will not have a material effect on the Company's financial position, liquidity or results of operations. NOTE 4. COMPREHENSIVE INCOME/(LOSS) Comprehensive income/(loss) for the nine months ended September 30, 2001 and 2000 consist of the following (in thousands): 8
Nine Months Ended ------------------------------------- September 30, September 30, 2001 2000 --------------- -------------- Comprehensive loss: Net loss $ (2,991) $ (691) Other comprehensive income (loss) Net unrealized holding loss on residual interests (332) - Unrealized gain on interest rate swap 283 - --------------- -------------- Comprehensive loss $ (3,040) $ (691) =============== ==============
NOTE 5. ACQUISITION OF AJAX PRODUCT LINE On March 6, 2000, the Company completed the acquisition of selected assets of American Laundry Machinery Inc.'s press and finishing equipment division (d/b/a "Ajax"). Ajax, located in Cincinnati, Ohio, manufactures, designs and markets a line of presses and finishers serving the drycleaning and industrial laundry markets. The cash consideration was approximately $13.1 million. The Company also assumed selective liabilities of approximately $1.2 million related to the product line and recorded acquisition costs of $0.3 million. Assets acquired and liabilities assumed have been recorded at their estimated fair value. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was approximately $11.1 million and is being amortized on a straight-line basis over 20 years. The purchase was financed through the proceeds of trade receivable sales and use of the Revolving Credit Facility. As part of the Ajax acquisition, the Cincinnati facility was closed, and production was transferred to the Company's Marianna, Florida manufacturing facility. As such, a $1.4 million reserve was established in the acquisition opening balance sheet primarily for employee termination and severance benefit charges. The Ajax acquisition has been accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying statements of operations include only revenue and expenses of Ajax for the period from March 6, 2000. On a pro-forma basis, this acquisition was not material to the results of operations for the periods presented and, accordingly, such information is not presented. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company believes it is the leading designer, manufacturer and marketer of stand-alone commercial laundry equipment in North America and a leader worldwide. Under the well-known brand names of Speed Queen, UniMac, Huebsch and Ajax, the Company produces a full line of commercial washing machines and dryers with load capacities from 16 to 250 pounds as well as presses and finishing equipment. The Company's 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 9 primarily of in-house laundry facilities of hotels, hospitals, nursing homes and prisons; and (iv) drycleaners. This discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto included in this report and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company's Annual Report on Form 10-K (file no. 333-56857) filed with the Securities and Exchange Commission, which includes the audited financial position and operating results of the Company as of and for the year ended December 31, 2000. RESULTS OF OPERATIONS The following table sets forth the Company's historical net revenues for the periods indicated: Quarter Ended ---------------------------------------- September 30, September 30, 2001 2000 ---------------- ----------------- (Dollars in millions) Net revenues: Commercial laundry............ $ 51.8 $ 55.9 Service parts................. 8.5 8.7 ---------------- ----------------- $ 60.3 $ 64.6 ================ ================= The following table sets forth certain condensed historical financial data for the Company expressed as a percentage of net revenues for each of the periods indicated:
Quarter Ended ------------------------------- September 30, September 30, 2001 2000 -------------- ------------ Net revenues......................................................... 100.0% 100.0% Cost of sales........................................................ 75.4% 73.4% Gross profit......................................................... 24.6% 26.6% Selling, general and administrative expense.......................... 12.3% 14.2% Nonrecurring costs................................................... - 0.6% Operating income..................................................... 12.3% 11.8% Net loss before cumulative effect of accounting change............ (1.1%) (1.3%)
Net revenues. Net revenues for the quarter ended September 30, 2001 decreased $4.3 million, or 6.6%, to $60.3 million from $64.6 million for the quarter ended September 30, 2000. This decrease was primarily attributable to lower commercial laundry revenue of $4.1 million and lower service parts revenue of $0.2 million. The decrease in commercial laundry revenue was due primarily to lower North American equipment revenue of $3.2 million and lower earnings from the Company's off-balance sheet equipment financing program of $0.9 million. The decrease in North American equipment revenue was 10 primarily due to lower revenue from laundromats, on-premise laundries and drycleaners resulting from a general economic slowdown. Finance program revenue was lower as a result of a non-cash charge of approximately $1.0 million related to the write-down of the Company's retained interests and notes receivable. This charge was primarily related to net retained interest adjustments from faster than expected prepayments due to lower prevailing interest rates. Gross profit. Gross profit for the quarter ended September 30, 2001 decreased $2.4 million, or 13.7%, to $14.8 million from $17.2 million for the quarter ended September 30, 2000. This decrease was primarily attributable to the lower sales volume as discussed above and manufacturing variances which occurred as a result of efforts to reduce finished goods inventories. Gross profit as a percentage of net revenues decreased to 24.6% for the quarter ended September 30, 2001 from 26.6% for the quarter ended September 30, 2000. This 2% decrease was primarily attributable to manufacturing volume inefficiencies related to the lower sales volume and the non-cash finance program charge noted above. Selling, general and administrative expense. Selling, general and administrative expenses for the quarter ended September 30, 2001 decreased $1.7 million, or 19.1%, to $7.4 million from $9.1 million for the quarter ended September 30, 2000. The decrease in selling, general and administrative expenses was primarily due to lower independent development expenses of $0.4 million, a lower loss on sales of qualified accounts receivable of $0.5 million, lower one-time expenses related primarily to the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin of $0.4 million, lower one-time expenses related primarily to the relocation of Cincinnati, Ohio production lines to Marianna, Florida of $0.7 million partly offset by higher pension costs of $0.2 million. Selling, general and administrative expenses as a percentage of net revenues decreased to 12.3% for the quarter ended September 30, 2001 from 14.2% for the quarter ended September 30, 2000. Nonrecurring costs. There were no nonrecurring costs for the quarter ended September 30, 2001 as compared to $0.4 million of nonrecurring costs for the quarter ended September 30, 2000. Nonrecurring costs in 2000 were comprised entirely of employee termination and severance benefits related to the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin. Operating income. As a result of the foregoing, operating income for the quarter ended September 30, 2001 decreased $0.2 million, or 2.6%, to $7.4 million from $7.6 million for the quarter ended September 30, 2000. Operating income as a percentage of net revenues increased to 12.3% for the quarter ended September 30, 2001 from 11.8% for the quarter ended September 30, 2000. Interest expense. Interest expense for the quarter ended September 30, 2001 decreased $0.8 million, or 8.8%, to $8.1 million from $8.9 million for the quarter ended September 30, 2000. While interest rates declined, the effect was partially offset by a $0.1 million non-cash adjustment to reflect changes in the fair values of the Company's interest rate swap agreements. Net loss. As a result of the foregoing, net loss for the quarter ended September 30, 2001 decreased $0.1 million to a net loss of $0.7 million as compared to a net loss of $0.8 million for the quarter ended September 30, 2000. Net loss as a percentage of net revenues decreased to (1.1%) for the quarter ended September 30, 2001 from (1.3%) for the quarter ended September 30, 2000. 11 The following table sets forth the Company's historical net revenues for the periods indicated:
Nine Months Ended -------------------------------- September 30, September 30, 2001 2000 ------------- ---------------- (Dollars in millions) Net revenues: Commercial laundry......................................... $ 164.5 $ 179.9 Service parts.............................................. 26.6 26.9 ------------- ------------- $ 191.1 $ 206.8 ============= =============
The following table sets forth certain condensed historical financial data for the Company expressed as a percentage of net revenues for each of the periods indicated:
Nine Months Ended ------------------------------ September 30, September 30, 2001 2000 ------------- ------------- Net revenues................................................................ 100.0% 100.0% Cost of sales............................................................... 75.0% 73.4% Gross profit................................................................ 25.0% 26.6% Selling, general and administrative expense................................. 11.7% 13.8% Nonrecurring costs.......................................................... - 0.2% Operating income............................................................ 13.3% 12.6% Net loss before cumulative effect of accounting change................... (0.5%) (0.3%)
Net revenues. Net revenues for the nine months ended September 30, 2001 decreased $15.7 million, or 7.6%, to $191.1 million from $206.8 million for the nine months ended September 30, 2000. This decrease was primarily attributable to lower commercial laundry revenue of $15.4 million. The decrease in commercial laundry revenue was due primarily to lower North American equipment revenue of $10.5 million, and lower international revenue of $3.7 million. The decrease in North American equipment revenues was primarily due to lower revenues from laundromats, on-premise laundries, and drycleaners resulting from a general economic slowdown. Gross profit. Gross profit for the nine months ended September 30, 2001 decreased $7.1 million, or 13.0%, to $47.8 million from $54.9 million for the nine months ended September 30, 2000. This decrease was primarily attributable to the lower sales volume as discussed above and manufacturing variances which occurred as a result of efforts to reduce finished goods inventories. Gross profit as a percentage of net revenues decreased to 25.0% for the nine months ended September 30, 2001 from 26.6% for the nine months ended September 30, 2000. This 1.6% decrease was primarily attributable to manufacturing volume inefficiencies related to the lower sales volume and manufacturing inefficiencies related to lower manufacturing volumes required to reduce finished goods stocking levels. 12 Selling, general and administrative expense. Selling, general and administrative expenses for the nine months ended September 30, 2001 decreased $5.9 million, or 20.8%, to $22.5 million from $28.4 million for the nine months ended September 30, 2000. The decrease in selling, general and administrative expenses was primarily due to lower sales and marketing expenses of $0.8 million, lower independent development expenses of $1.5 million, a lower loss on sales of qualified accounts receivable of $1.3 million, and lower one-time expenses related primarily to the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin of $2.1 million. Selling, general and administrative expenses as a percentage of net revenues decreased to 11.7 % for the nine months ended September 30, 2001 from 13.8% for the nine months ended September 30, 2000. Nonrecurring costs. There were no nonrecurring costs for the nine months ended September 30, 2001 as compared to $0.4 million of nonrecurring costs for the nine months ended September 30, 2000. Nonrecurring costs in 2000 were comprised entirely of employee termination and severance benefits due to the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin. Operating income. As a result of the foregoing, operating income for the nine months ended September 30, 2001 decreased $0.8 million, or 3.1%, to $25.3 million from $26.1 million for the nine months ended September 30, 2000. Operating income as a percentage of net revenues increased to 13.3% for the nine months ended September 30, 2001 from 12.6% for the nine months ended September 30, 2000. Interest expense. Interest expense for the nine months ended September 30, 2001 decreased $0.9 million, or 3.0%, to $26.3 million from $27.2 million for the nine months ended September 30, 2000. Reductions resulting from lower interest rates throughout 2001 and a one-time net interest expense in 2000 of $1.5 million associated with the Raytheon Arbitration award were offset by $1.6 million of non-cash adjustments to reflect changes in the fair values of the Company's interest rate swap agreements for the nine months ended September 30, 2001. Net loss before cumulative effect of accounting change. As a result of the foregoing, net loss before cumulative effect of accounting change for the nine months ended September 30, 2001 increased $0.2 million to a net loss before cumulative effect of accounting change of $0.9 million as compared to net loss before cumulative effect of accounting change of $0.7 million for the nine months ended September 30, 2000. Net loss before cumulative effect of accounting change as a percentage of net revenues increased to (0.5%) for the nine months ended September 30, 2001 from (0.3%) for the nine months ended September 30, 2000. Cumulative effect of accounting change. Effective April 1, 2001, the Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". In accordance with the impairment provisions of EITF 99-20, upon adoption the Company recognized a $2.0 million non-cash write-down of the Company's retained interests in its securitization transactions. The impairment was primarily driven by faster prepayment trends than had been anticipated at the time of sale. Net loss. As a result of the foregoing, net loss for the nine months ended September 30, 2001 increased $2.3 million to a net loss of $3.0 million as compared to net loss of $0.7 million for the nine months ended September 30, 2000. Net loss as a percentage of net revenues increased to (1.6%) for the nine months ended September 30, 2001 from (0.3%) for the nine months ended September 30, 2000. 13 LIQUIDITY AND CAPITAL RESOURCES In May 1998, Alliance Laundry entered into a credit agreement (the "Senior Credit Facility") with a syndicate of financial institutions (the "Lenders") for which Lehman Brothers Inc. acted as arranger and Lehman Commercial Paper Inc. acted as syndication agent. The Senior Credit Facility is comprised of a term loan facility aggregating $200.0 million (the "Term Loan Facility") and a $75.0 million revolving credit facility (the "Revolving Credit Facility"), which was made available in conjunction with the issuance of Alliance Laundry's senior subordinated notes. The Company's principal sources of liquidity are cash flows generated from operations and borrowings under its $75.0 million Revolving Credit Facility. The Company's principal uses of liquidity are to meet debt service requirements, finance the Company's capital expenditures and provide working capital. The Company expects that capital expenditures in 2001 will not exceed $7.0 million. The Company expects the ongoing requirements for debt service, capital expenditures and working capital will be funded by internally generated cash flow and borrowings under the Revolving Credit Facility. As of September 30, 2001, the Company has $330.6 million of combined indebtedness outstanding, consisting of outstanding debt of $198.8 million under the Term Loan Facility and $4.0 million under the Revolving Credit Facility, $110.0 million of senior subordinated notes and $16.3 million of junior subordinated notes, $0.7 million of borrowings pursuant to a Wisconsin Community Development Block Grant Agreement, and $0.8 million of borrowings pursuant to a financing transaction with Alliant Energy - Wisconsin Power & Light Company. The Company had $56.7 million of its $75.0 million Revolving Credit Facility available subject to certain limitations under the Senior Credit Facility. After considering such limitations, the Company could have borrowed up to $9.7 million at September 30, 2001 in additional indebtedness under the Revolving Credit Facility. The $198.8 million Term Loan Facility amortizes quarterly and is repayable in the following aggregate annual amounts: Year Amount Due ---- ---------- (Dollars in millions) 2001.............................. $ 0.3 2002.............................. $ 1.0 2003.............................. $ 20.5 2004.............................. $ 98.5 2005.............................. $ 78.5 The Term Loan Facility is also subject to mandatory prepayment with the proceeds of certain debt incurrences, asset sales and a portion of Excess Cash Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility will terminate in 2003. The Company's Asset Backed Facility provides $250.0 million of off-balance sheet financing for trade receivables and equipment loans. The finance programs have been and will continue to be structured in a manner that qualifies for off-balance sheet treatment in accordance with generally accepted accounting principles. It is expected that under the Asset Backed Facility, the Company will continue to act as originator and servicer of the equipment financing promissory notes and the trade receivables. 14 The Company's ability to make scheduled payments of principal of, or to pay the interest or liquidated damages, if any, on, or to refinance, its indebtedness, or to fund planned capital expenditures, will depend upon its future performance, which, in turn, is subject to general economic, financial, competitive and other factors that are beyond its control. Based upon the current level of operations and anticipated growth, management believes that future cash flow from operations, together with available borrowings under the Revolving Credit Facility, will be adequate to meet the Company's anticipated requirements for capital expenditures, working capital, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures after satisfying certain liabilities arising in the ordinary course of business. If unable to do so, the Company may be required to refinance all or a portion of its existing debt, to sell assets or to obtain additional financing. There can be no assurance that any such refinancing would be available or that any such sales of assets or additional financing could be obtained. Historical Cash generated from operations for the nine months ended September 30, 2001 of $7.7 million was principally derived from changes in working capital which were offset by lower sales of accounts receivable under the Asset Backed Facility, and an increase in ineligible loans under the Asset Backed Facility. The working capital investment in accounts receivable at September 30, 2001 of $17.1 million increased $6.5 million as compared to the balance of $10.6 million at December 31, 2000, which was primarily attributable to selling less accounts receivable through Alliance Laundry Receivable Warehouse ("ALRW"), a special-purpose single member limited liability company. The investment in notes receivable at September 30, 2001 of $22.5 million increased $12.3 million as compared to the balance of $10.2 million at December 31, 2000, which was primarily attributable to the retained interests on new loans sold through ALRW, and the increase in ineligible loans under the Asset Backed Facility. The investment in inventory at September 30, 2001 of $31.8 million decreased $5.7 million as compared to the balance of $37.5 million at December 31, 2000. Accounts payable at September 30, 2001 of $14.6 million increased $5.8 million as compared to the balance of $8.8 million at December 31, 2000. Net cash provided by operating activities for the nine months ended September 30, 2001 of $7.7 million increased by $2.8 million as compared to the nine months ended September 30, 2000. This increase was primarily due to lower net cash used in changes in assets and liabilities of $1.2 million, and an increase in net cash provided by operations (net loss before cumulative effect of accounting change adjusted for depreciation, amortization, non-cash interest and gains on sale of property, plant and equipment) of $1.6 million for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. The net cash impact from changes in assets and liabilities for the nine months ended September 30, 2001 of $1.2 million was largely due to decreased working capital investments in inventory and an increase in accounts payable, partially offset by lower sales of accounts receivable under the Asset Backed Facility and an increase in ineligible loans under the Asset Backed Facility. Capital Expenditures The Company's capital expenditures for the nine months ended September 30, 2001 and September 30, 2000 were $4.7 million and $3.6 million, respectively. Capital spending in 2001 was principally oriented toward reducing manufacturing costs and transitioning press and finishing equipment production to the Company's Marianna, Florida manufacturing facility (see Note 5), while spending in 2000 was principally oriented toward reducing manufacturing costs and transitioning 15 tumbler production from the Company's Madisonville, Kentucky manufacturing facility to Ripon, Wisconsin. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." The statements eliminate the pooling-of-interests method of accounting for business combinations and require that goodwill and certain intangible assets not be amortized. Instead, these assets will be reviewed for impairment annually with any related losses recognized in earnings when incurred. SFAS 141 is effective for the Company July 1, 2001. SFAS 142 will be effective for the Company January 1, 2002. The Company is currently evaluating the impact of SFAS 142. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement modifies and expands the financial accounting and reporting for the impairment or disposal of long-lived assets other than goodwill, which is specifically addressed by SFAS No. 142. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions for the disposal of a segment of a business of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for the Company January 1, 2002. The effects upon adoption are not expected to have a material impact upon the Company. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is potentially exposed to market risk associated with changes in interest and foreign exchange rates. From time to time the Company may enter into derivative financial instruments to hedge its interest rate exposures and to hedge exchange rate fluctuations between United States dollars and foreign currencies. An instrument will be treated as a hedge if it is effective in offsetting the impact of volatility in the Company's underlying exposures. The Company does not enter into derivatives for speculative purposes. There have been no material changes in the Company's market risk exposures as compared to those discussed in the Company's Annual Report on Form 10-K (file no. 333-56857). FORWARD-LOOKING STATEMENTS With the exception of the reported actual results, the information presented herein contains predictions, estimates or 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, including items specifically discussed in the "Note 3 - Commitments and Contingencies" section of this document. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to differ materially from those expressed or implied by such forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that such plans, intentions, expectations, objectives or 16 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 the Company's products abroad; market acceptance of new and enhanced versions of the Company's products; the impact of substantial leverage and debt service on the Company and other risks listed from time to time in the Company's reports, including but not limited to the Company's Annual Report on Form 10-K (file no. 333-56857). 17 PART II OTHER INFORMATION Item 1. Legal Proceedings. Legal actions relating to Lopez Arbitration are described in Footnote 3 to the Financial Statements in Part I hereto and are incorporated by reference into Part II. Item 2. Changes in Securities. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits. None. (b) Reports on Form 8-K. None. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Alliance Laundry Systems LLC has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Ripon, state of Wisconsin, on the 31st day of October 2001.
Signature Title Date --------- ----- ---- /s/ Thomas L'Esperance Chairman and CEO 10-31-01 ------------------------------------------- ----------------------- Thomas L'Esperance /s/ Bruce P. Rounds Vice President and Chief Financial Officer 10-31-01 ------------------------------------------- ----------------------- Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934, Alliance Laundry Corp. has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Ripon, state of Wisconsin, on the 31st day of October 2001.
Signature Title Date --------- ----- ---- /s/ Thomas L'Esperance Chairman and CEO 10-31-01 ------------------------------------------- ----------------------- Thomas L'Esperance /s/ Bruce P. Rounds Vice President and Chief Financial Officer 10-31-01 ------------------------------------------- ----------------------- Bruce P. Rounds
Pursuant to the requirements of the Securities Exchange Act of 1934, Alliance Laundry Holdings LLC has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Ripon, state of Wisconsin, on the 31st day of October 2001.
Signature Title Date --------- ----- ---- /s/ Thomas L'Esperance Chairman and CEO 10-31-01 ------------------------------------------- ----------------------- Thomas L'Esperance /s/ Bruce P. Rounds Vice President and Chief Financial Officer 10-31-01 ------------------------------------------- ----------------------- Bruce P. Rounds
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