Druss and ALL: WDRY. Sitback, relax and enjoy. IMO another great short is being born! sorry about the screwed up tables. You will need to get them from the sec fillings.
Druss: IMO we got ourselves another home run! In general, WDRY operating margins of around 7% [before interest expense] are much better than BFIT; also, their cash flows from operations are positive and so far have been adequate to cover interest payments. The key problem is that return on assets would be extremely mediocre even if they had no debt service expenses! This is due to the fact that they are paying far to much to acquire the new business and capitalized lease contracts. Bottom line: without debt return on revenues would be adequate but return on assets would be around 1-2%. The only way this business could provide a decent return on investment (if at all possible) would be through internally generated growth with extreme cost control. IMO except for pump and dump appreciation (i.e., return from finding another sucker who buys the shares at a larger price) stockholders will never see a decent return for their money. Now IMO this short will work out and payoff big time! But you need to be patient and short the actual shares as this guys may continue to show growth through their totally crazy "pay through the nose" growth strategy. IMO we should see a share price in the low single digits (i.e. below 5) within two years. I will jump into this puppy big time! The only doubt I have right now is whether momentum is carried into January, in which case it is probably better to wait a bit longer. Probably what I will do based on my BFIT experience..
Some highlights of a mediocre operation: Material is from the most recent 10K and S4
OPERATING ACTIVITIES
The Company's level of indebtedness will have several important effects onits future operations including, but not limited to, the following: (i) asignificant portion of the Company's cash flow from operations will be requiredto pay interest on its indebtedness and will not be available for otherpurposes; (ii) the financial covenants contained in certain of the agreementsgoverning the Company's indebtedness will require the Company to meet certainfinancial tests and will limit its ability to borrow additional funds or todispose of assets; (iii) the Company's ability to obtain additional financing inthe future for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; and (iv) the Company's ability to adapt to changes in the coin-operated laundry equipment services industry and to economic conditions in general could be limited.
***** How is this for a leveraged balance sheet: stockholder equity at less than 2% of total assets. Also, intangible assets are substantial (goodwill and contract rights):
MARCH 28, MARCH 29, 1997 1996
ASSETS<S> <C> <C>
Cash and cash equivalents $ 10,110 $ 19,723
Receivables,
less allowance of $555 and $454 6,894 5,260
Inventories 7,959 4,443
Prepaid expenses 3,170 2,641
Advance rental payments 38,472 20,320
Property and equipment:
Laundry equipment and fixtures 135,656 89,394
Land, building and improvements 14,266 10,965
Trucks and other vehicles 4,211 1,849
----------------------- 154,133 102,208
Less accumulated depreciation (42,017) (19,509) -----------------------Net property and equipment 112,116 82,699 Contract rights,
net of accumulated amortization of $19,815 and $8,925 180,557 59,745 Goodwill,
net of accumulated amortization of $5,574 and $2,386
95,771 44,071
Other assets 12,501 9,265
-----------------------Total assets $467,550 $248,167
----------------------- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT
Accounts payable $ 8,946 $ 5,944
Accrued commissions 10,573 7,380
Accrued interest 9,712 7,745
Other accrued expenses 8,986 7,557
Due to parent 22,432 --
Deferred income taxes 65,650 18,924
11 3/4% senior notes 196,655 196,655
Credit facility 130,000 --
12 3/4% senior notes -- 5,000
Other long-term debt 2,623 1,110
Stockholder's equity (deficit):
Common stock, par value $.01: 1,000 shares authorized, 100 shares issued at March 28, 1997 and March 29, 1996 -- --
Capital in excess of par value 41,391 18,104
Accumulated deficit (29,164) (18,560)
----------------------- 12,227 (456)
Notes receivable from management (254) (1,692) -----------------------Total stockholder's equity (deficit) 11,973 (2,148) -----------------------Total liabilities and stockholder's equity (deficit) $467,550 $248,167
***Interesting! They estimate the cash inside the machines and report it as revenue. Apparently a minor point. Wonder how large this amount is and why such an agressive for of revenue recogition is allowed:
RECOGNITION OF LAUNDRY REVENUES
The Company has agreements with various property owners which provide for theCompany's installation and operation of laundry machines at various locations inreturn for a commission. These agreements provide for both contingent(percentage of revenues) and fixed commission payments. The Company reportsrevenues from laundry machines on the accrual basis and has accrued the cashcomputed to be in the machines at the end of the fiscal period.
****The tax man will eventually catch up with them significantly reducing operating cash flows, their current source of cash to pay interests on debt:
Net deferred tax liabilities $65,650 $18,924 =================================</TABLE> Deferred taxes arise primarily from timing differences resulting from using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting purposes and contract rights acquired which are not deductible for tax purposes.
****** And finally, from the S4 last dec 19, the bankers want to register to then dump previously privately placed notes (series B and C) by registering and converting it into series D for which an open sucker's market is expected to develop. All this will be done without a single soul spending a day behind bars as they are protecting their rears by clearly spelling out all the risks associated with this business. Dummy investors, however, will ignore this:
OFFER TO EXCHANGE UP TO $296,655,000 OF ITS 11 3/4% SERIES D SENIOR NOTES DUE 2005 FOR ANY AND ALL OF ITS 11 3/4% SERIES C SENIOR NOTES DUE 2005 AND ITS SERIES B 11 3/4% SENIOR NOTES DUE 2005 --------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON JANUARY30, 1998, UNLESS EXTENDED. Coinmach Corporation, a Delaware corporation ("Coinmach"), hereby offers(the "Exchange Offer"), upon the terms and subject to the conditions set forthin this prospectus (the "Prospectus") and the accompanying Letter ofTransmittal (the "Letter of Transmittal"), to exchange $1,000 principal amountof its 11 3/4% Series D Senior Notes due 2005 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement of which this Prospectus is a part (the "Registration Statement"), for each $1,000 principalamount of its outstanding 11 3/4% Series C Senior Notes due 2005 (the "PrivateNotes"), of which $100,000,000 in aggregate principal amount are outstandingas of the date of this Prospectus and for each $1,000 principal amount of itsoutstanding Series B 11 3/4% Senior Notes due 2005 (the "Series B Notes"), ofwhich $196,655,000 in aggregate principal amount are outstanding as of thedate of this Prospectus. The form and terms of the Exchange Notes, except forthe total outstanding principal amount thereof, are the same as the form andterms of the Series B Notes. The form and terms of the Exchange Notes are thesame as the form and terms of the Private Notes, except for the totaloutstanding principal amount thereof and except that (i) the Exchange Noteswill have been registered under the Securities Act, and, therefore, theExchange Notes will not bear legends restricting the transfer thereof, and(ii) holders of the Exchange Notes will not be entitled to certain rights ofholders of the Private Notes under the Registration Rights Agreement (asdefined), which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same debt as the Private Notes and the Series B Notes (each of which they replace) and will be entitled to the benefits of an indenture (the "Indenture"), dated as of October 8, 1997, byand between the Company and State Street Bank and Trust Company, as trustee(the "Trustee"), governing the Private Notes and the Exchange Notes. See "TheExchange Offer" and "Description of Exchange Notes."
Leverageable Cash Flows. Due to the stable, recurring nature of the Company'srevenues and its consistent EBITDA levels, the Company has been able to obtaindebt financing on favorable terms to support its acquisition strategy. This useof debt financing to support growth is an important component of the Company'sfinancial strategy, and the Company believes that access to both the public andprivate debt markets provides it with a competitive advantage.
SUBSTANTIAL INDEBTEDNESS The Company has substantial indebtedness and debt service requirements. Inaddition to indebtedness outstanding under the Series B Notes and the PrivateNotes, the Company is party to a credit agreement dated January 8, 1997, asamended (the "Credit Agreement") with Bankers Trust Company, First UnionNational Bank of North Carolina, Lehman Commercial Paper, Inc. and certainother lending institutions named therein providing for, among other things, a$75.0 million term loan facility and a $160.0 million revolving creditfacility composed of a $35.0 million working capital revolving credit facilityand a $125.0 million acquisition revolving credit facility (as amended, the"Credit Facility"). As of December 19, 1997, the Company's indebtedness wasapproximately $382.1 million (excluding the premium on the Private Notes)which included $83.0 million outstanding under the Credit Facility, and itsstockholder's equity was approximately $4.3 million. 14 The Company's level of indebtedness will have several important effects onits future operations, including, but not limited to, the following: (i) asignificant portion of the Company's cash flow from operations will berequired to pay interest on its indebtedness and will not be available forother purposes; (ii) the financial covenants and other restrictions containedin certain of the agreements governing the Company's indebtedness will requirethe Company to meet certain financial tests and will limit its ability toborrow additional funds or to dispose of assets; (iii) the Company's abilityto obtain additional financing in the future for working capital, capitalexpenditures, acquisitions or general corporate purposes may be impaired; and(iv) the Company's ability to adapt to changes in the coin-operated laundryequipment services industry and to economic conditions in general could belimited. The financial covenants contained in the agreements governing Coinmach's indebtedness restrict Coinmach's ability to make dividends, distributions or other payments to Coinmach Laundry. Additionally, theCompany's ability to meet its debt service obligations and to reduce its totaldebt will be dependent upon its future performance, which will be subject togeneral economic conditions and to financial, business and other factorsaffecting the operations of the Company, many of which are beyond its control.See "Management's Discussion and Analysis of Financial Condition and Resultsof Operations--Liquidity and Capital Resources." An inability of the Company to comply with the financial covenants or otherconditions contained in the financing agreements governing the Company'sindebtedness could result in an acceleration of amounts due thereunder. If theCompany is unable to meet its debt service obligations, it could be requiredto take certain actions such as reducing or delaying capital expenditures,selling assets, refinancing or restructuring its indebtedness, sellingadditional equity capital or other actions. There is no assurance that any ofsuch actions could be effected on commercially reasonable terms, if at all, oron terms permitted under the applicable financing agreements. See"Management's Discussion and Analysis of Financial Condition and Results ofOperations--Liquidity and Capital Resources."
SIGNIFICANT INTANGIBLE ASSETS Adjusted for the issuance of the Private Notes, approximately $326.4 millionor 57.9% of the Company's total assets would have been intangible assetsconsisting primarily of contract rights and goodwill as of September 26, 1997.In the event of a sale or liquidation, there can be no assurance that thevalue of the Company's intangible assets would be realized.
The objectives of the Exchange Offer are (i)to create a single series of debt securities having a total outstandingprincipal amount which is larger than either the Private Notes or the Series BNotes as separate series, thus resulting in greater liquidity for the ExchangeNotes, and (ii) to enable the Holders of Private Notes which contain certainrestrictions on transfer to receive debt securities of the Company with termswhich are substantially identical to those of the Private Notes but which donot contain restrictions on transfer. The Registration Statement of which thisProspectus is a part is intended to satisfy the Company's obligations underthe Registration Rights Agreement and the Purchase Agreement. RESALE OF EXCHANGE NOTES With respect to the Exchange Notes, based upon an interpretation by thestaff of the Commission set forth in certain no-action letters issued to thirdparties, the Company believes that a Holder (other than (i) a broker-dealerwho purchases such Exchange Notes directly from the Company to resell pursuantto Rule 144A or any other available exemption under the Securities Act or (ii)any such Holder that is an "affiliate" of the Company within the meaning ofRule 405 under the Securities Act) who exchanges Series B Notes or PrivateNotes for Exchange Notes in the ordinary course of business and who is notparticipating, does not intend to participate, and has no arrangement with anyperson to participate, in a distribution of the Exchange Notes, will beallowed to resell Exchange Notes to the public without further registrationunder the Securities Act and without delivering to the purchasers of theExchange Notes a prospectus that satisfies the requirements of Section 10 ofthe Securities Act. However, if any Holder acquires the Exchange Notes in theExchange Offer for the purpose of distributing or participating in thedistribution of the Exchange Notes or is a broker-dealer, such Holder cannot rely on the position of the staff of the Commission enumerated in certain no- action letters issued to third parties and must comply with the registrationand prospectus delivery requirements of the Securities Act in connection withany resale transaction, unless an exemption from registration is otherwiseavailable.
Check out the lousy financials. Even if you took away interest expenses (assume 100% equity financing) the return on assets would be less than 2%, even taken an already depreciated asset base from the aggressive depreciation schedules. I am applying here EVA (economic value added ideas) a very popular tool used by the likes of KO in evaluating a business.
HISTORICAL PRO FORMA ------------------------------------------ ------------------- COMBINED TWELVE YEAR SIX SIX YEAR SIX MONTHS ENDED MONTHS MONTHS ENDED MONTHS ENDED MARCH ENDED ENDED MARCH ENDED MARCH 28, SEPTEMBER SEPTEMBER 28, SEPTEMBER 29, 1996(1) 1997 27, 1996 26, 1997 1997 26, 1997 -------- -------- --------- --------- -------- ---------OPERATING DATA:Revenues................ $178,789 $206,852 $ 94,446 $149,797 $306,913 $156,983Operating, general and administrative expenses............... 127,923 143,966 65,688 103,196 209,141 107,605Depreciation and amortization........... 36,635 46,316 20,192 34,580 71,973 35,912Stock based compensation charge -- 1,768 1,460 462 1,768 462Operating income........ 12,031 14,802 7,106 11,559 24,031 13,004 Interest expense, net(2)................. 23,371 27,417 12,345 21,173 43,098 22,969Net Loss before extraordinary items.... (8,480) (10,308) (3,639) (7,709) (15,322) (8,072)BALANCE SHEET DATA (AT END OF PERIOD):Property and equipment, net.................... $ 82,699 $112,116 $ 93,819 $130,348 $124,562 $130,348Contract rights, net.... 59,745 180,557 63,217 217,371 225,498 217,371Total assets............ 248,167 467,550 251,929 559,187 556,437 563,562FINANCIAL RATIOS AND OTHER DATA (UNAUDITED):EBITDA(3)............... $ 50,866 $ 62,886 $ 28,758 $ 46,601 $ 97,926 $ 49,378EBITDA margin(4)........ 28.5% 30.4% 30.4% 31.1% 31.9% 31.5%Operating margin(5)..... 6.7% 7.2% 7.5% 7.7% 7.8% 8.3%Ratio of Earnings to Fixed Charges(6)....... -- -- -- -- -- --Number of machines (rounded).............. 220,000 337,000 247,000 420,000 415,000 420,000
CAPITALIZATION The following table sets forth the capitalization of the Company as ofSeptember 26, 1997 (i) on an actual basis and (ii) as adjusted, to give effectto the issuance of the Private Notes and the application of the net proceedstherefrom. This table should be read in conjunction with the unaudited proforma financial data and the combined and consolidated financial statements ofthe Company and notes thereto included elsewhere in this Prospectus. SEPTEMBER 26, 1997 --------------------- PRO FORMA ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS)Short-term debt, including current maturities of long- term debt............................................... -- --Long-term debt: 11 3/4% Series B/C Notes due 2005...................... $196,655 $296,655 Premium on 11 3/4% Series C Notes due 2005............. -- 9,875 Credit Facility........................................ 203,250 98,500 Other long-term debt................................... 2,411 2,411 -------- -------- Total long-term debt................................. 402,316 407,441Stockholder's equity: Additional paid-in capital............................. 41,391 41,391 Accumulated deficit.................................... (36,873) (36,873) Less management loans.................................. (254) (254) -------- -------- Total stockholder's equity........................... 4,264 4,264 -------- --------Total capitalization..................................... $406,580 $411,705 ======== ========
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following table presents consolidated summary historical financial dataof the Company for the year ended March 28, 1997 ("1997 fiscal year") for thesix month transition period ended March 29, 1996, for the period from April 5,1995 to September 29, 1995, for the period from October 1, 1994 to April 4,1995, and for each of the fiscal years ended the Friday closest to September30, 1994, 1993 and 1992, and the unaudited summary historical financial datafor the six months ended September 26, 1997 and for the six months endedSeptember 27, 1996. All financial data therein are in thousands. SUCCESSOR/1/ PREDECESSOR/1/ --------------------------------------------------------------- ---------------------------------------------- YEAR ENDED ---------- SIX MONTH SIX SIX TRANSITION APRIL 5, OCTOBER 1, MONTHS MONTHS YEAR PERIOD 1995 1994 ENDED ENDED ENDED ENDED TO TO SEPTEMBER 26, SEPTEMBER 27, MARCH 28, MARCH 29, SEPTEMBER 29, APRIL 4, SEPTEMBER 30, OCTOBER 1, OCTOBER 2, 1997 1996 1997 1996 1995 1995 1994 1993 1992/2/ ------------- ------------- --------- ---------- ------------- ---------- ------------- ---------- ----------STATEMENT OF OPERATIONS DATA:Revenues........ $ 149,797 $ 94,446 $206,852 $ 89,070 $89,719 $52,207 $104,553 $104,888 $104,311Laundry operating expenses....... 100,310 63,596 139,446 60,536 62,905 33,165 66,418 67,420 67,138General and ad- ministrative expenses....... 2,886 2,092 4,520 2,024 2,458 1,539 2,839 2,576 3,125Depreciation and amortization... 34,580 20,192 46,316 18,212 18,423 10,304 21,347 21,002 20,745Stock based com- pensation charge......... 462 1,460 1,768 -- -- -- -- -- --Restructuring expenses....... -- -- -- -- 2,200 -- -- -- -- --------- -------- -------- -------- ------- ------- -------- -------- --------Operating in- come........... 11,559 7,106 14,802 8,298 3,733 7,199 13,949 13,890 13,303 Interest ex- pense.......... 21,173 12,345 27,417 11,830 11,541 8,928 18,105 17,453 15,857Income taxes (benefits)..... (1,905) (1,600) (2,307) (998) (1,862) 50 2,762 (768) (416) --------- -------- -------- -------- ------- ------- -------- -------- --------Loss before ex- traordinary item........... (7,709) (3,639) (10,308) (2,534) (5,946) (1,779) (6,918) (2,795) (2,138)Extraordinary loss (net of tax)/3/........ -- -- (296) (8,925) -- (848) -- -- (833) --------- -------- -------- -------- ------- ------- -------- -------- --------Net loss........ $ (7,709) $ (3,639) $(10,604) $(11,459) $(5,946) $(2,627) $ (6,918) $ (2,795) $ (2,971) ========= ======== ======== ======== ======= ======= ======== ======== ========BALANCE SHEET DATA (AT END OF PERIOD):Property and equipment, net. $ 130,348 $ 93,819 $112,116 $ 82,699 $80,706 -- $ 48,727 $ 50,593 $ 50,679Total assets.... 559,187 251,929 467,550 248,167 239,943 -- 143,589 150,402 155,827 Total debt...... 402,316 203,909 329,278 202,765 176,415 -- 128,487 128,299 128,737Stockholder's equity (deficit)...... 4,264 (4,349) 11,973 (2,148) 13,783 -- (8,721) (1,636) 1,004FINANCIAL INFOR- MATION AND OTHER DATA:Cash flow from operating activities..... $ 22,358 $ 15,884 $ 34,305 $ 12,100 $12,639 $10,216 $ 17,914 $ 16,547 $ 11,842 Cash flow used for investing activities..... 91,900 35,050 196,698 14,162 13,114 6,537 16,763 18,500 16,168 Cash flow from (used for) financing activities..... 75,781 (14,637) 152,780 12,503 (1,017) (1,068) (270) (636) 10,272EBITDA/4/....... 46,601 28,758 62,886 26,510 24,356 17,503 35,296 34,892 34,048Capital expendi- tures/5/....... 25,600 17,427 41,588 14,219 13,119 6,944 16,779 18,556 16,563Ratio of earn-
Pancho
PS: Thanks for the tip! I hope you have an extremely profitable 98. With a significant portion of the profits coming from the short side! O with WDRY, just the same as with BFIT the trick will be being patient. I will cover my CNC short which I do not understand, and possibly my IPIC short, which is dangerous due to all the suckers investing in Biotech hope, and the possibility of stock dividend spin off and put the money into short margin capacity into WDRY |
