ALLIANCE LAUNDRY HOLDINGS LLC

Annual Report for the Year Ended December 31, 2012

Alliance Laundry Holdings LLC

Index to Annual Report
Year Ended December 31, 2012
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION ...................
PART I.
ITEM 1.
BUSINESS..........................................................................................................
ITEM 1A.
RISK FACTORS ................................................................................................
ITEM 2.
PROPERTIES .....................................................................................................
ITEM 3.
LEGAL PROCEEDINGS ...................................................................................
ITEM 4.
MINE SAFETY DISCLOSURES ......................................................................
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.

PART II.
MARKET FOR THE REGISTRANTS COMMON STOCK AND
RELATED STOCKHOLDER MATTERS ....................................................
SELECTED FINANCIAL DATA ......................................................................
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ..............................................................................................
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.........................................

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PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.

DIRECTORS AND EXECUTIVE OFFICERS ..................................................

99
EXECUTIVE COMPENSATION ......................................................................
103
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ....
116
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...............
119
PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................... ..............................
120

EXHIBIT A
EXHIBIT B

EARNINGS TO FIXED CHARGES................................................................. .

SUBSIDIARIES OF THE COMPANY..............................................................

121
122

Throughout this annual report, we refer to Alliance Laundry Holdings LLC, a Delaware limited liability company, as
Alliance Holdings, and, together with its consolidated operations, as the Company, Alliance, we, our, and
us, unless otherwise indicated. Any reference to Alliance Laundry refers to our wholly-owned subsidiary, Alliance
Laundry Systems LLC, a Delaware limited liability company, and its consolidated operations, unless otherwise indicated.
Any reference to ALH refers to ALH Holding Inc., a Delaware corporation and Alliance Holdings parent entity. Unless
the context otherwise requires, references to United States & Canada, Europe, Latin America, Asia and Middle
East & Africa are to each of our reporting segments, as further described in Managements Discussion and Analysis of
Financial Condition and Results of Operations and Note 17 - Segment Information, to the Consolidated Financial
Statements.

CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION

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 Note 18 Commitments and Contingencies, to the
Consolidated Financial Statements 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 our business to differ materially from those expressed or implied by such forwardlooking statements. Although we believe that our plans, intentions and expectations reflected in such
forward-looking statements are based on reasonable assumptions, we can give no assurance that such
plans, intentions, expectations, objectives or goals will be achieved. Important factors that could cause
actual results to differ materially from those included in forward-looking statements include: the ability
to borrow funds under the December 2012 Revolving Credit Facility (as defined in Note 15 - Debt, to
the Consolidated Financial Statements); the ability to successfully implement operating strategies and
trends affecting the business, liquidity, financial condition and results of operations of the Company;
unfavorable economic conditions in the United States and other markets in which we operate; the impact
of competition; continued sales to key customers; possible fluctuations in the cost of raw materials and
components; possible fluctuations in currency exchange rates, which affect the competitiveness of our
products abroad; possible fluctuations in interest rates, which affects our earnings and cash flows; the
impact of substantial leverage and debt service on us; possible loss of suppliers; risks related to our asset
backed securitization facility, including an inability to replace or a failure by the administrative agent
and noteholders to extend the facility on advantageous terms or at all; dependence on key personnel;
labor relations; potential liability for environmental, health and safety matters; potential future legal
proceedings and litigation as well as those set forth in Item 1A hereof under Risk Factors. All
statements other than statements of historical facts included in these Financial Statements, including,
without limitation, the statements under Managements Discussion and Analysis of Financial Condition
and Results of Operations and Business, and located elsewhere herein regarding industry prospects,
the Companys strategy and the Companys financial position are forward-looking statements. In some
cases, you can identify forward-looking statements by words such as anticipate, believe, could,
estimate, expect, intend, may, plan, predict, potential, should, will, and would, or
the negatives thereof, variations thereof or other similar words. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date hereof, and we undertake
no obligation to update or revise any forward-looking statements whether as a result of new information,
future events or otherwise.

PART I.
ITEM 1.

BUSINESS

General
Throughout this annual report the term stand-alone commercial laundry equipment refers to
commercial laundry equipment excluding the consumer laundry market, drycleaning equipment and
custom engineered, continuous process laundry systems and the term stand-alone commercial laundry
equipment industry includes laundromats, multi-housing laundries and on-premise laundries and
excludes consumer laundry, drycleaners and continuous process laundries.
Our business began in 1908 when we introduced a hand-operated washer to the marketplace.
Industry leading features were introduced under the Speed Queen brand with the introduction of
stainless steel wash tubs in 1938 and automatic washers and dryers in 1952. In January 2005 Ontario
Teachers Pension Plan Board (OTPP) indirectly acquired the majority of the equity interests of
Alliance Laundry through ALH Holding Inc. (ALH) and our management indirectly owned the
remainder of Alliance Laundrys equity interests through ALH. ALH owns 100% of the equity interests
of Alliance Holdings. As of December 31, 2012, 82.6% of the capital stock of ALH was owned by
OTPP while 16.8% of the capital stock of ALH was owned by our current management. On July 14,
2006 we completed the acquisition of substantially all of Laundry System Group NVs (LSG)
commercial laundry division (CLD) operations which manufactures and markets commercial laundry
products similar to Alliance Laundry (the CLD Acquisition). As a result of the CLD Acquisition we
have a European headquarters and manufacturing facility in Wevelgem, Belgium and sales offices in
Belgium, Norway and Spain (the European Operations). CLD also had manufacturing facilities and
sales offices in the United States which have been consolidated into Alliance Laundrys operations.
We believe that we are the leading designer, manufacturer and marketer in the world of
commercial laundry equipment used in laundromats, multi-housing laundries and on-premise laundries.
We produce a full line of commercial washing machines and dryers with load capacities from 12 to 200
pounds under the well-known brand names of Speed Queen, UniMac, Huebsch, IPSO and Cissell.
We have been a leader in the North American stand-alone commercial laundry equipment industry for
more than ten years. With the addition of our European Operations and Alliance Laundrys export sales
to Europe, we are also a leader in the European stand-alone commercial laundry equipment industry. Our
net revenues for the year ended December 31, 2012 were $505.5 million, of which $357.0 million and
$52.2 million were from our United States & Canada and Europe segments, respectively. Net revenues
from our other segments totaled $96.3 million for the year ended December 31, 2012.
We attribute our success in this industry to: (i) the quality, reliability and functionality of our
products; (ii) the breadth of our product offerings; (iii) our extensive distributor network and strategic
alliances with key customers; (iv) our investment in new product development and manufacturing
capabilities and (v) the successful execution of selective acquisitions. As a result of our industry
position, we generate significant recurring sales of replacement equipment and service parts. In addition
to sales of stand-alone commercial laundry equipment in United States & Canada, we also sell
commercial laundry equipment and service parts internationally through our U.S. operations and through
our European Operations. Our operating segments other than United States & Canada generated
equipment and service parts revenue of $148.5 million, $141.2 million, and $128.8 million in 2012,
2011 and 2010, respectively. For 2012, 2011 and 2010, we generated total net revenues of $505.5
million, $458.0 million and $426.0 million, respectively, and Adjusted EBITDA (as defined in Item 7
3

Liquidity and Capital Resources under EBITDA and Adjusted EBITDA) of $94.4 million, $83.9
million and $81.0 million, respectively.
In the United States & Canada segment, we serve three distinct commercial laundry endcustomer groups: (i) laundromats; (ii) multi-housing laundries, consisting primarily of common laundry
facilities in apartment buildings, universities and military installations; and (iii) on-premise laundries,
consisting primarily of in-house laundry facilities in hotels, hospitals, nursing homes and prisons. Our
primary means of serving these end-customers is through a network of distributors and route operators
through our U.S. operations. We have approximately 555 United States & Canada distributors and over
150 international distributors served through our operations based in the United States. Approximately
140 distributors are also served through our European Operations. Our distributors purchase equipment
from us and then re-sell and install it for laundromat and on-premise end-customers. We serve multihousing end-customers in the United States and Canada through a network of approximately 120 route
operators. Route operators purchase equipment from us and then obtain leases from multi-housing
property managers to place the equipment into common laundry rooms.
We believe that we have the most extensive distribution network in North America which gives
us a significant competitive advantage. We estimate that our distributors and route operators have either
the number one or number two market position in over 80% of North American markets. We believe that
the superior quality and loyalty of our distribution network has been a significant factor in achieving this
market position in each of our three commercial laundry end-customer groups.
We estimate that the United States & Canada stand-alone commercial laundry equipment
industry generated more than $500 million of revenue in 2012. The industrys revenues are primarily
driven by population growth and the replacement cycle of laundry equipment. United States & Canada
consumers view clean clothes as a necessity with economic conditions historically having limited effect
on the frequency of use, and therefore the useful life, of laundry equipment. As a result, the industrys
revenues have been relatively stable over time and through past economic downturns.
With capital investments totaling $52.1 million for the five years ended December 31, 2012, we
have developed many new products, redesigned existing products and modernized our manufacturing
facilities in Ripon, Wisconsin and Wevelgem, Belgium. We believe our considerable investment in our
product lines and manufacturing capabilities have strengthened and will continue to enhance our market
leadership position.
The Companys internet address is http://www.alliancelaundry.com. Through the investor section
at that address, the Companys annual report, quarterly reports and news releases are available, free of
charge as soon as reasonably practicable after they are issued. The information contained on the
Companys website is not included in, or incorporated by reference into, this annual report.
Company Strengths
Market Leader with Significant Installed Base. We believe that we are the market leader in the
overall North American stand-alone commercial laundry equipment industry. In addition to being a
market leader in North America, we believe that we are a leader in sales to each of our three primary
commercial laundry end-customer groups. As a result of being a market leader for over ten years, we
believe that we have one of the largest installed bases of equipment in North America, comprised of
more than two million machines. A significant majority of our revenue is attributable to replacement
4

sales which are driven by our large installed base combined with an average ten year estimated life per
machine.
Extensive and Loyal Distribution Networks. We have developed an extensive distribution
network in North America with over 555 distributors and over 120 route operators. We estimate that our
laundromat and on-premise laundry distributors and multi-housing route operators have either the
number one or number two market position in over 80% of North American markets. These leading
distributors and route operators are attracted by our industry-leading brand equity, broad product array,
new product introductions, significant installed base and our comprehensive value-added support which
includes training, joint promotion efforts and extensive electronic and call center support of installation
and service. These factors lead to high costs for distributors and route operators to switch manufacturers
especially when combined with their substantial investments in service parts inventories and in training
their sales and installation personnel with respect to our highly engineered products. Our end-customers
place great value on the proven reliability of our products, backed by years of demonstrated experience
in the field, as this significantly impacts their long-term repair and maintenance expenses. We have not
historically experienced any significant turnover of our distributors and route operators. A significant
number have been customers for over ten years.
Comprehensive and Innovative Product Offering. We believe our product lines lead the industry
in reliability, breadth of offerings, functionality and advanced features. In addition, we believe we are the
only manufacturer in North America to produce a full commercial product line (including topload
washers, dryers, frontload washers, washer-extractors and tumbler dryers for all commercial customer
groups) thereby providing most customers with a single source solution for their stand-alone commercial
laundry equipment needs. At December 31, 2012, our engineering organization was staffed with over
100 engineers, designers, technicians and support staff who, along with our marketing and sales
personnel, and with input from our major customers, work to redesign and enhance our products to
better meet customer needs. Many of our new products place an emphasis on energy efficiency and
feature new electronic controls facilitating ease of use as well as improving performance and reliability.
In 2009 we launched a new electronic control platform. By including the new control platform across
most of our product offerings, we have been able to streamline the manufacturing process and simplify
our maintenance and servicing operations. Industry exclusive features were added, such as variable vend
rate options and improved programming and audit capabilities, which can increase an equipment
owners revenue and reduce their operating expenses,.
Leading North American and European Brands. We market and sell our products under the
widely recognized brand names Speed Queen, UniMac, Huebsch, IPSO and Cissell. We believe that we
have industry-leading brand equity and brand recognition based upon historical customer survey results.
Strong and Incentivized Management Team. Led by our Chief Executive Officer Michael
Schoeb, we have assembled a strong and experienced management team. Our senior management team
averages over 15 years of experience in the commercial laundry equipment and appliance industries.
This management team has executed numerous strategic initiatives, including: (i) developing strategic
alliances with key customers; (ii) acquiring and successfully integrating the commercial laundry
businesses of UniMac, IPSO and Cissell; (iii) implementing manufacturing cost and quality
improvement programs and (iv) implementing ongoing refinements to our product offerings. In addition,
current management owns 16.8% of the Companys common equity, and could own up to 24.8% of the
Companys common equity if managements service and performance stock options, outstanding as of
March 4, 2013, become exercisable (as defined in Note 19 - Stock Based Compensation, to the
Consolidated Financial Statements).
5

Business Strategy
Our strategy is to continue our strong financial performance and selectively pursue growth
opportunities by offering to our customers a full line of the most reliable and functional stand-alone
commercial laundry equipment together with industry-leading, comprehensive value-added services. The
key elements of our strategy are as follows:
Build on Our Customer One Initiative. Customer One is the primary cornerstone of our business
strategy and demonstrates our commitment to maintaining a customer-focused culture. We strive to
consistently exceed our customers demands for superior product quality and reliability and we provide
comprehensive and responsive service. We devote significant time and resources to train our personnel
to effectively serve our customers. We believe the success of our customer relationship efforts has
facilitated our industry-leading reputation and our long-term relationships with key customers which will
help to facilitate the continued growth of our U.S. and international business.
Develop and Strengthen Relationships with Key Customers. We have developed and will
continue to pursue long-term relationships with key customers and will pursue supply agreements where
appropriate. The relationships that we establish with our customers are comprehensive and include
training, extensive technical support and promotional activities. In addition, we model our product
development efforts to meet evolving customer preferences by working with key customers to develop
new products, features and value-added services. We have not experienced any significant customer
turnover.
Continue to Improve Manufacturing Operations. We seek to continuously enhance our product
quality and reduce costs through ongoing refinements to our manufacturing processes. We have achieved
such improvements in our manufacturing facilities and intend to continue doing so at Ripon and at our
Belgium facility through collaboration among key customers, suppliers and our engineering and
marketing personnel. We have continuously reduced our manufacturing costs through improvements in
raw material usage and labor efficiency and through plant consolidations with the most recent occurring
in 2011. See Note 3 - Restructuring and Other Costs, to the Consolidated Financial Statements for
further discussion. Since 2000, we have been using a demand flow production system on our higher
volume product lines. This production method has resulted in significant improvements in assembly
efficiency, inventory levels, customer order lead times and production quality. Since 2008, we have
successfully executed numerous kaizen projects at the Ripon and Belgium facilities to further support
our lean manufacturing strategy.
Continue to Develop Our International Business - We have a strong record of growth in
international markets due to the strength of our products, well recognized brands, a continual
strengthening of our distributor base and continual investment in infrastructure and customer support
services. We seek to continue that growth and pursue further market expansion through significant
investment in organic growth and selective acquisitions.
Continue to Pursue Strategic Acquisitions. Our present management team has successfully
negotiated and integrated acquisitions since 1994, including the CLD Acquisition in July 2006, that
taken as a whole, have significantly increased our sales. We intend to continue our consideration of
strategic acquisitions, both domestically and internationally. We will focus on opportunities that provide
or enhance the supply of full product lines to our customers and expand the markets for our products. By
doing this, we can improve our already strong market positions, increase our growth as well as achieve
significant acquisition synergies.
6

Expand into the U.S. Consumer Laundry Market. We re-entered the U.S. consumer laundry
market in October 2004. We are leveraging the strong brand equity of our Speed Queen name in order to
recapture a portion of our historic market share and are targeting the mid to high-end U.S. consumer
laundry markets with products that are designed to have useful lives approximately twice that of typical
consumer laundry equipment. We believe that our push into the mid to high-end U.S. consumer laundry
markets will continue to allow us to expand our sales and diversify our customer base.
Industry Overview
We believe that the North American market for stand-alone commercial laundry equipment has
grown at a compound annual rate of approximately 0.9% since 2002. North American commercial
laundry equipment sales historically have been relatively insulated from business and economic cycles as
economic conditions tend not to affect the frequency of use or replacement of commercial laundry
equipment. We believe the Companys growth will be sustained by continued population expansion and
by customers increasingly trading up to equipment with enhanced functionality and therefore higher
average selling prices.
Manufacturers of stand-alone commercial laundry equipment compete on their ability to satisfy
several customer criteria, including: (i) equipment reliability and durability; (ii) performance criteria
such as water and energy efficiency, load capacity and ease of use; (iii) the availability of innovative
technologies such as cashless payment systems and advanced electronic controls, which improve ease of
use and management audit capabilities; (iv) the ability to swiftly and reliably provide servicing for their
equipment; and (v) the supply of value-added services such as rapid spare parts delivery, equipment
financing and computer-aided assistance in the design of commercial laundries.
Trends and Characteristics
North American Growth Drivers. We believe that continued population expansion in North
America will continue to drive steady demand for garment and textile laundering by all customer groups.
We believe population growth has historically supported replacement sales and modest growth in the
installed base of commercial laundry equipment. According to the U.S. Census Bureau, the United
States population has grown at a compound annual rate of 0.9% since 2000 and is projected to grow at
approximately 0.8% per year, on average, over the next ten years.
In addition, customers are increasingly trading up to equipment with enhanced functionality at
higher average selling prices. For example, the larger national and regional customers in the laundromat
and multi-housing customer groups are more likely to take advantage of recently available electronic
features, such as cashless payment systems and advanced electronic controls, which we believe provide
these customers with a competitive advantage. Customers continue to move toward equipment with
improved water and energy efficiency as the result of escalating energy costs, government and consumer
pressure and a focus on containing operating costs.
Limited End Use Cyclicality. North American commercial laundry equipment sales historically
have been relatively insulated from business and economic cycles because economic conditions tend not
to dramatically affect the frequency of use, or replacement, of laundry equipment. The useful life of
commercial laundry equipment, and thus the timing of replacement of the equipment, are also generally
unaffected by economic conditions. The useful life of stand-alone commercial laundry equipment is
generally 7 to 14 years.
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International Growth. We anticipate growth in demand for commercial laundry equipment in

international markets. We also believe this is particularly true in developing countries where laundry
needs are currently less fully developed than in North America and certain international markets. We
believe that continued development and growth of disposable income in these countries will cultivate an
increased need and demand for laundry services addressable by our products. We believe we have
positioned Alliance to benefit from this growth through our 2006 acquisition and integration of CLDs
European Operations as well as our continued investment in infrastructure and customer support services
worldwide.
Reducing Customer Operating Costs. The time required to wash and dry a given load of laundry,
which we refer to as cycle time, has a significant impact on the economics of a commercial laundry
operation. Accordingly, commercial laundry equipment manufacturers produce equipment that provides
progressively shorter cycle times through improved technology and product innovation. This shorter
cycle time decreases labor costs and increases the volume of laundry that can be processed in a given
time period. Examples of methods for reducing cycle time are: (i) shortening fill, drain and wash times
(ii) decreasing water extraction time by increasing spin speed and (iii) shortening drying time through
efficient air flow and the use of electronic dryness sensors. The higher spin speed substantially increases
water extraction and thereby lowers moisture retention. For laundromat and multi-housing laundry
owners, the lower moisture retention results in reduced energy bills for clothes drying operations.
Overall, this improvement provides faster drying times with lower energy costs and the potential for
increased revenue-generating cycles per day.
Customer Categories
Stand-alone Commercial Laundry Equipment. Each of the stand-alone commercial laundry
equipment industrys three primary customer groups, laundromat operators, multi-housing laundry
operators and on-premise laundry operators, is served through a different distribution channel and has
different requirements with respect to equipment load capacity, performance and operating features.
Vended equipment purchased by multi-housing route operators is most similar to consumer machines
sold to retail customers. Equipment purchased by laundromats and on-premise laundries has greater
durability, delivers increased capacity, provides more sophisticated cleaning and faster drying
capabilities and is generally purchased through distributors.
Laundromats. We estimate that laundromats represented the largest customer group within the
United States & Canada stand-alone commercial laundry equipment industry in 2012. There are an
estimated 26,300 laundromats in the United States & Canada. These laundromats typically provide walkin, self-service washing and drying and primarily purchase commercial topload washers, washerextractors and tumblers. Washer-extractors and tumblers are larger-capacity, higher-performance
washing machines and matching large capacity dryers, respectively. Laundromats have historically been
owned and operated by sole proprietors who typically rely on distributors to find locations for stores,
design the laundromat, provide and install equipment, provide technical and repair support and provide
broader business services. For example, distributors frequently host seminars for potential laundromat
proprietors to explain laundromat investment opportunities. Independent laundromat proprietors also
look to distributors and manufacturers to assist in arranging equipment financing. Given the laundromat
owners reliance on the services of its local distributor, we believe that a strong distributor network in
local markets differentiates manufacturers which serve this customer group.
In addition to distributor relationships, we believe that laundromat owners choose among
different manufacturers products based on, among other things: (i) reputation, reliability and ease and
8

cost of repair; (ii) availability of equipment financing; (iii) the water and energy efficiency of the
products (approximately 26% of annual gross wash and dry revenue of laundromats is consumed by
utility costs, according to the Coin Laundry Association, or CLA); and (iv) the efficient use of physical
space in the store (approximately 30% of annual gross revenue of laundromats is expended on rent
according to the CLAs 2012 Coin Laundry Industry Survey).
Multi-Housing Laundries. We estimate that multi-housing laundries represented the second
largest customer group within the United States & Canada stand-alone commercial laundry equipment
industry in 2012. These laundries include common laundry facilities in multi-family apartment and
condominium complexes, universities and military installations as well as equipment for in-unit hook
ups.
Most products sold to multi-housing laundries are small-chassis topload and frontload washers
and small-chassis dryers that are vended, but similar in appearance to those sold to the retail consumer
market, and offer a variety of enhanced durability and performance features such as audit functions that
keep track of the number of cycles and the amount of money that has been collected. We estimate that
topload washers sold to multi-housing laundries typically last more than 10,000 cycles which is
approximately twice as long as the expected life of a consumer machine.
Multi-housing laundries are managed primarily by route operators who purchase, install and
service the equipment under contracts with property management companies. Route operators pay rent
(which may include a portion of the laundrys revenue) to property management companies. Route
operators are typically direct customers of commercial laundry equipment manufacturers like Alliance
Laundry and tend to maintain their own service and technical staffs. Route operators compete for longterm contracts on the basis of, among other things: (i) the reputation and durability of their equipment;
(ii) the level of maintenance and quality of their repair service; (iii) the ability of property management
companies to audit laundry equipment revenue and (iv) the water and energy efficiency of products.
We believe reliability and durability are key criteria for route operators and their property
management customers in selecting equipment because these criteria help to minimize equipment down
time and repair costs. We also believe route operators prefer water and energy efficient equipment that
offers enhanced electronic monitoring and tracking features demanded by property management
companies. Route operators are reluctant to change equipment suppliers given their investments in spare
parts inventories and in sales and repair technician training particularly as laundry equipment becomes
more technically sophisticated. Therefore, we believe a large installed base of laundry equipment gives a
commercial laundry equipment manufacturer a significant competitive advantage and a high likelihood
of substantial, recurring and predictable replacement sales.
On-Premise Laundries. We estimate that on-premise laundries (OPL) represented the third
largest customer group within the United States & Canada stand-alone commercial laundry equipment
industry in 2012. On-premise commercial laundries are located at a wide variety of businesses that wash
or process textiles or laundry in large quantities such as hotels and motels, hospitals, nursing homes,
prisons, sports facilities, car washes and fire stations.
Products manufactured for on-premise laundries include washer-extractors, tumbler dryers and
flatwork finishers. The washer-extractors and tumbler dryers are primarily in larger capacities, up to 200
pounds per load, and process significantly larger loads of textiles and garments in shorter times than
equipment typically sold to laundromats or multi-housing customer groups. Efficient washing, drying
and finishing (i.e. reduced cycle time) of hotel sheets, for example, reduces both a hotels linen
9

requirements and labor costs of washing and drying linens. We believe that in a typical on-premise
laundry within a hotel, up to 50% of the operating cost is labor.
On-premise laundries typically purchase equipment through a distributor who provides a range of
sales, installation and repair services on behalf of manufacturers. As with laundromats, we believe a
strong distributor network is a critical element of sales success. On-premise laundries select their
equipment based on the availability of specified product features, including, among other things:
(i) reputation and reliability of products; (ii) load capacity and cycle time; (iii) water and energy
efficiency and (iv) ease of use. In addition, the availability of technical support and service is important
when an on-premise laundry operator selects an equipment supplier.
Consumer Laundry. We re-entered the U.S. consumer laundry market in October 2004 after the
expiration of a non-compete agreement. Products sold in this segment include topload washers, frontload
washers and standard dryers all of which we sell through distributors. Within this sales segment we are
leveraging the strong brand equity of our Speed Queen name in order to recapture a portion of our
historic market share and are targeting the mid to high-end U.S. consumer laundry markets with products
which are designed to have useful lives approximately twice that of typical consumer laundry equipment.
We believe that our push into the mid to high-end consumer laundry markets has allowed us to continue
to diversify our customer base.
Products and Services
We offer a full line of stand-alone commercial laundry washers and dryers with service parts and
value-added services supporting our products. Our products range from small washers and dryers,
primarily for use in laundromats and multi-housing laundry rooms, to large laundry equipment with load
capacities of up to 200 pounds used in on-premise laundries. Our brands include Speed Queen, UniMac,
Huebsch, IPSO and Cissell which are sold throughout North America and in over 125 foreign countries.
We also benefit from domestic and international sales of service parts for our large installed base of
commercial laundry equipment. We also sell laundry equipment under private label brands in order to
take advantage of distribution networks of other companies as they fill their need to round out their
product offerings.
Washers
Washers include washer-extractors, topload washers and frontload washers.
Washer-Extractors. We manufacture washer-extractors, our largest washer products, to process
from 12 to 200 pounds of laundry per load. As part of the cleaning cycle, washer-extractors extract water
from laundry with spin speeds that produce over 460 G-force, thereby reducing water retention and the
time and energy costs for the drying cycle. These products are primarily sold under the Speed Queen,
UniMac, Huebsch, IPSO and Cissell brands. Washer-extractors that process up to 80 pounds of laundry
per load are sold to laundromats and washer-extractors that process up to 200 pounds of laundry per load
are sold to on-premise laundries. Washer-extractors are built to be extremely durable in order to handle
the enormous G-force generated by spinning several hundred pounds of water-soaked laundry. Also, the
equipment is in constant use and must be durable enough to avoid frequent breakdowns which would
increase operating costs and downtime for the user.
In 2008, washer-extractors available for sale under our Cissell brand were expanded with six new
capacities ranging from 18 to 165 pounds.
10

In 2009, we rolled out a new electronic control platform, which is marketed under the Quantum,
Galaxy, and M Series names, across most of our product offerings. This new control platform has
allowed us to streamline the manufacturing process and simplify our maintenance and servicing
operations. In addition, we have added industry exclusive features and flexibility to the products which
include variable vend rate options and improved programming and audit capabilities.
In 2011, the Speed Queen and Huebsch brands introduced new washer-extractors powered by
new Quantum and Galaxy electronic controls, respectively. The washer-extractor allows a vended
laundry to differentiate itself from the competition by offering customers a unique choice for washing
extra-large items such as quilts, sleeping bags and rugs.
In 2012, all major washer-extractors products at both our Ripon and Belgium facilities underwent
significant and dramatic market improvements. Hardmount and softmount washer-extractors received
some of the most significant changes in the history of the company. The changes include redesigned and
robotically welded frames, improved door lock systems, new plumbing systems, higher water and energy
efficiency, enhanced electronic controls, higher spin speed and custom variable speed drives.
Topload Washers. Topload washers are small-chassis washers with the capability to process up
to 16 pounds of laundry per load with spin speeds that produce up to 150 G-force. These products are
sold primarily to multi-housing laundries, laundromats and consumers under the Speed Queen and
Huebsch brands.
In 2008, we expanded our product offering under the IPSO brand to include topload washers and
matching dryers to complement IPSOs existing line of vended laundry equipment.
In 2009, we introduced a new electronic control platform to the line of commercial topload
washers.
In 2012, new higher water and energy efficiency topload washers were introduced to the market
both domestically and internationally.
Frontload Washers. Frontload washers are sold under the Speed Queen, IPSO and Huebsch
brands to both laundromat and multi-housing customers. Our frontload washers advanced design uses
22% to 57% less water than our topload washers and can process up to 18 pounds of laundry per load.
Furthermore, decreased usage of hot water and superior water extraction in the high G-force spin cycle
reduce energy consumption. Our frontload washer is available with front controls (front accessibility
complies with Americans with Disabilities Act regulations) or rear controls and can be purchased with a
matching small-chassis dryer (single or stacked with front or rear controls).
Our frontload washers display the U.S. federal governments ENERGY STAR mark. The
ENERGY STAR label was designed by the U.S. federal government to denote products that use less
energy, thereby saving money on utility bills, while helping to protect the environment. Along with our
18 pound wash load capacity, our frontload washer has a spin speed of up to 1,000 revolutions per
minute, providing significant dryer energy savings.
In 2009, we introduced a new frontload washer and matching dryer to IPSO distribution that
features stainless steel cabinetry for commercial applications. We also introduced a new electronic
control platform to the line of commercial frontload washers as well as a new variable speed motor
11

drive. The new drive utilizes state-of-the-art drive components and benefits from reduced manufacturing
costs.
Dryers
Dryers include tumbler dryers, standard dryers and stacked dryers. We also sell a line of stacked
combination frontload washers and dryers.
Tumbler Dryers. Tumblers are very large dryers with the capability of drying up to 170 pounds of
laundry per load. Tumblers are sold primarily to laundromats and on-premise laundries under all five of
our brands.
In 2008, several new products were introduced including a 55 pound capacity tumbler that
incorporates an axial airflow design which delivers high energy efficiency and shorter drying times. Also
new were 50 Hertz versions of our 45 pound capacity stacked tumbler and expansion of the CARE fire
suppression system option to 25, 30 and 35 pound capacity on-premise laundry tumbler dryers.
In 2009, we introduced a new electronic control platform to commercial tumblers and dryers. We
also introduced new electrical system designs on the 50 through 170 pound tumblers to better streamline
the manufacturing process and standardize the electrical systems throughout the entire tumbler line.
In 2011, we introduced the Over-Dry Prevention Technology (OPTIDRY) option to our
tumbler line across all brands. OPTIDRY is an industry-exclusive design using rotary transfer
switches and sensors to accurately gauge load dryness. This technology allows on-premise laundries to
have significant utility and labor savings as well as reduced processing cycle times.
In 2012, a number of options were added to the tumbler platform primarily for the international
markets. Different voltage configurations, reversing options and a new on-premise laundry version of
OPTIDRY were introduced.
Standard Dryers. Standard dryers are small capacity dryers with the capability of processing up
to 18 pounds of laundry per load. Standard dryers, including stacked dryers, are primarily sold under the
Speed Queen, UniMac, Huebsch and IPSO brands. Our standard dryers capacity, measuring 7.1 cubic
feet, is among the largest in the industry.
Stacked Dryers and Stacked Frontload Washers and Dryers. To enable our multi-housing
customers to conserve valuable floor space, we offer a stacked unit consisting of two 18 pound standard
dryers and offer a stacked combination unit consisting of an 18 pound frontload washer paired with an
18 pound standard dryer.
Service Parts
We benefit from the recurring sales of service parts used to support our large installed base of
equipment. The expected field service life of our equipment is 7 to 14 years. We offer immediate
response service whereby many of our parts are available on a 24-hour turnaround basis for emergency
repair parts orders. The demand for service parts generated by the large installed base provides us with a
source of higher margin revenue which is recurring and predictable.

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Our websites enable authorized distributors and route operators to register products, process
warranty claims and order parts online. These online services offer customers flexibility, short
processing time and reduced order processing errors.
Other Value-Added Services
Management believes we offer an unmatched range of complementary customer services and
support including technical support and on-call installation and repair service through our highly trained
distributors. We believe our customers attach significant importance to these value-added services. We
offer services that we believe are significant drivers of high customer satisfaction and retention, such as
equipment financing, laundromat site selection assistance, investment seminar training materials,
computer-aided commercial laundry room design and sales and service training for distributors. We offer
our customers access to Alliance Parts Connection, a comprehensive on-line parts look-up program
allowing search and visual capabilities for our products and component parts, with connectivity to our ecommerce business section to allow them to place orders. We also offer our customers a CD-ROM
based parts look up program called SearchIt, which is continually updated to include service manuals,
troubleshooting guides, parts pricing information and a parts ordering pick list. Our laundry design
service provides construction drawings and 3-dimensional layouts of proposed laundry facilities and
provides a cost analysis for new or updated laundry facilities.
Our public websites provide information on all of our products and services, including equipment
sizing and cost analysis tools and the ability to download product literature, installation and operating
instructions, programming manuals, technical bulletins and warranty information. They also provide
product selection assistance, education centers, an online consumer magazine, distributor locators, dealer
locators, servicer locators, product comparison guides and energy and water consumption guides.
We also have a password-protected website for our distributors and route operators. In 2007, a
new finance site was launched for our existing coin store finance customers allowing them to manage
their accounts online. In 2011, we increased the ease and convenience to our customers by offering them
an online credit application tool for coin store financing.
In 2009, the Company launched ALSU - Alliance Laundry Systems University. This global
online training tool is a first for the commercial laundry industry and delivers training in several areas to
our authorized distributors and route operators. Sales training focuses on the sales process and product
features and benefits. Service training assists service technicians in understanding the operation of our
equipment and teaches them how to diagnose and correct issues quickly and accurately. ALSU global
courses deliver sales training in seven languages to support international distributors. The Service
Technician certification program allows the company to recognize and leverage our distributions
professional skills in appliance servicing. In 2012, the ALSU site was redesigned by adding competitive
selling classes and mobile access to ALSU courses.
A new international Speed Queen website was launched in 2011 with 8 languages to
accommodate worldwide visitors. In 2012, two new sites were re-launched: an International IPSO
website that showcases new technologies and recent product launches and an updated corporate site
www.alliancelaundry.com that highlights Alliance Laundrys global scale, the laundry investment
opportunity and our commitment to Customer One.
We believe our extensive services, in addition to the dependability and functionality of our
products, will continue to differentiate our products from the competition.
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Customers
Our customers include approximately: (i) 165 distributors to laundromats; (ii) 390 distributors to
on-premise laundries; (iii) 120 route operators serving multi-housing laundries; (iv) 150 international
distributors served through our U.S. operations; and (v) 140 distributors served through our European
Operations. Our top ten customers accounted for 25.7% of our 2012 net revenues. Our largest customer
represents less than 10% of our total revenues.
Sales and Marketing
Sales Force
We believe that our global sales force for the commercial laundry industry is the largest in the
world and is structured to serve the specific needs of each of our customer groups. In addition, through
our extensive marketing and support staff, we provide customers and distributors with a wide range of
value-added services such as advertising materials, training materials, computer-aided commercial
laundry room design, product development and technical service support.
Marketing Programs
We support our sales force and distributors through a balanced marketing program of advertising
and industry trade shows. Advertising activities include a variety of forms, such as internet website
development and support, multi-media projects, print literature, direct mail and public relations
activities. In addition, our representatives attended over 80 trade shows in 2012 to introduce new
products, maintain contact with customers, develop new customer relationships and generate sales leads
for our products.
Equipment Financing
Through our special-purpose financing subsidiaries, we offer an extensive equipment financing
program to end-users, primarily laundromat owners, to assist in their purchases of new equipment.
Typical terms include two to ten year loans with an average principal amount of approximately $77,000.
We believe that our equipment financing program is among the industrys most comprehensive and that
the program is an important component of our marketing activities. In addition, this program provides us
with an additional source of recurring income.
The financing program is structured to help minimize our risk of loss. We adhere to strict
underwriting procedures including comprehensive applicant credit analysis (generally including credit
bureau, bank, trade and landlord references and site analysis including demographics of the location and
multiple year pro-forma cash flow projections) and security in the form of collateral and distributor
assistance in remarketing collateral in the event of default. As a result of these risk management tools,
losses from the program have been minimal. Net write-offs for equipment loans have averaged
approximately 1.2% for the five year period ended December 31, 2012, and were approximately 1.0%
for the year ended December 31, 2012. For additional information about the financing program, see the
discussion under Managements Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources, Note 2 - Significant Accounting Policies and Note 4 Asset Backed Facility, to the Consolidated Financial Statements.

14

Research and Development

As of December 31, 2012, our engineering organization is staffed with over 100 engineers,
designers and technicians who have developed numerous proprietary innovations that we utilize in select
products. Our recent research and development efforts have focused primarily on continuous
improvement in the reliability, performance, capacity, energy and water conservation, sound levels and
regulatory compliance of our commercial laundry equipment. Our engineers and technical personnel,
together with our marketing and sales personnel, collaborate with our major customers to redesign and
enhance our products to better meet customer needs. Our cumulative research and development spending
exceeded $51.9 million for the five year period 2008 through 2012.
Competition
Within the North American stand-alone commercial laundry equipment industry, we have several
large competitors. However, we believe that we are the only participant in the North American standalone commercial laundry equipment industry to serve significantly all three of our customer groups
(laundromats, multi-housing laundries and on-premise laundries) with a full line of topload washers,
washer-extractors, frontload washers, tumbler dryers and standard dryers. With respect to laundromats,
our principal competitors include Laundrylux (the exclusive North American distributor of Electrolux
professional laundry products), Whirlpool Corporation and Dexter Laundry, Inc. In multi-housing, our
principal competitors are Whirlpool Corporation and LG. In on-premise laundry, we compete primarily
with Pellerin Milnor Corporation, American Dryer Corporation and Continental Girbau, Inc.
Within the International stand-alone commercial laundry equipment industry, we have several
large competitors. The largest manufacturer and marketer of stand-alone commercial laundry equipment
in Europe is Electrolux professional laundry products. The other large international manufacturers and
marketers of stand-alone commercial laundry equipment are Girbau, S.A., Miele Professional and
Primus N.V.
Manufacturing
We operate manufacturing facilities located in Ripon, Wisconsin and Wevelgem, Belgium with
an aggregate footprint of more than 850,000 square feet. The facilities are organized to focus on specific
product groups although each facility serves multiple customer groups. The Ripon facility produces our
small-chassis topload washers, large-chassis washer-extractors, frontload washers, small chassis dryers
and tumbler dryers. Our Wevelgem facility produces primarily large-chassis washer-extractors and
presses and finishing equipment. Our manufacturing plants primarily engage in fabricating, machining,
painting, assembling and finishing operations. We also operate our finished goods and service parts
distribution centers in Ripon, Wisconsin. A lease for production space in Ripon, Wisconsin was entered
into in November 2005 and, with amendments, has an option to be extended to March 2021. In 2008, we
leased warehouse space in Wevelgem, Belgium and leased additional warehouse space in 2011. This
space is used for the distribution of washer-extractors and tumbler dryers produced in the United States
and Belgium for European customers. We believe that our existing manufacturing facilities, including
the 2012 2013 expansion described below, provide adequate production capacity to meet expected
product demand.
In June 2012 the Company committed to a $13.0 million capital project to expand our small
chassis production line. The expansion is necessary to address capacity constraints caused by sales
15

growth to consumer laundry, multi-housing and international customers. The expectation is that this
project will be materially completed by the fourth quarter of 2013.
We purchase substantially all raw materials and components from a variety of independent
suppliers. Key material inputs for manufacturing processes include motors, stainless and carbon steel,
aluminum castings, electronic controls, corrugated boxes and plastics. For the majority of raw materials
and components, we believe there are readily available alternative sources of raw materials from other
suppliers. We have developed long-term relationships with many of our suppliers and have sourced
materials from eight of our ten largest suppliers for at least five years.
We are committed to achieving continuous improvement in all aspects of our business in order to
maintain our industry leading position. Our manufacturing facilities in Ripon, Wisconsin and in
Wevelgem, Belgium are ISO 9001:2008 certified. ISO 9001 is a set of standards dealing with quality
management systems for quality assurance in design/development, production, installation and servicing
that are published by the International Standardization Organization.
Intellectual Property and Licenses
We have 21 trademarks, certain of which are registered in the United States and a number of
foreign jurisdictions, as of December 2012. Our widely recognized brand names Speed Queen, UniMac,
Huebsch, IPSO and Cissell are identified with and important to the sale of our products. Generally,
registered trademarks have a perpetual life, provided that they are renewed on a timely basis and
continue to be used properly as trademarks, subject only to the rights of third parties to seek cancellation
of the marks.
We currently have 44 patents. Our business is not dependent to any significant extent upon any
single or related group of patents. We believe that our most significant patents are the Controller for
Bridging a Host Computer and Networked Laundry Machines issued in 2008, the Laundry Machine
Control System for Load Imbalance Detection and Extraction Speed Selection issued in 2009 and the
Laundry Dryer with Improved Tumbler Air Flow Passage Openings issued in 2007.
Our business is not dependent to a material degree on copyrights or trade secrets although we
consider the CustomerOne, Quantum, Galaxy, Wash Alert, C.A.R.E., SearchIt and
OPTIDRY systems, as well as our upgraded Micro-electronic Display Control, to be developments
that are important to our business. Other than licenses to commercially available third-party software, we
do not believe our licenses to third-party intellectual property are significant to the business.
Regulations and Laws
Environmental, Health and Safety Matters
Our Company and its operations are subject to comprehensive and frequently changing federal,
state and local environmental and occupational health and safety laws and regulations, including laws
and regulations governing emissions of air pollutants, discharges of waste and storm water and the
transportation, storage and disposal of wastes, including solid and hazardous wastes. We are also subject
to potential liability for non-compliance with other environmental laws and for the investigation and
remediation of environmental contamination (including contamination caused by other parties) at the
properties we own or operate (or formerly owned or operated) and at other properties where the
Company or predecessors have carried on business or have arranged for the disposal of hazardous
16

substances. As a result, from time to time, we are involved in administrative and judicial proceedings
and inquiries relating to environmental matters. There can be no assurance that we will not be involved
in such proceedings in the future and that the aggregate amount of future clean-up costs and other
environmental liabilities (including potential fines and civil damages) will not have a material adverse
effect on our business, financial condition and results of operations. We believe that our facilities and
operations are in material compliance with all environmental, health and safety laws. In our opinion, any
liability related to matters presently pending will not have a material effect on our financial position,
liquidity or results of operations after considering provisions already recorded.
Federal, state and local governments could enact laws or regulations concerning environmental
matters that affect our operations or facilities or increase the cost of producing, or otherwise adversely
affect the demand for, our products. We cannot predict the environmental liabilities that may result from
legislation or regulations adopted in the future, the effect of which could be retroactive. Nor can we
predict how existing or future laws and regulations will be administered or interpreted or what
environmental conditions may be found to exist at our facilities or at other properties where we or our
predecessors have arranged for the disposal of hazardous substances.
Certain environmental investigatory and remedial work is underway at our Ripon, Wisconsin
manufacturing facility. With respect to the Ripon facility, this work is being conducted by us with the
support of an environmental consultant. In furtherance thereof, during 2005 the Wisconsin Department
of Natural Resources requested the installation and monitoring of a ground well at the Ripon facility.
The first ground well has been monitored in accordance with a work plan set up between Alliance
Laundry and the Wisconsin Department of Natural Resources. Consistent with our plans, the Company
installed four additional wells in late 2008 and early 2009 within the general area of the first well. A
work plan for the additional monitoring wells has been agreed to between Alliance Laundry and the
Wisconsin Department of Natural Resources that will at least run through 2013. We currently expect to
incur costs of less than $100,000 through 2013 related to these additional wells. There can be no
assurance, however, that we will not incur additional remedial costs in the future with respect to the
Ripon facility.
Other Regulation
In addition to environmental regulation, our operations are also subject to other federal, state and
local laws, including those relating to protection of public health and worker safety.
Employees
We are dependent on the continued services of our senior management team and certain other
key employees. We currently have an employment agreement with Michael D. Schoeb, Chief Executive
Officer and President. We have also entered into severance protection agreements in January of 2005
with the majority of our senior management team as discussed more fully in Item 11 - Executive
Compensation-Severance Benefits. We do not maintain life insurance policies with respect to key
employees.
As of December 31, 2012, we had 1,613 employees of which 198 were associated with our
European Operations. The United Steel Workers union represented 1,051 employees at our Wisconsin
facilities. In addition, 189 employees at our Belgium facilities were represented by a works council and a
union delegation as of December 31, 2012. We believe that current labor relations are good and no labor
disruptions are anticipated in the foreseeable future.
17

On December 13, 2010, the United Steel Workers union entered into a new contract (the New
Labor Agreement) that replaced the Amended Labor Agreement dated September 28, 2005. The New
Labor Agreement contains provisions that are usual and customary for agreements of this type and it
expires on February 28, 2017. There have been no work stoppages at any of our Wisconsin facilities for
more than 45 years.
We are a party to certain federal and sector collective bargaining agreements in Belgium which
are mandatory and regulate items such as working hours, pay premiums, vacation, early retirement age
and social fund contributions. These agreements are negotiated at a national, sector and local level and
can be unlimited in duration.
ITEM 1A. RISK FACTORS
The business, prospects and value of the Company are subject to a number of risk factors, which
are identified in this and prior years quarterly and annual reports.
Our substantial indebtedness could adversely affect our financial health and prevent us from
fulfilling our obligations under the agreements governing our debt.
We are highly leveraged. As of December 31, 2012 we had $751.6 million (prior to original issue
discount of $3.0 million) of consolidated indebtedness outstanding of which $266.6 million related to
our securitization activities and $485.0 million related to indebtedness outstanding under our December
2012 Credit Facilities, excluding unused commitments under our revolving credit facility and letters of
credit. Our substantial indebtedness could have important consequences to lenders and creditors. For
example, it could:

make it more difficult for us to satisfy our obligations with respect to our indebtedness;

increase our vulnerability to general adverse economic and industry conditions;

require us to dedicate a substantial portion of cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital,
capital expenditures, acquisitions, research and development efforts, growth in international
markets and other general corporate needs;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in
which we operate;

place us at a competitive disadvantage compared to our competitors with less debt;

subject us to the risk of increased sensitivity to interest rate increases on our indebtedness
with variable interest rates, including our borrowings under our December 2012 Credit
Facilities; and

limit our ability to borrow additional funds.

Our December 2012 Credit Facilities contain representations, warranties and covenants which if
breached could lead to an event of default and could, thereby, accelerate the payment of our debt. In
addition, our ability to access borrowings under the revolving portion of our December 2012 Revolving
Credit Facility is subject to our compliance with the covenants and other provisions of the facility
including, generally, a Total Leverage Ratio. Our ability to satisfy this test can be affected by events
beyond our control, including prevailing and future economic, financial and industry conditions, and we
cannot provide assurance that we will continue to meet this test in the future. For additional information
18

about this financial ratio and other covenants, see Managements Discussion and Analysis of Financial
Condition and Results of Operations. If Adjusted EBITDA for the year ended December 31, 2012 was
approximately $24.3 million lower, we would not be able to meet the Total Leverage Ratio test under
our First Lien Credit Agreement. The financial and other restrictive covenants contained in our
December 2012 Credit Facilities could also generally limit our ability to engage in activities that may be
in our long-term best interests, and our failure to comply with those covenants could result in an event of
default which, if not cured or waived, could result in the acceleration of all of our debt. Any amendment
to or waiver of the covenants would likely involve substantial upfront fees, significantly higher annual
interest costs and other terms significantly less favorable to us than those contained in the December
2012 Credit Facilities.
We require a significant amount of cash to service our indebtedness. Our ability to generate cash
depends on many factors beyond our control.
Our ability to make scheduled payments of principal and interest with respect to our
indebtedness, our ability to fund our planned capital expenditures, our intended growth in international
markets and our research and development efforts will depend on our ability to generate cash and on
future financial results. This, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
There can be no assurances that our business will generate sufficient cash flow from operations
to enable us to pay our indebtedness or to fund other liquidity needs. If we fail to make any required
payment under the agreements governing our indebtedness or fail to comply with the required covenants
contained in them, we would be in default, and our lenders would have the ability to require that we
immediately repay our outstanding indebtedness. If the lenders required immediate payment, we may not
have sufficient assets to satisfy our obligations under our indebtedness.
We also could be forced to sell assets to make up for any shortfall in our payment obligations
under unfavorable circumstances. The December 2012 Credit Facilities governing our debt limit our
ability to sell assets and restrict the use of proceeds from any such sale. Furthermore, the December 2012
Credit Facilities are secured by substantially all of our assets. Therefore, we may not be able to sell our
assets quickly enough or for sufficient amounts to enable us to meet our debt service obligations.
In addition, we may need to refinance all or a portion of our indebtedness on or before maturity.
We cannot assure that we will be able to refinance any of our indebtedness, including the December
2012 Credit Facilities, on commercially reasonable terms or at all.
Significant adverse changes in the financial markets and global economy could have a material
adverse effect on our business.
World economic conditions, while improving, are still relatively weak which has caused
volatility and disruption in the markets in which we operate. Such weakness, volatility and disruption
were accompanied by, and to some extent the result of, increasing raw material costs, lack of available
credit and fluctuating foreign currency exchange rates. Each of the foregoing, as well as the health of the
U.S., Europe and global economy, generally affects demand for our products. Significant adverse
changes in economic activity and conditions in the U.S., Europe and the other markets in which we
operate may adversely affect our financial condition and results of operations. There can be no
assurances that government responses to disruptions in the financial markets or any other expected
developments will alleviate such weakness or market volatility.
19

The global economic downturn has tightened credit markets and lowered liquidity levels
although this is improving in some geographic regions more than others. Lower credit availability may
increase borrowing costs for our customers and suppliers. In addition, some of our customers and
suppliers may experience financial problems due to reduced access to credit and lower revenues.
Financial duress may prompt some of our suppliers to seek to renegotiate supply terms with us, eliminate
or reduce production of certain components we purchase or file for bankruptcy protection. In addition,
some of our customers may be unable to obtain financing to purchase products or meet their payment
obligations to us. In addition, continued negative economic conditions could result in the insolvency of
one or more of our customers. The occurrence of any or all of these events could have a material adverse
effect on our business, financial condition and results of operations.
Concerns regarding the European debt crisis and market perceptions concerning the instability of the
euro, the potential re-introduction of individual currencies within the Eurozone, or the potential
dissolution of the euro entirely, could have an adverse impact on our business.
Concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet
future financial obligations, the overall stability of the euro and the suitability of the euro as a single
currency given the diverse economic and political circumstances in individual Eurozone countries. These
concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries,
or, in more extreme circumstances, the possible dissolution of the euro currency entirely. Should the
euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated
obligations would be determined by laws in effect at such time. These potential developments, or market
perceptions concerning these and related issues, could adversely affect the value of our eurodenominated assets and obligations. In addition, concerns over the effect of this financial crisis on
financial institutions in Europe and globally could have an adverse impact on the capital markets
generally, and more specifically on the ability of our customers, suppliers and lenders to finance their
respective businesses, to access liquidity at acceptable financing costs, if at all, on the availability of
supplies and materials and on the demand for our products.
Our net revenues depend on a limited number of significant customers.
Our top ten equipment customers accounted for approximately 25.7% of our 2012 net revenues.
No one customer accounts for more than 10% of the Companys 2012 net revenues. Many arrangements
are by purchase order and are terminable at will at the option of either party. Our business also depends
upon the financial viability of our customers. A significant decrease or interruption in business from one
or more of our significant customers could result in loss of future business and could have a material
adverse effect on our business, financial condition and results of operations.
Our inability to fund our financing programs to end-customers could result in the loss of sales and
adversely affect our operations.
We offer an extensive financing program to end-customers, primarily laundromat owners, to
assist them in their purchases of new equipment from our distributors or, in the case of route operators,
from us. Typical terms include two to ten year loans with an average principal amount of approximately
$77,000. We provide these financing programs through our Asset Backed Facility, which is a $330.0
million revolving facility entered into by Alliance Laundry Equipment Receivables Trust 2009-A, a trust
formed by Alliance Laundry Equipment Receivables 2009 LLC, our special purpose bankruptcy remote
subsidiary, and backed by equipment loans and trade receivables originated by us. In June, 2011, the
Asset Backed Facility was amended to extend the termination date through June 16, 2013 with the
option to extend for one more year. The trust is utilized to finance both equipment loans and trade
20

receivables. If certain limits in the size of the asset backed facility are reached (either overall size or
certain sublimits), additional indebtedness may be required to fund the financing programs. Our inability
to incur such indebtedness to fund the financing programs or our inability to securitize such assets
through our bankruptcy remote subsidiary could limit our ability to provide our end-customers with
financing which could result in the loss of sales and have a material adverse effect on our business,
financial condition and results of operations. In addition, a significant increase in the cost of funding our
financing subsidiaries could have a material adverse effect on our business, financial condition and
results of operations.
Beginning in June 2013 we could be unable to utilize our asset backed facility. An inability to
refinance or replace this facility could have an adverse impact on our business.
As discussed further in Note 4 - Asset Backed Facility, to the Consolidated Financial Statements,
Alliance Laundry, through a special-purpose bankruptcy remote subsidiary, Alliance Laundry Equipment
Receivables 2009 LLC and a trust, Alliance Laundry Equipment Receivables Trust 2009-A (ALERT
2009A), entered into a $330.0 million revolving facility and backed by equipment loans and trade
receivables originated by us. In June 2011, the Asset Backed Facility was amended to extend the
termination date through June 16, 2013 with the noteholders option to extend for an additional year if
requested by ALERT 2009A. Through June 16, 2013, the revolving period of the Asset Backed Facility
(the Revolving Period), Alliance Laundry is permitted, from time to time, to sell its trade receivables
and certain equipment loans to the special-purpose subsidiary, which in turn will transfer them to the
trust. After the Revolving Period (or earlier in the event of a rapid amortization event or an event of
default), the trust will not be permitted to request new borrowings under the facility and the outstanding
borrowings will amortize over a period of up to nine years.
During the 2008-2009 global economic downturn, the asset-backed securitization market
decreased the availability of liquidity, credit and credit capacity for certain issuers. Although the assetbacked securitization market has improved since June 2009, a significant adverse change in market
conditions could have a material adverse effect on our ability to refinance the facility on advantageous
terms or at all. An inability to refinance or replace this facility prior to June 2013 could have a material
adverse effect on our business, financial condition and results of operations, including our revenues,
EBITDA, liquidity and leverage. Net equipment financing revenue in 2012 of $8.5 million is included in
the Equipment financing, net revenue line of the Consolidated Statements of Comprehensive Income. As
of December 31, 2012, the amount due to investors under our asset backed facility for accounts and
loans receivable was $42.5 million and $224.1 million, respectively. If we are unable to refinance or
replace the facility prior to June 2013, our EBITDA could decrease over time due to the loss in revenue
generated by new financings and our leverage could increase as a result of having to finance accounts
receivables on our balance sheet. In either case, our liquidity could be materially and adversely affected.
Price fluctuations or shortages of raw materials and the possible loss of suppliers could adversely
affect our operations.
The major raw materials and components we purchase for our production process are motors,
stainless and carbon steel, aluminum castings, electronic controls, corrugated boxes and plastics. The
price and availability of these raw materials and components are subject to market conditions affecting
supply and demand. Many of the commodities that affect our raw material and component costs have
fluctuated significantly, both up and down, over the past several years. Furthermore, most of the
commodities that would affect our costs have increased since the beginning of 2009. We take steps to
contain such cost fluctuations, by using hedge instruments or by implementing price increases. However,
there can be no assurance that increases in raw material or component costs (to the extent we are unable
21

to pass on such higher costs to customers) or future price fluctuations in raw materials will not have a
material adverse effect on our business, financial condition and results of operations. We also purchase a
portion of these raw materials and component parts from foreign suppliers using foreign currency. As a
result, we are subject to exchange rate fluctuations that could have a material adverse effect on our
business, financial condition and results of operations. In addition, because we maintain limited raw
material and component inventories, even brief unanticipated delays in delivery by suppliers including
those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather
emergencies or natural disasters, may impair our ability to satisfy our customers and could adversely
affect our financial performance.
We operate in a competitive market.
Within the North American stand-alone commercial laundry equipment industry, we have several
large competitors. With respect to laundromats, our principal competitors include Laundrylux (the
exclusive North American distributor of Electrolux professional laundry products), Whirlpool
Corporation and Dexter Laundry, Inc. In multi-housing, our key competitors are Whirlpool Corporation
and LG. In on-premise laundry, we compete primarily with Pellerin Milnor Corporation, American
Dryer Corporation, Laundrylux and Continental Girbau, Inc. Within the International stand-alone
commercial laundry equipment industry, we have several large competitors which include Electrolux
professional laundry products, Girbau, S.A., Miele Professional and Primus N.V.
There can be no assurance that significant new competitors or increased competition from
existing competitors will not have a material adverse effect on our business, financial condition and
results of operations. Certain of our principal competitors have greater financial resources and/or are less
leveraged than us and may be better able to withstand market conditions within the commercial laundry
equipment industry. There can be no assurance that we will not encounter increased competition in the
future which could have a material adverse effect on our business, financial condition and results of
operations.
In addition, we may face competition from companies outside of the United States that may have
lower costs of production (including labor or raw materials). These companies may pass along these
lower production costs as price decreases for customers and our revenues and profits could be adversely
affected.
Energy efficiency and water usage standards could adversely affect our industry.
Certain of our washer products are subject to federal and state laws and regulations which pertain
to energy efficiency and/or water usage. There are federal standards for energy and water efficiency for
both residential and small chassis commercial washers. There is also a federal energy efficiency standard
for residential dryers.
These existing laws and regulations, along with anticipated energy efficiency and water usage
laws and corresponding standards, may create short-term market conditions which are economically
disadvantageous to us and may have a material adverse effect on our business, financial condition and
results of operations.
We increasingly manufacture and sell our products outside of the United States & Canada, which
may present additional risks to our business.
For the year ended December 31, 2012 approximately 29% of our net revenue was attributable to
products sold outside of the United States & Canada compared with approximately 16% for the year22

ended December 31, 2005, the year prior to the CLD Acquisition. Expanding international sales is part
of our growth strategy. In addition to export sales to foreign countries, we have a manufacturing facility
and sales offices located in Europe. International operations generally are subject to various risks,
including political, military, religious and economic instability, local labor market conditions, the
imposition of foreign tariffs, the impact of foreign government regulations, the effects of income and
withholding tax, governmental expropriation and differences in business practices. We may incur
increased costs and experience delays or disruptions in product deliveries and payments in connection
with international manufacturing and sales that could cause a loss of revenue. Unfavorable changes in
the political, regulatory and business climate of various foreign jurisdictions could have a material
adverse effect on our business, financial condition and results of operations.
We are exposed to the risk of foreign currency fluctuations.
Some of our operations are or will be conducted by subsidiaries in foreign countries. The results
of the operations and the financial position of these subsidiaries will be reported in the relevant foreign
currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our
Consolidated Financial Statements which are stated in U.S. dollars. The exchange rates between many of
these currencies and the U.S. dollar have fluctuated significantly in recent years and may fluctuate
significantly in the future. Such fluctuations may have a material adverse effect on our results of
operations and financial position and may significantly affect the comparability of our results between
financial periods.
In addition, we incur currency transaction risk whenever one of our operating subsidiaries enters
into a transaction using a different currency than its functional currency. We attempt to reduce currency
transaction risk by:

matching cash flows and payments in the same currency and

entering into foreign exchange contracts for hedging purposes.

We actively strive to hedge these foreign currency transaction risks but cannot provide assurance
that we will be successful in doing so. The exchange rates between the euro and the U.S. dollar have
fluctuated significantly in recent years and may fluctuate significantly in the future. Such fluctuations
may have a material effect on our net sales, financial condition, profitability and/or cash flows and may
significantly affect the comparability of our results between financial periods.
We are dependent on key personnel.
We are dependent on the continued services and performance of our senior management team
and certain other key employees, including Michael Schoeb, our Chief Executive Officer. Mr. Schoebs
Employment Agreement with us is for five years, through January 17, 2017, and may be extended by
mutual agreement. We do not maintain life insurance policies with respect to key employees.
Adverse relations with employees could harm our business.
As of December 31, 2012, approximately 1,051 of our employees at our Wisconsin facilities
were represented by The United Steel Workers union. In addition, our European employees belong to
Belgium trade unions. The current collective bargaining agreement covering employees at our Wisconsin
facilities was approved December 13, 2010 and expires February 28, 2017. The Wisconsin labor
agreement requires certain minimum full time hourly employment levels, unless caused by specified
events, such as sales fluctuations or events beyond the reasonable control of the Company. However,
there can be no assurance that we can successfully maintain such employment levels at our Wisconsin
23

facilities, successfully negotiate new agreements and prevent work stoppages by certain employees. Any
such work stoppages could have a material adverse effect on our business, financial condition and results
of operations.
Significant differences between actual results and estimates of the amount of future obligations
under our pension plans could adversely affect our financial results.
We maintain defined benefit pension plans that cover a majority of our U.S. employees, which
impose on us certain payment obligations toward the funding of the plans. In determining our future
payment obligations under the plans, we assume certain rates of return on the plan assets and growth
rates of certain costs. Significant adverse changes in credit or capital markets could result in actual rates
of return and growth rates being materially lower than projected and increase pension expense in future
years. This could significantly increase our payment obligations under the plans, require us to take a
significant charge to Member(s) equity/(deficit) within the Consolidated Financial Statements, and, as a
result, adversely affect our business, financial condition and results of operations.
The controlling equityholder of our parent company could exercise its influence over us to the
detriment of other security holders.
OTPP controls, indirectly through ALH and Alliance Holdings, 82.6% of our voting securities
and has significant influence over our management and is able to determine the outcome of all matters
required to be submitted to the shareholders for approval including the election of our directors and the
approval of mergers, consolidations and the sale of all or substantially all of our assets. The interests of
OTPP as an equity owner could be in conflict with interests of our creditors. OTPP may also have an
interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could
enhance its equity investment even though such transactions might involve risks to creditors. In addition,
certain determinations that need to be made under covenants in the December 2012 Credit Facilities will
not be made by the managing member of Alliance Laundry. Instead, these decisions will be made by the
Board of Directors of our ultimate parent company, ALH. It is not clear under either the laws of the state
of Delaware or applicable federal bankruptcy law what, if any, duties the Board of Directors of ALH will
owe to Alliance Laundry and its debt holders. In the absence of any such duties, the Board of Directors
of ALH could make determinations under the December 2012 Credit Facilities that are not in the best
interest of our debt holders and creditors.
The nature of our business exposes us to potential liability for environmental claims and we could be
adversely affected by environmental, health and safety requirements.
We are subject to comprehensive and frequently changing federal, state and local environmental,
health and safety laws and regulations, including laws and regulations governing emissions of air
pollutants and gases, discharges of waste and storm water and the disposal of hazardous wastes. We
cannot predict the environmental liabilities that may result from legislation or regulations adopted in the
future and the effect of which could be retroactive. Nor can we predict how existing or future laws and
regulations will be administered or interpreted or what environmental conditions may be found to exist
at our facilities or at other properties where we or our predecessors have arranged for the disposal of
hazardous substances. The enactment of more stringent laws or stricter interpretation of existing laws
could require additional expenditures by us which could have a material adverse effect on our business,
financial condition and results of operations.
We are also subject to liability for the investigation and remediation of environmental
contamination (including contamination caused by other parties) at the properties we own or operate and
24

at other properties where we or our predecessors have arranged for the disposal of hazardous substances.
As a result, from time to time we are involved in administrative and judicial proceedings and inquiries
relating to environmental matters. There can be no assurance that we will not be involved in such
proceedings in the future and we cannot be sure that our existing insurance or additional insurance will
provide adequate coverage against potential liability resulting from any such administrative and judicial
proceedings and inquiries. The aggregate amount of future clean-up costs and other environmental
liabilities could have a material adverse effect on our business, financial condition and results of
operations.
Certain environmental investigatory and remedial work is underway at our Ripon, Wisconsin
manufacturing facility. This work is being conducted by us with the support of an environmental
consultant. In furtherance thereof, during 2005 the Wisconsin Department of Natural Resources
requested the installation and monitoring of a ground well at the Ripon facility. The first ground well has
been monitored in accordance with a work plan set up between Alliance Laundry and the Wisconsin
Department of Natural Resources. Consistent with our plans, the Company installed four additional
wells in late 2008 and early 2009 within the general area of the first well. A work plan for the additional
monitoring wells has been agreed to between Alliance Laundry and the Wisconsin Department of
Natural Resources that will at least run through 2013. We currently expect to incur costs of less than
$100,000 through 2013 related to these additional wells. There can be no assurance, however, that we
will not incur additional remedial costs in the future with respect to the Ripon facility.
Our operations are also subject to various hazards incidental to the manufacturing and
transportation of commercial laundry equipment. These hazards can cause personal injury and damage to
and destruction of property and equipment. There can be no assurance that, as a result of past or future
operations, there will not be claims of injury by employees or members of the public. Furthermore, we
also have exposure to present and future claims with respect to worker safety, workers compensation
and other matters. There can be no assurance as to the actual amount of these liabilities or the timing of
them. Regulatory developments requiring changes in operating practices or influencing demand for, and
the cost of providing, our products and services or the occurrence of material operational problems,
including but not limited to the above events, may also have a material adverse effect on our business,
financial condition and results of operations.
We may incur product liability expenses.
We are exposed to potential product liability risks that arise from the sales of our products. In
addition to direct expenditures for damages, settlements and defense costs, there is a possibility of
adverse publicity as a result of product liability claims. We cannot be sure that our existing insurance or
any additional insurance will provide adequate coverage against potential liabilities and any such
liabilities could adversely affect our business, financial condition and results of operations and our
ability to service our indebtedness.
Increased or unexpected product warranty claims could adversely affect us.
We provide our customers a warranty covering workmanship and, in some cases, materials on
products we manufacture. Standard product warranties vary from one to three years for most parts with
certain components extending to ten years. If a product fails to comply with the warranty, we may be
obligated, at our expense, to correct any defect by repairing or replacing the defective product. Although
we maintain warranty reserves in an amount based primarily on the number of units shipped and on
historical and anticipated warranty claims, there can be no assurance that future warranty claims will
follow historical patterns or that we can accurately anticipate the level of future warranty claims. An
25

increase in the rate of warranty claims or the occurrence of unexpected warranty claims could materially
and adversely affect our business, financial condition and results of operations.
We may encounter certain risks when implementing our business strategy to grow our international
business.
The continued execution of our strategy to grow our international business could cause us to
incur unforeseen capital expenditures, divert managements attention from our core businesses and cause
us to incur losses on assets devoted to the strategy. Any failure to continue to successfully execute this
strategy could adversely affect our business, financial condition and results of operations and our ability
to service our indebtedness.
We are subject to risks of future legal proceedings.
At any given time, we are a defendant in various legal proceedings and litigation arising in the
ordinary course of business. Although we maintain insurance policies, we can make no assurance that
this insurance will be adequate to protect us from all material expenses related to potential future claims
for personal and property damage or that these levels of insurance will be available in the future at
economical prices or at all. A significant judgment against us, the loss of a significant permit or other
approval or the imposition of a significant fine or penalty could have a material adverse effect on our
business, financial condition and results of operations.
Changes in accounting standards may adversely affect us.
Our financial statements are subject to the application of U.S. generally accepted accounting
principles (GAAP) which are periodically revised and/or expanded. Accordingly, from time to time,
we are required to adopt new or revised accounting standards issued by recognized authoritative bodies,
including the Financial Accounting Standards Board (FASB). The potential impact of accounting
pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly
financial statements. An assessment of proposed standards is not provided as such proposals are subject
to change through the exposure process and, therefore, their effects on our financial statements cannot be
meaningfully assessed. It is possible that future accounting standards we are required to adopt could
change the current accounting treatment that we apply to our Consolidated Financial Statements and that
such changes could have a material adverse effect on our business, financial condition and results of
operations.
Interest

rate fluctuations could have an adverse effect on our financial results.

We are exposed to market risk associated with adverse movements in interest rates. Specifically,
we are primarily exposed to changes in the fair value of our fixed rate debt and to changes in earnings
and related cash flows on our variable interest rate debt obligations including obligations outstanding
under our December 2012 Credit Facilities. See Item 7A Quantitative and Qualitative Disclosures
About Market Risk, for an additional discussion of such market risks.

26

ITEM 2. PROPERTIES
The following table provides certain information regarding our significant facilities as of
December 31, 2012:
Location
Function/Products
Production Facilities
Ripon, WI...
Manufacture small washers, dryers
and tumbler dryers

Approximate
Square Feet

Owned/
Leased

572,900

Owned

Ripon, WI...
Manufacture washer-extractors

149,000

Leased

Wevelgem, Belgium....
Manufacture washer-extractors

131,053

Owned

Subtotal

852,953

Regional Distribution Centers

Ripon, WI.....
Washers, washer-extractors, dryers
and tumbler dryers
Ripon, WI...
Service parts

147,500

Owned

81,895

Owned

49,299

Leased

Wevelgem, Belgium...
Washers, washer-extractors, dryers
and tumbler dryers
Subtotal

278,694

Other
Ripon, WI...
Sales and administration

65,700

Owned

Ripon, WI.....
Engineering and procurement

56,976

Owned

8,724

Leased

10,828

Leased

1,905

Leased

Ripon, WI....
Sales and administration
Barcelona, Spain...
Sales office and distribution center
Oslo, Norway.....
Sales office
Subtotal

144,133

Total

1,275,780

1) The lease term for this property is in effect through February 28, 2018 and has an option to extend
for an additional three years.
2) The lease term for 25,015 square feet of this distribution center expires December 31, 2014 with an
option to extend for three years. In December 2011, an additional lease was negotiated for additional
warehouse space of 24,284 square feet. The lease term for this additional space expires
December 31, 2017 with the option to extend for an additional three years.
3) The lease term for this sales office and distribution center expires April 30, 2016.
4) On August 11, 2010, this lease was renewed for a sales office with a lease term that expired on
December 31, 2012. A new lease has not yet been negotiated and we are currently operating under a
month-to-month lease.

27

ITEM 3. LEGAL PROCEEDINGS

Various claims and legal proceedings generally incidental to the normal course of business are
pending or threatened against us. While we cannot predict the outcome of these matters, in the opinion
of our management, any liability arising under these claims and legal proceedings will not have a
material adverse effect on our business, financial condition and results of operations after giving effect to
provisions already recorded.
In September 2006, one of the Companys foreign subsidiaries, Alliance International BVBA,
was named in a lawsuit in the Belgian civil courts by a Belgian customer for having allegedly negligently
designed, manufactured and assembled certain safety devices. These safety devices are not being used in
the Companys products but were sold to that Belgian customer prior to the CLD Acquisition. The cause
of the alleged defect is unknown and is being investigated by a court appointed expert. The damages
claimed by the Belgian customer are currently being investigated by a court appointed expert and are
currently unsubstantiated. There are currently no relevant pending court dates in 2013. No injury has
been reported as a consequence of the alleged defect. The outcome of this matter is not predictable with
assurance. However, management believes that the amount of potential damages, if any at all, resulting
from this action would not exceed accruals and available indemnification recoverable from LSG
pursuant to the CLD Acquisition Agreements or applicable insurance.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR THE
STOCKHOLDER MATTERS

REGISTRANTS

COMMON

STOCK

AND

RELATED

There is no established public trading market for any class of common equity of Alliance. There
was one holder of record of the common equity of each of Alliance Laundry Systems LLC and Alliance
Laundry Holdings LLC as of March 4, 2013.
ITEM 6.

SELECTED FINANCIAL DATA

Alliance Laundry is a wholly-owned subsidiary of Alliance Holdings. Because Alliance Holdings

is a holding company with no operating activities and provides certain guarantees, the financial
information presented herein represents consolidated financial information of Alliance Holdings, rather
than consolidated financial information of Alliance Laundry. The following table should be read in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the historical financial statements and the notes related thereto of Alliance included
elsewhere in this Annual Report.

28

The following table sets forth selected historical consolidated financial data for the years ended
December 31, 2012, 2011, 2010, 2009 and 2008.

(In Thousands)

2012

2011

Statements of income (loss) data:

Net revenues:
Equipment and service parts.496,987
$
Equipment financing, net.
8,529
Net revenues..
505,516
Cost of sales.358,118
Gross profit. 147,398

Year Ended December 31,

2010

450,724
7,271
457,995
330,887
127,108

420,504
5,543
426,047
302,461
123,586

2009

2008

400,220
(7,000)
393,220
290,426
102,794

451,039
9,302
460,341
341,743
118,598

Selling, general and administrative expenses.

84,398
Other costs.
3,099
Total operating expenses.. 87,497
Operating income..
59,901

63,295
1,644
64,939
62,169

58,619
58,619
64,967

53,238
6,148
59,386
43,408

63,339
2,609
65,948
52,650

Interest expense 19,057

Loss from early extinguishment of debt10,399
Income before income taxes. 30,445
Provision for income taxes
14,016
Net income.
$
16,429

26,262
35,907
12,552
23,355

22,031
7,712
35,224
12,623
22,601

21,741
21,667
5,079
16,588

30,658
21,992
6,470
15,522

Cash flow data:

Net cash provided by operating activities.. $
72,326
Net cash (used in) investing activities
(22,758)
Net cash (used in) financing activities..
(53,818)
Other data:
Capital expenditures.
$
18,239

65,201
(8,599)
(43,358)

17,302
(4,290)
(2,547)

41,470
(9,246)
(27,799)

10,552

9,766

4,790

8,762

2.3

2012

2011

(3)

Long-term debt obligations 798,986

62,164
(10,617)
(51,575)

(1)

Working capital(2)
78,152
Total assets850,097
Long-term debt and capital lease obligations
(including current portion)
748,646

Ratio of earnings to fixed charges 2.6

Balance sheet data:

Total current assets.
$
246,343
Total current liabilities.
168,191

248,036
160,361

2.6

2.0

December 31,
2010
$

239,020
147,164

1.7

2009
$

134,777
67,776

2008
$

123,334
79,332

87,675
840,114

91,856
843,268

67,001
572,173

44,002
565,781

502,846

540,444

281,248

310,728

554,853

574,199

312,444

341,147

(1) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as income
(loss) before income taxes and cumulative effect of change in accounting principle plus fixed
charges. Fixed charges include interest expense on all indebtedness, amortization of deferred
financing costs and one-third of rental expense on operating leases representing that portion of
rental expense deemed to be attributable to interest.
(2) Working capital represents total current assets less total current liabilities.
(3) Long-term debt obligations are comprised primarily of long-term debt, deferred income taxes,
pension obligations and other post-retirement benefit obligations.

29

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS
Overview
We believe we are the leading designer, manufacturer and marketer of stand-alone commercial
laundry equipment in North America and the world. We produce a full line of commercial washing
machines and dryers with load capacities from 12 to 200 pounds as well as presses and finishing
equipment under the well-known brand names of Speed Queen, UniMac, Huebsch, IPSO and Cissell.
Our commercial products are sold to three distinct customer groups: (i) laundromats; (ii) multi-housing
laundries, consisting primarily of common laundry facilities in apartment buildings, universities and
military installations and (iii) on-premise laundries, consisting primarily of in-house laundry facilities of
hotels, hospitals, nursing homes and prisons.
The North American stand-alone commercial laundry equipment industrys revenues are
primarily driven by population growth and the replacement cycle of laundry equipment. Economic
conditions historically have had limited effect on the frequency of use, and therefore the useful life of
laundry equipment. As a result, the industrys revenues have been relatively stable over time. Similarly,
with a majority of our revenues generated by recurring sales of replacement equipment and service parts,
we have experienced stable revenues even during past economic slowdowns.
Sales of stand-alone commercial laundry equipment are the single most important driver of our
revenues. In 2012, net revenues from the sale of laundry equipment, service parts and equipment
financing to United States & Canada customers were approximately $357.0 million which comprised
71% of our total net revenues. In 2012, net revenues from the sale of laundry equipment and service
parts to European customers were approximately $52.2 million which comprised 10% of our total net
revenues. We also sell laundry equipment and service parts to Latin America, Asia and the Middle East
& Africa, with net revenues from sales to customers in those segments of approximately $96.3 million,
in total which comprised 19% of our total net revenues in 2012.
We have achieved steady revenues by building an extensive and loyal distribution network for
our products, establishing a significant installed base of units, and developing and offering a full
innovative product line. As a result of our large installed base, a significant majority of our revenue is
attributable to replacement sales of equipment and service parts.
We believe that continued population expansion in North America and Europe will continue to
drive demand for garment and textile laundering by all customer groups that purchase commercial
laundry equipment. We anticipate growth in demand for commercial laundry equipment in international
markets as well, especially in developing countries where laundry processing has historically been far
less sophisticated than in North America and Western Europe. In addition, customers are increasingly
trading up to equipment with enhanced functionality thereby raising average selling prices. Customers
are also moving toward equipment with increased water and energy efficiency as the result of
government and consumer pressure and a focus on operating costs.
We are subject to a number of challenges that may adversely affect our business. These
challenges are discussed above under Item 1A Risk Factors and below under Item 7A Quantitative
and Qualitative Disclosures About Market Risk.
The following discussion should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in this report.
30

Recent Developments
In April 2012, the Company entered into a credit agreement with lenders including Bank of
Montreal, The Bank of Nova Scotia, Fifth Third Bank and Morgan Stanley Bank, N.A. as co-syndication
agents, Compass Bank and The PrivateBank and Trust Company as co-documentation agents and Bank
of America, N.A. as administrative agent, swing line lender and an issuing lender. This facility provided
for a new five-year $75.0 million revolving credit facility and a new five-year $275.0 million term loan
facility (the 2012 Senior Credit Facility). Proceeds of $275.0 million received by the Company from
the facility along with $19.6 million of available cash from operations were used to repay in full all
outstanding borrowings under the 2010 Senior Credit Facility in the amount of $243.0 million, as well as
debt issuance fees and expenses of $4.6 million and to issue a $47.0 million distribution to ALH, which
in turn paid a cash dividend to its shareholders. Please see Note 15 - Debt, to the Consolidated Financial
Statements for more information.
In December 2012, the Company entered into credit facilities pursuant to (i) a First Lien Credit
Agreement and (ii) a Second Lien Credit Agreement with lenders including Bank of Montreal, The Bank
of Nova Scotia, Fifth Third Bank and Morgan Stanley Senior Funding, Inc. as co-syndication agents and
Bank of America N.A. as administrative agent, and, in the case of the First Lien Credit Agreement, also
as swing line lender and an issuing lender. The First Lien Credit Agreement provided for a six-year
$375.0 million first lien term loan and a five-year first lien revolving credit facility of $75.0 million. The
Second Lien Credit Agreement provided for a seven-year $110.0 million second lien term loan. Alliance
Laundry is the borrower, and Alliance Holdings is a guarantor, under the December 2012 Credit
Facilities. Net of original issue discounts, proceeds of $482.0 million received by the Company under the
First and Second Lien Term Loans along with $16.5 million of contributions from stock options, $5.5
million of contributions from ALH stock purchases, and $15.9 million of available cash from operations
were used to repay in full all outstanding borrowings under the 2012 Senior Credit Facility in the amount
of $254.4 million, $10.9 million of debt issuance fees and expenses, $11.1 million to redeem ALH stock,
$0.4 million for employer related taxes associated with the exercise of stock options and to issue a
$243.1 million distribution to ALH, which in turn paid a cash dividend to its shareholders. Please see
Note 15 - Debt, to the Consolidated Financial Statements for more information.
In February 2013, the Company amended its First Lien Credit Agreement in order to re-price the
First Lien Term Loan and December 2012 Revolving Credit Facility. All aspects of the original credit
agreement remained unchanged with the exception of lowering the interest rate margin applicable to the
First Lien Term Loan by 100 basis points and the interest rate margin applicable to the December 2012
Revolving Credit Facility by 50 basis points. Also the outside date of the 1.0% premium applicable to
certain voluntary prepayments of First Lien Term Loans was shortened from the first anniversary of the
original effective date to the date that is six months after the first amendment. In addition, the Company
has borrowed $20.0 million of incremental First Lien Term Loans, which will increase the minimum
quarterly payment from approximately $0.9 million to $1.0 million. The proceeds of the incremental
First Lien Term Loans were used to prepay $20.0 million of the Second Lien Term Loan. See Note 20 Subsequent Events, to the Consolidated Financial Statements for more information.
Critical Accounting Policies
The preparation of financial statements in conformity with United States generally accepted
accounting principles (GAAP) requires us to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement
date and reported amounts of revenues and expenses, including amounts that are susceptible to change.
Our critical accounting policies include accounting methods and estimates underlying such financial
31

statement preparation as well as judgments around uncertainties affecting the application of those
policies. In applying critical accounting policies, materially different amounts or results could be
reported under different conditions or using different assumptions. When required, management
considers the perspective of market participants in accordance with current accounting guidance. We
believe that our critical accounting policies, involving significant estimates, uncertainties and
susceptibility to change, include the following:
Revenue Recognition. Revenue from product sales is recognized by the Company when all of the
following criteria are met: persuasive evidence of an arrangement exists; shipment has occurred and
ownership has transferred to the customer; the price to the customer is fixed or determinable and
collectability is reasonably assured. With the exception of certain sales to international customers, which
are recognized upon receipt or acceptance by the customer, these criteria are satisfied and revenue is
recognized upon shipment by the Company.
Inventories. Inventories are valued at cost using the first-in, first-out method but not in excess of
net realizable value. The Companys policy is to quarterly evaluate all inventories for obsolescence.
Inventory in excess of the Companys estimated usage requirements is recorded at its estimated net
realizable value. Inherent in the estimates of net realizable value are estimates related to future
manufacturing schedules, customer demand, possible alternate uses and ultimate realization of
potentially excess inventory.
Loans Receivable. Loans receivable reflect equipment loans that the Company expects to sell
shortly after the balance sheet date and non-performing and other loans not eligible for sale to the
Companys existing securitization facility. Loans receivable are stated at the principal amount
outstanding net of the allowance for credit losses. Interest income is accrued as earned on outstanding
balances. Recognition of income is suspended when it is determined that collection of future income is
not probable (after 90 days past due). Fees earned and incremental direct costs incurred upon origination
of equipment loans are not significant.
Impairment of Sold and Unsold Loans Receivable. The Company determines that a loan
receivable is impaired when it is probable that it will be unable to collect all amounts due according to
the contractual terms of the loan. These equipment loans are collateral-dependent and measurement of
impairment is based upon the estimated fair value of collateral.
The determination of the allowance for credit losses is based on an analysis of the related loans
and reflects an amount which, in the Companys judgment, is adequate to provide for probable credit
losses. Loans deemed to be uncollectible are charged off and deducted from the allowance. The
allowance is increased for recoveries and by charges to earnings.
Goodwill and Intangible Asset. Goodwill is tested for impairment at least annually and more
frequently if an event occurs which indicates the goodwill may be impaired. Impairment of goodwill is
measured according to a two-step approach. In the first step, the fair value of a reporting unit is
compared to the carrying value of the reporting unit, including goodwill. The Companys reporting units
are the same as its operating segments. The second step of the goodwill impairment test is performed to
measure the amount of the impairment loss, if any, if the carrying amount of the reporting unit exceeds
its fair value in the first step. In the second step, the implied value of the goodwill is estimated as the fair
value of the reporting unit less the fair value of all other tangible and intangible assets of the reporting
unit. An impairment loss is recognized if the carrying amount of the goodwill exceeds the implied fair
value of the goodwill in an amount equal to that excess, but not to exceed the carrying amount of the
32

goodwill. The fair values of the Companys reporting units are determined with the assistance of a third
party using a discounted cash flow model.
The Companys tradenames and trademarks have been deemed to have an indefinite life as the
Company expects to continue to use these assets for the foreseeable future. There are no limitations of a
legal, regulatory or contractual nature that limits the period of time for which the Company can use these
assets. The Company has the right to continue to use these assets and can continue to do so with limited
cost to the Company. The effects of obsolescence, demand, competition and other economic factors are
not expected to impact the indefinite life assumptions. Intangible assets not subject to amortization
(indefinite-lived intangible assets) are tested for impairment at least annually and more frequently if an
event occurs which indicates the intangible asset may be impaired. The impairment test consists of a
comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is
recognized if the carrying amount of an intangible asset exceeds its fair value in an amount equal to that
excess, but not to exceed the carrying amount of the intangible asset. The fair value of the tradenames
and trademarks is determined with the assistance of a third party using the relief-from-royalty method.
Warranty Liabilities. The costs of warranty obligations are estimated and provided for at the time
of sale. Standard product warranties vary from one to three years for most parts with certain components
extending to ten years. The Company also sells separately priced extended warranties associated with
our products. The Company recognizes extended warranty revenues over the period covered by the
warranty.
Employee Pensions. We have a defined benefit pension plan covering a majority of the
Companys U.S. employees. Our long term funding policy is to gradually accumulate plan assets equal
to our projected benefit obligations. The funded status of our pension plan is dependent upon many
factors, including returns on invested assets and the level of certain market interest rates. We review
pension assumptions regularly and we may from time to time make voluntary contributions to our
pension plan which exceed the amounts required by statute. Changes in interest rates and the market
value of the securities held by the plan could materially change, positively or negatively, the under
funded status of the plan and affect the level of pension expense and required contributions in 2013 and
beyond.
We believe that our assumptions are appropriate given current economic conditions and actual
experience. However, significant differences in results or significant changes in our assumptions may
materially affect our pension and other postretirement obligations and related future expense. The
following table summarizes the sensitivity of our December 31, 2012 retirement obligations and 2012
retirement benefit costs of our U.S. plans to changes in the key assumptions used to determine those
results:
(In Thousands)

Change in assumption

Estimated increase
(decrease) in 2012
pension cost

1.00% increase in discount rate

$
1.00% decrease in discount rate
1.00% increase in long-term return on assets.
1.00% decrease in long-term return on assets
1.00% increase in medical trend rates.
1.00% decrease in medical trend rates

(689)
818
(515)
515
n/a
n/a

Estimated increase
(decrease) in
Projected Benefit
Obligation for the
Year Ended
December 31, 2012

Estimated increase
(decrease) in
2012 Other
Postemployment
Benefits cost

Estimated increase
(decrease) in Other
Postretirement Benefit
Obligation for the
Year Ended
December 31, 2012

(9,225)
11,435
n/a
n/a

n/a
n/a
34
(29)

(245)
286
n/a
n/a
261
(228)

These sensitivities and assumptions may not be appropriate to use for other years financial
results. Furthermore, the impact of assumption changes outside of the ranges shown above may not be
33

approximated by using the above results. For additional information about our pension and other
postretirement benefit obligations, see Note 14 - Pensions and Other Employee Benefits, to the
Consolidated Financial Statements.
As of December 31, 2012, the Alliance Laundry Systems Pension Plan was underfunded by
$19.8 million due in part to a negative 22.4% return on plan assets during 2008. We plan to fund
approximately $4.2 million in 2013 for the Alliance Laundry Systems Pension Plan in order to meet the
Internal Revenue Service minimum required contribution and avoid limitations on benefit payments in
2013.
RESULTS OF OPERATIONS
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
The following table provides our historical net revenues for the periods indicated:
December 31,
2012

Year Ended
December 31, December 31,
2011
2010
(dollars in millions)

Net revenues:
United States & Canada......
$
357.0
$
316.8
$
297.2
Europe..........
52.2
58.6
54.2
Latin America.....
20.5
15.6
15.9
Asia..........
50.4
43.6
36.8
Middle East & Africa.......
25.4
23.4
21.9
Total net revenues....
$
505.5
$
458.0
$
426.0

Net Revenues. Net revenues for the year ended December 31, 2012 increased $47.5 million, or
10.4%, to $505.5 million from $458.0 million for the year ended December 31, 2011. The net revenues
increase of $47.5 million was attributable to increases in United States & Canada revenues of $40.2
million, Latin America revenues of $4.9 million, Asia revenues of $6.8 million and Middle East &
Africa revenues of $2.0 million offset by a decrease in Europe revenues of $6.4 million. The increase in
United States & Canada revenues was due primarily to $1.3 million of higher earnings from our
equipment financing program and increased revenues from consumer laundry, laundromat and onpremise laundry. The increase in Latin America revenues was the result of higher revenues from
Venezuela, Colombia, Peru and U.S. based export houses. The increase in Asia revenues was most
significant from Australia, the Philippines, China and Thailand. The increase in Middle East & Africa
revenues reflects higher revenues from Saudi Arabia, Qatar and South Africa. The decrease in Europe
revenues was due mostly to lower currency conversion rates and also driven by lower revenues from
Western Europe, most notably Italy and Spain. The increase in total Company revenues was primarily
due to increased sales volume and a favorable effect of increased pricing, which were partially offset by
$4.1 million of unfavorable exchange rate impacts. The price increases occurred primarily in United
States & Canada. The unfavorable exchange rate impacts occurred primarily in Europe.

34

The following tables provide our historical gross profit and the related gross profit percent for the
periods indicated:
December 31,
2012

Year Ended
December 31, December 31,
2011
2010
(dollars in millions)

Gross profit:
United States & Canada......
$
105.5
$
84.2
$
85.8
Europe..........
13.4
17.7
15.3
Latin America.....
6.7
5.3
5.5
Asia..........
15.6
13.9
11.6
Middle East & Africa.......
6.2
6.0
5.4
Total gross profit.......
$
147.4
$
127.1
$
123.6

December 31,
2012

Year Ended
December 31,
2011

December 31,
2010

Gross profit percent:

United States & Canada......
29.6%
26.6%
28.9%
Europe..........
25.5%
30.3%
28.2%
Latin America.....
32.6%
34.0%
34.5%
Asia..........
31.0%
31.9%
31.5%
Middle East & Africa.......
24.5%
25.5%
24.7%
Total gross profit percent..
29.2%
27.8%
29.0%

Gross Profit. The gross profit percent for the year ended December 31, 2012 was 29.2%, an
increase of 1.4 points as compared to 27.8% for the year ended December 31, 2011. The combined effect
of increased sales volume and sales mix and increased pricing resulted in an increase in the gross margin
of 2.5 points. Increases in raw material and labor related costs resulted in a decrease in the gross margin
of 1.1 points. The United States & Canada gross profit percent increased 3.0 points as a result of
increased sales volume, sales mix and pricing, which were partially offset by higher labor related costs.
The Europe gross profit percent decreased 4.8 points as a result of higher material and labor related
costs, decreased sales volumes and higher depreciation, which were partially offset by increased pricing
and a favorable conversion related to exchange rates. The Latin America gross profit percent decreased
1.4 points as a result of higher material costs and sales mix, which were partially offset by increased
pricing. The Asia gross profit percent decreased 0.9 points as a result of higher material costs and sales
mix, which were partially offset by increased pricing and a favorable conversion related to exchange
rates. The Middle East & Africa gross profit percent decreased 1.0 points as a result of higher material
costs, which were partially offset by increased pricing, sales mix and a favorable conversion related to
exchange rates. The higher raw material costs for total Company, and for the United States & Canada
segment, included $1.7 million of non-cash mark-to-market gains related to commodity and foreign
exchange hedge agreements recognized in the year ended December 31, 2012, as compared to $3.1
million of non-cash mark-to-market losses related to commodity and foreign exchange hedge agreements
for the year ended December 31, 2011. This non-cash impact accounts for 0.9 points and 1.3 points of
gross profit improvement for total Company and for the United States & Canada segment, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for
the year ended December 31, 2012 increased $21.1 million, or 33.3%, to $84.4 million from $63.3
million for the year ended December 31, 2011. The increase in selling, general and administrative
expenses was primarily due to $18.4 million of increased incentive compensation expense related to the
Companys stock option program, $2.2 million of increased sales and marketing expenses, $1.9 million
35

of higher engineering expenses to support product development and sales growth initiatives, $0.6 million
of higher cash based incentive plan compensation expense and $0.5 million of higher collection related
expense, which were partially offset by a $2.5 million decrease in amortization expense. Selling, general
and administrative expenses as a percentage of net revenues was 16.7% for the year ended December 31,
2012 compared to 13.8% for the year ended December 31, 2011.
Other Costs. Other costs for the year ended December 31, 2012 increased $1.5 million to $3.1
million from $1.6 million for the year ended December 31, 2011. The 2012 costs consisted of $2.7
million of legal and other professional fees and expenses related to a potential acquisition and $0.4
million of dividend related costs. The 2011 costs consisted of severance, building closure and other costs
related to the closure of the Nazareth, Belgium manufacturing facility which was closed in the third
quarter of 2011. Other costs as a percentage of net revenues were 0.6% for the year ended December 31,
2012 compared to 0.4% for the year ended December 31, 2011.
Operating Income. As a result of the aforementioned, operating income for the year ended
December 31, 2012 decreased $2.3 million, or 3.6%, to $59.9 million from $62.2 million for the year
ended December 31, 2011. Operating income as a percentage of net revenues decreased to 11.8% for the
year ended December 31, 2012 from 13.6% for the year ended December 31, 2011.
Interest Expense. Interest expense for the year ended December 31, 2012 decreased $7.2 million,
or 27.4%, to $19.1 million from $26.3 million for the year ended December 31, 2011. The decrease in
interest expense was primarily attributable to a net decrease of $5.3 million related to lower interest rates
associated with the 2012 Senior Credit Facility as compared to the 2010 Senior Credit Facility, a
decrease of $1.4 million related to non-cash adjustments in the fair value of interest rate agreements and
decreased revolver related interest of $0.5 million. Interest expense as a percentage of net revenues
decreased to 3.8% for the year ended December 31, 2012 as compared to 5.7% for the year ended
December 31, 2011.
Loss from Early Extinguishment of Debt. The loss from early extinguishment of debt for the
year ended December 31, 2012 was $10.4 million with no comparable costs for the year ended
December 31, 2011. The 2012 loss from early extinguishment of debt included $8.2 million related to
the write-off of unamortized debt issuance costs and $2.2 million related to the write-off of the
remaining unamortized discount on our 2010 Senior Term Loan. The loss from early extinguishment of
debt as a percentage of net revenues was 2.1% for the year ended December 31, 2012.
Income Tax Provision. The provision for income tax was $14.0 million for the year ended
December 31, 2012 as compared to $12.6 million for the year ended December 31, 2011. The effective
income tax rate was 46.0% for the year ended December 31, 2012 as compared to 35.0% for the year
ended December 31, 2011. The higher effective income tax rate for 2012 as compared to 2011 is
primarily the result of increased tax on remitted foreign earnings, including an out-of-period tax
adjustment, offset by the federal research and development credit and domestic manufacturing
deduction.
Net Income. As a result of the aforementioned factors, our net income for the year ended
December 31, 2012 was $16.4 million as compared to $23.4 million for the year ended December 31,
2011. Net income as a percentage of net revenues was 3.2% for the year ended December 31, 2012 as
compared to 5.1% for the year ended December 31, 2011.

36

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net Revenues. Net revenues for the year ended December 31, 2011 increased $32.0 million, or
7.5%, to $458.0 million from $426.0 million for the year ended December 31, 2010. The net revenues
increase of $32.0 million was attributable to increases in United States & Canada revenues of $19.6
million, Europe revenues of $4.4 million, Asia revenues of $6.8 million and Middle East & Africa
revenues of $1.5 million. Latin America revenues decreased $0.3 million. The increase in United States
& Canada revenues was due primarily to $1.7 million of higher earnings from our equipment financing
program and increased revenues from multi-housing laundries and consumer laundry. The increase in
Europe revenues was due to higher sales to Eastern Europe, including Russia, Poland, and Romania, and
additionally as a result of higher currency conversion rates. The increase in Asia revenues was most
significant in Australia and Taiwan partially offset by lower sales to China. The increase in Middle East
& Africa revenues reflects higher sales to South Africa partially offset by lower sales to the Middle East.
The decrease in Latin America revenues was the result of lower sales to Colombia and Mexico. The
higher total Company equipment and parts revenues for the year include price increases of
approximately $10.5 million, an increase of $17.1 million of sales volume and sales mix and $2.6
million related to exchange rate impacts. The price increases occurred primarily in United States &
Canada. The favorable exchange rate impacts occurred primarily in Europe.
Gross Profit. Gross profit for the year ended December 31, 2011 increased $3.5 million, or 2.8%,
to $127.1 million from $123.6 million for the year ended December 31, 2010. The gross profit increase
of $3.5 million includes approximately $10.5 million of price increases and $4.1 million of gross profit
due to an increase in sales volume and sales mix, as well as $1.7 million of higher earnings from our
equipment financing program. These gross profit increases were partially offset by approximately $11.5
million of higher raw material and distribution expenses and $0.9 million of higher warranty related
costs. Included in the $11.5 million of higher raw material and distribution costs were $3.1 million of
non-cash mark-to-market losses related to commodity and foreign exchange hedge agreements,
recognized in the year ended December 31, 2011, as compared to $0.1 million of non-cash mark-tomarket gains for the year ended December 31, 2010. United States & Canada gross profit decreased $1.6
million primarily as a result of higher material and distribution costs and higher warranty related costs,
which were partially offset by price increases, increases in sales volume and increased earnings from the
equipment financing program. Europe gross profit increased $2.4 million primarily as a result of price
increases, sales volume increases and lower material and distribution expenses. Latin America gross
profit decreased $0.2 million as a result of lower sales volume and higher material and distribution costs
which were partially offset by price increases. Asia gross profit increased $2.3 million primarily as a
result of price increases and higher sales volume which were partially offset by higher material and
distribution costs. Middle East & Africa gross profit increased $0.6 million as a result of price increases
which were partially offset by higher material and distribution costs. Gross profit as a percentage of net
revenues was 27.8% for the year ended December 31, 2011 compared to 29.0% for the year ended
December 31, 2010.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for
the year ended December 31, 2011 increased $4.7 million, or 8.0%, to $63.3 million from $58.6 million
for the year ended December 31, 2010. The increase in selling, general and administrative expenses was
primarily due to $2.0 million of increased sales and marketing expenses and $1.6 million of higher
engineering expenses. The increase also includes $0.6 million of higher information technology
expenses and $0.4 million of higher amortization, both of which relate to a new enterprise wide resource
planning (ERP) system which was installed in the second quarter of 2011. Selling, general and
administrative expenses as a percentage of net revenues was 13.8% for both the year ended
December 31, 2011 and December 31, 2010.
37

Other costs. Other costs were $1.6 million for the year ended December 31, 2011 with no
comparable costs for the year ended December 31, 2010. The 2011 costs consisted of severance,
building closure and other costs related to the closure of the Nazareth, Belgium manufacturing facility
which was closed in the third quarter of 2011. Other costs as a percentage of net revenues was 0.4% for
the year ended December 31, 2011.
Operating Income. As a result of the aforementioned, operating income for the year ended
December 31, 2011 decreased $2.8 million, or 4.3%, to $62.2 million from $65.0 million for the year
ended December 31, 2010. Operating income as a percentage of net revenues decreased to 13.6% for the
year ended December 31, 2011 from 15.2% for the year ended December 31, 2010.
Interest Expense. Interest expense for the year ended December 31, 2011 increased $4.3 million,
or 19.2%, to $26.3 million from $22.0 million for the year ended December 31, 2010. The increase was
primarily due to an unfavorable non-cash impact of $2.3 million to reflect adjustments in the fair values
of interest rate swap agreements, a net increase of $0.7 million related to the 2010 Senior Credit Facility
as compared to the 2005 Senior Credit Facility and the Senior Subordinated Notes, higher non-cash debt
issuance costs of $0.7 million and increased revolver related interest of $0.6 million. Interest expense as
a percentage of net revenues increased to 5.7% for the year ended December 31, 2011 as compared to
5.2% for the year ended December 31, 2010.
Loss from Early Extinguishment of Debt. There was no loss from early extinguishment of debt
for the year ended December 31, 2011 as compared to $7.7 million of expense for the year ended
December 31, 2010. The 2010 loss from early extinguishment of debt included $4.6 million of cash
costs and expenses related to the repurchase of the Senior Subordinated Notes, $2.9 million related to the
write-off of unamortized debt issuance costs and $0.2 million related to the write-off of the remaining
unamortized discount on the Senior Subordinated Notes. The loss from early extinguishment of debt as
a percentage of net revenues was 1.8% for the year ended December 31, 2010.
Income Tax Provision. The provision for income tax was $12.6 million for each of the years
ended December 31, 2011 and 2010. The effective income tax rate was 35.0% for the year ended
December 31, 2011 as compared to 35.8% for the year ended December 31, 2010.
Net Income. As a result of the aforementioned factors, our net income for the year ended
December 31, 2011 was $23.4 million as compared to $22.6 million for the year ended December 31,
2010. Net income as a percentage of net revenues was 5.1% for the year ended December 31, 2011 as
compared to 5.3% for the year ended December 31, 2010.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows generated from operations and potential
borrowings under our $75.0 million December 2012 Revolving Credit Facility. Our principal uses of
liquidity are to meet debt service requirements, finance our capital expenditures and provide working
capital. We expect that capital expenditures in 2013 will not exceed $25.0 million. We expect the
ongoing requirements for debt service, capital expenditures and working capital will be funded by
internally generated cash flow and borrowings under the December 2012 Revolving Credit Facility.
At December 31, 2012, we had outstanding total debt of $751.6 million (prior to original issue
discount of $3.0 million), of which $375.0 million related to the First Lien Term Loan, $110.0 million
38

related to the Second Lien Term Loan and $266.6 million related to our asset backed facility (discussed
in greater detail in Note 4 - Asset Backed Facility, to the Consolidated Financial Statements).
Assuming no further deterioration in the financial markets, economic growth, our ability to
replace or renew the Asset Backed Facility and based on currently available information, we believe that
for 2013 and 2014, cash flows from operations, together with available borrowings under the December
2012 Revolving Credit Facility, will be adequate to meet our anticipated requirements for capital
expenditures, working capital, interest payments, scheduled principal payments and other debt
repayments while achieving all required covenants. The December 2012 Revolving Credit Facility, First
Lien Term Loan and Second Lien Term Loan are scheduled to mature on December 10, 2017, 2018 and
2019, respectively.
Credit Facilities. The December 2012 Credit Facilities contain a number of covenants that,
among other things, restrict our ability to dispose of assets, repay other indebtedness, incur liens, make
capital expenditures, make certain investments or acquisitions, engage in mergers or consolidation and
otherwise restrict our operating activities. In addition, under the First Lien Credit Agreement, if the
aggregate outstanding amount of the revolving credit loans and letter of credit obligations is in excess of
20% of the lenders current revolving credit commitments, we are required to satisfy a maximum Total
Leverage Ratio, as defined therein. The occurrence of a default of certain covenants, as defined in the
December 2012 Credit Facilities, could result in acceleration of our obligations under the First Lien
Credit Agreement ($375.0 million at December 31, 2012, prior to original issue discount) and Second
Lien Credit Agreement ($110.0 million at December 31, 2012, prior to original issue discount) and
foreclosure on the collateral securing such obligations.
At December 31, 2012, there were no borrowings under the December 2012 Revolving Credit
Facility. At December 31, 2012, letters of credit issued on our behalf under the December 2012
Revolving Credit Facility totaled $36.1 million. At December 31, 2012, we could have borrowed $38.9
million of the existing $75.0 million December 2012 Revolving Credit Facility available under the First
Lien Credit Agreement. We were in compliance with all debt covenants as of December 31, 2012.
The aggregate scheduled maturities of outstanding debt obligations in subsequent years are as
follows:
LongTerm
Debt

Asset
Backed
Year
Facility
Total
(dollars in millions)
2013.
$
3.7
$
81.6
$
85.3
2014.
3.8
39.6
43.4
2015.
3.7
36.5
40.2
2016.
3.8
33.2
37.0
2017.
3.7
27.9
31.6
Thereafter.
466.3
47.8
514.1
$
485.0
$
266.6
$ 751.6

Additional borrowings and the issuance of additional letters of credit under the December 2012
Credit Facilities are subject to certain continuing representations and warranties, including the absence
of any development or event which has had or could reasonably be expected to have a material adverse
effect on our business or financial condition, and general compliance with a specified Total Leverage
Ratio.
39

The December 2012 Credit Facilities require mandatory prepayments for certain debt
incurrences, asset sales and a portion of Excess Cash Flow (as defined in the December 2012 Credit
Facilities). The Company has not been subject to any mandatory prepayments.
EBITDA and Adjusted EBITDA. One of our two principal sources of liquidity is potential
borrowings under the $75.0 million December 2012 Revolving Credit Facility under our First Lien
Credit Agreement, and we have presented EBITDA and Adjusted EBITDA below because certain
covenants in our December 2012 Credit Facilities are tied to a ratio based on these measures. EBITDA
represents net income before interest expense, income tax provision, depreciation and amortization
(including non-cash interest income). Adjusted EBITDA, as defined in our December 2012 Credit
Facilities, is EBITDA as further adjusted to exclude, among other things, certain non-recurring expenses
and other non-recurring non-cash charges which are further defined therein. As of December 31, 2012,
the First Lien Credit Agreement requires us to satisfy a maximum Total Leverage Ratio of 6.75 to 1.00
under certain circumstances. As of December 31, 2012, our Total Leverage Ratio was 5.01 to 1.00. To
the extent that we fail to maintain this ratio within the limits set forth in the First Lien Credit Agreement,
our ability to access amounts available under the December 2012 Revolving Credit Facility would be
limited, our liquidity would be adversely affected and our obligations under the December 2012 Credit
Facilities could be accelerated.
We currently expect to meet our obligations under our debt agreements including compliance
with established financial covenants. However, if the economic environments in which we operate were
to deteriorate, it could have a material adverse effect on our ability to remain in compliance with our
covenants which would result in a material adverse effect on our liquidity and results of operations.
EBITDA and Adjusted EBITDA do not represent, and should not be considered, an alternative to
net income or cash flow from operations, as determined by GAAP and our calculations thereof may not
be comparable to similarly entitled measures reported by other companies.
We have presented a calculation of the Total Leverage Ratio in the table below. The Total
Leverage Ratio, as defined in the December 2012 Credit Facilities, is Consolidated Total Debt to
Adjusted EBITDA for the four most recent fiscal quarters. Consolidated Total Debt is defined in the
December 2012 Credit Facilities and is further explained in the table below. The calculation of Adjusted
EBITDA set forth in the table below uses EBITDA as its starting point and, as noted in the preceding
paragraph, EBITDA represents net income before interest expense, income tax provision, depreciation
and amortization (including non-cash interest income). The calculations set forth below for Adjusted
EBITDA are for the four fiscal quarters ended December 31, 2012.

40

The following table presents a calculation of the Total Leverage Ratio:

Quarter Ended
June 30,
September 30, December 31,
2012
2012
2012
(In Thousands)
EBITDA
$
18,200 $
16,559 $
24,739 $
2,944
Securitization interest - permitted receivables financing (a).
(196)
(207)
(212)
(202)
Other non-recurring charges (b)
920
6,333
262
5,983
Other non-cash charges (c)
(469)
1,687
1,315
16,715
Adjusted EBITDA.
$
18,455 $
24,372 $
26,104 $
25,440
March 31,
2012

Total
$

62,442
(817)
13,498
19,248
94,371

December 31,
2012
December 2012 Revolving Credit Facility
$
First Lien Term Loan.
375,000
Second Lien Term Loan.
110,000
Other long-term debt
Unrestricted cash and cash subject to a security interest (d)
(12,000)
Consolidated Total Debt
$
473,000

Total Leverage Ratio

5.01

(a)

Securitization Interest - permitted receivables financing represents interest expense on trade

receivables sold to ALERT 2009A. This expense, which is charged to the Interest expense line of
our Consolidated Statements of Comprehensive Income, is deducted in calculating Adjusted
EBITDA.

(b)

Other non-recurring charges are comprised of $10.4 million of expense resulting from the early
extinguishment of the 2010 Senior Credit Facility and 2012 Senior Credit Facility which are
included in the Loss from early extinguishment of debt line of our Consolidated Statements of
Comprehensive Income for 2012. Also included are $2.7 million of legal and other professional
fees and expenses related to a potential acquisition and $0.4 million of dividend related costs,
which are included in the Other costs line of our Consolidated Statements of Comprehensive
Income.

(c)

Other non-cash charges are comprised of $20.5 million of non-cash management incentive
compensation expense and $0.4 million of related employer paid payroll taxes, which are
included in the Selling, general and administrative expenses line of our Consolidated Statements
of Comprehensive Income. These expenses were partially offset by $1.7 million of non-cash
mark-to-market gains relating to commodity and foreign exchange hedge agreements, which are
included in the Cost of sales line of our Consolidated Statements of Comprehensive Income.

(d)

As defined in the December 2012 Credit Facilities, Consolidated Total Debt is the aggregate
principal amount of all funded debt for the relevant period minus the lesser of $12.0 million or
the sum of the aggregate amount of the borrower and its subsidiaries, without duplication,
unrestricted cash and cash equivalents and aggregate amount of cash and cash equivalents subject
to and secured by, where applicable, a security interest in favor of the holders of the funded debt.

41

Disclosures About Contractual Obligations and Commercial Commitments

A summary of our contractual commitments as of December 31, 2012, and the effect such
obligations are expected to have on liquidity and cash flow in future periods appears below (amounts in
thousands).
Total
Alliance Laundry long-term debt (1)(2)..
$
485,000

Payments due by period

2-3
4-5
years
years
(In Thousands)
3,750
$
7,500
$
7,500

Less than
1 year
$

More than
5 years
$

466,250

Projected interest on long-term debt(2)

200,028
31,484

61,342

63,195

44,007

Asset backed borrowings - owed to securitization investors(3).

266,596

81,626

76,141

61,104

47,725

4,915

8,274

5,664

2,825

822

1,282

895

69

Projected interest on asset backed borrowings(3)

21,678
Operating leases..
3,068
Purchase commitments(4).
27,000

27,000

Defined benefit pension plan (5).

19,755

4,175

15,580

584

573

Other long-term obligations(6).....

3,397
Total contractual cash obligations.
$ 1,026,522

307
$

154,079

155,123

138,931

1,933
$

578,389

(1) Long-term debt includes the First and Second Lien Term Loans.
(2) $375.0 million of our outstanding debt at December 31, 2012 is subject to floating interest
rates. Interest payments are projected based on rates in effect on December 31, 2012
assuming no variable rate fluctuations going forward. Further, we assumed that debt
payments would be made on schedule, with no prepayments, for purposes of projecting longterm debt and interest on long-term debt.
(3) Asset backed borrowings - owed to securitization investors at December 31, 2012 totaled
$266.6 million. Future payments on long-term debt are estimated based on the projected
timing of payments on the underlying assets related to the sale of accounts receivable and
equipment loans. Projected interest was calculated based on forward LIBOR rates, plus
applicable spread, as of December 31, 2012.
(4) Purchase commitments are based on our estimate of the liability we could incur under open
and blanket purchase orders for inventory related items.
(5) We expect to contribute $4.2 million to our defined benefit pension plan during 2013. Since
the timing and amount of payments for our defined benefit pension plan are not certain for
years 2 through 5 such potential payments are not shown in this table.
(6) Other long-term obligations consist of estimated future benefit payments for our
postretirement health care plans and deferred warranty revenue of $3.0 million and $0.4
million, respectively. Deferred income taxes and stock compensation which are long-term
liabilities included on the Consolidated Balance Sheets are not included in the table above.
We are unable to reliably estimate the timing of payments for these items. Our total liability
for deferred income taxes and stock compensation as of December 31, 2012 was $27.4
million and $0, respectively.
42

Additionally, at December 31, 2012, we had outstanding letters of credit of $36.1 million. We do
not have any significant guarantees of debt or other commitments to third parties. We have disclosed
information related to guarantees in Note 13 - Guarantees, to the Consolidated Financial Statements. We
lease various assets under operating leases. The future estimated payments under these arrangements are
disclosed in Note 18 - Commitment and Contingencies, to the Consolidated Financial Statements.
Cash Flows
As discussed in more detail below, we believe that our operating cash flows, cash and cash
equivalents, and borrowing capacity under our December 2012 Credit Facilities are sufficient to fund our
capital and liquidity needs for the foreseeable future.

Year Ended
December 31,
December 31,
2011
2010
(In Thousands)
$
72,326
$
62,164
$
65,201
Net cash provided by operating activities..
(22,758)
(10,617)
(8,599)
Net cash used by investing activities........
(53,818)
(51,575)
(43,358)
Net cash used by financing activities..........
(27)
(97)
(116)
Impact of exchange rate..........
Net increase (decrease) in cash and cash equivalents
$
(4,277)
$
(125)
$
13,128
December 31,
2012

Cash provided by operating activities during 2012 was $72.3 million compared to $62.2 million
in 2011. We applied the majority of this cash flow in 2012 toward $20.6 million of payments on long
term debt, $18.2 million of capital spending, $14.8 million of payments for debt establishment and
amendment fees, $11.4 million of distributions related to stock repurchases and a $5.0 million member
distribution to Alliance Finance LLC (discussed in more detail below under Equity Issuance). Cash
and cash equivalents at December 31, 2012 were $33.3 million as compared to $37.6 million at
December 31, 2011.
Cash provided by operating activities during 2012 of $72.3 million was primarily derived from
earnings adjusted for non-cash activities of $75.1 million reduced by an increased investment in assets
and liabilities of $2.8 million. The primary contributors to the higher investment in assets and liabilities
were an increased investment in accounts and loans receivable held for securitization investors of $4.5
million due to the timing of the sale of assets to ALER 2009 and contributions to our defined benefit
pension program of $3.9 million. Partially offsetting these unfavorable increases were favorable timing
related impacts resulting in a decreased investment in inventories of $3.4 million and increased accounts
payable of $2.0 million.
Cash provided by operating activities during 2011 of $62.2 million was primarily derived from
earnings adjusted for non-cash activities of $61.0 million and a lower investment in assets and liabilities
of $1.2 million. The primary contributors to the lower investment in assets and liabilities were a lower
investment in accounts payable of $8.1 million and a lower investment in accounts and loans receivable
of $2.1 million. Partially offsetting these favorable reductions were contributions to our defined benefit
pension program of $3.9 million, an increased investment in accounts and loans receivable held for
securitization investors of $2.6 million, an increased investment in inventories of $1.4 million, lower
current liabilities of $0.7 million and higher other assets of $0.4 million.
Cash used by investing activities for the year ended December 31, 2012 and December 31, 2011
was primarily the result of expenditures related to capital equipment. Capital spending in 2012 was
principally attributable to manufacturing capacity enhancements, manufacturing equipment
43

replacements, product redesigns and manufacturing process improvement projects. Capital spending in
2011 was attributable to manufacturing equipment replacements, equipment upgrades and manufacturing
process improvement projects. Spending for the year ended December 31, 2011 also included amounts
invested in a new enterprise wide resource planning (ERP) system of $1.6 million.
Cash used by financing activities for the year ended December 31, 2012 was primarily the result
of $20.6 million of voluntary prepayments on our debt, $14.8 million of payments for debt establishment
and amendment fees, $11.4 million of distributions related to stock repurchases and $5.0 million of
member distribution to Alliance Finance LLC (as described in more detail below under Equity
Issuance). Cash used by financing activities for the year ended December 31, 2011 was primarily the
result of $36.0 million of voluntary prepayments on our debt, $9.0 million of member distributions to
Alliance Finance LLC (as described in more detail below under Equity Issuance) and $4.6 million of
fees to extend the revolving period of the Asset Backed Facility.
Capital Expenditures. Our capital expenditures for the years ended December 31, 2012,
December 31, 2011 and December 31, 2010 were $18.2 million, $10.6 million and $9.8 million,
respectively. Much of the capital spending in 2012, 2011 and 2010 was oriented toward product
equipment replacement and upgrades, capacity and manufacturing process improvements and product
enhancements. Included within capital expenditures for 2011 and 2010 were amounts invested in a new
enterprise resource planning (ERP) system of $1.6 million and $5.5 million, respectively.
Equity Issuance. On March 15, 2012, ALH purchased shares of stock from a former employee of
the Company for approximately $0.3 million. This repurchase of stock was recorded as a reduction of
Member(s) equity/(deficit) and is included in the Member distributions line of the Consolidated
Statements of Cash Flows for 2012.
On April 5, 2012, Alliance Laundry issued a $47.0 million Member distribution to ALH which in
turn paid a cash dividend to its shareholders. The cash dividend was paid to shareholders of record as of
April 1, 2012. The dividend transaction was recorded as a reduction of Member(s) equity/(deficit) and
is included in the Member distributions line of the Consolidated Statements of Cash Flows for 2012. The
Board of Directors also approved a reduction of the exercise price of the outstanding stock options
commensurate with the per share cash dividend paid.
On June 29, 2012, ALH issued shares of stock to existing and new shareholders. The net
proceeds from the issuance of $2.4 million were contributed to Alliance Laundry. The issuance of stock
was recorded as an addition to Member(s) equity/(deficit) and is included in the Member contributions
line of the Consolidated Statements of Cash Flows for 2012.
On August 10, 2012, Alliance Laundry made a distribution of $5.0 million to Alliance Finance
LLC, which in turn made a contribution of $5.0 million to its subsidiary Alliance Laundry Finance LLC.
Proceeds from this distribution, as well as cash from Alliance Finance and Alliance Laundry Finance
LLC were used to pay in full the remaining $7.5 million balance of a 2009 unsecured term loan
guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
August 10, 2012 transaction was recorded as a reduction of Member(s) equity/(deficit) and is included
in the Member distributions line of the Consolidated Statements of Cash Flows for 2012.
In December 2012, the ALH Board of Directors authorized actions resulting in a Member
distribution of $243.1 million to ALH, which in turn paid a cash dividend to its shareholders. In
addition, proceeds of $16.5 million were contributed to Alliance Laundry from the exercise of stock
44

options in ALH, proceeds of $5.5 million were contributed to Alliance Laundry from stock purchases in
ALH and $11.1 million were distributed from Alliance Laundry for ALH stock redemptions. The
proceeds from the exercise of ALH options as well as the ALH stock purchases were recorded as
additions to Member(s) equity/(deficit) and are included in the Member contributions line of the
Consolidated Statements of Cash Flows for 2012. The Member distribution transaction and stock
redemption transaction were recorded as reductions of Member(s) equity/(deficit) and are included in
the Member distributions line of the Consolidated Statements of Cash Flows for 2012. See Note 19 Stock Based Compensation, to the Consolidated Financial Statements, for additional details of these
transactions.
On August 12, 2011, Alliance Laundry Systems LLC made a distribution of $5.0 million to
Alliance Finance LLC, which in turn made a contribution of $5.0 million to its subsidiary Alliance
Laundry Finance LLC. Proceeds from this distribution were used to pay down an unsecured term loan
guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
repayment released restricted cash of $0.5 million which was then contributed back to Alliance Laundry
Systems LLC resulting in a net distribution of $4.5 million. The August 12, 2011 transaction was
recorded as a reduction of Member(s) equity/(deficit) and is included in the Member distributions line
of the Consolidated Statements of Cash Flows for 2011.
On December 12, 2011, Alliance Laundry Systems LLC made a distribution of $5.0 million to
Alliance Finance LLC, which in turn made a contribution of $5.0 million to its subsidiary Alliance
Laundry Finance LLC. Proceeds from this distribution were used to pay down an unsecured term loan
guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
repayment released restricted cash of $0.5 million which was then contributed back to Alliance Laundry
Systems LLC resulting in a net distribution of $4.5 million. The December 12, 2011 transaction was
recorded as a reduction of Member(s) equity/(deficit) and is included in the Member distributions line
of the Consolidated Statements of Cash Flows for 2011.
In conjunction with the 2010 Refinancing Transaction, Alliance Laundry issued a $19.2 million
distribution to Alliance Finance LLC that was used to repay a 2009 PIK Note and accrued interest in full
to the Companys majority owner OTPP. This transaction was recorded as a reduction of Member(s)
equity/(deficit) and is included in the Member distributions line of the Consolidated Statements of Cash
Flows for 2010.
On August 24, 2010, ALH purchased shares of stock from former employees of the Company for
approximately $0.6 million. This repurchase of stock was recorded as a reduction of Member(s)
equity/(deficit) and is included in the Member distributions line of the Consolidated Statement of Cash
Flows for 2010.
Recently Issued Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends
Accounting Standards Codification (ASC) 350, Intangibles - Goodwill and Other. This ASU gives an
entity the option to first assess qualitative factors to determine if indefinite-lived intangible assets (other
than goodwill) are impaired. The entity may first determine based on qualitative factors if it is more
likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amount.
The quantitative impairment test is not required if the qualitative assessment indicates no impairment.
45

The effective date will be the first quarter of fiscal year 2013 with early adoption permitted. The
adoption will not have a material effect on the Companys consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and
Liabilities, which amends ASC 210, Balance Sheet. This ASU requires entities to disclose gross and net
information about both instruments and transactions eligible for offset in the statement of financial
position and those subject to an agreement similar to a master netting arrangement. This would include
derivatives and other financial securities arrangements. The effective date will be the first quarter of
fiscal year 2014 and must be applied retrospectively. The adoption will not have a material effect on the
Companys consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation
of Comprehensive Income. The amendments in ASU 2011-05 require entities to present the total of
comprehensive income, the components of net income and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. Additionally, the amendments in ASU 2011-05 require an entity to present on
the face of the financial statements reclassification adjustments for items that are reclassified from other
comprehensive income to net income in the statement(s) where the components of net income and the
components of other comprehensive income are presented. ASU 2011-05 is effective for interim and
annual periods beginning after December 15, 2011. The Company has adopted ASU No. 2011-05
effective with the interim financial statements for the quarter ended March 31, 2012 with the required
disclosures reflected in our Consolidated Statements of Comprehensive Income.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820),
Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S.
GAAP and IFRS. This ASU amends the wording used to describe many of the requirements for
measuring fair value to achieve the objective of developing common fair value measurement and
disclosure requirements as well as improving consistency and understandability. Some of the
requirements clarify the FASBs intent about the application of existing fair value measurement
requirements while other amendments change a particular principle or requirement for measuring fair
value or for disclosing information about fair value measurements. ASU No. 2011-04 is effective for
calendar years beginning after December 15, 2011. The Company has adopted ASU No. 2011-04
effective with this annual financial statement. The adoption did not have a material effect on the
Companys consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk associated with changes in interest rates, foreign currency
exchange rate fluctuations and certain commodity prices. To reduce these risks, we selectively use
financial instruments and other proactive management techniques. We do not use financial instruments
for trading purposes or speculation.
Interest Rate Risk. We are exposed to market risk associated with adverse movements in interest
rates. Specifically, we are primarily exposed to changes in earnings and related cash flows on our
variable interest rate debt obligations outstanding under our First and Second Lien Term Loans and
changes in our retained interests related to trade accounts receivable and equipment loans sold to our
special-purpose securitization entity.

46

Effective October 31, 2010, the Company entered into a $110.0 million interest rate swap
agreement with The Bank of Nova Scotia to hedge a portion of its interest rate risk related to its term
loan borrowings. Under the swap, which matures on October 31, 2013, the Company pays a fixed rate of
0.858% and receives or pays quarterly interest payments based upon the three month LIBOR rate. Under
the swap, net cash interest paid during 2012 was $0.4 million. The fair value of this interest rate swap
agreement, which represents the amount that the Company would pay upon a settlement of this
instrument, was $0.5 million and $0.3 million at December 31, 2012 and 2011, respectively.
Effective October 31, 2010, the Company entered into a $40.0 million interest rate swap
agreement with The Bank of Nova Scotia to hedge a portion of its interest rate risk related to its term
loan borrowings. Under the swap, which matured on October 31, 2012, the Company paid a fixed rate of
0.652% and received or paid quarterly interest payments based upon the three month LIBOR rate. Under
the swap, net cash interest paid during 2012 was $0.1 million. The fair value of this interest rate swap
agreement, which represents the amount that the Company would have paid upon a settlement of this
instrument, was less than $0.1 million at December 31, 2011.
An interest rate cap is in place as part of the Asset Backed Facility to limit the Companys
exposure to interest rate increases which may adversely affect the overall performance of our equipment
financing activities. The interest rate cap limits the Companys exposure to fluctuations in interest rates
to 6.27% for fixed rate loans. The notional amount of the cap, which was $54.0 million at December 31,
2012, varies based on the originations and payoffs of our fixed-rate loan portfolio. The fair value of the
interest rate cap contract, which represents the amount that the Company would receive upon a
settlement of this instrument, was $0.1 million and $0.3 million at December 31, 2012 and 2011,
respectively.
The Company recognized losses reflecting changes in the fair value of interest rate swaps of $0.2
million and $1.3 million for the years ended December 31, 2012 and 2011, respectively, and a gain of
$1.0 million for the year ended December 31, 2010. The Company recognized losses reflecting changes
in the fair value of the interest rate cap of $0.2 million, $0.5 million and $0.5 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
Foreign Currency Risk. The Company has manufacturing, sales and distribution facilities in
Belgium and sales and distribution facilities in Norway and Spain. We also make investments and enter
into transactions denominated in foreign currencies. The vast majority of the Companys international
sales from its domestic operations are denominated in U.S. dollars. However, it is exposed to
transactional and translational foreign exchange risk related to its European Operations. In 2012, net
revenues from European Operations were approximately $79.8 million which represented 15.8% of the
Companys total net revenues.
Regarding transactional foreign exchange risk, the Company enters into certain forward
exchange contracts to reduce the variability of the earnings and cash flow impacts of nonfunctional
currency denominated receivables and payables. The Company does not designate these contracts as
hedge transactions. Accordingly, the mark-to-market impact of these contracts is recorded each period to
current earnings. At December 31, 2012, the Company was managing $6.9 million of Euro foreign
currency contracts which are not designated as accounting hedges.
The Companys primary translation exchange risk exposure at December 31, 2012 was the Euro.
Amounts invested in non-U.S. based subsidiaries are translated into U.S. dollars at the exchange rate in
effect at year end. The resulting translation adjustments are recorded in accumulated other
47

comprehensive income as foreign currency translation adjustments. The foreign currency translation
adjustment component of accumulated other comprehensive income at December 31, 2012 was a $0.9
million gain. The net amount invested in foreign operations at December 31, 2012 was approximately
$44.1 million for which no hedges have been established.
Commodity Risk. The Company is subject to the effects of changing raw material and component
costs caused by movements in underlying commodity prices. The Company purchases raw materials and
components containing various commodities including nickel, zinc, aluminum and copper. The
Company generally buys these raw materials and components based upon market prices that are
established with the vendor as part of the procurement process.
From time to time, the Company enters into contracts with its vendors to lock in commodity
prices for various periods to limit our near-term exposure to fluctuations in raw material and component
prices. In addition, the Company enters into commodity hedge contracts to hedge certain commodity
prices, such as nickel, copper and aluminum, to reduce the variability on its earnings and cash flow
impacts of purchasing raw materials containing such commodities. The Company does not designate
these contracts as hedge transactions. Accordingly, the mark-to-market impact of these contracts is
recorded each period to current earnings. At December 31, 2012, the Company was managing $3.4
million of nickel hedge contracts, $3.2 million of copper hedge contracts and $2.0 million of aluminum
hedge contracts which are not designated as accounting hedges.

48

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to 2012 Financial Statements:

Page
50

Report of Independent Auditors

Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011

51

Consolidated Statements of Comprehensive Income for the years ended December 31,
2012, December 31, 2011 and December 31, 2010

52

Consolidated Statements of Member(s) equity/(deficit) for the years ended December 31,
2012, December 31, 2011 and December 31, 2010

53

Consolidated Statements of Cash Flows for the years ended December 31, 2012, December
31, 2011 and December 31, 2010

54

Notes to Consolidated Financial Statements

55

We refer to Alliance Laundry Holdings LLC, a Delaware limited liability company, as Alliance
Holdings, and, together with its consolidated operations, as the Company, Alliance, we,
our, and us, unless otherwise indicated. Any reference to Alliance Laundry refers to our whollyowned subsidiary, Alliance Laundry Systems LLC, a Delaware limited liability company, and its
consolidated operations, unless otherwise indicated. Any reference to ALH refers to ALH Holding
Inc., a Delaware corporation and Alliance Holdings parent entity.

49

Independent Auditor's Report

To the Board of Directors and the Sole Member of Alliance Laundry Holdings LLC:
We have audited the accompanying consolidated financial statements of Alliance Laundry Holdings
LLC and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2012 and
2011, and the related consolidated statements of comprehensive income, of member(s) equity/(deficit)
and of cash flows for each of the three years in the period ended December 31, 2012.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company's
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Alliance Laundry Holdings LLC and its subsidiaries at December 31,
2012 and 2011, and the results of their operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Emphasis of a Matter
As discussed in Note 4, effective January 1, 2010, the Company adopted the authoritative guidance on
accounting for variable interest entities.
/s/ PricewaterhouseCoopers
Milwaukee, Wisconsin
March 4, 2013
50

ALLIANCE LAUNDRY HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
2012

December 31,
2011

Assets
Current assets:
Cash and cash equivalents............
$
33,341
$
37,618
Restricted cash - for securitization investors......
22,112
17,593
Accounts receivable (net of allowance for doubtful accounts of
$1,659 and $1,384 at December 31, 2012 and 2011, respectively)
14,595
16,838
Inventories, net......
38,378
41,632
Accounts receivable - restricted for securitization investors
79,315
76,852
Loans receivable, net - restricted for securitization investors
44,048
41,769
Deferred income tax asset, net............
10,035
11,515
Prepaid expenses and other current assets.....
4,519
4,219
Total current assets......
246,343
248,036

Loans receivable, net...........

10,555
7,680
Property, plant and equipment, net..........
63,978
54,926
Goodwill................
180,954
180,516
Loans receivable, net - restricted for securitization investors..
206,219
206,413
Deferred income tax asset, net............
566
620
Debt issuance costs, net.............
12,200
9,160
Intangible assets, net............
129,282
132,763
Total assets......
$
850,097
$
840,114

Liabilities and Member(s)' Equity/(Deficit)

Current liabilities:
Current portion of long-term debt.
$
3,750
$
Revolving credit facility........
Accounts payable...........
48,433
46,295
Asset backed borrowings - owed to securitization investors.
81,626
79,028
Other current liabilities........
34,382
35,038
Total current liabilities...........
168,191
160,361

Long-term debt.
478,300
240,674
Asset backed borrowings - owed to securitization investors
184,970
183,144
Deferred income tax liability, net....
27,413
21,509
Other long-term liabilities........
22,927
30,498
Total liabilities......
881,801
636,186

Commitments and contingencies (see Note 18)

Member(s)' equity/(deficit).........
(31,704)
203,928
Total liabilities and member(s)' equity/(deficit)..
$
850,097
$
840,114

The accompanying notes are an integral part of the financial statements.

51

ALLIANCE LAUNDRY HOLDINGS LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

December 31,
2012

Year Ended
December 31,
2011

December 31,
2010

Net revenues:
$
496,987
$
450,724
$
420,504
Equipment and service parts......
8,529
7,271
5,543
Equipment financing, net.....
505,516
457,995
426,047
Net revenues.....
358,118
330,887
302,461
Cost of sales.....
147,398
127,108
123,586
Gross profit.....

84,398
63,295
58,619
Selling, general and administrative expenses....
1,644
Other costs..3,099
87,497
64,939
58,619
Total operating expenses....
59,901
62,169
64,967
Operating income....

19,057
26,262
22,031
Interest expense....
10,399
7,712
Loss from early extinguishment of debt....
30,445
35,907
35,224
Income before taxes....
14,016
12,552
12,623
Provision for income taxes....
$
16,429
$
23,355
$
22,601
Net income ....

Comprehensive income:
$
16,429
$
23,355
$
22,601
Net income....
786
(1,813)
(3,880)
Foreign currency translation adjustment, net..
(1,808)
(5,668)
363
Change in pension liability and other benefits, net..
$
15,407
$
15,874
$
19,084
Comprehensive income

The accompanying notes are an integral part of the financial statements.

52

ALLIANCE LAUNDRY HOLDINGS LLC

CONSOLIDATED STATEMENTS OF MEMBER(S)' EQUITY/(DEFICIT)
(in thousands)

Member(s)'
Equity/(Deficit)
Balances at December 31, 2009
$
196,325
Net income......
22,601
Foreign currency translation adjustment, net..
Change in pension liability
and other benefits, net...
Cumulative effect of change in accounting principle (Note 4). 4,828
Member distributions..
(19,828)
Other
189

Accumulated Other
Comprehensive Income
Foreign
Pension
Currency
Liability and
Translation
Other Benefits
Adjustments

Total
Member(s)'
Equity/(Deficit)

(9,381)
-

363
-

Balances at December 31, 2010. 204,115

Net income......
23,355
Foreign currency translation adjustment, net..
Change in pension liability
and other benefits, net...
Member distributions..
(9,000)
Other
(7)

363
4,828
(19,828)
189

(9,018)
-

1,964
(1,813)

197,061
23,355
(1,813)

(5,668)
-

(14,686)
-

Balances at December 31, 2012....

$
(16,147)

(16,494)

(5,668)
(9,000)
(7)

151
786

(1,808)
-

203,928
16,429
786

937

The accompanying notes are an integral part of the financial statements.

53

192,788
22,601
(3,880)

Balances at December 31, 2011. 218,463

Net income......
16,429
Foreign currency translation adjustment, net..
Change in pension liability
and other benefits, net...
Member contributions..
24,036
Member distributions..
(306,546)
Stock options and other
31,471
$

5,844
(3,880)

(1,808)
24,036
(306,546)
31,471
$

(31,704)

ALLIANCE LAUNDRY HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

December 31,
2012

Year Ended
December 31,
2011

Cash flows from operating activities:

$
16,429
$
23,355
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
16,474
18,639
Depreciation and amortization
2,237
Non-cash interest expense.. 504
(1,699)
3,072
Non-cash (gain)/loss on commodity & foreign exchange contracts, net
20,537
2,526
Non-cash executive unit compensation.
1,406
896
Non-cash charge for pension and post-retirement benefit plans.
8,186
Non-cash charge for write-off of debt issue costs..
2,213
Non-cash charge for write-off of original issue discount on long-term borrowings..
11,195
10,072
Deferred income taxes
(108)
183
Other, net.
Changes in assets and liabilities:
(306)
2,124
Accounts and loans receivable, net..
(2,463)
(15,739)
Accounts receivable - restricted for securitization investors..
3,404
(1,412)
Inventories, net
(2,085)
13,097
Loans receivable, net - restricted for securitization investors..
(93)
(400)
Other assets
2,008
8,099
Accounts payable.
(3,276)
(4,585)
Other liabilities
72,326
62,164
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
(18,239)
(4,519)
Restricted cash - for securitization investors.
Net cash used by investing activities.
(22,758)

December 31,
2010
$

22,601
17,439
173
89
2,539
250
2,944
218
9,801
140
(5,393)
6,340
5,732
(753)
(221)
4,761
(1,459)
65,201

(10,552)
(65)
(10,617)

(9,766)
1,167
(8,599)

Cash flows from financing activities:

757,025
Proceeds from long-term borrowings.
Payments on long-term borrowings
(518,000)
(36,000)
(4)
Change in other long-term debt, net
Cash paid for debt establishment and amendment fees.
(14,757)
(4,556)
2,598
3,876
Net increase/(decrease) in asset backed borrowings related to securitized accounts receivable
Net increase/(decrease) in asset backed borrowings related to securitized loans receivable.
1,826
(5,891)
24,036
Member contributions
(306,546)
(9,000)
Member distributions.
(53,818)
(51,575)
Net cash used by financing activities..

282,150
(287,000)
(502)
(9,409)
(2,080)
(6,689)
(19,828)
(43,358)

(27)
Effect of exchange rate changes on cash and cash equivalents.

(97)

(4,277)
(125)
(Decrease)/increase in cash and cash equivalents.
37,618
37,743
Cash and cash equivalents at beginning of period..
$
33,341
$
37,618
Cash and cash equivalents at end of period

(116)

13,128
24,615
37,743

Supplemental disclosure of cash flow information:

$
16,574
$
20,921
$
20,469
Cash paid for interest on long-term debt and capital lease obligations..
$
6,101
$
7,588
$
9,125
Cash paid for interest - for securitized investors..
$
3,848
$
2,335
$
2,496
Cash paid for income taxes

The accompanying notes are an integral part of the financial statements.

54

ALLIANCE LAUNDRY HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011 and 2010
(Dollar amounts in thousands unless otherwise indicated)
Note 1 - Description of Business and Basis of Presentation
Description of Business
The Company designs and manufactures a full line of commercial laundry equipment for sale in
the U.S. and international markets. The Company also manufactures consumer washing machines for
sale to domestic and international customers. The Company manufactures products in the United States
at two facilities located in Ripon, Wisconsin and at one facility located in Wevelgem, Belgium.
Additionally, the Company provides equipment financing to laundromat operators and other end-users in
the U.S. and Canada.
On January 27, 2005, Ontario Teachers Pension Plan Board (OTPP) and members of the
Companys management indirectly acquired 100% of the outstanding equity interests in Alliance
Holdings through ALH, an entity formed by Teachers Private Capital, the private equity arm of OTPP.
The Company refers to the acquisition of Alliance Holdings and the related management investments in
ALH as the Alliance Acquisition. As a result of the Alliance Acquisition, all of the outstanding equity
interests of Alliance Laundry are owned by Alliance Holdings and all of the equity interests of Alliance
Holdings are owned by ALH. As of December 31, 2012, 82.6% of the capital stock of ALH was owned
by OTPP and approximately 16.8% of the capital stock of ALH was owned by our current management.
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and all of its
majority-owned or controlled subsidiaries that are consolidated in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP). The Company began consolidating its
trust in accordance with variable interest entity accounting guidance effective January 1, 2010 as
discussed in more detail in Note 4 - Asset Backed Facility. The Company accounts for its 50% voting
interest in IPSO-Rent NV under the equity method. Each joint venture partner of IPSO-Rent NV has
identical voting, participating and protective rights and responsibilities and the Company does not have
voting interest control. All significant intercompany transactions have been eliminated. Gains and losses
from the translation of substantially all foreign currency financial statements are recorded in the
accumulated other comprehensive income account within Member(s) equity/(deficit).
Reclassification
Certain previously reported items have been reclassified within the consolidated financial
statements and footnotes to conform to the 2012 presentation.
Note 2 - Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires the Company to make estimates and assumptions that affect the reported amounts of
55

assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid instruments with an initial maturity of three months or less at the date of
purchase are considered cash equivalents.
Revenue Recognition
Revenue from product sales is recognized by the Company when all of the following criteria are
met: persuasive evidence of an arrangement exists; shipment has occurred and ownership has transferred
to the customer; the price to the customer is fixed or determinable and collectability is reasonably
assured. With the exception of certain sales to international customers, which are recognized upon
receipt or acceptance by the customer, these criteria are satisfied and revenue is recognized upon
shipment by the Company.
Financing Program Revenue
As discussed below, the Company sells trade receivables and equipment loans through its
special-purpose bankruptcy remote entity and a related trust. As servicing agent, the Company retains
collection and administrative responsibilities for the accounts and loans receivable. Beginning January 1,
2010, based on accounting guidance that became effective on that date, the trust has been consolidated
into the Companys financial statements. The Company recognizes interest income on sold equipment
loans in the period the interest is earned. The Company receives a servicing fee, based on the average
outstanding balance, for the trade receivables and equipment loans sold. The Company does not
establish a servicing asset or liability since the servicing fee adequately compensates the Company for
the retained servicing rights. The servicing fee is recognized as collected over the remaining terms of the
trade receivables and equipment loans sold. Beginning January 1, 2010, interest income, servicing
revenue, interest expense on outstanding borrowings and underwriting, collections and bad debt
expenses are included within the Equipment financing, net line of the Consolidated Statements of
Comprehensive Income.
Sales of Equipment Loans and Accounts Receivable (See Notes 4 and 5)
The Company sells substantially all of its equipment loans and accounts receivable to third
parties through a special-purpose bankruptcy remote entity and a related trust. In a subordinated
capacity, the Company retains rights to the residual portion of cash flows, including interest earned, from
the equipment loans sold. The Company consolidates the trust, including the assets and liabilities
associated with the sale of accounts and loans receivable, into its Consolidated Financial Statements in
accordance with accounting guidance that became effective January 1, 2010.
Inventories
Inventories are valued at cost using the first-in, first-out method but not in excess of net
realizable value. The Companys policy is to quarterly evaluate all inventories for obsolescence.
Inventory in excess of the Companys estimated usage requirements is recorded at its estimated net
realizable value. Inherent in the estimates of net realizable value are estimates related to future
56

manufacturing schedules, customer demand, possible alternate uses and ultimate realization of
potentially excess inventory.
Loans Receivable
Loans receivable reflect equipment loans that the Company expects to sell shortly after the
balance sheet date and non-performing and other loans not eligible for sale to the Companys existing
securitization facility. Loans receivable are stated at the principal amount outstanding net of the
allowance for credit losses. Interest income is accrued as earned on outstanding balances. Recognition of
income is suspended when it is determined that collection of future income is not probable (after 90 days
past due). Fees earned and incremental direct costs incurred upon origination of equipment loans are not
significant.
Impairment of Sold and Unsold Loans Receivable
The Company determines that a loan receivable is impaired when it is probable that it will be
unable to collect all amounts due according to the contractual terms of the loan. These equipment loans
are collateral-dependent and measurement of impairment is based upon the estimated fair value of
collateral.
The determination of the allowance for credit losses is based on an analysis of the related loans
and reflects an amount which, in the Companys judgment, is adequate to provide for probable credit
losses. Loans deemed to be uncollectible are charged off and deducted from the allowance. The
allowance is increased for recoveries and by charges to earnings.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Betterments and major renewals are capitalized
and included in property, plant and equipment while expenditures for maintenance and minor renewals
are charged to expense. The costs of assets and related allowances for depreciation and amortization are
eliminated when assets are retired or otherwise disposed of and any resulting gain or loss is reflected in
operating costs. Long-lived assets to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the related carrying amount may not be recoverable based upon
related estimated future undiscounted cash flows. Impairment losses on assets to be held and used are
recognized, when required, when the fair value of the asset is less than its carrying value. Long-lived
assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell.
Depreciation provisions are based on the following estimated useful lives: buildings 40 years;
machinery and equipment (including production tooling) 5 to 10 years; vehicles 4 years and data
processing equipment 3 years. Leasehold improvements are amortized over the lesser of the remaining
life of the lease or the estimated useful life of the improvement.
Goodwill and Intangible Assets
Goodwill is tested for impairment at least annually and more frequently if an event occurs which
indicates the goodwill may be impaired. Impairment of goodwill is measured according to a two-step
approach. In the first step, the fair value of a reporting unit is compared to the carrying value of the
reporting unit, including goodwill. The Companys reporting units are the same as its operating
segments. The second step of the goodwill impairment test is performed to measure the amount of the
57

impairment loss, if any, if the carrying amount of the reporting unit exceeds its fair value in the first step.
In the second step, the implied value of the goodwill is estimated as the fair value of the reporting unit
less the fair value of all other tangible and intangible assets of the reporting unit. An impairment loss is
recognized if the carrying amount of the goodwill exceeds the implied fair value of the goodwill in an
amount equal to that excess, but not to exceed the carrying amount of the goodwill. The fair values of
the Companys reporting units are determined with the assistance of a third party using a discounted cash
flow model.
The Companys tradenames and trademarks have been deemed to have an indefinite life as the
Company expects to continue to use these assets for the foreseeable future. There are no limitations of a
legal, regulatory or contractual nature that limits the period of time for which the Company can use these
assets. The Company has the right to continue to use these assets and can continue to do so with limited
cost to the Company. The effects of obsolescence, demand, competition and other economic factors are
not expected to impact the indefinite life assumptions. Intangible assets not subject to amortization
(indefinite-lived intangible assets) are tested for impairment at least annually and more frequently if an
event occurs which indicates the intangible asset may be impaired. The impairment test consists of a
comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is
recognized if the carrying amount of an intangible asset exceeds its fair value in an amount equal to that
excess, but not to exceed the carrying amount of the intangible asset. The fair value of the tradenames
and trademarks is determined with the assistance of a third party using the relief-from-royalty method.
Income Taxes
The income tax provision is computed based on the pretax income included in the Consolidated
Statements of Comprehensive Income. Certain items of income and expense are not recognized on the
Companys income tax returns and financial statements in the same year which creates timing
differences. The income tax effect of these timing differences results in (1) deferred income tax assets
that create a reduction in future income taxes and (2) deferred income tax liabilities that create an
increase in future income taxes. Recognition of deferred income tax assets is based on managements
belief that it is more likely than not that the income tax benefit associated with temporary differences
will be realized. The Company records a valuation allowance to reduce its net deferred income tax assets
if, based on its assessment of future taxable income, it is more likely than not that it will not be able to
use these tax benefits. The Company may have to adjust the valuation allowance if its estimate of future
taxable income changes at any time. Recording such an adjustment could have a material adverse effect
on the Companys Consolidated Statements of Comprehensive Income.
Deferred income taxes are provided on the unremitted earnings of foreign subsidiaries that are
not part of a consolidated tax return unless such earnings are deemed to be indefinitely reinvested. The
Company plans to have its foreign subsidiaries pay dividends to the U.S. and has provided deferred taxes
on the unremitted earnings.
Warranty Liabilities
The costs of warranty obligations are estimated and provided for at the time of sale. Standard
product warranties vary from one to three years for most parts with certain components extending to ten
years. The Company also sells separately priced extended warranties associated with our products. The
Company recognizes extended warranty revenues over the period covered by the warranty. The reserves
for standard and extended warranties are included in the table in Note 13 - Guarantees.

58

Advertising Expenses
Advertising costs are expensed as incurred. These costs were approximately $6.4 million, $6.0
million and $4.3 million for the years ended December 31, 2012, 2011 and 2010 respectively.
Shipping and Handling Fees and Costs
Shipping and handling fees and costs are reflected in net revenues and cost of sales as
appropriate.
Sales Incentive Costs
All sales incentive costs including cash discounts, customer promotional allowances and volume
rebates are reflected as a reduction within net revenues.
Debt Issuance Costs (See Note 15)
From time to time the Company enters into new, or amends existing, credit agreements to
support our operations, securitization activities, distributions and other purposes. These refinancing
activities and related costs, as well as any capitalized costs and original issue discounts from prior
transactions, are capitalized or expensed in accordance with the debt modification and debt
extinguishment accounting guidance.
Foreign Currencies
The Company translates the results of operations of its foreign entities using average exchange
rates for each month while balance sheet accounts are translated using exchange rates at the end of each
period. The Company records currency translation adjustments as a component of Member(s)
equity/(deficit). Transaction gains and losses are recorded in earnings and were not significant for any of
the periods presented.
Research and Development Expenses
Research and development expenditures are expensed as incurred. Research and development
costs were $12.6 million, $11.0 million and $9.3 million for the years ended December 31, 2012, 2011
and 2010, respectively.
Fair Value of Other Financial Instruments
The carrying amounts reported in the Consolidated Balance Sheets for Cash and cash
equivalents, Restricted cash - for securitization investors, Accounts receivable, net, Accounts receivable
- restricted for securitization investors, Loans receivable, net - restricted for securitization investors,
Accounts payable and Asset backed borrowings - owed to securitization investors approximate fair value
either due to the short-term nature or since longer-term instruments have interest at variable rates that reprice frequently. The fair values of the Companys First and Second Lien Term Loans at December 31,
2012 and the 2010 Senior Term Loan at December 31, 2011 are estimated based upon prices prevailing
in recent market transactions. The fair value of interest rate swaps and commodity and foreign exchange
hedges are obtained based upon third party quotes.

59

Current accounting guidance defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants. It also specifies a fair value
hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest
level) reflect market data obtained from independent sources while unobservable inputs (lowest level)
reflect internally developed market assumptions. In accordance with the guidance, fair value
measurements are classified under the following hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and model-derived
valuations in which all significant inputs or significant value-drivers are observable in
active markets.
Level 3 - Model-derived valuations in which one or more significant inputs or significant
value-drivers are unobservable.

When available, the Company uses quoted market prices to determine fair value and classifies
such measurements within Level 1. In some cases where market prices are not available, the Company
makes use of observable market based inputs to calculate fair value, in which case the measurements are
classified within Level 2. If quoted or observable market prices are not available, fair value is based
upon internally developed models that use, where possible, current market-based parameters such as
interest rates, yield curves and currency rates. These measurements are classified within Level 3.
Fair value measurements are classified according to the lowest level input or value-driver that is
significant to the valuation. A measurement may therefore be classified within Level 3 even though there
may be significant inputs that are readily observable.
Derivative Financial Instruments
Current accounting guidance requires us to recognize all derivatives as either assets or liabilities
and measure those instruments at fair value. Changes in the fair value of derivatives are recognized in
net income or other comprehensive income, as appropriate. The Company does not designate any of its
derivatives as hedges and, as such, records all changes in fair values as a component of current earnings.
The Company periodically enters into short-term natural gas supply contracts for its facilities.
The Company concluded that these contracts met the normal purchases and sales exception of current
accounting guidance and, therefore, does not record fair value adjustments of these instruments in the
Consolidated Financial Statements.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
include trade accounts receivable and equipment loans. Concentrations of credit risk with respect to
trade receivables and equipment loans are limited, to a degree, by the large number of geographically
diverse customers that make up the Companys customer base. The Company controls credit risk
through credit approvals, credit limits and monitoring procedures as well as secured payment terms or
Foreign Credit Insurance Agency (FCIA) insurance for sales to certain international customers.

60

Certain Concentrations
The Company sells its products primarily to independent distributors. Our top ten equipment
customers accounted for approximately 25.7% of our 2012 net revenues. No one customer accounts for
more than 10% of the Companys 2012, 2011 and 2010 net revenues.
Recently Issued Accounting Standards
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends
Accounting Standards Codification (ASC) 350, Intangibles - Goodwill and Other. This ASU gives an
entity the option to first assess qualitative factors to determine if indefinite-lived intangible assets (other
than goodwill) are impaired. The entity may first determine based on qualitative factors if it is more
likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amount.
The quantitative impairment test is not required if the qualitative assessment indicates no impairment.
The effective date will be the first quarter of fiscal year 2013 with early adoption permitted. The
adoption will not have a material effect on the Companys consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and
Liabilities, which amends ASC 210, Balance Sheet. This ASU requires entities to disclose gross and net
information about both instruments and transactions eligible for offset in the statement of financial
position and those subject to an agreement similar to a master netting arrangement. This would include
derivatives and other financial securities arrangements. The effective date will be the first quarter of
fiscal year 2014 and must be applied retrospectively. The adoption will not have a material effect on the
Companys consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation
of Comprehensive Income. The amendments in ASU 2011-05 require entities to present the total of
comprehensive income, the components of net income and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. Additionally, the amendments in ASU 2011-05 require an entity to present on
the face of the financial statements reclassification adjustments for items that are reclassified from other
comprehensive income to net income in the statement(s) where the components of net income and the
components of other comprehensive income are presented. ASU 2011-05 is effective for interim and
annual periods beginning after December 15, 2011. The Company has adopted ASU No. 2011-05
effective with the interim financial statements for the quarter ended March 31, 2012 with the required
disclosures reflected in our Consolidated Statements of Comprehensive Income.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820),
Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S.
GAAP and IFRS. This ASU amends the wording used to describe many of the requirements for
measuring fair value to achieve the objective of developing common fair value measurement and
disclosure requirements as well as improving consistency and understandability. Some of the
requirements clarify the FASBs intent about the application of existing fair value measurement
requirements while other amendments change a particular principle or requirement for measuring fair
value or for disclosing information about fair value measurements. ASU No. 2011-04 is effective for
calendar years beginning after December 15, 2011. The Company has adopted ASU No. 2011-04
effective with this annual financial statement. The adoption did not have a material effect on the
Companys consolidated financial statements.
61

Note 3 - Other Costs

During 2012, the Company incurred costs of approximately $2.7 million for legal and other
professional fees and expenses related to a potential acquisition. Additionally $0.4 million was paid for
dividend related costs incurred in April and December. These amounts are included in the Other costs
line of the Consolidated Statements of Comprehensive Income.
During the first quarter of 2011, the Company announced its intention to close its Nazareth,
Belgium manufacturing facility due to product line changes and the ability to better utilize existing space
at its other facilities. During 2011, the Company accrued an obligation for the closure of $1.6 million
which was comprised of a charge of $1.1 million for severance expenses related to the affected
employees based on statutory requirements in Belgium and a charge of $0.5 million for lease
cancellation expenses and other costs related to the closure of the manufacturing facility. These amounts
are included in the Other costs line of the Consolidated Statements of Comprehensive Income. These
obligations were fully settled by June 2012.
Note 4 - Asset Backed Facility
General
The Company maintains an internal financing organization to originate and administer sales of
trade receivables and equipment loans for financing of equipment purchases primarily for laundromats.
The trade receivables are short term in nature and generally do not accrue interest. The equipment loans
typically have interest rates ranging primarily from Prime plus 1.0% to Prime plus 6.0% for variable rate
equipment loans and 7.99% to 12.75% for fixed rate equipment loans. The average interest rate for all
loans at December 31, 2012 is 7.59% with terms ranging primarily from two to ten years. All loans
allow the holder to prepay outstanding principal amounts without penalty.
Funding Facilities
On June 26, 2009, Alliance Laundry, through a special-purpose bankruptcy remote subsidiary,
Alliance Laundry Equipment Receivables 2009 LLC (ALER 2009), and a trust (a qualified special
purpose entity or QSPE), Alliance Laundry Equipment Receivables Trust 2009-A (ALERT 2009A),
entered into a one year $330.0 million revolving credit facility (the Asset Backed Facility) backed by
equipment loans and trade receivables originated by the Company. Through the revolving period
(June 25, 2010) of the Asset Backed Facility (the Revolving Period), Alliance Laundry is permitted,
from time to time, to sell its trade receivables and certain equipment loans to its special-purpose
subsidiary, which in turn transfers them to the trust.
Effective June 25, 2010, the administrative agent and noteholders under the Asset Backed
Facility amended the due date of the Revolving Period to June 24, 2011, among other things, based on a
request by ALERT 2009A. The Company incurred $1.7 million of fees in connection with the extension
of the Revolving Period. These fees were capitalized and are included in the Prepaid expenses and other
assets line of our Consolidated Balance Sheet. These fees were amortized over the remaining life of the
amended facility.
Effective June 17, 2011, the administrative agent and noteholders under the Asset Backed
Facility amended the agreement to extend the termination date of the Revolving Period through June 16,
2013 with the noteholders option to extend for an additional year if requested by ALERT 2009A. The
Company incurred $4.6 million of fees in connection with the extension of the Revolving Period of
which $4.1 million was capitalized and is included in the Debt issuance costs, net line of the
62

Consolidated Balance Sheets. These fees will be amortized over the remaining life of the facility. Fees of
$0.5 million were incurred to extend an interest rate cap for the amended termination date. The interest
rate cap is marked to market each month and is included in the Accounts receivable, net line of the
Consolidated Balance Sheets.
In December 2012 the Company paid fees of $0.3 million to amend the Asset Backed Facility in
order to update the financial covenants in consideration of the December 2012 Refinancing Transaction.
See Note 15 - Debt for additional details of this transaction.
The trust finances the acquisition of the trade receivables and equipment loans through
borrowings under the Asset Backed Facility in the form of funding notes which are limited to an advance
rate of approximately 85% for equipment loans and 70% (55% - 65% prior to the June 17, 2011
amendment) for trade receivables. Funding availability for trade receivables is limited to a maximum of
$60.0 million while funding for equipment loans is limited to $330.0 million less the amount of funding
outstanding for trade receivables. Funding for the trade receivables and equipment loans is subject to
certain eligibility criteria, including concentration and other limits, which are standard for transactions of
this type. The administrative agent and noteholders under the Asset Backed Facility have the right to
extend the termination date of the Revolving Period through June 16, 2014, provided no event of default
or rapid amortization event has occurred and is continuing, upon a request by ALERT 2009A and will
inform ALERT 2009A at least thirty (30) days prior to the termination date whether such date is
extended. An inability to extend the Revolving Period or replace this facility could have a material
adverse effect on the business, financial condition and results of operations including the Companys
revenue, EBITDA, liquidity and leverage. After the Revolving Period, or June 16, 2014 if the Revolving
Period is extended (or earlier in the event of a rapid amortization event or an event of default), the trust
will not be permitted to request new borrowings under the facility and the outstanding borrowings will
amortize over a period of up to nine years. The balance of variable funding notes due to lenders for trade
receivables was $42.5 million and $42.1 million and the balance for equipment loans was $224.1 million
and $220.1 million as of December 31, 2012 and 2011, respectively.
Additional advances under the Asset Backed Facility are subject to certain continuing conditions,
including but not limited to: (i) covenant restrictions relating to the weighted average life, weighted
average interest rate and the amount of fixed rate equipment loans held by the trust; (ii) the absence of a
rapid amortization event or event of default, as defined; (iii) our compliance, as servicer, with certain
financial covenants and (iv) no event having occurred which materially and adversely affects our
operations.
The variable funding notes issued under the Asset Backed Facility will commence amortization,
and borrowings under the Asset Backed Facility will cease prior to June 16, 2013, upon the occurrence
of certain rapid amortization events which include: (i) a borrowing base shortfall exists and remains
uncured; (ii) delinquency, dilution or default ratios on pledged receivables and equipment loans
exceeding certain specified ratios in any given month; (iii) the days sales outstanding on receivables
exceed a specified number of days; (iv) the occurrence and continuance of an event of default or servicer
default under the Asset Backed Facility, including but not limited to, as servicer, a material adverse
change in our business or financial condition and our compliance with certain required financial
covenants and (v) a number of other specified events. As of December 31, 2012, no rapid amortization
events have occurred.
The risk of loss to the note purchasers under the Asset Backed Facility resulting from default or
dilution on the trade receivables and equipment loans is mitigated by credit enhancement provided by us
in the form of cash reserves, letters of credit ($34.3 million as of December 31, 2012) and overcollateralization. All of the residual beneficial interests in the trust and cash flows remaining from the
63

pool of receivables and loans after payment of all obligations under the Asset Backed Facility will accrue
to the benefit of Alliance Laundry. The Company provides no support or recourse for the risk of loss
relating to default on the assets transferred to the trust except for the retained interests and amounts of
the letters of credit outstanding from time to time as credit enhancement. The Company also retains the
servicing rights and receives a servicing fee for the trade receivables and equipment loans sold and is
paid an annual servicing fee equal to 1.0% of the aggregate balance of such trade receivables and
equipment loans.
Under the Asset Backed Facility, interest payments on the variable funding notes are paid
monthly at an interest rate equal to the noteholders applicable commercial paper rate plus a margin of
135 basis points for trade receivables and 185 basis points for equipment loans. If an event of default
occurs, the otherwise applicable interest rate will be increased by an amount equal to 200 basis points
per annum. The lenders under the Asset Backed Facility also earn an unused facility fee of 0.75% of the
unfunded portion of each lender's commitment amount prior to a rapid amortization event or event of
default.
On January 1, 2010, the Company adopted accounting standards relating to the consolidation of
variable interest entities and accounting for transfers of financial assets. In evaluating the variable
interest entity accounting guidance, the Company first evaluated if the trust should be consolidated as the
guidance now included QSPEs within its scope. The Company concluded that it is the primary
beneficiary of the trust as (1) it has the power to direct the activities of the trust that most significantly
impact the trust's economic performance and (2) the Company has the obligation/right to absorb
losses/receive benefits that could potentially be significant to the trust. As a result, the Company
consolidated the trust in accordance with its adoption of the new variable interest entity guidance on
January 1, 2010.
Using the carrying amounts of the trust assets and liabilities as prescribed by the accounting
guidance, on January 1, 2010 the Company recorded a $278.4 million increase in total assets, a $273.6
million increase in total liabilities and a $4.8 million cumulative effect increase in Member(s)
equity/(deficit). The primary transition adjustments, which were reflected as non-cash adjustments at
January 1, 2010, include:

Consolidation of $340.6 million of gross receivable assets ($67.5 million related to trade
receivables and $273.1 million related to equipment loans).
Consolidation of $273.0 million of variable funding note debt ($42.1 million related to trade
receivables and $230.9 million related to equipment loans).
Consolidation of $18.7 million of restricted cash collateral accounts.
Recording of a $9.9 million allowance for loan losses, not previously required under
generally accepted accounting principles (GAAP), for the newly consolidated equipment
loan receivables.
Recording of a $3.7 million deferred tax asset related to the establishment of the allowance
for loan losses discussed above.
Recording of an interest rate cap valued at $0.8 million, to limit exposure on the interest
expense on the variable funding note debt.
Elimination of retained interests in trade receivables and equipment loans receivable ($26.4
million for trade receivables and $46.8 million for equipment loans receivables).

64

The assets of the consolidated ALERT 2009A trust include restricted cash and certain trade and
equipment loan receivables which are restricted to settle the obligations of the trust. Liabilities of the
consolidated trust include secured borrowings which are not an obligation of ALS. The creditors of the
trust do not have access to the assets of ALS with the exception of ALSs retained interest in the trust
and letters of credit related to the trust.
Portfolio Information
The table below summarizes certain information regarding the Companys equipment loan
portfolio, delinquencies and cash flows received from and paid to its special-purpose securitization
entity:
December 31, 2012
Principal Amount
of Loans 60 Days
Principal Amount
or More Past Due
Total portfolio..
$
271,587
$
8,081
Less: loans sold.
260,109
8,000
Loans held..
11,478
81
Allowance for loan losses
(923)
$
10,555

December 31, 2011

Principal Amount
of Loans 60 Days
Principal Amount
or More Past Due
$
266,326
$
10,827
258,294
10,500
8,032
327
(352)
$
7,680

The weighted-average remaining expected life of equipment loans held by the trust was
approximately 37 months at December 31, 2012.
The Companys credit losses, on a total portfolio basis, as a percentage of average loans
outstanding during 2012, 2011 and 2010 were 1.0%, 1.4% and 1.7%, respectively. The following table
presents activity in the allowance for loan losses related to loans held on the balance sheet:
Balance at
January 1

Current
Period
Provision

Unsecuritized Loan Portfolio

Period ended:
2010..
$
160
$
2011..
265
2012..
352

552

Securitized Loan Portfolio

- restricted for securitization investors
Period ended:
2010..
$ 9,925
$ 4,584
2011..
9,800
4,055
2012..
10,129
2,355

Actual
Write-Offs

Recoveries

Balance at
December 31

(44)

105
87
63

265
352
923

(4,760)
(3,836)
(2,759)

51
110
117

9,800
10,129
9,842

Troubled Debt Restructurings

A troubled debt restructuring (TDR) occurs when a creditor grants a concession it would not
otherwise consider to a debtor that is experiencing financial difficulties. The Company offers various
types of concessions when modifying an equipment loan including extended maturities, below market
interest rates, interest-only periods and deferred payment periods. However, forgiveness of principal is
rarely granted.
65

TDRs are reviewed along with other equipment loans as part of managements ongoing
evaluation of the adequacy of the allowance for credit losses. The allowance for credit losses attributable
to TDRs is based on the most probable source of recovery which is normally the liquidation of collateral.
The Company estimates the current fair market value of collateral and also factors in credit
enhancements such as additional collateral and contractual third-party guarantees.
As of December 31, 2012, there was one loan for $0.3 million modified as a TDR. The
modification did not reduce principal but did lengthen the repayment term and lowered the interest rate.
Note 5 - Securitization Activities
The Companys securitization activities are accounted for as a secured borrowing and the trust is
treated as a consolidated subsidiary of the Company. The following lines of the Companys
Consolidated Balance Sheets are specific to the Companys securitization and are restricted for
securitization investors only:

Restricted cash - for securitization investors

Accounts receivable - restricted for securitization investors
Loans receivable, net - restricted for securitization investors (current and long-term)
Asset backed borrowings - owed to securitization investors (current and long-term)

Certain aspects of the Companys retained interest in the assets of the trust constitute
intercompany positions which are eliminated in the preparation of the Companys Consolidated Balance
Sheets. Trust receivables underlying the Companys retained interest are recorded in Accounts
receivable - restricted for securitization investors and Loans receivable, net - restricted for securitization
investors.
Restricted Cash - for Securitization Investors
To protect the noteholders of the trust, additional collateral in the form of a cash reserve equal to
1% of the accounts receivable and loans receivable balances is maintained as well as a yield account for
lower interest rate loans. Additionally, collection accounts to facilitate the collection and disbursement
of funds are maintained separately for accounts receivable and loans receivable. At December 31, 2012
and 2011, the components of restricted cash were:
December 31,
December 31,
2012
2011
Cash reserve accounts.
$
3,340
$
3,238
Collection accounts - accounts receivable..
7,914
3,779
Collection accounts - loans receivable
10,858
10,576
Restricted cash - for securitization investors.
$
22,112
$
17,593

Securitization Activities
The Company transfers accounts receivable and equipment loans to its special-purpose
bankruptcy remote subsidiary in the ordinary course of business as part of its ongoing securitization
activities. The Company receives a combination of cash and residual interests in the transferred assets in
its securitization transactions.

66

At December 31, 2012 and 2011, the residual interest in Accounts receivable - restricted for
securitization investors were:

December 31,
December 31,
2012
2011
Accounts receivable - restricted for securitization investors
$
79,315
$
76,852
(42,064)
Less: Asset backed borrowings - owed to securitization investors..(42,498)
Company's residual interest in securitized accounts receivable..
$
36,817
$
34,788

At December 31, 2012 and 2011, the residual interest in Loans receivable, net - restricted for
securitization investors were:
December 31,
2012
Current
Long term
Loans receivable - restricted for securitization investors.
$
47,209
$ 212,900
Less: bad debt reserve on loans receivable
(3,161)
(6,681)
206,219
Loans receivable, net - restricted for securitization investors 44,048
(39,128)
(184,970)
Less: Asset backed borrowings.
Company's residual interest in securitized loans receivable.
$
4,920
$ 21,249

December 31,
2011
Current
Long term
$
44,985
$ 213,326
(3,216)
(6,913)
41,769
206,413
(36,964)
(183,144)
$
4,805
$ 23,269

Asset Backed Borrowings - Owed to Securitization Investors

The current portion of the asset backed borrowings owed to securitization investors in the
Companys Consolidated Balance Sheets represents the third party noteholders interest in trade
receivables and the current portion of equipment loans receivable. The long-term portion of the asset
backed borrowings owed to securitization investors in the Companys Consolidated Balance Sheets
represents the third party noteholders interest in the long-term portion of equipment loans receivable.
Amounts owed to securitization investors as of December 31, 2012 for their interest in securitized loans
receivable and accounts receivable were $224.1 million and $42.5 million, respectively. Future
minimum payments on asset backed borrowings are as follows:
Related to
Related to
Equipment
Total
Trade
Loan
Securitization
Receivables
Receivables
Debt
Year
2013.
$
42,498
$
39,128
$
81,626
2014.
39,599
39,599
2015.
36,542
36,542
2016.
33,238
33,238
2017.
27,865
27,865
Thereafter.
47,726
47,726
Securitization Debt
$
42,498
$
224,098
$
266,596

Credit Quality of Financing Receivables

Past due balances of loans receivable represent the principal balance of loans held with any
payment amounts between 30 and 89 days past the contractual payment due date. Non-performing loans
receivable represent loans that are generally more than 90 days delinquent and the estimated
uncollectible amounts have been written off to the allowance for doubtful accounts. The Company does
67

not accrue interest income on non-performing loans. Finance income for non-performing loans
receivable is recognized on a cash basis.
An aging analysis of past due, non-performing and current loans receivable as of December 31,
2012 and 2011 is shown below:

30-59 Days
Past Due

60-89 Days
Past Due

Unsecuritized Loan Portfolio

$
14
$
Securitized Loan Portfolio
$
3,380
$
1,897

30-59 Days
Past Due

60-89 Days
Past Due

Unsecuritized Loan Portfolio

$
19
$
Securitized Loan Portfolio
$
4,085
$
2,451

December 31, 2012

Over 90 Days
Total 30-89
NonDays Past Due
Performing
$
$

14
5,277

$
$

81
6,103

December 31, 2011

Over 90 Days
Total 30-89
NonDays Past Due
Performing
$
$

19
6,536

$
$

327
8,552

Current

Total
Portfolio
Balance

Allowance for
Doubtful
Accounts

Total
Loans
Receivable, net

$ 11,383
$ 248,729

$ 11,478
$ 260,109

$
$

$
$

Current

Total
Portfolio
Balance

Allowance for
Doubtful
Accounts

Total
Loans
Receivable, net

$ 7,686
$ 243,223

$ 8,032
$ 258,311

$
$

$
$

(923)
(9,842)

(352)
(10,129)

10,555
250,267

7,680
248,182

Other Trust Items

The Company capitalized debt issuance costs of $0.3 million, $4.1 million and $1.7 million
associated with amendments to the Asset Backed Facility in 2012, 2011 and 2010, respectively.
Amortization expense related to debt issuance costs was $2.1 million, $1.9 million and $0.8 million for
the years ended December 31, 2012, 2011 and 2010, respectively. Accumulated amortization of debt
issuance costs related to the Asset Backed Facility was $3.2 million, $1.1 million and $0.8 million for
the years ended December 31, 2012, 2011 and 2010, respectively.
An interest rate cap is in place as part of the Asset Backed Facility to limit the Companys
exposure to interest rate increases which may adversely affect the overall performance of the Companys
equipment financing activities. The interest rate cap limits the Companys exposure to fluctuations in
interest rates to 6.27% for fixed rate loans. The notional amount of the cap, which was $54.0 million at
December 31, 2012, varies based on the originations and payoffs of our fixed-rate loan portfolio. The
interest rate cap was amended to extend the expiration date to July 5, 2021 in conjunction with the
extension of the Asset Backed Facility. Fair value disclosures related to the interest rate cap agreement
are shown below:

Notional
Amount
Undesignated derivatives
Interest rate cap
Total undesignated derivatives

$ 54,000

Notional
Amount
Undesignated derivatives
Interest rate cap
Total undesignated derivatives

$ 54,000

December 31, 2012

Fair Value (Level 2) of
Hedge
Hedge
Assets
Liabilities
$
$

105
105

$
$

December 31, 2011

Fair Value (Level 2) of
Hedge
Hedge
Assets
Liabilities
$
$

280
280

68

$
$

Location on
Balance Sheet
Accounts receivable, net

Location on
Balance Sheet
Accounts receivable, net

Term
Through 7/5/21

Term
Through 7/5/21

Undesignated Hedges
Interest rate cap

Location in
Statement of
Income
Interest expense

(Loss) Recognized on Undesignated Hedges

for the Year Ended December 31,
2012
2011
2010
$
(175)
$
(515)
$
(457)

Equipment financing, net as shown in the Consolidated Statements of Comprehensive Income is

comprised of the following amounts:
December 31,
2012
Interest income.
$
19,538
Other income..
1,169
Interest expense on asset backed
borrowings - owed to securitization investors(5,247)
Underwriting and collection expenses.(4,024)
Bad debt expense..(2,907)
Equipment financing, net
$
8,529

Year Ended
December 31,
2011

December 31,
2010

20,172
1,154
(6,435)
(3,565)
(4,055)
7,271

20,703
991
(7,952)
(3,614)
(4,585)
5,543

Note 6 - Inventories
Inventories consisted of the following at:
December 31,
2012

December 31,
2011

Materials and purchased parts

$
16,494
$
Work in process
7,339
Finished goods .
19,540
Less: inventory reserves .
(4,995)
$
38,378
$

17,168
7,196
20,909
(3,641)
41,632

Note 7 - Property, Plant and Equipment

Property, plant and equipment consisted of the following at:
December 31,
2012

December 31,
2011

Land
$
2,596
$
2,572
Buildings and leasehold improvements..
38,540
37,104
Machinery and equipment
87,270
79,010
128,406
118,686
Less: accumulated depreciation..
(76,839)
(68,382)
51,567
50,304
Construction in progress..
12,411
4,622
$
63,978
$
54,926

Depreciation expense was $9.0 million, $9.3 million and $9.8 million for the years ended
December 31, 2012, 2011 and 2010, respectively.

69

Note 8 - Goodwill and Other Intangibles

Identifiable intangible assets, which are subject to amortization, consist primarily of customer
agreements and distributor networks, engineering drawings, product designs and manufacturing
processes, noncompete agreements, patents and computer software. These intangible assets are
amortized over the assets estimated useful lives which range from three to twenty years. Intangible
assets also include certain trademarks and tradenames which have an indefinite life. Such assets are not
amortized, but are subject to an annual impairment test pursuant to current accounting guidance.
Amortization expense was $3.9 million, $6.2 million and $5.1 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
Estimated amortization expense for existing identifiable intangible assets beginning in 2013 is
expected to be approximately $3.7 million, $3.5 million, $3.4 million, $2.2 million and $0.8 million for
each of the years in the five-year period ending December 31, 2017. Estimated amortization expense can
be affected by various factors including future acquisitions or divestitures of product and/or licensing
and distribution rights.
The following is a summary of identifiable intangible assets as of December 31, 2012:
Gross
Amount
Identifiable intangible assets:
Trademarks and tradenames
$ 112,785
Customer agreements and distributor network.
30,890
Engineering and manufacturing designs
and processes 15,060
Noncompete agreements.
1,771
Patents
664
Computer software and other
10,642
$ 171,812

Accumulated
Amortization
$

25,811
9,980
1,771
101
4,867
42,530

Net
Amount
$

112,785
5,079
5,080
563
5,775
129,282

The following is a summary of identifiable intangible assets as of December 31, 2011:

Gross
Amount
Identifiable intangible assets:
Trademarks and tradenames
$ 112,739
Customer agreements and distributor network
30,840
Engineering and manufacturing designs
and processes 14,919
Noncompete agreements
1,742
Patents
654
Computer software and other
10,301
$ 171,195

70

Accumulated
Amortization
$

24,718
8,934
1,742
82
2,956
38,432

Net
Amount
$

112,739
6,122
5,985
572
7,345
132,763

The table below shows the changes in carrying amount of goodwill by reportable segment for the
years ended December 31, 2012 and 2011 (in millions):
United States
& Canada

Europe

Balance, December 31, 2010.

$ 150.4
$
Currency translation
Balance, December 31, 2011
150.4
Currency translation
Balance, December 31, 2012.
$ 150.4
$

25.9
(0.9)
25.0
0.5
25.5

Latin
America
$

0.6
0.6
0.6

Asia
$

2.8
2.8
2.8

Middle East
& Africa
$

1.7
1.7
1.7

Consolidated
$

181.4
(0.9)
180.5
0.5
181.0

As of December 31, 2012, 2011 and 2010, the Company performed an impairment test of its
goodwill, trademarks and tradenames all of which have indefinite lives. Based on these impairment tests
the Company recorded no adjustment to the carrying value of goodwill and the indefinite-lived
trademarks and tradenames.
Note 9 - Derivative Financial Instruments
Derivative instruments are accounted for at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use, designation and type of the derivative instrument. The
Company does not designate any of its derivatives as hedges and, as such, records all changes in fair
values as a component of earnings.
Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk
relates to the loss the Company could incur if a counterparty were to default on a derivative contract. The
Company primarily deals with investment grade counterparties and monitors the overall credit risk and
exposure to individual counterparties. The Company does not anticipate nonperformance by any
counterparties. The amount of counterparty credit exposure is the unrealized gains, if any, on such
derivative contracts. The Company does not require, nor does it post, collateral or security on such
contracts.
The Company is exposed to certain risks relating to its ongoing business operations. As a result,
the Company enters into derivative transactions to manage certain of these exposures that arise in the
normal course of business. The primary risks managed by using derivative instruments are fluctuations
in interest rates, foreign currency exchange rates and commodity prices. Fluctuations in these rates and
prices can affect the Companys operating results and financial condition. The Company manages the
exposure to these market risks through operating and financing activities and through the use of
derivative financial instruments. The Company does not enter into derivative financial instruments for
trading or speculative purposes.
Interest Rate Risk. Borrowings outstanding under the First Lien Term Loan totaled $375.0
million, exclusive of original issue discount, at December 31, 2012 of which $110.0 million was covered
by an interest rate swap agreement discussed further below. The First Lien Term Loan is subject to a
LIBOR-based minimum interest rate of 1.25% plus an applicable margin. The variable interest rate in
effect as of December 31, 2012 was below the minimum interest rate. An assumed 10%
increase/decrease in the variable portion of the interest rate in effect at December 31, 2012 would have
no effect on interest expense or cash interest paid.
Effective October 31, 2010, the Company entered into a $110.0 million interest rate swap
agreement with The Bank of Nova Scotia to hedge a portion of our interest rate risk related to our long71

term borrowings. Under the swap, which matures on October 31, 2013, the Company pays a fixed rate of
0.858% and receives or pays quarterly interest payments based upon three month LIBOR.
Effective October 31, 2010, the Company entered into a $40.0 million interest rate swap
agreement with The Bank of Nova Scotia to hedge a portion of our interest rate risk related to our longterm loan borrowings. Under the swap, which matured on October 31, 2012, the Company paid a fixed
rate of 0.652%, and received or paid quarterly interest payments based upon the three month LIBOR
rate.
At December 31, 2012, the Company also maintained a $54.0 million interest rate cap against the
Asset Backed Facility. Further information can be found at Note 5 - Securitization Activities.
Foreign Currency Risk. The Company has manufacturing, sales and distribution facilities in
Belgium and sales and distribution facilities in Norway and Spain. We also make investments and enter
into transactions denominated in foreign currencies. The vast majority of the Companys international
sales from its domestic operations are denominated in U.S. dollars. However, it is exposed to
transactional and translational foreign exchange risk related to its foreign operations.
Regarding transactional foreign exchange risk, the Company enters into certain forward
exchange contracts to reduce the variability of the earnings and cash flow impacts of foreign
denominated receivables and payables. The Company does not designate these contracts as hedge
transactions. Accordingly, the mark-to-market impact of these contracts is recorded each period to
current earnings. At December 31, 2012, the Company was managing $6.9 million of Euro foreign
currency contracts which are not designated as accounting hedges.
The Companys primary translation exchange risk exposure at December 31, 2012 was the Euro.
Amounts invested in non-U.S. based subsidiaries are translated into U.S. dollars at the exchange rate in
effect at year end. The resulting translation adjustments are recorded in accumulated other
comprehensive income as foreign currency translation adjustments. The foreign currency translation
adjustment component of accumulated other comprehensive income at December 31, 2012 was a $0.9
million gain. The net amount invested in foreign operations at December 31, 2012 was approximately
$44.1 million for which no hedges have been established.
Commodity Risk. The Company is subject to the effects of changing raw material and component
costs caused by movements in underlying commodity prices. The Company purchases raw materials and
components containing various commodities including nickel, zinc, aluminum and copper. The
Company generally buys these raw materials and components based upon market prices that are
established with the vendor as part of the procurement process.
From time to time, the Company enters into contracts with its vendors to lock in commodity
prices for various periods to limit our near-term exposure to fluctuations in raw material and component
prices. In addition, the Company enters into commodity hedge contracts to hedge certain commodity
prices, such as nickel, copper and aluminum, to reduce the variability on its earnings and cash flow
impacts of purchasing raw materials containing such commodities. The Company does not designate
these contracts as hedge transactions. Accordingly, the mark-to-market impacts of these commodity
hedge contracts are recorded each period to current earnings. At December 31, 2012, the Company was
managing $3.4 million of nickel hedge contracts, $3.2 million of copper hedge contracts and $2.0
million of aluminum hedge contracts which are not designated as accounting hedges.
72

The following table summarizes the Companys outstanding derivative contracts and their effects
on its Consolidated Balance Sheets at December 31, 2012 and December 31, 2011, respectively:
December 31, 2012
Fair Value of
Notional
Hedge
Hedge
Amount
Assets
Liabilities
Undesignated derivatives
Interest rate swaps
Commodity hedges
Foreign currency hedges
Total undesignated derivatives

110,000
8,575
6,856

150
150

501
936
1,437

December 31, 2011

Fair Value of
Notional
Hedge
Hedge
Amount
Assets
Liabilities
Undesignated derivatives
Interest rate swaps
Commodity hedges
Foreign currency hedges
Total undesignated derivatives

150,000
8,727
8,228

309
1,927
524
2,760

Location on
Balance Sheet

Other current liabilities

Other current liabilities
Accounts receivable, net

Location on
Balance Sheet

Other current liabilities

Other current liabilities
Other current liabilities

Term

Through 10/31/2013
Various through 12/31/13
Various through 12/24/13

Term

Through 10/31/2013
Various through 12/31/12
Various through 12/31/12

The combined cash and non-cash effects of derivative instruments on the Companys
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and
2010 are as follows:

Undesignated Hedges
Interest rate swaps
Foreign currency hedges
Commodity hedges

Location in
Statement of
Income
Interest expense
Cost of sales
Cost of sales

Gain/(Loss) Recognized on Undesignated Hedges

for the Year Ended Deecmber 31,
2012
2011
2010
$
(697)
$
(2,102)
$
992
70
(20)
(1,094)
(962)
(2,275)
1,367
$
(1,589)
$
(4,397)
$
1,265

The non-cash effects alone of derivative instruments on the Companys Consolidated Statements
of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010 are as follows:

Undesignated Hedges
Interest rate swaps
Foreign currency hedges
Commodity hedges

Location in
Statement of
Income
Interest expense
Cost of sales
Cost of sales

Non-cash Gain/(Loss) in Fair Market Value

for the Year Ended December 31,
2012
2011
2010
$
(192)
$
(1,301) $
992
674
(303)
(335)
1,025
(2,769)
424
$
1,507
$
(4,373)
$
1,081

73

Note 10 - Fair Value Measurements

Assets and liabilities measured at fair value, primarily related to financial products, included in
the Companys Consolidated Balance Sheets as of December 31, 2012 and 2011 are summarized below:
December 31, 2012

Level 1
Level 2
Assets
Derivative financial instruments:
Foreign currency hedges
$
$
150
Total assets
$
$
150
Liabilities
Derivative financial instruments:
Interest rate swaps...
$
$
Commodity hedges
Total liabilities..
$
$

501
936
1,437

Total
Assets /
Liabilities at
Fair Value

Level 3

$
$

$
$

150
150

501
936
1,437

December 31, 2011

Level 1
Level 2
Liabilities
Derivative financial instruments:
Interest rate swaps...
$
$
309
Commodity hedges
1,927
Foreign currency hedges
524
Total liabilities
$
$ 2,760

Total
Assets /
Liabilities at
Fair Value

Level 3

309
1,927
524
2,760

The carrying amounts reported in the Consolidated Balance Sheets for Cash and cash
equivalents, Restricted cash - for securitization investors, Accounts receivable, net, Accounts receivable
- restricted for securitization investors, Loans receivable, net - restricted for securitization investors,
Accounts payable and Asset backed borrowings - owed to securitization investors approximate fair value
either due to the short-term nature or since longer-term instruments have interest at variable rates that reprice frequently. The fair values of the interest rate swap, commodity and foreign exchange hedges in
Note 9 - Derivative Financial Instruments are obtained based upon third party quotes. See Note 5 Securitization Activities for fair value disclosures related to the Companys interest rate cap.

74

The fair values of the Companys First and Second Lien Term Loans at December 31, 2012 and
the 2010 Senior Term Loan at December 31, 2011 are estimated based upon prices prevailing in recent
market transactions. The fair values of financial instruments that do not approximate the carrying values
at December 31, 2012 and 2011, respectively, are as follows:
December 31, 2012
Carrying
Fair Value
Value
(Level 2)
Long-term borrowings due within one year:
First Lien Term Loan
$
3,750
$
Total..
$
3,750
$
Long-term borrowings:
First Lien Term Loan..
$ 371,250
Second Lien Term Loan. 110,000
2010 Senior Term Loan..
Total..
$ 481,250

December 31, 2011

Carrying
Fair Value
Value
(Level 2)

3,783
3,783

$
$

$
$

374,498
111,100
485,598

243,000
243,000

242,393
242,393

Note 11 - Other Current Liabilities

The major components of other current liabilities consisted of the following:
December 31,
2012

December 31,
2011

Salaries, wages and other employee benefits....

$
12,233
$
10,775
Warranty reserve..
8,276
7,246
Accrued interest...
2,382
4,785
Accrued sales incentives......
4,632
3,162
Derivative liabilities.
1,437
2,760
Worker's compensation
2,211
2,206
Federal & state income tax....
1,106
965
Other current liabilities.
2,105
3,139
$
34,382
$
35,038

Note 12 - Income Taxes

Alliance Holdings is owned by Alliance Finance LLC and are both single member limited
liability companies. Alliance Finance LLC is owned by ALH which is a corporation for U.S. tax
purposes. Accordingly, the Consolidated Financial Statements are being presented as if Alliance
Holdings was taxed as a corporation. The Company uses the asset and liability method of accounting for
income taxes whereby deferred income taxes are recorded for the future tax consequences attributable to
differences between the financial statement and tax bases of assets and liabilities. Deferred income tax
assets and liabilities are measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Deferred income tax assets
and liabilities are revalued to reflect new tax rates during the periods in which rate changes are enacted.
Management believes, based on the operating earnings in prior years, expected reversals of taxable
temporary differences and reliance on future earnings, that it is more likely than not that the majority of
the recorded net deferred tax assets are fully realizable.
In the opinion of management, the earnings of the Companys various foreign subsidiaries are not
permanently invested outside the United States. Therefore, tax expense has accordingly been provided
75

for these unremitted earnings. Foreign taxes are deducted in arriving at taxable income rather than
credited.
There are various factors that may cause the Companys tax assumptions to change in the near
term and as a result the Company may have to increase or decrease its valuation allowance against net
deferred income tax assets. The Company cannot predict whether future U.S. federal, foreign and state
income tax laws and regulations might be passed that could have a material effect on its results of
operations. The Company assesses the impact of significant changes to the U.S. federal, foreign and state
income tax laws and regulations on a regular basis and updates the assumptions and estimates used to
prepare its Consolidated Financial Statements when new regulations and legislation are enacted.
Pre-tax income from operations was taxed in the following jurisdictions:
Year Ended
December 31,
December 31,
December 31,
2012
2011
2010
Domestic....
$
26,318
$
33,735
$
30,145
Foreign....
4,127
2,172
5,079
$
30,445
$
35,907
$
35,224

The provision for income taxes consisted of the following:

December 31,
2012

Year Ended
December 31,
2011

Current:
Federal....
$
298
$
258
State....
736
807
Foreign....
1,787
1,415
Total current...
2,821
2,480
Deferred:
Federal....
11,701
10,734
State....
(532)
174
Foreign....
26
(836)
Total deferred...
11,195
10,072
Provision for income taxes
$
14,016
$
12,552

76

December 31,
2010
$

193
385
2,244
2,822
8,452
1,489
(140)
9,801
12,623

Reconciliations between tax expense at the U.S. federal statutory income tax rate and the
effective income tax rate for income before taxes are as follows:
December 31,
2012

Year Ended
December 31,
2011

December 31,
2010

Statutory federal tax rate....

35.0%
35.0%
35.0%
State taxes, net of federal benefit....
3.3%
3.2%
3.8%
Goodwill....
-0.6%
-0.5%
-0.5%
Foreign rate differential....
0.1%
0.1%
0.0%
Tax effect of hybrid instrument....
-1.6%
-1.7%
-1.6%
U.S. tax on remitted earnings....
12.2%
1.0%
2.3%
Valuation allowance....
1.0%
-0.7%
0.6%
Federal tax credits....
0.0%
-0.2%
-5.4%
R&D tax credit.. -2.8%
-0.9%
-1.0%
State credits, net of federal benefits
-0.1%
0.0%
0.0%
Rate change.. 0.0%
-1.4%
1.7%
Domestic manufacturing deduction
-0.9%
0.0%
0.0%
Other, net....
0.4%
1.1%
0.9%
Effective income tax rate
46.0%
35.0%
35.8%

During 2012, the Company corrected an out-of-period tax adjustment that related to prior
periods. This correction in 2012 increased total income tax expense by $2.0 million. The Company
believes this tax adjustment was not material to the 2012 or any previously issued financial statements.
Temporary differences which give rise to the deferred tax assets and liabilities at December 31,
2012 and 2011, respectively, are as follows:
Year Ended
December 31,
December 31,
2012
2011

Deferred income tax liabilities:

Goodwill...
$
(29,002)
$
(25,313)
Intangibles.
(15,857)
(13,103)
Fixed assets.
(8,686)
(8,511)

Other...
(345)
(78)
Deferred income tax liabilities...
(53,890)
(47,005)

Deferred income tax assets:

Inventory..
2,560
1,752
Deferred financing costs
2,641
2,195
Warranty reserves
2,878

2,442
Net operating loss and credit carry forwards
12,368
13,236

Other assets...
8,447
6,369
Pensions and employee benefits
9,354
12,086
Other
1,382
1,804
Gross deferred income tax assets......
39,630
39,884
Less valuation allowance
(2,552)
(2,253)
Deferred income tax assets......
37,078
37,631
Net deferred income tax liability
$
(16,812)
$
(9,374)

77

The net deferred income tax liability is classified in the Consolidated Balance Sheet as follows:

Year Ended
December 31,
December 31,
2012
2011
Current deferred income tax asset, net....
$
10,035
$
10,553
Non-current deferred income tax asset, net....
19,459
$
20,381
Non-current deferred income tax liability, net....
(43,490)
(37,337)
Current deferred income tax asset - foreign, net....
962
Non-current deferred income tax asset - foreign, net....
566
620
Non-current deferred income tax liability - foreign, net....
(3,382)
(4,553)
Net deferred tax liability....
$
(16,812)
$
(9,374)

The Company has recorded valuation allowances for certain tax attributes and other net deferred
tax assets. At this time, sufficient uncertainty exists regarding the future realization of these net deferred
tax assets. A valuation allowance in the amount of $2.6 million has been recorded against the foreign
deferred tax asset for losses in various countries where future earnings are not expected. If, in the future,
the Company believes that it is more likely than not that these deferred tax benefits will be realized, the
valuation allowances will be reversed and recognized in income.
At December 31, 2012, the Companys state net operating loss carryforwards for income tax
purposes was approximately $6.3 million. The state net operating loss carryforwards will expire in 6-15
years. The Companys federal and state credit carryforwards were approximately $6.1 million and $4.5
million, respectively. The federal credit carryforwards will expire in 16-19 years and the state credit
carryforwards will expire in 4-15 years.
The Company has approximately $1.1 million of unrecognized tax benefits as of December 31,
2012, which, if recognized, would impact the effective tax rate. The Company does not anticipate that
the net amount of unrecognized tax benefits will change significantly during the next twelve months.
The Companys policy is to accrue interest and penalties related to unrecognized tax benefits in income
tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. The Company is subject to federal and state tax examinations for all years
subsequent to December 31, 2008. Although pre-2009 years are no longer subject to examination by the
Internal Revenue Service (IRS) and various state taxing authorities, net operating loss carryforwards
generated in those years may still be adjusted upon examination by the IRS or state taxing authorities if
they have been or will be used in a future period. In addition, the Company has open tax years in
Belgium, its primary foreign jurisdiction, subsequent to 2010 and in Luxemburg for 2006 through 2011.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2012
Balance at January 1
$
577
Additions based on tax positions related to the current year.
524
Additions based on tax positions related to the prior year.
14
Reductions based on tax positions related to the prior year.
(10)
Balance at December 31 ..
$
1,105

78

2011
$

283
303
(9)
577

Note 13 - Guarantees
The Company, through its special-purpose bankruptcy remote subsidiary, entered into a $330.0
million Asset Backed Facility as described in Note 4 - Asset Backed Facility. Pursuant to the terms of
the Asset Backed Facility, the Company provides credit enhancement to the noteholders including an
irrevocable letter of credit which is an unconditional lending commitment of the lenders under the Asset
Backed Facility, subject to certain limits. The Company is obligated under the reimbursement provisions
of the Asset Backed Facility to reimburse the lenders for any drawings on the credit enhancement by the
facility indenture trustee. The trust will not be permitted to request new borrowings under the Asset
Backed Facility and the Asset Backed Facility will begin to amortize if the credit enhancement is not
replenished by the Company after a drawing. The amount of the irrevocable letter of credit related to the
Asset Backed Facility at December 31, 2012 was $34.3 million.
At December 31, 2012, the Company maintained a total of $36.1 million of letters of credit that
were issued on our behalf under the Revolving Credit Facility. Further details are found at Note 15 Debt.
The Company offers warranties to its customers depending upon the specific product and the
product use. Standard product warranties vary from one to three years for most parts with certain
components extending to ten years. Certain customers have elected to buy without warranty coverage.
The standard warranty program requires that the Company replace defective components within a
specified time period from the date of installation. The Company also sells separately priced extended
warranties associated with its products. The Company recognizes extended warranty revenues over the
period covered by the extended warranty.
The Company records an estimate for future warranty related costs based on actual historical
incident rates of occurrence and costs per incident trends. The carrying amount of our warranty liability
is adjusted as necessary based on analysis of these and other factors. It is possible that future warranty
costs could exceed the Companys estimates although the Companys warranty costs have historically
been within its calculated estimates.
The changes in the carrying amount of our total product warranty liability were as follows:
Year Ended
December 31,
December 31,
2012
2011
Balance at beginning of period.
$
7,246
$
7,085
Currency translation adjustment.
13
(22)
Accruals for current and pre-existing warranties
issued during the period.
4,880
5,026
Settlements made during the period.
(3,863)
(4,843)
Balance at end of period..
$
8,276
$
7,246

Note 14 - Pensions and Other Employee Benefits

A majority of the Companys U.S. employees are covered by a defined benefit pension plan (the
Alliance Laundry Systems Pension Plan). During 2010, the Company received a favorable determination
letter from the Internal Revenue Service related to the Alliance Laundry Systems Pension Plan.

79

The pension benefit for salaried and management employees is a cash balance plan whereby an
account is established for each participant in which pay credits were based on salary and service credits
(amended effective January 1, 2009 to freeze participation in the plan for salaried employees hired on or
before that date and to suspend salary and service credits) and interest credits are earned annually. Pay
credits were calculated as a pre-determined percentage of the participants salary adjusted for age and
years of service. Interest credits are earned at the rate of a one-year U.S. Treasury Bill, as of the last day
of the prior plan year, plus 1%. The pension benefit for hourly union employees generally provides
benefits of stated amounts for each year of service (amended effective January 1, 2006 to freeze
participation to hourly employees hired on or before that date).
The Companys policy is to fund its pension plan in amounts sufficient to gradually accumulate
plan assets equal to the plans projected benefit obligation and to comply with the funding requirements
imposed by law.
Components of pension expense for the years ended December 31, 2012, 2011 and 2010,
respectively, are shown in the table below.
Year Ended
December 31,
December 31,
2012
2011
Service cost benefits earned during the period..
$
820
$
748
Interest cost on projected benefit obligation..
3,069
3,286
Expected return on plan assets
(4,118)
(3,965)
Amortization of net actuarial losses..
1,635
827
Net pension benefit cost
$
1,406
$
896

December 31,
2010
$
741
3,348
(3,456)
875
$
1,508

Assumptions used in determining net pension benefit cost were as follows:

December 31,
2012
Discount rate.
4.50%
Expected long-term rate of return on assets
8.00%

Year Ended
December 31,
2011
5.40%
8.00%

December 31,
2010
5.90%
8.25%

We used an 8.00% long-term rate of return on assets assumption in determining the net pension
benefit cost for 2012. The Company considered historical returns and future expectations in determining
the net pension benefit cost for 2012. Over the 15 and 20 year periods ending December 31, 2012, the
returns on the portfolio, assuming it was invested at the midpoint of the Companys investment policy
statements strategic asset allocation and is rebalanced annually, would have been an annual average of
approximately 7.9% and 9.8%, respectively. The Company considered historical returns, strategic asset
allocations and future expectations of the projected long-term rates of return on the assets in developing
the expected long-term rate of return on assets assumption. The Company used the RP 2000 mortality
table projected to 2017 to better align the plans with current life expectancies for the December 31, 2012
valuation of the benefit obligations.

80

The reconciliation of the changes in the plans benefit obligation and the fair value of plan assets
and the funded status of the plans at December 31, 2012 and 2011 are as follows:
2012
Change in benefit obligation:
Benefit obligation at beginning of year.
$ 71,321
Service cost.
820
Interest cost3,069
Actuarial loss. 6,846
Benefits paid
(3,379)
Benefit obligation at end of year.
$ 78,677
Change in plan assets:
Fair value of plan assets at beginning of year
$ 51,882
Actual return on plan assets.6,509
Employer contributions
3,910
Benefits paid.
(3,379)
Fair value of plan assets at end of year..
$ 58,922

2011
$ 63,192
748
3,286
7,396
(3,301)
$ 71,321
$ 49,715
1,557
3,911
(3,301)
$ 51,882

Funded status
$ (19,755)

$ (19,439)

Amounts recognized in consolidated balance sheet:

Other long-term liabilities.
$ (19,755)
$ (19,755)

$ (19,439)
$ (19,439)

The assumed discount rates used to determine the benefit obligation were 3.70% and 4.50% at
December 31, 2012 and 2011, respectively. The Company uses a December 31 measurement date for
these plans.
The strategic weighted-average asset allocation of our plans as of December 31, by asset
category, is as follows:
2012

2011

Equity securities
25.0%

25.0%

Debt securities.
54.0%
Other21.0%
Total..
100.0%

53.0%
22.0%
100.0%

The Companys overall investment strategy is to maintain actual asset weightings within a preset
range of target allocations. The Company believes these ranges represent an appropriate risk profile
based on the timing of planned benefit payments. Separate portfolios are maintained within each asset
category for additional diversification. Investment managers are retained within each asset category to
manage each portfolio against its benchmark. Each investment manager has appropriate investment
guidelines and is evaluated against a relevant peer group. As of December 31, 2012, a portion of the
pension assets were invested in common and commingled trusts.

81

Fair values for pension plan assets are determined as follows:

Equity securities identified as Level 1 are primarily based on valuations for identical
instruments in active markets. Equity securities identified as Level 2 are investments in
commingled funds. The fair values of these investments are based on observable market based
inputs.
Fixed income securities are primarily based upon valuations for identical instruments in active
markets, where applicable. For Level 2 fixed income securities, valuation models are used
that take into consideration such market-based factors as recent sales, risk-free yield curves
and prices of similarly rated bonds.
Other securities identified as Level 2 are investments in commingled funds. The fair values of
these investments are based on observable market based inputs.
Cash equivalents are based on the carrying amount, which approximated fair value, or at the
funds net asset value.
The fair value of pension plan assets at December 31, 2012 is as follows:
Quoted Prices
in Active
Markets for

Significant
Other

Significant

Identical

Observable

Unobservable

Assets
(Level 1)

Inputs
(Level 2)

Inputs
(Level 3)

Asset Class
Total
Equities
Global equity funds..
$
2,791
$
Non-U.S. equities.
5,520
Index funds.
6,446
Fixed Income
U.S. government securities
992
U.S. corporate bonds..
19,992
Non-U.S. government bonds.269
Non-U.S. corporate bonds.1,425
Collateralized mortgage obligations..
584
Private placement..
259
Taxable municipals.. 1,213
Other
5,986
Other
12,133
Cash equivalents.
1,312
Total..
$ 58,922
$

82

5,520
10
5,530

2,791
6,446
982
19,992
269
1,425
584
259
1,213
5,986
12,133
1,312
53,392

The fair value of pension plan assets at December 31, 2011 is as follows:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Asset Class
Total
Equities
Global equity funds..
$
2,326
$
Non-U.S. equities.
5,031
Index funds.
5,488
Fixed Income
U.S. government securities
1,591
U.S. corporate bonds..
16,177
Non-U.S. government bonds.241
Non-U.S. corporate bonds.1,419
Collateralized mortgage obligations..
1,204
Private placement..
248
Taxable municipals.. 1,136
Other
5,302
Other
10,720
Cash equivalents.
999
Total..
$ 51,882
$

5,031
(29)
5,002

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

2,326
5,488
1,620
16,177
241
1,419
1,204
248
1,136
5,302
10,720
999
46,880

In the U.S., the Company also provides post-retirement benefit plans including health care, salary
continuation and death benefits for eligible retirees and their dependents. Alliance Laundrys health care
benefits cover retired employees upon early retirement up to age 65. Employees with more than 10 years
of service are eligible for these benefits if they reach age 62 while working for the Company. Retiree
health plans are paid for in part by retiree contributions and are adjusted annually. Benefits are provided
through various insurance companies whose charges are based either on the benefits paid during the year
or annual premiums.
The Companys net other post-retirement benefit cost included the following components:
Year Ended
December 31,
December 31,
2012
2011
Service cost benefits earned during the period.
$
150
$
133
Interest cost on projected benefit obligation..118
134
Amortization of prior service cost
(7)
(7)
Amortization of net actuarial losses.
16
9
Net other post-retirement benefit cost .
$
277
$
269

December 31,
2010
$
132
151
(7)
21
$
297

The assumed discount rates used in determining the net other post-retirement benefit cost were
4.50%, 5.40% and 5.90% for 2012, 2011 and 2010, respectively.

83

The following provides a reconciliation of benefit obligations, plan assets and the funded status
of the net other post-retirement benefit plans at December 31, 2012 and 2011.
2012

2011

Change in benefit obligation:

Benefit obligation at beginning of year.$ 2,817
Service cost.150
Interest cost.118
Actuarial loss (gain)... .107
Benefits paid.
(218)
Benefit obligation at end of year.
$ 2,974

2,873
133
134
(59)
(264)
2,817

Change in plan assets:

Employer contributions
218
Benefits paid. (218)
Fair value of plan assets at end of year
$
$

264
(264)
-

Funded status (liability)

$ (2,974)
$ (2,817)
.
Amounts recognized in consolidated balance sheet:
Other current liabilities
$
(225)
$
(254)
Other long-term liabilities.
(2,749)
(2,563)
$ (2,974)
$ (2,817)

The assumed discount rates used to determine the net other post-retirement benefit obligation
were 3.70% and 4.50% at December 31, 2012 and 2011, respectively. The Company uses a December 31
measurement date for these plans.
Annual rates of increase in the per capita cost of covered health care benefits of 8.3% and 8.5%
were assumed in 2012 and 2011, respectively, to determine the benefit obligation at the end of the year.
The rates in 2012 and 2011 were assumed to decrease gradually to 4.5% until 2029 and remain at that
level thereafter.
Assumed health care cost trend rates could have a significant effect on the amounts reported for
the health care plans. A one-percentage-point change in assumed health care cost trend rates would have
the following effects.
1-PercentagePoint Increase
Effect on total of service and interest cost..
$
34

1-PercentagePoint Decrease
$
(29)

Effect on post-retirement benefit obligation

$

261

(228)

Projected benefit payments from the plans as of December 31, 2012 are estimated as follows:
Year
2013
2014

Pension
3,930
3,911

Other Benefits
$
225
169

2015

3,907

185

2016

4,248

214

4,133
21,910

248
1,434

2017
2018-2022

84

The Company currently anticipates making a voluntary contribution in 2013 of approximately

$4.2 million to our defined benefit pension plan in order to meet the Internal Revenue Service minimum
required contribution and avoid limitations on benefit payments in 2013.
The amounts in Member(s) equity/(deficit) and accumulated other comprehensive income that
are expected to be recognized as components of net periodic benefit cost during the next fiscal year are
as follows:
Pension
Other
Benefits
Benefits
Prior service credit (cost)....
$
(3)
$
7
Accumulated loss
(1,880)
Total amount recognized.
$ (1,883)

(29)
(22)

Following is a rollforward showing changes to amounts recognized in Member(s)

equity/(deficit) and accumulated other comprehensive income:
Pension
Other
Benefits
Benefits
Total
December 31, 2010
$ (8,653)
$
(365)
$ (9,018)
Net gain (loss).
(9,804)
59
(9,745)
Amortization of net loss
823
9
832
Other recognition of prior service cost..
4
(7)
(3)
Deferred tax.
3,276
(28)
3,248
December 31, 2011.
(14,354)
(332)
(14,686)
Net gain (loss).
(4,455)
(107)
(4,562)
Amortization of net loss
1,632
16
1,648
Other recognition of prior service cost..
4
(7)
(3)
Deferred tax.
1,072
37
1,109
December 31, 2012.
$ (16,101)
$
(393)
$ (16,494)

Eligible U.S. employees are able to participate in the Alliance Laundry Systems Capital
Appreciation Plan (ALCAP). ALCAP is a qualified plan under Sections 401(a) and 401(k) of the
Internal Revenue Code. In addition, the Company may make a discretionary annual contribution to
ALCAP equal to approximately one half of one percent of salaries and wages, subject to statutory limits,
of eligible employees. Under the terms of ALCAP, covered employees are allowed to contribute up to 50
percent of their pay on a pre-tax basis up to the limit established by the Internal Revenue Service. The
Company matches 100 percent of the first six percent of the employees contributions for all non-union
personnel. The Company matches 50 percent of the first six percent of the employees contributions for
all union personnel. Total expense for ALCAP, including discretionary contributions, was $2.5 million,
$2.3 million and $2.1 million for 2012, 2011 and 2010, respectively.
We have a defined contribution pension plan covering substantially all of our salaried employees
in Belgium. We contribute 3.1% to 5.1% of their pay to the plan. Contributions to the plan approximated
$0.1 million annually for 2012, 2011 and 2010, respectively.

85

Note 15 - Debt
Debt, other than debt related to securitization activities discussed in Note 4 - Asset Backed
Facility, consisted of the following at:
December 31,
2012

December 31,
2011

First Lien Term Loan.

$
375,000
$
Second Lien Term Loan. 110,000
2010 Senior Term Loan.. 243,000
Revolving Credit Facility.
2010 Revolving Credit Facility.
Gross long-term debt......
485,000
243,000
(1,859)
Less: discount on First Lien Term Loan
Less: discount on Second Lien Term Loan (1,091)
(2,326)
Less: discount on 2010 Senior Term Loan
Less: current portion of First Lien Term Loan...
(3,750)
$
478,300
$
240,674

Credit Facilities
2010 Refinancing Transaction
On September 30, 2010, all borrowings under the 2005 Senior Credit Facility, Senior
Subordinated Notes and other parent company debt were repaid (collectively referred to as the 2010
Refinancing Transaction). As part of the 2010 Refinancing Transaction, the Company entered into a
credit agreement (the 2010 Senior Credit Facility) which provided for a five-year $60.0 million
revolving credit facility (the 2010 Revolving Credit Facility) and a six-year $285.0 million term loan
facility (the 2010 Senior Term Loan). Alliance Laundry was the borrower under the 2010 Senior
Credit Facility and Alliance Holdings and Alliance Laundry Corporation were the guarantors under this
facility. The 2010 Revolving Credit Facility and 2010 Senior Term Loan were scheduled to mature on
September 30, 2015 and September 30, 2016, respectively.
Proceeds from the 2010 Refinancing Transaction were used to pay off the Companys then
existing 2005 Senior Credit Facility ($102.0 million), the Senior Subordinated Notes ($150.0 million),
accrued interest and related fees and expenses and, as discussed in greater detail in Note 16 - Member(s)
equity/(deficit), to pay a distribution to Alliance Finance LLC. The Company capitalized $7.8 million of
debt issuance costs in conjunction with the establishment of the 2010 Senior Credit Facility. These fees
are included in the Cash flows from financing activities section of the Companys Consolidated
Statements of Cash Flows. The 2010 Senior Term Loan contained a 1% original issue discount totaling
$2.9 million, at inception, that was to be amortized over the life of the 2010 Senior Term Loan.
Scheduled payments and voluntary prepayments related to the 2010 Senior Term Loan were
$42.0 million through April 5, 2012 (the date of the April 2012 Refinancing Transaction).
April 2012 Refinancing Transaction
On April 5, 2012, the Company entered into a new credit agreement (the 2012 Senior Credit
Facility) with lenders including Bank of Montreal, The Bank of Nova Scotia, Fifth Third Bank and
Morgan Stanley Bank, N.A. as co-syndication agents, Compass Bank and The PrivateBank and Trust
Company as co-documentation agents and Bank of America, N.A. as administrative agent, swing line
lender and an issuing lender.
86

The 2012 Senior Credit Facility provided for a new five-year $75.0 million revolving credit
facility (the April 2012 Revolving Credit Facility) and a new five-year $275.0 million term loan
facility (the 2012 Senior Term Loan). Alliance Laundry was the borrower under the 2012 Senior
Credit Facility and Alliance Holdings was the guarantor under this facility. The April 2012 Revolving
Credit Facility and 2012 Senior Term Loan were scheduled to mature on April 5, 2017.
Proceeds of $275.0 million received by the Company from the 2012 Senior Credit Facility along
with $19.6 million of available cash from operations were used to repay in full all outstanding
borrowings under the 2010 Senior Credit Facility in the amount of $243.0 million (the April 2012
Refinancing Transaction), $4.6 million of debt issuance fees and expenses and to issue a $47.0 million
Member distribution to ALH which in turn paid a cash dividend to its shareholders as discussed in
greater detail in Note 16 - Member(s) equity/(deficit).
There were $20.6 million of scheduled payments and voluntary prepayments made through
December 10, 2012 related to the 2012 Senior Term Loan (the date of the December 2012 Refinancing
Transaction).
December 2012 Refinancing Transaction
On December 10, 2012, the Company entered into credit facilities pursuant to (i) a First Lien
Credit Agreement (the First Lien Credit Agreement) and (ii) a Second Lien Credit Agreement (the
Second Lien Credit Agreement) with lenders including Bank of Montreal, The Bank of Nova Scotia,
Fifth Third Bank and Morgan Stanley Senior Funding, Inc. as co-syndication agents and Bank of
America N.A. as administrative agent and, in the case of the First Lien Credit Agreement, also as swing
line lender and an issuing lender (collectively the December 2012 Credit Facilities.)
The First Lien Credit Agreement provided for (i) a six-year $375.0 million first lien term loan
(the First Lien Term Loan) and (ii) a five-year first lien revolving credit facility of $75.0 million (the
December 2012 Revolving Credit Facility). The Second Lien Credit Agreement provided for a sevenyear $110.0 million second lien term loan (the Second Lien Term Loan). Alliance Laundry is the
borrower, and Alliance Holdings is a guarantor, under the December 2012 Credit Facilities. There were
no scheduled payments or voluntary prepayments made through December 31, 2012 related to the First
or Second Lien Term Loans. The First Lien Term Loan required minimum quarterly payments of $0.9
million beginning March 31, 2013 through September 30, 2018. The final principal payment of $353.4
million is due on December 10, 2018. The December 2012 Revolving Credit Facility, First Lien Term
Loan and Second Lien Term Loan are scheduled to mature on December 10, 2017, 2018 and 2019,
respectively. We are required to make prepayments on the First Lien Term Loan with the proceeds from
certain transactions as defined in the First Lien Credit Agreement of which none occurred through
December 31, 2012. The First Lien Term Loan had a 1% of par value penalty if prepaid in full within the
first twelve months. The Second Lien Term Loan does not have scheduled periodic payments. The
Second Lien Loan has a prepayment penalty if prepaid in part or in full of 3% of par value within the
first twelve months, 2% if prepaid between 13 months and 24 months, 1% if prepaid between 25 and 36
months.
Net of original issue discounts described further below, proceeds of $482.0 million received by
the Company under the First and Second Lien Term Loans along with $16.5 million of contributions
from stock options, $5.5 million of contributions from ALH stock purchases and $15.9 million of
available cash from operations were used to repay in full all outstanding borrowings under the 2012
Senior Credit Facility in the amount of $254.4 million (the December 2012 Refinancing Transaction),
87

$10.9 million of debt issuance fees and expenses, $11.1 million to redeem ALH stock, $0.4 million for
employer related taxes associated with the stock options and to issue a $243.1 million Member
distribution to ALH which in turn paid a cash dividend to its shareholders as discussed in greater detail
in Note 16 - Member(s) equity/(deficit).
The First Lien Term Loan contains a 0.5% original issue discount totaling $1.9 million, at
inception, that will be amortized over the life of the First Lien Term Loan. The Second Lien Term Loan
contains a 1.0% original issue discount totaling $1.1 million, at inception, that will be amortized over the
life of the Second Lien Term Loan.
The December 2012 Revolving Credit Facility is available, subject to certain conditions, for
general corporate purposes in the ordinary course of business and for other transactions permitted under
the First Lien Credit Agreement. The December 2012 Revolving Credit Facility was undrawn as of
December 31, 2012. A portion of the December 2012 Revolving Credit Facility not in excess of $48.0
million is available for the issuance of letters of credit. Letters of credit issued on our behalf under the
December 2012 Revolving Credit Facility totaled $36.1 million at December 31, 2012.
Borrowings under the First Lien Credit Agreement bear interest, at the option of Alliance
Laundry, at a rate equal to an applicable margin plus (a) the base rate, subject to a base rate floor of
2.25% or (b) the Eurodollar rate which will be the rate elected by Alliance Laundry at which Eurodollar
deposits for one, two, three or six months are offered in the interbank Eurodollar market (the Eurodollar
Rate), subject to a LIBOR floor of 1.25%. The applicable margins for the First Lien Term Loan was
initially 3.25% with respect to base rate loans and 4.25% with respect to eurodollar loans, subject to step
downs based on certain financial ratios. The applicable margin for the December 2012 Revolving Credit
Facility was 2.75% with respect to base rate loans and 3.75% with respect to eurodollar loans, subject to
step downs based on certain financial ratios. The interest rate on the First Lien Term Loan borrowings as
of December 31, 2012 was 5.50%.
Borrowings under the Second Lien Credit Agreement bear interest, at the option of Alliance
Laundry, at a rate equal to an applicable margin plus (a) the base rate, subject to a base rate floor of
2.25% or (b) the Eurodollar Rate, subject to a LIBOR floor of 1.25%. The applicable margin for the
Second Lien Term Loan is 7.25% with respect to base rate loans and 8.25% with respect to eurodollar
loans. The interest rate on the Second Lien Term Loan borrowings as of December 31, 2012 was 9.50%.
As discussed in more detail in Note 9 - Derivative Financial Instruments, the Company maintains
an interest rate swap to manage its exposure to changes in interest rates. The swap will expire on
October 31, 2013.
In addition, the Company is obligated to pay a quarterly commitment fee currently equal to
0.50% per annum, subject to step downs based on certain financial ratios, on the average daily unused
portion of the $75.0 million December 2012 Revolving Credit Facility. The Company recognized $0.2
million, $0.2 million and $0.1 million of interest expense for commitment fees on the applicable credit
facilities in each of 2012, 2011 and 2010, respectively. The Company is also obligated to pay a fee on
all outstanding letters of credit in the amount of the applicable margin, then in effect with respect to
eurodollar loans under the December 2012 Revolving Credit Facility, which currently is 3.75%, as well
as a 0.125% fronting fee on the aggregate amount of all outstanding letters of credit.
Additional borrowings and the issuance of additional letters of credit under the December 2012
Credit Facilities are subject to certain continuing representations and warranties including the absence of
88

any development or event which has had or could reasonably be expected to have a material adverse
effect on the Companys business or financial condition, and general compliance with a specified Total
Leverage Ratio.
The obligations of Alliance Laundry under the December 2012 Credit Facilities are secured by a
lien on substantially all assets, subject to certain exceptions, of Alliance Holdings and Alliance Laundry.
The agreements will also be secured by substantially all assets of their future material domestic
subsidiaries (subject to certain exceptions) and is guaranteed by future material domestic subsidiaries
(subject to certain exceptions).
As discussed in greater detail in Note 5 - Securitization Activities, the Company had total debt
outstanding of $266.6 million related to its securitization activities as of December 31, 2012.
See Note 20 - Subsequent Events, to the Consolidated Financial Statements for more information
on the Amendment No. 1 to the First Lien Credit Agreement.
Debt Issuance Costs and Original Issue Discount
The Company paid total consideration and related fees of $4.6 million for the 2010 Refinancing
Transaction and wrote off previously capitalized debt issuance costs and unamortized issue discount of
$2.9 million and $0.2 million, respectively. These amounts, totaling $7.7 million, were included in the
Loss from early extinguishment of debt line of the Companys Consolidated Statements of
Comprehensive Income for the year ended December 31, 2010.
In conjunction with the April 2012 Refinancing Transaction, the Company wrote off previously
capitalized debt issuance costs of approximately $4.0 million and unamortized issue discount related to
the 2010 Senior Term Loan of approximately $2.2 million. These costs, totaling $6.2 million, were
included in the Loss from early extinguishment of debt line of the Companys Consolidated Statements
of Comprehensive Income for the year ended December 31, 2012. The Company also deferred a total of
$1.8 million of debt issuance costs related to the 2010 Senior Credit Facility. The Company capitalized a
total of $4.6 million of new debt issuance costs in conjunction with the establishment of the 2012 Senior
Credit Facility.
In conjunction with the December 2012 Refinancing Transaction, the Company wrote off
previously capitalized debt issuance costs of approximately $4.2 million. These costs were included in
the Loss from early extinguishment of debt line of the Companys Consolidated Statements of
Comprehensive Income in 2012. The Company also deferred a total of $1.4 million of debt issuance
costs related to the 2012 Senior Credit Facility. The Company capitalized a total of $9.7 million and
expensed $0.1 million of new debt issuance costs in conjunction with the establishment of the December
2012 Credit Facilities.
The Company has capitalized $6.1 million of debt issuance costs related to amendments of the
Asset Backed Facility. Please see Note 5 - Securitization Activities for further details of this transaction.
Amortization expense related to these debt issuance costs was $3.5 million, $3.2 million and $2.5
million for the years ended December 31, 2012, 2011 and 2010, respectively. Total capitalized debt
issuance costs were $15.5 million and $11.8 million and the related accumulated amortization of these
debt issuance costs were $3.3 million and $2.7 million for the years ended December 31, 2012 and 2011,
respectively.
Amortization expense related to original issue discount was $0.1 million, $0.4 million and $0.2
million for the years ended December 31, 2012, 2011 and 2010, respectively.
89

Debt Maturities and Liquidity Considerations

The aggregate scheduled maturities of long-term debt in subsequent years, including $3.0 million
related to the unamortized original issue discount on the First and Second Lien Term Loans, are as
follows:
Amount Due
Year
2013.
$
3,750
2014.3,750
2015.3,750
2016..
3,750
2017..
3,750
Thereafter..
466,250
485,000
Less: Unamortized discount on long-term debt...
(2,950)
Less: Current portion
(3,750)
Long-term debt, net.......$ 478,300

The December 2012 Credit Facilities contain customary covenants that, among other things,
restrict the Companys ability to dispose of assets, repay other indebtedness, incur liens, make capital
expenditures, make certain investments or acquisitions, engage in mergers or consolidation and
otherwise restrict its operating activities.
If the aggregate outstanding amount of all revolving credit loans and letters of credit are in excess
of 20% of the lenders current revolving credit commitments, the Company is required to perform a
Total Leverage Ratio test (a financial covenant as defined in the First Lien Credit Agreement). As of
December 31, 2012, letters of credit issued but undrawn were in excess of this 20% threshold. The
maximum Total Leverage Ratio that the Company is required to be under as of December 31, 2012 was
6.75 to 1.00. As of December 31, 2012 the Companys Total Leverage Ratio was 5.01 to 1.00. The
Company currently expects to meet its obligations under its debt agreements including compliance with
established covenants.
At December 31, 2012, based upon the maximum Total Leverage Ratio allowable under the First
Lien Credit Agreement of 6.75 to 1.00, the Company could have borrowed an additional $38.9 million
of the available and unutilized December 2012 Revolving Credit Facility to finance its operations. The
Company believes that future cash flows from operations, together with available borrowings under the
December 2012 Revolving Credit Facility, will be adequate to meet its anticipated requirements for
capital expenditures, working capital, interest payments, scheduled principal payments and other debt
repayments that may be required as a result of the scheduled Total Leverage Ratio discussed above.
Note 16 -Member(s) Equity/(Deficit)
Member(s) equity/(deficit) consisted of the following at:
December 31,
2012
Common member(s)' contributed capital..
$
(16,147)
Retained earnings.. Foreign currency translation adjustments..
937
Pension liability and other benefits.
(16,494)
$
(31,704)

December 31,
2011
$
129,306
89,157
151
(14,686)
$
203,928

Upon the consummation of the Alliance Acquisition and related transactions, ALH, OTPP and
certain management stockholders entered into a stockholders agreement (the Stockholders
90

Agreement). The Stockholders Agreement contains customary terms, including, among other things,
terms regarding transfer restrictions, tag-along rights, drag-along rights, calls and preemptive rights. The
Stockholders Agreement places certain restrictions on the transfer of shares of common stock.
Additionally, OTPP has drag-along rights to cause the management stockholders to sell their shares on
a pro rata basis with OTPP to a third party in a liquidity event (as defined in the Stockholders
Agreement).
In conjunction with the 2010 Refinancing Transaction, Alliance Laundry issued a $19.2 million
distribution to Alliance Finance LLC that was used to repay a 2009 PIK Note and accrued interest in full
to the Companys majority owner OTPP. This transaction was recorded as a reduction of Member(s)
equity/(deficit) and is included in the Member distributions line of the Consolidated Statements of Cash
Flows for 2010.
On August 24, 2010, ALH purchased shares of stock from former employees of the Company for
approximately $0.6 million. The Company provided ALH with the cash to repurchase the stock and, as
such, this repurchase of stock was recorded as a reduction of Member(s) equity/(deficit) and is included
in the Member distributions line of the Consolidated Statement of Cash Flows for 2010.
On August 12, 2011, Alliance Laundry Systems LLC made a distribution of $5.0 million to
Alliance Finance LLC which in turn made a contribution of $5.0 million to its subsidiary Alliance
Laundry Finance LLC. Proceeds from this distribution were used to pay down a 2009 unsecured term
loan guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
repayment released restricted cash of $0.5 million which was then contributed back to Alliance Laundry
Systems LLC resulting in a net distribution of $4.5 million. The August 12, 2011 transaction was
recorded as a reduction of Member(s) equity/(deficit) and is included in the Member distributions line
of the Consolidated Statements of Cash Flows for 2011.
On December 12, 2011, Alliance Laundry Systems LLC made a distribution of $5.0 million to
Alliance Finance LLC which in turn made a contribution of $5.0 million to its subsidiary Alliance
Laundry Finance LLC. Proceeds from this distribution were used to pay down a 2009 unsecured term
loan guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
repayment released restricted cash of $0.5 million which was then contributed back to Alliance Laundry
Systems LLC resulting in a net distribution of $4.5 million. The December 12, 2011 transaction was
recorded as a reduction of Member(s) equity/(deficit) and is included in the Member distributions line
of the Consolidated Statements of Cash Flows for 2011.
On March 15, 2012, ALH repurchased shares of stock from a former employee of the Company
for approximately $0.3 million. This repurchase of stock was recorded as a reduction of Member(s)
equity/(deficit) and is included in the Member distributions line of the Consolidated Statements of Cash
Flows for 2012.
On April 5, 2012, Alliance Laundry issued a $47.0 million Member distribution to ALH which in
turn paid a cash dividend to its shareholders. The cash dividend was paid to shareholders of record as of
April 1, 2012. The dividend transaction was recorded as a reduction of Member(s) equity/(deficit) and
is included in the Member distributions line of the Consolidated Statements of Cash Flows for 2012. The
Board of Directors also approved a reduction of the exercise price of the outstanding stock options
commensurate with the per share cash dividend paid.

91

On June 29, 2012, ALH issued shares of stock to existing and new shareholders. The net
proceeds from the issuance of $2.4 million were contributed to Alliance Laundry. The issuance of stock
was recorded as an addition to Member(s) equity/(deficit) and is included in the Member contributions
line of the Consolidated Statements of Cash Flows for 2012.
On August 10, 2012, Alliance Laundry made a distribution of $5.0 million to Alliance Finance
LLC which in turn made a contribution of $5.0 million to its subsidiary Alliance Laundry Finance LLC.
Proceeds from this distribution, as well as cash from Alliance Finance and Alliance Laundry Finance
LLC, were used to pay in full the remaining $7.5 million balance of a 2009 unsecured term loan
guaranteed by OTPP and with pledged restricted cash held by Alliance Laundry Finance LLC. The
August 10, 2012 transaction was recorded as a reduction of Member(s) equity/(deficit) and is included
in the Member distributions line of the Consolidated Statements of Cash Flows for 2012.
In December 2012, the ALH Board of Directors authorized actions resulting in a Member
distribution of $243.1 million to ALH which in turn paid a cash dividend to its shareholders. In addition,
proceeds of $16.5 million were contributed to Alliance Laundry from the exercise of stock options in
ALH, proceeds of $5.5 million were contributed to Alliance Laundry from stock purchases in ALH and
$11.1 million was distributed from Alliance Laundry for ALH stock redemptions. The proceeds from
the exercise of ALH options as well as the ALH stock purchases were recorded as additions to
Member(s) equity/(deficit) and are included in the Member contributions line of the Consolidated
Statements of Cash Flows for 2012. The Member distribution transaction and stock redemption
transaction were recorded as reductions of Member(s) equity/(deficit) and are included in the Member
distributions line of the Consolidated Statements of Cash Flows for 2012. See Note 19 - Stock Based
Compensation for additional details of these transactions.
Note 17 - Segment Information
The Company manufactures and sells commercial laundry equipment that can be installed in a
multitude of applications ranging from small chassis products used in commercial laundromats and
multi-housing laundries to large products used in institutional laundry applications. The Company
maintains manufacturing facilities in Ripon, Wisconsin and Wevelgem, Belgium to fulfill orders
throughout the world. The Company has the following operating segments: United States & Canada,
Europe, Asia, Latin America and Middle East & Africa based upon the information used by management
for making operating decisions and assessing performance. The Company has determined that its
operating segments are its reportable segments.
The Company uses segment net revenues and gross profit as its measures of performance and to
allocate resources. Management believes these are the best measures to help users of its financial
statements predict future trends. Sales between reportable segments are not provided to the Chief
Operating Decision Maker. As such, intersegment sales are not disclosed. The Company does not
allocate certain manufacturing costs including manufacturing variances and customer support expenses,
which are incurred in United States and Europe, to the other reportable segments in determining gross
profit for our operating segments. Gross profit is determined by subtracting cost of sales from net
revenues. Cost of sales is comprised of the costs of raw materials and component parts, plus distribution
expenses and costs incurred at the manufacturing plant level, including, but not limited to, labor and
related fringe benefits, depreciation, supplies, utilities, property taxes and insurance.
General and administrative expenses, interest expense, other debt related expenses and the
provision for income taxes are centrally managed. Consequently, these measures are not presented in the
92

segment disclosures because they are not part of the segment profitability results reviewed by
management.
Assets are physically maintained in the United States and Belgium. Assets by reportable segment
are not provided to the Companys Chief Operating Decision Maker due to common manufacturing lines
and significant shared components across all five reportable segments. As such, total assets by reportable
segment are not disclosed.
Segment data is as follows:
December 31,
2012
Net Revenues:
United States & Canada
$
357.0
Europe 52.2
Latin America20.5
Asia.
50.4
Middle East & Africa.. 25.4
$
505.5
Gross Profit:
United States & Canada
$
105.5
Europe 13.4
Latin America6.7
Asia.
15.6
Middle East & Africa.. 6.2
$
147.4

Depreciation and Amortization:

United States & Canada
$
14.2
Europe 2.3
$
16.5
Capital Expeditures:
United States & Canada
$
16.4
Europe 1.8
$
18.2

93

Year Ended
December 31,
2011
(in millions)

December 31,
2010

$
$
$
$

316.8
58.6
15.6
43.6
23.4
458.0

84.2
17.7
5.3
13.9
6.0
127.1

16.1
2.5
18.6
8.0
2.6
10.6

$
$
$
$

297.2
54.2
15.9
36.8
21.9
426.0

85.8
15.3
5.5
11.6
5.4
123.6

14.7
2.7
17.4
9.3
0.5
9.8

Geographic data for net revenues and long-lived assets were:

December 31,
2012
Net revenues:
United States.
$
442.9
Belgium
62.6
Total net revenues
$
505.5
Long-lived assets:
United States.
$
282.4
Belgium
10.5
Total long-lived assets $
292.9

Year Ended
December 31,
2011
(in millions)

December 31,
2010

$
$

388.7
69.3
458.0

268.2
10.0
278.2

$
$

362.4
63.6
426.0

276.1
9.4
285.5

Geographic disclosures were determined based on the country of domicile pursuant to current
accounting guidance.
Note 18 - Commitments and Contingencies
The Company rents a variety of assets under operating leases that are used in its operations
including manufacturing facilities, office equipment, automobiles and trucks. At December 31, 2012, the
Company had commitments under long-term operating leases requiring approximate annual rentals in
subsequent years as follows:
2013..
$
822
2014.. 726
2015. 556
2016.. 484
2017.. 411
Thereafter. 69
$ 3,068

Rental expense amounted to $1.7 million, $2.0 million and $1.7 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
The Company and its operations are subject to comprehensive and frequently changing federal,
state and local environmental and occupational health and safety laws and regulations, including laws
and regulations governing emissions of air pollutants, discharges of waste and storm water and the
transportation, storage and disposal of wastes, including solid and hazardous wastes. The Company is
also subject to potential liability for non-compliance with other environmental laws and for the
investigation and remediation of environmental contamination (including contamination caused by other
parties) at the properties it owns or operates (or formerly owned or operated) and at other properties
where the Company or predecessors have carried on business or have arranged for the disposal of
hazardous substances. As a result, from time to time the Company is involved in administrative and
judicial proceedings and inquiries relating to environmental matters. There can be no assurance that the
Company will not be involved in such proceedings in the future and that the aggregate amount of future
clean-up costs and other environmental liabilities (including potential fines and civil damages) will not
have a material adverse effect on the Companys business, financial condition and results of operations.
The Company believes that its facilities and operations are in material compliance with all
environmental, health and safety laws. In the Companys opinion, any liability related to matters
94

presently pending will not have a material effect on its financial position, liquidity or results of
operations after considering provisions already recorded.
In September 2006, one of the Companys foreign subsidiaries, Alliance International BVBA,
was named in a lawsuit in the Belgian civil courts by a Belgian customer for having allegedly negligently
designed, manufactured and assembled certain safety devices. These safety devices are not being used in
the Companys products, but were sold to that Belgian customer prior to the CLD Acquisition. The cause
of the alleged defect is unknown and is being investigated by a court appointed expert. The damages
claimed by the Belgian customer are currently being investigated by a court appointed expert and are
currently unsubstantiated. There are no relevant pending court dates in 2013. No injury has been
reported as a consequence of the alleged defect. The outcome of this matter is not predictable with
assurance. However, management believes that the amount of potential damages, if any at all, resulting
from this action would not exceed accruals and available indemnification recoverable from LSG
pursuant to the CLD Acquisition Agreements or applicable product liability insurance.
Note 19 - Stock Based Compensation
ALH Stock Option Plan
On January 27, 2005, ALH Holding Inc. (ALH) established a stock option plan and initially
granted a total of 130,000 stock options among certain members of management. Approximately sixty
percent (60%) of the options were time based options, of which the majority vested according to
anniversary dates, and forty percent (40%) of the options granted were performance options that
would vest over a specified period if certain specified annual or cumulative earnings targets were
achieved. The service and performance options were classified as liabilities given that the awards were
expected to be settled in cash rather than shares. ALH elected at that time, and continues to use, the
intrinsic value method for the service and performance options as they are being accounted for as
liability awards. Intrinsic value estimates prepared by management are based on forecasted cash flow
projections which are used to estimate the value of the Company. This estimate is then used to determine
the intrinsic value of the individual options as of the respective balance sheet date. The service options
are re-measured based on managements estimates of intrinsic value at each reporting date multiplied by
the percentage of the awards that have vested as of the respective balance sheet date, using the graded
vesting approach. The performance options are re-measured based on managements estimates of
intrinsic value as well as managements estimate of whether or not the related performance conditions
have been or will be satisfied using the graded vesting approach.
On April 22, 2010, ALH granted 67,700 performance options (the new performance options) to
certain key employees including our named executive officers. The new performance options would
fully vest upon a change in control if the return to Ontario Teachers Pension Plan (OTPP) was at least
two and one half times its invested capital and would be forfeited and canceled if the return was less than
two times its invested capital. A percentage of the new performance options would have vested based on
linear interpolation if the return to OTPP was between the two measures. In consideration for the receipt
of these new performance options the participants forfeited for cancellation all performance options
previously granted to them (50,964 options in total).
On April 22, 2010, ALH also granted 15,960 performance options (the new homerun options)
to certain key employees. The new homerun options carried an expiration date of April 22, 2020, and
would fully vest upon a change in control if (and only if) the return to OTPP was at least three times its
invested capital and would have otherwise been forfeited and canceled.
95

In the second quarter of 2012 the exercise price of all outstanding options was reduced in an
amount commensurate with a cash dividend paid at that time.
In December 2012, the Board of Directors agreed to vest all of the 157,693 outstanding stock
options. The Board of Directors agreed to provide short term loans to the option holders in an aggregate
amount representing their individual extended exercise price plus related withholding taxes. Under this
arrangement, option holders provided written notice of their intent to exercise all outstanding options,
with aggregate proceeds from the exercise transaction of $16.5 million. Refer to Note 15 - Debt for
more information on the December 2012 Refinancing Transaction and Note 16 - Member(s)
equity/(deficit) for distributions and contributions with ALH related to its dividend and stock
transactions.
A summary of the Companys stock option activity related to the 2005 stock option plan is as
follows:
Weighted
Service
Performance
Homerun
Average
Options
Options
Options
Exercise Price
Options outstanding as of January 1, 2010
73,930
50,964
$
106.56
Granted
67,700
15,960
160.00
Exercised
(2,000)
100.00
Cancelled
(1,042)
(50,964)
106.30
Options outstanding as of December 31, 2010.
70,888
67,700
15,960
135.66
Granted
3,145
205.14
Options outstanding as of December 31, 2011.
70,888
67,700
19,105
137.05
April 5, 2012 exercise price reduction
(32.61)
Exercised
(70,888)
(67,700)
(19,105)
104.44
Options outstanding as of December 31, 2012.
-

On December 15, 2012, ALH established a new stock option plan (the 2012 Stock Option
Plan) and initially granted a total of 167,300 stock options among certain members of management. The
granted options entitle the members of management to purchase shares of our common stock at an
option price which averages $122.63 per share at December 31, 2012 subject to certain requirements. As
of December 31, 2012, fifty percent (50%) of the options granted were service options, which vest in
five equal annual installments on each of the first five agreement anniversaries, with the potential for
accelerated vesting upon a change in control of Alliance Laundry. As of December 31, 2012, fifty
percent (50%) of the options granted were performance options. The performance options will vest
only upon a change in control if (and only if) (a) the consideration received by OTPP in the change in
control is at least two times the fair market value of the shares held by OTPP as of the date the options
were granted (increased by any subsequent investment by OTPP) and (b) OTPP receives at least a 20%
Internal Rate of return on their investment in the company. If such criteria are not met, the performance
options will be forfeited.
A summary of the Companys stock option activity related to the 2012 stock option plan is as
follows:
Service
Options

Performance
Options

Options granted and outstanding

as of December 31, 2012..
83,650
83,650

96

Weighted
Average
Exercise Price
$

122.63

As of December 31, 2012, stock options represented an aggregate of 9.7% of the fully diluted
common shares of ALH common stock which would be issuable upon the exercise of stock options.
Based upon a valuation of all granted stock options, the Company recognized $20.9 million, $2.5
million and $2.4 million of compensation expense for the twelve months ended December 31, 2012,
2011 and 2010, respectively. Compensation expense in 2012 included employer taxes of $0.4 million
related to the exercise of stock options in December 2012.
Note 20 - Subsequent Events
Amendment to the First Lien Credit Agreement
On February 15, 2013, the Company entered into Amendment No. 1 to the First Lien Credit
Agreement (the Amendment) in order to re-price the First Lien Term Loan and December 2012
Revolving Credit Facility. All aspects of the original credit agreement remained unchanged with the
exception of the following:

The threshold for the leverage-based pricing step-downs on the First Lien Term Loan and
December 2012 Revolving Credit Facility remain unchanged, however, the interest rate
margin decreased by 100 basis points and 50 basis points, respectively, at each tier.

The prepayment premium effective date was amended from the first anniversary of the
Effective Date of the First Lien Credit Agreement to the date that is six months after
the First Amendment Effective Date.

Alliance Laundry increased the First Lien Term Loan by $20.0 million, the proceeds of
which were used to prepay $20.0 million of the Second Lien Term Loan. This increased
the minimum quarterly payment from approximately $0.9 million to $1.0 million.

In conjunction with the Amendment, the Company incurred costs of approximately $6.3 million
which will be allocated between capitalized debt issuance costs and loss from early extinguishment of
debt once final information is available.

97

Alliance Laundry Holdings LLC

Schedule II - Valuation and Qualifying Accounts
(unaudited)
Accounts Receivable Allowance for Doubtful Accounts:
Balance at
Beginning
of Period
December 31, 2010
December 31, 2011
December 31, 2012

$
$
$

Charges to
Expense/
(Income)

1,400
1,122
1,384

617
525
645

Impact of
Foreign
Exchange
Rates

(Additions)/
Deductions
876
234
380

(19)
(29)
10

Balance at
End of
of Period
$
$
$

1,122
1,384
1,659

Inventory Valuation Reserves:

Balance at
Beginning
of Period
December 31, 2010
December 31, 2011
December 31, 2012

$
$
$

Charges to
Expense/
(Income)

3,537
4,011
3,641

2,384
1,055
2,189

Impact of
Foreign
Exchange
Rates

(Additions)/
Deductions
1,853
1,415
845

(57)
(10)
10

Balance at
End of
of Period
$
$
$

4,011
3,641
4,995

Notes Receivable Reserves-Unsecuritized Loan Portfolio:

Balance at
Beginning
of Period

Charges to
Expense/
(Income)

Impact of
Foreign
Exchange
Rates

(Additions)/
Deductions

Balance at
End of
of Period

December 31, 2010

160

(105)

(1)

265

December 31, 2011

265

(87)

(1)

352

December 31, 2012

352

552

(19)

(1)

923

Notes Receivable Reserves - Securitized Loan Portfolio - restricted for securitization investors:
Balance at
Beginning
of Period

Charges to
Expense/
(Income)

Balance at
End of
of Period

4,584

4,709

(3)

9,800

9,800

4,055

3,726

(3)

10,129

10,129

2,355

2,642

(3)

9,842

December 31, 2010

9,925

December 31, 2011

December 31, 2012

(2)

Foreign
Exchange
Rates

(Additions)/
Deductions

Tax Valuation Reserves:

Balance at
Beginning
of Period
December 31, 2010
December 31, 2011
December 31, 2012

$
$
$

2,277
2,490
2,253

Charges to
Expense/
(Income)
213
(237)
299

(1)

(Additions)/
Deductions
-

Impact of
Foreign
Exchange
Rates
-

Balance at
End of
of Period
$
$
$

2,490
2,253
2,552

Represents recoveries in each year net of write-offs.

The $9.9 million beginning balance was established in conjunction with the adoption of new
accounting guidance that was effective on January 1, 2010 and is discussed more fully in Note 4 - Asset
Backed Facility.
(3)
The $2.6, $3.7 and $4.7 million reductions in 2012, 2011 and 2010 represent the write-off of
equipment loans that management deemed uncollectible in the normal course of business and is net of
$117,000, $110,000 and $51,000 in recoveries, respectively.
(2)

98

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE
None.

PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies Alliance Laundrys executive officers and key employees, as well
as the members of the Board of Directors of ALH, in each case as of March 4, 2013. As limited liability
companies, neither Alliance Laundry nor Alliance Holdings have a board of directors and neither entity
has a board of managers. The ultimate function of a board of directors for both Alliance Laundry and
Alliance Holdings is fulfilled by the Board of Directors of ALH. We therefore disclose the identity of the
directors of ALH because they have the power to direct decisions made by our managing member.
Name
Michael D. Schoeb
Bruce P. Rounds
William E. Bittner
Richard L. Pyle
R. Scott Gaster
Robert J. Baudhuin
Scott L. Spiller
Scott P. Chiavetta
Pascal Demarets
Andrew J. Claerhout
Thomas F. L'Esperance
Jeffrey H. Markusson
Bogdan Cenanovic
Russell D. Hammond
Charles J. Philippin
J. Hugh MacDiarmid

Age
50
56
50
47
60
51
62
43
46
41
64
39
36
41
62
60

Position
Director, Chief Executive Officer and President
Vice President, Chief Financial Officer
Vice President, North American Sales
Vice President, International Sales
Vice President, Global Manufacturing Operations
Vice President, Engineering
Vice President, Chief Legal Officer and Secretary
Vice President, Customer One and Chief Information Officer
Vice President, Operations Alliance International, BVBA
Director, Chairman of the Board
Director, Vice Chairman
Director
Director
Director
Director
Director

Michael D. Schoeb has served as our Chief Executive Officer and President and has been a
member of our Board of Directors of ALH since February 2011. Previously, Mr. Schoeb was our
President and Chief Operating Officer from October 2007 to January 2011. Before joining us,
Mr. Schoeb served as President and Chief Operating Officer at Wausau Homes, Inc. Prior to that
Mr. Schoeb served for six years with Hilti Corporation as Sr. Vice President of Marketing & Brand,
North America, President of Hilti do Brasil and Vice President of Sales, Northeast USA. Mr. Schoeb
also served for eleven years with Johnson Controls, Inc. in various sales, marketing and general
management roles. Mr. Schoeb possesses particular knowledge and experience in international
operations, sales and marketing and leadership of complex organizations that strengthen the Board of
Directors collective qualifications, skills and experience.
Bruce P. Rounds joined us in 1989 as Vice President of Finance and was promoted to his
current position as Vice President, Chief Financial Officer in February 1998. Mr. Rounds held the
position of Vice President, Business Development, from 1996 to 1998. Before joining us, Mr. Rounds
served in a variety of capacities for eight years at Mueller Company and for three years with Price
Waterhouse. Mr. Rounds is a Certified Public Accountant.
99

William E. Bittner was appointed as our Vice President, North American Sales in December
2012 and has been employed with us since 1998. Mr. Bittner has held various management positions
with us including Vice President - Customer One, North American Sales Manager - Speed Queen
Commercial Division, General Manager - Genuine Parts and Materials Manager - Genuine Parts. Prior
to joining us, Mr. Bittner served in various accounting and operations positions for 12 years with PPG
Industries. He currently serves on the Board of Directors of the Coin Laundry Association.
Richard L. Pyle has been our Vice President, International Sales since August 2011 and has
been an executive officer since July 2009. Mr. Pyle has been employed with us since 1998 and has held
various management positions with us including Vice President - Marketing Services and Customer
One, Controller - Marianna Operations, Controller/Materials Manager - Marianna Operations, Deputy
General Manager - Marianna Operations and Vice President of Customer Support. Prior to joining us,
Mr. Pyle served in various accounting and operations positions for eight years with Alliance
Remanufacturing, Inc. Prior to that time, Mr. Pyle worked for Deloitte & Touche.
R. Scott Gaster had been our Vice President, General Manager Ripon Operations since
December 2003 which was expanded to Vice President, Global Manufacturing Operations in May 2012.
Mr. Gaster has been employed with us since June 1995 and has held various executive management
positions with us including Vice President of Washer and Dryer Operations and Vice President,
Procurement and Materials. Prior to joining us, Mr. Gaster was employed by GKN Automotive, Inc.
from 1979 to 1995 in such positions as Director of Procurement and Logistics, Corporate Purchasing
Agent and Purchasing Manager.
Robert J. Baudhuin has been our Vice President, Engineering since July 2006. Mr. Baudhuin
has been employed with us since 1992 and has held various management positions with us which
include Vice President - General Manager Marianna Operations, Vice President of Product Management
and Customer Support and Ripon Plant Manager. Prior to joining us, Mr. Baudhuin served in various
engineering and quality assurance positions for seven years with Maysteel Corporation.
Scott L. Spiller had been our Vice President of Law & Human Resources, General Counsel and
Secretary since February 1998 and assumed the title of Vice President, Chief Legal Officer and Secretary
for Alliance Laundry in June 2004. From April 1996 to February 1998, Mr. Spiller practiced law as a
sole practitioner. Prior to that, he was our General Counsel and Secretary for ten years.
Scott P. Chiavetta was appointed as our Vice President, Customer One in December 2012 in
addition to being our Chief Information Officer since 2002. Mr. Chiavetta was employed by CDW Corp.
as a Consulting Network Engineer from August 2000 to November 2002 prior to rejoining us.
Mr. Chiavetta was our Network Manager for a three year period prior to August 2000.
Pascal Demarets has been our Vice President, Operations, Alliance International BVBA since
August 2008 and served as Director of Manufacturing for Alliance International BVBA since July 14,
2006, coinciding with the CLD Acquisition. Mr. Demarets was employed by LSG from August 2000
through July 2006, holding several positions including Production Manager, Director of Production and
Director of Operations of the Commercial Laundry Division (CLD). Prior to joining LSG, Mr. Demarets
was employed by Daikin-Europe from July 1992 to August 2000 in several manufacturing management
positions.
Andrew J. Claerhout was elected to, and designated Chairman of, the Board of ALH on
September 26, 2012. Mr. Claerhout is a Vice President at Teachers Private Capital, the private equity
100

arm of Ontario Teachers Pension Plan Board (OTPP). Mr. Claerhout joined OTPP in 2005. Since
joining Teachers Private Capital, Mr. Claerhout has been involved in a number of transactions in
consumer and industrial industries. Prior to joining Teachers Private Capital, Mr. Claerhout was a Vice
President at EdgeStone Capital Partners, where he was responsible for sourcing and executing
investments as well as monitoring and providing strategic guidance to portfolio companies.
Mr. Claerhout was formerly an Associate at Pacific Equity Partners in Australia and a consultant at Bain
& Company in Canada and in Hong Kong. Mr. Claerhout currently serves on the Board of Directors of
Dematic Sarl, Easton-Bell Sports, EXAL Group, General Nutrition Centers and Munchkin.
Mr. Claerhout holds an HBA degree from the Richard Ivey School of Business at the University of
Western Ontario, completed the Stanford Executive Program and is a graduate of the Institute of
Corporate Directors. As a result of these and other professional experiences, Mr. Claerhout possesses
particular knowledge and experience in finance and capital structure and board practices of other major
corporations that strengthen the collective qualifications, skills and experience of the Board of Directors
of ALH.
Thomas F. LEsperance has been a member of the Board of Directors of ALH since January 27,
2005. Effective February 1, 2011, Mr. LEsperance was elected Vice Chairman of the Board of Directors
and will continue as an executive officer reporting to the Board of Directors until June of 2013 in
accordance with his Director Services Agreement. Mr. LEsperance was our Chief Executive Officer
from May 1998 through January 2011, and additionally Mr. LEsperance was our President from March
1996 through October 2007. Mr. LEsperance served as President for Caloric Corporation and Amana
Home Appliances. Prior to that time, Mr. LEsperance held several executive management positions
with Raytheon. Mr. LEsperance was a member of the board of directors of Remington Arms from
November 2004 through June 2007. As a result of these and other professional experiences,
Mr. LEsperance possesses a broad knowledge of the commercial and consumer laundry industries and
strategic planning and leadership of complex organizations that strengthen the Board of Directors
collective qualifications, skills and experience.
Jeffrey H. Markusson was elected to the Board of Directors of ALH as of August 24, 2011.
Mr. Markusson is a Portfolio Manager at Teachers Private Capital, the private equity arm of Ontario
Teachers Pension Plan Board (OTPP). Mr. Markusson joined OTPP in 2006. Since joining Teachers
Private Capital, Mr. Markusson has been involved in a number of transactions in the industrials space.
Prior to joining Teachers Private Capital, Mr. Markusson was involved in the mergers and acquisitions
group of CIBC World Markets. Mr. Markusson currently serves on the Board of Directors of the EXAL
Group. Mr. Markusson holds a BA in Economics from Simon Fraser University and an MBA from the
University of Toronto, where he graduated as a Gold Medalist. As a result of these and other
professional experiences, Mr. Markusson possesses particular knowledge and experience in finance and
capital structure and board practices of other major corporations that strengthen the collective
qualifications, skills and experience of the Board of Directors of ALH.
Bogdan Cenanovic was elected to the Board of Directors of ALH as of September 8, 2010.
Mr. Cenanovic is a Director at Teachers Private Capital, the private equity arm of Ontario Teachers
Pension Plan Board (OTPP). Mr. Cenanovic joined OTPP in 2009. Since joining Teachers Private
Capital, Mr. Cenanovic has been involved in a number of transactions in the consumer, technology, and
energy spaces. In addition to Alliance Laundry, Mr. Cenanovic sits on the boards of Flexera Software
and Hawkwood Energy. Prior to joining Teachers Private Capital, Mr. Cenanovic was a Principal at
TorQuest Partners and prior to that, a Vice-President at EdgeStone Capital Partners, where he was
responsible for sourcing and executing investments as well as monitoring and providing strategic
guidance to portfolio companies. Mr. Cenanovic was formerly an investment banker at Lehman Brothers
101

and Donaldson, Lufkin & Jenrette. Mr. Cenanovic is a graduate of the HBA and MBA programs at the
Richard Ivey School of Business at the University of Western Ontario. As a result of these and other
professional experiences, Mr. Cenanovic possesses particular knowledge and experience in finance and
capital structure and board practices of other major corporations that strengthen the collective
qualifications, skills and experience of the Board of Directors of ALH.
Russell D. Hammond was elected to the Board of Directors of ALH as of December 20, 2011.
Mr. Hammond is a Director at Teachers Private Capital, the private equity arm of Ontario Teachers
Pension Plan Board (OTPP). Mr. Hammond joined OTPP in 2006. Since joining Teachers Private
Capital, Mr. Hammond has been involved in a number of transactions in the industrials space. Prior to
joining Teachers Private Capital, Mr. Hammond worked in the investment banking division of Credit
Suisse as well as the investment banking and private equity departments of Merrill Lynch in Toronto and
London, England. Mr. Hammond currently serves on the Board of Directors of Dematic Sarl and the
EXAL Group. Mr. Hammond holds a BS degree from Cornell University where he graduated as a
Presidential Scholar. As a result of these and other professional experiences, Mr. Hammond possesses
particular knowledge and experience in finance, investment banking and board practices of other major
corporations that strengthen the collective qualifications, skills and experience of the Board of Directors
of ALH.
Charles J. Philippin has been a member of the Board of Directors of ALH since May 1, 2005,
and is currently the chair of the audit committee of the Board of Directors. Mr. Philippin is currently the
CEO of Sbarbs LLC, a food service management company. From 2002 to 2008, Mr. Philippin was a
principal of Garmark Advisors. From 2000 through 2002, Mr. Philippin was CEO of Online Retail
Partners. From 1994 through 2000, Mr. Philippin was a member of the management committee of
Investcorp International Inc. Prior to 1994, Mr. Philippin was a partner of PricewaterhouseCoopers and
was National Director of Mergers & Acquisitions. He currently serves on the Board of Directors of Ulta
Salon, Cosmetics & Fragrance, Inc. Mr. Philippin served as a director on the boards of CSK Auto
Corporation from January 2004 through July 2008, Competitive Technologies from June 1999 through
February 2007 and Samsonite Corporation from October 2003 through October 2007. Mr. Philippin is
also a Certified Public Accountant and received a Bachelor's Degree from the Columbia School of
Engineering and Applied Sciences. As a result of these and other professional experiences, Mr. Philippin
possesses particular knowledge and experience in accounting, finance, and capital structure and board
practices of other major corporations that strengthen the Board of Directors collective qualifications,
skills and experience.
J. Hugh MacDiarmid has been a member of the Board of Directors of ALH since July 26, 2007.
Mr. MacDiarmid retired as the President and CEO of Atomic Energy of Canada Limited at the end of
September 2011. Mr. MacDiarmid was the Managing Director of Holden Railway Equipment Corp.
from 2006 to 2007. From 2003 through 2005, Mr. MacDiarmid was President and CEO of Laidlaw
Transit Inc. From 2001 through 2003, Mr. MacDiarmid was President of Killin Management
Corporation. From 1995 through 2001, Mr. MacDiarmid was an Executive Vice-President with
Canadian Pacific Railway. Prior to 1995, Mr. MacDiarmid held various executive management positions
and was a principal of McKinsey & Company. Mr. MacDiarmid is a graduate (HBA) of the Ivey
Business School at Western University and received an MBA from Stanford University. As a result of
these and other professional experiences, Mr. MacDiarmid possesses particular knowledge and
experience in international operations, strategic planning and leadership of complex organizations that
strengthen the Board of Directors collective qualifications, skills and experience.

102

Board of Directors Committees

Alliance Laundry is a limited liability company, and the ultimate function of our Board of
Directors is fulfilled by the Board of Directors of ALH which is the single managing member of Alliance
Laundrys parent, Alliance Laundry Holdings LLC.
The audit committee of the Board of Directors is comprised of Messrs. Charles J. Philippin,
Jeffrey H. Markusson and Russell D. Hammond. Messrs. Philippin, Markusson and Hammond qualify as
audit committee financial experts, as defined by Securities and Exchange Commission Rules, based on
their education, experience and background. Mr. Philippin serves as the committee chair and is an
independent member of the Board of Directors. The audit committee will, among other things,
recommend the annual appointment of auditors with whom the audit committee will review the scope of
audit and non-audit assignments and related fees, accounting principles we will use in financial
reporting, internal auditing procedures and the adequacy of our internal control procedures.
The compensation committee of the Board of Directors (the Compensation Committee) is
comprised of Messrs. Claerhout, LEsperance, Markusson and Hammond. The Compensation
Committee will, among other things, review and approve the compensation and benefits of our executive
officers, authorize and ratify stock option grants and other incentive arrangements, and authorize
employment and related agreements.
The charters of the Audit Committee and the Compensation Committee are available at
www.alliancelaundry.com (investor relations section).
Code of Ethics
On February 28, 2005, ALH and the manager and sole member of each of Alliance Laundry
Holdings LLC and Alliance Laundry Systems LLC adopted a code of ethics (Code) that applies to our
Board of Directors of ALH and the officers of ALH and its subsidiaries, including our principal
executive officer, principal financial officer, all other executive officers, treasurer, principal accounting
manager and controller of ALH and all of its subsidiaries. We filed the Code as Exhibit 14.1 to our
Annual Report on Form 10-K for 2005, have posted the most recent version of it on our Internet web site
at www.alliancelaundry.com (investor relations section) and it is available to any person upon request by
calling 920-748-3121.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
We believe that a skilled and motivated team of senior executives is essential to building and
maintaining a successful company. We also understand that our senior executives are highly sought
after since we are a leader in the North American and European stand-alone commercial laundry
equipment industry. Therefore, our executive compensation program has been designed to attract,
motivate, reward and retain the management deemed essential to achieve our Company objectives,
business strategy and financial performance. Our executive compensation program objectives are: (1) to
reward executives and key employees for the enhancement of stockholder value; (2) to support an
environment that rewards performance with respect to our goals as well as our performance relative to
industry competitors; (3) to integrate compensation programs with our short and long-term strategic
103

plans; (4) to attract and retain key executives critical to our long-term success and (5) to align the
interests of our executives with the long-term interests of our owners through award opportunities that
can result in ownership of stock.
Within our discussion of compensation for named executive officers, we have included Jeffrey J.
Brothers who was our Senior Vice President, Sales - North America until his retirement in late 2012.
Mr. Brothers would have been considered as one of our most highly compensated executive officers but
for the fact that he was no longer serving as an executive officer as of December 31, 2012. As a result of
the inclusion of Mr. Brothers, we have provided compensation information for a total of 6, rather than 5,
named officers.
Setting Executive Compensation
The Compensation Committee is responsible for establishing the Companys general
compensation philosophy and, in consultation with senior management, overseeing the development and
implementation of compensation programs. The Compensation Committee is appointed annually by our
Board of Directors and operates pursuant to a Charter, which is available at www.alliancelaundry.com
(investor relations section). Annually the Compensation Committee authorizes the compensation of the
Chief Executive Officer and reviews and approves the compensation of the other executive officers to
ensure that compensation levels and benefits are competitive and reasonable using the program
objectives described above. The particular elements of the compensation programs for our executive
officers are set forth in more detail below.
The Compensation Committee utilizes publicly available compensation information and surveys
to make informed decisions regarding pay and benefit practices. Salary, benefit and financial
performance data prepared by management is also used to periodically ensure that executive
compensation is market competitive and aligned with Company goals. We do not retain compensation
consultants to advise the Compensation Committee on compensation matters. We do not set
compensation at set percentage levels compared to the market but we do seek to provide salary,
incentive compensation opportunity and benefits that fall within the average practice of other
comparable industrial companies of similar size and complexity.
Components of 2012 Executive Compensation
For the year ended December 31, 2012, the principal components of compensation for the named
executive officers were:

Base salary
Discretionary bonuses
Cash and equity incentives
Severance agreements
Retirement and savings benefits
Other employee benefits

Base Salary. In our review of base salaries for executives, we primarily consider:

Publicly available market data and analyses prepared by management;

Internal review of each executive officers compensation, both individually and relative to
other executive officers and
Individual performance of the executive.
104

We consider changes in the base salaries of executive officers at least annually. Decisions to
increase or decrease an executives compensation materially, if any, are based on: (1) significant changes
in individual performance; (2) significant changes in job duties and responsibilities and/or (3) market
surveys or other market data which may indicate that compensation is not competitive.
The base salaries for our named executive officers for the following fiscal years ended
December 31 were as follows:
2012

2011

% Change

Michael D. Schoeb

$ 382,915

364,680

5.0% increase

Bruce P. Rounds

$ 277,927

264,692

5.0% increase

R. Scott Gaster

$ 225,479

212,716

6.0% increase

Scott L. Spiller

$ 214,357

208,113

3.0% increase

Thomas F. LEsperance

$ 174,996

350,000

50.0% decrease*

Jeffrey J. Brothers (retired)

230,928

not applicable

*Mr. LEsperances salary for 2012 and 2011 is consistent with the terms of his February 1, 2012
Director Service Agreement.
Discretionary Bonuses. From time to time, we award discretionary bonuses to our executive
officers and key employees in the form of cash bonuses relating to operational achievements during the
prior year. Discretionary incentives are at the discretion of the Compensation Committee and generally
relate to the successful completion of Board of Directors approved programs that are in support of our
business strategies. For 2012 and 2011, no discretionary bonuses were awarded to our named executive
officers. Discretionary bonuses are an important component of rewarding each executives individual
performance in light of our business performance as well as to provide an overall competitive
compensation package.
We consider the following factors in awarding discretionary bonuses:

Internal program review as presented by senior management;

Individual performance of the executive or key employee and
Our overall Company performance.

Cash and Equity Incentives. The Company maintains an annual metric based bonus plan
(Annual Incentive Plan) that provides for cash incentive awards to be made to executive officers and
key employees upon our Companys attainment of pre-set Adjusted EBITDA targets, as well as other
specified objectives. For the definition of Adjusted EBITDA see Item 7 - Liquidity and Capital
Resources under EBITDA and Adjusted EBITDA. The pre-set Adjusted EBITDA targets are established
annually, at the Compensation Committees discretion, as soon as practical after the Board of Directors
approves the Companys budget for a fiscal year. The Compensation Committee establishes a target
amount for each executive officer as the cash incentive award for 100% attainment of the pre-set
Adjusted EBITDA target. Awards are normally paid in cash in a lump sum following the close of each
plan year. Executive officers must be employed on the last day of a plan year to be eligible to receive an
award. However, the plan provides for proration of awards in the event of certain circumstances such as
the executives termination without cause, death, disability or retirement. We believe the focus on
Adjusted EBITDA growth and other identified strategic business objectives as approved by the Board of
Directors closely ties this element of executive compensation to our long-term objective to increase
shareholder value.
105

The 2012 Annual Incentive Plan included an Adjusted EBITDA component and a working
capital component. Within this program, 70% of the target payout was based on attaining an annual
Adjusted EBITDA of $89.3 million with adjustments provided for specified items. The minimum
threshold Adjusted EBITDA amount for 2012 was $84.8 million subject to similar adjustments. The
remaining 30% of the target payout was based on attaining certain working capital goals. The 2012
estimated payments under the Annual Incentive Plan for our named executive officers are as follows:
2012
Michael D. Schoeb

$ 464,968

Bruce P. Rounds

$ 189,000

R. Scott Gaster

$ 143,550

Scott L. Spiller

$ 130,500

Thomas F. LEsperance

Jeffrey J. Brothers (retired)

$ 145,485

Executive officers also participated in the ALH Holding Inc. 2005 Stock Incentive Plan, under
which the Company, at the Compensation Committees discretion, grant nonqualified and incentive
stock options to our executive officers. The Company believes the use of stock options provides
incentives to our executive officers to work toward the long-term growth of the Company by providing
them with a benefit that will increase only to the extent the value of our common stock increases. The
determination of the number of shares granted is based on the level and expected contribution of the
executive officer. Under the plan, 100,263 nonqualified stock options were granted to the named
executive officers based on stock option agreements executed in 2005. Sixty percent (60%) of these
stock options for the named executive officers were time-based, i.e., they vested in annual equal
installments over a five-year period. Forty percent (40%) of the options were performance-based, i.e.,
they vested in five annual installments if certain annual or cumulative earnings targets were met during
fiscal years 2006 through 2010. Under the plan, an additional 19,541 nonqualified stock options were
granted to Mr. Schoeb in 2008, with similar terms, which would have vested during fiscal years 2009
through 2013.
On April 22, 2010, ALH granted 59,115 performance options (the new performance options) to
the named executive officers, which had a ten year term. The new performance options would fully vest
upon a change in control if the return to Ontario Teachers Pension Plan (OTPP) was at least two and
one half times its invested capital and would otherwise be forfeited and canceled. A percentage of the
new performance options would vest based on linear interpolation if the return to OTPP was between the
two measures. The named executive officers forfeited for cancellation all performance options
previously granted to them (47,922 options in total) in consideration for the receipt of these new
performance options.
On April 22, 2010, ALH also granted new homerun options to certain key employees. None of
our named executive officers received new homerun options at that time. The new homerun options had
a per share exercise price equal to $160.00, an expiration date of April 22, 2020, and would fully vest
upon a change in control if (and only if) the return to OTPP was at least three times its invested capital
and would otherwise be forfeited. On August 15, 2011, ALH granted 2,100 new homerun options to
certain key employees, with a per share exercise price equal to $197.49, and with other provisions
similar to the previously issues new homerun options. None of our named executive officers received
new homerun options at that time. On December 21, 2011, ALH granted 1,045 new homerun options to
Mr. Schoeb, with a per share exercise price equal to $220.52, and with other provisions similar to the
previously issued new homerun options.
106

On April 5, 2012 in conjunction with a cash dividend to its shareholders, the Board of Directors
approved a reduction of the exercise price of the outstanding stock options commensurate with the per
share cash dividend paid.
In December 2012, the Board of Directors agreed to vest all of the 157,693 outstanding stock
options. The Board of Directors agreed to provide short term loans to each option holders in an amount
representing the aggregate exercise price of the holders options plus related withholding taxes. Under
this arrangement, option holders provided written notice of their intent to exercise all outstanding
options, with aggregate proceeds from the exercise price of $16.5 million. Please refer to Note 15 - Debt
for more information on the December 2012 Refinancing Transaction. The number of options exercised
by our named executive officers was as follows: Mr. Schoeb, 21,952; Mr. Rounds, 17,795; Mr. Gaster,
17,355; Mr. Spiller, 20,926; Mr. LEsperance, 24,304 and Mr. Brothers, 18,011.
On December 15, 2012, ALH established a new stock option plan and granted a total of 167,300
stock options among certain members of management. The granted options entitle the members of
management to purchase shares of our common stock at an option price equal to $122.63 per share
subject to the vesting conditions described below. The number of new options received by our named
executive officers was as follows: Mr. Schoeb, 20,800; Mr. Rounds, 9,700; Mr. Gaster, 9,700;
Mr. Spiller, 3,200; Mr. LEsperance, zero and Mr. Brothers, zero. As of December 31, 2012 stock
options represented an aggregate of 9.7% of the fully diluted common shares of ALH common stock
which would be issuable upon exercise of stock options. As of December 31, 2012 fifty percent (50%) of
the options granted were service options, which vest in five equal annual installments on each of the first
five agreement anniversaries, with the potential for accelerated vesting upon a change in control of
Alliance Laundry. As of December 31, 2012 fifty percent (50%) of the options granted were
performance options. The performance options will vest only upon a change in control if (and only if)
(a) the consideration received by OTPP in the change in control is at least two times the fair market
value of the shares held by OTPP as of the date the options were granted (increased by any subsequent
investment by OTPP) and (b) OTPP receives at least a 20% Internal Rate of return on their investment in
the company. If such criteria are not met, the performance options will be forfeited. ALH continues to
use the intrinsic value method for these service and performance options as they are being accounted for
as liability awards. Intrinsic value estimates prepared by management are based on forecasted cash flow
projections which are used to estimate the value of the Company. This estimate is then used to determine
the intrinsic value of the individual options as of the respective balance sheet date. The service options
are re-measured based on managements estimates of intrinsic value at each reporting period multiplied
by the percentage of the awards that have vested as of the respective balance sheet date using the graded
vesting approach. The performance options are re-measured based on managements estimates of
intrinsic value as well as managements estimate of whether or not the related performance conditions
have been or will be satisfied using the graded vesting approach.
We believe that this plan and the grant of time-based and performance-based stock options will
(1) motivate superior executive performance by means of service and performance related incentives,
(2) appropriately align the interests of the executives with the interests of the Companys shareholders
and (3) enable us to attract and retain the services of a highly effective management team.
Retirement Benefits. Each of the named executive officers participates in the Alliance Laundry
Systems Pension Plan (the Pension Plan) which is a qualified non-contributory defined benefit cash
balance plan. The Pension Plan presently covers all U.S. hourly employees hired prior to January 1, 2006
and U.S. salaried employees hired prior to January 1, 2009. Prior to January 1, 2009, for eligible
salaried employees under the Pension Plan, an account was established for each participant in which pay
107

credits and interest credits were earned based on a percentage of the participants compensation as
adjusted for age and years of service. Compensation included base salary, bonuses, awards,
commissions, supervisory differentials and shift premiums, capped at the applicable IRS annual dollar
limits. Effective January 1, 2009 U.S. salaried employees only earn interest credits on their account
balances. A participants accrued benefits under the Pension Plan vest after five years of service. Upon
retirement or termination of employment, a salaried participant has the option to either (1) receive
payment as a lump sum, (2) select one of the monthly annuity options or (3) leave the vested account
balance in the Pension Plan (where it will continue to earn interest) until a later date. Benefit payments
must begin by April 1 of the year following the year the participant reaches age 70.
In addition, substantially all of the U.S. salaried employees, including our named executive
officers, participate in the Alliance Laundry Systems Capital Appreciation Plan (ALCAP) 401(k) plan.
Under this plan, employees are permitted to defer up to 50% of their compensation (capped at the
applicable IRS annual dollar limits) and we provide a matching contribution equal to 100% of the first
6% of the employees contributions. Matching contributions vest after three years of service.
We believe that these retirement benefits comprise an important component in our objective of
retaining our highly performing executives while attracting additional highly qualified employees in the
future.
Severance Benefits. We provide severance benefits to most of our named executive officers, as
well as other members of our senior management. Each of Messrs. Schoeb, Rounds, Gaster and Spiller
has an executive severance protection agreement with us. Mr. LEsperance is no longer entitled to
severance benefits as of February 1, 2012, under the terms of his Director Services Agreement.
Mr. Brothers has retired and is no longer covered under a severance protection agreement.
The severance agreements for the named executive officers, which are described in more detail
below under Severance and Change in Control Arrangements, generally provide for continued salary
and health, dental and welfare benefits, as well as additional bonus, in the event that an executive is
involuntarily terminated without cause. The severance arrangements allow our executives to act in the
best interest of our shareholders while mitigating the distraction of personal concerns, such as potential
loss of employment, which may arise from their decisions.
Other Employee Benefits. We provide to the named executive officers standard health, dental,
life insurance and other welfare benefits. We believe that providing competitive employee benefits is an
important component in our objective of retaining our high-performing executives while attracting other
highly qualified employees in the future.
Stock Ownership
We encourage our executive officers and key employees to own shares of ALH stock. In
connection with the Alliance Acquisition, each of the named executive officers employed at that time, as
well as other members of our senior management, purchased shares of common stock of ALH under our
Stock Purchase and Rollover Investment Plan which was adopted on January 27, 2005. In addition, the
stockholders agreement executed in connection with the Alliance Acquisition gives the executive
officers and certain other designated management members a preemptive right to purchase, at fair market
value, additional shares of our common stock in any new issue in order to maintain their ownership
percentage of our common stock. Consistent with this preemptive right, we completed management
offerings for participants in our Stock Purchase and Rollover Investment Plan on July 14, 2006, January
23, 2008, November 25, 2010, June 29, 2012 and December 15, 2012. Under these offerings, our named
108

executive officers purchased, at fair market value, an additional 15,232 shares, 6,846 shares, 634 shares,
4,474 shares and 17,325 shares of our common stock, respectively. In addition, in January of 2008,
Mr. Schoeb acquired 4,609 shares of common stock. Additional information about the executive
officers current stock ownership of ALH is available under Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters. We believe that stock ownership
serves to attract and retain executives as well as align their interests with the long-term interests of our
owners.
Tax and Accounting Considerations
Deductibility of Executive Compensation
We generally structure all our compensation programs so that they are deductible for federal
income tax purposes. We are not currently subject to the deduction limitations of Section 162(m) of the
Internal Revenue Code of 1986.
Accounting for Stock Based Compensation
The expenses associated with the stock options issued by us to our executive officers and other
key employees are reflected in our financial statements. In the fourth quarter of calendar year 2005, the
Company began accounting for these stock-based payments in accordance with current accounting
guidance, which requires all share-based payments to employees, including grants of employee stock
options, to be recognized as expense in the financial statements based on their fair values. For further
discussion see Item 8 - Note 19 - Stock Based Compensation under the heading ALH Stock Option
Plan.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis. Based on its review and discussions, the Compensation Committee
recommends to the Board of Directors that the Compensation Discussion and Analysis be included in
these financial statements.
Members of the Compensation Committee:
Andrew Claerhout, Chair
Thomas F. LEsperance
Jeffrey H. Markusson
Russell D. Hammond

109

Summary Compensation Table

Change in Pension
Value and Non-Qualified
Non-Equity

Deferred

All

Option

Incentive Plan

Compensation

Other

Salary

Bonus

Awards (1)

Compensation

Earnings (2)

Compensation (3)

Total

Name and Principal Position

Year

($)

($)

($)

($)

($)

($)

($)

(a)

(b)

(c)

(d)

(f)

(g)

(h)

(i)

(j)

Michael D. Schoeb
2012
378,357

2,705,691

464,968

583

36,017

3,585,616

Chief Executive Officer and

2011

360,340

487,009

330,688

562

20,150

1,198,749

President

2010

348,694

418,399

360,000

541

37,368

1,165,002

Bruce P. Rounds
2012
274,618

2,257,569

189,000

11,003

16,869

2,749,059

Vice President,

2011

261,541

338,238

140,470

10,605

16,471

767,325

Chief Financial Officer

2010

253,088

331,112

153,906

10,220

15,334

763,660

R. Scott Gaster
2012
222,288

2,167,438

143,550

8,537

16,667

2,558,480

Vice President, Global

2011

210,183

348,920

108,249

8,227

16,073

691,652

Manufacturing Operations

2010

203,390

340,927

118,604

7,929

15,993

686,843

Scott L. Spiller...
2012
212,796

2,632,543

130,500

11,719

17,136

3,004,694

Vice President,

2011

206,598

415,749

110,470

11,294

16,765

760,876

Chief Legal Officer and Secretary

2010

203,850

408,003

121,037

10,885

15,999

759,774

Thomas F. L'Esperance.
2012
160,413

3,662,781

8,419

8,346

3,839,959

Vice Chairman,

2011

353,966

201,534

8,114

18,264

581,878

Director

2010

404,170

204,806

637,500

7,820

18,264

1,272,560

Jeffrey J. Brothers (retired)..

2012
216,303

2,260,596

145,485

20,390

50,433

2,693,207

Senior Vice President,

2011

229,247

357,473

122,819

21,471

19,188

750,198

Sales, North America

2010

226,310

350,433

134,567

20,692

16,955

748,957

(1) The amount shown in column (f) is the dollar amount that was recognized in 2012, 2011 and
2010 in accordance with current accounting guidance using the intrinsic value method which is
further discussed in Note 19 - Stock Based Compensation, to our Consolidated Financial
Statements. The 2012 performance options are classified as equity and, as such, no compensation
expense has been recorded related to the 2012 performance options. Additional information
regarding the grant of stock options is available in the Compensation Discussion and Analysis
under the heading Cash and Equity Incentives.
(2) Change in pension value reflects the increase in the executives cash balance account earned
during the year attributable to annual interest credits (3.76% in 2012). There are no above-market
or preferential earnings on any deferred compensation accounts.
(3) All other compensation includes matching contributions related to contributions made by the
named executive officers to the Alliance Laundry Systems Capital Appreciation Plan (ALCAP)
401(k) plan and Company paid life insurance for the benefit of the named executive officers.
Additionally, for Mr. Schoeb, all other compensation includes reimbursement for duplicate
housing costs.

110

Grants of plan-based awards for Fiscal Year 2012 were based on the following Threshold, Target
and Maximum payments to the named executive officers under the Companys Annual Incentive Plan.
Grants of Plan-Based Awards for Fiscal Year 2012
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards (1)
Threshold

Target

Maximum

Name

($)

($)

($)

(a)

(c)

(d)

(e)

Michael D. Schoeb

309,979

464,968

Bruce P. Rounds

126,000

189,000

R. Scott Gaster

95,700

143,550

Scott L. Spiller

87,000

130,500

Thomas F. L'Esperance

Jeffrey J. Brothers (retired)

96,990

145,485

(1) The figures in these columns are estimates prepared in accordance with applicable disclosure
requirements. See the Compensation Discussion and Analysis, Cash and Equity Incentives, for
a detailed description of the Annual Incentive Plan.
The number of shares to be issued upon exercise or vesting of awards issued under and the
number of shares remaining available for future issuance under our stock option plan at December 31,
2012 were:
Number of securities
Number of securities

Plan category

remaining available

to be issued upon

Weighted-average

for future issuance

exercise of

exercise price of

under equity

outstanding options outstanding options

compensation plans

Equity compensation plans

not approved by security holders

167,300

111

122.63

6,700

Outstanding Equity Awards at Fiscal Year-End

Option Awards (1)
Number of

Number of

Equity Incentive

Securities

Securities

Plan Awards:

Underlying

Underlying

Number of Securities

Option

Unexercised

Unexercised

Underlying

Exercise

Option

Name

Options - (#)
Exercisable (2)

Options - (#)
Unexercisable (3)

Unexercised Options
(#) Unearned (4)

Price (5)
($)

Expiration
Date

(a)

(b)

(c)

(d)

(e)

(g)

Michael D. Schoeb

10,400

10,400

122.63

12/15/22

Bruce P. Rounds

4,850

4,850

122.63

12/15/22

R. Scott Gaster

4,850

4,850

122.63

12/15/22

Scott L. Spiller

1,600

1,600

122.63

12/15/22

Thomas F. L'Esperance

Jeffrey J. Brothers (retired)

(1) Option awards in the table describe nonqualified stock options granted under the ALH Holding
Inc. 2012 Stock Option Plan. For Messrs. Schoeb, Rounds, Gaster and Spiller, a portion of stock
options granted on December 15, 2012 vest in annual equal installments over a five-year period
between December 15, 2013 and December 15, 2017, with the potential for accelerated vesting
upon a change in control of Alliance Laundry. Option awards in the table also include
performance stock options granted on December 15, 2012. The performance options will vest
only upon a change in control if (and only if) (a) the consideration received by OTPP in the
change in control is at least two times the fair market value of the shares held by OTPP as of the
date the options were granted (increased by any subsequent investment by OTPP) and (b) OTPP
receives at least a 20% Internal Rate of return on their investment in the company.
(2) This column represents the number of time-based stock options that had vested and remain
outstanding as of December 31, 2012. At December 31, 2012 no options were vested.
(3) This column represents the number of time-based stock options that had not vested as of
December 31, 2012.
(4) This column represents the number of performance stock options that have not yet been earned
by the named executive officers. None of these options have vested (or been earned) to date
because the performance stock options can only vest upon a change in control.
(5) The exercise price for the options is equal to the grant date fair market value of a share of ALH
common stock.

112

Pension Benefits

Name

Plan Name

Number
of Years

Present

Payments

of

Value of

During

Credited

Accumulated

Last Fiscal

Service

Benefit (1)

Year

(#)

($)

($)

Michael D. Schoeb

Pension Plan

16,082

Bruce P. Rounds

Pension Plan

18

303,649

R. Scott Gaster

Pension Plan

12

235,576

Scott L. Spiller

Pension Plan

19

323,384

Thomas F. L'Esperance

Pension Plan

10

232,332

Jeffrey J. Brothers (retired)

Pension Plan

29

612,885

(1) The present value of accumulated benefit equals the value the executives cash balance
account earned as of December 31, 2012 which is the relevant 2012 measurement date used
by the plan for financial reporting purposes.
The Alliance Laundry Systems Pension Plan (the Pension Plan) is a qualified, non-contributory
defined benefit cash balance plan. The Pension Plan presently covers all U.S. hourly employees hired
prior to January 1, 2006 and U.S. salaried employees hired prior to January 1, 2009. Substantially all of
our eligible salaried employees, including our executive officers, participate in the Pension Plan. The
cost of the pension plan is borne entirely by us. Under the provisions of the Pension Plan for salaried
employees, a cash balance account is established for each participant for which annual interest credits
are earned as the participant provides service. Hourly employees hired prior to January 1, 2006 receive
benefits of stated amounts for each year of service.
Substantially all of the salaried employees, including our executive officers, participate in our
ALCAP 401(k) plan. Under this plan, employees are permitted to defer up to 50% of their compensation
(capped at the applicable IRS annual dollar limits) and we provide a matching contribution equal to
100% of the first 6% of the employees contributions. Matching contributions vest after three years of
service.
Severance and Change in Control Arrangements
Severance Benefits
The Company provides severance benefits to most of our named executive officers, as well as
other members of its senior management. Mr. Schoebs right to a severance benefit is provided in his
Employment Agreement. In addition, each of Messrs. Schoeb, Rounds, Gaster and Spiller has an
executive severance protection agreement with us. Mr. LEsperance is no longer entitled to severance
benefits as of February 1, 2012, under the terms of his Director Services Agreement. Mr. Brothers has
retired and is no longer covered under a severance protection agreement.
In the event that Mr. Schoeb is terminated by the Company without cause, he is entitled to
receive 24 months of continued base salary and twice the amount of his most recent bonus. Mr. Schoeb
is also entitled to 24 months of continued medical, dental and health benefits. Mr. Schoeb is subject to
113

two-year non-competition and non-solicitation covenants which are conditions to the receipt of the
severance benefits.
In the event that any of Messrs. Rounds, Gaster and Spiller is terminated by the Company
without cause, he is entitled to receive 12 months of continued base salary. Messrs. Rounds, Gaster and
Spiller are also entitled to 12 months of continued medical, dental and health benefits and a pro-rated
Annual Incentive Plan payment for the fiscal year in which the termination occurs. The executives are
subject to one-year non-competition and non-solicitation covenants which are conditions to their receipt
of the severance benefits.
The table below reflects estimated severance benefits which each named executive officer would
be entitled to receive had a qualifying termination occurred on December 31, 2012. The amounts shown
are estimates prepared in accordance with applicable disclosure requirements and do not necessarily
reflect the actual amounts that would be paid to the executives, which would only be known upon an
actual qualifying termination.
Medical,
Dental and
Continued

Health

Salary

Bonus

Benefits

Total

($)

($)

($)

($)

Michael D. Schoeb

765,830

929,936

32,718

1,728,484

Bruce P. Rounds

277,927

126,000

16,359

420,286

R. Scott Gaster

225,479

95,700

16,359

337,538

Scott L. Spiller

214,357

87,000

16,359

317,716

Thomas F. LEsperance
Jeffrey J. Brothers (retired)

74,795

145,485

220,280

Change in Control Benefits

Although the service-based stock options granted to the executive officers under the ALH
Holding Inc. 2012 Stock Option Plan become exercisable ratably over a five-year period, in the event of
a change in control, all of the options, whether exercisable or unexercisable, are cancelled in exchange
for a cash payment equal to the difference between the change in control consideration over the exercise
price. Performance-based options that are exercisable at the time of a change in control are also cashed
out in a change in control. However, this cash settlement treatment is subject to the right of the
Compensation Committee to determine, in good faith, that the successor employer should instead
assume the options or provide substitute options. In addition, accelerated vesting and cash settlements
are limited to the extent necessary to prevent an executive from being subject to golden parachute
excise taxes under Section 280G and 4999 of the Internal Revenue Code. For purposes of this plan, a
change in control is generally defined as the sale, exchange, transfer or disposition to one or more nonaffiliated persons of (i) more than 50% of the common stock of ALH beneficially owned by OTPP or
(ii) more than 50% of all assets of ALH and its majority-owned subsidiaries. Any unvested options still
outstanding following a change in control will be cancelled in accordance with the terms of the plan and
the relevant stock option agreements. Additional information regarding the vesting of currently
outstanding stock options is available in the Compensation Discussion and Analysis under the heading
Cash and Equity Incentives.
The Company does not have any other change in control arrangements with its executive officers.
114

Director Compensation
Compensation of Directors
Change in Pension
Value and Non-Qualified
Fees Earned

Name
(a)

Non-Equity

Deferred

All

or Paid

Stock

Option

Incentive Plan

Compensation

Other

In Cash

Awards

Awards

Compensation

Earnings

Compensation

Total

($)
(b)

($)
(c)

($)
(d)

($)
(e)

($)
(f)

($)
(g)

($)
(h)

Andrew J. Claerhout

Thomas F. L'Esperance

Michael D. Schoeb

Jeffrey H. Markusson

Bogdan Cenanovic

Russell D. Hammond

Charles J. Philippin

64,750

64,750

J. Hugh MacDiarmid

47,250

47,250

The Directors fees were changed effective June 1, 2011. Mr. Philippin is paid a fee of $35,000
per year as an independent member of the Board of Directors and a fee of $10,000 per year for his role as
audit committee chair. In addition, Mr. Philippin is paid a meeting fee of $1,750 for each board meeting
attended and $1,500 for each audit committee meeting attended plus reimbursable travel expenses. In
2012, Mr. Philippin received $64,750 in director fees and was reimbursed $1,638 for travel and related
expenses for a total of $66,388 in directors fees, reimbursable expenses and permissible benefits.
Mr. MacDiarmid is paid a fee of $35,000 per year as an independent member of the Board of Directors.
In addition, Mr. MacDiarmid is paid a meeting fee of $1,750 for each board meeting attended plus
reimbursable travel expenses. In 2012, Mr. MacDiarmid received $47,250 in directors fees and was
reimbursed $79 for travel and related expenses for a total of $47,329 in directors fees, reimbursable
expenses and permissible benefits. Messrs. Claerhout, LEsperance, Schoeb, Markusson, Cenanovic and
Hammond, as non-independent directors, receive no fees, but all directors are reimbursed for any out-ofpocket expenses incurred by them in connection with services provided in such capacity.
Mr. LEsperance is paid as an executive officer according to his February 1, 2012 Director Services
Agreement. The Compensation Committee reviews director compensation from time to time and is
responsible for recommending appropriate increases in such compensation.
Compensation Committee
The Compensation Committee consists of Messrs. Claerhout, LEsperance, Markusson and
Hammond, with Mr. Claerhout acting as chair. Mr. LEsperance was the Chief Executive Officer and
President of ALH through January 31, 2011. There are no other items to report related to Compensation
Committee interlocks or insider participation relationships with the Company by its members.
No executive officer of the Company served as a member of the Compensation Committee (or
other board or board committee performing equivalent functions) of another entity, one of whose
executive officers served on the Compensation Committee of the Company. No executive officer of the
115

Company served as a director of another entity, one of whose executive officers served on the
Compensation Committee of the Company. No executive officer of the Company served as a member of
the Compensation Committee (or other board or board committee performing equivalent functions) of
another entity, one of whose executive officers served as a director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
ALH indirectly owns all of the outstanding equity interests of Alliance Laundry. The following
table sets forth the beneficial ownership as of March 4, 2013 of ALH, of:

each person or entity known to us to own 5% or more of ALH common stock;

each member of ALHs Board of Directors;
each of our named executive officers; and
all members of ALHs Board of Directors and our executive officers as a group.

Beneficial ownership of shares is determined under the rules of the SEC and generally includes
any shares over which a person exercises sole or shared voting or investment power. Each person
identified in the table possesses sole voting and investment power with respect to all shares of common
stock held by them except as indicated by footnote, and subject to applicable community property laws.
Shares of common stock subject to options currently exercisable or exercisable within 60 days of
March 4, 2013 and not subject to repurchase as of that date are deemed outstanding for calculating the
percentage of outstanding shares of the person holding these options, but are not deemed outstanding for
calculating the percentage of any other person. Unless otherwise noted, the address for each director and
executive officer is c/o Alliance Laundry Systems LLC, P.O. Box 990, Shepard Street, Ripon,
Wisconsin 54971.
Common Stock
Number of

OTPP

Shares

Percentage

Beneficially

of Shares

Owned (1)

Owned (1)

1,294,259

82.6%

Michael D. Schoeb

21,792

1.4%

Bruce P. Rounds

19,560

1.2%

R. Scott Gaster

18,256

1.2%

Scott L. Spiller

31,686

2.0%

Thomas F. LEsperance

70,833

4.5%

Jeffrey J. Brothers (retired)

Charles J. Philippin

700

J. Hugh MacDiarmid

1673

Independent directors and executive officers, as a group (2)

192,900

12.3%

Andrew J. Claerhout (3)(4)

1,294,259

82.6%

Jeffrey H. Markusson (3)(4)

1,294,259

82.6%

Bogdan Cenanovic (3)(4)

1,294,259

82.6%

Russell D.Hammond (3)(4)

1,294,259

82.6%

116

(1) The number of shares beneficially owned by the executives named in this table, as well as the
corresponding percentage of shares owned includes the management equity that such executives, or
individual retirement accounts owned by such executives or their spouses, acquired in connection
with the consummation of the Transactions and subsequent equity offerings. For each individual
named in this table, the number of shares beneficially owned, as well as the corresponding
percentage of shares owned, also includes vested stock options. There were no vested options as of
March 4, 2013.
(2) Includes stock held by all ten executive officers as well as the independent directors, Messrs.
Philippin and MacDiarmid. This does not include the shares of ALH common stock held by OTPP
with respect to which Messrs. Claerhout, Markusson, Cenanovic and Hammond may be deemed to
have the power to dispose as described in footnote (4) below.
(3) The address of each of Messrs. Claerhout, Markusson, Cenanovic and Hammond is c/o Ontario
Teachers Pension Plan Board, 5650 Yonge Street, Toronto, Ontario M2M 4H5.
(4) Represents the shares of ALH common stock held by OTPP. Messrs. Claerhout, Markusson,
Cenanovic and Hammond may be deemed to have the power to dispose of the shares held by OTPP
due to a delegation of authority from the Board of Directors of OTPP and each expressly disclaims
beneficial ownership of such shares.
*

Less than 1%

DESCRIPTION OF CAPITAL STOCK

All of Alliance Laundrys issued and outstanding equity interests are owned by Alliance
Holdings and all of Alliance Holdings equity interests are owned by ALH. The following is a summary
description of ALHs capital stock and certain terms of its second amended and restated certificate of
incorporation and its amended and restated by-laws all of which became effective upon the
consummation of the Transactions.

Authorized Capitalization
ALHs authorized capital stock as of March 4, 2013 consists of:

2,000,000 shares of common stock, par value $0.01 per share of which 1,565,955 were issued
and outstanding and of which 1,559,492 shares were issued to OTPP, members of our current
management and independent directors and 174,000 stock options related to the right to
acquire shares of which 167,300 have been granted to certain members of current
management and

50,000 shares of preferred stock, par value $0.01 per share, of which no shares are issued and
outstanding.

The rights and privileges of holders of the common stock are subject to any series of preferred
stock that ALH may issue in the future and to the amended stockholders agreement. See Item 13,
Certain Relationships and Related TransactionsStockholders Agreement.
Our stock option plan has not been formally approved by our shareholders although the members
of our Compensation Committee are affiliated with OTPP our largest shareholder. A description of the
plan may be found in our Compensation Discussion and Analysis and in the footnotes to the tables that
follow it.
117

Common Stock
Voting. Except as otherwise required by Delaware law, at every annual or special meeting of
stockholders, every holder of common stock is entitled to one vote per share on all matters submitted to
a vote of stockholders and do not have cumulative voting rights.
Dividends. Holders of common stock are entitled to receive proportionately any dividends that
may be declared by the Board of Directors of ALH subject to the preferences and rights of any shares of
preferred stock.
Board of Directors. The amended and restated by-laws of ALH provide that the Board of
Directors of ALH initially consists of three members each of whom was elected by the holders of the
outstanding common stock of ALH. The amended and restated certificate of incorporation and the
amended and restated by-laws provide that the number of directors is fixed and may be increased or
decreased from time to time by OTPP, but the Board of Directors will at no time consist of fewer than
three directors. The amended and restated certificate of incorporation provides that no director will be
personally liable to ALH or its stockholders for monetary damages for breach of fiduciary duty as a
director except to the extent that this limitation on or exemption from liability is not permitted by the
Delaware General Corporation Law (the DGCL) and any amendments to that law. ALHs
organizational documents include provisions that eliminate, to the extent allowable under the DGCL, the
personal liability of directors or officers for monetary damages for actions taken as a director. They also
provide that ALH must indemnify directors and officers against, and if such indemnification is
unavailable, advance to directors and officers expenses incurred in defending against certain such actions
against such persons. ALH is also expressly authorized to carry directors and officers insurance for its
directors and officers for some liabilities. See Voting Agreements below.
Voting Agreements. In connection with the consummation of the Alliance Acquisition, ALH
entered into a stockholders agreement with OTPP, certain employees of ALH or its subsidiaries and
certain entities affiliated with such employees, who own shares of ALHs common stock. The
stockholders agreement provides that Michael D. Schoeb will be a member of the Board of Directors of
ALH for so long as he serves as the Chief Executive Officer. OTPP has the right to designate the
remaining members of the Board of Directors. The stockholders agreement provides that the other
parties to the stockholders agreement will vote all of the shares of common stock owned by such
stockholders in favor of the designees of OTPP. See Item 13, Certain Relationships and Related
TransactionsStockholders Agreement.
Preferred Stock
ALHs amended and restated certificate of incorporation provides that it may issue shares of its
preferred stock in one or more series as may be determined by its Board of Directors. ALHs Board of
Directors has broad discretionary authority with respect to the rights to issue series of its preferred stock
and may take several actions without any vote or action of the holders of its common stock including:

determining the number of shares to be included in each series;

fixing the designation, powers, preferences and relative rights of the shares of each series and
any qualifications, limitations or restrictions with respect to each series, including provisions
related to dividends, conversion, voting, redemption and liquidation, which may be superior
to those of ALHs common stock; and

increasing or decreasing the number of shares of any series of preferred stock.

118

The authorized shares of ALHs preferred stock, as well as shares of its common stock, are
available for issuance without action by its common stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system on which its securities
may be listed or traded.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stockholders Agreement
Concurrent with the closing of the Alliance Acquisition, ALH entered into a stockholders
agreement (the Stockholders Agreement) with OTPP, certain employees of ALH or its subsidiaries
and certain entities affiliated with such employees, who own shares of ALHs common stock. The
Stockholders Agreement provides that the Chief Executive Officer of ALH will be a member of the
Board of Directors of ALH. OTPP has the right to designate the other directors. The Stockholders
Agreement provides that the other parties to the Stockholders Agreement will vote all of the shares of
common stock owned by such stockholders in favor of the designees of OTPP.
The Stockholders Agreement contains customary terms, including, among other things, terms
regarding transfer restrictions, tag-along rights, drag-along rights, calls and preemptive rights. The
Stockholders Agreement generally restricts the transfer of shares of common stock owned by the
employees and the entities affiliated with such employees, or collectively, the management stockholders,
who are or who become parties to the agreement. Exceptions to this restriction include transfers for
estate planning purposes or to family members so long as the transferee agrees to be bound by the terms
of the Stockholders Agreement.
In addition, the management stockholders have tag-along rights to sell their shares on a pro rata
basis with OTPP in sales to third parties at any time after the six month anniversary of the Alliance
Acquisition subject to certain exceptions. Similarly, OTPP has drag-along rights to cause the
management stockholders to sell their shares on a pro rata basis with OTPP to an independent third party
in a liquidity event (as defined in the Stockholders Agreement). The management stockholders are
subject to call rights which entitle ALH to require a management stockholder to sell ALH shares of
common stock held by such management stockholder, upon any termination of the employment of the
management stockholder, or the employee affiliated with such stockholder, with ALH or its subsidiaries,
at differing prices, depending upon the circumstances of the termination. The Stockholders Agreement
also contains a provision that requires ALH to offer the management stockholders, as long as such
management stockholder or the employee affiliated with such management stockholder is employed by
ALH or its subsidiaries at such time, the right to purchase equity securities of ALH in a new issuance to
OTPP on a pro rata basis subject to certain exceptions. Certain of the foregoing provisions of the
Stockholders Agreement terminate upon the consummation of an initial public offering (as defined in the
Stockholders Agreement).

Registration Rights Agreement

Concurrent with the closing of the Alliance Acquisition, ALH entered into a registration rights
agreement with OTPP and the parties to the Stockholders Agreement. Pursuant to this agreement, OTPP
has the right to make an unlimited number of requests that ALH register its shares under the Securities
Act at ALHs expense. In any demand registration, all of the parties to the registration rights agreement
have the right to participate on a pro rata basis subject to certain conditions. In addition, in the event that
ALH proposes to register any of its shares (other than registrations related to benefit plans and certain
other exceptions), all of the holders of registration rights under the agreement have the right to include
119

their shares in the registration statement at ALHs expense subject to certain conditions. In connection
with all such registrations, ALH has agreed to indemnify all holders of registration rights under the
agreement against certain liabilities, including liabilities under the Securities Act.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
For 2012, the audit committee pre-approved the continuation of PricewaterhouseCoopers LLP,
an Independent Registered Public Accounting Firm, for audit, audit related and tax related services.
Aggregate fees billed to us for the fiscal years ending December 31, 2012 and 2011, by our
principal accounting firm, PricewaterhouseCoopers LLP, are set forth in the table below. All auditing
services and permitted non-audit services (including the fees and terms thereof) to be performed for
Alliance by its independent auditor must be pre-approved by the Board of Directors. All audit and nonaudit services provided by PricewaterhouseCoopers LLP during 2012 were pre-approved by the Board of
Directors.
2012
2011
(in thousands)
Audit Fees(1)
Tax Fees(2)
All Other Fees
Total

802.6

224.6
1.8
1,029.0

833.7

129.7
1.8
965.2

(1) Includes the aggregate fees and out-of-pocket costs associated with the annual audit and quarterly
reviews billed for each of the last two fiscal years for professional services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial statements included in our Annual
Reports and the review of financial statements included in our Quarterly Reports.
(2) Includes the aggregate fees billed for each of the last two fiscal years for professional services
rendered by PricewaterhouseCoopers LLP primarily for tax compliance.

120

Alliance Laundry Holdings LLC

Earnings to Fixed charges

Earnings: (a)
Income before taxes
Fixed charges:
Interest expense
Rent expense (portion deemed to be interest expense)
Income before taxes and fixed charges
Fixed charges
Ratio of earnings to fixed charges

EXHIBIT A

December 31,
2012

December 31,
2011

Year Ended
December 31,
2010

December 31,
2009

December 31,
2008

30,445

35,907

35,224

21,667

21,992

19,057
580
50,082

26,262
653
62,822

22,031
572
57,827

21,741
527
43,935

30,658
809
53,459

19,637
2.6

26,915
2.3

22,603
2.6

22,268
2.0

31,467
1.7

(a) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as
income (loss) before income taxes and cumulative effect of change in accounting principle plus fixed
charges. Fixed charges include interest expense on all indebtedness, amortization of deferred financing
costs and one-third of rental expense on operating leases, representing that portion of rental expense
deemed to be attributable to interest.

121

EXHIBIT B

Subsidiaries of the Company

Alliance Laundry Systems LLC owns all of the stock of the following corporations:

Name
Alliance Laundry Equipment Receivables 2009 LLC
Alliance Laundry Holding S.ar.l

State or Other Jurisdiction of

Incorporation or Organization
Delaware
Luxembourg

Alliance Laundry Holding S.ar.l owns all of the stock of the following corporation:
State or Other Jurisdiction of
Incorporation or Organization
Belgium
Singapore

Name
Alliance Holding BVBA
Alliance Laundry SEA Pte Ltd

Alliance Holding BVBA owns all of the stock of the following corporation:
State or Other Jurisdiction of
Incorporation or Organization
Belgium

Name
Alliance International BVBA

Alliance International BVBA owns the indicated percentage of stock of the following
corporations:

Stock Ownership
Percentage
67%
100%

Name
IPSO - Norge AS
IPSO - Spain S.L.

State or Other Jurisdiction

of Incorporation or
Organization
Norway
Spain

Alliance International BVBA owns a 50% interest in IPSO - Rent NV, a Belgium Joint Venture.

122