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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended October 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File No. 333-60247
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COYNE INTERNATIONAL ENTERPRISES CORP.
BLUE RIDGE TEXTILE MANUFACTURING, INC.
OHIO GARMENT RENTAL, INC.
MIDWAY-CTS BUFFALO, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrants as specified in their respective charters)
New York 16-6040758
Georgia 58-2018333
Ohio 34-1261376
New York 16-1469155
- --------------------------------------------- ---------------------------------
(State or Other Jurisdiction of Incorporation (IRS Employer Identification No.)
or Organization)
140 Cortland Avenue, Syracuse, New York 13221
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (315) 475-1626
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
YES X NO *
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Business................................................................................. 1
Item 2. Properties............................................................................... 8
Item 3. Legal Proceedings........................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders...................................... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters..................... 11
Item 6. Selected Financial Data.................................................................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................... 12
Item 7a. Quantitative and Qualitative Disclosure About Market Risk................................ 16
Item 8. Financial Statements and Supplementary Data.............................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 16
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 17
Item 11. Executive Compensation................................................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 19
Item 13. Certain Relationships and Related Transactions........................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 22
Signatures
Index to Consolidated Financial Statements............................................... F-1
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Coyne International Enterprises Corp. uses a 52/53 week fiscal year ending on
the last Saturday in October. For convenience, the dating of financial
information in this Annual Report on Form 10-K has been labeled as of and for
the years ended October 31, 1999, 1998 and 1997, as the case may be, rather than
the actual fiscal year end.
Investment Considerations
This Annual Report on Form 10-K includes forward-looking statements. Although
the Company believes that its plans, intentions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such plans, intentions or expectations will be achieved. When used in this
Annual Report on Form 10-K, the words "anticipate," "believe," "estimate,"
"expect," "intends," and similar expressions, as they relate to the Company are
intended to identify forward-looking statements. Forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements set forth in this
Annual Report on Form 10-K. Actual results could differ materially from those
expressed or implied in the forward-looking statements as a result of, but not
limited to, the following factors: (i) the Company's ability to generate
sufficient cash flow from operations, (ii) the availability of future borrowings
under the Company's credit facility, (iii) the availability of sufficient funds
at the time of any change of control to make any required repurchases of the
Company's senior subordinated notes, (iv) restrictions in the Company's credit
facility, (v) the Company's ability to compete with other firms in the textile
rental industry, (vi) general economic conditions in the Company's markets,
(vii) the timing of acquisitions,(vii) commencing start-up operations and
related costs, (ix) the Company's effectiveness of integrating acquired
businesses and start-up operations, (x) the timing of capital expenditures,
(xi) seasonal rental and purchasing patterns of the Company's customers, (xii)
price changes in response to competitive factors, (xii) the Company's ability to
attract and retain qualified employees, and a prolonged work stoppage or strike
by the Company's unionized work force. These and other factors are discussed in
greater detail in the Company's Registration Statement on Form S-4, a copy of
which may be obtained from Thomas E. Krebbeks, Vice President and Chief
Financial Officer, Coyne International Enterprises Corp., 140 Cortland Avenue,
Syracuse, New York, 13221 and telephone requests may be directed to Mr. Krebbeks
at (315) 475-1626. The Company's Registration Statement on Form S-4 is also
available on the SEC's Internet site (http://www.sec.gov).
PART I
Item 1. Business.
--------
General
Coyne International Enterprises Corp. ("CTS" or the "Company") provides
textile rental products and laundering services from 42 locations to customers
in diversified industries primarily throughout the eastern United States.
Textile rental products provided by the Company include workplace uniforms,
protective clothing, shop towels and other reusable absorbent products,
floormats and treated mops and other dust control products. The Company
primarily rents textile products to clients under laundry service contracts, but
also sells products to clients and launders client-owned items. Most of the
Company's accounts are subject to written contracts that range in duration from
three to five years. The Company's products and services are distributed through
its route-based distribution system comprised of 18 industrial laundry plants,
21 sales, service and distribution laundry terminals and one corporate sales
office that allow the Company to provide rental services to customers in
geographic areas outside of the immediate area of an industrial laundry plant.
CTS manufactures shop towels, dust mops, floormats and several other products
used in the laundry business at its Blue Ridge manufacturing subsidiary.
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The Company focuses on the value-added aspects of the textile rental
business, such as the heavy soil (e.g., printing inks, oils and solvents) and
protective garment sectors. "Value-added" refers to the Company's attempt to
protect its customers from potential environmental liabilities by reducing the
amount of hazardous substances sent to landfills for disposal. In addition, the
Company assists its customers with OSHA compliance through its protective
garment programs. The Company's products and services assist customers with
their corporate image, the productivity and safety of their employees and the
environmental impact of their businesses. For example, the Company has built
industry-leading heavy soil laundry plants, which minimize its customers'
environmental exposure and have allowed the Company to carve out what it
believes is a leading position in the heavy soil sector of the textile rental
services industry. In addition, the Company works with clients to design, source
and manage protective uniform programs for specific applications, such as flame
or chemical retardant clothing for industrial workers. Further, the Company
believes it is one of the first launderers to offer garment tracking
technologies that provide its customers with superior accountability for rented
garments.
The Company's customer base is diversified across a variety of industries.
Customers range in size from large nationally-recognized businesses such as
ALCOA, Eckerd Drugs, Oneida, United Technologies and Xerox, to smaller
businesses, such as gas stations and other retail businesses. In particular, the
Company believes it is a leading provider of textile rental services to the
printing industry throughout its service area, with customers including The New
York Times and USA Today.
The Company was founded and incorporated in New York in 1929 and has been
owned and operated by the Coyne family since its inception. The Company's
principal executive offices are located at 140 Cortland Avenue, Syracuse, New
York, 13221 and its telephone number is (315) 475-1626.
Industry Overview
The textile rental industry in the United States, which had 1998 revenues
of approximately $10 billion, consists of two segments: the industrial segment
(uniforms, protective clothing, shop towels, floormats and dust control
products) and the linen segment (sheets, tablecloths and other linen items). In
1999, approximately 96% of the Company's business was derived from the
industrial segment. The primary product in the industrial segment is uniforms
which accounted for approximately 44% of the Company's revenues in 1999. The
Industry's trade association, Textile Rental Services Association (TRSA), has
estimated that the uniform rental services segment of the textile rental
industry grew at a rate of 6.2% in 1998 and 4.4% in 1997.
The Company believes that much of the uniform industry's overall growth has
resulted from an increasing number of companies choosing to use uniform rental
services to maintain a high-quality corporate image, improve employee safety,
productivity and morale and reduce costs. In addition, the growth in jobs,
particularly in the service sector, has increased the number of potential
uniform wearers. The Company believes that the growth in the service sector
will continue to be the catalyst for overall rental industry growth. This growth
combined with projected growth rates of 29% for heating, ventilation and air
conditioning (HVAC) firms, 23% growth for moving and packing industry firms, and
17% growth in the automobile service industry should ensure continued growth in
revenue from the service sector. CTS also believes that growth in the rental
segment of the industry in particular will be driven by the broad trends to
outsource non-core business functions. Growing markets for uniforms identified
by the Company include building services, communications, food processing, HVAC,
landscaping, pest control, pharmaceuticals, security and trucking.
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In addition, the Company believes its industry-leading environmental
capabilities and protective clothing expertise strategically position it to
realize long-term benefits from continuing government regulation of the
environment and the workplace. Increasingly stringent environmental regulations
have been and continue to be the catalyst for a shift toward the outsourcing of
the laundering of heavy soil items. Additionally, government mandated safety
regulations for reflective wear and flame retardant garments and the most recent
report to Congress under The Workers Family Protection Act from the National
Institute for Occupational Safety and Health (NIOSH), which states that home
laundering is inadequate in decontaminating work clothes, are creating new
opportunities for uniform service companies like CTS. The market for flame
retardant clothing has been fueled by the Occupational Safety and Health
Administration (OSHA) regulations holding employers responsible for supplying
appropriate clothing based on an evaluation of potential workplace hazards.
Employers are prohibited from supplying clothing that, when exposed to flames or
electrical arcs, could increase the extent of wearer injury. Growth in demand
for environmental services and protective clothing is particularly valuable to
the Company because these markets involve long-term relationships with customers
and make use of the Company's technical knowledge of regulations, products,
fabric types, climatic conditions and job functions.
Although the industrial textile rental industry includes several national
companies, the industry remains highly fragmented. Based on information obtained
from Cleary Gull Reiland & McDevitt, an investment firm that closely follows the
uniform rental industry, there are currently over 700 uniform rental businesses
in operation, the majority of which are single facility operators. The Company
believes that many of these smaller companies are being forced to exit the
market due to a lack of economies of scale and the cost of complying with
increasingly stringent environmental standards. The Company further believes
that the industry will continue to experience consolidation in the future and
that strategic acquisition opportunities will become available.
Products and Services
The Company provides its customers with personalized workplace uniforms and
protective work clothing in a broad range of styles, colors, sizes and fabrics.
The Company's uniform products include shirts, pants, jackets, coveralls,
jumpsuits, smocks, aprons and specialized protective wear, such as fire
retardant and chemical protective garments. The Company also offers non-garment
items and services, such as shop towels, floormats, dust-control mops and other
textile products. Below is a chart displaying the approximate percentages of
revenues, by product-type:
<TABLE>
<CAPTION>
Uniform
& Hospital &
Garment RAS & Shop Walk Off Dust Control Linen
Period Rentals Towels Mats Products Direct Sales Products
- ------------------------- ------- ---------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1996.............. 45.3 29.0 12.4 2.9 6.7 3.7
Fiscal 1997.............. 45.6 29.4 12.1 2.9 6.7 3.3
Fiscal 1998.............. 44.7 29.6 11.7 3.1 7.3 3.6
Fiscal 1999.............. 44.3 30.7 11.4 2.9 7.1 3.6
</TABLE>
3
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The Company offers its customers a range of garment service options,
including full-service rental programs in which garments are owned, cleaned and
serviced by the Company and lease programs in which garments are cleaned and
maintained by its customers' individual employees. The Company also offers the
opportunity to purchase garments and related items directly. As part of its
full-service rental business, the Company picks up a customer's soiled uniforms
or other items on a periodic basis (usually weekly) and, at the same time,
delivers cleaned and processed replacement items. The Company's centralized
services, specialized equipment and economies of scale generally allow it to be
more cost-effective in providing garment services than customers could be by
themselves, particularly those customers with high employee turnover rates.
Accordingly, the Company believes its services are appealing to customers who
seek to outsource non-core functions. The Company's uniform programs help
customers foster greater corporate identity, present a consistent, high-quality
image and improve employee safety, productivity and morale.
The Company offers its customers "green" programs which focus on pollution
prevention. These programs are based on the Company's shop towel product which
is highly absorbent and reusable. CTS is endorsed by many of the state and
regional printing associations and services large printing operations such as
The New York Times and USA Today. Further, the Company offers its customers
Reusable Absorbent Systems ("RAS") socks and pads. RAS products provide
customers with environmentally responsible alternatives to single-use disposable
absorbents and promote the EPA policy of waste minimization. RAS programs are in
place at many large national accounts such as General Motors and United
Technologies.
In recent years, the Company has made a significant corporate investment in
waste-water treatment in 10 of its 18 laundry plants. The Company's industry-
leading wastewater treatment capabilities allow it to process textiles
contaminated with petroleum, chemical solvents or printing inks that require
specialized cleaning services that comply with environmental regulations. These
facilities capture waste solvents and oils in liquid form and then recycle this
liquid waste as a supplemental fuel in a secondary fuel recycling program. This
technology reduces the amount of wastewater sludge sent to landfills for
disposal and minimizes a customer's future environmental liabilities. As a
result of the Company's superior environmental capabilities in the heavy soil
sector market, the Company estimates that most of the printing associations in
the eastern United States have endorsed CTS as the preferred provider of heavy
soil textile services. CTS provides such services to approximately 75% of the
printing accounts in the eastern United States. All CTS environmental matters
are managed by the Company's environmental team that is directed by a senior
manager with extensive experience both in the industry and as a former appointed
official of the EPA. This individual is recognized by both of the industry's
principal trade associations, the TRSA and the Uniform and Textile Service
Association (UTSA), as a leading industry expert in environmental matters and
serves on their respective environmental committees.
Finally, the Company processes heavy soil textile products for many of its
competitors because these competitors do not have the same waste treatment
capabilities as CTS. This permits the Company to develop relationships with
laundries that may be sold in the ongoing market consolidation.
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Most of the Company's accounts are subject to written service contracts.
The Company's typical service contract ranges in duration from three to five
years with automatic "evergreen" renewals, except upon prior written notice, and
provides for significant liquidated damages upon early termination by the
customer.
The Company believes that it is one of the first industrial launderers to
implement bar-coding and radio frequency garment identification technologies.
These technologies allow the Company and its customers to track a garment from
pick-up at the customer's location through processing at the Company and
delivery back to the customer. Garment tracking is particularly important for
protective clothing because of its higher replacement cost. Garments can be
tracked by the use of bar code labels, which are permanently affixed to the
garment and which can be read by route salespeople using hand-held laser
scanners. The Company is able to provide customers with valuable information
concerning the age of garments, their physical location and usage history. In
addition, customized reports are available and customers have the option to have
direct-link PC capability, allowing them access to real-time information about
individual employee garments. The Company believes that its tracking system
improves inventory control and efficiency by reducing human error that results
in missing uniforms and incomplete deliveries.
Soiled textile items are returned to the laundry plant directly from the
route system. These items are sorted by soil type and water washed in highly
automated industrial laundry equipment using customized wash formulas that
insure the cleanliness of these products while maximizing wear-life. Items are
then dried, sorted, folded and moved to the route staging area in the plant or
sent back to the terminal for distribution to the customer. In addition to water
washing, a small number of specialty items such as leather gloves are dry
cleaned. Chemicals used in dry cleaning operations are recycled. Waste-water
from water washing is processed in plant waste-water treatment facilities and
discharged in accordance with local municipal requirements.
Sourcing Activities
The Company actively manages its supply chain and has, from time to time,
brought certain items in-house for manufacture on an opportunistic basis. For
example, due to the cost and inconsistent quality of shop towels available, the
Company began manufacturing shop towels in 1992. The Company is currently one
of the largest shop towel manufacturers in the United States. All of the shop
towels used in the Company's laundry business are produced at the Company's Blue
Ridge manufacturing facility and are marketed under the Blue Ridge name.
Approximately two-thirds of Blue Ridge manufactured shop towels are sold to
customers other than CTS. Although other sources of shop towels are available,
the Company believes that the superior performance of the Blue Ridge shop towel,
particularly in terms of durability and absorption, is a significant advantage
in securing heavy soil business. Blue Ridge also manufactures dust mops, aprons,
laundry bags, walk-off mats and RAS socks and pads. The Blue Ridge operations
represented approximately 5.0% of the Company's revenues in fiscal 1999.
In order to take advantage of the opportunities presented by the North
American Free Trade Agreement, the Company manufactures work pants and shirts in
Mexico under an agreement with a Mexican manufacturer. While the Company does
not anticipate substantial growth in its manufacturing operations, it continues
to consider manufacturing opportunities in order to gain an advantage in the
marketplace.
In cooperation with a New Zealand based manufacturer, the Company
participated in the development of chemically protective and flame retardant
garments that comply with American National Standards Institute ("ANSI")
standards for exclusive distribution by CTS in the United States.
5
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The Company purchases other rental merchandise from a variety of sources
including Red Kap, Garment Corporation of America, and Universal Overall. The
Company believes that it is not dependent on any one supplier and that
alternative sources are available at comparable prices. The availability of
alternative manufacturers and the Company's ability to change suppliers and
manufacture textile products allow it to optimally meet its merchandise
requirements in terms of quantity, quality and price.
Customers
The Company's customer base is diversified across a variety of industries
and customers range in size from large nationally-recognized businesses such as
ALCOA, Eckerd Drugs, Oneida, United Technologies and Xerox, to smaller
businesses, such as gas stations and other retail businesses. Typical customers
include automobile service centers and dealers, delivery services, food and
general merchandise retailers, food processors and service operations,
manufacturers, maintenance facilities, printers and publishers, restaurants,
service companies, soft and durable goods wholesalers, transportation companies,
and others who require employee clothing for image, identification, protection
or utility purposes. The Company currently services approximately 40,000
accounts in diversified industries from 42 locations throughout the eastern
United States. During the past five years, no single customer accounted for
more than 8.0% of total revenues in any year.
Sales, Marketing and Distribution
In 1996, the Company made a strategic decision to leverage its investment
in laundry plants, laundry terminals and their waste-water treatment facilities
by focusing on the development of its professional sales force. The sales team
has grown from 25 professionals in 1996 to 70 in 1999. Sales associates market
the Company's products and services to potential customers and develop new
accounts. The selling efforts of the sales force are managed by regional sales
managers who are also responsible for major account relationships within their
region. Rental and direct sales programs on the national level are handled by
the National Account Marketing Department, which call directly on existing and
prospective rental and direct sale national accounts. The regional sales
managers and National Account Marketing Department report directly to the Vice
President of Sales.
The Company's route salespeople continue to be an integral component of the
Company's sales and marketing efforts. Route salespeople have responsibility for
increasing sales to existing customers and establishing new customer
relationships along their routes. All of the Company's route salespeople are
paid commissions based on the weekly revenue of their route. Further, route
salespeople are incented to obtain an executed written contract from every
customer. CTS believes that its approach results in a professional sales team
that is highly motivated.
Competition
The industrial segment of the textile rental industry is highly
competitive. The Company believes that there are four competitors in the
industry with annual revenues in excess of $250 million each. These companies
account for over half of the industry's revenues. The Company believes that it
is one of a small group of companies that have revenues of $50 million to $250
million and which collectively account for
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approximately 25% of revenues from the industrial segment. The remainder of the
industry is made up of over 600 smaller businesses, many of which serve one or a
limited number of markets or geographic service areas and generate annual
revenues of less than $1.0 million.
The Company believes that the primary competitive factors that affect its
operations are price and its ability to meet customers' product specifications,
which include design, quality and service. The Company believes it maintains
prices comparable to those of its major competitors. The Company also believes
that its ability to compete effectively is enhanced by its environmental
capabilities and its superior customer service and support.
Employees
As of October 31, 1999, the Company had approximately 1,850 employees. CTS
is a party to 30 collective bargaining agreements covering approximately 800
employees. These bargaining agreements expire periodically through 2002. The
Company had one work stoppage that occurred in 1999 with respect to a
bargaining unit of one of the Company's facilities. This stoppage represented
a limited number of employees and had no material impact on the Company's
operations. The Company believes that its relationships with both its union and
non-union employees are good.
Environmental Matters
The Company and its operations are subject to various federal, state and
local laws and regulations governing, among other things, the generation,
handling, storage, transportation, treatment and disposal of hazardous wastes
and other substances. In particular, industrial laundries use and must dispose
of detergent wastewater and other residues. The Company is attentive to the
environmental concerns surrounding the disposal of these materials and has
through the years taken measures to avoid their improper disposal.
In the past, the Company has settled, or contributed to the settlement of,
actions or claims brought against the Company relating to the disposal of
hazardous materials and there can be no assurance that the Company will not have
to expend material amounts to remediate the consequences of any such disposal in
the future. There have been no environmental claims brought against the Company
that have had a material adverse effect.
Under the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the U.S. Environmental Protection Agency ("EPA") is authorized
to, among other things, designate certain contaminated facilities as Superfund
sites and seek from responsible parties the cost to clean-up that contamination.
The Company has in the past responded to a number of requests for information
from the EPA concerning the Company's alleged disposal of hazardous substances
at Superfund sites and currently has three active cases. In two of those cases,
the Company has been named as a potentially responsible party. The Company has
settled its liability with regard to one of these cases. With respect to the
other cases, the Company could be held liable for some or all of the cost to
remediate the contamination, the extent of liability, if any, depends on a
number of factors, such as (1) whether the Company disposed of hazardous
substances at one or more of those facilities, (2) whether the Company or its
waste hauling contractor selected the particular disposal location, (3) the
quantity and, under certain circumstances, the toxicity of hazardous substances
that were disposed and (4) whether the Company was contractually indemnified by
its waste hauling contractor for such potential liability. The Company has not
completed its evaluation of these
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questions, nor on the question of possible defenses to liability, to determine
the extent of liability, if any, on such potential claim.
Further, under environmental laws, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in or emanating from such property, as well as related
costs of investigation and property damage. Such laws often impose liability
without regard to whether the owner or lessee knew of or was responsible for the
presence of such hazardous or toxic substances. There can be no assurances that
acquired or leased locations have been operated in compliance with environmental
laws and regulations or that future uses or conditions will not result in the
imposition of liability upon the Company under such laws or expose the Company
to third-party actions such as tort suits.
In 1999, the EPA withdrew proposed categorical pre-treatment standards,
which would have formed the basis for a federal environmental regulatory
framework applicable to industrial laundry operations. Therefore, there will be
no additional cost of compliance due to this federal effort.
Item 2. Properties.
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As of October 31, 1999, the Company provided textile rental services from
42 facilities. The Company owns 22 of its facilities, including its corporate
headquarters in Syracuse, New York, and leases the balance of its facilities
pursuant to leases expiring between February 2000 and March 2005. The Company
has options to renew in most cases, except for leases for certain garages and
small distribution facilities which are leased on a month-to-month basis. The
Company's facilities consist primarily of laundry plants and laundry terminals.
A laundry plant processes and delivers textile rental products to customers or
to laundry terminals. A laundry terminal does not engage in production work, but
collects soiled inventory, transports it to the laundry plant for processing and
delivers processed inventory to customers. A laundry plant can also perform all
of the functions of a laundry terminal. The following table summarizes certain
information concerning the Company's facilities.
8
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The following table summarizes certain information concerning the Company's
facilities.
<TABLE>
<CAPTION>
Approximate
Location Principal Use Square Footage
------------------- --------------------------------- --------------
<S> <C> <C>
Albany, NY* Corporate Satellite Office 1,110
Atlanta, GA* Laundry Plant/Laundry Terminal 18,000
Baltimore, MD** Laundry Plant/Laundry Terminal 85,000
Beckley, WV* Laundry Terminal 7,500
Belleville, NJ** Laundry Plant/Laundry Terminal 22,800
Betsy Layne, KY* Laundry Terminal 6,500
Blue Ridge, GA Manufacturing 42,500
Bristol, TN Laundry Plant/Laundry Terminal 27,200
Buffalo, NY*** Laundry Plant/Laundry Terminal 92,000
Burlington, VT Laundry Terminal 9,180
Charlotte, NC* Laundry Terminal 7,500
Chattanooga, TN* Laundry Terminal 8,200
Cinnaminson, NJ* Laundry Terminal 10,000
Chicago, IL* Laundry Terminal 7,500
Cleveland, OH Laundry Plant/Laundry Terminal 85,000
Erie, PA Laundry Terminal 47,000
Evansville, IN* Laundry Terminal 7,500
Fairmont, WV* Laundry Terminal 6,500
Greenville, SC* Laundry Terminal 5,000
Hazleton, PA* Laundry Terminal 7,500
Huntington, WV Laundry Plant/Laundry Terminal 180,000
Lakeland, FL Laundry Plant/Laundry Terminal 12,000
Lewiston, ME* Laundry Terminal 6,500
London, KY** Laundry Plant/Laundry Terminal 24,000
Long Island, NY* Laundry Terminal 6,500
Nashville, TN* Laundry Terminal 7,500
New Bedford, MA** Laundry Plant/Laundry Terminal 85,000
Philadelphia, PA Laundry Plant 85,000
Pittsburgh, PA* Laundry Terminal 6,500
Raleigh, NC* Laundry Terminal 8,200
Richmond, VA Laundry Plant/Laundry Terminal 49,000
Schenectady, NY** Laundry Plant/Laundry Terminal 25,000
Seaford, DE* Laundry Terminal 6,200
Smithboro, NY Laundry Terminal 6,500
Syracuse, NY Laundry Plant/Corporate Headquarters 220,000
Toledo, OH Laundry Plant/Laundry Terminal 65,000
Virginia Beach, VA* Laundry Terminal 4,000
Waterbury, CT Laundry Plant/Laundry Terminal 108,000
Winchester, VA* Laundry Terminal 9,200
Woodbridge, NJ* Corporate Sales Office 900
Worcester, MA Laundry Plant/Laundry Terminal 75,000
York, PA** Laundry Plant/Laundry Terminal 34,000
</TABLE>
* Indicates leased facility.
** Company owns laundry plant but leases garage.
*** Financed by industrial revenue bonds.
9
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Item 3. Legal Proceedings.
-----------------
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
10
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PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
----------------------------------------------------------------
Matters.
- -------
There is no established trading market for the Company's equity securities.
As of October 31, 1999, the Company's Class A Common Stock was held by
three holders of record, the Company's Class B Common Stock was held by two
holders of record, the Company's Class A Preferred Stock was held by two holders
of record and the Company's Class B Preferred Stock was held by two holders of
record.
Item 6. Selected Financial Data.
-----------------------
The selected financial data set forth below for the Company as of October
31, 1999, 1998, 1997, 1996 and 1995 and for each of the years in the five-year
period ended October 31, 1999 are derived from the audited Consolidated
Financial Statements. The data should be read in conjunction with the
Consolidated Financial Statements and related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
Years Ended October 31,
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1995 1996 1997 1998 1999
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(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue.................................. $117,768 $119,085 $122,935 $138,737 $146,212
Income from operations....................... 7,595 8,179 10,792 10,239 9,835
Interest expense (1)......................... 6,254 6,786 6,715 25,402 10,842
Income (loss) before provision for income
taxes and extraordinary item............... 1,341 1,393 4,077 (15,163) (1,006)
Provision for income taxes................... 890 847 2,025 640 (55)
Income (loss) before extraordinary item...... 451 546 2,052 (15,804) (951)
Extraordinary item, net of tax (2)........... ---- ---- ---- (939) ----
Net income (loss)............................ $ 451 $ 546 $ 2,052 $(16,743) $ (951)
Other Data:
Capital expenditures......................... $ 8,731 $ 9,820 $ 2,584 $ 6,619 $ 7,713
Depreciation and amortization................ 4,416 4,779 5,289 5,814 6,161
Balance Sheet Data (at period end):
Working capital.............................. $ 11,255 $ 6,608 $ 6,769 $ 17,066 $ 20,127
Total assets................................. 93,170 97,432 102,621 117,367 121,846
Total debt................................... 56,680 58,051 58,557 88,538 97,547
Warrants (3)................................. 1,743 1,743 1,743 ---- ----
Shareholders equity (deficit)................ 7,373 7,845 9,897 (7,077) (8,432)
</TABLE>
(1) Interest expense for 1998 includes a $17,257 charge for the cost to redeem
common stock warrants in excess of their book carrying value.
(2) Represents the extraordinary charge attributable to the write-off of
unamortized financing charges and original issue discount of $1,304, net of
taxes of $365. These deferred charges originated in 1994 in connection with
subordinated notes and other debt obligations redeemed in 1998.
(3) Common stock warrants were issued in 1994 in connection with the issuance
of subordinated notes. Such common stock warrants and subordinated notes
were redeemed in 1998.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
-------------------------------------------------------------
The following should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto contained herein.
Results of Operations
The following table presents certain statements of historical operations
data as a percentage of sales for the periods indicated and should be read in
conjunction with the other financial information of CTS contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net revenue................................ 100.0% 100.0% 100.0%
Cost of rental operations.................. 70.8 70.7 71.0
Cost of direct sales....................... 4.7 5.1 4.7
Selling, general and administrative........ 15.7 16.9 17.6
Income from operations..................... 8.8 7.4 6.7
</TABLE>
Fiscal Year 1999 Compared to Fiscal Year 1998
Net Revenue. Net revenues were $146.2 million in fiscal 1999, representing
an increase of $7.5 million or 5.4% as compared to $138.7 million for fiscal
1998. However 1998 was a 53-week year versus the 52 weeks in 1999. After
removing the effect of the extra week in 1998, adjusted growth is actually 7.6%.
The growth can be attributed to the new rental business written by the Company's
expanded professional sales force, increases in service to existing accounts and
increases in revenue from ancillary charges.
Cost of Rental Operations. Cost of rental operations of $103.8 million for
fiscal 1999 was 71.0% of total revenue for the period. This represents an
increase of 0.3% as compared to fiscal 1998. The increase can be attributed to
additional personnel in the customer service area, particularly District
Managers (DM). The Company has reduced the number of average routes per DM in an
effort to improve customer retention.
Cost of Direct Sales. Cost of direct sales of $6.9 million for fiscal 1999
was 4.7% of total revenue. Cost of direct sales was approximately 66.2% and
70.3% of direct sale revenue for fiscal 1999 and 1998, respectively.
Selling, General and Administrative Expense. Selling general and
administrative expense was $25.7 million for fiscal 1999 representing an
increase of approximately $2.3 million or 9.8% over fiscal 1998. The increase is
comprised of a $1.7 million increase in administrative expenses and a $0.6
million increase in the cost of selling and marketing
The increase in administrative expenses is attributable to the Company's
investment in key management personnel, particularly at the Vice President and
General Manager level. The Company believes this investment will enable it to
achieve significant profit improvements in 2000 and beyond. In addition,
12
<PAGE>
administrative expenses in 1999 include approximately $0.5 million of
noncapitalizable expenses associated with the implementation of the company's
new billing and accounting computer systems.
Income from Operations. Income from operations was $9.8 million for fiscal
1999 as compared to $10.2 million for fiscal 1998. This decrease resulted from
an increase in costs associated with the sales organization, senior management
personnel changes and implementation of the company's new computer systems.
Interest Expense. Interest expense was $10.8 million for fiscal 1999 and
$25.4 million for fiscal 1998. Fiscal 1998 interest expense includes $17.3
million for the excess of the redemption cost over the book value of common
stock warrants. In addition, interest expense exceeded 1998 levels due to the
higher outstanding borrowings resulting from the warrant redemption and 1999
expenditures for capital assets and route acquisitions.
Income Taxes. The Company's provision for recoverable taxes of $.06 million
for fiscal 1999 was $0.7 million lower than the tax expense for the prior year.
The effective tax rate between the periods is not comparable due to the
influences of non-deductible expenses, including the 1998 redemption of common
stock warrants and the amortization of certain intangible assets.
Net Income (Loss). Net loss of $1.0 million for fiscal 1999 compares with a
net loss of $16.7 million for fiscal 1998. This improvement was due primarily to
the 1998 charge of $17.3 million associated with the common stock warrant
redemption agreement, offset in part by higher interest costs in 1999.
Fiscal Year 1998 Compared to Fiscal Year 1997
Net Revenue. Net revenues were $138.7 million in fiscal 1998, representing
an increase of $15.8 million or 12.9% as compared to $122.9 million for fiscal
1997. The increase can be attributed to growth from existing operations of
approximately $8.0 million due substantially to new sales generated by the
Company's expanded sales organization. In addition, fiscal 1998 had 53 weeks of
operations as compared to 52 weeks of operations in fiscal 1997. The acquisition
of several small routes in the second half of fiscal 1997 have also contributed
approximately $5.3 million to the revenue growth.
Cost of Rental Operations. Cost of rental operations of $98.0 million for
fiscal 1998 was 70.7% of total revenue for the period. This represents a
decrease of 0.1% as compared to fiscal 1997. Despite start up costs associated
with new rental contracts the cost of rental operations was consistent with the
prior year.
Cost of Direct Sales. Cost of direct sales of $7.1 million for fiscal 1998
was 5.1% of total revenue. Direct sales and related costs grew approximately 22%
during the year due to increased focus by the Company's sales organization on
this segment of the business. Cost of direct sales was approximately 70.3% and
70.2% of direct sale revenue for fiscal 1998 and 1997, respectively.
Selling, General and Administrative Expense. Selling general and
administrative expense was $23.4 million for fiscal 1998 representing an
increase of approximately $4.0 million or 21% over fiscal 1997. The increase was
due primarily to selling expense, which increased $2.5 million. This increase
can be attributed to the significant expansion of the Company's sales
organization including increases in the number of personnel, training costs and
related sales and marketing costs.
13
<PAGE>
Income from Operations. Income from operations was $10.2 million for fiscal
1998 as compared to $10.8 million for fiscal 1997. This nominal decrease
resulted from an increase in one-time costs associated with the significant
investment in the sales organization.
Interest Expense. Interest expense was $25.4 million for fiscal 1998 and
$6.7 million for fiscal 1997. Fiscal 1998 interest expense includes the excess
of redemption payments over the book value of common stock warrants of $17.3
million. In addition, interest expense exceeded 1997 levels due to the higher
outstanding borrowings associated with the subordinated notes issued in June
1998.
Income Taxes. The Company's tax provision of $0.6 million for fiscal 1998
was $1.4 million less than the tax expense for the corresponding prior year
period. The effective tax rate between the periods is not comparable due to the
non-deductibility of certain of the expenses associated with the redemption of
the common stock warrants and the impact of certain nondeductible expenses such
as the amortization of certain intangible assets.
Extraordinary Item. The extraordinary charge of $.9 million in fiscal 1998
result from the write-off of $1.3 million of deferred financing costs associated
with retired debt obligations, reduced by the associated tax benefit of $.4
million.
Net Income (Loss). Net loss was ($16.7) million for fiscal 1998 compared
with net income of $2.1 million for fiscal 1997. This decrease was due primarily
to the one-time charge of $17.3 million associated with the common stock warrant
redemption agreement and other costs associated with debt retired with the
proceeds of the 1998 senior subordinated note offering.
Seasonality
The Company's operating results historically have been seasonally lower
during the third fiscal quarter (May, June and July) primarily because the
Company's floormat business is lower during this period than during the other
quarters of the fiscal year. Certain customers of CTS arrange to have the
floormats removed from their accounts during the late spring and early summer
months. In addition, schools and commercial customers reduce their business
during these months as a result of vacations and shutdowns.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations and borrowings under the revolving credit facilities described below.
The net loss of $1.0 million in fiscal 1999 represents an improvement of
$15.7 million as compared to a net loss of $16.7 million in fiscal 1998. This
fluctuation was mainly due to the 1998 redemption of common stock warrants and
the extraordinary loss on debt retirement.
Cash used in operating activities was $0.2 million for fiscal 1999 and
$15.3 million for fiscal 1998, a decrease of $15.1 million. The decrease was due
primarily to the redemption of common stock warrants with proceeds from the
Company's $75 million subordinated note offering completed in June 1998.
On June 26, 1998, the Company raised $75.0 million through the offer and
sale of senior subordinated notes. Such notes bear interest at 11 1/4 % per
annum from June 26, 1998, payable semi-
14
<PAGE>
annually on June 1 and December 1 of each year, commencing on December 1, 1998.
The proceeds of the offer and sale of such notes were used mainly to retire the
majority of the Company's long-term debt and to redeem outstanding common stock
warrants. Contemporaneously with the completion of the offer and sale of such
notes, the Company amended its bank credit facility to provide for (i) a $25.0
million revolving credit facility subject to collateral availability, (ii) a
$20.0 million capital expenditure facility and (iii) a $10.0 million acquisition
facility.
At October 31, 1999, the Company had approximately $13.9 million available
under its revolving credit line and $24.3 million available under the other bank
credit facilities. The Company's working capital was $20.1 million at October
31, 1999 compared to $17.1 million at October 31, 1998. The $3.0 million
increase in working capital reflects the increased accounts receivable, higher
inventory levels and reduced accounts payable, financed through the long-term
revolver.
At October 31, 1999, the Company was not in compliance with certain
financial covenants under its bank credit facilities. Subsequent to October 31,
the Company obtained waivers of such noncompliance. In addition, the Company
amended certain covenants of its loan agreement and believes it will be in
compliance with such covenants during fiscal 2000.
Capital expenditures were $7.7 million during fiscal 1999. This represents
a $1.1 million increase over the comparable period last year. These expenditures
consist of $2.5 million for laundry and manufacturing equipment, $1.7 million
for truck fleet related equipment, $2.6 million for computer equipment and $0.9
million for building and property improvements. Management believes that its
operations and the Credit Facility will provide sufficient cash to meet the
requirements for operations, acquisitions and capital expenditures for the next
twelve months.
Information Systems; Year 2000
In order to enhance the Company's information management capabilities and
achieve Year 2000 compliance (Y2K), the Company has implemented new software for
Billing, Route Accounting, Purchasing, Accounts Payable and Financial Reporting.
The Company's new systems are Y2K compliant and the Company believes it has
achieved the information objectives of the new system projects.
The Company has used third party application software that is Y2K compliant
to replace or upgrade its remaining management information systems including
payroll.
The Company contacted suppliers and customers regarding their state of
readiness. All critical suppliers and customers assured the Company that their
systems were Y2K compliant or that they were in the process of repairing or
replacing their systems to make them Y2K compliant.
As of the date of this filing, the Company has experienced no disruption of
daily operations resulting from Y2K computer issues.
The Company estimates the total capital cost of its Y2K project and related
systems upgrades will be approximately $4.4 million. As of October 31, 1999 the
Company had spent approximately $4.1 million. The majority of these costs
represent capital expenditures for replacement software and hardware.
15
<PAGE>
Effects of Inflation
Inflation has had the effect of increasing the reported amounts of the
Company's revenues and costs. However, the Company believes that it has been
able to recover increases in costs attributable to inflation through increases
in its prices and improvements in its productivity.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
Not applicable.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The financial statements, financial statements schedules and related
documents that are filed with this Report are listed in Item 14(a) of this
Report on Form 10-K and begin on page F-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
------------------------------------------------------
None.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The following table sets forth certain information regarding the Company's
directors and certain key executive officers:
Name Age Position
- ---------------------------- --- ---------------------------------------------
Thomas M. Coyne 61 Chairman of the Board, President and Chief
Executive Officer
Thomas C. Crowley 53 Director, Executive Vice President and Chief
Operating Officer
J. Patrick Barrett (1)(2) 62 Director
William D. Matthews (1)(2) 65 Director
Wallace J. McDonald (1)(2) 59 Director
David P. O'Hara 52 Director, Assistant Secretary
David S. Evans (1)(2) 61 Director
Raymond T. Ryan 72 Director, Assistant Treasurer
Thomas E. Krebbeks 45 Vice President of Finance, CFO and Treasurer
Alexander Pobedinsky 38 Vice President, General Counsel and Secretary
John G. Harshall 51 Vice President of Plant Support Services
Anthony F. O'Connor 49 Vice President of Sales & Marketing
Timothy O. Taylor 45 Vice President of Manufacturing & Procurement
(1) Member of the Audit and Finance Committee.
(2) Member of the Human Resource and Compensation Committee.
Thomas M. Coyne is Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. Coyne joined the Company in 1977 after spending 17
years with an engineering and construction company. He has served in various
positions responsible for plant operations and sales before his promotion to
President in 1982. Mr. Coyne currently serves on the Board of the Textile Rental
Services Association.
Thomas C. Crowley has been a Director of the Company since 1993. Mr.
Crowley was Executive Vice President of Evergreen Bancorp, Inc. in Glens Falls,
New York from 1994 to 1999. Mr. Crowley joined the Company as Executive Vice
President and Chief Operating Officer in June 1999.
J. Patrick Barrett has been a director since July, 1998. He has been
President of Telergy, Inc., a telecommunication company, since April, 1998;
Chairman of Carpat Investments, a private investment firm, since 1987; was
Chairman and CEO of Avis Inc. from 1981 to 1987 and has been a director of
Lincoln National Corp. since 1990.
17
<PAGE>
William D. Matthews has been a Director of the Company since January 1997.
Mr. Matthews was the Chief Executive Officer of Oneida, Ltd. in Oneida, New York
from 1986 until his retirement in 1998 but still remains Chairman of the Board.
Oneida, Ltd. is listed on The New York Stock Exchange. Mr. Matthews has been a
director of CONMED Corporation since 1997.
Wallace J. McDonald has been a Director of the Company since 1987. Mr.
McDonald has been a partner with the law firm of Bond, Schoeneck & King, LLP
based in Syracuse, New York since 1967.
David P. O'Hara has been a Director of the Company since 1982. Mr. O'Hara
was General Counsel and Secretary of the Company from 1981 to 1997. He currently
is Assistant Secretary of the Company and a partner with the law firm of O'Hara
& Hanlon, based in Cazenovia, New York.
David S. Evans has been a Director of the Company since 1998 and from 1994
to 1996. Mr. Evans has been a Director of Confluence Systems, Inc. of High
Point, NC since 1995. He was Director, President and Chief Executive Officer of
CBP Resources, Inc. of Greensboro, NC from 1988 to 1998; and was Director,
President and Chief Executive Officer of Delta Protein, Inc. of Memphis, TN from
1976 to 1988.
Raymond T. Ryan has been a Director of the Company since 1991. From March
1991 through July 1995 he served as Chief Financial Officer of the Company. He
is currently Assistant Treasurer of the Company. Mr. Ryan has been an employee
of the Outaouais Group, Inc. since 1991. Mr. Ryan is a retired partner of
PricewaterhouseCoopers, LLP.
Thomas E. Krebbeks joined the Company in 1991 as Corporate Controller . In
September 1999, Mr. Krebbeks was promoted to his current position of Treasurer,
Vice President of Finance, and Chief Financial Officer. Mr. Krebbeks began his
career with Ernst & Young and is a certified public accountant.
Alexander Pobedinsky has been the General Counsel and Secretary of the
Company since 1997. Mr. Pobedinsky was associated with the law firm of O'Hara,
Hanlon, Knych and Pobedinsky, LLP based in Syracuse, New York from 1991 through
1999. Mr. Pobedinsky joined the Company in January 2000, as Corporation General
Counsel and Vice President.
John G. Harshall joined the Company in October 1986 as General Manager of
the York, Pennsylvania laundry operation. In February 1995, Mr. Harshall was
promoted to Vice President of Operations and in 1999 became Vice President of
Plant Support Services. From 1984 to 1986, Mr. Harshall was a consultant to the
grocery industry. From 1979 to 1983, he was the Senior Vice President of Store
Operations for Fisher Foods, Inc.
Anthony F. O'Connor joined the Company in October 1992 as General Manager
of the Belleville, New Jersey laundry operation. In February 1995, Mr. O'Connor
was promoted to Vice President of Operations. In July 1996, Mr. O'Connor was
promoted to his current position of Vice President of Sales & Marketing. From
1983 to 1992, Mr. O'Connor was a General Manager with ARAMARK Corporation.
Timothy O. Taylor joined the Company in October 1992 as General Manager of
Blue Ridge Textile Manufacturing, Inc. In 1995, he was promoted to Vice
President of Blue Ridge Textile Manufacturing, Inc. In September 1999, Mr.
Taylor was promoted to his current position of Vice President of Manufacturing &
Procurement.
18
<PAGE>
Item 11. Executive Compensation.
----------------------
The following table sets forth the compensation during the last two fiscal
years earned by the Company's President and each other executive officer who
made in excess of $100,000 during the fiscal year ended October 31,1999 (the
"Named Officers"):
<TABLE>
<CAPTION>
Fiscal Annual Compensation All Other
-----------------------
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------------------- -------- --------- -------- -------------------
<S> <C> <C> <C> <C>
Thomas M. Coyne 1999 $487,647 $13,024
Chairman of the Board, President and 1998 $290,526 $14,115
Chief Executive Officer 1997 $206,507 $50,000 $ 3,381
Thomas C. Crowley 1999 $107,092 $ 2,400
Director, Executive Vice President and 1998
Chief Operating Officer 1997
Dennis J. Bossi 1999 $117,745 $10,621
Vice President of Operations 1998 $116,109 $ 6,266
1997 $115,000 $20,000 $ 2,785
Anthony F. O'Connor 1999 $109,115 $10,249
Vice President of Sales and Marketing 1998 $100,000 $ 4,500
1997 $ 85,231 $15,000 $ 1,518
John G. Harshall 1999 $100,731 $10,025
Vice President of Plant Support Services 1998 $100,000 $ 4,500
1997 $ 84,327 $20,000 $ 1,590
</TABLE>
(1) Consists of premiums for disability policies paid by the Company of $2,120,
0, $908, $790, and $790 and the Company matching contributions under the
401(k) Plan of $10,904, $0, $4,913, $4,659, and $4,435, and car allowance
of $0, $2,400, $4800, $4,800 and $4,800 in fiscal 1999 for the benefit of
Messrs. Coyne, Crowley, Bossi, O'Connor and Harshall, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
All of the Company's equity securities are owned of record by the Coyne
family or trusts established by them.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------- ---------------
Class A (Voting) Class B (Non-Voting) Class A (Non-Voting)
--------------- ------------------- --------------------
Number of Number of Number of
Shares Shares Shares
Beneficially Percentage Beneficially Percentage Beneficially Percentage
Owned(1) of Class Owned (1) of Class Owned (1) of Class
-------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Stanley Coyne
Revocable Trust /(2)(3)/............... -- 63,305 85.5% 19,745 85.5%
J. Stanley Coyne Inter
Vivos Irrevocable Trust/(2)(4)/........ 1,020 34.9% -- -- -- --
Thomas M. Coyne Blue
Ridge Trust /(2)(5)/................... 1,903 65.1% -- -- -- --
J. Stanley Coyne /(2)/.................. 1,020(6) 34.9% 74,030(7) 100% 23,107(8) 100%
<CAPTION>
Class B (Non-Voting)
--------------------
Number of
Shares
Beneficially Percentage
Owned (1) of Class
--------- ---------
<S> <C> <C>
J. Stanley Coyne
Revocable Trust /(2)(3)/.............. 2,272 80.0%
J. Stanley Coyne Inter
Vivos Irrevocable Trust/(2)(4)/....... -- --
Thomas M. Coyne Blue
Ridge Trust /(2)(5)/.................. -- --
J. Stanley Coyne /(2)/................. 2,991 (9) 100%
</TABLE>
19
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and includes voting or
investment power with respect to the securities. Accordingly they may
include securities owned by or for, among others, the spouse and/or minor
children or the individual and any other relative who has the same home as
such individual, as well as other securities as to which the individual has
or shares voting or investment power or has the right to acquire under
outstanding stock option within 60 days after the date of this table.
(2) The address of such beneficial owner is c/o Coyne International Enterprises
Corp., 140 Cortland Avenue, P.O. Box 4854, Syracuse, New York 13221.
(3) The trustees of this trust are J. Stanley Coyne, David P. O'Hara, Thomas M.
Coyne, Raymond T. Ryan and Wallace J. McDonald, who share voting and
investment power with respect to the shares held by this trust and who may
be deemed to be the beneficial owner of all such shares. Such trustees
disclaim beneficial ownership of these shares.
(4) The trustees of this trust are J. Stanley Coyne, David P. O'Hara, Thomas M.
Coyne, Raymond T. Ryan and Wallace J. McDonald, who share voting and
investment power with respect to the shares held by this trust and who may
be deemed to be the beneficial owner of all such shares. Such trustees
disclaim beneficial ownership of these shares.
(5) The trustees of this trust are Raymond T. Ryan and David P. O'Hara, who
share voting and investment power with respect to the shares held by this
trust and who may be deemed to be the beneficial owner of all such shares.
Such trustees disclaim beneficial ownership of these shares.
(6) Represents 1,020 shares owned by the J. Stanley Coyne Inter Vivos
Irrevocable Trust, of which J. Stanley Coyne is a co-trustee.
(7) Includes 63,305 shares owned by the J. Stanley Coyne Revocable Trust, of
which J. Stanley Coyne is a co-trustee.
(8) Includes 19,745 shares owned by the J. Stanley Coyne Revocable Trust, of
which J. Stanley Coyne is a co-trustee.
(9) Includes 2,272 shares owned by the J. Stanley Coyne Revocable Trust, of
which J. Stanley Coyne is a co-trustee.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Company's Human Resources and Compensation Committee consists of
Messrs. Barrett, Evans, Matthews, and McDonald.
No officer of the Company serves as a member of the Human Resources and
Compensation Committee. Transactions with certain of the members of such
committee are discussed below under "Professional Services."
Certain Transactions with Members of the Coyne Family
At the Company's discretion, the Company has made salary continuation
payments of $100,000 per year to each of J. Stanley Coyne, a principal
shareholder of the Company, and Gerald Coyne, a son of J. Stanley Coyne,
including payments of such amounts in each of the last three fiscal years. Both
J. Stanley Coyne and Gerald Coyne are former officers and executive employees of
the Company. The salary continuation payments are discretionary compensation
payments made by the Company. In addition, at the Company's discretion it has
paid certain medical and personal expenses of J. Stanley Coyne aggregating
$93,300 during fiscal 1999.
20
<PAGE>
The Company has an outstanding note receivable from J. Stanley Coyne in the
amount of $1,256,250. This note bears interest at the applicable federal rate as
determined by the Internal Revenue Service (6.3% at October 31, 1999). This
note will become payable, with accrued interest, upon the death of J. Stanley
Coyne.
The Company has guaranteed certain promissory note obligations of J.
Stanley Coyne due in 2003 in the amount of $1.9 million, including accrued
interest.
The Company makes advancements of $2,500 per month to Susan Whitney, the
daughter of J. Stanley Coyne. The total accumulated of such advancements, as of
October 31, 1999, was $65,000. These advancements are made by the Company at its
discretion, upon request of Susan Whitney, and can be stopped by the Company at
any time. The Company is also making advancements of $2,231 per month to Gerald
Coyne, a son of J. Stanley Coyne, to be used as mortgage payments on his home.
The total amount of such advancements as of October 31, 1999 was $113,000. These
advancements will continue for thirty years or until the death of Gerald Coyne
and his wife. All advancements to Susan Whitney and Gerald Coyne will be repaid,
with interest at 9.5%, to the Company from such person's share of The J. Stanley
Coyne Inter Vivos Irrevocable Trust.
The Company acquired certain residential property in central New York in
1995 at a cost of $320,000 for use by Thomas M. Coyne, Chairman of the Board,
President of the Company and Chief Executive Officer. Mr. Coyne paid the down
payment of $75,000 and the Company assumed a mortgage of $245,000 payable at
$2,900 per month for ten years. The mortgage bears interest at 7.5%. The
Company made mortgage payments of $34,898 during fiscal 1999. The balance of
the mortgage at October 31, 1999 was $170,045. Thomas M. Coyne has an option to
acquire this property any time for the unpaid balance of the mortgage, but in no
event less than $100,000.
The Company has an uncollateralized outstanding note receivable from Thomas
M. Coyne in the amount of $325,000. The note bears interest at 10% and matures
in 2007. In addition the Company has advancements to Thomas M. Coyne of
approximately $111,000 at October 31, 1999. These advancements bear interest at
9.5% and are payable at $2,000 per month.
Professional Services
Raymond T. Ryan, a director of the Company, is an employee of The Outaouais
Group, Inc., a consulting firm, which provides various tax and financial
services to the Company. The Company paid fees of $59,283 to The Outaouais
Group, Inc. for various services during fiscal 1999.
David P. O'Hara, a director and Assistant Secretary of the Company and
Alexander Pobedinsky, General Counsel and Secretary of the Company, were
partners with the law firm of O'Hara, Hanlon, Knych & Pobedinsky, LLP, which
provided legal services for the Company. The Company paid fees of $508,005 to
O'Hara, Hanlon, Knych & Pobedinsky, LLP for various services during fiscal 1999.
Mr. Pobedinsky was a principal in the law firm of Alexander Pobedinsky, LLC.
The Company paid fees of $117,860 to Pobedinsky, LLC for various services during
fiscal 1999.
Thomas C. Crowley, Director, Executive Vice President and Chief Operating
Officer of the Company performed consulting services in 1999 prior to becoming
an employee of the Company. The Company paid fees of $16,650 for such services.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K.
------------------------------------------------------
(a) Documents filed as part of this report:
1. List of Consolidated Financial Statements. The following
consolidated financial statements and the notes thereto of Coyne International
Enterprises Corp., which are attached hereto beginning on page F-1, have been
incorporated by reference into Item 8 of this Report on Form 10-K:
Report of PricewaterhouseCoopers LLP
Consolidated Balance Sheets as of October 31, 1999 and 1998
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the years ended October 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows for the years ended
October 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. List of Financial Statement Schedules. Not applicable.
3. List of Exhibits filed pursuant to Item 601 of Regulation S-
K. The following exhibits are incorporated by reference in, or filed with, this
Report on Form 10-K:
Exhibit No. Description
- -------------- -------------------------------------------------
(a) Exhibits
3.1 First Amendment to Amended and Restated Financing and
Security Agreement
3.2 Second Amendment to Amended and Restated Financing and
Security Agreement
27.1 Financial Data Schedule
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COYNE INTERNATIONAL ENTERPRISES CORP.
Date: January 28, 2000 By:/s/ Thomas M. Coyne
-------------------------------------
Thomas M. Coyne
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ------------------------ ------------------------------------- ------------------------
<S> <C> <C>
/s/ Thomas M. Coyne Chairman of the Board, President January 28, 2000
- ------------------------ and Chief Executive Officer
Thomas M. Coyne (Principal Executive Officer)
/s/ Thomas C. Crowley Director, Executive Vice President and January 28, 2000
- ------------------------ Chief Operating Officer
Thomas C. Crowley
/s/ Thomas E. Krebbeks Vice President, Chief Financial January 28, 2000
- ------------------------ Officer and Treasurer (Principal
Thomas E. Krebbeks Financial and Accounting Officer)
/s/ Alexander Robedinsky Vice President, Secretary and January 28, 2000
- ------------------------ General Counsel
Alexander Robedinsky
/s/ William D. Matthews Director January 28, 2000
- -------------------------
William D. Matthews
/s/ Wallace J. McDonald Director January 28, 2000
- -------------------------
Wallace J. McDonald
/s/ David P. O'Hara Director and Assistant Secretary January 28, 2000
- -------------------------
David P. O'Hara
/s/ Raymond T. Ryan Director and Assistant Treasurer January 28, 2000
- -------------------------
Raymond T. Ryan
/s/ J. Patrick Barrett Director January 28, 2000
- -------------------------
J. Patrick Barrett
/s/ David S. Evans Director January 28, 2000
- -------------------------
David S. Evans
</TABLE>
<PAGE>
Coyne International Enterprises Corp.
and Subsidiaries
Consolidated Financial Statements
October 31, 1999 and 1998
Page
Opinion of Independent Certified Public Accountants..................... F-2
Financial Statements:
Consolidated Balance Sheets,
October 31, 1999 and 1998........................................ F-3-F-4
Consolidated Statements of Operations and Retained Earnings
(Deficit), For the Years Ended October 31, 1999, 1998
and 1997......................................................... F-5
Consolidated Statements of Cash Flows,
For the Years Ended October 31, 1999, 1998, and 1997............. F-6
Notes to Consolidated Financial Statements..........................F-7-F-17
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Coyne International Enterprises Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Coyne International Enterprises Corp. and its subsidiaries ("Company") at
October 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
December 17, 1999, except as to
certain information contained in
Note 5 as to which the date is
January 27, 2000
F-2
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheet
October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 213,407 $ 1,073,496
Receivables, principally trade 16,768,958 14,213,035
Inventories 7,371,395 6,846,393
Uniforms and other rental items in service, net 27,838,084 28,337,302
Prepaid expense and other assets 796,094 931,978
------------ ------------
Total current assets 52,987,938 51,402,204
Property, plant and equipment, net 46,553,709 43,934,590
Purchased routes and acquisition intangibles, net 17,062,547 16,306,920
Deferred financing cost, net 2,606,593 2,871,172
Deferred income taxes 2,190,000 2,435,000
Other assets 444,795 417,553
------------ ------------
$121,845,582 $117,367,439
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. (Continued)
F-3
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheet (Continued)
October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity (Deficit) 1999 1998
<S> <C> <C>
Current liabilities:
Current maturities of capital lease and other loan obligations $ 3,214,908 $ 2,380,406
Accounts payable 5,378,142 7,005,212
Accrued expenses:
Salaries and employee benefits 5,297,557 5,195,374
Other 8,970,850 9,385,038
Deferred income taxes 10,000,000 10,370,000
------------ ------------
Total current liabilities 32,861,457 34,336,030
Long-term obligations:
Capital lease and other loan obligations,
net of current maturities 19,332,429 11,157,247
Senior subordinated notes 75,000,000 75,000,000
Other liabilities 3,083,508 3,951,145
------------ ------------
Total liabilities 130,277,394 124,444,422
------------ ------------
Shareholders' equity (deficit):
Preferred stock - 5% non-cumulative, non-voting, callable at par:
Class A - $100 par value; authorized 30,000;
issued and outstanding 23,107 in 1999 and 1998 2,310,700 2,310,700
Class B - $500 par value; authorized 5,000;
issued 4,991 and outstanding 2,991 in 1999 and 1998 2,495,500 2,495,500
Common stock - $.01 par value:
Class A - voting; authorized 100,000;
issued and outstanding 2,923 in 1999 and 1998 29 29
Class B - non-voting, authorized 99,000;
issued and outstanding 74,030 in 1999 and 1998 740 740
Additional paid-in capital 849,512 849,512
Retained earnings (deficit) (12,030,088) (11,078,823)
------------ ------------
(6,373,607) (5,422,342)
Less:
Cost of 2,000 shares of Class B
preferred stock held in treasury (166,667) (166,667)
Shareholder receivables (1,891,538) (1,487,974)
------------ ------------
Total shareholders' equity (deficit) (8,431,812) (7,076,983)
------------ ------------
Commitments and contingencies
$121,845,582 $117,367,439
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings (Deficit)
For the Years Ended October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenue:
Rental operations $ 135,771,890 $ 128,666,244 $114,671,684
Direct sales 10,439,832 10,070,299 8,263,079
------------- ------------- ------------
146,211,722 138,736,543 122,934,763
------------- ------------- ------------
Operating expenses:
Cost of rental operations 103,769,568 98,018,735 86,985,898
Cost of direct sales 6,907,257 7,079,717 5,801,679
Selling, general and administrative 25,699,629 23,399,517 19,355,384
------------- ------------- ------------
136,376,454 128,497,969 112,142,961
------------- ------------- ------------
Income from operations 9,835,268 10,238,574 10,791,802
Interest expense, including redemption of
common stock warrants of $17,257,000 in 1998 10,841,533 25,401,922 6,715,224
------------- ------------- ------------
Income (loss) before income
taxes and extraordinary item (1,006,265) (15,163,348) 4,076,578
Income tax expense (benefit) (55,000) 640,188 2,025,000
------------- ------------- ------------
Income (loss) before extraordinary item (951,265) (15,803,536) 2,051,578
Extraordinary loss on debt retirement,
net of tax benefit of $365,000 - 939,055 -
------------- ------------- ------------
Net Income (Loss) (951,265) (16,742,591) 2,051,578
Retained earnings (deficit), beginning of year (11,078,823) 5,663,768 3,612,190
------------- ------------- ------------
Retained Earnings (Deficit), End of Year $ (12,030,088) $ (11,078,823) $ 5,663,768
============= ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1999 and 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (951,265) $ (16,742,591) $ 2,051,578
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization
of plant and equipment 5,104,274 4,559,183 4,147,655
Amortization expense 701,425 741,618 816,903
Amortization of deferred financing 355,249 513,571 324,091
Extraordinary loss on retirement of debt, net - 939,055 -
Provision for deferred income taxes (125,000) (180,000) 1,595,000
Changes in operating assets
and operating liabilities:
Accounts receivable (2,555,923) (2,463,969) (271,471)
Inventories (525,002) (1,714,532) (252,128)
Uniforms in service 499,218 (4,727,551) (2,808,304)
Prepaid expenses and other assets 108,642 (245,407) 778,894
Accounts payable and other liabilities (2,806,713) 4,004,526 (107,932)
------------- -------------- -------------
Net cash (used in)
provided by operating activities (195,095) (15,316,097) 6,274,286
------------- -------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,713,393) (6,618,835) (1,086,633)
Acquisition of businesses, net of cash acquired (1,467,052) (238,844) (1,122,101)
------------- -------------- -------------
Net cash used in investing activities (9,180,445) (6,857,679) (2,208,734)
------------- -------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 50,558,770 172,310,156 121,565,225
Payments under long-term borrowings (41,549,085) (143,890,527) (126,287,871)
(Decrease) increase in bank overdrafts - (1,700,982) 1,700,982
Redemption of common stock warrants - (1,743,086) -
Increase in shareholder receivables (403,564) - -
Deferred financing costs incurred (90,670) (3,000,481) (119,830)
------------- -------------- -------------
Net cash provided by
(used in) financing activities 8,515,451 21,975,080 (3,141,494)
------------- -------------- -------------
Net (decrease) increase in cash (860,089) (198,696) 924,058
Cash and cash equivalents:
Beginning of year 1,073,496 1,272,192 348,134
------------- -------------- -------------
End of Year $ 213,407 $ 1,073,496 $ 1,272,192
============= ============== =============
Supplemental disclosure of cash flow information:
Interest paid, including in 1998 the redemption
of redeemable common stock warrants $ 9,758,977 $ 20,917,150 $ 6,204,883
Income taxes paid 74,959 201,922 514,144
Assets acquired under capital lease obligations - - 1,497,313
Seller financed debt - 407,984 3,469,893
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Business Description
The Company provides a highly specialized service to businesses of all
types - from small service companies to major corporations that employ
thousands of people. The Company designs and implements corporate identity
uniform programs for its customers in connection with renting or selling
its uniform services and other accessories to customers throughout the
eastern United States. In addition, the Company manufactures shop towels
which are sold throughout the United States.
Principles of Consolidation and Revenue Recognition
The consolidated financial statements include the accounts of Coyne
International Enterprises Corp. and its wholly-owned Subsidiaries (the
Company). All intercompany accounts have been eliminated. The Company
recognizes rental revenues when the services are performed and direct sales
are recognized when products are shipped to customers.
Fiscal Year
The Company uses a fifty-two/fifty-three week fiscal year ending on the
last Saturday in October. Accordingly, the financial statements are for the
52 weeks ended October 30, 1999 and the 53 weeks ended October 31, 1998 and
the 52 weeks ended October 25, 1997. For convenience, the dating of the
accompanying financial statements, and notes herein, have been labeled as
of and for the years ended October 31, 1999, 1998 and 1997 rather than the
actual fiscal year end dates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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. Ultimate results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less, at date of purchase, to be cash
equivalents.
Inventories
Inventories primarily represent new garments which are valued at the lower
of average cost or market.
Uniforms and Other Rental Items In Service
Rental garments, mats and towels in service are carried at cost and
amortized on a straight-line basis over their estimated income-producing
lives, ranging principally from 10 to 60 months.
F-7
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property, plant and equipment items are recorded at cost with provision for
depreciation by charges to operations on a straight-line basis over their
estimated useful lives which range from fifteen to forty years for
buildings and improvements, three to ten years for machinery and equipment
and three to eight years for vehicles. Maintenance and repairs are charged
to expense when incurred. Construction in process consists primarily of
capital expenditures for plant renovations and vehicle re-builds. The
Company capitalizes interest during the period of major construction
projects.
Purchased Routes and Acquisition Intangibles
The Company's acquisitions of rental operations and routes have generally
been accounted for by using the purchase method. The purchase method
allocates the amounts paid to the net assets acquired based on their
respective fair values. The amounts paid in excess of fair value of the
acquired net assets and goodwill acquired after October 31, 1970, is
amortized on a straight-line basis over forty years. The Company assesses
the recoverability of purchased routes and acquisition intangibles by
determining whether the amortization of such assets over the remaining life
can be recovered through undiscounted future operating cash flows and
reviews for impairment whenever events or changes in circumstances (i.e.,
plant closure) indicate that the carrying amount of an asset may not be
fully recoverable.
Routes acquired before October 31, 1970 are carried at a cost of $764,310.
These intangibles are also regularly evaluated and in the opinion of
management have not diminished in value and accordingly, have not been
amortized.
The Company has certain contracts with non-compete arrangements which are
charged to operations on a straight-line basis over the periods of the
respective agreements which range from 5 to 10 years.
Deferred Financing Costs
Deferred financing costs incurred in obtaining long-term debt are stated at
cost less accumulated amortization. Amortization of deferred financing
costs is provided using the effective interest write-off method over the
term of the obligation and approximated $355,000, $513,000, and $324,000
for the years ended October 31, 1999, 1998 and 1997, respectively.
Other Liabilities
The Company, under certain insurance programs, retains portions of expected
losses primarily relating to workers' compensation and employees' medical
insurance. A provision for claims under the self-insured program is
recorded based upon the Company's estimate, after consultation with
insurance advisors, of the aggregate liability for claims incurred.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable and trade accounts payable
approximates fair value because of the short maturity of these instruments.
The fair value of the Company's senior subordinated notes as of October 31,
1999 was approximately $67,500,000. The fair value of the Company's other
long-term obligations approximated their carrying value at October 31,
1999.
F-8
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return, and where required state tax returns. Provisions for deferred
taxes are recognized based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
Reclassification
Certain amounts have been reclassified to conform with 1999 presentation.
2. Acquisitions
During 1999, the Company acquired certain assets of industrial laundries
in transactions accounted for as purchase transactions. The aggregate
cash purchase price of $1,588,000 was allocated to rental garments
($132,000), covenants not to compete ($517,000) and purchased routes
($939,000).
During 1998, the Company acquired certain assets of an industrial laundry
company in a transaction accounted for as a purchase. The aggregate
purchase price of $581,000 was allocated to accounts receivable
($23,000), rental garments ($50,000), equipment ($75,000), covenants not
to compete ($250,000), and purchased routes ($183,000).
3. Property, Plant and Equipment
Property, plant and equipment includes:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 2,467,218 $ 2,468,218
Buildings and improvements 39,953,310 39,260,467
Machinery and equipment 39,878,736 35,837,929
Vehicles 10,419,800 8,551,646
Construction in process 3,133,970 2,114,421
------------ ------------
95,853,034 88,232,681
Less: Accumulated depreciation and amortization (49,299,325) (44,298,091)
------------ ------------
$ 46,553,709 $ 43,934,590
============ ============
</TABLE>
Assets under capital leases consist primarily of machinery and equipment
and have an aggregate historical cost and accumulated depreciation of
approximately $7,944,000 and $3,101,000 at October 31, 1999 and
$7,944,000 and $2,028,000 at October 31, 1998, respectively. Amortization
expense on capital leases was approximately $1,073,400, $1,504,000 and
$1,469,000 in 1999, 1998 and 1997, respectively.
F-9
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. Purchased Routes and Acquisition Intangibles
The following summarizes the individual components of purchased routes
and acquisition intangibles at October 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Goodwill $ 764,310 $ 764,310
Purchased routes 21,140,792 20,201,662
Covenants not to compete 1,953,844 1,436,854
----------- -----------
23,858,946 22,402,826
Less: Accumulated amortization (6,796,399) (6,095,906)
----------- -----------
$17,062,547 $16,306,920
----------- -----------
</TABLE>
Amortization expense for purchased routes and acquisition intangibles
aggregated $701,000, $742,000 and $816,000 for the years ended October
31, 1999, 1998 and 1997, respectively.
5. Long-Term Obligations
As of October 31, long-term obligations consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
(a) Bank of America revolver, interest payable monthly
at variable interest rates, ranging from prime plus $ 7,139,412 $ 1,481,000
.375% to LIBOR plus 2.25%, in 1999 and 1998
Bank of America capital expenditure facility, interest payable
monthly at variable interest rates, ranging
from prime plus .625% to LIBOR plus 2.5%, in 1999 3,877,571 -
Bank of America acquisition facility, interest payable
monthly at variable interest rates, ranging from 1,801,670 -
prime plus .625% to LIBOR plus 2.5%, in 1999
Capital lease obligations payable in monthly instalments with
interest at rates ranging from 6.7% to 9.5%,
payable through 2003 4,504,919 5,750,655
Industrial Development Revenue Bonds payable in
instalments with interest variable (10% at monthly
October 31, 1999) through 2005 2,488,188 2,742,469
Other debt obligations payable in monthly instalments
with interest, at rates ranging from 6% to 10.3%,
payable through 2005 2,735,577 3,563,529
--------------- ----------------
22,547,337 13,537,653
Less: Current maturities (3,214,908) (2,380,406)
=============== ================
$ 19,332,429 $ 11,157,247
=============== ================
(b) Senior subordinated notes due June 1, 2008. Interest only
payable semi-annually June 1 and December 1 at 11.25% $ 75,000,000 $ 75,000,000
=============== ================
</TABLE>
F-10
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Long-Term Obligations (Continued)
The prime rate at October 31, 1999 and 1998 was 8.25% and 8.0%,
respectively. LIBOR was 6.375% at October 31, 1999. Accrued expense, in the
accompanying balance sheets, includes accrued interest of approximately
$3,903,000 and $3,175,000 at October 31, 1999 and 1998, respectively.
(a) The Company's existing credit facility (the "Agreement") led by Bank
of America was amended in connection with the Senior Subordinated Debt
offering in June 1998. Under this agreement a revolving credit
facility is available to the Company through November 1, 2003,
extending automatically for successive periods of one year each, at
the discretion of the Bank, but in no event later than November 1,
2008. Advances under the revolver bear interest, at the Company's
option at either, (i) the Bank of America's prime rate plus .375% or
(ii) the London Interbank Offered Rate ("Rate") plus 2.25%. Collateral
pledged under the agreement includes all inventory, uniforms in
service and accounts receivable. Maximum available credit is computed
based on eligible accounts receivable, inventory, and uniforms in
service, as defined, and may not to exceed $25,000,000. The Company is
required to maintain a minimum available balance under the revolving
credit facility of $1,000,000. As of October 31, 1999, the Company has
approximately $13,973,000 available under its credit facility.
The terms of the agreement include various covenants, which provide,
among other things, for the maintenance of certain minimum levels of
cash flow and limitations on leverage and capital expenditures at
defined measurement dates. The Company was not in compliance with
certain of these covenants as of October 31, 1999 for which the
Company has received a waiver. In addition, the Company obtained an
amendment of certain covenants for its loan agreement and believes it
will be in compliance with such covenants at other fiscal 2000
measurement dates.
In addition, the Agreement includes a material adverse change clause
which permits the financial institution to call its debt in the event
of a material adverse change in the business. Management does not
anticipate any such adverse changes in the next twelve months,
however, there can be no assurances.
The Agreement also provides for an acquisition facility of up to
$10,000,000, of which $1,801,670 is outstanding at October 31, 1999.
No borrowings were outstanding at October 31, 1998. Interest is
payable on the acquisition facility during the first year of an
advance; thereafter principal will be payable in 12 quarterly
payments. In the event of termination of the revolving credit facility
all unpaid balances will become due.
The Agreement also provides for a capital expenditure facility of up
to $20,000,000, of which $3,877,571 is outstanding at October 31,
1999. No borrowings were outstanding at October 31, 1998. Interest is
payable on the capital expenditure facility through July 2000.
Thereafter, principal will be payable in 20 quarterly payments;
provided that all advances will come due upon termination of the
revolving credit facility.
F-11
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Long-Term Obligations (Continued)
Advances under the acquisition and capital expenditure facility bear
interest, at the Company's option at either, (i) the Bank of America
prime rate plus .625% or (ii) LIBOR plus 2.5%. In addition, under
the terms of the Agreement the Company shall be required to make
annual mandatory prepayments in an amount equal to the lesser of (i)
$2,000,000 or (ii) 35% of the Company's excess cash flow to be
applied to reduce the acquisition and capital expenditure loans. A
mandatory prepayment is not required in fiscal 2000 based upon
financial results for the year ended October 31, 1999.
(b) On June 26, 1998, pursuant to a purchase agreement dated June 23,
1998, the Company sold, at par, $75,000,000 of 11-1/4% Senior
Subordinated Notes due 2008 ("Notes"). The proceeds of the Notes
were used primarily to retire certain existing debt obligations,
redeem outstanding redeemable common stock warrants, and for general
corporate purposes.
The Notes bear interest at a rate of 11.25%, payable semi-annually,
and are redeemable at the option of the Company after May 31, 2003
at redemption prices beginning at 105.625% and declining to 100.0%
in 2006. The Note agreement includes covenants which restrict the
ability of the Company to incur additional indebtedness, pay
dividends, issue preferred stock and make certain restricted
payments, as defined.
In May 1998, the Company entered into an agreement with its existing
senior subordinated noteholders to redeem the outstanding common
stock warrants for $19,000,000 comprised of $6,000,000 for the
warrants, $11,000,000 for an early termination fee and $2,000,000
for a management fee. The excess of this settlement over the book
value of the stock warrants has been reported as a charge of
$17,257,000 in the accompanying financial statements.
In connection with the retirement of debt obligations discussed
above, the Company recognized an extraordinary charge of $939,055,
net of a $365,000 income tax benefit, for the write-off of related
deferred financing and unamortized issue discounts.
(c) The Company's corporate headquarters, its Buffalo, New York plant
and its Blue Ridge, Georgia plant were financed under separate long-
term lease arrangements with the Industrial Development Agencies of
the local counties. The leases have been accounted for as capital
leases. Accordingly, the related assets are included in the
consolidated balance sheet of the Company. Similarly, an amount
equivalent to the principal amount of the Agency's revenue bonds
outstanding related to those properties is included as a liability.
While the bonds are not a debt of the Company, the long-term lease
obligates the Company to payments equal to interest and amortization
of such bonds and provides for the ultimate reversion of the
properties to the Company at the end of the bond agreement.
F-12
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Long-Term Obligations (Continued)
At October 31, 1999, payments due on all debt obligations for each of
the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
Long-Term Capital Lease Total
Debt Obligations Obligations
<S> <C> <C> <C>
2000 $ 1,878,955 $1,335,953 $ 3,214,908
2001 2,222,438 1,164,959 3,387,397
2002 2,032,011 1,174,085 3,206,096
2003 8,200,221 829,922 9,030,143
2004 1,087,311 - 1,087,311
2005 and thereafter 77,621,482 - 77,621,482
----------- ---------- -----------
$93,042,418 $4,504,919 $97,547,337
=========== ========== ===========
</TABLE>
6. Income Taxes
The components of income tax expense (benefit) for the years ended
October 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ - $ 265,000 $ 245,000
State 70,000 190,000 185,000
--------- --------- -----------
70,000 455,000 430,000
Deferred (125,000) 185,188 1,595,000
--------- --------- -----------
Income tax expense (benefit) $ (55,000) $ 640,188 $ 2,025,000
========= ========= ===========
</TABLE>
The Company has a net operating loss and alternative minimum tax (AMT)
credit carryforwards for income tax purposes of approximately $8,225,000
and $1,860,000, respectively. The net operating loss carryforward expires
in 2019 and the AMT credit is available indefinitely. Realization of the
deferred income tax assets relating to these net operating losses is
dependent on generating sufficient taxable income prior to the expiration
of the loss carryforwards. Based upon results of operations or through
the reversal of future taxable income, management believes it is more
likely than not that the Company will generate sufficient future taxable
income to fully realize the benefit of the net operating loss
carryforwards and existing temporary differences, although there can be
no assurance of this.
F-13
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. Income Taxes (Continued)
A reconciliation of the federal statutory income tax rate and the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory tax rate (recoverable) (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit 3.8 .6 7.3
Non-deductible items 29.5 36.0 6.2
Other (4.8) 1.6 2.2
------ ------ -----
(5.5)% 4.2 % 49.7%
------ ------ -----
</TABLE>
Non-deductible items include nondeductible amortization of certain
purchased routes and other intangibles, and meals and entertainment
expenses.
The tax effects of temporary differences that give rise to deferred tax
assets (liabilities) at October 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
Rental garments in service $ (10,786,000) $ (10,892,000)
Inventory 28,000 28,000
Accrued expenses 758,000 494,000
------------- -------------
Current deferred tax liability (10,000,000) (10,370,000)
------------- -------------
Non-current:
Fixed assets (4,074,477) (3,017,000)
Other liabilities 1,118,728 1,232,000
Alternative minimum tax credit carryforward 1,860,000 1,825,000
Net operating loss carryforward 3,285,749 2,395,000
------------- -------------
Non-current deferred tax asset 2,190,000 2,435,000
------------- -------------
Net deferred tax liability $ (7,810,000) $ (7,935,000)
============= =============
</TABLE>
7. Commitments and Contingencies
The Company and its operations are subject to various federal, state and
local regulations relating to environmental matters, including laws which
require the investigation and, in some cases, remediation of
environmental contamination. The Company's policy is to accrue and charge
to operations environmental investigation and remediation expenses when
it is probable that a liability has been incurred and an amount is
reasonably estimable.
Certain claims have been filed or are pending against the Company arising
from the conduct of its business. In the opinion of management, all
matters are without merit and the Company intends to defend such claims
vigorously. Based on information currently available, management believes
that the outcome of any such claims will not have a material adverse
effect on its business, financial condition or results of operations.
F-14
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Operating Leases
The Company has noncancellable operating lease commitments for certain
operating facilities, transportation, manufacturing and office equipment,
which expire at various dates. Rent expense under operating leases
approximated $1,969,000, $2,476,000 and $2,649,000 during 1998, 1997 and
1996, respectively. Minimum annual rental commitments at October 31, 1999
are as follows:
2000 $1,215,096
2001 871,912
2002 189,390
2003 133,054
2004 35,318
Thereafter 4,829
----------
Total minimum lease payments $2,449,599
----------
9. Pension Plans
All full-time nonunion and certain union employees are eligible to
participate in the Company's 401(k) plan after one year of service. The
Company matches a portion of the employees' salary reduction
contributions and contributes a base contribution of 3% to 4% of eligible
participant compensation. The Company contributions under the 401(k)
plan, which vest over a seven-year employment period, were approximately
$719,000, $637,000 and $680,000 in 1999, 1998 and 1997, respectively.
Certain employees of the Company are covered by union sponsored,
collectively bargained, multi-employer pension plans (Union Plans). The
Company charged to expense $1,430,000, $1,176,000 and $1,150,000 in 1999,
1998 and 1997, respectively, for such plans. These contributions are
determined in accordance with the provisions of negotiated labor
contracts and generally are based on the number of hours worked. The
Company may be liable for its share of unfunded vested benefits, if any,
related to the Union Plans. Information from the Union Plans'
administrators is not available to permit the Company to determine its
share, if any, of unfunded vested benefits.
The Company maintains a defined benefit plan for certain employees at one
of its plants. The most recent valuation stated an accumulated plan
benefit obligation of approximately $563,000 and plan assets with a fair
market value of approximately $1,037,000.
F-15
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Related Party Transactions
The Company has guaranteed an obligation of J. Stanley Coyne, a principal
shareholder of the Company, under a promissory note payable in 2002. At
October 31, 1999, the outstanding guaranteed obligation, including
interest, approximates $1,988,000.
At the Company's discretion, the Company has made salary payments
totaling $100,000 per year to each of J. Stanley Coyne, a principal
shareholder of the Company, and Gerald Coyne, a son of J. Stanley Coyne,
including payments of such amounts in each of the last three fiscal
years. In addition, at the Company's discretion it has paid certain
medical and personal expenses of J. Stanley Coyne aggregating
approximately $93,000, $112,000 and $93,000 during the fiscal years ended
October 31, 1999, 1998 and 1997, respectively.
Included in shareholder receivables is an outstanding note receivable
from its principal shareholder in the amount of $1,256,250. This note
bears interest at the Applicable Federal Rate as defined by the Internal
Revenue Service, 6.3% at October 31, 1999. Interest income on the note
was not recognized in fiscal 1999 and 1998. The total amount due as of
October 31, 1999 approximates $1,497,000.
Included in shareholder receivables at October 31, 1999 and 1998 are a
note receivable and outstanding advancements, of approximately $434,000
and $111,000, respectively. These monies are due from Thomas M. Coyne,
Chairman of the Board and President of the Company. The note receivable
and advances are uncollateralized. Interest on the note accrues at 10%
and is payable annually. The note matures August 31, 2007.
As of October 31, 1999 and 1998 there is approximately $193,000 and
$120,000 of interest bearing loans receivable from certain related family
members as a result of monthly cash advances. Interest income on these
notes was not recognized in 1999 and 1998. The advances are unsecured and
bear interest at 9.5% per annum. The advances have no defined repayment
terms, but they will be repaid to the Company from the family members'
share of the J. Stanley Coyne estate.
The Company acquired certain residential property in central New York in
1995 at a cost of $320,000. Thomas M. Coyne, President of the Company,
paid the down payment of $75,000 and the Company assumed a mortgage of
$245,000 payable at $2,900 per month for ten years. The mortgage bears
interest at 7.5%. Thomas M. Coyne has an option to acquire this property
any time for the unpaid balance of the mortgage, but in no event less
than $100,000.
F-16
<PAGE>
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. Summarized Financial Information of Certain Subsidiaries
The following table presents summarized financial information for the
following wholly-owned subsidiaries of Coyne International Enterprises
Corp.: Blue Ridge Textile Manufacturing, Inc., Ohio Garment Rental, Inc.
and Midway-CTS Buffalo, Ltd. on a combined basis at October 31, or for
the year then ended:
October 31,
----------------------------
1999 1998
Balance sheets:
Current assets $6,376,826 $5,934,000
Noncurrent assets 3,815,243 3,317,000
Current liabilities 3,419,888 2,702,000
Noncurrent liabilities 175,000 182,000
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Statement of operations:
Revenues $16,654,447 $17,080,000 $15,300,000
Operating expenses 15,330,667 15,482,000 14,021,000
Operating income 1,323,780 1,598,000 1,279,000
Income (loss) before extraordinary loss and
cumulative effect of accounting changes 329,993 (1,365,000) 347,000
Net income (loss) 329,993 (1,365,000) 347,000
</TABLE>
The Company has not provided separate financial statements and other
disclosures for its wholly-owned subsidiaries because management has
determined that such information is not material to investors.
F-17
<PAGE>
EXHIBIT INDEX
3.1 First Amendment to Amended and Restated Financing and Security
Agreement
3.2 Second Amendment to Amended and Restated Financing and Security
Agreement
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 3.1
FIRST AMENDMENT TO AMENDED AND RESTATED
---------------------------------------
FINANCING AND SECURITY AGREEMENT
--------------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED FINANCING AND SECURITY
AGREEMENT (this "Agreement") is made as of the 9th day of June, 1999, by and
among COYNE INTERNATIONAL ENTERPRISES CORP., a corporation organized and
existing under the laws of the State of New York ("Coyne"), BLUE RIDGE TEXTILE
MANUFACTURING, INC., a corporation organized under the laws of the State of
Georgia ("Blue Ridge"), OHIO GARMENT RENTAL, INC., a corporation organized under
the laws of the State of Ohio ("Ohio Garment"), MIDWAY-CTS BUFFALO, LTD., a
corporation organized under the laws of the State of New York ("Midway"), and
CLEAN TOWEL SERVICE, INC., a corporation organized under the laws of the State
of Georgia ("Clean Towel") (Coyne, Blue Ridge, Ohio Garment, Midway and Clean
Towel are referred to individually herein as a "Borrower and collectively as the
"Borrowers"), and NATIONSBANK, N.A., a national banking association
("NationsBank"), LASALLE BUSINESS CREDIT, INC., a corporation organized under
the laws of the State of Delaware ("LaSalle"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC") (NationsBank, LaSalle and
PNC are referred to individually as a "Lender" and collectively as the
"Lenders"), and NATIONSBANK, N.A., a national banking association, as collateral
and administrative agent for the Lenders (the "Agent").
RECITALS
--------
A. The Borrowers, the Lenders and the Agent are parties to an Amended and
Restated Financing and Security Agreement dated June 26, 1998 (as amended,
restated, modified, substituted, extended, and renewed from time to time, the
"Financing Agreement").
B. The Financing Agreement provides for some of the agreements between
the Borrowers, the Lenders and the Agent with respect to the "Loans" (as defined
in the Financing Agreement), including revolving credit facility in an amount
not to exceed $25,000,000, including a letter of credit facility in the amount
of $3,000,000, an acquisition facility in an amount not to exceed $10,000,000
and a capital expenditure facility in an amount not to exceed $20,000,000.
C. The Borrowers have requested that the Lenders and Agent modify certain
financial covenants set forth in the Financing Agreement.
D. The Lenders and Agent are willing to agree to the Borrowers' request
on the condition, among others, that this Agreement be executed.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers,
the Lenders and the Agent agree as follows:
1. The Borrowers, the Lenders and the Agent agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined in this
Agreement, terms defined in the Financing Agreement shall have the same meaning
under this Agreement.
2. The Borrowers represent and warrant to the Lender as follows:
<PAGE>
(a) Each Borrower is a corporation duly organized, and validly
existing and in good standing under the laws of the state in which it was
organized and is duly qualified to do business as a foreign corporation in good
standing in every other state wherein the conduct of its business or the
ownership of its property requires such qualification.
(b) Each Borrower has the power and authority to execute and deliver
this Agreement and perform its obligations hereunder and has taken all necessary
and appropriate corporate action to authorize the execution, delivery and
performance of this Agreement.
(c) The Financing Agreement, as amended by this Agreement, and each
of the other Financing Documents remains in full force and effect, and each
constitutes the valid and legally binding obligation of each Borrower,
enforceable in accordance with its terms.
(d) All of the Borrowers' representations and warranties contained in
the Financing Agreement and the other Financing Documents are true and correct
on and as of the date of the Borrowers' execution of this Agreement.
(e) No Event of Default and no event which, with notice, lapse of
time or both would constitute an Event of Default, has occurred and is
continuing under the Financing Agreement or the other Financing Documents which
has not been waived in writing by the Lender.
3. Section 6.1.17 of the Financing Agreement is hereby deleted in its
entirety and the following is substituted in its place:
6.1.17 Leverage Ratio.
--------------
The Borrowers will maintain, tested as of the last day of each of the
Borrowers' fiscal quarters for the four (4) quarter period ending on such
date, a ratio of Funded Debt to EBITDA so that it is not more than the
following:
Quarters Ratio
---------------------------------------------------------
October 31, 1998 through and including 6.25 to 1.0
July 31, 2000
---------------------------------------------------------
October 31, 2000 through and including 6.00 to 1.0
July 31, 2001
---------------------------------------------------------
October 31, 2001 through and including 5.80 to 1.0
July 31, 2002
---------------------------------------------------------
October 31, 2002 through and including 5.50 to 1.0
July 31, 2003
---------------------------------------------------------
October 31, 2003 and thereafter (applicable 5.25 to 1.0
if the Revolving Credit Termination Date
has not sooner occurred)
---------------------------------------------------------
4. Section 6.1.18 of the Financing Agreement is hereby deleted in its
entirety and the following is substituted in its place:
2
<PAGE>
6.1.18 Capital Expenditures.
--------------------
The Borrowers will not, and will not permit any Subsidiary to,
directly or indirectly (by way of the acquisition of the securities of a
Person or otherwise), make any Capital Expenditures in the aggregate for
the Borrowers and their Subsidiaries (taken as a whole) exceeding the
following in the applicable fiscal quarters in each of the following fiscal
years for the year to date:
-----------------------------------------------------------------
Fiscal Year Capital Expenditures
-----------------------------------------------------------------
1999 $8,000,000
-----------------------------------------------------------------
2000 $5,000,000
-----------------------------------------------------------------
2001 $5,500,000
-----------------------------------------------------------------
2002 and any applicable $5,750,000
time thereafter
-----------------------------------------------------------------
5. Each Borrower hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Financing Agreement,
as amended hereby. Each Borrower agrees that this Agreement is not intended to
and shall not cause a novation with respect to any or all of the Obligations.
6. Each Borrower acknowledges and warrants that the Lenders and Agent
have acted in good faith and have conducted in a commercially reasonable manner
their relationships with the Borrowers in connection with this Agreement and
generally in connection with the Financing Agreement and the Obligations, each
Borrower hereby waiving and releasing any claims to the contrary.
7. The Borrowers shall pay at the time this Agreement is executed and
delivered all fees, commissions, costs, charges, taxes and other expenses
incurred by the Agent and its counsel in connection with this Agreement,
including, but not limited to, reasonable fees and expenses of the Agent's
counsel and all recording fees, taxes and charges.
8. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and taken together shall constitute but one and the same
instrument. The parties agree that their respective signatures may be delivered
by facsimile. Any party which chooses to deliver its signature by facsimile
agrees to provide a counterpart of this Agreement with its inked signature
promptly to each other party.
3
<PAGE>
IN WITNESS WHEREOF, the Borrowers, the Lenders and the Agent have executed
this Agreement under seal as of the date and year first written above.
ATTEST: COYNE INTERNATIONAL ENTERPRISES CORP.
BLUE RIDGE TEXTILE MANUFACTURING, INC.
OHIO GARMENT RENTAL, INC.
MIDWAY-CTS BUFFALO, LTD.
CLEAN TOWEL SERVICE, INC.
_____________________________ By:__________________________(SEAL)
Name:
Title:
WITNESS: NATIONSBANK, N.A., in its capacity as a
Lender
_____________________________ By:__________________________(SEAL)
Name: Gary W. Bartlett
Title: Vice President
WITNESS: PNC BANK, NATIONAL ASSOCIATION
_____________________________ By:__________________________(SEAL)
Name:
Title:
WITNESS: LASALLE BUSINESS CREDIT, INC.
_____________________________ By:__________________________(SEAL)
Name:
Title:
WITNESS: NATIONSBANK, N.A., in its capacity as Agent
_____________________________ By:__________________________(SEAL)
Name: Gary W. Bartlett
Title: Vice President
4
<PAGE>
EXHIBIT 3.2
SECOND AMENDMENT
-----------------
TO
--
AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
-----------------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED FINANCING AND SECURITY
AGREEMENT (this "Agreement") is made as of the 27/th/ day of January, 2000 by
and among Coyne International Enterprises Corp., a corporation organized and
existing under the laws of the State of New York, Blue Ridge Textile
Manufacturing, Inc., a corporation organized under the laws of the State of
Georgia, and Ohio Garment Rental, Inc., a corporation organized under the laws
of the State of Ohio (each is referred to individually as a "Borrower and
collectively, the "Borrowers"), and Bank of America, National Association, a
national banking association, successor by merger to NationsBank, N.A. ("Bank of
America"), LASALLE BUSINESS CREDIT, INC., a corporation organized under the laws
of the State of Delaware ("LaSalle"), and PNC BANK, NATIONAL ASSOCIATION, a
national banking association ("PNC") (Bank of America, LaSalle and PNC are
referred to individually as a "Lender" and collectively as the "Lenders"), and
BANK OF AMERICA, NATIONAL ASSOCIATION, a national banking association, successor
by merger to NationsBank, N.A, as collateral and administrative agent for the
Lenders (the "Agent").
RECITALS
--------
A. The Borrowers, the Lenders and the Agent entered into that certain
Amended and Restated Financing and Security Agreement dated as of June 26, 1998,
as amended by that certain First Amendment to Amended and Restated Financing and
Security Agreement dated June 9, 1999 (as amended, restated, modified,
substituted, extended, and renewed from time to time, the "Financing
Agreement"). The Financing Agreement provides for some of the agreements between
the Borrowers, the Lenders and the Agent with respect to the "Loans" (as defined
in the Financing Agreement), including a revolving credit facility in an amount
not to exceed $25,000,000, a letter of credit facility in the amount of
$3,000,000, an acquisition facility in an amount not to exceed $10,000,000 and a
capital expenditure facility in an amount not to exceed $20,000,000.
B. Section 2.3 of the Financing Agreement provides for an Acquisition
Loan Facility, under which the Borrowers may receive advances in the maximum
principal amount of $10,000,000 based on "Permitted Acquisitions" (as defined in
the Financing Agreement). The Borrowers acquired certain assets of Unifirst
Corp. (the "Unifirst Acquisition") and two parcels of real estate in Lakeland,
Florida (the "Lakeland Acquisition"). Shortly thereafter, the Borrowers
requested that both the Unifirst Acquisition and the Lakeland Acquisition be
deemed Permitted Acquisitions and, thus, eligible for advances under the
Acquisition Loan Facility in the total amount of $1,801,670.00 ("Requested
Advance"). Subject to the explicit conditions contained in a letter agreement
dated October 28, 1999, the Lenders and Agent made the Requested Advance. The
proceeds of the Requested Advance were applied directly to the Revolving Loan.
1
<PAGE>
C. The Unifirst Acquisition failed to meet certain cash flow coverage
conditions required of Permitted Acquisitions. The Lakeland Acquisition involved
the purchase of improved real estate for purposes of establishing a new plant
location. Therefore, it fell outside of Permitted Acquisitions. As such, the
Unifirst Acquisition and the Lakeland Acquisition resulted in defaults under the
Financing Agreement (collectively, the "Acquisition Defaults").
D. During fiscal year 1999, Thomas M. Coyne purchased three (3) life
insurance policies for estate planning purposes in the cumulative amount of
$9,500,000 (the "Life Insurance"). The premium on the Life Insurance for the
fiscal year 1999 was $325,000 (the "Life Insurance Premium"). The Borrowers paid
the Life Insurance Premium and took a note receivable owed by Thomas M. Coyne
for the Life Insurance Premium ("Life Insurance Note Receivable"). The
Borrowers' payment of the Life Insurance Premium resulted in a default under
Section 6.2.7 of the Financing Agreement (the "Life Insurance Default").
E. The Borrowers have requested that the Lenders and Agent amend certain
provisions of the Financing Agreement and waive certain violations, including
the Acquisition Defaults and the Life Insurance Default.
F. The Agent and Lenders are willing to agree to the Borrowers' request on
the condition, among others, that this Agreement be executed.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers,
the Lenders and the Agent agree as follows:
1. The Borrowers, the Lenders and the Agent agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined in this
Agreement, terms defined in the Financing Agreement shall have the same meaning
under this Agreement.
2. The Borrowers represent and warrant to the Agent and Lenders as
follows:
(a) Each Borrower is a corporation duly organized, and validly
existing and in good standing under the laws of the state in which it was
organized and is duly qualified to do business as a foreign corporation in good
standing in every other state wherein the conduct of its business or the
ownership of its property requires such qualification.
(b) Each Borrower has the power and authority to execute and deliver
this Agreement and perform its obligations hereunder and has taken all necessary
and appropriate corporate action to authorize the execution, delivery and
performance of this Agreement.
(c) The Financing Agreement, as amended by this Agreement, and each
of the other Financing Documents remains in full force and effect, and each
constitutes the valid and legally binding obligation of each Borrower,
enforceable in accordance with its terms.
2
<PAGE>
(d) All of the Borrowers' representations and warranties contained in
the Financing Agreement and the other Financing Documents are true and correct
on and as of the date of the Borrowers' execution of this Agreement.
(e) No Event of Default and no event which, with notice, lapse of
time or both would constitute an Event of Default, has occurred and is
continuing under the Financing Agreement or the other Financing Documents which
has not been waived in writing by the Agent and the Lenders under this
Agreement.
3. Section 6.1.16 is hereby deleted and the following is substituted in
its place:
6.1.16 Fixed Charge Coverage Ratio.
---------------------------
The Borrowers will maintain, tested commencing October 31, 1998
as of the last day of each of the Borrowers' fiscal quarters for the four (4)
quarter period ending on such date, a Fixed Charge Coverage Ratio of not less
than the following:
---------------------------------------------------------------
Quarters: Ratio
---------------------------------------------------------------
October 31, 1998 through and including
January 31, 2000 1.00 to 1.00
---------------------------------------------------------------
April 30, 2000 through and including
July 31, 2000 1.15 to 1.00
---------------------------------------------------------------
October 31, 2000 through and including
July 31, 2001 1.20 to 1.00
---------------------------------------------------------------
October 31, 2001 through and thereafter 1.25 to 1.00
---------------------------------------------------------------
4. Section 6.2.7(v) of the Financing Agreement is hereby deleted in its
entirety and the following is substituted in its place:
(v) as set forth in Schedule 6.2.7 of this Agreement; and
--------------
5. Section 6.2.7 (Investments, Loans and Other Transactions) of the
Financing Agreement is hereby amended by adding subsection (vi), which shall be
the following:
(vi) a one-time only $325,000 insurance premium payment for three
insurance policies on the life of Thomas M. Coyne, purchased during
the fiscal year 1999 for estate planning purposes.
6. The Lenders and the Agent hereby waive (i) the Acquisition Defaults
described in Recitals B and C above, (ii) the Life Insurance Default described
in Recital D above and (iii) defaults under Section 6.1.16 (Fixed Charge
Coverage Ratio) of the Financing Agreement (prior to the amendment in this
Agreement) for the fiscal year ending October 31, 1999. This waiver is not
intended to, and shall not, waive any defaults under Section 2.3 (The
Acquisition Loan
3
<PAGE>
Facility) or 6.1.16 (Fixed Charge Coverage Ratio) other than for instances and
dates specified, and shall not waive any other defaults arising out of non-
compliance by the Borrowers with the Financing Agreement, whether or not the
events, facts or circumstances giving rise to such non-compliance existed on or
prior to the date hereof.
7. Each Borrower hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Financing Agreement,
as amended hereby. Each Borrower agrees that this Agreement is not intended to
and shall not cause a novation with respect to any or all of the Obligations.
8. Each Borrower acknowledges and warrants that the Lenders and Agent
have acted in good faith and have conducted in a commercially reasonable manner
their relationships with the Borrowers in connection with this Agreement and
generally in connection with the Financing Agreement and the Obligations, each
Borrower hereby waiving and releasing any claims to the contrary.
9. If applicable, the Borrowers shall pay at the time this Agreement is
executed and delivered, all fees, commissions, costs, charges, taxes and other
expenses incurred by the Agent and its counsel in connection with this
Agreement, including, but not limited to, reasonable fees and expenses of the
Agent's counsel and all recording fees, taxes and charges.
10. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and taken together shall constitute but one and the same
instrument. The parties agree that their respective signatures may be delivered
by facsimile. Any party which chooses to deliver its signature by facsimile
agrees to provide a counterpart of this Agreement with its inked signature
promptly to each other party.
IN WITNESS WHEREOF, the Borrowers, the Lenders and the Agent have executed
this Agreement under seal as of the date and year first written above.
ATTEST: COYNE INTERNATIONAL ENTERPRISES CORP.
BLUE RIDGE TEXTILE MANUFACTURING, INC.
OHIO GARMENT RENTAL, INC.
_____________________________ By:__________________________(SEAL)
Name:
Title:
4
<PAGE>
WITNESS: BANK OF AMERICA, NATIONAL
ASSOCIATION, in its capacity as a Lender
_____________________________ By:__________________________(SEAL)
Gary W. Bartlett
Vice President
WITNESS: PNC BANK, NATIONAL ASSOCIATION
_____________________________ By:__________________________(SEAL)
Name:
Title:
WITNESS: LASALLE BUSINESS CREDIT, INC.
_____________________________ By:__________________________(SEAL)
Name:
Title:
WITNESS: BANK OF AMERICA, NATIONAL
ASSOCIATION, in its capacity as Agent
_____________________________ By:__________________________(SEAL)
Gary W. Bartlett
Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COYNE INTERNATIONAL ENTERPRISES CORP. AND
SUBSIDIARIES FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1999
<PERIOD-START> OCT-26-1997 NOV-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1999
<CASH> 1,073,456 213,407
<SECURITIES> 0 0
<RECEIVABLES> 14,213,035 16,768,958
<ALLOWANCES> 0 0
<INVENTORY> 6,846,393 7,371,395
<CURRENT-ASSETS> 51,402,204 52,987,938
<PP&E> 88,232,681 95,853,034
<DEPRECIATION> 44,298,091 49,299,325
<TOTAL-ASSETS> 117,367,439 121,845,582
<CURRENT-LIABILITIES> 34,336,030 32,861,457
<BONDS> 88,537,653 97,547,337
0 0
4,806,200 4,806,200
<COMMON> 769 769
<OTHER-SE> (11,883,952) (13,238,781)
<TOTAL-LIABILITY-AND-EQUITY> 117,367,439 121,845,582
<SALES> 10,070,299 10,439,832
<TOTAL-REVENUES> 138,736,543 146,211,722
<CGS> 7,079,717 6,907,257
<TOTAL-COSTS> 128,497,969 136,376,454
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,401,922 10,841,533
<INCOME-PRETAX> (15,163,348) (1,006,265)
<INCOME-TAX> 640,188 (55,000)
<INCOME-CONTINUING> (15,803,536) (951,265)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 939,055 0
<CHANGES> 0 0
<NET-INCOME> (16,742,591) (951,265)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
