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, 1998
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
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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 [ ] NO [X]*
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]
- ---------------------
*Issuer became subject to such filing requirements on November 9, 1998.
TABLE OF CONTENTS
PAGE
--
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 Equity 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........................... 18
Item 8. Financial Statements and Supplementary Data......................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 19
Item 11. Executive Compensation.............................................................. 21
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 22
Item 13. Certain Relationships and Related Transactions...................................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 25
Signatures
Index to Consolidated Financial Statements.......................................... F-1
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, 1998, 1997 and 1996, 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 and the other documents referred to below. 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, (viii) the timing of acquisitions,(ix)
commencing start-up operations and related costs, (x) the Company's
effectiveness in integrating acquired businesses and start-up operations, (xi)
the timing of capital expenditures, (xii) seasonal rental and purchasing
patterns of the Company's customers, (xiii) price changes in response to
competitive factors, (xiv) the Company's ability to attract and retain qualified
employees, (xiv), the year 2000 compliance of the Company's systems, (xv) a
prolonged work stoppage or strike by the Company's unionized work force and
(xvi) the absence of a public market for the Company's senior subordinated
notes. These and other factors are discussed in greater detail in the Company's
Registration Statement on Form S-4, as amended, a copy of which may be obtained
from Donald F.X. Keegan, 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. Keegan at (315) 475-1626. The
Company's Registration Statement on Form S-4, as amended, is also available on
the SEC's Internet site (http://www.sec.gov).
PART I
ITEM 1. BUSINESS.
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GENERAL
Coyne International Enterprises Corp. ("CTS" or the "Company") provides
textile rental products and laundering services from 40 locations to customers
in diversified industries 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.
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, Hershey, 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 1997 revenues
in excess of $9 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
1998, 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 45% of the Company's revenues in 1998.
According to industry data compiled by TRSA, of the 120 million potential
uniform wearers, only 25 million wear uniforms, and only 8 million C 7% wear
rental uniforms. The TRSA estimated that the uniform rental services segment of
the textile rental industry grew at a rate of 13.5% in 1996 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. In 1996 alone, more than ten million new jobs were created in
the United States with an estimated 65-70% of these jobs accounted for by
service industries whose employees tend to wear uniforms. CTS also
2
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, heating/ventilation/air conditioning,
landscaping, pest control, pharmaceuticals, security and trucking.
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 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 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 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/1/:
Uniform & Hospital &
Garment RAS & Shop Walk Off Dust Control Linen
Period Rentals Towels Mats Products Direct Sales Products
------------------ --------- ---------- -------- ------------ ------------ -----------
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
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/1/ Fiscal 1997 and 1996 percentages have been restated to conform with the
1999 presentation and reflect changes in the classification of certain
miscellaneous revenue categories and ancillary charges.
3
Fiscal 1998.............. 44.7 29.6 11.7 3.1 7.3 3.6
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 Crouse Hinds, 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 waste-water 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 more than 98% of the 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 waste-water 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
the TRSA and 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.
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 Aevergreen" renewals, except
4
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 and the need to
closely monitor garment use compared to expected wear-life. 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 reports to customers detailing the
status of every garment at all times. 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. 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 manufactures dust mops, aprons,
laundry bags and RAS socks and pads and began floormat production in late 1998.
The Blue Ridge operations represented approximately 5.0% of the Company's
revenues in fiscal 1998.
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 agreements with several Mexican manufacturers. 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.
5
The Company has also developed, in conjunction with a New Zealand based
manufacturer, chemically protective and flame retardant garments that comply
with American National Standards Institute ("ANSI") standards for exclusive
distribution by CTS in the United States.
The Company purchases other rental merchandise from a variety of sources
including Garment Corporation of America, Perfect Jacket, RedKap 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, Hershey, 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, light
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 40 locations throughout the eastern
United States. During the past five years, no single customer accounted for more
than 5.0% of total revenues in any year.
SALES, MARKETING AND DISTRIBUTION
In 1996, the Company made a strategic decision to increase its sales force
from 25 to its current level of approximately 100 dedicated sales associates to
leverage its investment in laundry plants, laundry terminals and their waste-
water treatment facilities. 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.
Each of the Company's dedicated sales associates and route salespeople is a
member of a laundry plant team. The compensation of each member is tied to the
collective performance of the laundry plant team.
6
The Company's catalog business operates under the Blue Ridge name and
distributes over 125,000 catalogs each season. This catalog offers a variety of
industrial garments and image apparel that is personalized with the logos and
names of its customers. The focus of the catalog is to facilitate the growth of
the Company's direct sales business and to establish relationships with accounts
currently under contract with competitors.
COMPETITION
The industrial segment of the textile rental industry is highly
competitive. The Company believes that the top five companies (ARAMARK
Corporation, Cintas Corporation, G&K Services, Inc., Unifirst Corporation and
Unitog Company) in the industrial segment of the industry currently account for
approximately 64% of the industry's sales. The Company believes that it is one
of a small group of companies that have revenues of approximately $50 million up
to $200 million and which collectively account for approximately 25% of revenues
from the industrial segment. Within the industrial segment of the textile
rental industry, the Company believes it has established itself as a leader in
the heavy soil sector. The remainder of the industry is made up of over 700
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, 1998, the Company had approximately 1,850 employees. CTS
is a party to 29 collective bargaining agreements covering approximately 800
employees. These bargaining agreements expire periodically through 2001. The
Company's only work stoppage in the last ten years occurred in 1994 with respect
to one bargaining unit of one Company facility. 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 waste-water 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.
7
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. 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 remaining case, 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
questions, nor on the question of possible defenses to liability, to determine
the extent of liability, if any, on such potential claim. In addition, the
Company has recently responded to an inquiry from the EPA but has not been named
as a potentially responsible party with respect to such inquiry.
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 addition, the EPA has recently proposed categorical pre-treatment
standards, which form the basis for a federal environmental regulatory framework
applicable to industrial laundry operations that may supercede local
regulations. Scheduled to take effect in 1999, with a three year phase-in
period, these regulations, if implemented as proposed, would require the
Company, and its competitors, to expend substantial amounts on compliance,
thereby increasing the Company's operating costs and capital expenditures. To
the extent such costs and expenses could not be offset through price increases,
the Company's results of operations could be adversely affected. Until such
regulations are finalized, the Company is not able to determine the cost of
compliance.
ITEM 2. PROPERTIES.
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As of October 31, 1998, the Company provided textile rental services from
40 facilities. The Company owns 21 of its facilities, including its corporate
headquarters in Syracuse, New York, and leases the balance of its facilities
pursuant to leases expiring between February 1999 and October 2003 with 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 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
8
summarizes certain information concerning the Company's facilities.
Approximate
LOCATION Principal Use Square Footage
- --------------------------- ------------------------------------ --------------
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
Cinnaminson, NJ* Laundry Terminal 10,000
Charlotte, NC* Laundry Terminal 7,500
Chattanooga, TN* Laundry Terminal 8,200
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
Joliet, IL* Laundry Terminal 8,000
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 220,000
Headquarters
Toledo, OH Laundry Plant/Laundry Terminal 65,000
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
- ------------------------
* Indicates leased facility.
** Company owns laundry plant but leases garage.
*** Financed by industrial revenue bonds.
9
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
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, 1998, the Company's Class A Common Stock was held by two
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, 1998, 1997, 1996 and 1995 and for each of the years in the four-year period
ended October 31, 1998 are derived from the audited Consolidated Financial
Statements. The selected financial data for the year ended October 31, 1994 is
derived from unaudited Consolidated Financial Statements. The unaudited
Consolidated Financial Statements include all adjustments consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for the
period. The data should be read in conjunction with the Consolidated Financial
Statements and related notes, and other financial information included herein.
Years Ended October 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
------------------------------------------------------------
(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net revenue............................................ $110,407 $117,768 $119,085 $122,935 $138,737
Income from operations (1)............................. 5,292 7,595 8,179 10,792 10,239
Interest expense (2)................................... 5,516 6,254 6,786 6,715 25,402
Income (loss) before provision for income taxes,
extraordinary item and cumulative effect
of change in accounting principles................... (224) 1,341 1,393 4,077 (15,163)
Provision for income taxes............................. 413 890 847 2,025 640
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principles................................ (637) 451 546 2,052 (15,804)
Extraordinary item, net of tax (3)..................... - - - - (939)
Cumulative effect of change in accounting for
income taxes (4)..................................... (829) - - - -
Net income (loss)...................................... $ (1,466) $ 451 $ 546 $ 2,052 $(16,743)
OTHER DATA:
Capital expenditures................................... $ 9,915 $ 8,731 $ 9,820 $ 2,584 $ 6,619
Depreciation and amortization.......................... 3,780 4,416 4,779 5,289 5,814
BALANCE SHEET DATA (at period end):
Working capital....................................... $ 8,812 $ 11,255 $ 6,608 $ 6,769 $ 15,817
Total assets.......................................... 85,001 93,170 97,432 102,621 117,599
Total debt............................................ 48,020 56,680 58,051 58,557 88,538
Warrants (5).......................................... 1,743 1,743 1,743 1,743 -
Shareholders' equity (deficit)........................ 6,996 7,373 7,845 9,897 (6,846)
11
- ------------------
(1) Income from operations for 1994 includes gains from property insurance
claims of $828.
(2) Interest expense for 1998 includes a $17,257 charge for the cost to redeem
common stock warrants in excess of their book carrying value. See Note
(5).
(3) 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.
(4) Attributed to the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes," effective
November 1, 1993.
(5) 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.
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.
YEAR ENDED OCTOBER 31,
------------------------------------------
1996 1997 1998
------------------------------------------
Net revenue................................ 100.0% 100.0% 100.0%
Cost of rental operations.................. 73.7 70.8 70.7
Cost of direct sales....................... 4.7 4.7 5.1
Selling, general and administrative........ 14.7 15.7 16.9
Income from operations..................... 6.9 8.8 7.4
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. Despite start up costs
associated with new rental contracts, the cost of rental operations as a
percentage of revenue was consistent with the prior year.
12
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 21.9% 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 sales 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 and related
training costs, as well as related sales and marketing costs.
Income from Operations. Income from operations was $10.2 million for
fiscal 1998 as compared to $10.8 million for fiscal 1997. This 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-deductability 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 $0.9 million in fiscal
1998 represents the write-off of $1.3 million of deferred financing costs
associated with retired debt obligations, reduced by the resulting tax benefit
of $0.4 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 to the
one-time charge of $17.3 million associated with the common stock warrant
redemption agreement.
Fiscal Year 1997 Compared to Fiscal Year 1996
Net Revenue. Net revenue was $122.9 million in fiscal 1997, representing
an increase of $3.8 million or 3.2% as compared to $119.1 million in fiscal
1996. The increase can be attributed to growth from existing operations (2.2%)
and acquisitions (1.0%). Several small acquisitions, primarily in the Atlanta
and Charlotte markets, during fiscal 1997 contributed $1.2 million during the
period.
Cost of Rental Operations. Cost of rental operations of $87.0 million for
the year ended October 31, 1997 was 70.8% of total revenue. This represents a
decrease of 2.9% as compared to the fiscal year ended October 31, 1996. Cost of
rental operations for the year was 75.9% of rental revenue, a reduction of 3.2%
as compared to the fiscal year ended October 31, 1996. The improved
profitability in rental operations was due primarily to the realization of
operating efficiencies and cost controls resulting
13
from process improvement initiatives implemented in connection with the
Company's strategic management program.
Cost of Direct Sales. Cost of direct sales of $5.8 million for the year
ended October 31, 1997 was a 4.7% of total revenue. This represents a 0.6%
increase as compared to the fiscal year ended October 31, 1996. Direct sales
grew approximately 3.4% over 1997. This growth was consistent with total revenue
growth during 1997. Cost of direct sales was 70.2% of direct sales revenue which
was comparable to the cost of direct sales in fiscal 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $19.4 million in fiscal 1997, representing an
increase of $1.8 million or 10.2% as compared to $17.6 million in fiscal 1996.
This increase was due primarily to selling expense which increased $1.2 million
or 57.3% to $3.2 million in fiscal 1997 as compared to $2.0 million in fiscal
1996. The increase can be attributed to the significant expansion of the
Company's sales organization during fiscal 1997. This expansion included
increases in the number of personnel and related sales and marketing costs.
Income from Operations. Income from operations was $10.8 million in fiscal
1997, representing an increase of $2.6 million or 31.9% as compared to $8.2
million in fiscal 1996. This increase was due to both the revenue increase and
specific cost control programs in the laundering plants and in the corporate
offices implemented in fiscal 1997 which allowed for more efficient operations
and effective cost control.
Interest Expense. Interest expense remained at 1997 levels due to
comparable rates and outstanding borrowings during the years.
Income Taxes. The Company's effective tax rate for fiscal 1997 was
approximately 49.7% compared to an effective tax rate of approximately 60.8% in
fiscal 1996. This reduction in rate was due primarily to the significant
increase in taxable income during the period in relation to certain non-
deductible expenses such as the amortization of goodwill and meal and
entertainment costs.
Net Income. Net income was $2.1 million in fiscal 1997, representing an
increase of $1.6 million as compared to $0.5 million in fiscal 1996. The
improvement in net income was due to increased revenue in conjunction with
certain cost control initiatives which were part of the Company's strategic
management program.
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 reduce or curtail their business during these
months.
14
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations, borrowings under the revolving credit facilities described below and
in 1998 proceeds from an offering of senior subordinated notes.
Net loss was ($16.7) million in fiscal 1998 representing a decrease of
$18.8 million as compared to a net income of $2.0 million in fiscal 1997. This
fluctuation was mainly due to the redemption of common stock warrants and the
extraordinary loss on debt retirement.
Cash used in operating activities was $15.3 million for fiscal 1998, a
decrease of $21.6 million compared to fiscal 1997. The decrease was due
primarily to the redemption of common stock warrants and reductions in accounts
payable and other liabilities made with proceeds from the Company's $75.0
million subordinated note offering completed in June 1998. In addition,
accounts receivable, inventories and uniforms in service all increased in
response to the growth in revenue over fiscal 1997.
On June 26, 1998, the Company raised $75.0 million through the offer and
sale of senior subordinated notes. Such notes bear interest at 113% per annum
from June 26, 1998, payable semi-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 certain common stock warrants. Contemporaneously with
the completion of the offer and sale of such notes, the Company amended its
credit facility to provide for (i) a $25.0 million revolving credit facility
subject to availability, (ii) a $20.0 million capital expenditure facility and
(iii) a $10.0 million acquisition facility.
At October 31, 1998, the Company had approximately $17.2 million available
under its revolving credit line and $30.0 million available under the other bank
credit facilities. The Company's working capital was $15.8 million at October
31, 1998 compared to $6.8 million at October 31, 1997. The $9.0 million
increase in working capital reflects the higher inventory levels, reduced
accounts payable and reduced current maturities of long term debt.
Capital expenditures were $6.6 million through October 31, 1998, $4.0
million more than the comparable period last year due to the investments made to
support the continuing growth in revenue. These expenditures consist of $2.8
million for laundry equipment, $2.2 million for truck fleet related equipment,
$1.2 million for computer equipment and $0.4 million for manufacturing equipment
primarily for floormat production. 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.
Net income was $2.1 million in fiscal 1997, representing an increase of
$1.6 million as compared to $0.5 million in fiscal 1996. Cash provided by
operating activities of $6.3 million in fiscal 1997 was $1.3 million less than
fiscal 1996 due to the significant investment in uniforms in service, as a
result of new rental contracts. Further, the cash used in investing activities
of $2.2 million was approximately $1.7 million lower than the prior year. This
reduction was due to financing activities that allowed for investments to be
transacted with debt rather than cash. These investments included seller
financed acquisitions of $3.5 million, net of cash acquired, and purchases of
property, plant and equipment of $1.5 million. Net cash used in financing
activities of $3.1 million was $0.9 million less than fiscal 1996. The
15
primary financing activity in fiscal 1996 was repayment of long-term debt.
During fiscal 1997 the Company's repayments of long-term debt increased by $1.1
million. Cash at the end of fiscal 1997 of $1.3 million was $0.9 million greater
than at the beginning of the year.
During fiscal 1997, total capital expenditures amounted to $2.6 million,
primarily for laundry equipment and route vehicles. Capital expenditures were
$9.8 million in fiscal 1996 and $8.8 million in fiscal 1995. During fiscal 1996,
the Company completed construction of its Buffalo, New York laundry plant.
During fiscal 1995, the Company completed construction of its New Bedford,
Massachusetts laundry plant. Maintenance capital expenditures are expected to be
approximately $4.0 million per year for the next several years.
During fiscal 1997, the Company acquired certain assets of several
industrial laundries which were accounted for as purchase transactions. The
aggregate purchase price of $4.6 million consisted of cash of $1.1 million and
notes payable of $3.5 million. The purchase price was allocated to various
assets, consisting primarily of purchased routes ($3.2 million).
INFORMATION SYSTEMS; YEAR 2000
General
CTS has been evaluating Year 2000 ("Y2K") issues concerning the ability of
its systems to properly recognize date sensitive information when the year
changes from 1999 to 2000. The Company has spent a significant amount of time
evaluating its information and non-information systems over the past twelve
months and intends to spend approximately $3.0 to $4.0 million on upgrading its
information and non-information systems to improve performance and ensure Y2K
compliance. Systems that do not properly recognize the year 2000 could generate
erroneous data or cause complete system failures.
State of Readiness
The Company has adopted a five phase approach to managing Y2K issues. The
five phases are as follows:
Phase 1 Inventory of all systems and equipment that may be affected.
---------
Phase 2 Assessment of all systems and equipment to determine the
----------
scale of the problem and design solutions.
Phase 3 During this phase, the systems are either redeveloped,
-----------
renovated, replaced or retired.
--------- -------- --------
Phase 4 Each system or piece of equipment is tested to validate Y2K
--------
compliance.
Phase 5 New or changed systems are implemented.
-----------
In order to enhance the Company's information management capabilities as
well as to achieve Y2K compliance, the Company has focused most of its Y2K
efforts on the strategic applications relating to its customer contracts, route
accounting, billing and accounts receivable. This portion of the Company's Y2K
project is referred to as the "Billing System." The Company believes that its
new Billing System which was recently installed at its New Bedford,
Massachusetts facility has achieved all project objectives and is Y2K compliant.
Phases 1 through 4 with respect to the Billing System are substantially complete
and the implementation of Phase 5 was approximately 10% complete as of
16
October 31, 1998. Installation of the new Billing System is scheduled throughout
1999 and will involve all 17 laundry plants.
The Company has grouped the balance of its information and non-information
systems into three categories. First, is the Management Information Systems
which encompasses computer hardware and software, including internally developed
applications for purchasing, accounts payable and fleet management. The
inventory and assessment phases have been substantially completed in this area.
The Company expects to use third party application software that is Y2K
complaint to replace or upgrade its existing Management Information Systems.
For example, the Company is in the process of upgrading its existing third party
payroll and financial systems (general ledger and reporting) to versions that
have been represented by third party vendors to be Y2K compliant. Such
upgrades to the Company's third party payroll and financial systems are planned
to be completed in March 1999. The second category which the Company has
identified is the Physical Plant which includes such non-information systems as
production equipment and facilities. The inventory and assessment phases have
been substantially completed in this area. Based on the Company's initial
assessment, management believes that these systems will be Y2K compliant by
January 1, 2000. The third category is the Extended Enterprise which includes
suppliers and customers. The inventory and assessment phases have been
substantially completed in this area. Most of the Company's suppliers and
customers have been contacted and information has been requested regarding their
state of readiness. All critical suppliers and customers have assured the
Company that their systems are Y2K compliant or that they are in the process of
repairing or replacing their systems to make them Y2K compliant. Since EDI,
electronic data interchange, or other like technologies are not used extensively
between CTS and its customers or suppliers the Company believes that risks are
limited to the internal customer and supplier systems.
The Company determined that is was not necessary to hire external
consultants to assure the reliability of the Company's Y2K risks and cost
estimates. The Y2K project has not hindered progress on other planned
information technology projects.
Year 2000 Costs
The Company expects that the total costs of its Y2K project will range from
$3.0 to $4.0 million. As of October 31, 1998 the Company had spent
approximately $1.2 million. The majority of these costs have been associated
with replacing both software and hardware. These costs will be capitalized and
will be included in the Company's fixed assets and depreciated.
Risks of Y2K Issues and Contingency Plans
As discussed above, the Company has focused its resources on the systems
that are critical to its business operations. While the Company continues to
address the Y2K risks within its control, there are other risks which are beyond
the immediate control of the Company, such as the risk that the Company's
suppliers (including utilities) and customers will not be Y2K compliant. Based
on current information, the Company believes that the Y2K problem will not have
a material adverse effect on the results of operations of the Company. There
can, however, be no assurances that Y2K remediation by others including
suppliers, will be properly completed, and failure to do so could have a
material adverse effect on the results of operations of the Company.
17
Contingency plans have been developed for certain systems that are
critical to the Company's business operations. For example, arrangements have
been made for software applications developed in-house to convert existing
computer code to allow for execution after December 31, 1999. This would only
be done if the Y2K project was significantly off schedule.
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.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The following table sets forth certain information regarding the Company's
directors, executive officers and certain key employees:
NAME Age Position
- -----------------------------------------------------------------------------------------------------------------
Thomas M. Coyne 60 Chairman of the Board, President and Chief Executive Officer
J. Patrick Barrett (1) 61 Director
Thomas C. Crowley (1)(2) 52 Director
William D. Matthews (1) 64 Director
Wallace J. McDonald 58 Director
David P. O'Hara 51 Director and Assistant Secretary
Raymond T. Ryan (1)(2) 71 Director and Assistant Treasurer
Dennis J. Bossi 54 Vice President of Operations
John G. Harshall 50 Vice President of Operations
Donald F. X. Keegan 37 Vice President, Chief Financial Officer & Treasurer
Thomas E. Krebbeks 44 Corporate Controller
David I. Murray 49 Senior Vice President of Laundry Operations
Anthony F. O'Connor 49 Vice President of Sales & Marketing
Alexander Pobedinsky 37 General Counsel and Secretary
Frank E. Reid 81 Vice President of Operations
Robert E. Rudd 45 Vice President of Engineering
Timothy O. Taylor 45 Vice President of Blue Ridge Textile Manufacturing, Inc.
- -------------------
(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.
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.
19
Thomas C. Crowley has been a Director of the Company since 1993. Mr.
Crowley has been the Executive Vice President of Evergreen Bancorp, Inc. in
Glenn Falls, New York since 1994. From 1979 to 1993, Mr. Crowley was an
executive with Fleet Bank.
William D. Matthews has been a Director of the Company since January 1997.
Mr. Matthews has been the Chairman of the Board and Chief Executive Officer of
Oneida, Ltd. in Oneida, New York since 1986. 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, Knych & Pobedinsky, LLP based in Syracuse, New York.
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
Coopers and Lybrand, LLP and was the tax partner for Coyne for 16 years.
Dennis J. Bossi has been a Vice President of Operations of the Company
since January 1984. From 1976 to 1983, Mr. Bossi was the Vice President of
Administration for Fisher Foods, Inc. where he served in various positions of
increasing responsibility.
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 his current position of Vice President of Operations. 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.
Donald F. X. Keegan has served as Vice President, Chief Financial Officer
and Treasurer of the Company since August 1995. From 1990 to 1995, Mr. Keegan
was Vice President of Operations and Chief Financial Officer of Jos. J.
Pietrafesa Co., a private label manufacturer of men's fine tailored clothing.
Mr. Keegan is a certified public accountant who began his career with Arthur
Andersen & Co. in New York, New York in 1983.
Thomas E. Krebbeks has been the Corporate Controller of the Company since
1991. Mr. Krebbeks began his career with Ernst & Young and is a certified public
accountant.
David I. Murray joined the Company in June 1998 as the Senior Vice
President of Operations. Prior to joining Coyne, Mr. Murray was employed with
The Budget Corporation from August 1993 to September 1997 as Vice President and
General Manager in the Rental Car Division. From November of 1991 to July 1997,
Mr. Murray was President/CEO of Consumers Auto Choice of Fresno, California.
20
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.
Alexander Pobedinsky has been the General Counsel and Secretary of the
Company since 1997. Mr. Pobedinsky has been associated with the law firm of
O'Hara, Hanlon, Knych and Pobedinsky, LLP based in Syracuse, New York since 1991
and became a partner in 1996.
Frank E. Reid has been a Vice President of Operations of the Company since
1995. Prior to joining the Company, Mr. Reid was a General Manager for 20 years
with Unifirst Corporation in Springfield, Massachusetts.
Robert E. Rudd joined the Company in 1979. Since then he has held positions
in various aspects of plant operations, including plant redesign, automation and
construction. He was promoted to his current position of Vice President of
Engineering in October 1996.
Timothy O. Taylor joined the Company in October 1992 as General Manager of
Blue Ridge Textile Manufacturing, Inc. In 1995, he was promoted to his current
position of Vice President of Blue Ridge Textile Manufacturing, Inc.
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, 1998:
ANNUAL COMPENSATION
FISCAL ------------------------ ALL OTHER
Name and Principal Position YEAR SALARY BONUS COMPENSATION (1)
- -------------------------------------------- ---------- ----------- ------------ ------------------
Thomas M. Coyne 1998 $290,526 $14,115
Chairman of the Board, President and 1997 $206,507 $50,000 $ 3,381
Chief Executive Officer
Donald F. X. Keegan 1998 $137,609 $7,088
Vice President, Chief Financial Officer 1997 $130,000 $27,500 $2,827
and Treasurer
Dennis J. Bossi 1998 $116,109 $6,266
Vice President of Operations 1997 $115,000 $20,000 $2,785
Anthony F. O'Connor 1998 $100,000 $4,500
Vice President of Sales and Marketing 1997 $ 85,231 $15,000 $1,518
John G. Harshall 1998 $100,000 $4,500
Vice President of Operations 1997 $ 84,327 $20,000 $1,590
- ----------------------
(1) In fiscal 1998, consisted of premiums for disability policies paid by the
Company of $1,041 $896, $1,041, $0 and $0 and the Company matching
contributions under the 401(k) Plan of $13,074, $6,192, $5,225, $4,500 and
$4,500 for the benefit of Messrs. Coyne, Keegan, Bossi, O'Connor and
Harshall, respectively.
21
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.
COMMON STOCK PREFERRED STOCK
------------ ---------------
Class A(Voting) Class B(Non-Voting) Class A(Non-Voting) Class B(Non-Voting)
--------------- ------------------- ------------------- -------------------
Number of Number of Number of Number of
SHARES SHARES SHARES SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
Owned(1) of Class Owned (1) of Class Owned (1) of Class Owned (1) of Class
-------------- ---------- ------------- ---------- ------------- ---------- ------------ ----------
- ------------------------------------------------------------------------------------------------------------------------------------
J. Stanley Coyne
Revocable Trust (2)(3). - 63,305 85.5% 19,745 85.5% 2,272 80.0%
J. Stanley Coyne Inter
Vivos Irrevocable 1,020 34.9% - - - - - -
Trust(2)(4)...........
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% 2,991 (9) 100%
- ----------------
(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.
22
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. Crowley and Ryan.
Mr. Ryan served as Chief Financial Officer of the Company from March 1991
through July 1995 and is currently Assistant Treasurer of the Company. Except as
described above, 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."
Robert C. Ammerman, a principal of Capital Resource Partners, L.P. which
was a prior investor in the Company, was a director of the Company and a member
of the Human Resources and Compensation Committee from 1994 until May 1998.
Capital Resource Partners' investment was redeemed with a portion of the
proceeds from the Company's 1998 senior subordinated note offering.
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
$112,400 during fiscal 1998.
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 (5.3% at October 31, 1998). This
note will become payable, with accrued interest, upon the death of J. Stanley
Coyne.
The Company has guaranteed the obligations of J. Stanley Coyne under a
promissory note payable in 2003 in the approximate 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 amount of such advancements, as of
October 31, 1998, was $35,000. 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, 1998 was $85,300.
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.
23
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 $34,900 during fiscal 1998. The balance of
the mortgage at October 31, 1998 was $191,400. 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 approved a loan of $110,000 to Thomas M. Coyne in December 1997
at an interest rate of 9.5%. As of October 31, 1998, the total amount advanced
and outstanding was $107,000. This loan is payable at a rate of $2,000 per
month beginning January 1999, plus mandatory prepayments of principal equal to
Thomas M. Coyne's after-tax bonuses received from the Company.
PROFESSIONAL SERVICES AND OTHER RELATED PARTY TRANSACTIONS
Raymond T. Ryan, a director of the Company, member of the Human Resources
and Compensation Committee, Audit and Finance Committee, and the Assistant
Treasurer of the Company, is an employee of The Outaouais Group, Inc., a
consulting firm, which provides various accounting, tax and financial services
to the Company. The Company paid fees of $78,800 to The Outaouais Group, Inc.
for various services during fiscal 1998.
David P. O'Hara, a director and Assistant Secretary of the Company and
Alexander Pobedinsky, General Counsel and Secretary of the Company, are partners
with the law firm of O'Hara, Hanlon, Knych & Pobedinsky, LLP, which provides
legal services for the Company. The Company paid fees of $606,200 to O'Hara,
Hanlon, Knych & Pobedinsky, LLP for various services during fiscal 1998.
Wallace J. McDonald, a director of the Company, is a partner in the law
firm of Bond, Schoeneck & King, LLP, which provides legal services for the
Company. The Company paid fees of $54,600 to Bond, Schoeneck & King, LLP for
various services during fiscal 1998.
J. Patrick Barrett, a director of the Company, owns Syracuse Executive Air
Service, Inc., which provides hanger and related services for the Company. The
Company paid fees of $157,327 to Syracuse Executive Air Service, Inc. for
various services during fiscal 1998.
24
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, 1998 and 1997
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the years ended October 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended
October 31, 1998, 1997 and 1996
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 Amended and Restated Articles of Incorporation of the Company*
3.2 Amended and Restated Bylaws of the Company**
3.3 Articles of Incorporation of Blue Ridge Textile Manufacturing,
Inc.**
3.4 Bylaws of Blue Ridge Textile Manufacturing, Inc.**
3.5 Articles of Incorporation of Clean Towel Service, Inc.**
3.6 Bylaws of Clean Towel Service, Inc.**
3.7 Articles of Incorporation of Ohio Garment Rental, Inc.**
3.8 Bylaws of Ohio Garment Rental, Inc.**
3.9 Certificate of Incorporation of Midway-CTS Buffalo, Ltd.**
25
EXHIBIT NO. DESCRIPTION
- ---------------- -------------------------------------------------------
3.10 Bylaws of Midway-CTS Buffalo, Ltd.**
4.1 Indenture, dated as of June 26, 1998, by and among the
Company, Blue Ridge Textile Manufacturing, Clean Towel
Service, Inc., Ohio Garment Rental, Inc. and Midway-CTS
Buffalo, Ltd., as guarantors and IBJ Schroder Bank & Trust
Company, as trustee**
4.2 Form of 113% Senior Subordinated Note due 2008**
10.1 Amended and Restated Financing Agreement, dated as of June 26,
1998, between the Company, Blue Ridge Textile Manufacturing,
Inc., Clean Towel Service, Inc., Midway-CTS Buffalo, Ltd.,
Ohio Garment Rental, Inc. (collectively, the "Borrowers") and
NationsBank, N.A. (the "Lender")**
10.2 Revolving Credit Note, dated as of June 26, 1998, between the
Borrowers and the Lender**
10.3 Capital Expenditure Note, dated as of June 26, 1998, between
the Borrowers and the Lender**
10.4 Acquisition Loan Note, dated as of June 26, 1998, between the
Borrowers and the Lender**
10.5 Lease Purchase Agreement, dated as of December 1, 1994,
between the Erie County Industrial Development Agency and
Midway-CTS Buffalo, Ltd.**
10.6 Form of the $2,600,000 Industrial Development Revenue Bond
issued by the Erie County Industrial Development Agency**
10.7 Lessee Guaranty Agreement, dated as of December 1, 1994
between Midway-CTS Buffalo, Ltd. and Key Bank of New York**
10.8 Purchase Agreement, dated as of June 23, 1998, by and among
the Company, Blue Ridge Textile Manufacturing, Inc., Clean
Towel Service, Inc., Midway-CTS Buffalo, Ltd., Ohio Garment
Rental, Inc., NationsBank Montgomery Securities LLC and First
Union Capital Markets, a division of Wheat First Securities,
Inc.**
10.9 Registration Rights Agreement, dated as of June 26, 1998, by
and among the Company, Blue Ridge Textile Manufacturing, Inc.,
Clean Towel Service, Inc., Ohio Garment Rental, Inc., Midway-
CTS Buffalo, Inc., NationsBank Montgomery Securities LLC and
First Union Capital Markets, a division of Wheat First
Securities, Inc.**
26
EXHIBIT NO. DESCRIPTION
- -------------- --------------------------------------------------------------
10.10 Promissory Note dated September 27, 1994 from J. Stanley Coyne
payable to the Company and related Mortgage Deed**
10.11 Indemnification Agreement of J. Stanley Coyne and Guaranty by
the Company**
10.12 Long-Term Incentive Agreement dated October 31, 1998 between
the Company and Donald F. X. Keegan.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges**
21.1 Subsidiaries of the Company
24.1 Power of attorney (included on signature page)
27.1 Financial Data Schedule
- ----------------------
* Incorporated by reference to Amendment No. 2 of the Company's Registration
Statement on Form S-4 (Registration No. 333-602471), as amended, filed
with the Securities and Exchange Commission on October 27, 1998.
** Incorporated by reference to Amendment No. 1 of the Company's Registration
Statement on Form S-4 (Registration No. 333-60247), as amended, filed with
the Securities and Exchange Commission on August 5, 1998.
27
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 29 , 1999 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.
Signature Capacity Date
- -------------------------------------- -------------------------------- ----------------
/s/ Thomas M. Coyne Chairman of the Board, President January 29, 1999
- -------------------------------------- and Chief Executive Officer
Thomas M. Coyne (Principal Executive Officer)
/s/ Donald F.X. Keegan Vice President, Chief Financial January 29, 1999
- -------------------------------------- Officer and Treasurer (Principal
Donald F.X. Keegan Financial and Accounting Officer)
/s/ Thomas C. Crowley Director January 29, 1999
- --------------------------------------
Thomas C. Crowley
/s/ William D. Matthews Director January 29, 1999
- --------------------------------------
William D. Matthews
/s/ Wallace J. McDonald Director January 29, 1999
- --------------------------------------
Wallace J. McDonald
/s/ David P. O'Hara Director and Assistant Secretary January 29, 1999
- --------------------------------------
/s/ Raymond T. Ryan Director January 29, 1999
- --------------------------------------
Raymond T. Ryan
/s/ J. Patrick Barrett Director January 29, 1999
- --------------------------------------
J. Patrick Barrett
Coyne International Enterprises Corp. and Subsidiaries
Index
Page
Opinion of Independent Certified Public Accountants.................... F-2
Financial Statements:
Consolidated Balance Sheets,
October 31, 1998 and 1997............................. F-3-F-4
Consolidated Statements of Operations and Retained Earnings
(Deficit), For the Years Ended October 31, 1998, 1997
and 1996.............................................. F-5
Consolidated Statements of Cash Flows,
For the Years Ended October 31, 1998, 1997 and 1996.... F-6
Notes to Consolidated Financial Statements..................... F-7-F-17
F-1
Independent Auditor's Report
The Board of Directors
Coyne International Enterprises Corp.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Coyne
International Enterprises Corp. and its subsidiaries (the "Company") at October
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended October 31, 1998, 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.
Syracuse, New York
December 12, 1998
F-2
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheets
October 31, 1998 and 1997
ASSETS 1998 1997
Current assets:
Cash and cash equivalents $ 1,073,496 $ 1,272,192
Receivables, principally trade 14,444,489 11,957,651
Inventories 6,846,393 5,131,861
Uniforms and other rental items in service, net 28,337,302 23,559,751
Prepaid expense and other assets 931,978 729,876
---------------- ----------------
Total current assets 51,633,658 42,651,331
---------------- ----------------
Property, plant and equipment, net 43,934,590 41,799,938
Purchased routes and acquisition intangibles, net 16,306,920 16,549,578
Deferred financing cost, net 2,871,172 745,649
Deferred income taxes 2,435,000 500,000
Other assets 417,553 374,248
---------------- ----------------
$ 117,598,893 $ 102,620,744
================ ================
The accompanying notes are an integral part of the consolidated financial statements.
F-3
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheets
October 31, 1998 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1998 1997
Current liabilities:
Current maturities of capital lease and other loan obligations $ 3,861,406 $ 7,849,570
Bank overdraft 1,700,982
Accounts payable 7,005,212 7,938,043
Accrued expenses:
Salaries and employee benefits 5,195,374 3,921,077
Other 9,385,038 5,856,989
Deferred income taxes 10,370,000 8,615,000
------------ ------------
Total current liabilities 35,817,030 35,881,661
Long-term obligations:
Capital lease and other loan obligations, net of current maturities 9,676,247 39,650,469
Senior subordinated notes, net of original
issue discount of $942,856 in 1997 75,000,000 11,057,144
Other liabilities 3,951,145 4,391,322
------------ ------------
Total liabilities 124,444,422 90,980,596
------------ ------------
Redeemable common stock warrants 0 1,743,086
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 2,310,700 2,310,700
Class B - $500 par value; authorized 5,000;
issued 4,991 and outstanding 2,991 2,495,500 2,495,500
Common stock - $.01 par value:
Class A - voting; authorized 100,000; 29 29
issued and outstanding 2,923
Class B - non-voting; authorized 99,000;
issued and outstanding 74,030 740 740
Additional paid-in capital 849,512 849,512
Retained earnings (deficit) (11,078,823) 5,663,768
------------ ------------
(5,422,342) 11,320,249
Less:
Cost of 2,000 shares of Class B preferred stock held in treasury (166,667) (166,667)
Shareholder note receivable (1,256,520) (1,256,520)
------------ ------------
Total shareholders' equity (deficit) (6,845,529) 9,897,062
------------ ------------
Commitments and contingencies $117,598,893 $102,620,744
============ ============
F-4
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings (Deficit)
For the Years Ended October 31, 1998, 1997 and 1996
1998 1997 1996
Revenue:
Rental operations $ 128,666,244 $114,671,684 $111,090,673
Direct sales 10,070,299 8,263,079 7,994,194
--------------- --------------- ---------------
138,736,543 122,934,763 119,084,867
--------------- --------------- ---------------
Operating expenses:
Cost of rental operations 98,018,735 86,985,898 87,721,417
Cost of direct sales 7,079,717 5,801,679 5,626,040
Selling, general and administrative 23,399,517 19,355,384 17,558,105
--------------- --------------- ---------------
128,497,969 112,142,961 110,905,562
--------------- --------------- ---------------
Income from operations 10,238,574 10,791,802 8,179,305
Interest expense, including redemption of
common stock warrants of $17,257,000 in 1998 25,401,922 6,715,224 6,786,065
--------------- --------------- ---------------
Income (loss) before income
taxes and extraordinary item (15,163,348) 4,076,578 1,393,240
Income taxes 640,188 2,025,000 847,000
--------------- --------------- ---------------
Income (loss) before extraordinary item (15,803,536) 2,051,578 546,240
Extraordinary loss on debt retirement,
net of tax benefit of $365,188 939,055
--------------- --------------- ---------------
NET INCOME (LOSS) (16,742,591) 2,051,578 546,240
Retained earnings, beginning of year 5,663,768 3,612,190 3,065,950
--------------- --------------- ---------------
RETAINED EARNINGS
(DEFICIT), END OF YEAR $ (11,078,823) $ 5,663,768 $ 3,612,190
=============== =============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net (loss) income $ (16,742,591) $ 2,051,578 $ 546,240
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization
of plant and equipment 4,559,183 4,147,655 3,688,268
Amortization expense 1,255,189 1,140,994 1,090,600
Extraordinary loss on retirement of debt, net 939,055
Provision for deferred income taxes (180,000) 1,595,000 402,000
Changes in operating assets
and operating liabilities:
Accounts receivable (2,463,969) (271,471) 861,707
Inventories (1,714,532) (252,128) 66,694
Uniforms in service (4,727,551) (2,808,304) (1,229,739)
Prepaid expenses and other assets (245,407) 778,894 825,572
Accounts payable and other liabilities 4,004,526 (107,932) 1,309,126
---------------- ---------------- ----------------
Net cash (used in)
provided by operating activities (15,316,097) 6,274,286 7,560,468
---------------- ---------------- ----------------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,618,835) (1,086,633) (3,938,734)
Acquisition of business, net of cash acquired (238,844) (1,122,101)
---------------- ---------------- ----------------
Net cash used in investing activities (6,857,679) (2,208,734) (3,938,734)
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term borrowings 172,310,156 121,565,225 121,377,464
Payments under long-term debt obligations (143,890,527) (126,287,871) (125,293,673)
(Decrease) increase in bank overdrafts (1,700,982) 1,700,982
Redemption of common stock warrants (1,743,086)
Deferred financing costs incurred (3,000,481) (119,830) (105,904)
---------------- ---------------- ----------------
Net cash provided by
(used in) financing activities 21,975,080 (3,141,494) (4,022,113)
---------------- ---------------- ----------------
Net (decrease) increase in cash (198,696) 924,058 (400,379)
Cash and cash equivalents:
Beginning of year 1,272,192 348,134 748,513
---------------- ---------------- ----------------
END OF YEAR $ 1,073,496 $ 1,272,192 $ 348,134
================ ================ ================
Supplemental disclosure of cash flow information:
Interest paid, including in 1998 the redemption
of redeemable common stock warrants $ 20,917,150 $ 6,204,883 $ 6,266,669
Income taxes paid 201,922 514,144 446,873
Assets acquired under capital lease obligations 1,497,313 5,883,197
Seller financed debt 407,984 3,469,893
The accompanying notes are an integral part of the consolidated financial statements.
F-6
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 delivered to customers. The
Company records direct sales upon shipment to the customer.
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 53
weeks ended October 31, 1998 and the 52 weeks ended October 25, 1997 and
October 26, 1996. For convenience, the dating of the accompanying financial
statements, and notes herein, have been labeled as of and for the years
ended October 31, 1998, 1997 and 1996 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 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
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 aggregated $338,000, $324,000 and $327,000 for the years
ended October 31, 1998, 1997 and 1996, 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.
F-8
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs
The Company expenses advertising costs as 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,
1998, was approximately $72,375,000. The fair value of the Company's other
long-term obligations approximated its carrying value at October 31, 1998.
The fair value of the Company's long-term obligations and senior
subordinated notes approximated its carrying value at October 31, 1997.
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 1998 presentation.
2. ACQUISITIONS
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 consisted of cash of $173,000 and notes payable of
approximately $408,000. The purchase price 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).
During 1997, the Company acquired certain assets of several industrial
laundries which were accounted for as purchase transactions. The aggregate
purchase price of $4,594,000 consisted of cash of $1,124,000 and notes
payable of $3,470,000 at varying rates of interest and installment payments
through January 2004. The purchase price was allocated to accounts
receivable ($300,000) rental garments ($135,000), equipment ($312,000),
covenants not to compete ($763,000), purchased routes ($3,166,000) and
liabilities assumed ($82,000).
F-9
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes:
1998 1997
Land $ 2,468,218 $ 2,436,218
Buildings and improvements 39,260,467 37,770,291
Machinery and equipment 35,837,929 36,466,316
Vehicles 8,551,646 6,187,631
Construction in process 2,114,421 276,444
-------------- --------------
88,232,681 83,136,900
Less accumulated depreciation and amortization (44,298,091) (41,336,962)
-------------- --------------
$43,934,590 $41,799,938
============== ==============
During 1996 approximately $97,000 of interest costs were capitalized. 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 $2,028,000 at October 31, 1998 and $13,558,000 and $3,214,000
at October 31, 1997, respectively. Amortization expense on capital leases
was approximately $1,504,000, $1,469,000 and $856,000 in 1998, 1997 and
1996, respectively.
4. PURCHASED ROUTES AND ACQUISITION INTANGIBLES
The following summarizes the individual components of purchased routes and
acquisition intangibles at October 31:
1998 1997
Goodwill $ 764,310 $ 764,310
Purchased routes 20,313,476 22,027,074
Covenants not to compete 1,325,040 1,146,916
-------------- --------------
22,402,826 23,938,300
Less: Accumulated amortization (6,095,906) (7,388,722)
-------------- --------------
$16,306,920 $16,549,578
============== ==============
Amortization expense for purchased routes and acquisition intangibles
aggregated $742,000, $556,000 and $510,000 for the years ended October 31,
1998, 1997 and 1996, respectively.
F-10
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
5. LONG-TERM OBLIGATIONS
As of October 31, long-term obligations consist of the following:
1998 1997
(a)Bank of America revolver, interest payable monthly at the Bank's
prime rate plus .375% in 1998 and prime plus 1.0% in 1997 $ 1,481,000 $13,477,683
Capital lease obligations payable in monthly installments with interest,
at rates ranging from 6.7% to 9.5%, payable through 2003 5,750,655 8,514,398
Industrial Development Revenue Bonds payable in monthly installments
with interest variable (10.0% at October 31, 1998) through 2005 2,742,469 3,289,961
Other debt obligations payable in monthly installments with interest,
at rates ranging from 6% to 10.3%, payable through 2005. 3,563,529 3,821,380
Term notes payable to Bank of America, with interest as a
function of the prime rate; paid in full during fiscal 1998 18,396,617
------------- ---------------
13,537,653 47,500,039
Less current maturities 3,861,406 7,849,570
------------- ---------------
$ 9,676,247 $39,650,469
============= ===============
1998 1997
(b)Senior subordinated notes due June 1, 2008. Interest only
payable semi-annually June 1, and December 1, at 11.25% $75,000,000
Senior subordinated 12% notes payable to Capital Resource Lenders II
(Capital) and Exeter Venture Lenders (Exeter), net of unamortized
debt discount of $942,856 at October 31, 1997
Paid in full during fiscal 1998. $11,057,144
--------------- -------------
$75,000,000 $11,057,144
=============== =============
The prime rate at October 31, 1998 and 1997 was 8.0% and 8.5%, respectively.
Accrued expense in the accompanying balance sheets included accrued interest
of approximately $3,175,000 and $538,000 at October 31, 1998 and 1997,
respectively.
F-11
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
5. LONG-TERM OBLIGATIONS (Continued)
(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. Collateral
pledged under the agreement includes all inventory and accounts
receivable. Maximum available credit is computed based on eligible
accounts receivable, inventory, and uniforms in service, as defined, not
to exceed $25,000,000.
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. 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 and a capital expenditure facility of up to $20,000,000.
There were no borrowings under these facilities as of October 31, 1998.
(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.
F-12
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
5. LONG-TERM DEBT (Continued)
(b) (Continued)
In connection with the retirement of debt obligations discussed above,
the Company recognized an extraordinary charge of $939,000, net of a
$365,188 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.
At October 31, 1998, payments due on all debt obligations for each of
the next five years and thereafter are as follows:
Long-Term Capital Lease
Debt Obligations
1999 $ 2,618,992 $ 1,242,414
2000 832,748 1,336,656
2001 836,186 1,166,692
2002 667,762 1,174,085
2003 285,295 830,808
2004 and thereafter 77,546,015
----------- ------------
$82,786,998 $ 5,750,655
=========== ============
6. INCOME TAXES
The components of income tax expense for the years ended October 31, were as
follows:
1998 1997 1996
Current tax expense:
Federal $ 265,000 $ 245,000 $ 315,000
State 190,000 185,000 130,000
--------- ---------- ---------
455,000 430,000 445,000
Deferred tax expense 185,188 1,595,000 402,000
--------- ---------- ---------
Income tax expense $ 640,188 $2,025,000 $ 847,000
========= ========== =========
F-13
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
6. INCOME TAXES (Continued)
The Company has a net operating loss and alternative minimum tax (AMT)
credit carryforwards for income tax purposes of approximately $6,000,000 and
$1,825,000, respectively. The net operating loss carryforward expires in
2018 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, 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.
A reconciliation of the federal statutory income tax rate and the Company's
effective income tax rate is as follows:
1998 1997 1996
Statutory tax rate (recoverable) (34.0)% 34.0% 34.0%
State taxes, net of federal benefit .6 7.3 10.4
Non-deductible items 36.0 6.2 16.4
Other 1.6 2.2
------- ----- -----
Effective rate 4.2% 49.7% 60.8%
======= ===== =====
Non-deductible items in 1998 include certain costs associated with the
redemption of stock warrants (see Note 5) and nondeductible amortization of
certain purchased routes and other intangibles.
The tax effects of temporary differences that give rise to deferred tax
assets (liabilities) at October 31, were as follows:
1998 1997
Current:
Rental garments in service $(10,892,000) $ (9,192,000)
Inventory 28,000 119,000
Accrued expenses 494,000 458,000
------------- -------------
Current deferred tax liability (10,370,000) (8,615,000)
------------- -------------
Non-current:
Fixed assets (3,017,000) (3,032,000)
Other liabilities 1,232,000 1,694,000
Alternative minimum tax credit
carryforward 1,825,000 1,838,000
Net operating loss carryforward 2,395,000
------------- -------------
Non-current deferred tax asset 2,435,000 500,000
------------- -------------
Net deferred tax liability $ (7,935,000) $ (8,115,000)
============= =============
F-14
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
7. SHAREHOLDER NOTE RECEIVABLE
The Company has 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, 5.3% at
October 31, 1998. Interest income on the note was not recognized in fiscal
1998 and 1997. The total amount due as of October 31, 1998 approximates
$1,408,000.
8. 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.
9. OPERATING LEASES
The Company has noncancellable operating lease commitments for certain
operating facilities, transportation, manufacturing and office equipment,
which expire at various dates through 2004. 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,
1998 are as follows:
1999 $ 1,210,000
2000 982,000
2001 741,000
2002 96,000
2003 47,000
Thereafter 2,000
------------
Total minimum lease payments $ 3,078,000
============
F-15
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
10. 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 no less than 3% of eligible
participant compensation. The Company contributions under the 401(k) plan,
which vest over a seven-year employment period, were approximately $637,000,
$680,000 and $686,000 in 1998, 1997 and 1996, respectively. Certain
employees of the Company are covered by union sponsored, collectively
bargained, multi-employer pension plans (Union Plans). The Company charged
to expense $1,176,000, $1,150,000 and $1,182,000 in 1998, 1997 and 1996,
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 $525,000 and plan assets with a fair market
value of approximately $977,000.
11. 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, 1998, the outstanding guaranteed obligation approximates
$1,858,000.
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 $112,000, $93,000 and $44,000 during
the fiscal years ended October 31, 1998, 1997 and 1996, respectively.
The Company acquired certain residential property in central New York in
1995 at a cost of $320,000. Thomas M. Coyne, Chairman of the Board and
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
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements
11. RELATED PARTY TRANSACTIONS (Continued)
As of October 31, 1998 there is approximately $231,500 of interest bearing
loans receivable from employees and related family members.
12. 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,
----------------------------
1998 1997
Balance sheets:
Current assets $ 5,934,000 $ 4,295,000
Noncurrent assets 3,317,000 3,136,000
Current liabilities 2,702,000 3,093,000
Noncurrent liabilities 182,000 283,000
Year Ended October 31,
------------------------------------------
1998 1997 1996
Statement of operations:
Revenues $ 17,080,000 $ 15,300,000 $ 15,407,000
Operating expenses 15,482,000 14,021,000 14,163,000
Operating income 1,598,000 1,279,000 1,244,000
(Loss) income before
extraordinary loss and
cumulative effect of
accounting changes (1,365,000) 347,000 226,000
Net (loss) income (1,365,000) 347,000 226,000
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
EXHIBIT INDEX
10.12 Long-Term Incentive Agreement dated October 31, 1998 between the
Company and Donald F. X. Keegan.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule