10-K405/A 1 d10k405a.txt AMENDMENT 1 TO FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 2001 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _________________ Commission File No. 333-60247 --------- COYNE INTERNATIONAL ENTERPRISES CORP. BLUE RIDGE TEXTILE MANUFACTURING, INC. OHIO GARMENT RENTAL, INC. -------------------------------------------------------------------------------- (Exact name of Registrants as specified in their respective charters) New York 16-6040758 Georgia 58-2018333 Ohio 34-1261376 ------------------------------------ ----------------------------------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 140 Cortland Avenue, Syracuse, New York 13221 ---------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (315) 475-1626 -------------- Securities Registered Pursuant to Section 12(b) of the Act: NONE ---- Securities Registered Pursuant to Section 12(g) of the Act: NONE ---- Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. : YES X NO The Annual Report on Form 10-K for the year ended October 31, 2001, as filed on February 11, 2002, of Coyne International Enterprise Corp., Blue Ridge Textile Manufacturing, Inc. and Ohio Garment Rented, Inc., is hereby amended and restated in its entirety. TABLE OF CONTENTS
Page ---- PART I Item 1. Business..................................................................................... 1 Item 2. Properties................................................................................... 5 Item 3. Legal Proceedings............................................................................ 6 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 6 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters......................... 6 Item 6. Selected Financial Data...................................................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................ 8 Item 7a. Quantitative and Qualitative Disclosure About Market Risk.................................... 12 Item 8. Financial Statements and Supplementary Data.................................................. 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 12 PART III Item 10. Directors and Executive Officers of the Registrant........................................... 13 Item 11. Executive Compensation....................................................................... 15 Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 16 Item 13. Certain Relationships and Related Transactions............................................... 17 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 19 Signatures Index to Consolidated Financial Statements................................................... F-1 Index to Exhibits
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, 2001, 2000 and 1999, as the case may be, rather than the actual fiscal year end. Forward-Looking Information This Annual Report on Form 10-K includes forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. When used in this Annual Report on Form 10-K, the words "anticipate," "believe," "estimate," "expect," "intends," and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. Forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth in this Annual Report on Form 10-K. Actual results could differ materially from those expressed or implied in the forward-looking statements as a result of, but not limited to, the following factors: (i) the Company's ability to generate sufficient cash flow from operations, (ii) the availability of future borrowings under the Company's credit facility, (iii) the availability of sufficient funds at the time of any change of control to make any required repurchases of the Company's senior subordinated notes, (iv) restrictions in the Company's credit facility, (v) the Company's ability to compete with other firms in the textile rental industry, (vi) general economic conditions in the Company's markets, (vii) the timing of acquisitions,(viii) commencing start-up operations and related costs, (ix) the Company's effectiveness of integrating acquired businesses and start-up operations, (x) the timing of capital expenditures, (xi) seasonal rental and purchasing patterns of the Company's customers, (xii) price changes in response to competitive factors, (xiii) the Company's ability to attract and retain qualified employees, and a prolonged work stoppage or strike by the Company's unionized work force,(xiv) the availiablity of sufficient funds to meet shareholder redemption requests, and (xv )the results of Internal Revenue Service audits. PART I Item 1. Business. -------- General Coyne International Enterprises Corp. ("CTS" or 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 rents and distributes uniform and career apparel, protective clothing, and other non-garment items, including towels, floormats, dust control, and reusable absorbent products, ("RAS"). The Company services a wide variety of industries throughout the eastern United States from 42 service locations and one manufacturing facility. The Company's products and services are distributed by route delivery trucks, which run out of 18 laundry plants and 24 terminals. CTS manufactures shop towels, dust mops, floormats and several other products used in the textile rental industry at its Blue Ridge manufacturing facility. The Company targets its marketing efforts on the value-added aspects of the textile rental business, such as heavy soil (e.g., printing inks, oils and solvents) industries. "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 3 customers with their corporate image, the productivity and safety of their employees and the environmental impact of their businesses. In addition, the Company works with clients to design, source and manage protective uniform programs for specific applications, such as flame retardant clothing for industrial workers. 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, which account for approximately 47% of rental revenue, include shirts, pants, jackets, coveralls, jumpsuits, smocks, aprons and specialized protective wear, such as fire retardant garments. The Company also offers non-garment items and services, such as shop towels, floormats, dust-control mops and other textile products.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 wastewater treatment capabilities allow it to process textiles contaminated with petroleum, chemical solvents or printing inks that require specialized cleaning services that comply with environmental regulations. These facilities capture waste solvents and oils in liquid form and then recycle this liquid waste as a supplemental fuel in a secondary fuel- recycling program. Sourcing Activities 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, Georgia manufacturing facility and are marketed under the Blue Ridge name. Approximately one-half of Blue Ridge manufactured shop towels are sold to customers other than CTS. Blue Ridge also manufactures dust mops, aprons, laundry bags, floormats and RAS socks and pads. The Blue Ridge operations represented approximately 3.2% of the Company's external revenues in fiscal 2001. The Company purchases other rental merchandise from a variety of sources. The Company believes that it is not dependent on any one supplier and that alternative sources are available at comparable prices. Customers The Company's customer base is diversified across a variety of industries and customers range in size from large nationally-recognized businesses to gas stations and other small retail establishments. Typical customers include automobile service centers and dealers, delivery services, food and general merchandise retailers, food processors and service operations, manufacturers, maintenance facilities, 4 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 45,000 accounts in diversified industries from 42 locations throughout the eastern United States. During the past six years, no single customer accounted for more than 7.0% of total revenue in any year. Competition The industrial segment of the textile rental industry is highly competitive. There are four competitors in the industry with annual revenues in excess of $250 million each. These companies account for over half of the industry's revenues. The 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. The Company believes that it is one of a small group of companies that have revenues of $50 million to $250 million and which collectively account for approximately 25% of revenues from the industrial segment. 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. Employees As of October 31, 2001, the Company had approximately 1,850 employees. CTS is a party to 31 collective bargaining agreements covering approximately 800 employees. These bargaining agreements expire periodically through 2007. The Company had no work stoppages in 2001. Management believes its employee relations are good. Environmental Matters The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other substances. In particular, industrial laundries use and must dispose of detergent wastewater and other residues. The Company is attentive to the environmental concerns surrounding the disposal of these materials and has through the years taken measures to avoid their improper disposal. In the past, the Company has settled, or contributed to the settlement of, actions or claims brought against the Company relating to the disposal of hazardous materials and there can be no assurance that the Company will not have to expend material amounts to remediate the consequences of any such disposal in the future. Under the Federal Comprehensive Environmental Response, Compensation and Liability Act, the U.S. Environmental Protection Agency ("EPA") is authorized to, among other things, designate certain contaminated facilities as Superfund sites and seek from responsible parties the cost to clean-up that contamination. The Company has in the past responded to a number of requests for information from the EPA concerning the Company's alleged disposal of hazardous substances at Superfund sites and currently has one active case where the Company has been named as a potentially responsible party and could be held liable for the cost to remediate the contamination. The extent of liability, if any, depends on a number 5 of factors, such as (1) whether the Company disposed of hazardous substances at the facility, (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 established reserves based on its best estimate of the probable exposure in connection with these sites. The Company continues to evaluate its exposures as additional information becomes available. Further, under environmental laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in or emanating from such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner or lessee knew of or was responsible for the presence of such hazardous or toxic substances. There can be no assurances that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon the Company under such laws or expose the Company to third-party actions such as tort suits. In 1999, the EPA withdrew proposed categorical pre-treatment standards, which would have formed the basis for a federal environmental regulatory framework applicable to industrial laundry operations. Therefore, there will be no additional cost of compliance due to this federal effort. Item 2. Properties. ---------- As of October 31, 2001, the Company provided textile rental services from 42 facilities. The Company owns 22 of its facilities, including its corporate headquarters in Syracuse, New York, and leases the balance of its facilities. The Company has options to renew in most cases, except for leases for certain garages and small distribution facilities which are leased on a month-to-month basis. The Company's facilities consist primarily of laundry plants and laundry terminals. A laundry plant processes and delivers textile rental products to customers or to laundry terminals. A laundry terminal does not engage in production work, but collects soiled inventory, transports it to the laundry plant for processing and delivers processed inventory to customers. 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. 6 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. The Company's common and preferred stock are not publicly traded. As of October 31, 2001, the Company had 3 stockholders of record. 7 Item 6. Selected Financial Data. ----------------------- The selected financial data set forth below for the Company as of October 31, 2001, 2000, 1999, 1998 and 1997 and for each of the years in the five-year period ended October 31, 2001 are derived from the audited consolidated financial statements. The data should be read in conjunction with the consolidated financial statements and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as Item 7, and other financial information included herein.
Years Ended October 31, --------- ----------------------------------------------------------- 1997 1998* 1999 2000(4) 2001 --------- ------------- ------------ ------------- --------- (dollars in thousands) Operating Data: Revenue $122,935 $138,737 $146,212 $150,290 $151,020 Income from operations 10,792 10,239 9,835 11,656 7,336 Depreciation and Amortization 5,289 5,301 5,806 6,470 6,119 Interest expense (1) 6,715 25,402 10,842 11,208 11,475 Extraordinary item, net of tax benefit (2) (939) Net income (loss) $ 2,052 $(16,743) $ (951) $ (182) $ (2,556) Capital expenditures $ 2,584 $ 6,619 $ 7,713 $ 2,941 $ 3,170 Balance Sheet Data (at period end): Working capital $ 6,769 $ 17,066 $ 20,126 $ 28,986 $ 22,729 Total assets 102,621 117,367 121,846 131,282 118,980 Long-term debt 58,557 88,538 97,547 106,197 99,833 Warrants (3) 1,743 Shareholders' equity (deficit) 9,897 (6,846) (8,432) (8,689) (11,785)
* 53-week fiscal year (1) Interest expense for 1998 includes a $17,257 charge for the cost to redeem common stock warrants in excess of their book carrying value. (2) Represents the extraordinary charge attributable to the write-off of unamortized financing charges and original issue discount of $1,304, net of tax of benefit $365. These deferred charges originated in 1994 in connection with subordinated notes and other debt obligations redeemed in 1998. (3) Common stock warrants were issued in 1994 in connection with the issuance of subordinated notes. Such common stock warrants and subordinated notes were redeemed in 1998. (4) In 2000 the Company extended the amortization period, on a prospective basis, for certain rental merchandise in service, to a period which is more consistent with the useful lives of the merchandise. The impact on net income was an increase of approximately $420, net of tax of $380. In the fourth quarter of fiscal 2000, the Company recognized the effect of certain adjustments, which resulted in an increase to net income. These adjustments, on a pre-tax basis, relate to the receipt of life insurance death benefits of $165 and reversal of accruals for deferred compensations arrangements and discretionary contributions to a benefit plan no longer required of $1,055. In aggregate the impact of these adjustments was an increase to net income of $732, net of tax of $488. 8 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 historical operations data as a percentage of total revenue for the periods indicated and should be read in conjunction with the other financial information contained herein.
Year Ended October 31, --------------------------------------- 2001 2000 1999 ---------- ------------ --------- Total revenue............................. 100.0% 100.0% 100.0% Cost of rental operations................. 70.1 68.2 67.6 Cost of direct sales...................... 3.9 3.9 4.7 Selling and administrative expenses....... 17.1 15.8 17.0 Depreciation and amortization............. 4.1 4.3 4.0 Income from operations.................... 4.9 7.8 6.7
Fiscal Year 2001 Compared to Fiscal Year 2000 Total Revenue. Total revenue increased $0.7 million, (0.5%), from 2000 to 2001. Core rental revenue increased by $1.2 million and direct sale revenue declined by $0.4 million due to customer accounts lost or contracted as a result of general economic conditions. Ancillary revenues, such as delivery, fuel and environmental charges, increased by $1.9 million, primarily as pass-throughs of higher than expected energy costs. Cost of Rental Operations. Cost of rental operations were $105.9 million for fiscal 2001, which represents a 3.3% increase as compared to $102.5 million for 2000. This increase is largely due to increased natural gas prices, as well as merchandise costs of new account installations. Selling and Administrative Expense. Selling and administrative expenses were $25.8 million for 2001, representing an increase of $2.0 million versus 2000. During 2000, the company recognized the benefit of certain non-reoccurring adjustments relating to life insurance death benefits and reversals of accruals for deferred compensation arrangements totaling approximately $770,000. Depreciation and Amortization. Depreciation and amortization was $6.1 million for 2001, representing a decrease of approximately $0.4 million or 5.4% over 2000. The reduction is due to the reduction in capital expenditures over the past two years. 9 Fiscal Year 2000 Compared to Fiscal Year 1999 Total Revenue. Total revenues were $150.3 million in fiscal 2000, representing an increase of $4.1 million or 2.8% as compared to $146.2 million for fiscal 1999. The growth can be attributed to the new rental business written by the Company's professional sales force, increases in service to existing accounts and increases in revenue from ancillary charges. Cost of Rental Operations. Cost of rental operations of $102.5 million for fiscal 2000 was 68.2% of total revenue for the period. This represents an increase of 3.8% as compared to fiscal 1999 and can be attributed to increased spending to improve customer service. In 2000 the Company extended the amortization period, on a prospective basis, for certain rental merchandise in service, to a period which is more consistent with the useful lives of the merchandise. The impact on net income was an increase of approximately $0.4 million. Cost of Direct Sales. Cost of direct sales of $5.9 million for fiscal 2000 was 3.9% of total revenue. Cost of direct sales was approximately 59.1% and 66.2% of direct sale revenue for fiscal 2000 and 1999, respectively. The improved margin is attributable to a favorable change in product mix and successful pricing initiatives in connection with certain products. Selling and Administrative Expense. Selling and administrative expenses were $23.7 million for fiscal 2000, representing a decrease of approximately $1.1 million or 4.5% versus fiscal 1999. During 2000, the company recognized the benefit of certain non-reoccurring adjustments relating to life insurance death benefits and reversals of accruals for deferred compensation arrangements totaling approximately $770,000. Depreciation and Amortization. Depreciation and amortization was $6.5 million for fiscal 2000, representing an increase of approximately $0.7 million or 11.4% over fiscal 1999. This increase is attributable to substantial investments made in facilities and equipment, and information management systems during 1998 and 1999. Interest Expense. Interest expense was $11.2 million for fiscal 2000 and $10.8 million for fiscal 1999, representing an increase of $0.4 million, or 3.4%. This variance is due to an increase in borrowings under the Company's credit facilities to fund purchases of inventory for certain large contracts. Income Taxes. The Company's provision for income taxes of $0.6 million for fiscal 2000 was $0.7 million higher than the tax expense for the prior year. The effective tax rate is not comparable due to the influence of certain non- deductible expenses such as the amortization of intangible assets and certain meal and entertainment expenses. Net Income (Loss). Net loss of $0.2 million for fiscal 2000 compares with a net loss of $1.0 million for fiscal 1999. This improvement was due to a combination of revenue growth and tighter cost controls. 10 Liquidity and Financial Resources The Company is highly leveraged with total indebtedness of $99,833,395 and a shareholder deficit of $11,785,101 at October 31, 2001. In addition, the Company has incurred net losses for the last four fiscal years, is required to maintain certain financial covenants as part of its existing credit facility, (the Facility), and is dependent on operations for a major portion of its liquidity and working capital needs. These facts create an uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The following table summarizes the contractual obligations of the Company under long-term debt agreements, capital lease obligations and operating leases:
-------------------------------------------------------------------------------------------------------- Contractual Obligations Payments Due by Period -------------------------------------------------------------------------------- Total Less than 1 1 - 3 years 4 - 5 After 5 years year years --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Long-term Debt $ 97,835,423 $2,561,523 $18,213,973 $207,935 $76,851,992 --------------------------------------------------------------------------------------------------------- Capital Lease Obligations 1,997,972 1,169,403 828,569 --------------------------------------------------------------------------------------------------------- Operating Leases 2,921,092 1,439,217 1,152,949 328,926 --------------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations $102,754,487 $5,173,110 $20,192,524 $536,861 $76,851,992 -------------------------================================================================================
The Company's primary source of liquidity has been cash flows from operations and borrowing under the Facility, which was amended in fiscal 2001. During 2001, the Company experienced a net use of cash of $0.8 million. The Company generated $7.8 million in cash from operating activities in 2001, primarily through the liquidation of $6.0 million of inventory and reductions in retail merchandise in service of $1.3 million. $3.2 million in cash was used in 2001 in investing activities, through additional investments in the Company's fleet and other operating machinery and equipment. During 2001, the Company used $5.3 million in cash for financing activities, primarily through reductions in long-term debt of $6.4 million. The amendments to the Facility reduced the maximum credit available to the Company under an acquisition and capital expenditure facility and amended certain financial covenants so that the Company would be in compliance. The maximum credit available under the Company's revolving credit facility, (the Revolver), subject to collateral availability, is $30.0 million. At October 31, 2001, the Company had approximately $2.5 million available under the Revolver. Management is pursuing alternative senior credit facilities from other lenders, with the goal of providing additional liquidity. Over the next twelve months, the Company will continue to focus on improving utilization of new inventory and merchandise in service as well as controlling overall costs and capital expenditures to improve liquidity and to meet its financial covenants. The Company does not anticipate the need to increase levels of inventory or capital expenditures in 2002. Based on the Company's operating budget, the Company expects that it will be able to meet its obligations as they become due and maintain compliance with current financing agreements, but there can be no assurances. In 2000, the principal shareholder of the Company passed away. As a result, the estate of the shareholder will be required to pay certain estate tax liabilities. Although the Company has no legal obligation or agreement to purchase or redeem any of the preferred or common stock of the Company held by the estate, 11 it is anticipated that the Company will redeem or purchase certain shares of stock held by the estate in order for the estate to meet its tax obligations as they become due. The Company, under the indenture for its senior subordinated notes, is permitted to redeem equity interests of the Company in order to satisfy these obligations. However, under the provisions of the indenture, the annual redemptions are not permitted to exceed $1.0 million in each of the second, third, fourth, fifth and sixth calendar years and $2.25 million in each of the seventh, eighth, ninth and tenth calendar years following the death of the shareholder, plus an additional $2.0 million in calendar year 2003, subject to certain provisions. There were no redemptions in 2001. Any redemptions could be limited by covenants in the loan agreement. Effects of Inflation Inflation has had the effect of increasinn 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. Impact of Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, (SFAS No. 141) and No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) which are effective July 1, 2001 and November 1, 2002, respectively, for the Company. SFAS No. 142 allows for early adoption, as of November 1, 2001, by the Company. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS No. 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001, will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the statement. The Company is currently reviewing the provisions of SFAS No. 141 and SFAS No. 142 and assessing the impact of adoption. In October, 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144) which is effective November 1, 2002 for the Company. SFAS No. 144 outlines the requirements used to test long- lived assets, other than goodwill and intangibles, for impairment. In addition, the statement proscribes accounting and reporting for long-lived assets or groups of assets to be disposed. The Company is currently reviewing the provisions of SFAS No. 144 and assessing the impact of adoption. Item 7a. Quantitative and Qualitative Disclosures About Market Risk. ---------------------------------------------------------- The Company manages interest rate risk by using a combination of variable and fixed rate debt, as well as interest rate swap agreements. The Company's earnings are affected by changes in short-term interest rates due to the use of variable rate notes and revolving credit facilities amounting to approximately $20.1 million. This exposure is limited by the use of interest rate swap agreements as a hedge against the variability in short-term rates. At October 31, 2001, approximately $4.3 million of the Company's variable-rate debt was covered under interest rate swap agreements. The interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes, nor is it a party to any leveraged instrument. If short-term rates increase by one-half percent, (50 12 basis-points), the Company's interest expense would increase, and income before taxes would decrease, by approximately $0.1 million. Conversely, if short-term rates decrease by one-half percent, (50 basis-points), the Company's interest expense would decrease, and income before taxes would increase, by approximately $0.1 million. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- The financial statements, financial statement 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. 13 PART III Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- The following table sets forth certain information regarding the Company's directors and certain key executive officers: Name Age Position ---- --- -------- Thomas M. Coyne 63 Chairman of the Board, President and Chief Executive Officer Thomas C. Crowley 54 Director, Executive Vice President and Chief Operating Officer J. Patrick Barrett (1)(2) 64 Director Wallace J. McDonald (1)(2) 61 Director David S. Evans (1)(2) 63 Director Raymond T. Ryan 74 Director, Assistant Treasurer Stephen M. Owen 38 Vice President of Finance, Chief Financial Officer, Treasurer Alexander Pobedinsky 40 Vice President, General Counsel and Secretary (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 as Chairman of the Board for the Textile Rental Services Association. Thomas C. Crowley has been a Director of the Company since 1993. Mr. Crowley was Executive Vice President of Evergreen Bancorp, Inc. in Glens Falls, New York from 1994 to 1999. Mr. Crowley joined the Company as Executive Vice President and Chief Operating Officer in June 1999. J. Patrick Barrett has been a Director of the Company since July, 1998. Mr. Barrett has served as Chairman of Carpat Investments, a private investment firm, since 1987. Mr. Barrett also has previously served as Chairman and CEO of Avis Inc., President of Telergy, Inc. and has been a director of Lincoln National Corp. since 1990. 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 S. Evans has been a Director of the Company since 1998 and from 1994 to 1996. Mr. Evans has been a Director of Confluence Systems, Inc. of High Point, NC since 1995. He has previously served as Director, President and Chief Executive Officer of CBP Resources, Inc. and Director, President and Chief Executive Officer of Delta Protein, Inc. of Memphis, TN. 14 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 C.P.A. and a retired partner of PricewaterhouseCoopers, LLP. Stephen M. Owen joined the Company in 2000 and has served as Vice President of Finance, Chief Financial Officer and Treasurer since May 2001. Mr. Owen is a certified public accountant and his experience includes seven years with Ernst & Young. Alexander Pobedinsky has been the General Counsel and Secretary of the Company since 1997. Mr. Pobedinsky was associated with the law firm of O'Hara, Hanlon, Knych and Pobedinsky, LLP, based in Syracuse, New York, from 1991 through 1999. Mr. Pobedinsky joined the Company in January 2000, as Corporate Secretary, Vice President and General Counsel. Item 11. Executive Compensation. ---------------------- The following table sets forth the compensation during the last three fiscal years earned by the Company's President and other executive officers during the fiscal year ended October 31, 2001:
Fiscal Annual Compensation All Other ------------------- Name and Principal Position Year Salary Bonus Compensation /(1)/ --------------------------- ---- ----- ----- ------------------ Thomas M. Coyne 2001 $520,000 $ 4,500 Chairman of the Board, President and Chief 2000 $520,000 $ 3,765 Executive Officer 1999 $487,647 $13,024 Thomas C. Crowley 2001 $244,146 $ 8,547 Director, Executive Vice President and Chief 2000 $200,000 $75,000 $ 5,884 Operating Officer 1999 $107,092 $25,000 Alexander Pobedinsky 2001 $155,000 $ 3,000 $ 7,197 Vice President, General Counsel and Secretary 2000 $155,000 $ 3,600 1999 $ 55,000 $ 3,600 Alan D. Wilson Vice President of Operations 2001 $125,000 $ 6,675 2000 $ 18,301 Anthony F. O'Connor 2001 $107,000 $ 6,405 Vice President of Sales and Marketing 2000 $107,000 $ 6,480 1999 $107,000 $10,249
(1) Includes the Company's matching contribution under the 401(k) plan as follows: Name 1999 2000 2001 ---- ---- ---- ---- Thomas M. Coyne $ 10,904 $ 3,765 $ 4,500 Thomas C. Crowley $ 0 $ 1,084 $ 3,474 Alexander Pobedinsky $ 0 $ 2,309 $ 2,397 Alan D. Wilson $ 0 $ 0 $ 1,875 Anthony F. O'Connor $ 4,659 $ 1,680 $ 1,607 15 Compensation of Directors Each director, who is not also an employee of the Company, receives $2,500 for each meeting of the Board of Directors that he attends and $500 for each committee meeting that he attends, except as otherwise established. In addition, the Company reimburses directors for out-of-pocket expenses. The Company provides no retirement benefits to non-employee directors. The directors who are also employees of the Company receive no additional compensation from the Company for services rendered in their capacity as directors. 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) ---------------- ------------------- -------------------- Number of Number of Number of Shares Shares Shares Beneficially Percentage Beneficially Percentag Beneficially Percentage 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% J. Stanley Coyne Inter Vivos Irrevocable Trust/(2)//(4)/........... 1,020 34.9% -- -- -- -- Thomas M. Coyne Blue Ridge Trust/(2)//(5)/...... 1,903 65.1% 10,725 14.5% 3,362 14.5% Class B (Non-Voting) ------------------- Number of Shares Beneficially Percentage Owned(1) of Class -------- -------- J. Stanley Coyne Revocable Trust/(2)//(3)/.. 2,272 76.0% J. Stanley Coyne Inter Vivos Irrevocable Trust/(2)//(4)/........... -- -- Thomas M. Coyne Blue Ridge Trust/(2)//(5)/...... 719 24.0%
(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) During fiscal 2000, the principal shareholder, J. Stanley Coyne, passed away. It is anticipated that after settlement of the estate of J. Stanley Coyne, all voting shares of the Company will be held in trusts for the benefit of Thomas M. Coyne. 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 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 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 trustee of this trust is Raymond T. Ryan, who holds 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 trustee disclaims beneficial ownership of these shares. 16 Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- Compensation Committee Interlocks and Insider Participation in Compensation Decisions The Company's Human Resources and Compensation Committee consists of Messrs. Barrett, Evans, and McDonald. No officer of the Company serves as a voting member of the Human Resources and Compensation Committee. Transactions with certain of the members of such committee are discussed below under "Professional Services." Certain Transactions with Members of the Coyne Family The Company has an outstanding note receivable from the estate of J. Stanley Coyne in the amount of $1,264,355. This note bears interest at the applicable federal rate as determined by the Internal Revenue Service (3.6% at October 31, 2001). It is anticipated that this receivable will be settled through the redemption of stock held by the estate. The Company made advances of $40,000 during 2001 to Susan Whitney, the daughter of J. Stanley Coyne. Such accumulated advances total $132,000 as of October 31, 2001. The Company, at its discretion, made advances of $11,000 per month to Gerald Coyne, a son of J. Stanley Coyne, and former officer of the Company. The total accumulated amount of such advances as of October 31, 2001 was $269,135. The Company has made cumulative advances to other family members totaling $87,157. Subject to the provisions of the subordinated debt indenture, it is anticipated that all of these advances will be repaid through redemption of stock held by the estate of J. Stanley Coyne. The Company has an uncollateralized outstanding note receivable from Thomas M. Coyne in the amount of $325,000. The note bears interest at 10% and matures in 2007. In addition the Company has made advances to Thomas M. Coyne of approximately $127,000 as of October 31, 2001. Professional Services Raymond T. Ryan, a director of the Company, is an employee of The Outaouais Group, Inc., a consulting firm, which provides various tax and financial services to the Company. The Company paid fees of $94,671 to The Outaouais Group, Inc. for various services during 2001. J. Patrick Barrett, a director of the Company, is owner of Syracuse Executive Air Services Inc.. The Company paid fees of $78,989 to Syracuse Executive Air Services Inc. for airplane maintenance services during 2001. Wallace J. McDonald, a director of the Company, is a partner with the law firm of Bond, Schoeneck & King. The Company paid fees of $27,860 to Bond, Schoeneck & King for legal services in 2001. 17 PART IV Item 14. Exhibits, Financial Statement Schedules, 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. and Subsidiaries, which are attached hereto beginning on page F-1, have been incorporated by reference into Item 8 of this Report on Form 10- K: Independent Auditor's Report Consolidated Balance Sheet as of October 31, 2001 and 2000 Consolidated Statement of Operations for the years ended October 31, 2001, 2000, and 1999 Consolidated Statement of Cash Flows for the years ended October 31, 2001, 2000, and 1999 Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Income for the years ended October 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule II: Valuation and Qualifying Accounts and Reserves 3. List of Exhibits filed pursuant to Item 601 of Regulation S- K. The Exhbitis listed in the Index to Exhibits are filed as part of this Annual Report. (b) Reports on Form 8-K No Reports on Form 8-K were filed by the Registrant during the quarter ended October 31, 2001. 18 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: February 22, 2002 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 February 22, 2002 ------------------------ and Chief Executive Officer Thomas M. Coyne (Principal Executive Officer) /s/ Thomas C. Crowley Director, Executive Vice President February 22, 2002 ------------------------ and Chief Operating Officer Thomas C. Crowley /s/ Stephen M. Owen Vice President and Chief Financial February 22, 2002 ------------------------ Officer (Principal Financial and Stephen M. Owen Accounting Officer), Treasurer /s/ Alexander Pobedinsky Vice President, Secretary and February 22, 2202 ------------------------ General Counsel Alexander Pobedinsky /s/ Wallace J. McDonald Director February 22, 2002 ------------------------ Wallace J. McDonald /s/ Raymond T. Ryan Director and Assistant Treasurer February 22, 2002 ------------------------ Raymond T. Ryan /s/ J. Patrick Barrett Director February 22, 2002 ------------------------ J. Patrick Barrett /s/ David S. Evans Director February 22, 2002 ------------------------ David S. Evans
----------------------------------------------------------------------------------------------- Coyne International Enterprises Corp. and Subsidiaries ----------------------------------------------------------------------------------------------- Schedule II - Valuation and Qualifying Accounts and Reserves ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Description Balance at Charged to Charges for Balance at Beginning of Costs and Which Reserves End of Year Year Expenses were Created ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts ----------------------------------------------------------------------------------------------- October 31, 1999 23,298 364,048 (318,663) 68,683 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- October 31, 2000 68,683 832,276 (559,616) 341,343 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- October 31, 2001 341,343 1,206,202 (706,924) 840,621 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Reserve for Obsolete Inventory ----------------------------------------------------------------------------------------------- October 31, 1999 62,282 76,735 - 139,017 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- October 31, 2000 139,017 24,310 - 163,327 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- October 31, 2001 163,327 (51,140) - 112,187 -----------------------------------------------------------------------------------------------
Coyne International Enterprises Corp. and Subsidiaries Consolidated Financial Statements October 31, 2001 and 2000 Independent Auditor's Report ---------------------------- January 25, 2002 To the Board of Directors of Coyne International Enterprises Corp., We have audited the accompanying consolidated balance sheet of Coyne International Enterprises Corp., and subsidiaries as of October 31, 2001, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the index at Item 14. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coyne International Enterprises Corp. and subsidiaries as of October 31, 2001, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying financial statements and financial statement schedule have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has experienced recurring losses, has a shareholder deficit and is required to maintain financial covenants under its senior credit facility. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty. Dannible & McKee, LLP Syracuse, New York Report of Independent Accountants The Board of Directors Coyne International Enterprises Corp. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all materials respects, the financial position of Coyne International Enterprises Corp. and Subsidiaries at October 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended October 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. PricewaterhouseCoopers LLP January 25, 2001 Coyne International Enterprises Corp. and Subsidiaries Consolidated Balance Sheet --------------------------------------------------------------------------------
October 31, ----------- Assets 2001 2000 ------------ ------------ Current Assets: Cash and cash equivalents $ 119,519 $ 909,340 Accounts receivable, less allowance for doubtful accounts of $840,621 in 2001 and $341,343 in 2000 15,453,339 16,929,975 Inventories 6,697,698 12,725,141 Rental merchandise in service 31,401,3763 2,712,967 Prepaid expenses and other assets 547,284 698,768 ------------ ------------ Total current assets 54,219,216 63,976,191 Property, plant and equipment, at cost: Land 2,432,180 2,432,181 Buildings and improvements 40,488,846 39,829,930 Machinery and equipment 44,436,846 42,729,434 Vehicles 12,595,527 11,420,294 Construction in process 918,124 1,505,965 ------------ ------------ 100,871,523 97,917,804 Less: Accumulated depreciation (59,236,44) (54,100,700) ------------ ------------ Property, plant and equipment, net 41,635,179 43,817,104 Other assets: Purchased routes and acquisition tangibles, net 16,512,266 17,239,942 Deferred financing net costs, 2,169,933 2,322,568 Deferred income taxes 4,197,193 3,724,623 Other 246,965 202,521 ------------ ------------ Total other assets 23,126,357 23,489,654 ------------ ------------ Total Assets $118,980,752 $131,282,949 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 2 Coyne International Enterprises Corp. and Subsidiaries Consolidated Balance Sheet --------------------------------------------------------------------------------
October 31, ---------- Liabilities and Shareholders' Equity (Deficit) 2001 2000 ------------ ------------- Current Liabilities: Current maturities of long-term obligations $ 3,730,926 $ 3,385,619 Accounts payable 5,152,582 8,934,685 Cash overdrafts 1,488,087 Accrued expenses: Salaries and employee benefits 3,609,840 4,714,396 Accrued interest 3,503,660 3,655,175 Other 3,312,228 2,268,201 Deferred income taxes 10,692,978 12,032,060 ------------ ------------- Total current liabilities 31,490,301 34,990,136 Long-term obligations, net of current maturities 96,102,469 102,811,292 Other liabilities 3,173,083 2,170,095 ------------ ------------- Total liabilities 130,765,853 139,971,523 ------------ ------------- Shareholders equity (deficit): Preferred stock - 5% non-cumulative, non-voting, non-convertible callable at par: Class A - $100 par value; 30,000 shares authorized, 23,107 shares issued and outstanding 2,310,700 2,310,700 Class B - $500 par value; 5,000 shares authorized 2,991 shares issued in 2001, 4,991 shares issued in 2000, 2,991 shares outstanding 1,495,500 2,495,500 Common stock - $.01 par value: Class A - voting; 100,000 shares authorized 2,923 shares issued and outstanding 29 29 Class B - non-voting; 99,000 shares authorized, 74,030 shares issued and outstanding 740 740 Additional paid-in capital 1,682,845 849,512 Retained earnings (deficit) (14,767,786) (12,212,139) Accumulated other comprehensive loss (259,037) ------------ ------------- (9,537,009) (6,555,658) Less: Treasury stock, 2,000 shares of Class preferred stock in 2000, at cost (166,667) Shareholder receivables (2,248,092) (1,966,249) ------------ ------------- Total shareholders' equity (deficit) (11,785,101) (8,688,574) ------------ ------------- Commitments and contingent liabilities (See Note 8) Total Liabilities and Shareholders' Equity (Deficit) $118,980,752 $ 131,282,949 ============ =============
The accompanying notes are an integral part of the consolidated financial statements. 3 Coyne International Enterprises Corp. and Subsidiaries Consolidated Statement of Operations --------------------------------------------------------------------------------
Year Ended October 31, ---------------------- 2001 2000 1999 ------------ ------------ ------------ Revenue: Rental operations $141,480,717 $140,318,365 $135,771,890 Direct sales 9,539,148 9,972,107 10,439,832 ------------ ------------ ------------ Total revenue 151,019,865 150,290,472 146,211,722 Operating expenses: Cost of rental operations 105,854,320 102,531,967 98,812,269 Cost of direct sales 5,944,091 5,888,754 6,907,257 Selling and administrative expenses 25,767,088 23,743,858 24,851,229 Depreciation and amortization 6,118,547 6,469,505 5,805,699 ------------ ------------ ------------ Total operating expenses 143,684,046 138,634,084 136,376,454 ------------ ------------ ------------ Income from operations 7,335,819 11,656,388 9,835,268 Interest expense 11,474,922 11,208,439 10,841,533 ------------ ------------ ------------ Income (loss) before income taxes (4,139,103) 447,949 (1,006,265) Income tax expense (benefit) (1,583,456) 630,000 (55,000) ------------ ------------ ------------ Net Loss (2,555,647) (182,051) (951,265) ============ ============ ============
4 Coyne International Enterprises Corp. and Subsidiaries Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Income --------------------------------------------------------------------------------
Preferred Stock Common Stock ------------------------------------- ----------------------------------- Class A Class B Class A Class B ------------------------------------- ----------------------------------- Number Number Number Number of of of of Additional Shares Shares Shares Shares Paid-in Issued Amount Issued Amount Issued Amount Issued Amount Capital ----------------- ------------------ ---------------- ---------------------------- Balance, October 31, 1998 23,107 $2,310,700 4,991 2,495,500 2,923 $29 74,030 $740 $849,512 Net loss Advances to shareholder Comprehensive Income (Loss) ----------------- ------------------ ---------------- ---------------------------- Balance, October 31, 1999 23,107 $2,310,700 4,991 2,495,500 2,923 $29 74,030 $740 $849,512 ----------------- ------------------ ---------------- ---------------------------- Net loss Advances to shareholder Comprehensive Income (Loss) ----------------- ------------------ ---------------- ---------------------------- Balance, October 31, 2000 23,107 $2,310,700 4,991 2,495,500 2,923 $29 74,030 $740 $849,512 ================= ================== ================ ============================ Net loss Advances to shareholder Retirement of treasury shares (2,000)(1,000,000) 833,333 Cumulative effect of a change in accounting principle, net of tax of $6,606 Change in fair value of cash flow hedges, net of tax of $178,866 Comprehensive Income (Loss) ----------------- ------------------ ---------------- ---------------------------- Balance, October 31, 2001 23,107 $2,310,700 2,991 $1,495,500 2,923 $29 74,030 $740 $1,682,845 ================= ================== ================ ============================
Treasury Stock --------------- Accumulated Total Other Number Shareholders' Retained Comprehensive Comprehensive of Shareholder Equity Earnings Income Income Shares Amount Receivables (Deficit) ---------------------------------------------------------------------------------------- Balance, October 31, 1998 ($11,078,823) (2,000) ($166,667) ($1,256,520) ($6,845,529) Net loss (951,265) ($951,265) (951,265) Advances to shareholder (635,018) (635,018) ----------- Comprehensive Income (Loss) ($951,265) =========== ------------ --------------------------------------------- Balance, October 31, 1999 ($12,030,088) (2,000) ($166,667) ($1,891,538) ($8,431,812) ------------ --------------------------------------------- Net loss (182,051) (182,051) (182,051) Advances to shareholder (74,711) (74,711) ----------- Comprehensive Income (Loss) ($182,051) =========== --------------------------- --------------------------------------------- Balance, October 31, 2000 ($12,212,139) $0 (2,000) ($166,667 ($1,966,249) ($8,688,574) =========================== ============================================= Net loss (2,555,647) (2,555,647) (2,555,647) Advances to shareholder (281,843) (281,843) Retirement of treasury shares 2,000 166,667 Cumulative effect of a change in accounting principle, net of tax of $6,606 9,934 9,934 9,934 Change in fair value of cash flow hedges, net of tax of $178,866 (268,971) (268,971) (268,971) ----------- Comprehensive Income (Loss) ($2,814,684) =========== --------------------------- --------------------------------------------- Balance, October 31, 2001 ($14,767,786) ($259,037) 0 $0 ($2,248,092) ($11,785,101) =========================== =============================================
5 Coyne International Enterprises Corp. and Subsidiaries Consolidated Statement of Cash Flows --------------------------------------------------------------------------------
Year Ended October 31, --------------------- 2001 2000 1999 ------------ ------------- -------------- Cash flows from operating activities: Net loss $ (2,555,647) $ (182,051) $ (951,265) Adjustments to reconcile net loss to net cash provided by (used in) operating activities; Depreciation of property, plant and equipment 4,279,249 4,605,811 4,030,873 Amortization of capitalized leases 1,073,401 1,073,401 1,073,401 Amortization of acquisition intangibles 778,188 790,293 701,425 Amortization of deferred financing costs 342,604 334,025 355,249 Provision for allowance for doubtful accounts 1,206,202 832,276 364,048 Provision for deferred income taxes (1,639,392) 497,437 (125,000) Changes in operating assets and operating liabilities: Accounts receivable 270,434 (993,293) (2,919,971) Inventories 6,027,443 (5,208,076) (525,002) Rental merchandise in service 1,311,591 (4,874,883) 499,218 Prepaid expenses and other assets 107,040 339,600 108,642 Accounts payable, accrued expenses, and other liabilities (3,812,679) (987,565) (2,806,713) ------------ ------------ ----------- Net cash provided by (used in) operating activities 7,388,434 (3,772,965) (195,095) ------------ ------------ ----------- Cash flows from investing activities: Purchase of property, plant and equipment (3,170,725) (2,940,808) (7,713,393) Acquisition of business, net of cash acquired (50,512) (1,115,157) (1,467,052) ------------ ------------ ----------- Net cash used in investing activities (3,221,237) (4,055,965) (9,180,445) ------------ ------------ ----------- Cash flows from financing activities: Proceeds from long-term borrowings 38,268,039 50,637,540 50,558,770 Payments under long-term obligations (44,631,555) (41,987,966) (41,549,085) Increase in bank overdrafts 1,488,087) Increase in shareholder receivables (281,843) (74,711) (403,564) Deferred financing costs incurred (189,969) (50,000) (90,670) ------------ ------------ ----------- Net cash provided by (used in) financing activities (5,347,241) 8,524,863 8,515,451 ------------- ------------ ------------ Net increase (decrease) in cash (1,180,044) 695,933 (860,089) Cash and cash equivalents: Beginning of period 1,299,563 213,407 1,073,496 ------------ ------------ ----------- End of period $ 119,519 $ 909,340 $ 213,407 ============ ============ =========== Supplemental disclosure of cash flow information: Interest paid $ 11,283,812 $ 11,117,560 $ 9,758,977 Income taxes paid 51,732 55,372 74,959
The accompanying notes are an integral part of the consolidated financial statements. 6 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies Business Description Coyne International Enterprises Corp., (the Company), is a full-service provider of work garments, shop towels, floor mats, dust mops, and other accessories. The Company manufactures, rents, cleans, and sells these items throughout the eastern United States. Principles of Consolidation and Revenue Recognition The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts have been eliminated. The Company recognizes rental revenues when the services are performed. Direct sales are recognized when products are shipped to customers. Fiscal Year The Company's fiscal year ends on the last Saturday in October. For convenience, the dating of the accompanying financial statements, and notes herein, have been labeled as of and for the years ended October 31, 2001, 2000 and 1999, rather than the actual fiscal year end dates. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual 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 The Company accounts for its inventory on the lower of first-in, first-out (FIFO) cost or market. Rental Merchandise in Service Rental garments, mats, towels, and other rental merchandise 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. Effective November 1, 1999, the Company changed the related amortization periods, on a prospective basis, for certain rental merchandise in service, from 12 months to 18 months, which is more consistent with their respective useful lives. The impact on net income for the year ended October 31, 2000 was an increase of approximately $420,000, net of taxes of $380,000. 7 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- Property, Plant and Equipment The Company provides for depreciation on the straight-line method based on the following estimated useful lives, in years: Building improvements 15-40 Machinery and equipment 3-10 Vehicles 3-8 Construction in process consists primarily of capital expenditures for plant renovations and vehicle re-builds. Maintenance and repairs are charged to expense when incurred. 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 are amortized on a straight-line basis over 15-40 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, (e.g., plant closures), indicate that the carrying amount of an asset may not be fully recoverable. Routes acquired prior to November 1, 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. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of credit exposure to any one institution. The Company's trade accounts receivable reflect a broad customer base. The Company routinely assesses the financial strength of its customers. As a result, concentrations of credit risk are limited. 8 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- Other Liabilities The Company, under certain insurance programs, retains portions of expected losses primarily relating to workers' compensation and employee 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. These liabilities are classified in the balance sheet as Other accrued expenses and Other liabilities. Amounts that the company anticipates will be due within one year have been classified as current liabilities. Derivative Instruments and Hedging Activities The company maintains an interest-rate risk-management strategy that uses interest rate swaps to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Company's specific goals are (1) to manage interest-rate sensitivity by modifying the repricing or maturity characteristics of certain of its debt and (2) to lower, (where possible), the cost of its borrowed funds. The Company uses interest-rate swaps to convert a portion of its variable-rate debt to fixed rates. The resulting cost of funds is lower than it would have been had fixed-rate borrowing been issued directly. The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, on November 1, 2000. Under SFAS 133, the Company's existing interest rate swaps have been designated as highly effective cash flow hedges. In accordance with the transition provisions of SFAS 133, the Company recorded a net-of-tax cumulative-effect-type adjustment of $9,934 in other comprehensive income to recognize this cash flow hedge at fair value. 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, 2001 was approximately $18,650,000 based on market values. The fair value of the Company's other long-term obligations approximated their carrying value at October 31, 2001. Advertising Costs Advertising costs are charged to operations when incurred. The costs of direct-response advertising are not material. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return, and, where required, state income 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 prior year amounts have been reclassified to conform with current year presentation. 9 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- Impact of Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, (SFAS No. 141), and No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142), which are effective July 1, 2001 and November 1, 2002, respectively, for the Company. SFAS No. 142 allows for early adoption, as of November 1, 2001, by the Company. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS No. 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001, will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the statement. The Company is currently reviewing the provisions of SFAS No. 141 and SFAS No. 142 and assessing the impact of adoption. In October, 2001 the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,(SFAS No. 144), which is effective November 1, 2002 for the Company. SFAS No. 144 outlines the requirements used to test long-lived assets, other than goodwill and intangibles not being amortized, for impairment. In addition, the statement proscribes accounting and reporting for long-lived assets or groups of assets to be disposed. The Company is currently reviewing the provisions of SFAS No. 144 and assessing the impact of adoption. 2. Liquidity The Company is highly leveraged with total indebtedness of $99,833,395 and a shareholder deficit of $11,785,101. In addition, the Company has incurred net losses for the last three years, is required to maintain certain financial covenants as part of its existing credit facility, (the Facility), and is dependent on operations for a major portion of its liquidity and working capital needs. These facts create an uncertainty about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's primary source of liquidity has been cash flows from operations and borrowing under the Facility, which was amended in fiscal 2001. The amendments reduced the maximum credit available to the Company under an acquisition and capital expenditure facility and amended certain financial covenants so that the Company would be in compliance. The maximum credit available under the Company's revolving credit facility, (the Revolver), subject to collateral availability, is $30,000,000. At October 31, 2001, the Company had approximately $2,500,000 available under the Revolver. Management is pursuing alternative senior credit facilities from other lenders, with the goal of providing additional liquidity. Over the next twelve months, the Company will continue to focus on improving utilization of new inventory and merchandise in service as well as controlling overall costs and capital expenditures to improve liquidity and to meet its financial covenants. The Company does not anticipate the need to increase levels of inventory or capital expenditures in 2002. Based on the Company's operating budget, the Company expects that it will be able to meet its obligations as they become due and maintain compliance with current financing agreements, but there can be no assurances. 10 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 3. Acquisitions During 2001, 2000 and 1999 the company acquired certain assets of industrial laundries in transactions accounted for as purchase transactions. The aggregate cash purchase price of these assets was allocated as follows: 2001 2000 1999 ---- ---- ---- Purchased routes $ 12,632 $ 955,860 $ 939,645 Covenants not to compete 25,000 11,827 527,407 Rental Garments 12,880 145,670 120,755 Equipment 1,800 --------- ---------- ---------- Aggregate cash purchases price $ 50,512 $1,115,157 $1,587,807 ========= ========== ========== 4. Purchased Routes and Acquisition Intangibles The components of purchased routes and acquisition intangibles are as follows at October 31: 2001 2000 ---- ---- Purchased routes $22,853,998 $22,870,945 Covenants not to compete 2,012,748 1,945,288 ----------- ----------- 24,866,746 24,816,233 Less: Accumulated amortization (8,354,480) (7,576,291) ----------- ----------- $16,512,266 $17,239,942 =========== =========== 11 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 5. Leases Assets under capital leases, consisting primarily of machinery and equipment, are as follows at October 31: 2001 2000 --------------- -------------- Cost $ 7,943,705 $ 7,943,705 Less: Accumulated Amortization (5,247,749) (4,174,348) --------------- -------------- $ 2,695,956 $ 3,769, 357 =============== ============== The Company has noncancellable operating lease commitments for certain operating facilities, equipment, and vehicles. Rent expense under operating leases approximated $2,270,000, $1,896,000 and $1,969,000 during 2001, 2000, and 1999, respectively. Minimum annual rental commitments at October 31, 2001 are as follows: 2002 $ 1,439,217 2003 724,562 2004 428,387 2005 224,951 2006 103,975 -------------- Total Minimum Lease Payments $ 3,769, 357 ============== 12 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 6. Long-Term Obligations Long-Term Obligations consist of the following at October 31:
2001 2000 --------------- --------------- Revolving credit facility borrowings, at variable rates of 6.125% and 8.87% at October 31, 2001 and 2000, respectively $ 15,271,34 $ 19,061 Capital expenditure facility borrowings, at variable rates of 6.375% and 9.12% at October 31, 2001 and 2000, respectively payable in various installments through 2003 4,207,826 4,347,629 Acquisition facility borrowings, at variable rates of 6.375% and 9.12% at October 31, 2001 and 2000, respectively, payable 600,557 1,201,113 Capital lease obligations, at a fixed rate of 7.6% at October 31, 2001 and a variable rate of 8.2% at October 31, 2000, payable in installments through 2003 1,999,972 3,160,299 Industrial Development Revenue Bonds, at a fixed rate of 8.95% at October 31, 2001 and a variable rate of 10% at October 31, 2000 payable in installments through 2010 2,312,738 2,383,514 Other debt obligations, at various rates ranging from 6% to 10.3%, payable through 442,958 1,043,321 Senior subordinated notes due June 1, 2008. Interest only at 11.25 payable semi-annually June 1 and December 1 75,000,000 75,000,000 --------------- --------------- 99,833.395 106,196,911 Less: Current maturities (3,370,926) (3,385,619) --------------- --------------- $ 96,102,469 $ 102,811,292 --------------- ---------------
(a) Under the Company's existing credit facility, (the Facility), a revolving credit facility, (the Revolver), is available to the Company through November 1, 2003, extending automatically for successive periods of one year each, at the discretion of the lender, but in no event later than November 1, 2008. Collateral pledged under the Facility includes all inventory, rental merchandise in service and accounts receivable. The terms of the Facility include various covenants, which provide, among other things, for the maintenance of certain minimum levels of cash flow and limitations on fixed charges and capital expenditures at defined measurement dates. As of October 31, 2001, the Company was in compliance with all debt covenants. In addition, the Facility includes a material adverse change clause which permits the Bank to call its debt in the event of a material adverse change in the business. Management does not anticipate any such material adverse changes in the next twelve months; however, there can be no assurances. 13 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 6. Long-Term Obligations (continued) The Agreement also provides for an acquisition facility of up to $600,557 and a capital expenditure facility of up to $4,942,000. The Agreement calls for annual mandatory prepayments of these facilities if sufficient excess cash flow is generated. A mandatory prepayment is not required in fiscal 2001 based upon financial results for the year ended October 31, 2001. In the event of termination of the Revolver, all unpaid balances under the acquisition and capital expenditure facilities will become due. The $75,000,000 11-1/4% Senior Subordinated Notes, (the Notes), 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 Notes 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. At October 31, 2001, payments due on all debt obligations for each of the next five years and thereafter are as follows: Long-Term Capital Lease Total Long-Term Debt Obligations Obligations ------------ ------------- --------------- 2002 $ 2,561,523 $ 1,169,403 $ 3,730,926 2003 18,121,924 828,569 18,950,493 2004 92,049 92,049 2005 97,839 97,839 2006 110,096 110,096 2007 and thereafter 76,851,992 76,851,992 ------------ ------------- --------------- $ 97,835,423 $ 1,997,972 $ 99,833,395 ============ ============= =============== 14 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 7. Income Taxes Other The components of income tax expense (benefit) for the years ended October 31, were as follows: 2001 2000 1999 ----------- -------- --------- Current: Federal 76,310 State 55,936 56,253 70,000 ----------- -------- --------- 55,936 132,563 70,000 Deferred (1,639,392) 497,437 (125,000) ----------- -------- --------- Income tax expense (benefit) (1,583,456) 630,000 (55,000) =========== ======== ========= For income tax purposes, the Company has net operating loss and alternative minimum tax (AMT) credit carryforwards of $13,591,072 and $1,858,619, respectively. The net operating loss carryforwards expire through 2021 and the AMT credit is available indefinitely. Realization of the deferred income tax assets relating to these net operating losses is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Based upon results of operations or through the reversal of future taxable income, management believes it is more likely than not that the Company will generate sufficient future taxable income to fully realize the benefit of the net operating loss carryforwards and existing temporary differences, although there can be no assurance of this. A reconciliation of the federal statutory income tax rate and the Company's effective income tax rate is as follows: 2001 2000 1999 ------ ----- ------ Statutory tax rate (recoverable) (34.0) % 34.0 % (34.0) % State taxes, net of federal benefit 0.9 % 24.9 % 3.8 % Non-deductible items 2.7 % 78.0 % 29.5 % Other (7.9) % 3.7 % (4.8) % ------ ----- ------ (38.3) % 140.6 % (5.5) % ====== ===== ====== Non-deductible items include amortization of certain purchased routes and other intangibles, and a portion of meals and entertainment expenses. 15 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 7. Income Taxes (continued) The tax effects of temporary differences that give rise to deferred tax assets (liabilities) at October 31, were as follows:
2001 2000 ----------- ----------- Current: Inventory 99,832 50,302 Accrued Expenses 1,196,143 680,356 ----------- ----------- Total current deferred tax asset 1,295,975 730,658 Rental garments in service 11,988,953 12,762,718 ----------- ----------- Total current deferred tax liability 11,988,953 12,762,718 ----------- ----------- Net current deferred tax liability (10,692,978) (12,032,060) =========== =========== Non-current Other reserves 1,787,734 1,715,059 Alternative minimum tax credit carryforward 1,858,619 1,860,000 Net operating loss carryforward 5,428,274 5,249,040 ----------- ----------- Total non-current deferred tax asset 9,074,627 8,824,099 Fixed assets 4,819,439 5,099,476 Other 57,995 ----------- ----------- Total non-current deferred tax liabilities 4,877,434 5,099,476 ----------- ----------- Net non-current deferred tax asset 4,197,193 3,724,623 =========== ===========
8. Commitments and Contingent Liabilities 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 on an undiscounted basis 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, including outstanding audits with taxing authorities, 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. 16 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 9. Related Party Transactions Shareholder Redemptions The Company, under the indenture for its senior subordinated notes, is permitted to redeem equity interests of the Company in order to satisfy estate-planning obligations of the estate of the principal shareholder. However, under the provisions of the indenture, the annual redemptions are not permitted to exceed $1.0 million in each of the second, third, fourth, fifth and sixth calendar years and $2.25 million in each of the seventh, eighth, ninth and tenth calendar years following the death of the shareholder, plus an additional $2.0 million in calendar year 2003, subject to certain provisions. There were no redemptions in Fiscal 2001. Other Included in shareholder receivables is an outstanding note receivable from the estate of J. Stanley Coyne in the amount of $1,264,355. This note bears interest at the Applicable Federal Rate as defined by the Internal Revenue Service, 3.6%, at October 31, 2001. Interest income on the note was not recognized during the fiscal years ended October 31, 2001, 2000 and 1999. The total amount due as of October 31, 2001 is approximately $1,648,000. It is anticipated that this receivable will be settled through the redemption of stock held by the estate. Included in shareholder receivables at October 31, 2001 and 2000 are a note receivable and outstanding advances, of approximately $452.000 and $445.000 respectively. These monies are due from Thomas M. Coyne, Chairman of the Board and President of the Company. The note receivable and advances are uncollateralized. Interest on the note accrues at 10% and is payable annually. The note matures August 31, 2007. Interest income accrued of $32,500 in both 2001 and 2000 is included in interest expense. 17 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 9. Related Party Transactions (continued) During fiscal 2001 and 2000, the Company made premium payments of $355,000 and $356,000, respectively, pursuant to a split-dollar life insurance agreement (the "agreement"), between the Company and Thomas M. Coyne. The agreement relates to insurance policies on the life of Thomas M. Coyne and provides for a collateral assignment of such policies to the Company entitling it to recover the aggregate amount of premiums paid under the agreement. Furthermore, the Company is permitted to terminate the agreement at any time. As of October 31, 2001, the Company has paid aggregate premiums of $711,000 under this agreement. However, this recoverable amount is not reflected on the Company's balance sheet. As of October 31, 2001 and 2000, there are approximately $539,000 and $257,000, respectively, of loans receivable from certain related family members as a result of monthly cash advances. The advances are unsecured. The advances have no defined repayment terms, however, it is anticipated that these advances will be settled through redemptions of stock held by the estate of J. Stanley Coyne. 10. Pension Plans All full-time non-union 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 can make an additional contribution at its discretion. The Company contributions under the 401(k) plan, which vest over a five-year employment period, were approximately $236,000, $421,000 and $719,000 in 2001, 2000 and 1999, respectively. Certain employees of the Company are covered by union sponsored, collectively bargained, multi-employer pension plans. The Company charged to expense $1,366,000, $1,390,000 and $1,430,000 in 2001, 2000 and 1999, respectively, for such plans. 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 for both years of approximately $650,000 and plan assets with a fair market value of approximately $1,068,000 in 2001 and $1,323,000 in 2000. Benefit costs of this plan are not material to the operating results of the Company. 11. Fiscal Year 2000 Fourth Quarter Adjustments In the fourth quarter of fiscal 2000, the Company recognized the effect of certain adjustments, which resulted in an increase to net income. These adjustments, on a pre-tax basis, relate to the receipt of life insurance death benefits of $165,000, reversal of accruals for deferred compensation arrangements and discretionary contributions to a benefit plan no longer required of $1,055,000. In aggregate the impact of these adjustments is an increase to net income of $732,000, net of taxes of $488,000. 18 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- 12. Summarized Financial Information of Certain Subsidiaries The Notes are jointly and severally guaranteed by the following wholly- owned subsidiaries of the Company, (the Subsidiary Guarantors): Blue Ridge Textile Manufacturing, Inc. and Ohio Garment Rental Inc. The following consolidating financial statements for the Company segregate the financial information of Coyne International Enterprises Corp. (the Parent Company) and the Subsidiary Guarantors. 19 Coyne International Enterprises Corp. and Subsidiaries Consolidating Balance Sheet
---------------------------------------------------------------------------------------------------------------------------------- October 31, 2001 ---------------------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Assets Company Guarantors Adjustments Totals ------ ---------------- -------------- --------------- ---------------- Current Assets: Cash and cash equivalents $ 335, 682 $ (216,163) $ 119,519 Accounts receivable, less allowance for doubtful accounts of $840,621 in 2001 and $341,343 in 2000 13,470,773 1,982,566 15,453,339 Inventories 4,353,668 2,344,030 6,697,698 Rental merchandise in service 27,707,131 3,694,245 31,401,376 Prepaid expenses and other assets 9,766,827 70,282 (9,289,825) 547,284 ---------------- -------------- ------------ ---------------- Total current assets 55,634,081 7,874,960 (9,289,825) 54,219,216 Property, plant and equipment, at cost: 91,908,712 8,962,811 100,871,523 Less: Accumulated depreciation (53,423,049) (5,813,295) (59,236,344) ---------------- -------------- ------------ ---------------- Property, plant and equipment, net 38,485,663 3,149,516 0 41,635,179 Other assets: Purchased routes and acquisitions intangibles, net 16,251,810 260,456 16,512,266 Deferred financing costs, net 2,169,933 2,169,933 Deferred income taxes 4,197,193 4,197,193 Other 246,965 246,965 ---------------- -------------- ------------ ---------------- Total other assets 22,865,901 260,456 0 23,126,357 ---------------- -------------- ------------ ---------------- $ 116,985,645 $ 11,284,932 $ (9,289,825) $ 118,980,752 ================ ============== ============ ================ Liabilities and Shareholders' Equity (Deficit) --------------------------------------------- Current Liabilities: Current maturities of long-term obligations $ 3,730,926 $ 3,730,936 Accounts payable 4,623,596 528,986 5,152,582 Accrued expenses: Salaries and employee benefits 3,509,064 100,776 3,609,840 Accrued interest 3,503,660 0 3,503,660 Other 3,434,970 1,365,345 4,800,315 Deferred income taxes 10,692,978 0 10,692,978 ---------------- -------------- ------------ ---------------- Total current liabilities 29,495,194 1,995,107 0 31,490,301 Long-term obligations, net of current maturities 96,102,469 96,102,469 Other liabilities 3,173,083 3,984,102 (3,984,102) 3,173,083 ---------------- -------------- ------------ ---------------- Total liabilities 128,770,746 5,979,209 (3,984,102) 130,765,853 ---------------- -------------- ------------ ---------------- Shareholders' equity (deficit): Preferred stock 3,806,200 3,806,200 Common stock 769 1,250,019 (1,250,019) 769 Additional paid-in capital 1,682,845 298,981 (298,981) 1,682,845 Retained earnings (deficit) (14,767,786) 3,756,723 (3,756,723) (14,767,786) Accumulated other comprehensive loss (259,037) (259,037) ---------------- -------------- ------------ ---------------- (9,537,009) 5,305,723 (5,305,723) (9,537,009) Less: Shareholder receivables (2,248,092) (2,248,092) ---------------- -------------- ------------ ---------------- Total shareholders' equity (deficit) (11,785,101) 5,305,723 (5,305,723) (11,785,101) ---------------- -------------- ------------ ---------------- 116,985,645 $ 11,284,932 $ 9,289,825 $ 118,980,752 ================ ============== ============ ================
20 Coyne International Enterprises Corp. and Subsidiaries Consolidating Balance Sheet --------------------------------------------------------------------------------
October 31, 2000 ---------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Assets Company Guarantors Adjustments Totals ------ ------------ ------------ ------------ ------------- Current Assets: Cash and cash equivalents $ 955,728 $ (46,388) $ 909,340 Accounts receivable, less allowance for doubtful accounts of $341,343 in 2000 15,243,854 1,686,121 16,929,975 Inventories 9,487,201 3,237,940 12,725,141 Rental merchandise in service 30,643,937 2,069,030 32,712,967 Prepaid expenses and other assets 10,035,907 14,628 (9,351,767) 698,768 ------------ ------------ ------------ ------------- Total current assets 66,366,627 6,961,331 (9,351,767) 63,976,191 Property, plant and equipment, at cost; 89,059,067 8,858,737 97,917,804 Less: Accumulated depreciation (48,572,337) (5,528,363) (54,100,700) ------------ ------------ ------------ ------------- Property, plant and equipment, net 40,486,730 3,330,374 0 43,817,104 Other assets Purchased routes and acquisition intangibles, net 16,968,910 271,032 17,239,942 Deferred financing costs, net 2,322,568 2,322,568 Deferred income taxes 3,724,623 3,724,623 Other 202,521 202,521 ------------ ------------ ------------ ------------- Total other assets 23,218,622 271,032 0 23,489,654 ------------ ------------ ------------ ------------- $130,071,979 $ 10,562,737 $ (9,351,767) $ 131,282,949 ============ ============ ============ ============= Liabilities and Shareholders' Equity (Deficit) --------------------------------------------- Current Liabilities: Current maturities of long-term obligations $ 3,385,619 $ 3,385,619 Accounts payable 8,256,569 678,116 8,934,685 Accrued expenses: Salaries and employee benefits 4,635,123 79,273 4,714,396 Accrued interest 3,655,175 3,655,175 Other 1,814,620 453,581 2,268,201 Deferred income taxes 12,032,060 12,032,060 ------------ ------------ ------------ ------------- Total current liabilities 33,779,166 1,210,970 0 34,990,136 Long-term obligations, net of current maturities 102,811,292 102,811,292 Other liabilities 2,170,095 3,645,867 (3,645,867) 2,170,095 ------------ ------------ ------------ ------------- Total liabilities 138,760,553 4,856,837 (3,645,867) 139,971,523 ------------ ------------ ------------ ------------- Shareholders' equity (deficit): Preferred stock 4,806,200 4,806,200 Common stock 769 1,250,019 (1,250,019) 769 Additional paid-in capital 849,512 298,981 (298,981) 849,512 Retained earnings (deficit) (12,212,139) 4,156,900 (4,156,900) (12,212,139) ------------ ------------ ------------ ------------- (6,555,658) 5,705,900 (5,705,900) (6,555,658) Less: Treasury stock, 2,000 shares of Class B preferred stock at a cost (166,667) (166,667) Shareholder receivables (1,966,249) (1,966,249) ------------ ------------ ------------ ------------- Total shareholders' equity (deficit) (8,688,574) 5,705,900 (5,705,900) (8,688,574) ------------ ------------ ------------ ------------- 130,071,979 $ 10,562,737 $ (9,351,767) $ 131,282,949 ============ ============ ============ =============
21 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Operations --------------------------------------------------------------------------------
Year Ended October 31, 2001 -------------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ----------- ----------- -------------- ------------ Revenue: Rental operations 131,428,405 10,052,312 141,480,717 Direct sales 4,361,519 12,290,066 (7,112,437) 9,539,148 ----------- ----------- ----------- ----------- 135,789,924 22,342,378 (7,112,437) 151,019,865 ----------- ----------- ----------- ----------- Operating expenses: Cost of rental operations 97,567,579 8,286,741 105,854,320 Cost of direct sales 2,463,348 10,460,623 (6,979,880) 5,944,091 Selling, general and administrative 22,623,468 3,153,859 (10,239) 25,767,088 Depreciation and amortization 5,799,710 318,837 6,118,547 ----------- ----------- ----------- ----------- 128,454,105 22,220,060 (6,990,011) 143,684,046 ----------- ----------- ----------- ----------- Income (loss) from operations 7,335,819 122,318 (122,318) 7,335,819 Interest expense 11,474,922 789,280 (789,280) 11,474,922 ----------- ----------- ----------- ----------- Income (loss) before income tax (4,139,103) (666,962) 666,962 (4,139,103) Income tax expense (benefit) (1,583,456) (266,785) 266,785 (1,583,456) ------------ ----------- ----------- ----------- Net income (loss) (2,555,647) (400,177) 400,177 (2,555,647) ============ =========== =========== ===========
22 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Operations --------------------------------------------------------------------------------
Year Ended October 31, 2000 ----------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ----------- ----------- ------------- ------------ Revenue: Rental operations 131,017,860 9,300,505 140,318,365 Direct sales 4,459,602 15,507,434 (9,994,929) 9,972,107 ------------ ----------- ------------- ------------ 135,477,462 24,807,939 (9,994,929 150,290,472 ------------ ----------- ------------- ------------ Operating expenses: Cost of rental operations 95,309,874 7,222,093 102,531,967 Cost of direct sales 2,701,020 13,109,779 (9,922,045) 5,888,754 Selling, general and administrative 19,735,008 2,864,804 1,144,046 23,743,858 Depreciation and amortization 6,075,172 394,333 6,469,50 ------------ ----------- ------------- ------------ 123,821,074 23,591,009 (8,777,999) 138,634,084 ------------ ----------- ------------- ------------ Income from operations 11,656,388 1,216,930 (1,216,930) 11,656,388 Interest expense 11,208,439 706,327 (706,327) 11,208,439 ------------ ----------- ------------- ------------ Income (loss) before income taxes 447,949 510,603 (510,603) 447,949 Income tax expense (benefit) 630,000 204,241 (204,241) 630,000 ------------ ----------- ------------- ------------ Net income (loss) (182,031) 306,362 (306,362) (182,051) ============ =========== ============= ============
23 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Operations --------------------------------------------------------------------------------
Year Ended October 31, 1999 ---------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ------------ ------------ ------------- ------------- Revenue: Rental operations 125,979,263 9,792,627 135,771,890 Direct sales 3,578,012 18,162,120 (11,300,300) 10,439,832 ------------ ------------ ------------- ------------- 132,191,048 27,954,747 (11,300,300) 146,211,722 ------------ ------------ ------------- ------------- Operating expenses: Cost of rental operations 91,535,652 7,276,617 98,812,269 Cost of direct sales 2,237,438 15,533,086 (10,863,267) 6,907,257 Selling, general and administrative 20,472,050 3,055,381 (1,323,798) 24,851,229 Depreciation and amortization 5,476,867 328,832 5,805,699 ------------ ------------ ------------- ------------- 122,355,780 26,193,916 (9,539,469) 136,376,454 ------------ ------------ ------------- ------------- Income from operations 9,835,268 1,760,831 (1,760,831) 9,835,268 Interest expense 10,841,533 773,790 (773,790) 10,841,533 ------------ ------------ ------------- ------------- Income (loss) before income taxes (1,006,265) 987,041 (987,041) (1,006,265) Income tax expense (benefit) (55,000) 394,816 (394,816) (55,000) ------------ ------------ ------------- ------------- Net income (loss) (951,265) 592,225 (592,225) (951,265) ============ ============ ============= =============
24 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Cash Flows --------------------------------------------------------------------------------
Year ended October 31, 2001 ------------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ------------ -------------- --------------- --------------- Cash flows from operating activities: Net income (loss) $ (2,555,647) $ (400,177) $ 400,177 $ (2,555,647) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment 3,960,412 318,837 4,279,249 Amortization or capitalized leases 1,073,401 1,073,401 Amortization or acquisition intangibles 770,256 7,932 778,188 Amortization of deferred financing costs 342,604 342,604 Provision for deferred income taxes (1,639,392) (1,639,392) Changes in operating assets and operating liabilities: Accounts receivable 1,773,081 (296,445) 1,476,636 Inventories 5,133,533 893,910 6,027,443 Rental merchandise in service 2,936,806 (1,625,215) 1,311,591 Prepaid expenses and other assets 224,637 (55,654) (61,942) 107,040 Account payable, accrued expenses, other liabilities (4,206,593) 1,122,372 (338,235) (3,422,456) ------------ ------------- ------------ -------------- Net cash provided by (used in) operating activities 7,813,098 (34,440) 0 9,090,440 ------------ ------------- ------------ -------------- Cash flows from investing activities: Purchase of property, plant and equipment (3,072,488) (98,237) (3,170,725) Acquisition of business, net of cash acquired (50,512) (50,512) ------------ ------------- ------------ -------------- Net cash used in investing activities (3,123,000) (98,237) 0 (3,221,237) ------------ ------------- ------------ -------------- Cash flows from financing activities: Proceeds from long-term borrowings 38,268,038 38,268,038 Payments under long-term obligations (44,631,555) (44,631,555) Increase in bank overdrafts 1,488,087 1,488,087 Other (471,811) (471,811) ------------ ------------- ------------ -------------- Net cash provided by (used in) financing activities (5,347,241) 0 0 (5,347,241) ------------ ------------- ------------ -------------- Net decrease in cash (657,143) (132,677) 0 (789,821) Cash and cash equivalents: Beginning of period 955,728 (46,388) 909,340 ------------ ------------- ------------ -------------- End of period $ 298,585 $ (179,065) $ - $ 119,519 ============ ============= ============ ==============
25 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Cash Flows -------------------------------------------------------------------------------
Year ended October 31, 2000 ----------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ------- ---------- ----------- ------------ Cash flows from operating activities: Net income (loss) $ (182,051) $ 306,362 $ (306,362) $ (182,051) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment 4,211,478 394,333 4,605,811 Amortization of capitalized leases 1,073,401 1,073,401 Amortization of acquisition intangibles 779,717 10,576 790,293 Amortization of deferred financing costs 334,025 334,025 Provision for deferred income taxes 497,437 497,437 Changes in operating assets and operating liabilities: Accounts receivable (2,633,446) 2,472,429 (161,017) Inventories (4,346,904) (861,172) (5,208,076) Rental merchandise in service (4,454,111) (420,772) (4,874,883) Prepaid expenses and other assets 131,474 (17,429) 225,555 339,600 Accounts payable, accrued expenses, other liabilities 575,088 (1,643,400) 80,807 (987,505) ----------- ----------- ---------- ----------- Net cash provided by (used in) operating activities (4,013,892) 240,927 0 (3,772,965) ----------- ----------- ---------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment (2,748,685) (192,123) (2,940,808) Acquisition of business, net of cash acquired (1,115,157) (1,115,157) ----------- ----------- ---------- ----------- Net cash used in investing activities (3,863,842) (192,123) 0 (4,055,965) ----------- ----------- ---------- ----------- Cash flows from financing activities: Proceeds from long-term borrowings 50,637,540 50,637,540 Payments under long-term obligations (41,987,966) (41,987,966) Other (124,711) (124,711) ----------- ----------- ---------- ----------- Net cash provided by (used in) financing activities 8,524,863 0 0 8,524,863 ----------- ----------- ---------- ----------- Net increase (decrease) in cash 647,129 48,804 0 695,933 Cash and cash equivalents: Beginning of period 309,648 (96,241) 213,407 ----------- ----------- ---------- ----------- End of period $ 956,777 $ (47,437) $ - $ 909,340 =========== =========== ========== ===========
26 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statement of Cash Flows --------------------------------------------------------------------------------
Year ended October 31, 1999 ---------------------------------------------------------- Parent Subsidiary Consolidating Consolidated Company Guarantors Adjustments Totals ------------- ------------- ------------- ------------- Cash flows from operating activities: Net income (loss) $ (951,265) $ 592,225 $ (592,223) $ (951,265) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment 3,702,041 328,832 4,030,873 Amortization of capitalized leases 1,073,401 1,073,401 Amortization of acquisition intangibles 690,849 10,576 701,425 Amortization of deferred financing costs 355,249 355,249 Provision for deferred income taxes (125,000) (125,000) Changes in operating assets and operating liabilities: Accounts receivable (1,230,560) (1,325,363) (2,555,923) Inventories (962,978) 437,976 (525,002) Rental merchandise in service 599,936 (100,718) 499,218 Prepaid expenses and other assets (1,159,382) (22,447) 1,290,471 108,642 Accounts payable, accrued expenses, other liabilities (3,055,870) 947,403 (698,246) (2,806,713) ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (1,063,579) 868,484 0 (195,095) ------------ ------------ ------------ ------------ Cash flows from investing activities: Purchase of property, plant and equipment (7,521,270) (192,123) (7,713,393) Acquisition of business, net of cash acquired (1,467,052) (1,467,052) ------------ ------------ ------------ ------------ Net cash used in investing activities (8,988,322) (192,123) 0 (9,180,445) ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from long-term borrowings 50,558,770 50,558,770 Payments under long-term obligations (41,549,085) (41,549,085) Other (494,234) (494,234) ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities 8,515,451 0 0 8,515,451 ------------ ------------ ------------ ------------ Net increase (decrease) in cash (1,536,450) 676,361 0 (860,089) Cash and cash equivalents: Beginning of period 1,294,046 (220,550) 1,073,496 ------------ ------------ ------------ ------------ End of period $ (242,404) $ 455,811 $ - $ 213,407 ============ ============ ============ ============
27 Coyne International Enterprises Corp and Subsidiaries Index to Exhibits (Item 14(a)(3)) Exhibit No. Description ----------------- --------------------------------- (a) Exhibits 2.1 Articles of Merger of Clean Towel Services, Inc. into Coyne International Enterprises Corp. 2.2 Plan of Merger Clean Towel Services, Inc. into Coyne International Enterprises Corp. 2.4 Certificate of Merger of Midway-CTS Buffalo, Ltd. into Coyne International Enterprises Corp. Pursuant to Section 905 of the Business Corporation Law. 2.5 Plan to Merge Midway-CTS Buffalo into Coyne International Enterprises Corp. Pursuant to Section 905 of the Business Corporation Law. 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 Ohio Garment Rental, Inc.** 3.6 Bylaws of Ohio Garment Rental, Inc.** 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.** 10.10 Promissory Note dated September 27, 1994 from J. Stanley Coyne payable to the Company and related Mortgage Deed** 10.11 First Amendment to Amended and Restated Financing and Security Agreement*** 10.12 Second Amendment to Amended and Restated Financing and Security Agreement*** 10.13 Third Amendment to Amended and Restated Financing and Security Agreement 10.14 Fourth Amendment to Amended and Restated Financing and Security Agreement 10.15 Fifth Amendment to Amended and Restated Financing and Security Agreement 10.16 Sixth Amendment to Amended and Restated Financing and Security Agreement 21 Subsidiaries of the Company * Incorporated by reference to Amendment No. 2 of the Company's Registration Statement on Form S-4 (Registration No. 333-60247), 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. *** Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending October 31, 1999.