<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended January 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File No. 0-11399
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COYNE INTERNATIONAL ENTERPRISES CORP.
BLUE RIDGE TEXTILE MANUFACTURING, INC.
OHIO GARMENT RENTAL, INC.
MIDWAY-CTS BUFFALO, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrants as specified in their respective charters)
New York 16-6040758
Georgia 58-2018333
Ohio 34-1261376
New York 16-1469155
- --------------------------------------- -------------------------------------
(State or Other Jurisdiction of (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
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Securities Registered Pursuant to Section 12(b) of the Act: NONE
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (1) 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 (2) has been subject to such
filing requirements for the past 90 days.
YES [x] NO [_]
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TABLE OF CONTENTS
Page
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PART I. Financial Information:
Consolidated Balance Sheets -
January 31, 1999 (unaudited) and October 31, 1998..................3
Unaudited Consolidated Statements of Operations and Retained
Earnings (Deficit)-
Three Months Ended January 31, 1999 and 1998.......................5
Unaudited Consolidated Statements of Cash Flows -
Three Months Ended January 31, 1999 and 1998.......................6
Notes to unaudited Consolidated Financial Statements .......................7
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................8
PART II. Other Information
Signatures ...............................................................10
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Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31 October 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,269,234 $ 1,073,496
Receivables, principally trade 15,594,512 14,444,489
Inventories 7,301,595 6,846,393
Uniforms and other rental items in service, net 27,465,038 28,337,302
Prepaid expense and other assets 634,816 931,978
--------------- --------------
Total current assets 52,265,195 51,633,658
Property, plant and equipment, net 44,307,187 43,934,590
Purchased routes and acquisition intangibles, net 16,136,924 16,306,920
Deferred financing cost, net 2,784,592 2,871,172
Deferred income tax 1,826,000 2,435,000
Other assets 417,540 417,553
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$117,737,438 $117,598,893
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' January 31, October 31,
EQUITY (DEFICIT) 1999 1998
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $2,363,683 $2,380,406
Accounts payable 4,024,428 7,005,212
Accrued expenses:
Salaries and employee benefits 5,222,794 5,195,374
Other 7,813,899 9,385,038
Deferred income taxes 9,715,000 10,370,000
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Total current liabilities 29,139,804 34,336,030
Long-term debt obligations:
Long-term debt, net of current maturities 16,740,697 11,157,247
Senior subordinated notes 75,000,000 75,000,000
Other liabilities 3,831,406 3,951,145
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Total liabilities 124,711,907 124,444,422
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Shareholders' equity (deficit):
Preferred stock - 5% non-cumulative, non-voting,
callable at par;
Class A - $100 par value; authorized 30,000;
Issued and Outstanding 23,107 2,310,700 2,310,700
Class B - $500 par value; authorized 5,000;
Issued 4,991, outstanding 2,991 2,495,500 2,495,500
Common stock - $.01 par value:
Class A - voting; authorized 100,000 shares,
Issued and outstanding 2,923 29 29
Class B - non-voting; authorized 99,000;
Issued and outstanding 74,030 740 740
Additional paid-in capital 849,512 849,512
Retained earnings (deficit) (11,207,763) (11,078,823)
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( 5,551,282) ( 5,422,342)
Less:
Cost of 2,000 shares of Class B preferred
stock held in treasury ( 166,667) ( 166,667)
Shareholder note receivable ( 1,256,520) ( 1,256,520)
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Total shareholders' equity (deficit) ( 6,974,469) ( 6,845,529)
Commitments and contingencies
$117,737,438 $117,598,893
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</TABLE>
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Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings (Deficit)
For the Three Months Ended January 31,
<TABLE>
<CAPTION>
1999 1998
(Unaudited)
<S> <C> <C>
Revenues:
Rental operations $33,652,497 $ 30,361,626
Direct sales 2,398,965 2,611,425
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36,051,462 32,973,051
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Operating expenses:
Cost of rental operations 25,674,174 23,433,984
Cost of direct sales 1,561,516 1,649,041
Selling, general and administrative 6,280,100 5,308,048
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33,515,790 30,391,073
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Income from operations 2,535,672 2,581,978
Interest expense 2,578,612 1,747,609
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(Loss) income before income tax (42,940) 834,369
Income taxes 86,000 414,020
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NET (LOSS) INCOME (128,940) 420,349
Retained earnings (deficit), beginning of period (11,078,823) 5,663,768
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RETAINED (DEFICIT) EARNINGS, END OF PERIOD ($11,207,763) $6,084,117
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</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended January 31,
<TABLE>
<CAPTION>
1999 1998
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($128,940) $420,350
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation of plant and equipment 1,247,003 1,047,913
Amortization expense 258,808 320,658
Provision for deferred income taxes (46,000) 292,500
Changes in operating assets and operating liabilities:
Accounts receivable (1,150,023) (432,575)
Inventories (455,202) (689,610)
Uniforms in service 872,264 (2,040,847)
Prepaid expenses and other assets 297,175 (76,548)
Accounts payable and other liabilities (4,644,242) 1,804,156
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Net cash (used in) provided by operating activities (3,749,157) 645,997
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Cash flows from investing activities:
Purchases of property, plant and equipment (1,619,600) (1,214,045)
Acquisition of business, net of cash acquired (25,000)
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Net cash used in investing activities (1,619,600) (1,239,045)
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Cash flows from financing activities:
Proceeds from long-term borrowings 10,150,000 36,699,542
Payments under long-term debt obligations (4,583,273) (36,976,425)
Deferred financing costs incurred (2,232) (14,032)
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Net cash provided by (used in) financing activities 5,564,495 (290,915)
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Net (decrease) increase in cash 195,738 (883,963)
Cash and cash equivalents:
Beginning of the period 1,073,496 1,272,192
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End of period $1,269,234 $388,229
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Supplemental disclosure of cash flow information:
Interest paid $4,008,488 $1,603,779
Income taxes paid (refunded) (4,700) 12,906
Seller financed debt 500,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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COYNE INTERNATIONAL ENTERPRISES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, quarterly results include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. For further information, refer to
the consolidated financial statements and notes included in the Company's annual
report on Form 10-K for the year ended October 31, 1998.
The unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany transactions have been
eliminated in consolidation.
Operating results for the three-month period ended January 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
October 31, 1999.
Note B - Redemption of Stock Warrants
In 1998 the Company retired $12 million of senior subordinated notes and
redeemed all outstanding common stock warrants held by its senior subordinated
noteholders. The warrants were redeemed under a settlement agreement requiring
the payment of $19,000,000 comprised of $6,000,000 for the warrants, $11,000,000
for an early termination fee and $2,000,000 for a management fee. The excess of
this settlement over the book value of the common stock warrants was reported as
a charge of $17,257,000 in the second quarter of fiscal 1998.
Note C - Income Taxes
The Company's effective tax rate differs from the federal statutory rate of 34%
due to expenses that are not deductible for tax purposes including the
amortization of certain intangible assets and the non-deductible portion of
certain meals and entertainment expenses.
Note D - Reclassification
Certain amounts have been reclassified to conform with 1999 presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $3.7 million for the three month period
ended January 31, 1999, a decrease of approximately $4.4 million compared to the
same period last year. This decrease is primarily due to a first quarter 1999
reduction in accounts payable and other liabilities including the payment of
$3.6 million of interest on the 11 1/4% Senior Subordinated Notes. In addition,
accounts receivable and inventories have continued to increase in response to
the growth in revenue, while uniforms in service have decreased due to more
efficient merchandise utilization and lower spending during the first quarter of
1999.
The Company's working capital was $23.1 million at January 31, 1999 as compared
to $17.3 at October 31, 1998. The increase in working capital of $5.8 million
reflects the decrease in current liabilities. Items accrued at October 31, 1998
were financed on the Company's working capital line during the first quarter.
At of the end of January 1999, the Company had approximately $12 million
available under its working capital line and $30 million available under other
bank credit facilities.
Capital expenditures were $1.6 million for the quarter as compared to $1.2 for
the same period last year. The Company anticipates that capital expenditures
will be approximately $8 million during fiscal 1999, an increase of
approximately $1.3 million over fiscal 1998 primarily to investments in new
information systems.
Management believes that its operations and bank credit facilities will provide
sufficient cash to meet the requirements for operations, acquisitions and
capital expenditures for the next twelve months.
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF FISCAL 1999 COMPARED TO THE FIRST
QUARTER OF FISCAL 1998
Revenues for the quarter of $36 million were $3.1 million or 9% greater than the
same period last year. This increase in revenue is due to an increase in rental
revenue of $3.3 million or 10.8% generated by the recently expanded sales
organization. Direct sales are slightly lower than the same period last year due
to lower sales from the Company's manufacturing operation.
Cost of rental operations increased by $2.2 million due to the increase in
revenue and was approximately 76.2% of rental revenue, as compared to 77.2% for
the first quarter of last year.
Selling, general and administrative expenses increased by approximately $1
million or 18% due to the expansion of the sales organization and field
management teams. This investment in personnel has allowed the Company to
produce the revenue increase in the first quarter. The increase in selling
expense includes certain one time training costs and sales commissions. These
costs and other one-time contract costs reduce the margin on new sales in the
first year of
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the service. The Company anticipates that margins will increase in the second
year of the rental contracts.
Income from operations is comparable with the same period last year since the up
front costs offset the benefits of the additional revenue during the first
quarter.
Interest expense for the first quarter increased $.8 million or 48% due to
higher principal balances in connection with the issuance of 11.25% Senior
Subordinated Notes in June of 1998. The proceeds of this offering were used to
retire existing senior and subordinated debt and to repurchase outstanding
warrants.
The net loss for the period of $129,000 as compared to a net profit of $420,000
for the first quarter of last year resulted from the incremental interest
expense as described above.
INFORMATION SYSTEMS; YEAR 2000
In order to enhance the Company's information management capabilities as well as
to achieve Year 2000 compliance (Y2K), the Company continues to focus most of
its Y2K efforts on the strategic applications relating to its customer
contracts, route accounting, billing and accounts receivable. This portion of
the Company's Y2K project is referred to as the "Billing System." The Company
believes that the new Billing System has achieved all project objectives and is
Y2K compliant. The implementation was approximately 25% complete as of January
31, 1999. Installation of the new Billing System is expected to be complete by
October 31, 1999.
The Company will use third party application software that is Y2K compliant to
replace or upgrade its remaining management information systems. The Company is
in the process of upgrading its existing third party payroll and financial
systems (i.e. general ledger) to versions that have been represented by third
party vendors to be Y2K compliant. Upgrades to the Company's third party payroll
and financial systems are planned to be completed by the end of March 1999.
Inventory and assessment phases have been substantially completed for physical
plant systems and production equipment. Based on the Company's initial
assessment, management believes that these systems will be Y2K compliant by
January 1, 2000.
The Company continues to contact suppliers and customers regarding their state
of readiness. All critical suppliers and customers have assured the Company that
their systems are Y2K compliant or that they are in the process of repairing or
replacing their systems to make them Y2K compliant.
The Company still expects that the total costs of its Y2K project will range
from $3.0 to $4.0 million. As of January 31, 1999 the Company had spent
approximately $1.8 million. The majority of these costs have been associated
with replacing both software and hardware. These costs will be capitalized and
will be included in the Company's fixed assets and depreciated.
Contingency plans have been developed for certain systems that are critical to
the Company's business operations. Arrangements have been made to convert
software applications
9
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developed in-house to allow for execution after December 31, 1999, if the Y2K
project implementation was significantly off schedule.
PART II. Other Information
None
SIGNATURES
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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: March 16, 1999 By: /s/ Donald F.X. Keegan
--------------------------------------------
Donald F.X. Keegan
Vice President and Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COYNE INTERNATIONAL ENTERPRISE CORP. AND
SUBSIDIARIES FOR THE QUARTER ENDED JANUARY 31, 1999.
</LEGEND>
<CIK> 0001066242
<NAME> COYNE INTERNATIONAL ENTERPRISES CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,269,234
<SECURITIES> 0
<RECEIVABLES> 15,594,512
<ALLOWANCES> 0
<INVENTORY> 7,301,595
<CURRENT-ASSETS> 52,265,195
<PP&E> 89,852,281
<DEPRECIATION> 45,545,094
<TOTAL-ASSETS> 117,737,438
<CURRENT-LIABILITIES> 29,139,804
<BONDS> 94,104,380
0
4,806,200
<COMMON> 769
<OTHER-SE> (11,781,438)
<TOTAL-LIABILITY-AND-EQUITY> 117,737,438
<SALES> 2,398,965
<TOTAL-REVENUES> 36,051,462
<CGS> 1,561,516
<TOTAL-COSTS> 33,515,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,578,612
<INCOME-PRETAX> (42,940)
<INCOME-TAX> 86,000
<INCOME-CONTINUING> (128,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,940)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
