<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 July 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
-------
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
--------------
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 (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 [ ]
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets -
July 31, 1999 (unaudited) and October 31, 1998....................................... 3
Unaudited Consolidated Statements of Operations and Retained Earnings (Deficit) -
Three Months Ended July 31, 1999 and 1998; Nine Months Ended July 31, 1999 and 1998.. 5
Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended July 31, 1999 and 1998............................................. 6
Notes to unaudited Consolidated Financial Statements..................................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 9
PART II. Other Information
Signatures............................................................................... 12
</TABLE>
2
<PAGE>
COYNE INTERNATIONAL ENTERPRISES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1999 and October 31, 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ --------------------- --------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 578,375 $ 1,073,496
Receivables, principally trade 15,770,894 14,444,489
Inventories 7,855,898 6,846,393
Uniforms and other rental items in service, net 27,567,694 28,337,302
Prepaid expense and other assets 684,095 931,978
--------------------- --------------------
Total current assets 52,456,956 51,633,658
Property, plant and equipment, net 46,483,276 43,934,590
Purchased routes and acquisition intangibles, net 17,381,128 16,306,920
Deferred financing cost, net 2,655,411 2,871,172
Deferred income tax 2,586,000 2,435,000
Other assets 454,064 417,553
--------------------- --------------------
$ 122,016,835 $ 117,598,893
===================== ====================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1999 1998
---------------------------------------------- -------------------- --------------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 2,259,070 $ 2,380,406
Accounts payable 7,034,502 7,005,212
Accrued expenses:
Salaries and employee benefits 5,637,685 5,195,374
Other 6,983,649 9,385,038
Deferred income taxes 10,145,000 10,370,000
------------------ ------------------
Total current liabilities 32,059,906 34,336,030
Long-term debt obligations:
Long-term debt, net of current maturities 19,477,440 11,157,247
Senior subordinated notes 75,000,000 75,000,000
Other liabilities 3,521,313 3,951,145
------------------ ------------------
Total liabilities 130,058,659 124,444,422
------------------ ------------------
Shareholders' equity (deficit):
Preferred stock - 5% non-cumulative, non-voting, callable at par:
Class A - $100 par value; authorized 30,000; issued and
outstanding 23,107 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 2923 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) (12,275,118) (11,078,823)
------------------ ------------------
(6,618,637) (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)
------------------ ------------------
Total shareholders' equity (deficit) (8,041,824) (6,845,529)
------------------ ------------------
Commitments and contingencies
$ 122,016,835 $ 117,598,893
================== ==================
</TABLE>
4
<PAGE>
COYNE INTERNATIONAL ENTERPRISES CORP
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Deficit)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------- -----------------------------------
1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Net rentals $ 33,714,740 $ 31,522,530 $ 101,387,834 $ 93,538,396
Net sales 2,708,631 2,448,675 7,654,136 7,461,018
---------------- --------------- ---------------- ----------------
36,423,371 33,971,205 109,041,970 100,999,414
---------------- --------------- ---------------- ----------------
Operating expenses:
Cost of rentals 26,184,849 24,086,387 78,172,598 71,563,071
Cost of sales 1,791,930 1,825,701 5,042,707 5,202,041
Selling, general and administrative 6,649,462 5,358,700 19,501,556 16,555,040
---------------- --------------- ---------------- ----------------
34,626,241 31,270,788 102,716,861 93,320,152
---------------- --------------- ---------------- ----------------
Income from operations 1,797,130 2,700,417 6,325,109 7,679,262
Interest expense 2,689,992 1,984,840 7,889,405 5,380,447
Redemption of stock warrants 17,256,914
---------------- --------------- ---------------- ----------------
2,689,992 1,984,840 7,889,405 22,637,361
---------------- --------------- ---------------- ----------------
Income (loss) before income taxes (892,862) 715,577 (1,564,296) (14,958,099)
Income tax provision (credit) (282,000) 405,900 (368,000) 642,900
---------------- --------------- ---------------- ----------------
Income (loss) before extraordinary item (610,862) 309,677 (1,196,296) (15,600,999)
Extraordinary loss on debt retirement,
net of tax of $365,188 939,055 939,055
---------------- --------------- ---------------- ----------------
NET LOSS (610,862) (629,378) (1,196,296) (16,540,054)
Retained earnings (deficit), beginning of the year (11,664,257) (10,246,908) (11,078,823) 5,663,768
---------------- --------------- ---------------- ----------------
RETAINED DEFICIT, END OF PERIOD $ (12,275,119) $ (10,876,286) $ (12,275,119) $ (10,876,286)
================ =============== ================ ================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
COYNE INTERNATIONAL ENTERPRISES CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Nine Months Ended July 31,
<TABLE>
<CAPTION>
1999 1998
------------------- ------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,196,296) $ (16,540,054)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation of plant and equipment 3,781,485 3,250,271
Amortization of acquisition intangibles 508,243 543,776
Amortization of deferred financing 266,437 415,309
Extraordinary loss on retirement of debt, net 939,055
Provision for deferred income taxes (376,000) 544,619
Changes in operating assets and operating liabilities:
Accounts receivable (1,326,405) (1,406,671)
Inventories (1,009,505) (1,484,699)
Uniforms in service 769,608 (3,392,402)
Prepaid expenses and other assets 211,372 35,449
Accounts payable and other liabilities (2,359,619) (1,420,129)
----------------- ------------------
Net cash provided by (used in) operating activities (730,680) (18,515,476)
----------------- ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,330,171) (4,188,465)
Acquisition of business, net of cash acquired (1,582,451) (238,844)
----------------- ------------------
Net cash used in investing activities (7,912,622) (4,427,309)
----------------- ------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 34,651,472 170,282,000
Payments under long-term debt obligations (26,452,615) (141,216,396)
Decrease in bank overdrafts (1,700,982)
Redemption of common stock warrants (1,743,086)
Deferred financing costs incurred (50,675) (2,864,078)
----------------- ------------------
Net cash provided by (used in) financing activities 8,148,181 22,757,458
----------------- ------------------
Net (decrease) increase in cash (495,121) (185,327)
Cash and cash equivalents:
Beginning of the period 1,073,496 1,272,192
----------------- ------------------
End of the period $ 578,375 $ 1,086,865
================= ==================
Supplemental disclosure of cash flow information:
Interest paid $ 9,016,491 $ 5,034,420
Income taxes paid (refunded) (239,274) 129,158
Seller financed debt 500,000
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
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 nine-month period ended July 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
October 31, 1999.
Note B - Long-term Debt
In connection with the Company's issuance, in June 1998 of 11.25% subordinated
notes, 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. In connection with
the debt retirement the Company recognized an extraordinary loss of $939,055,
net of tax, for the write-off of certain unamortized deferred financing and debt
discount costs.
At July 31, 1999 the Company was not in compliance with certain bank financial
covenants. Subsequent to July 31, 1999 the Company obtained waivers of such
noncompliance.
Note C - Income Taxes
The Company's effective tax rate differs from the federal statutory rate of 34%
due to state taxes and certain expenses that are not deductible for tax
purposes. These include the amortization of certain intangible assets and the
non-deductible portion of certain meals and entertainment expenses.
7
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COYNE INTERNATIONAL ENTERPRISES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note D - Reclassification
Certain amounts have been reclassified to conform to 1999 presentation.
Note E - Summarized Financial Information for Subsidiaries
The following table presents financial information for the wholly-owned
subsidiaries of Coyne International Enterprises: Blue Ridge Textile
Manufacturing, Inc., Ohio Garment Rental, Inc., and Midway-CTS Buffalo, LTD on a
combined basis:
July 31, October 31,
1999 1998
(Unaudited)
Balance sheets:
Current assets $ 6,303,000 $ 5,934,000
Noncurrent assets 3,811,000 3,317,000
Current liabilities 3,513,000 2,702,000
Noncurrent liabilities 195,000 182,000
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------- ----------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statement of operations:
Revenues $ 4,067,000 $ 4,113,000 $ 12,338,000 $ 12,448,000
Operating expenses 3,884,000 3,730,000 11,375,000 11,197,000
Operating income 182,000 383,000 964,000 1,251,000
Net income (loss) (4,000) (2,415,000) 239,000 (2,419,000)
</TABLE>
The Company has not provided separate financial statements and other disclosures
for its wholly-owned subsidiaries because management has determined that such
information is not material to investors.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements included in this Part I, Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Quarterly Report on Form 10-Q which are not statements of historical fact are
intended to be, and are hereby identified as, "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Without limiting the foregoing, the words "believe," "anticipate," "plan,"
"expect," "estimate," "intend" and other similar expressions are intended to
identify forward-looking statements. The Company cautions readers that forward-
looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the success or failure of the
Company in implementing its current business and operational strategies;
availability, terms and access to capital and customary trade credit; general
economic and business conditions; competition; changes in the Company's business
strategy; unexpected costs of year 2000 compliance or failure by the Company or
other entities with which it does business to achieve compliance; labor
relations; the outcome of pending or yet-to-be instituted legal proceedings;
labor and employee benefit costs; and availability and terms of necessary or
desirable financing or refinancing.
Liquidity and Capital Resources
Cash used in operating activities was $731 thousand for the nine month period
ended July 31, 1999 versus $18.6 million for the same period last year. Cash
used in operating activities in 1998 included $17.3 million for the redemption
of common stock warrants in connection with the retirement of subordinated debt
obligations.
The Company's working capital was $20.4 million at July 31, 1999 as compared to
$17.3 at October 31, 1998. The increase in working capital of $3.1 million
reflects a decrease in current liabilities through utilization of the Company's
revolving credit facility.
At of the end of July 1999, the Company had approximately $11.2 million
available under its working capital line and up to an additional $28 million
available under bank credit facilities for capital expenditures and
acquisitions. At July 31, 1999 the Company was not in compliance with certain
financial covenants under these facilities. Subsequent to July 31, 1999 the
Company obtained waivers of such noncompliance. 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.
Cash used in investing activities was $7.9 million for the nine months ended
July 31, 1999, as compared to $4.4 million for the same period in 1998. The
increase is attributable to higher capital expenditures and route acquisitions.
Capital expenditures relate primarily to investments in new information systems,
route trucks and laundry plant facilities. The Company anticipates that capital
expenditures will be approximately $8 million for fiscal 1999, an increase of
approximately $1.3 million over fiscal 1998.
9
<PAGE>
Results of Operations for the Third Quarter of Fiscal 1999 Compared to the Third
Quarter of Fiscal 1998
Revenues for the quarter of $36.4 million are $2.5 million or 7.2% greater than
the same period last year. Year-to-date revenues of $109.0 million are $8.0
million or 8.0% higher than the same period last year. This increase is
attributable primarily to new rental revenue generated by the Company's expanded
sales organization.
Cost of rental operations increased as a percent of rental revenue to 77.7% for
the third quarter of 1999 and 77.1% year-to-date 1999 versus 76.4% in the third
quarter of 1998 and 76.5% year-to-date 1998. The increase is attributable to
upfront costs associated with the growth in rental business and lower benefit
costs in 1998 as a result of favorable workers compensation retroactive premium
adjustments.
Selling, general and administrative expenses for the third quarter and year-to-
date 1999 increased by approximately $1.3 million and $2.9 million respectively
compared to 1998. The increase is attributable to the expansion of the sales
organization, uncapitalizable costs associated with the implementation of its
new computer systems, Year 2000 preparation and investment in plant and
corporate management teams. The personnel investment has enabled the Company to
produce continued revenue growth and improve the quality and depth of its
management team. 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 the service. The
Company anticipates that margins will increase in the second year of the rental
contracts.
Income from operations for the third quarter of 1999 is approximately $903
thousand lower than the same period last year. Increases in selling expenses and
investments associated with growth have exceeded the benefits of the additional
revenue during the quarter. In addition, the third quarter of 1998 benefited
from approximately $250 thousand of favorable insurance adjustments.
Excluding the effect of the stock warrant redemption completed in the third
quarter of 1998, interest expense increased $705 thousand and $2.5 million for
the third quarter and year-to-date, respectively. The increase is 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 common stock
warrants.
For the three months ending July 31 there was a net loss of $611 thousand in
1999 as compared to a loss of $630 thousand in 1998. The 1998 results include an
extraordinary loss, not of taxes, of $939 thousand associated with debt
retirement.
Information Systems; Year 2000
In order to enhance the Company's information management capabilities and
achieve Year 2000 compliance (Y2K), the Company is implementing new software for
Billing, Route Accounting, Purchasing, Accounts Payable and Financial Reporting.
The installation and implementation of the Billing and Route Accounting system
is now complete in 15 of the Company's 17 plants with the remaining plants
expected to be complete by October 31, 1999. The Company believes that the new
Billing System has achieved all project objectives and is Y2K compliant.
10
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The Company will use third party application software that is Y2K compliant to
replace or upgrade its remaining management information systems. The Company has
completed an upgrade of its payroll and financial reporting systems to a version
represented by third party vendors to be Y2K compliant. The replacement of the
Purchasing and Accounts Payable system is in progress and expected to be
complete by November 1999. The Company has completed inventory and assessment
phases in connection with Y2K compliance for its physical plant systems and
production equipment. Based on the Company's assessment, management believes
that these systems will be Y2K compliant by December 1999.
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 estimates the total capital cost of its Y2K project and related
systems upgrades will be approximately $3.7 million. As of July 31, 1999 the
Company had spent approximately $2.7 million. The majority of these costs
represent capital expenditures for replacement software and hardware.
In the interest of further protecting the Company from Y2K exposure, contingency
plans have been developed for certain systems that are critical to the Company's
business operations. Although the Company does not anticipate the need to do so,
arrangements have been made to convert software applications developed in-house
to allow for execution after December 31, 1999.
11
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PART II. Other Information
None
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.
September 13, 1999 By: /S/ Thomas E. Krebbeks
---------------------------
Thomas E. Krebbeks
VP of Finance and Chief Financial Officer
By: /S/ Thomas C. Crowley
---------------------------
Thomas C. Crowley
Chief Operating Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COYNE INTERNATIONAL ENTERPRISES CORP. AND
SUBSIDIARIES FOR THE QUARTER ENDED JULY 31,1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001066242
<NAME> COYNE INTERNATIONAL ENTERPRISES CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 578,375
<SECURITIES> 0
<RECEIVABLES> 15,770,894
<ALLOWANCES> 0
<INVENTORY> 7,855,898
<CURRENT-ASSETS> 52,456,956
<PP&E> 94,539,580
<DEPRECIATION> 48,056,304
<TOTAL-ASSETS> 122,016,835
<CURRENT-LIABILITIES> 32,059,906
<BONDS> 96,736,510
0
4,806,200
<COMMON> 769
<OTHER-SE> (12,848,793)
<TOTAL-LIABILITY-AND-EQUITY> 122,016,835
<SALES> 2,708,631
<TOTAL-REVENUES> 36,423,371
<CGS> 1,791,930
<TOTAL-COSTS> 34,626,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,689,992
<INCOME-PRETAX> (892,862)
<INCOME-TAX> (282,000)
<INCOME-CONTINUING> (610,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (610,862)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
