<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 May 1, 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)
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<S> <C>
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)
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Registrant's Telephone Number, Including Area Code: (315) 475-1626
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant (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
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PAGE
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PART I. Financial Information:
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Consolidated Balance Sheets -
April 30, 1999 (unaudited) and October 31, 1998....................................... 3
Unaudited Consolidated Statements of Operations and Retained Earnings (Deficit) -
Three Months Ended April 30, 1999 and 1998; Six Months Ended April 30, 1999 and 1998.. 5
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended April 30, 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
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2
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COYNE INTERNATIONAL ENTERPRISES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1999 and October 31, 1998
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<CAPTION>
ASSETS 1999 1998
---------- -------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 623,336 $ 1,073,496
Receivables, principally trade 14,997,145 14,444,489
Inventories 7,630,448 6,846,393
Uniforms and other rental items in service, net 27,411,139 28,337,302
Prepaid expense and other assets 679,541 931,978
-------------- --------------
Total current assets 51,341,609 51,633,658
Property, plant and equipment, net 46,022,047 43,934,590
Purchased routes and acquisition intangibles, net 17,534,276 16,306,920
Deferred financing cost, net 2,744,223 2,871,172
Deferred income tax 2,154,000 2,435,000
Other assets 417,165 417,553
-------------- --------------
$ 120,213,320 $ 117,598,893
============= =============
</TABLE>
See notes to consolidated financial statements
3
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1999 1998
--------------------------------------------- --------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 2,394,416 $ 2,380,406
Accounts payable 4,050,173 7,005,212
Accrued expenses:
Salaries and employee benefits 5,335,408 5,195,374
Other 9,018,678 9,385,038
Deferred income taxes 10,145,000 10,370,000
-------------- -------------
Total current liabilities 30,943,675 34,336,030
Long-term debt obligations:
Long-term debt, net of current maturities 18,165,688 11,157,247
Senior subordinated notes 75,000,000 75,000,000
Other liabilities 3,534,919 3,951,145
-------------- -------------
Total liabilities 127,644,282 124,444,422
-------------- -------------
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) (11,664,256) (11,078,823)
-------------- -------------
(6,007,775) (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) (7,430,962) (6,845,529)
-------------- -------------
Commitments and contingencies
$ 120,213,320 $ 117,598,893
============== =============
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COYNE INTERNATIONAL ENTERPRISES CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Deficit)
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Three Months Ended Six Months Ended
April 30, April 30,
------------------------------- ------------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net rentals $ 34,020,597 $ 31,654,240 67,673,094 $ 62,015,866
Net sales 2,546,540 2,400,918 4,945,505 5,012,343
------------ ------------ ------------ ------------
36,567,137 34,055,158 72,618,599 67,028,209
------------ ------------ ------------ ------------
Operating expenses:
Cost of rentals 26,313,575 23,888,084 51,987,749 47,476,684
Cost of sales 1,689,261 1,881,915 3,250,777 3,376,340
Selling, general and administrative 6,571,994 5,888,292 12,852,094 11,196,340
------------ ------------ ------------ ------------
34,574,830 31,658,291 68,090,620 62,049,364
------------ ------------ ------------ ------------
Income from operations 1,992,307 2,396,867 4,527,979 4,978,845
Interest expense 2,620,801 1,647,998 5,199,413 3,395,607
Redemption of stock warrants 17,256,914 17,256,914
------------ ------------ ------------ ------------
2,620,801 18,904,912 5,199,413 20,652,521
------------ ------------ ------------ ------------
Income (loss) before income taxes (628,494) (16,508,045) (671,434) (15,673,676)
Income tax (credit) provision (172,000) (177,020) (86,000) 237,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) (456,494) (16,331,025) (585,434) (15,910,676)
Retained earnings (deficit),
beginning of the period (11,207,763) 6,084,117 (11,078,823) 5,663,768
------------ ------------ ------------ ------------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD $(11,664,257) $(10,246,908) (11,664,257) $(10,246,908)
============ ============ ============ ============
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See notes to consolidated financial statements
5
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COYNE INTERNATIONAL ENTERPRISES CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Six Months Ended April 30,
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1999 1998
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(Unaudited)
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Cash flows from operating activities:
Net (loss) income $ (585,433) $ (15,910,676)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation of plant and equipment 2,491,529 2,107,360
Amortization of acquisition intangibles 333,999 360,176
Amortization of deferred financing 177,624 287,660
Provision for deferred income taxes 56,000 210,000
Redemption of stock warrants 17,256,914
Changes in operating assets and operating liabilities:
Accounts receivable (552,656) (1,415,031)
Inventories (784,055) (1,321,079)
Uniforms in service 926,163 (3,749,945)
Prepaid expenses and other assets 252,825 303,694
Accounts payable and other liabilities (3,597,591) 4,730,686
--------------- ---------------
Net cash (used in) provided by operating activities (1,281,595) 2,859,759
--------------- ---------------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,578,986) (2,950,622)
Acquisition of business, net of cash acquired (1,561,355) (82,975)
--------------- ---------------
Net cash used in investing activities (6,140,341) (3,033,597)
--------------- ---------------
Cash flows from financing activities:
Proceeds from long-term borrowings 22,781,715 74,909,917
Payments under long-term debt obligations (15,759,264) (75,357,075)
Deferred financing costs incurred (50,675) (80,898)
--------------- ---------------
Net cash provided by (used in) financing activities 6,971,775 (528,056)
Net (decrease) increase in cash (450,160) (701,894)
Cash and cash equivalents:
Beginning of the period 1,073,496 1,272,192
--------------- ---------------
End of the period $ 623,336 $ 570,298
=============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 4,382,540 $ 3,083,835
Income taxes paid (refunded) (263,075) 117,700
Seller financed debt 500,000
</TABLE>
See notes to consolidated 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 six-month period ended April 30, 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 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.
Subsequent to April 30, 1999 the Company amended certain of its bank financial
covenants.
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:
APRIL 30, OCTOBER 31,
1999 1998
(UNAUDITED)
Balance sheets:
Current assets $6,832,000 $5,934,000
Noncurrent assets 3,742,000 3,317,000
Current liabilities 2,492,000 2,702,000
Noncurrent liabilities 196,000 182,000
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Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- ---------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited)
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Statement of operations:
Revenues $4,267,000 $4,039,000 $8,272,000 $8,335,000
Operating expenses 3,880,000 3,724,000 7,490,000 7,467,000
Operating income 387,000 315,000 782,000 868,000
Net income 119,000 111,000 243,000 296,000
</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
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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 $1.28 million for the six month period
ended April 30, 1999, due largely to a $3.6 million reduction accounts payable
and other liabilities. For the six months ended April 30, 1998 operating
activities provided $2.9 million including a $4.7 million increase in accounts
payable and other liabilities. The reduction in accounts payable in 1999 can be
attributed to lower merchandise spending and acceleration of certain vendor
payments in response to discounts offered.
The Company's working capital was $20.4 million at April 30, 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 April 1999, the Company had approximately $12 million available
under its working capital line and up to $28 million available under bank credit
facilities for capital expenditures and acquisitions. Subsequent to April 30,
1999 the Company amended certain of its bank financial covenants. Management
believes that its operations and bank credit facilities will provide sufficient
cash to meet the requirements for operations, acquisitions and capital
expenditures.
Cash used in investing activities was $6.1 million for the six months ended
April 30, 1999, as compared to $3.0 million for the same period in 1998. The
increase is attributable to higher expenditures for route acquisitions and
capital expenditures. Capital expenditures relate primarily to investments in
new information systems and route trucks. 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
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RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF FISCAL 1999 COMPARED TO THE
SECOND QUARTER OF FISCAL 1998
Revenues for the quarter of $36.6 million are $2.5 million or 7.4% greater than
the same period last year. Year-to-date revenues of $72.6 million are $5.6
million or 8.3% higher than the same period last year. This increase is
attributable primarily to new rental revenue generated by the recently expanded
sales organization.
Cost of rental operations increased as a percent of rental revenue to 77.3% for
the second quarter of 1999 and 76.8% year-to-date 1999 versus 75.5% in the
second quarter of 1998 and 76.6% 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 second quarter and year-to-
date 1999 increased by approximately 11.6% and 14.8% respectively compared to
1998 due to the expansion of the sales organization and field management teams.
This investment in personnel has allowed the Company to produce the continued
growth in revenue discussed above. 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 is approximately $400,000 lower for the second quarter of
1999 versus 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.
Interest expense for the second quarter and year-to-date increased $1 million
and $1.8 million respectively 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 April 30, 1999 there was a net loss of $456,000 as
compared to a net loss for the same period in 1998 of $16 million. This
variance results primarily from one time charges associated with the redemption
of stock warrants in 1998.
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 65% complete as of April 30,
1999 and is expected to be fully installed by October 31, 1999.
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 financial reporting system to a version
represented by the third party vendor to be Y2K compliant and plans to upgrade
its third party payroll system during the fourth quarter of fiscal 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 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 April 30, 1999 the Company had spent
approximately $2.5 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. Arrangements have been made to convert software
applications developed in-house to allow for execution after December 31, 1999,
in the event that the Y2K project implementation was significantly off schedule.
11
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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: June 14, 1999 By: /s/ Thomas E. Krebbeks
----------------------------------------
Thomas E. Krebbeks
Controller and Acting Chief Financial Officer
12
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COYNE INTERNATIONAL ENTERPRISES CORP. AND
SUBSIDIARIES FOR THE QUARTER ENDED APRIL 30, 1999.
</LEGEND>
<CIK> 0001066242
<NAME> COYNE INTERNATIONAL ENTERPRISES CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 623,336
<SECURITIES> 0
<RECEIVABLES> 14,997,145
<ALLOWANCES> 0
<INVENTORY> 7,630,448
<CURRENT-ASSETS> 51,341,609
<PP&E> 92,801,591
<DEPRECIATION> 46,779,544
<TOTAL-ASSETS> 120,213,320
<CURRENT-LIABILITIES> 30,943,675
<BONDS> 95,560,104
0
4,806,200
<COMMON> 769
<OTHER-SE> (12,237,931)
<TOTAL-LIABILITY-AND-EQUITY> 120,213,320
<SALES> 2,546,540
<TOTAL-REVENUES> 36,567,137
<CGS> 1,689,261
<TOTAL-COSTS> 34,574,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,620,801
<INCOME-PRETAX> (628,494)
<INCOME-TAX> (172,000)
<INCOME-CONTINUING> (456,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (456,494)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
