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, 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 Incorporation (IRS Employer Identification No.)
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
TABLE OF CONTENTS
Page
----
PART I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets .................................................................... 3
Consolidated Statements of Operations .......................................................... 5
Consolidated Statements of Cash Flows........................................................... 6
Notes to Consolidated Financial Statements...................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................... 17
PART II. Other Information
Item 1. Legal Proceedings............................................................................... 19
Item 2. Changes in Securities and Use of Proceeds....................................................... 19
Item 3. Defaults Upon Senior Securities................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............................................. 19
Item 5. Other Information............................................................................... 19
Item 6. Exhibits and Reports on Form 8-K................................................................ 19
Signatures
2
PART I. Financial Information
Item 1. Financial Statements
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
July 31, October 31,
Assets 2001 2000
------ ------------------ ------------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 333,405 $ 909,340
Accounts receivable, less allowance for doubtful accounts
of $490,000 in July and $341,000 in October 16,300,791 16,929,975
Inventories 8,364,824 12,725,141
Rental merchandise in service 32,991,913 32,712,967
Prepaid expenses and other assets 369,511 698,768
------------------ ------------------
Total current assets 58,360,444 63,976,191
Property, plant and equipment, at cost:
Land 2,432,180 2,432,180
Buildings and improvements 41,882,538 39,829,930
Machinery and equipment 42,046,022 42,729,434
Vehicles 11,864,759 11,420,295
Construction in process 1,883,845 1,505,965
------------------ ------------------
100,109,344 97,917,804
Less: Accumulated depreciation (58,131,093) (54,100,700)
------------------ ------------------
Total property, plant and equipment 41,978,251 43,817,104
Other assets:
Purchased routes and acquisition intangibles, net 16,623,013 17,239,942
Deferred financing costs, net 2,154,553 2,322,568
Deferred income taxes 5,269,623 3,724,623
Other 150,059 202,521
------------------ ------------------
Total other assets 24,197,248 23,489,654
------------------ ------------------
$ 124,535,943 $ 131,282,949
================== ==================
See notes to unaudited consolidated financial statements.
3
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
July 31, October 31,
Liabilities and Shareholders' Equity (Deficit) 2001 2000
---------------------------------------------- ----------------- ----------------
(unaudited)
Current Liabilities:
Current maturities of long-term obligations $ 3,090,269 $ 3,385,619
Accounts payable 6,726,150 8,934,685
Accrued expenses:
Salaries and employee benefits 2,771,885 4,714,396
Accrued interest 1,445,649 3,655,175
Other 5,696,360 2,268,201
Deferred income taxes 12,108,370 12,032,060
----------------- ----------------
Total current liabilities 31,838,683 34,990,136
Long-term obligations, net of current maturities 102,030,379 102,811,292
Other liabilities 2,051,613 2,170,095
----------------- ----------------
Total liabilities 135,920,675 139,971,523
----------------- ----------------
Shareholders' equity (deficit):
Preferred stock - 5% non-cumulative, non-voting, 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, 4,991
shares issued, 2,991 shares outstanding. 2,495,500 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 849,512 849,512
Retained earnings (deficit) (14,549,413) (12,212,139)
Accumulated other comprehensive loss (165,884)
----------------- ----------------
(9,058,816) (6,555,658)
Less:
Treasury stock, 2,000 shares of Class B preferred stock
at cost (166,667) (166,667)
Shareholder receivables (2,159,249) (1,966,249)
----------------- ----------------
Total shareholders' equity (deficit) (11,384,732) (8,688,574)
----------------- ----------------
$ 124,535,943 $ 131,282,949
================= ================
See notes to unaudited consolidated financial statements.
4
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------ -----------------------------
2001 2000 2001 2000
------------- -------------- ------------- --------------
(unaudited) (unaudited)
Revenue:
Rental Operations 34,920,141 35,033,398 106,602,600 105,144,625
Direct Sales 2,731,373 2,929,139 7,496,404 7,504,908
------------- -------------- ------------- --------------
37,651,514 37,962,537 114,099,004 112,649,533
------------- -------------- ------------- --------------
Operating expenses:
Cost of rental operations 26,349,088 25,657,938 80,628,518 76,533,869
Cost of direct sales 1,884,587 1,941,785 4,853,579 4,839,906
Selling, general and administrative 5,979,770 6,297,065 18,899,675 18,335,306
Depreciation and amortization 1,509,901 1,592,486 4,619,612 4,688,405
------------- -------------- ------------- --------------
Total Operating Expenses 35,723,346 35,489,274 109,001,384 104,397,486
------------- -------------- ------------- --------------
Income from operations 1,928,168 2,473,263 5,097,620 8,252,047
Interest expense 2,859,480 2,786,605 8,783,894 8,450,773
------------- -------------- ------------- --------------
Loss before income taxes (931,312) (313,342) (3,686,274) (198,726)
Income tax expense (359,000) (50,000) (1,349,000) 173,000
------------- -------------- ------------- --------------
Net Loss (572,312) (263,342) (2,337,274) (371,726)
============= ============== ============= ==============
See notes to unaudited consolidated financial statements
5
Coyne International Enterprises Corp. and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Nine Months
Ended July 31,
----------------------------------
2001 2000
------------- --------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (2,337,274) $ (371,726)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 3,225,341 3,323,905
Amortization of capitalized leases 805,051 805,051
Amortization of acquisition intangibles 583,261 561,311
Amortization of deferred financing costs 256,550 263,140
Provision for deferred income taxes (1,468,690) (221,000)
Changes in operating assets and operating liabilities:
Accounts receivable 629,184 (1,535,987)
Inventories 4,360,317 (3,331,511)
Rental merchandise in service (278,946) (2,796,042)
Prepaid expenses and other assets 381,719 152,075
Accounts payable, accrued expenses, and other liabilities (3,216,779) (1,700,424)
------------- --------------
Net cash provided by (used in) operating activities 2,939,734 (4,851,208)
------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,191,540) (2,463,105)
Acquisition of business, net of cash acquired 33,668 (897,015)
------------- --------------
Net cash used in investing activities (2,157,872) (3,360,120)
------------- --------------
Cash flows from financing activities:
Proceeds from long-term borrowings 32,391,594 35,287,411
Payments under long-term obligations (33,467,857) (27,097,045)
Increase in shareholder receivables (193,000) (13,053)
Deferred financing costs incurred (88,534) (15,000)
------------- --------------
Net cash provided by (used in) financing activities (1,357,797) 8,162,313
------------- --------------
Net decrease in cash (575,935) (49,015)
Cash and cash equivalents:
Beginning of period 909,340 213,407
------------- --------------
End of period $ 333,405 $ 164,392
============= ==============
Supplemental disclosure of cash flow information:
Interest paid $ 10,993,420 $ 10,385,173
Income taxes paid 51,732 55,317
See notes to unaudited consolidated financial statements.
6
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of Coyne International
Enterprises Corp. and Subsidiaries, (the Company), 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 accounting principles generally accepted in the United States of
America 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. 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, 2000.
The Company uses a fifty-two/fifty-three week fiscal year ending on the last
Saturday of October, with quarterly interim periods of thirteen weeks. For
convenience, the dating of the accompanying financial statements and notes have
been labeled as of and for the periods ending July 31, 2001, October 31, 2000
and July 31, 2000 rather than the actual period-end dates.
Operating results for the three and nine month periods ended July 31, 2001 are
not necessarily indicative of the results that may be expected for the year
ended October 31, 2001.
2. Income Taxes
The Company's effective tax rate differs from the federal statutory rate of 34%
due to state income taxes and certain expenses that are not deductible for tax
purposes. These non-deductible items include the amortization of certain
intangible assets and a portion of certain meals and entertainment expenses.
3. Reclassification
Certain amounts have been reclassified to conform with the fiscal 2001
presentation.
4. Comprehensive Income
The components of comprehensive loss were as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended ended ended
July 31, 2001 July 31, 2000 July 31, 2001 July 31, 2000
------------- ------------- ------------- -------------
Net loss ($ 572,312) ($ 263,342) ($ 2,337,274) ($ 371,726)
Other Comprehensive income (loss)
Changes in fair value of interest rate swap (50,027) (286,408)
Income tax related to items of other
Comprehensive income (loss) (20,011) 110,590
------------------------------ ---------------------------------
Comprehensive loss ($ 602,328) ($ 263,342) ($ 2,513,092) ($ 371,726)
============================== =================================
7
Coyne International Enterprises Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
5. Consolidating Financial Statements
On June 26, 1998, the Company sold $75,000,000 of 11-1/4% Senior Subordinated
Notes due 2008, (the Notes). 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.
8
Coyne International Enterprises Corp. And Subsidiaries
Consolidating Balance Sheets July 31, 2001
---------------------------------------------------------------
Parent Subsidiary Consolidating Consolidated
Assets Company Guarantors Adjustments Totals
------ -------------- ------------- --------------- -------------
Current Assets:
Cash and cash equivalents $ 666,834 $ (333,429) $ $ 333,405
Accounts receivable 14,006,204 2,294,587 16,300,791
Inventories 6,058,197 2,306,627 8,364,824
Rental merchandise in service 28,966,842 4,025,071 32,991,913
Prepaid expenses and other assets 9,432,732 25,712 (9,088,933) 369,511
-------------- ------------- -------------- -------------
Total current assets 59,130,809 8,318,568 (9,088,933) 58,360,444
Property, plant and equipment, at cost: 91,160,757 8,948,587 100,109,344
Less: Accumulated depreciation (52,318,315) (5,812,778) (58,131,093)
-------------- ------------- -------------- -------------
Total property, plant and equipment 38,842,442 3,135,809 0 41,978,251
Other assets:
Purchased routes and acquisition intangibles, net 16,359,913 263,100 16,623,013
Deferred financing costs, net 2,154,553 0 2,154,553
Deferred income taxes 5,269,623 0 5,269,623
Other 150,059 0 150,059
-------------- ------------- -------------- -------------
Total other assets 23,934,148 263,100 0 24,197,248
============== ============= ============== =============
$ 121,907,399 $ 11,717,477 $ (9,088,933) $ 124,535,943
============== ============= ============== =============
Liabilities and Shareholders' Equity (Deficit)
----------------------------------------------
Current Liabilities:
Current maturities of long-term obligations $ 3,090,269 $ - $ $ 3,090,269
Accounts payable 6,197,164 528,986 6,726,150
Accrued expenses:
Salaries and employee benefits 2,669,209 102,676 2,771,885
Accrued interest 1,445,649 0 1,445,649
Other 3,699,478 1,996,882 5,696,360
Deferred income taxes 12,108,370 0 12,108,370
-------------- ------------- -------------- -------------
Total current liabilities 29,210,139 2,628,544 0 31,838,683
Long-term obligations, net of current maturities 102,030,379 0 102,030,379
Other liabilities 2,051,613 3,290,839 (3,290,839) 2,051,613
-------------- ------------- -------------- -------------
Total liabilities 133,292,131 5,919,383 (3,290,839) 135,920,675
-------------- ------------- -------------- -------------
Shareholders' equity (deficit):
Preferred stock 4,806,200 0 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) (14,549,413) 4,249,094 (4,249,094) (14,549,413)
Accumulated other comprehensive loss (165,884) 0 (165,884)
-------------- ------------- -------------- -------------
(9,058,816) 5,798,094 (5,798,094) (9,058,816)
Less:
Treasury stock, 2,000 shares of Class B preferred stock
at cost (166,667) 0 (166,667)
Shareholder receivables (2,159,249) 0 (2,159,249)
-------------- ------------- -------------- -------------
Total shareholders' equity (deficit) (11,384,732) 5,798,094 (5,798,094) (11,384,732)
-------------- ------------- -------------- -------------
$ 121,907,399 $ 11,717,477 $ (9,088,933) $ 124,535,943
============== ============= ============== =============
9
Coyne International Enterprises Corp. and Subsidiaries
Consolidating Balance Sheets October 31, 2000
----------------------------------------------------------------
Parent Subsidiary Consolidating Consolidatedd
Assets Company Guarantors Adjustments Totals
------ ------------- ------------- ------------- -------------
Current Assets:
Cash and cash equivalents $ 955,728 $ (46,388) $ $ 909,340
Accounts receivable 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)
------------- ------------- ------------- -------------
Total property, plant and equipment 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 0 2,322,568
Deferred income taxes 3,724,623 0 3,724,623
Other 202,521 0 202,521
------------- ------------- ------------- -------------
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 $ 2,707,503 $ 678,116 $ $ 3,385,619
Accounts payable 8,934,685 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 3,242,883 (3,242,883) 2,170,095
------------- ------------- ------------- -------------
Total liabilities 138,760,553 4,453,853 (3,242,883) 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) 4,559,884 (4,559,884) (12,212,139)
------------- ------------- ------------- -------------
(6,555,658) 6,108,884 (6,108,884) (6,555,658)
Less:
Treasury stock, 2,000 shares of Class B preferred stock
at cost (166,667) (166,667)
Shareholder receivables (1,966,249) (1,966,249)
------------- ------------- ------------- -------------
Total shareholders' equity (deficit) (8,688,574) 6,108,884 (6,108,884) (8,688,574)
------------- ------------- ------------- -------------
$ 130,071,979 $ 10,562,737 $ (9,351,767) $ 131,282,949
============= ============= ============= =============
10
Coyne International Enterprises Corp. and Subsidiaries
Consolidating Statements of Operations
Three Months Ended July 31, 2001
-----------------------------------------------------------------------
Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
----------------- ----------------------------------------------------
Revenue:
Rental Operations $ 32,314,426 $ 2,605,715 $ 0 $ 34,920,141
Direct Sales 1,442,745 2,652,704 (1,364,076) 2,731,373
----------------- ----------------- ---------------- ---------------
33,757,171 5,258,419 (1,364,076) 37,651,514
----------------- ----------------- ---------------- ---------------
Operating expenses:
Cost of rental operations 24,206,699 2,142,389 0 26,349,088
Cost of direct sales 922,001 2,313,662 (1,351,076) 1,884,587
Selling, general and administrative 5,260,966 1,020,463 (301,659) 5,979,770
Depreciation and amortization 1,439,337 70,564 0 1,509,901
----------------- ----------------- ---------------- ---------------
31,829,003 5,547,078 (1,652,735) 35,723,346
----------------- ----------------- ---------------- ---------------
Income (loss) from operations 1,928,168 (288,659) 288,659 1,928,168
Interest expense 2,859,480 0 2,859,480
----------------- ----------------- ---------------- ---------------
Income (loss) before income tax (931,312) (288,659) 288,659 (931,312)
Income taxes (359,000) (115,463) 115,463 (359,000)
----------------- ----------------- ---------------- ---------------
Net income (loss) $ (572,312) $ (173,196) $ 173,196 $ (572,312)
================= ================= ================ ===============
11
Coyne International Enterprises Corp. and Subsidiaries
Consolidating Statements of Operations
Nine Months Ended July 31, 2001
-----------------------------------------------------------------
Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
------------ -------------- -------------- -------------
Revenue:
Rental Operations 99,174,123 7,428,477 0 106,602,600
Direct Sales 3,512,857 9,465,314 (5,481,767) 7,496,404
------------ -------------- -------------- -------------
102,686,980 16,893,791 (5,481,767) 114,099,004
------------ -------------- -------------- -------------
Operating expenses:
Cost of rental operations 74,506,137 6,122,381 0 80,628,518
Cost of direct sales 2,207,033 8,094,313 (5,447,767) 4,853,579
Selling, general and administrative 16,128,769 2,913,218 (142,312) 18,899,675
Depreciation and amortization 4,747,421 (127,809) 0 4,619,612
------------ -------------- -------------- -------------
97,589,360 17,002,103 (5,590,079) 109,001,384
------------ -------------- -------------- -------------
Income (loss) from operations 5,097,620 (108,312) 108,312 5,097,620
Interest expense 8,783,894 0 8,783,894
------------ -------------- -------------- -------------
Income (loss) before income tax (3,686,274) (108,312) 108,312 (3,686,274)
Income taxes (1,349,000) (43,325) 43,325 (1,349,000)
------------ -------------- -------------- -------------
Net income (loss) (2,337,274) (64,987) 64,987 (2,337,274)
============ ============== ============== =============
12
Coyne International Enterprises Corp. and Subsidiaries
Consolidating Statements of Operations
Three Months Ended July 31, 2000
-----------------------------------------------------------------------
Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
----------------- ----------------------------------------------------
Revenue:
Rental Operations $ 32,689,337 $ 2,344,061 $ $ 35,033,398
Direct Sales 1,700,629 3,599,676 (2,371,166) 2,929,139
----------------- ----------------- ---------------- ---------------
34,389,966 5,943,737 (2,371,166) 37,962,537
----------------- ----------------- ---------------- ---------------
Operating expenses:
Cost of rental operations 23,894,753 1,763,185 25,657,938
Cost of direct sales 1,215,542 3,035,409 (2,309,166) 1,941,785
Selling, general and administrative 5,308,069 898,822 90,174 6,297,065
Depreciation and amortization 1,498,339 94,147 1,592,486
----------------- ----------------- ---------------- ---------------
31,916,703 5,791,563 (2,218,992) 35,489,274
----------------- ----------------- ---------------- ---------------
Income from operations 2,473,263 152,174 (152,174) 2,473,263
Interest expense 2,786,605 0 2,786,605
----------------- ----------------- ---------------- ---------------
Income (loss) before income tax (313,342) 152,174 (152,174) (313,342)
Income taxes (50,000) 60,869 (60,869) (50,000)
----------------- ----------------- ---------------- ---------------
Net income (loss) $ (263,342) $ 91,305 $ (91,305) $ (263,342)
================= ================= ================ ===============
13
Coyne International Enterprises Corp. and Subsidiaries
Consolidating Statements of Operations
Nine Months Ended July 31, 2000
-------------------------------------------------------------
Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
------------ ------------ -------------- ------------
Revenue:
Rental Operations 98,107,629 7,036,996 105,144,625
Direct Sales 3,315,484 11,879,381 (7,689,957) 7,504,908
------------ ------------ -------------- -------------
101,423,113 18,916,377 (7,689,957) 112,649,533
------------ ------------ -------------- -------------
Operating expenses:
Cost of rental operations 71,129,698 5,404,170 76,533,868
Cost of direct sales 2,221,031 10,122,832 (7,503,957) 4,839,906
Selling, general and administrative 15,388,877 2,851,643 94,787 18,335,307
Depreciation and amortization 4,431,460 256,945 4,688,405
------------ ------------ -------------- -------------
93,171,066 18,635,590 (7,409,170) 104,397,486
------------ ------------ -------------- -------------
Income (loss) from operations 8,252,047 280,787 (280,787) 8,252,047
Interest expense 8,450,773 0 8,450,773
------------ ------------ -------------- -------------
Income (loss) before income tax (198,726) 280,787 (280,787) (198,726)
Income taxes 173,000 112,314 (112,314) 173,000
------------ ------------ -------------- -------------
Net income (loss) (371,726) 168,473 (168,473) (371,726)
============ ============ ============== =============
14
Coyne International Enterprises Corp. and Subsidiaries
-----------------------------------------------------------------
Nine Months Ended July 31, 2001
-----------------------------------------------------------------
Consolidating Statements of Cash Flows Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
------------- ------------- ------------- ------------
Cash flows from operating activities:
Net income (loss) $ (2,337,274) $ (310,790) $ 310,790 $ (2,337,274)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 2,943,479 281,862 3,225,341
Amortization of capitalized leases 805,051 805,051
Amortization of acquisition intangibles 575,329 7,932 583,261
Amortization of deferred financing costs 256,550 0 0 256,550
Provision for deferred income taxes (1,468,690) 0 0 (1,468,690)
Changes in operating assets and operating liabilities:
Accounts receivable 1,237,650 (608,466) 0 629,184
Inventories 3,429,004 931,313 0 4,360,317
Rental merchandise in service 1,677,095 (1,956,041) 0 (278,946)
Prepaid expenses and other assets 655,638 (11,084) (262,834) 381,719
Accounts payable, accrued expenses, and other (4,634,353) 1,465,530 (47,956) (3,216,779)
liabilities
------------- ------------- ------------- ------------
Net cash provided by (used in) operating activities 3,139,479 (199,744) 0 2,939,734
------------- ------------- ------------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,101,690) (89,850) (2,191,540)
Acquisition of business, net of cash acquired 33,668 33,668
------------- ------------- ------------- ------------
Net cash used in investing activities (2,068,022) (89,850) 0 (2,157,872)
------------- ------------- ------------- ------------
Cash flows from financing activities:
Proceeds from long-term borrowings 32,391,594 32,391,594
Payments under long-term obligations (33,467,857) (33,467,857)
Other (281,534) (281,534)
------------- ------------- ------------- ------------
Net cash provided by (used in) financing activities (1,357,797) 0 0 (1,357,797)
------------- ------------- ------------- ------------
Net increase (decrease) in cash (286,340) (289,594) 0 (575,935)
Cash and cash equivalents:
Beginning of period 955,728 (46,388) 0 909,340
------------- ------------- ------------- ------------
End of period $ 669,388 $ (335,982) $ 0 $ 333,405
============= ============= ============= ============
15
Coyne International Enterprises Corp. and Subsidiaries
Nine Months Ended July 31, 2000
------------------------------------------------------------------
Consolidated Statements of Cash Flows Parent Subsidiary Consolidating Consolidated
Company Guarantors Adjustments Totals
------------ -------------- -------------- -------------
Cash flows from operating activities:
Net income (loss) $ (371,726) $ 155,125 $ (155,125) $ (371,726)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 3,044,714 279,191 3,323,905
Amortization of capitalized leases 805,051 805,051
Amortization of acquisition intangibles 553,379 7,932 561,311
Amortization of deferred financing costs 248,140 0 0 263,140
Provision for deferred income taxes (486,000) 265,000 0 (221,000)
Changes in operating assets and operating liabilities:
Accounts receivable (3,827,127) 2,291,141 0 (1,535,986)
Inventories (3,046,066) (285,445) 0 (3,331,511)
Rental merchandise in service (2,679,344) (116,698) 0 (2,796,042)
Prepaid expenses and other assets 2,487,269 (5,396) (2,329,798) 152,075
Accounts payable, accrued expenses, and other (1,816,852) (2,381,844) 2,484,923 (1,700,425)
liabilities
-------------- -------------- -------------- ---------------
Net cash provided by (used in) operating activities (5,088,562) 200,108 0 (4,851,208)
-------------- -------------- -------------- ---------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,339,248) (123,857) (2,463,105)
Acquisition of business, net of cash acquired (897,015) (897,015)
-------------- -------------- -------------- ---------------
Net cash used in investing activities (3,236,263) (123,857) 0 (3,360,120)
-------------- -------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from long-term borrowings 35,287,411 35,287,411
Payments under long-term obligations (27,097,045) (27,097,045)
Other (13,053) 0 0 (28,053)
-------------- -------------- -------------- ------------
Net cash provided by (used in) financing activities 8,177,313 0 0 8,162,313
-------------- -------------- -------------- ------------
Net increase (decrease) in cash (147,512) 98,497 0 (49,015)
Cash and cash equivalents:
Beginning of period 309,648 (96,241) 0 213,407
-------------- -------------- -------------- ------------
End of period $ 162,136 $ 2,256 0 $ 164,392
============== ============== ============== ============
16
ITEM 2. Management's Discussion and Analysis of the Financial Condition and
Results of Operations
Coyne International Enterprises Corp. and Subsidiaries
Management's Discussion and Analysis of 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; 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.
Results of Operations
Total revenues decreased 0.8% for the three months ended July 31, 2001 versus
the three months ended July 31, 2000. Total revenues decreased 1.7% for the
three months ended July 31, 2001 versus the three months ended April 30, 2001.
The revenue results for the quarter stem from reduced business activity, driven
by customer workforce reductions and increasing competition. Total revenues for
the nine-month period ended July 31, 2001 have increased 1.3% over the nine-
month period ended July 31, 2000.
Cost of rental operations increased 2.7% for the three months ended July 31,
2001 versus the three months ended July 31, 2000. Cost of rental operations for
the nine-month period ended July 31, 2001 has increased 5.4% over the nine-month
period ended July 31, 2000. These increases reflect higher merchandise and
installation costs for large high-cost garment accounts during 2001 and higher
energy costs.
Income from operations decreased 22% for the three months ended July 31, 2001
versus the three months ended July 31, 2000. Income from operations for the
nine-month period ended July 31, 2001 has decreased 38% over the nine-month
period ended July 31, 2000. These decreases reflect the higher costs of
merchandise and energy noted above offset somewhat by recent cost control
measures which have reduced selling, general and administrative costs 8.2% for
the three months ended July 31, 2001 versus the three months ended April 30,
2001.
17
Liquidity and Capital Resources
Net cash provided by operating activities increased $7.8 million for the nine
months ended July 31, 2001 over the same period in fiscal 2000. This increase is
primarily attributed to decreased purchases of inventory and more efficient use
of existing inventory in 2001.
The Company is highly leveraged, with total indebtedness of approximately $105
million and a shareholder deficit of approximately $11.4 million. Accordingly,
the Company's primary source of liquidity has been cash flows from operations
and borrowing under its existing credit facilities. In fiscal 2000, as a result
of new business opportunities, the Company experienced increases in its
inventory and uniforms in service. The increases directly accounted for the
increase in the Company's revolving credit facility. As of July 31, 2001, the
Company had approximately $1,565,000 available under its revolving credit
facility. The Company's current bank credit facilities extend until 2003.
However, management is presently evaluating its overall financial obligations to
ensure adequate financing is available to fund its business operations. The
Company may from time to time make purchases of the Notes on the open market or
in privately negotiated transactions, subject to available liquidity and certain
financial covenants and restrictions set forth in its credit facilities.
18