10-Q 1 d10q.txt COYNE INTERNATIONAL ENTERPRISES, INC. 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 April 30, 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. 0-11399 ------- COYNE INTERNATIONAL ENTERPRISES CORP. BLUE RIDGE TEXTILE MANUFACTURING, INC. OHIO GARMENT RENTAL, INC. -------------------------------------------------------------------------------- (Exact name of Registrants as specified in their respective charters) New York 16-6040758 Georgia 58-2018333 Ohio 34-1261376 ----------------------------------------- ------------------------------------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 140 Cortland Avenue, Syracuse, New York 13221 ----------------------------------------- ------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (315) 475-1626 -------------- Securities Registered Pursuant to Section 12(b) of the Act: NONE ---- Securities Registered Pursuant to Section 12(g) of the Act: NONE ---- Indicate by check mark whether the registrant (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

2 Item 1. Financial Statements Coyne International Enterprises Corp. and Subsidiaries Consolidated Balance Sheets

See notes to unaudited consolidated financial statements. 3 Coyne International Enterprises Corp. and Subsidiaries Consolidated Balance Sheets ================================================================================

See notes to unaudited consolidated financial statements. 4 Coyne International Enterprises Corp. and Subsidiaries Consolidated Statements of Operations and Retained Earnings (Deficit)

See notes to unaudited consolidated financial statements 5 Coyne International Enterprises Corp. and Subsidiaries Consolidated Statements of Cash Flows --------------------------------------------------------------------------------

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, herein, have been labeled as of and for the periods ending April 30, 2001, October 31, 2000 and April 30, 2000 rather than the actual period-end dates. Operating results for the three and six month period, ended April 30, 2001 are not necessarily indicative of the results that may be expected for the year ended October 31, 2001. 2. Long-term Obligations At April 30, 2001 the Company was not in compliance with certain financial covenants of the Company's existing credit facility, (the Agreement). Subsequent to April 30, 2001 the Company obtained waivers of such non-compliance. In addition, in June 2001, the Company amended certain terms and financial covenants of the Agreement. Under the terms of the amendment the maximum credit available under the Company's revolving credit facility has been decreased by $8,198,000 to $30,000,000, subject to certain collateral limitations. In addition, credit available under the capital expenditure facility has been reduced to $4,942,000. As of April 30, 2001, after giving consideration to the June 12 2001, amendment, the Company had approximately $2,883,000 available under its revolving credit facility and $1,000,000 in the capital expenditure facility. 3. 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 non-deductible items include the amortization of certain intangible assets and a portion of certain meals and entertainment expenses. 7 4. Derivative Instruments and Hedging Activities The Company maintains an interest-rate risk-management strategy that uses interest rate swaps to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Company's specific goals are (1) to manage interest-rate sensitivity by modifying the repricing or maturity characteristics of certain of its debt and (2) to lower, (where possible), the cost of its borrowed funds. The Company uses interest-rate swaps to convert a portion of its variable-rate debt to fixed rates. At April 30, 2001, the notional amount of such debt was $4,915,600. The Company adopted Statement of Financial Accounting Standards No. 133, (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, on November 1, 2000. Under SFAS 133, the Company's existing interest rate swaps have been designated as highly effective cash flow hedges. In accordance with the transition provisions of SFAS 133, the Company recorded a net-of-tax cumulative-effect-type adjustment of $9,934 in other comprehensive income to recognize this cash flow hedge at fair value. 5. Reclassification Certain amounts have been reclassified to conform with the fiscal 2001 presentation. 6. Comprehensive Income The components of comprehensive income (loss) were as follows:

8 Coyne International Enterprises Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 7. 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. 9 Coyne International Enterprises Corp. And Subsidiaries

10 Coyne International Enterprises Corp. and Subsidiaries

11 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statements of Operations

12 Coyne International Enterprises Corp. and Subsidiaries Consolidating Statements of Operations

13 Coyne International Enterprises Corp. and Subsidiaries

14 Coyne International Enterprises Corp. and Subsidiaries

15 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 for the Second Quarter of Fiscal 2001 Compared to the Second Quarter of Fiscal 2000 Total revenues increased 2.0% and 2.4% for the three and six month period ended April 30, 2001 over the same period in fiscal 2000. Income from operations decreased 45.2% for the six months ended April 30, 2001 versus the same period in fiscal 2000. Factors contributing to this decrease, include increased merchandise and installation costs associated with new business and re-garmenting existing accounts; increases in natural gas and vehicle fuel costs; and increased spending to train and develop the professional sale force and improve the customer service program. Liquidity and Capital Resources Net cash provided by operating activities increased $5.1 million for the six months ended April 30, 2001 over the same period in fiscal 2000. This increase is primarily attributed to decreased purchases of inventory in 2001 and more efficient use of existing inventory in 2001. 16 Item 1. Legal Proceedings The Company is involved in certain claims and litigation arising in the ordinary course of business, which are not considered material to the financial operations or cash flow of the Company. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Not applicable. 17 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. COYNE INTERNATIONAL ENTERPRISES CORP. Date: June 12, 2001 By: /S/ Stephen M. Owen ----------------------------------------- Stephen M. Owen VP of Finance and Chief Financial Officer By: /S/ Thomas C. Crowley ----------------------------------------- Thomas C. Crowley Chief Operating Officer 18

COYNE INTERNATIONAL ENTERPRISES CORP 10-Q