10-Q 1 d10q.txt FORM 10-Q 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, 2002 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 (IRS Employer Identification No.) Incorporation or Organization) 140 Cortland Avenue, Syracuse, New York 13221 -------------------------------------- ---------------------------------------- (Address of Principal Executive (Zip Code) Offices) 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 TABLE OF CONTENTS

Signatures 2 PART I. Financial Information Item 1. Financial Statements Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidated Balance Sheet --------------------------------------------------------------------------------

See notes to unaudited condensed consolidated financial statements 3 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidated Balance Sheet --------------------------------------------------------------------------------

See notes to unaudited condensed consolidated financial statements 4 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidated Statement of Operations -------------------------------------------------------------------------------

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

6 Coyne International Enterprises Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) -------------------------------------------------------------------------------- 1. Basis of Presentation The accompanying condensed 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. The balance sheet as of October 31, 2001 has been derived from the audited balance sheet included in the Company's annual report filed on Form 10-K. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended October 31, 2001. 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 April 30, 2002, October 31, 2001 and April 30, 2001 rather than the actual period-end dates. Operating results for the six month period ended April 30, 2002 are not necessarily indicative of the results that may be expected for the year ending October 31, 2002. 2. Liquidity The Company is highly leveraged, with total indebtedness of approximately $95.0 million and a shareholder deficit of approximately $12.0 million at April 30, 2002. In addition, the Company has incurred net losses for each of the last four fiscal years, is required to maintain certain financial covenants as part of its existing senior credit facility (the "Facility") and is dependent on operations for a major portion of its liquidity and working capital needs. These factors create an uncertainty about the Company's ability to continue as a going concern. As of April 30, 2002, the Company was not in compliance with certain financial covenants required as part of the Facility. Management is working with its senior lenders seeking to obtain a waiver of this covenant non-compliance. Although the senior lenders have not initiated acceleration of the amounts outstanding under the Facility as a result of the covenant default, there can be no assurance that these obligations will not be declared immediately due and payable at any time after April 30, 2002. Accordingly, at April 30, 2002, all amounts outstanding under the Facility, $16.2 million, have been classified as current liabilities on the balance sheet. 3. Reclassification Certain amounts have been reclassified to conform to the fiscal 2002 presentation. 7 Coyne International Enterprises Corp. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) -------------------------------------------------------------------------------- 4. Comprehensive Income The components of comprehensive income (loss) were as follows:

5. Condensed 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 Condensed Consolidating Balance Sheet --------------------------------------------------------------------------------

9 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Balance Sheet --------------------------------------------------------------------------------

10 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Operations --------------------------------------------------------------------------------

11 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Operations --------------------------------------------------------------------------------

12 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Operations --------------------------------------------------------------------------------

13 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Operations --------------------------------------------------------------------------------

14 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Cash Flows --------------------------------------------------------------------------------

15 Coyne International Enterprises Corp. and Subsidiaries Condensed Consolidating Statement of Cash Flows

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 This Quarterly Report on Form 10-Q includes forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. When used in this Quarterly Report on Form 10-Q, the words "anticipate," "believe," "estimate," "expect," "intends," and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. Forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Actual results could differ materially from those expressed or implied in the forward-looking statements as a result of, but not limited to, the following factors: (i) the Company's ability to generate sufficient cash flow from operations, (ii) the availability of future borrowings under the Company's credit facility, (iii) the availability of sufficient funds at the time of any change of control to make any required repurchases of the Company's senior subordinated notes, (iv) restrictions in the Company's credit facility, (v) the Company's ability to compete with other firms in the textile rental industry, (vi) general economic conditions in the Company's markets, (vii) the timing of acquisitions,(viii) commencing start-up operations and related costs, (ix) the Company's effectiveness of integrating acquired businesses and start-up operations, (x) the timing of capital expenditures, (xi) seasonal rental and purchasing patterns of the Company's customers, (xii) price changes in response to competitive factors, (xiii) the Company's ability to attract and retain qualified employees, and a prolonged work stoppage or strike by the Company's unionized work force, (xiv) the availability of sufficient funds to meet shareholder redemption requests, and (xv) the results of Internal Revenue Service audits. (xvi) the Company's ability to obtain a waiver of default under its credit facility, and (xvii) the Company's ability to obtain alternate senior credit financing. Results of Operations Total revenues decreased $2.5 million, (6.6%), for the three months ended April 30, 2002 versus the three months ended April 30, 2001. Weekly rental revenue has declined by 4.3% during the six months ended April 30, 2002. This decline is comprised of a 7.7% reduction due to cancelled accounts and decreases in service to continuing accounts, partially offset by 3.4% in new business written during this period. Cost of operations decreased $2.4 million (8.1%) for the three months ended April 30, 2002 versus the three months ended April 30, 2001. This decrease is primarily due to lower labor, commission and other production costs directly associated with revenue generation, in addition to lower energy unit costs and lower merchandise spending resulting from tighter controls implemented in 2001. Selling and administrative expenses decreased $0.9 million (12.5%) for the three months ended April 30, 2002 versus the three months ended April 30, 2001. This decrease is primarily the result of a $0.7 million decrease in corporate overhead costs and a $0.2 million decrease in wages for the Company's sales force. 17 Interest expense decreased $0.3 million (11.3%) for the three months ended April 30, 2002 versus the three months ended April 30, 2001, primarily as a result of a decline in outstanding debt, from $103.6 million at April 30, 2001 to $95.0 million at April 30, 2002. Internal Revenue Service Audit Subsequent to April 30, 2002 the Internal Revenue Service (the IRS) issued a final settlement based upon its examination of the consolidated federal income tax returns of the Company for the years ended October 31, 1997 and 1998. The total amount due to the IRS is $1,557,621, which includes $462,621 of interest. The effect of this settlement on income tax expense has not yet been determined. Liquidity and Financial Resources The Company is highly leveraged, with total indebtedness of $95.0 million and a shareholder deficit of $12.0 million at April 30, 2002. In addition, the Company has incurred net losses for each of the last four fiscal years, is required to maintain certain financial covenants as part of its existing senior credit facility (the Facility) and is dependent on operations for a major portion of its liquidity and working capital needs. These factors create an uncertainty about the Company's ability to continue as a going concern. The Company's primary source of liquidity has been cash flows from borrowings under the Facility, which was amended in fiscal 2001. For the six months ended April 30, 2002, the Company has experienced a net increase in cash and cash equivalents of $0.9 million. The Company generated $7.3 million in cash and cash equivalents from operating activities for the six months ended April 30, 2002, which interest payments of $5.0 million and liquidation of $6.5 million of excess levels of inventory and rental merchandise in service which resulted from prior year over-purchases. The maximum credit available under the Company's revolving credit facility (the Revolver), subject to collateral availability, is $30 million. At April 30, 2002, the Company had $3.5 million available under the Revolver, and $16.2 million outstanding under the Facility. As of April 30, 2002, the Company was not in compliance with certain financial covenants required as part of the Facility. Management is working with its senior lenders to obtain a waiver of this covenant non-compliance. Although the senior lenders have not initiated acceleration of the amounts outstanding under the Facility as a result of the covenant default, there can be no assurance that these obligations will not be declared immediately due and payable at any time after April 30, 2002. Management is currently pursuing alternative senior credit facilities from other lenders, with the goal of providing additional liquidity. In connection therewith, $1,165,142 has been incurred and has been included on the balance sheet as deferred financing costs. In addition, on May 23, 2002, the Company initiated a tender offer to repurchase up to $50 million of its 11 1/4% Series B Senior Subordinated Notes due 2008. 18 PART II. Other Information 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 As of April 30, 2002, the Company was not in compliance with certain financial covenants required as part of the Facility. Management is working with its senior lenders to obtain a waiver of this covenant non-compliance. Although the senior lenders have not initiated acceleration of the amounts outstanding under the Facility as a result of the covenant default, there can be no assurance that these obligations will not be declared immediately due and payable at any time after April 30, 2002. In addition, the covenant default has precluded the Company from making the current interest payment due as of June 1, 2002, on the Notes. As of June 1, 2002, the aggregate amount of such defaulted interest owing on the Notes, together with interest on defaulted interest, equaled $4,234,325. 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. 19

COYNE INTERNATIONAL ENTERPRISES CORP 10-Q