1
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A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S 17
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Financial Review
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Financial Condition
The Company's financial condition at the end of fiscal 1997 continued
to be very strong. New short-term debt at year end caused working capital of
$163.0 million and a current ratio of 3.3 to 1 to be moderately lower than
working capital of $181.0 and a current ratio of 5.0 to 1 at the end of the
prior year, but all of these financial measures reflected strength. Current
assets increased $5.8 million during the year, with the largest changes being
increases of $7.4 million in inventories and $7.2 million in linens in
service, due in part to acquisitions. These increases were offset by an $8.9
million decrease in cash and short-term investments. Receivables were down
slightly in the year, and receivable days outstanding decreased to 61 versus
63 at the end of last year. Current liabilities increased $23.9 million from
last year end, $15.4 million of which represented the new short-term debt.
Long-term debt decreased $2.7 million in fiscal 1997 as a result of
normal sinking fund payments. The ratio of long-term debt to total long-term
debt and equity was 34.0 percent at year end compared with 34.6 percent last
year. Had the short-term debt at year end been treated as long term for
purposes of this ratio, it still would have been a modest 37.3 percent.
Cash flow from operating activities was $17.4 million in fiscal 1997,
down from $27.1 million in the prior year due to lower net income when
compared with last year's net income plus last year's restructuring charge.
Cash used in investing activities increased to $30.8 million compared with
$19.4 million a year ago. Included in investing activities, capital
expenditures increased to $23.6 million from $8.8 million (caused by
expenditures on three new laundry facilities to replace existing facilities),
and acquisition expenditures decreased to $7.2 million from $10.6 million in
the prior year. Cash flow provided by financing activities was a net $4.4
million this year, with $15.4 million in new short-term financing being
offset by long-term debt repayments and $8.8 million of dividends paid.
No material change in the Company's future aggregate cash requirements
is foreseen at the present time. In addition, it is Management's opinion that
the Company's financial condition is such that internal and external
resources are sufficient to satisfy the Company's future requirements for
capital expenditures, dividends and working capital.
Analysis of Fiscal 1997 Operations Compared to 1996
Combined sales and textile service revenues were $489.2 million in
fiscal 1997, an increase of $2.2 million over the prior year. Excluding
acquisitions, there would have been a decline of 2.9 percent. For the Textile
Services segment, revenues increased by $6.5 million or 2.5 percent, with all
the increase resulting from acquisitions. Sales of the Manufacturing and
Marketing segment, before deduction for intersegment sales, were $4.2 million
or 2.3 percent lower than the prior year. Without the effect of acquisitions,
sales would have been 4.0 percent lower than the prior year. Sales of Life
Retail Stores rose $6.1 million or 8.4 percent in fiscal 1997 due to
acquisitions and a 4.0 percent same-store sales increase.
The gross profit percent to combined sales and textile service revenues
in fiscal 1997 was 25.6 percent, down from 26.2 percent in the prior year.
Gross margins in the Textile Services segment were down due to continued
margin pressures in the health care markets and significantly increased linen
amortization expense, which has been adversely affected by health care
customers resisting the industry practice of paying for lost and misused
linens. The inability to collect loss charges increases linen amortization
expense and reduces gross margin. Margins of the Manufacturing and Marketing
segment rose slightly, primarily the result of a change in sales mix, and
margins of Life Retail Stores remained approximately the same as the prior
year.
Selling, general and administrative expenses in fiscal 1997 were only
$0.7 million or 0.7 percent higher than the prior year and remained the same
percent to combined sales and textile services revenues. Interest expense of
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18 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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$9.6 million in fiscal 1997 compared with $9.1 million in the prior year,
reflecting the new short-term financing. The effective tax rate in fiscal
1997 was 38.0 percent, slightly lower than an effective tax rate of 38.5
percent in the preceding year.
Analysis of Fiscal 1996 Operations Compared to 1995
In fiscal 1996, combined sales and textile service revenues of $487.0
million were $14.2 million or 3.0 percent higher than last year. Excluding
acquisitions, there would have been a decline of 1.6 percent. In the Textile
Services segment, revenues were up $10.4 million or 4.3 percent, with all of
this increase coming from acquisitions. Sales of the Manufacturing and
Marketing segment, before deduction for intersegment sales, were $2.3 million
or 1.3 percent higher than the prior year. Without the effect of
acquisitions, sales would have been 3.7 percent lower than the prior year.
Increased sales volume in the United States and in the United Kingdom offset a
small sales decline in Canada. Life Retail Stores sales rose $2.9 million or
4.3 percent due to acquisitions and a 2.9 percent same-store sales increase.
The gross profit percent to combined sales and rental service revenues
was 26.2 percent in fiscal 1996, down slightly from 26.8 percent in the prior
year. In the Textile Services segment, margins were lower than the prior year
due to continued pressure on margins in the health care market, plus the loss
of a large non-health care customer at the Las Vegas plant and the inability
to lower costs there sufficiently to compensate for the lost revenue. Margins
of the Manufacturing and Marketing segment were up slightly versus last year,
primarily the result of a change in sales mix.
Selling, general and administrative expenses in fiscal 1996 were $4.9
million or 5.2 percent higher than the prior year and increased slightly as a
percentage of combined sales and rental service revenues to 20.4 percent from
20.0 percent the prior year. Interest expense of $9.1 million in fiscal 1996
was $1.2 million higher than the prior year due to the long-term financing
completed in fiscal 1996. The effective tax rate was 38.5 percent in fiscal
1996, unchanged from the preceding year.
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Consolidated Statements of Income
--------------------------------------------------------------------------------------------------------------
For Years Ended January 25, January 27, January 28,
(Dollars in thousands, except per share amounts) 1997 1996 1995
............................................................................................................
Textile service revenues $261,349 $254,893 $244,496
Net sales 227,870 232,121 228,336
............................................................................................................
Combined sales and textile service revenues 489,219 487,014 472,832
............................................................................................................
Cost of textile services 215,809 205,486 193,219
Cost of goods sold 148,127 154,054 152,790
............................................................................................................
363,936 359,540 346,009
............................................................................................................
Gross profit 125,283 127,474 126,823
Selling, general and administrative expenses 100,216 99,481 94,585
Restructuring charge -- 14,145 --
............................................................................................................
Income from operations 25,067 13,848 32,238
Interest expense (9,588) (9,104) (7,906)
Other expense, net (2,541) (2,889) (3,078)
............................................................................................................
Income before income taxes 12,938 1,855 21,254
Provision for income taxes 4,916 714 8,183
............................................................................................................
Net income $ 8,022 $ 1,141 $ 13,071
============================================================================================================
Net income per share $ .88 $ .13 $ 1.44
============================================================================================================
The accompanying notes are an integral part of the financial statements.
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4
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20 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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Consolidated Balance Sheets
--------------------------------------------------------------------------------------------------------------
January 25, January 27,
(Dollars in thousands) 1997 1996
------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and short-term investments $ 2,122 $ 11,029
Receivables, less reserves of $2,645 and $2,687 66,632 67,164
Inventories 111,456 104,057
Linens in service 47,544 40,295
Prepaid expenses 4,658 4,036
............................................................................................................
Total Current Assets 232,412 226,581
............................................................................................................
Property and Equipment:
Land 5,149 4,973
Buildings and leasehold improvements 75,466 64,513
Machinery and equipment 134,429 122,672
Capitalized leased property 1,849 1,849
............................................................................................................
216,893 194,007
Less--reserve for depreciation 114,063 103,213
............................................................................................................
102,830 90,794
............................................................................................................
Other:
Goodwill 7,951 8,384
Other acquired assets 8,814 9,714
Cash surrender value of life insurance 14,455 12,595
Miscellaneous 7,642 5,159
............................................................................................................
38,862 35,852
............................................................................................................
Total Assets $374,104 $353,227
============================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 15,400 $ --
Current maturities of long-term debt 2,689 2,681
Accounts payable 21,551 17,238
Accrued wages and other compensation 8,444 7,772
Other accrued liabilities 19,893 17,530
Income taxes 1,420 317
............................................................................................................
Total Current Liabilities 69,397 45,538
............................................................................................................
Long-Term Debt, less current maturities 97,417 100,103
............................................................................................................
Other:
Deferred compensation and other payments 14,137 14,643
Deferred income taxes 3,912 3,413
............................................................................................................
18,049 18,056
............................................................................................................
Shareholders' Equity:
Common Stock, $1 par value, authorized 20,000,000 shares, issued:
9,471,538 shares 9,472 9,472
Capital surplus 4,196 4,196
Retained earnings 186,438 187,328
Translation adjustment (1,763) (2,439)
Common Stock in treasury, at cost: 340,699 and 330,030 shares (9,102) (9,027)
............................................................................................................
189,241 189,530
............................................................................................................
Total Liabilities and Shareholders' Equity $374,104 $353,227
============================================================================================================
The accompanying notes are an integral part of the financial statements.
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5
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Consolidated Statements of Shareholders' Equity
--------------------------------------------------------------------------------------------------------------
For Years Ended January 25, January 27, January 28,
(Dollars in thousands) 1997 1996 1995
------------------------------------------------------------------------------------------------------------
Common Stock ($1 par value)
Balance beginning of year $ 9,472 $ 9,471 $ 9,448
Exercise of stock options -- 1 23
............................................................................................................
Balance end of year $ 9,472 $ 9,472 $ 9,471
............................................................................................................
Capital Surplus
Balance beginning of year $ 4,196 $ 4,179 $ 3,672
Exercise of stock options -- 30 507
Redemption of preferred stock -- (13) --
............................................................................................................
Balance end of year $ 4,196 $ 4,196 $ 4,179
............................................................................................................
Retained Earnings
Balance beginning of year $187,328 $194,849 $190,301
Net income 8,022 1,141 13,071
Cash dividends (8,780) (8,683) (8,557)
Exercise of stock options/stock awards (132) 21 34
............................................................................................................
Balance end of year $186,438 $187,328 $194,849
............................................................................................................
Translation Adjustment
Balance beginning of year $ (2,439) $ (2,290) $ (1,658)
Change in cumulative adjustment 676 (149) (632)
............................................................................................................
Balance end of year $ (1,763) $ (2,439) $ (2,290)
............................................................................................................
Common Stock in Treasury, at cost
Balance beginning of year $ (9,027) $ (9,549) $ (9,770)
Treasury stock purchased (671) -- --
Exercise of stock options/stock awards 631 541 221
Other changes during year (35) (19) --
............................................................................................................
Balance end of year $ (9,102) $ (9,027) $ (9,549)
............................................................................................................
Shareholders' Equity, end of year $189,241 $189,530 $196,660
============================================================================================================
The accompanying notes are an integral part of the financial statements.
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6
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Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------------------------------------
For Years Ended January 25, January 27, January 28,
(Dollars in thousands) 1997 1996 1995
------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 8,022 $ 1,141 $ 13,071
Non-cash items included in net income:
Depreciation 13,415 13,797 13,297
Amortization of acquisition costs 3,460 3,997 3,586
Restructuring charge -- 14,145 --
Change in working capital components,
net of businesses acquired:
Receivables, net 629 4,232 312
Inventories and linens in service (11,326) (3,845) (3,192)
Prepaid expenses (468) 1,294 (880)
Accounts payable 4,305 (2,927) 483
Compensation and other accruals 3,035 2,488 2,713
Income taxes payable 1,103 (4,966) (247)
Cash surrender value of life insurance (1,860) (1,678) (1,508)
Other, net (2,870) (619) (37)
............................................................................................................
Net cash flow provided by operating activities 17,445 27,059 27,598
............................................................................................................
Cash Flows from Investing Activities
Expenditures for property and equipment, net (23,603) (8,760) (11,466)
Cost of businesses acquired (7,160) (10,643) (16,165)
............................................................................................................
Net cash flow used in investing activities (30,763) (19,403) (27,631)
............................................................................................................
Cash Flows from Financing Activities
Proceeds from issuance of short-term debt 15,400 -- 11,200
Proceeds from issuance of long-term debt -- 30,000 --
Debt assumed in acquisition -- 3,131 --
Long-term and short-term debt repayments (2,678) (23,698) (2,572)
Dividends paid (8,780) (8,683) (8,557)
Other, net 469 412 153
............................................................................................................
Net cash flow provided by financing activities 4,411 1,162 224
............................................................................................................
Net increase (decrease) in cash and short-term investments (8,907) 8,818 191
Cash and short-term investments at beginning of year 11,029 2,211 2,020
............................................................................................................
Cash and short-term investments at end of year $ 2,122 $ 11,029 $ 2,211
============================================================================================================
The accompanying notes are an integral part of the financial statements.
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7
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Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Nature of Operations
The Company provides textile rental and laundry services principally to
health care institutions and to a limited extent to hotels, casinos, motels
and restaurants, in or near major metropolitan areas in the United States.
The Company is a manufacturer and marketer of uniforms and business career
apparel for a wide variety of institutions and businesses in the United
States, Canada and the United Kingdom. The Company operates a nationwide
chain of specialty retail stores primarily for nurses and other health care
professionals.
Principles of Consolidation
All subsidiaries are wholly-owned and are included in the consolidated
financial statements. All significant intercompany accounts and transactions
have been eliminated.
Textile service revenues are recognized at the time the service is
provided to the customer. Net sales are recognized at the time the
merchandise is shipped to or picked up by the customer.
Certain amounts in prior years have been reclassified to conform to
current year presentation.
Use of Estimates
These financial statements have been prepared on the accrual basis of
accounting, which required the use of certain estimates by Management in
determining the Company's assets, liabilities, revenue and expenses.
Foreign Currency Translation
The Company accounts for foreign currency translation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52. The cumulative
effect of this method is reflected as a separate component of shareholders'
equity.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost includes material, labor and factory overhead, as applicable.
Inventories were comprised of the following:
(Dollars in thousands) 1997 1996
------------------------------------------------------------
Raw materials $ 30,961 $ 27,612
Work in process 6,366 6,033
Finished goods 74,129 70,412
............................................................
$111,456 $104,057
============================================================
Linens in Service
Linens in service are stated at depreciated cost, not in excess of market.
Property and Equipment
Property and equipment are stated at cost. Renewals and betterments are
capitalized.
Property and equipment are depreciated over their expected useful lives
(buildings -- 15 to 40 years; machinery and equipment -- three to 10 years).
Depreciation is computed principally on the straight-line method. Leasehold
improvements are amortized using the straight-line method over their useful
lives or lease terms, as appropriate.
Goodwill and Other Acquired Assets
Goodwill, the excess of cost over net assets of businesses acquired, is being
amortized on the straight-line basis over periods not exceeding 40 years.
Other acquired assets, including customer contracts and non-competition
agreements, are being amortized on the straight-line basis generally over
periods of three to seven years.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, which
utilizes the liability method. Under this method, deferred taxes are
determined based on the estimated future tax effects of differences between
the financial statement and tax bases of assets and liabilities given the
provisions of the enacted tax laws.
Net Income Per Share
Net income per share is computed by dividing the net income applicable to
Common Stock by the weighted average number of Common and Common equivalent
shares outstanding.
Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers short-term, highly liquid investments (securities with an original
maturity date of less than three months), as cash equivalents.
Cash payments for income taxes were $2,826,000, $5,615,000 and
$9,182,000 in 1997, 1996 and 1995, respectively; and in these periods
interest payments were $9,627,000, $8,644,000 and $7,844,000, respectively.
Adoption of New Pronouncements
Effective January 28, 1996, the Company adopted SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" with no impact on the consolidated financial statements.
8
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24 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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2. Retirement Benefits
The Company has a non-contributory defined benefit pension plan covering
primarily all domestic salaried and hourly administrative non-union
personnel. The benefit formula is based on years of service and compensation
during employment. The funding policy of the pension plan is in accordance
with the requirements of the Employee Retirement Income Security Act of 1974.
Pension expense included the following components:
(Dollars in thousands) 1997 1996 1995
------------------------------------------------------------------------------
Service cost (benefits
earned during the year) $ 697 $ 536 $ 615
Interest cost on projected
benefit obligation 1,050 1,034 981
(Increase) decrease in
value of assets (1,681) (3,089) 235
Net amortization and
deferrals 676 2,106 (1,010)
..............................................................................
Net pension expense $ 742 $ 587 $ 821
==============================================================================
The funded status of the plan and the net pension liability at January
1, 1997 and January 1, 1996 were as follows:
January 1, January 1,
(Dollars in thousands) 1997 1996
------------------------------------------------------------------
Actuarial present value
of benefit obligation:
Vested benefits $(14,459) $(13,628)
Nonvested benefits (158) (113)
..................................................................
Accumulated benefit obligation (14,617) (13,741)
Effect of projected future
compensation levels (2,115) (1,716)
..................................................................
Projected benefit obligation (16,732) (15,457)
Plan assets at fair value,
primarily listed stocks
and Government securities 16,844 15,699
..................................................................
Plan assets more than projected
benefit obligation 112 242
Unrecognized obligation at transition 1,184 1,318
Unrecognized net gains (2,948) (2,886)
Unrecognized prior service cost 230 250
..................................................................
Net pension liability $ (1,422) $ (1,076)
==================================================================
In determining the projected benefit obligation, the following
actuarial assumptions were used:
1997 1996
------------------------------------------------------------------
Discount rate 7.25% 7.00%
Compensation increase rate 6.00% 6.00%
Long-term rate of return 8.50% 8.50%
------------------------------------------------------------------
The Company does not provide retirees with post-retirement benefits
other than pensions.
3. Short-Term and Long-Term Debt
The following table summarizes information with respect to short-term debt
for 1997 and 1996:
(Dollars in thousands) 1997 1996
------------------------------------------------------------------
Average amount of short-term
debt during the year $5,717 $4,392
Weighted average interest rate:
During the year 5.57% 5.32%
At year end 5.42% --
------------------------------------------------------------------
Long-term debt consisted of the following:
(Dollars in thousands) 1997 1996
------------------------------------------------------------------
10.2% notes to insurance company,
due annually to 2004 $ 39,375 $ 41,375
9.15% notes to insurance
companies, due 2001 25,000 25,000
8.225% notes to insurance
companies, due 2006 30,000 30,000
6.84% note to bank, due
quarterly to 1999 2,977 3,100
76% of prime rate industrial
development revenue bond,
due quarterly to 2000 1,687 2,138
Other long-term debt including
obligations under capital leases 1,067 1,171
..................................................................
100,106 102,784
Less--current maturities 2,689 2,681
..................................................................
$ 97,417 $100,103
==================================================================
The most restrictive of the Company's loan agreements require that the
Company maintain a minimum of $160,000,000 in consolidated tangible net
worth, as defined. As of January 25, 1997, the balance was $181,200,000.
Aggregate maturities of long-term debt for each of the four years
subsequent to January 31, 1998, are $2,686,000, $5,224,000, $2,415,000 and
$27,223,000, respectively.
Based on borrowing rates currently available for debt instruments with
similar terms and average maturities, the fair market value of the Company's
long-term debt, as of January 25, 1997 and January 27, 1996, was
approximately $110,260,000 and $119,550,000, respectively.
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4. Income Taxes
The provision for income taxes consisted of the following:
(Dollars in thousands) 1997 1996 1995
------------------------------------------------------------------------------
Current:
Federal $2,168 $4,045 $6,134
State 551 155 1,023
Foreign 240 (322) 200
Deferred 1,957 (3,164) 826
..............................................................................
$4,916 $ 714 $8,183
==============================================================================
Reconciliation between the statutory income tax rate and effective tax
rate is summarized below:
1997 1996 1995
------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State tax, net of
Federal benefit 3.2 3.4 3.5
Other, net (.2) .1 --
..............................................................................
38.0% 38.5% 38.5%
==============================================================================
The tax effect of significant temporary differences representing
deferred tax assets and liabilities were as follows:
January 25, January 27,
(Dollars in thousands) 1997 1996
------------------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 4,508 $ 5,178
Insurance reserves not
yet deductible 4,580 4,060
Customer contracts 3,340 3,222
Other 2,699 4,062
..................................................................
15,127 16,522
..................................................................
Deferred tax liabilities:
Depreciation (9,257) (9,507)
Linen amortization (12,340) (11,807)
Other (901) (622)
..................................................................
(22,498) (21,936)
..................................................................
Net deferred tax liabilities $ (7,371) $ (5,414)
==================================================================
Temporary differences related to investments in foreign subsidiaries
essentially permanent in nature and not expected to reverse in the
foreseeable future were approximately $2,313,000. The unrecognized deferred
tax liability related to these temporary differences was $253,000.
5. Preferred Stock
The Company has two classes of authorized Preferred Stock: Class A, Series 1,
$1 stated value per share, authorized in the amount of 100,000 shares; and
Class B, authorized in the amount of 2,500,000 shares. At January 25, 1997 no
shares of Class A or Class B were outstanding.
6. Shareholder Protection Rights Plan
The Company has a Shareholder Protection Rights Plan, under which a Right is
attached to each share of the Company's Common Stock. The Rights may only
become exercisable under certain circumstances involving actual or potential
acquisitions of the Company's Common Stock by a person or group of affiliated
or associated persons. Depending upon the circumstances, if the Rights become
exercisable, the holder may be entitled to purchase units of the Company's
Class B Series 1 Junior Participating Preferred Stock, shares of the
Company's Common Stock or shares of common stock of the surviving or
purchasing company. The Rights will remain in existence until September 7,
1998, unless they are earlier exercised or redeemed.
7. Restructuring Charge
During the fourth quarter of fiscal 1996, the Company recorded a
restructuring charge of $14,145,000 ($8,700,000 after-tax or $.95 per share).
The restructuring charge related primarily to the consolidation and closing
of Textile Service plants, the reduction of selected product lines in the
Manufacturing and Marketing segment and the sale or contraction of certain
Canadian operations. These costs included (i) writedowns to the carrying
values of plants closed, idle facilities and other assets, (ii) related
inventory adjustments and (iii) the accrual of severance costs associated
with the elimination of approximately 450 positions.
The restructuring charge was composed of $2,566,000 in cash
expenditures and $11,579,000 in reduction of asset carrying values. As of
January 25, 1997, $13,286,000 had been charged to the restructuring reserve
and the remaining reserve of $859,000 is expected to be utilized during
fiscal 1998.
8. Stock-Based Compensation Plans
The Company has various stock option and stock bonus plans which provide for
the granting to certain employees and directors of incentive stock options,
non-qualified stock options, restricted stock and performance awards. Options
and awards have been granted at the fair market value at the date of grant,
although certain plans allow for options to be granted at an option price
below fair market value. Options are exercisable not less than six months nor
more than 10 years after the date of grant.
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26 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its plans. Accordingly, no compensation expense
has been recognized for its stock-based compensation plans other than for
restricted stock and performance-based awards.
A summary of the status of the Company's stock option plans for fiscal
years 1997, 1996 and 1995 and changes during the years then ended is
presented in the table below:
------------------------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 488,125 $30.45 399,331 $31.72 450,696 $31.15
Granted 221,250 19.82 103,250 25.35 -- --
Exercised -- -- (1,000) 22.81 (26,459) 23.10
Lapsed/Canceled (37,200) 31.05 (13,456) 29.82 (24,906) 30.53
..................................................................................................................
Outstanding at end of year 672,175 $26.91 488,125 $30.45 399,331 $31.72
..................................................................................................................
Options exercisable at year end 324,255 $31.85 243,770 $32.32 197,321 $32.25
..................................................................................................................
Options available for future grant 452,627 648,088 524,425
..................................................................................................................
Weighted average fair value for each
option granted during the year $5.00 $7.59
==================================================================================================================
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants in fiscal 1997 and 1996, respectively: risk free interest
rates of 6.4% and 7.2%; expected dividend yields of 3.5% and 3.3%;
volatilities of 18.5% and 17.1%; and expected lives of 9 years in both
periods. The range of per share exercise prices for the 672,175 options
outstanding at year end was $19.00 to $37.50, and the weighted-average
remaining contractual life was 7.6 years.
Had compensation expense for the Company's 1997 and 1996 grants for
stock-based compensation plans been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would approximate the pro forma amounts below:
(Dollars in thousands, except per share) 1997 1996
------------------------------------------------------------------
Net income - As reported $8,022 $1,141
Pro forma 7,746 1,035
..................................................................
Earnings per share - As reported $ .88 $ .13
Pro forma .85 .11
==================================================================
SFAS No. 123 does not apply to awards prior to 1996, nor are the
effects of its application in this disclosure indicative
of the pro forma effect on net income in future years.
9. Commitments and Contingencies
Future minimum payments by year and in the aggregate, under capital leases
and under operating leases with initial or remaining terms of one year or
more, consisted of the following at January 25, 1997:
Capital Operating
(Dollars in thousands) Leases Leases
------------------------------------------------------------------
1998 $ 49 $ 8,511
1999 36 7,235
2000 25 5,855
2001 20 4,772
2002 20 3,720
Later years 85 12,461
..................................................................
Total minimum lease payments 235 $42,554
..................................................................
Amount representing interest 105
..................................................................
Present value of net minimum
lease payments $130
==================================================================
Rental expense for all operating leases consisted of:
(Dollars in thousands) 1997 1996 1995
------------------------------------------------------------------------------
Minimum rentals $16,528 $16,415 $14,585
Contingent rentals 374 345 341
..............................................................................
$16,902 $16,760 $14,926
==============================================================================
The Company is a party to various claims and legal proceedings which
arose in the ordinary course of its business. Although the ultimate
disposition of these proceedings is not presently determinable, Management
does not believe that an adverse determination in any or all of such
proceedings will have a material adverse effect upon the financial condition
or operating results of the Company.
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A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S 27
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10. Business Segment Information
The Company operates principally in three industry
segments: Textile Services, Manufacturing and Marketing
and Retail Sales. These segments, including products and principal markets,
are described elsewhere in this report.
------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------
Sales and textile service revenues
Textile services $261,349 $254,893 $244,496 $215,248 $218,466
Manufacturing and marketing 176,638 180,845 178,584 174,985 178,041
Retail sales 77,860 71,803 68,876 56,732 54,575
Intersegment sales (26,628) (20,527) (19,124) (19,837) (20,285)
.....................................................................................................................
$489,219 $487,014 $472,832 $427,128 $430,797
=====================================================================================================================
Earnings
Textile services $ 13,306 $ 17,069 $ 20,153 $ 19,011 $ 19,567
Manufacturing and marketing 6,015 5,728 7,003 6,962 10,150
Retail sales 7,663 6,706 6,270 4,125 4,051
Restructuring charge -- (14,145) -- -- --
Interest, corporate expenses and other, net (14,044) (13,367) (12,447) (12,183) (11,719)
Eliminations (2) (136) 275 145 204
.....................................................................................................................
$ 12,938 $ 1,855 $ 21,254 $ 18,060 $ 22,253
=====================================================================================================================
Assets (as of year end)
Textile services $182,738 $164,390 $165,499 $149,909 $144,726
Manufacturing and marketing 149,501 146,340 153,192 152,780 153,432
Retail sales 28,543 26,182 26,120 20,498 18,633
Corporate 13,322 16,315 8,737 9,674 9,866
.....................................................................................................................
$374,104 $353,227 $353,548 $332,861 $326,657
=====================================================================================================================
Depreciation
Textile services $ 7,836 $ 8,215 $ 8,032 $ 7,833 $ 7,676
Manufacturing and marketing 3,921 4,052 3,775 3,751 3,645
Retail sales 1,561 1,442 1,390 1,210 1,200
Corporate 97 88 100 78 57
.....................................................................................................................
$ 13,415 $ 13,797 $ 13,297 $ 12,872 $ 12,578
=====================================================================================================================
Capital additions, net
Textile services $ 19,014 $ 4,664 $ 6,454 $ 5,055 $ 7,800
Manufacturing and marketing 3,243 2,921 3,587 2,475 1,517
Retail sales 1,291 1,118 1,280 940 554
Corporate 55 57 145 300 28
.....................................................................................................................
$ 23,603 $ 8,760 $ 11,466 $ 8,770 $ 9,899
=====================================================================================================================
Sales of foreign operations and export sales were not significant. The
Company has no one major customer. Corporate assets consist primarily of
cash, investments, cash surrender value of officers' life insurance and
office furniture and fixtures. Corporate expenses consist of the Company's
principal administrative and financial functions, which are centrally
managed. Capital additions do not include the cost of properties acquired in
business acquisitions.
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28 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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11. Unaudited Quarterly Financial Data
Quarterly results for 1997 and 1996 are shown below:
Fiscal 1997 Quarter Ended
(Dollars in thousands, except per share amounts) April 27 July 27 October 26 January 25
------------------------------------------------------------------------------------------------------------------
Sales and textile service revenues
Textile services $ 65,212 $ 65,306 $ 64,812 $ 66,019
Manufacturing and marketing 44,585 45,367 44,959 41,727
Retail sales 18,548 18,584 20,984 19,744
Intersegment sales (6,704) (6,669) (6,505) (6,750)
..................................................................................................................
121,641 122,588 124,250 120,740
..................................................................................................................
Gross profit
Textile services 13,174 11,746 10,229 10,392
Manufacturing and marketing 9,152 9,994 9,887 8,332
Retail sales 10,108 10,133 11,542 10,594
..................................................................................................................
32,434 31,873 31,658 29,318
..................................................................................................................
Net income $ 3,057 $ 2,677 $ 1,824 $ 464
==================================================================================================================
Net income per share $ .33 $ .30 $ .20 $ .05
==================================================================================================================
Fiscal 1996 Quarter Ended
(Dollars in thousands, except per share amounts) April 29 July 29 October 28 January 27
------------------------------------------------------------------------------------------------------------------
Sales and textile service revenues
Textile services $ 64,904 $ 63,513 $ 63,525 $ 62,951
Manufacturing and marketing 47,102 45,890 46,114 41,739
Retail sales 16,883 17,339 19,542 18,039
Intersegment sales (5,062) (4,882) (5,586) (4,997)
..................................................................................................................
123,827 121,860 123,595 117,732
..................................................................................................................
Gross profit
Textile services 13,702 12,149 11,641 11,915
Manufacturing and marketing 10,379 10,169 9,995 8,398
Retail sales 9,214 9,311 10,799 9,802
..................................................................................................................
33,295 31,629 32,435 30,115
..................................................................................................................
Restructuring charge -- -- -- (14,145)
..................................................................................................................
Net income (loss) $ 3,438 $ 2,646 $ 2,834 $ (7,777)
==================================================================================================================
Net income (loss) per share $ .38 $ .29 $ .31 $ (.85)
==================================================================================================================
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Report of Independent
Public Accountants
------------------------------------------------------------------------------
To ▇▇▇▇▇▇▇▇ Corporation:
We have audited the accompanying consolidated balance sheets of ▇▇▇▇▇▇▇▇
Corporation (a Missouri corporation) and subsidiaries as of January 25, 1997
and January 27, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 25, 1997. These financial statements are the responsibility of
the Company's Management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ▇▇▇▇▇▇▇▇
Corporation and subsidiaries as of January 25, 1997 and January 27, 1996, and
the results of their operations and their cash flows for each of three years
in the period ended January 25, 1997, in conformity with generally accepted
accounting principles.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
St. Louis, Missouri
March 11, 1997
Common Stock Data
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol AGL. The quarterly market price ranges of the Common Stock and
dividends per share paid during fiscal 1997 and fiscal 1996 were as follows:
Quarter 1st 2nd 3rd 4th
----------------------------------------------------------------------------
Fiscal 1997
High $ 22 3/4 $ 25 1/8 $ 22 1/2 $ 20 3/4
Low 20 20 1/8 18 3/4 18 1/8
Dividend $.240 $.240 $.240 $.240
----------------------------------------------------------------------------
Fiscal 1996
High $ 27 1/2 $ 26 1/4 $ 25 3/8 $ 24 3/8
Low 24 3/8 24 5/8 21 7/8 19 3/8
Dividend $.235 $.235 $.240 $.240
----------------------------------------------------------------------------
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30 A N G E L I C A C O R P O R A T I O N A N D S U B S I D I A R I E S
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Financial Summary--11 Years
-----------------------------------------------------------------------------------------------------------
For Years Ended January 25, January 27, January 28,
(Dollars in thousands, except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
Operations
Combined sales and textile service revenues $489,219 $487,014 $472,832
Gross profit 125,283 127,474 126,823
Operating expenses and other, net,
excluding interest expense 102,757 102,370 97,663
Restructuring charge -- 14,145 --
Interest expense 9,588 9,104 7,906
Income before income taxes
and cumulative effect of accounting change 12,938 1,855 21,254
Provision for income taxes 4,916 714 8,183
Income before cumulative effect of accounting change 8,022 1,141 13,071
Cumulative effect of accounting change -- -- --
Net income $ 8,022 $ 1,141 $ 13,071
-----------------------------------------------------------------------------------------------------------
Per Share Data
Net income $ .88 $ .13 $ 1.44
Cash dividends paid .96 .95 .94
Shareholders' equity $ 20.73 $ 20.73 $ 21.57
-----------------------------------------------------------------------------------------------------------
Ratios
Current ratio (current assets to current
liabilities) 3.3 to 1 5.0 to 1 3.2 to 1
Percent long-term debt to long-term debt and equity 34.0% 34.6% 26.2%
Gross profit margin 25.6% 26.2% 26.8%
Pretax profit margin 2.6% .4% 4.5%
Effective tax rate 38.0% 38.5% 38.5%
Net income margin 1.6% .2% 2.8%
Return on average shareholders' equity 4.2% .4% 6.7%
Return on average total assets 2.2% .3% 3.8%
-----------------------------------------------------------------------------------------------------------
Other Selected Data
Working capital $163,015 $181,043 $150,734
Additions to property and equipment, net 23,603 8,760 11,466
Depreciation expense 13,415 13,797 13,297
Long-term debt, less current maturities 97,417 100,103 69,683
Total assets $374,104 $353,277 $353,548
Average number of shares of Common Stock outstanding 9,156,861 9,139,961 9,107,262
Approximate number of employees 10,100 9,700 9,800
-----------------------------------------------------------------------------------------------------------
Restructuring charge taken in fourth quarter of fiscal 1996. Effect on
net income per share is a reduction of $.95.
Includes cumulative effect to February 1, 1992 of implementing SFAS No.
109, "Accounting for Income Taxes." Cumulative effect on net income per
share is $.21.
This information should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report.
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------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
For Years Ended January 29, January 30, February 1, January 26,
(Dollars in thousands, except per share amounts) 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------
Operations
Combined sales and textile service revenues $427,128 $430,797 $434,471 $413,635
Gross profit 116,199 117,297 128,015 122,737
Operating expenses and other, net,
excluding interest expense 90,695 87,524 84,505 80,553
Restructuring charge -- -- -- --
Interest expense 7,444 7,520 6,992 6,274
Income before income taxes
and cumulative effect of accounting change 18,060 22,253 36,518 35,910
Provision for income taxes 6,909 8,450 13,848 13,814
Income before cumulative effect of accounting change 11,151 13,803 22,670 22,096
Cumulative effect of accounting change -- 1,984 -- --
Net income $ 11,151 $ 15,787 $ 22,670 $ 22,096
------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income $ 1.23 $ 1.71 $ 2.43 $ 2.37
Cash dividends paid .93 .92 .89 .84
Shareholders' equity $ 21.13 $ 20.88 $ 20.43 $ 18.92
------------------------------------------------------------------------------------------------------------------------
Ratios
Current ratio (current assets to current
liabilities) 4.0 to 1 4.7 to 1 4.2 to 1 2.9 to 1
Percent long-term debt to long-term debt and equity 27.3% 29.2% 29.7% 24.8%
Gross profit margin 27.2% 27.2% 29.5% 29.7%
Pretax profit margin 4.2% 5.2% 8.4% 8.7%
Effective tax rate 38.3% 38.0% 37.9% 38.5%
Net income margin 2.6% 3.7% 5.2% 5.3%
Return on average shareholders' equity 5.8% 8.2% 12.3% 13.0%
Return on average total assets 3.4% 4.8% 7.0% 7.4%
------------------------------------------------------------------------------------------------------------------------
Other Selected Data
Working capital $157,188 $161,129 $160,379 $134,964
Additions to property and equipment, net 8,770 9,889 13,159 13,537
Depreciation expense 12,872 12,578 11,743 10,313
Long-term debt, less current maturities 72,255 78,175 80,506 57,782
Total assets $332,861 $326,657 $335,173 $316,439
Average number of shares of Common Stock outstanding 9,089,365 9,217,199 9,344,748 9,329,503
Approximate number of employees 9,500 9,000 9,100 9,300
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
For Years Ended January 27, January 28 January 30, January 31,
(Dollars in thousands, except per share amounts) 1990 1989 1988 1987
------------------------------------------------------------------------------------------------------------------------
Operations
Combined sales and textile service revenues $368,752 $328,134 $306,669 $291,704
Gross profit 108,150 92,629 91,648 88,956
Operating expenses and other, net,
excluding interest expense 71,837 62,784 59,552 54,540
Restructuring charge -- -- -- --
Interest expense 5,077 2,783 1,860 2,360
Income before income taxes
and cumulative effect of accounting change 31,236 27,062 30,236 32,056
Provision for income taxes 12,022 10,420 13,001 15,355
Income before cumulative effect of accounting change 19,214 16,642 17,235 16,701
Cumulative effect of accounting change -- -- -- --
Net income $ 19,214 $ 16,642 $ 17,235 $ 16,701
------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income $ 2.06 $ 1.79 $ 1.85 $ 1.79
Cash dividends paid .77 .73 .70 .61
Shareholders' equity $ 17.36 $ 16.09 $ 14.95 $ 13.78
------------------------------------------------------------------------------------------------------------------------
Ratios
Current ratio (current assets to current
liabilities) 3.4 to 1 3.0 to 1 3.1 to 1 4.3 to 1
Percent long-term debt to long-term debt and equity 23.9% 11.3% 13.5% 16.4%
Gross profit margin 29.3% 28.2% 29.9% 30.5%
Pretax profit margin 8.5% 8.3% 9.9% 11.0%
Effective tax rate 38.5% 38.5% 43.0% 47.9%
Net income margin 5.2% 5.1% 5.6% 5.7%
Return on average shareholders' equity 12.3% 11.5% 12.8% 13.5%
Return on average total assets 7.5% 7.4% 8.4% 8.8%
------------------------------------------------------------------------------------------------------------------------
Other Selected Data
Working capital $130,072 $104,218 $ 95,239 $101,119
Additions to property and equipment, net 12,922 6,312 16,835 9,880
Depreciation expense 9,360 8,513 7,617 7,104
Long-term debt, less current maturities 50,588 19,013 21,588 25,236
Total assets $279,168 $232,883 $216,441 $194,958
Average number of shares of Common Stock outstanding 9,327,025 9,299,105 9,335,418 9,341,814
Approximate number of employees 8,400 7,800 7,400 7,000
------------------------------------------------------------------------------------------------------------------------
Restructuring charge taken in fourth quarter of fiscal 1996. Effect on
net income per share is a reduction of $.95.
Includes cumulative effect to February 1, 1992 of implementing SFAS No.
109, "Accounting for Income Taxes." Cumulative effect on net income per
share is $.21.
This information should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report.
------------------------------------------------------------------------------
