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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended Commission File
October 29, 1994 Number 1-5674
ANGELICA CORPORATION
(Exact name of Registrant as specified in its charter)
MISSOURI 43-0905260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
424 South Woods Mill Road
CHESTERFIELD, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(314) 854-3800
----------------------------------------------------
Former name, former address and former fiscal year
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports 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
--- ---
The number of shares outstanding of Registrant's Common Stock, par
value $1.00 per share, at November 29, 1994 was 9,458,377 shares.
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ANGELICA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES
FOR OCTOBER 29, 1994 FORM 10-Q QUARTERLY REPORT
Page Number Reference
---------------------
Quarterly Report
to
Form 10-Q Shareholders
--------- ----------------
PART I. FINANCIAL INFORMATION:
Consolidated Statements of Income -
Third quarter and Three Quarters Ended
October 29, 1994 and October 30, 1993 3
Consolidated Balance Sheets -
October 29, 1994 and January 29, 1994 4
Consolidated Statements of Cash Flows -
Three Quarters Ended October 29, 1994
and October 30, 1993 5
Notes to Consolidated Financial
Statements 2
Management's Discussion and Analysis
of Operations and Financial Condition 3-4
Exhibit A - Quarterly Report to
Shareholders 5
PART II. OTHER INFORMATION 6
1
3
ANGELICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 29, 1994
(1) The accompanying consolidated condensed financial statements are
unaudited, and it is suggested that these consolidated statements
be read in conjunction with the fiscal 1994 Annual Report, including
Notes to Financial Statements. However, it is the opinion of the
Company that all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results during
the interim period have been included.
(2) See Index to Financial Statements and Supporting Schedules on
page 1. Those pages of the Angelica Corporation and
Subsidiaries Quarterly Report to Shareholders for the quarter
ended October 29, 1994, listed in such index are incorporated
herein by reference. The pages of the Quarterly Report to
Shareholders which are not listed on the index and therefore
not incorporated herein by reference are furnished for the
information of the Commission but are not to be deemed "filed"
as a part of this report. The Quarterly Report to
Shareholders referred to herein is located immediately
following page 4 of this report.
(3) For purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term, highly liquid investments which
are readily convertible into cash, as cash equivalents.
Cash payments for income taxes were $7,902,000 and $5,492,000
in the three quarters of fiscal 1995 and 1994, respectively;
and in these periods interest payments were $4,628,000 and
$4,336,000, respectively.
2
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
QUARTER ENDED OCTOBER 29, 1994
Analysis of Operations
- - ----------------------
Third Quarter Ended Three Quarters Ended
------------------------ -------------------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
------- ------- ------- -------
Sales and Rental Service Revenues
- - ---------------------------------
(Dollars in thousands)
Rental Services $ 61,056 $ 52,947 $ 181,612 $ 158,639
Manufacturing and Marketing 45,133 47,600 136,758 133,099
Retail Sales 18,958 15,475 51,387 42,011
Intersegment Sales (5,051) (5,537) (14,414) (15,150)
------- ------- ------- -------
$ 120,096 $ 110,485 $ 355,343 $ 318,599
======= ======= ======= =======
Gross Profit
- - ------------
(Dollars in thousands)
Rental Services $ 13,103 $ 12,353 $ 38,990 $ 35,220
Manufacturing and Marketing 8,897 10,919 28,564 29,906
Retail Sales 10,318 8,149 27,705 22,449
------- ------- ------- -------
$ 32,318 $ 31,421 $ 95,259 $ 87,575
======= ======= ======= =======
In the third quarter ended October 29, 1994, combined sales and
rental service revenues were up 8.7 percent and gross profit
increased 2.9 percent compared with the prior year third quarter.
For the three quarters of this year, combined sales and rental
service revenues were up 11.5 percent and gross profit was up 8.8
percent. Third quarter revenues of the Rental Services segment
rose 15.3 percent, with most of the increase due to acquisitions
during the last twelve months. Good cost control efforts continue
to offset the impact of competitive pricing on both new business
and contract renewals. Sales of Life Retail Stores for the third
quarter increased 22.5 percent compared with last year, the
increase being due to volume from acquisitions plus a same-store
sales increase of 9.3 percent. Sales of the Manufacturing and
Marketing segment decreased 5.2 percent in the third quarter
compared with the same quarter last year and gross profit declined
18.5 percent. In the U.S. portion of this segment, sales and gross
profit declines resulted from the non-recurrence of large third
quarter sales to casinos last year plus reduced sales to hospitals,
both of which normally produce higher-than-average margins.
Margins were also negatively affected by increased shipments to
fast food chains with lower-than-average margins and by under-
absorption of manufacturing costs.
Selling, general and administrative expenses increased $944,000 or
4.3 percent in the third quarter and increased $4,819,000 or 7.4
percent in the first three quarters compared with the same periods
last year. Most of the dollar increase was the result of
acquisitions. These
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expenses decreased as a percent of combined
sales and rental service revenues from 20.0 percent to 19.2 percent
in the third quarter and from 20.4 percent to 19.7 percent in the
first three quarters. Due to the prior year third quarter
retroactive federal income tax increase, the effective tax rates
for the third quarter and three quarters of the prior year were
39.9 percent and 38.3 percent, respectively, versus 38.5 percent in
both periods of the current year.
Financial Condition
- - -------------------
The Company had working capital of $150,243,000 and a current ratio
of 3.2 to 1 at October 29, 1994, down from $167,012,000 and 5.3 to
1 a year ago and from $157,188,000 and 4.0 to 1 at the beginning of
the year. The reduction in working capital and lower current ratio
were due to higher amounts of short-term debt at the end of the
third quarter this year. The ratio of long-term debt to debt-plus-
equity was 26.7 percent at the close of the third quarter, down
modestly from a year ago and at the beginning of this fiscal year.
Operating activities provided a total cash flow of $21,474,000 in
the three quarters compared with $13,573,000 in the three quarters
last year, with the primary differences being lower working capital
requirements and higher net income this year. Investing activities
included $9,353,000 for capital expenditures and $15,651,000 for
acquisitions. Financing activities provided a net cash flow of
$3,702,000, primarily the issuance of short-term debt offset by the
payment of dividends and the repayment of long-term debt. No
material change in the Company's future aggregate cash requirements
is foreseen at the present time.
Based on the Company's cash generation from operations as well as
its strong working capital position, current ratio and ratio of
long-term debt to total debt-plus-equity, Management believes that
internal funds available from operations plus external funds
available from the issuance of additional debt and/or equity as
needed in the future, will be sufficient for all planned operating
and capital requirements, including acquisitions.
4
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ANGELICA CORPORATION
EXHIBIT A
November 17, 1994
Dear Shareholder:
We are pleased to report third quarter combined sales and rental service
revenues and earnings improved compared with last year's third quarter. This
marks the fifth consecutive quarter that earnings have exceeded the comparable
prior year period. Combined sales and rental service revenues for the third
quarter were $120,096,000, up 8.7% from $110,485,000 in last year's third
quarter. Excluding acquisitions made in the last twelve months, combined
sales and rental service revenues were virtually unchanged. Pretax income of
$6,835,000 increased 5.3% compared with $6,489,000 in the prior year, and net
income of $4,204,000 increased 7.8% from $3,900,000 in the third quarter last
year. Net income per share was $.46 versus $.43 in the third quarter last
year, an increase of 7.0%. The percentage increase in net income exceeded the
rise in pretax income because of the effect of a retroactive increase in
federal income tax rates in last year's third quarter.
For the first three quarters this year, combined sales and rental service
revenues were up 11.5% to $355,343,000. Excluding acquisitions made in the
last twelve months, combined sales and rental service revenues increased a
modest 3.2%. Pretax income was $17,126,000, an increase of 20.5% over the
$14,212,000 reported for the first three quarters of last year. Net income of
$10,533,000 compares with last year's $8,765,000, an increase of 20.2%. Net
income per share was $1.16 for the first three quarters versus $.97 in the
same period last year, an increase of 19.6%.
For the third quarter, Life Retail Stores had an excellent earnings increase,
the Rental Services segment had a very good earnings increase, but the
Manufacturing and Marketing segment had an earnings decline more than
offsetting earnings improvement in the first and second quarters. Emphasis on
control of operating costs in all three business segments continued to produce
good results in the quarter, as selling, general and administrative expenses
increased only 4.3%, while combined sales and rental service revenues rose by
a larger 8.7%.
Third quarter revenues of the Rental Services segment increased 15.3%, with
most of this increase coming from acquisitions made during the last twelve
months. Earnings increased at a rate very close to the rate of revenue
increase. Good cost control was the major contributor to the third quarter
earnings increase, as pricing on both new business and contract renewals
continues to be very competitive. In addition to the earnings increase, the
third quarter was highlighted by two acquisitions expected to add $14,000,000
in annual revenues. The larger of the two was a health care laundry business
in Buffalo, New York, increasing our market penetration in that important
health care area. The second acquisition, involving a cooperative laundry
owned by three hospitals in Houston, Texas, is an example of hospitals closing
their laundries because we provide a lower-cost alternative. The Rental
Services segment has had a very good first three quarters, and while we
currently expect improvement in the fourth quarter relative to last year, we
do not believe it will be as strong as in the recent past because of the
excellent fourth quarter recorded last year and continuing competitive
pressures in the marketplace.
Sales of the Manufacturing and Marketing businesses in the third quarter
decreased 5.2% compared with the same quarter last year, with all three
divisions making up this segment posting declines. We are pleased to report
even though the Canadian operations had a decline in sales, they made a small
profit in the third quarter compared with a modest loss in the third quarter
last year. This improvement was achieved through excellent cost control. Our
business in England had results comparable to the prior year period, and
although still operating at a small loss has shown good improvement on a year-
to-date basis. We are expecting continued improvement in both the Canadian and
English businesses. The Uniform Group in the United States had a very bad third
quarter with sales down modestly and earnings down significantly, caused
424 South Woods Mill Road, Chesterfield, Missouri 63017-3406
314-854-3800
7
by the reduced sales plus a sizable drop in gross margin percentage. Lower
sales levels were the result of large sales to casinos last year which did not
recur this year and reduced sales of uniforms to hospitals as many discontinue
providing uniforms to their employees. This latter issue resulted in improved
sales at our Life Retail Stores which will be commented on later. These two
principal reasons for the sales decline also caused a gross margin decline as
both of these product areas produce better-than-average margins. Two other
factors contributed to the drop in gross margin. The first is continued large
sales to fast food chains at lower-than-average gross margins. The second is
under-absorbed manufacturing costs in our factories caused by efforts to
reduce inventories. Incoming business from the hospitality markets (i.e.
lodging, food service, travel and recreation) was modestly ahead of last
year's third quarter, while incoming business from the health care market was
down slightly, because of the previously mentioned drop in sales of uniforms
for hospital personnel. During the quarter, we acquired a uniform
manufacturing business in Dallas, Texas, expected to add $7,000,000 in annual
revenues principally from banks and other financial institutions and to help
reduce the cost of manufacturing some of the tailored uniform products being
sold to other markets. While we expect fourth quarter results of the
Manufacturing and Marketing segment to be better than the just-completed third
quarter, we now do not expect this segment will show an improvement in
earnings for the full year. As a result of numerous actions taken recently,
however, next year's results for this segment should show an improvement over
this year.
Life Retail Stores had an excellent 22.5% increase in third quarter sales and
a significantly better increase in earnings. The sales increase reflected a
9.3% rise in same-store sales plus new volume from acquisitions. Life ended
the third quarter with 265 stores in operation compared with 247 the same time
last year. Life is clearly benefiting (and the Uniform Group is being hurt)
by the trend of many hospitals to no longer provide employees with uniforms
purchased from manufacturers, and instead sending them to retail stores to
fill their needs. We expect Life Retail Stores will have a good fourth
quarter and are looking forward to an eighth consecutive year of record
earnings for this segment.
We did not expect the improvement in third quarter earnings to be nearly as
great as in the first two quarters. Although we achieved an increase over
last year, results were somewhat worse than expected due to the Uniform
Group's performance. In terms of improvement over the prior year, the fourth
quarter last year was by far our best quarter. Despite the fact that the
comparison of this year's fourth quarter to last will be difficult, we expect
a modest earnings increase, which will mean a very good increase in earnings
for the year as a whole. We are mindful that the health care market has been
upset for a good part of this year by Congressional debate over measures to
control health care costs and that hospitals continue strong emphasis on
reducing costs. This has both pluses and minuses for Angelica. On the plus
side, it causes sales increases for Life Retail Stores, and it causes
hospitals to take a hard look at closing on-premise laundries, benefiting our
Rental Services segment. It should also increase the pace of replacement of
disposables with more cost-effective reusables which we supply. On the minus
side, it causes sales declines for Manufacturing and Marketing as well as
requests from customers of both that segment and Rental Services for price
reductions. More importantly, over the long term we believe the products and
services provided by Angelica are excellent cost-reducing alternatives for the
health care community. In addition, we believe the acquisitions we are
making will also contribute to the long-term success of your company.
In conclusion, while the many changes taking place in the health care
community may have a dampening effect on short-term results, we believe our
emphasis on the health care and other service markets served by Angelica
Corporation bodes well for long-term performance.
Respectfully submitted,
/s/ LAWRENCE J. YOUNG
Lawrence J. Young
Chairman of the Board and President
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CONSOLIDATED STATEMENTS OF INCOME
Angelica Corporation and Subsidiaries
Unaudited
(Dollars in thousands, except per share amounts)
Third Quarter Ended Three Quarters Ended
---------------------------- --------------------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
Rental service revenues $ 61,056 $ 52,947 $181,612 $158,639
Net sales 59,040 57,538 173,731 159,960
------- ------- ------- -------
120,096 110,485 355,343 318,599
------- ------- ------- -------
Cost of rental services 47,953 40,594 142,622 123,419
Cost of goods sold 39,825 38,470 117,462 107,605
------- ------- ------- -------
87,778 79,064 260,084 231,024
------- ------- ------- -------
Gross profit 32,318 31,421 95,259 87,575
------- ------- ------- -------
Selling, general and
administrative expenses 23,054 22,110 69,851 65,032
Interest expense 1,958 1,864 5,863 5,645
Other expense, net 471 958 2,419 2,686
------- ------- ------- -------
25,483 24,932 78,133 73,363
------- ------- ------- -------
Income before income taxes 6,835 6,489 17,126 14,212
Provision for income taxes 2,631 2,589 6,593 5,447
------- ------- ------- -------
Net income $ 4,204 $ 3,900 $ 10,533 $ 8,765
======= ======= ======= =======
Net income per share <F1> $ .46 $ .43 $ 1.16 $ .97
======= ======= ======= =======
Dividends per common share $ .235 $ .235 $ .705 $ .695
======= ======= ======= =======
<FN>
<F1> Based upon weighted average number of common and common equivalent
shares outstanding of 9,107,383 and 9,081,002 for fiscal periods of 1995
and 1994, respectively.
9
CONSOLIDATED BALANCE SHEETS
Angelica Corporation and Subsidiaries
Unaudited
(Dollars in thousands)
October 29, 1994 January 29, 1994
---------------- ----------------
ASSETS
- - ------
Current Assets:
Cash and short-term investments $ 2,192 $ 2,020
Receivables, less reserves of $3,740 and $2,630 73,259 68,247
Inventories:
Raw material 23,999 26,425
Work in progress 5,787 7,535
Finished goods 71,596 70,610
------- -------
101,382 104,570
Linens in service 36,625 31,099
Prepaid expenses 4,661 4,319
------- -------
Total Current Assets 218,119 210,255
------- -------
Property and Equipment 202,551 189,905
Less -- reserve for depreciation 103,530 95,937
------- -------
99,021 93,968
------- -------
Goodwill 7,129 5,833
Other Acquired Assets 14,086 8,726
Cash Surrender Value of Life Insurance 9,747 9,409
Miscellaneous 4,659 4,670
------- -------
35,621 28,638
------- -------
Total Assets $352,761 $332,861
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Short-term debt $ 21,000 $ 9,900
Current maturities of long-term debt 2,568 2,568
Accounts payable 18,020 17,593
Accrued expenses 21,092 17,476
Income taxes 5,196 5,530
------- -------
Total Current Liabilities 67,876 53,067
------- -------
Long-Term Debt, less current maturities 71,752 72,255
Other Long-Term Obligations 16,594 15,546
Shareholders' Equity:
Preferred Stock:
Class A, Series 1, $1 stated value,
authorized 100,000 shares, outstanding: 128 shares -- --
Class B, authorized 2,500,000 shares, outstanding: none -- --
Common stock, $1 par value, authorized 20,000,000
shares, issued: 9,456,297 and 9,447,614 shares 9,456 9,448
Capital surplus 3,862 3,672
Retained earnings 194,452 190,301
Translation adjustment (1,682) (1,658)
Common Stock in treasury, at cost: 351,626 and 361,580 (9,549) (9,770)
------- -------
196,539 191,993
------- -------
Total Liabilities and Shareholders' Equity $352,761 $332,861
======= =======
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Angelica Corporation and Subsidiaries
Unaudited
(Dollars in thousands)
Three Quarters Ended
----------------------------------
October 29, 1994 October 30, 1993
---------------- ----------------
Cash flows from operating activities:
Net income $10,533 $ 8,765
Non-cash items included in net income:
Depreciation 9,673 9,431
Amortization of acquisition costs 2,622 2,618
Change in working capital components,
net of businesses acquired (263) (6,250)
Other, net (1,091) (991)
------ ------
Net cash provided by operating activities 21,474 13,573
------ ------
Cash flows from investing activities:
Expenditures for property and equipment, net (9,353) (5,605)
Cost of businesses acquired (15,651) (1,246)
------ ------
Net cash used in investing activities (25,004) (6,851)
------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term debt 11,100 --
Long-term debt repayments (1,411) (1,412)
Dividends paid (6,417) (6,308)
Other, net 430 255
------ ------
Net cash provided by (used in) financing activities 3,702 (7,465)
------ ------
Net decrease in cash and
short-term investments 172 (743)
Balance at beginning of year 2,020 2,746
------ ------
Balance at end of period $ 2,192 $ 2,003
====== ======
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SUMMARY FINANCIAL POSITION DATA
Angelica Corporation and Subsidiaries
(Dollars in thousands, except ratios, shares and per share amounts)
(Unaudited) Year Ended January<F1>
---------------------- -------------------------------------------------
October 29, October 30,
1994 1993 1994 1993 1992 1991 1990
--------- --------- -------- -------- -------- -------- -------
Working capital $150,243 $167,012 $157,188 $161,129 $160,379 $134,964 $130,072
Current ratio 3.2 to 1 5.3 to 1 4.0 to 1 4.7 to 1 4.2 to 1 2.9 to 1 3.4 to 1
Long-term debt $71,752 $77,060 $72,255 $78,175 $80,506 $57,782 $50,588
Shareholders' equity $196,539 $191,624 $191,993 $189,209 $190,303 $175,684 $161,134
Percent long-term debt to
debt and equity 26.7% 28.7% 27.3% 29.2% 29.7% 24.8% 23.9%
Equity per common share $21.59 $21.10 $21.13 $20.88 $20.43 $18.92 $17.36
Common shares outstanding 9,104,671 9,082,605 9,086,034 9,063,834 9,315,535 9,285,677 9,284,291
<FN>
<F1>As reported in Company's Annual Report.
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PART II. OTHER INFORMATION
ANGELICA CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the third quarter ended October 29, 1994.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Angelica Corporation
--------------------
(Registrant)
Date: December 2, 1994 /s/ T. M. ARMSTRONG
-----------------------------
T. M. Armstrong
Senior Vice President -
Finance and Administration
Chief Financial Officer
(Principal Financial Officer)
/s/ L. LINDEN MANN
-----------------------------
L. Linden Mann
Controller
(Principal Accounting Officer)
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