TEXTILE SERVICES IMAGE APPAREL INNOVATION VALUE
Angelica Corporation
424 South Woods Mill Road
Chesterfield, Missouri 63017-3406
Tel: 314-854-3800
Angelica [logo] Fax: 314-854-3890
November 16, 2000
Dear Shareholder:
Third quarter earnings of $.23 per share were measurably better than $.07
per share in the third quarter last year. We are encouraged by this increase
but are disappointed that lower than expected Image Apparel sales and higher
than expected energy and labor costs negatively affected our ability to
improve quarterly results more substantially, given that last year's third
quarter financial performance was very weak.
Third quarter combined sales and textile service revenues were
$116,933,000, up 0.3 percent from $116,578,000 in last year's third quarter.
This is the first quarterly sales increase, albeit small, in ten quarters.
Pretax income increased substantially, $3,165,000 versus $1,051,000 in the
same period last year, and third quarter net income of $1,994,000 compared
with $652,000 last year. For the first three quarters of fiscal 2001,
combined sales and textile service revenues were 3.3 percent lower at
$341,831,000 compared with $353,497,000 in the same period last year.
However, pretax income rose to $8,536,000 from $7,158,000 last year, and net
income increased 21.2 percent to $5,378,000 compared with $4,438,000 in last
year's first three quarters. Earnings per share for the three quarters were
$.62 compared with $.51 in last year's first three quarters, an increase of
21.6 percent.
Revenues in the Textile Services segment in the third quarter were
$61,159,000 or 1.7 percent higher than the $60,139,000 last year. The
investments made to revitalize the sales and marketing effort are continuing
to be effective, and the difficult decisions made last year to combat margin
erosion which precipitated sales declines have proven to be the correct
strategy. This is the first quarter in almost three years where revenues
were higher than the comparable prior quarter. The annualized volume of new
business signed in the first three quarters was more than double the losses
of existing business in the same time period and nearly 40 percent higher
than new business additions in the first three quarters last year. Operating
earnings for the quarter increased 88.5 percent compared with the year ago
period, rising to $3,133,000 from $1,662,000. This is despite extraordinary
increases in electricity and natural gas costs which, for the most part, we
are finding difficult to pass along to our customers due to contract
conditions. (It should be noted that new contracts are being written keeping
in mind the need to pass along uncontrollable cost increases.) Earnings
continue to benefit from better management of linen costs and improved
productivity from our investments in labor-saving equipment. With the
improvements being experienced in results of the Textile Services segment,
we are now prepared to consider selective acquisitions and internal
expansion where appropriate. Product and service quality has improved
throughout this segment. It is essential that we continue to increase
operating margins in this business in order to be a positive partner with
major hospitals and our many other customers for the future.
At Manufacturing and Marketing, our bookings are gradually increasing and
the sales decline relative to the comparable prior year was lower in the
third quarter than it had been in either the second or first quarter this
year. Third quarter sales of $37,713,000 were 1.5 percent below prior year's
sales of $38,274,000. Despite a lower cost position resulting from improved
manufacturing and sourcing of our products, as well as improved customer
service, it is taking longer than expected for us to regain market share.
While we had expected large program rollouts to be a bigger factor in the
third quarter, some have been delayed, and sales from these programs are
expected to add to the top line in the fourth quarter this year and the
first quarter next year. Third quarter earnings increased significantly,
however, from $1,553,000 last year to $2,000,000 this year, an increase of
28.8 percent. In addition to improved margins due to better sourcing,
earnings benefited from the recently combined two
www.angelica-corp.com
Canadian operations of this segment having another excellent quarter. The
quarter also marked a successful entry into the school uniform program this
year, and we are planning to grow revenues in this important new market in
fiscal 2002.
In the third quarter, sales of Life Retail Stores increased slightly to
$24,876,000 from $24,372,000 in the same period last year. Life had a
same-store sales increase of 4.5 percent in a relatively weak apparel retail
environment. The month of October was the fourteenth month in a row where
same-store sales have increased. We have 285 stores in operation compared to
304 stores this time last year, which had the effect of largely offsetting
the same-store sales increase. Earnings of $1,248,000 for the third quarter
were 11.6 percent below earnings of $1,411,000 in the third quarter last
year, but dramatically higher than the $146,000 earned in the second quarter
this year. During the third quarter, we successfully entered the catalogue
and e-commerce distribution channels. We were especially pleased that these
entries actually added to traffic in our stores. While short-term earnings
are negatively affected by the cost of entering the catalogue and e-commerce
distribution channels, long-term sales and earnings will benefit. Life
Retail now offers quality, fashion healthcare apparel in four significant
distribution channels: retail stores, on-the-job shopping events, catalogues
and e-commerce. Life Retail has also reduced its cost of goods through
astute purchasing and has increased margins, yet at the same time reduced
prices for their customers. We are planning to open thirteen new stores over
the next six months. Five of these will be in the Boston metropolitan area
where we, and the marketplace, are under-represented in healthcare apparel
retail stores. By entering new distribution channels, opening new stores,
continuing growth in same-store sales and better cost management, this
segment is expected to add more value in the future.
Third quarter consolidated earnings also benefited from interest income on
higher cash balances as well as lower interest expense. Operating cash flow
for the first three quarters was $15,216,000, and we ended the period with
$22,393,000 cash on hand. Also during the quarter, we repurchased another
45,000 shares of our stock under the previously announced program
authorizing the repurchase of up to 2,000,000 shares over three years. We
have repurchased a total of 95,600 shares so far this year and expect to buy
additional shares in the remainder of the year.
In summary, we are pleased to report an increase in earnings for the third
quarter, following a similar impressive increase in the second quarter. We
are confident that fiscal 2001 results will significantly exceed fiscal 2000
results, and we believe that we have the foundation for even better results
next year. Our goal to add shareholder value is still enthusiastically held
by all of the management teams and associates throughout your Company.
Respectfully submitted,
/s/ Don W. Hubble
Don W. Hubble
Chairman, President and
Chief Executive Officer
CONSOLIDATED STATEMENTS OF INCOME
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands, except per share amounts)
Third Quarter Ended Three Quarters Ended
--------------------------- ---------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Textile service revenues $ 61,159 $ 60,139 $181,770 $185,453
Net sales 55,774 56,439 160,061 168,044
-------- -------- -------- --------
116,933 116,578 341,831 353,497
-------- -------- -------- --------
Cost of textile services 49,201 49,745 145,017 149,634
Cost of goods sold 32,889 34,877 95,581 104,823
-------- -------- -------- --------
82,090 84,622 240,598 254,457
-------- -------- -------- --------
Gross profit 34,843 31,956 101,233 99,040
-------- -------- -------- --------
Selling, general and
administrative expenses 29,494 28,140 86,250 84,006
Interest expense 2,060 2,147 6,221 6,479
Other expense, net 124 618 226 1,397
-------- -------- -------- --------
31,678 30,905 92,697 91,882
-------- -------- -------- --------
Income before income taxes 3,165 1,051 8,536 7,158
Provision for income taxes 1,171 399 3,158 2,720
-------- -------- -------- --------
Net income $ 1,994 $ 652 $ 5,378 $ 4,438
======== ======== ======== ========
Basic and diluted earnings per share * $ 0.23 $ 0.07 $ 0.62 $ 0.51
======== ======== ======== ========
Dividends per common share $ 0.08 $ 0.24 $ 0.40 $ 0.72
======== ======== ======== ========
Comprehensive income consists of net income and foreign currency translation
adjustments, totaling $1,779 and $870 for the quarters ended October 28,
2000 and October 30, 1999, respectively, and $5,019 and $5,048 for the three
quarters ended October 28, 2000 and October 30, 1999, respectively.
Certain amounts in the prior year have been reclassified to conform to
current year presentation.
[FN]
* Based upon weighted average number of common and common equivalent shares
outstanding of 8,698,133 and 8,699,906 for fiscal periods of 2001 and 2000,
respectively.
CONSOLIDATED BALANCE SHEETS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
October 28, January 29,
2000 2000
----------- -----------
ASSETS
- ------
Current Assets:
Cash and short-term investments $ 22,393 $ 15,651
Receivables, less reserve of $3,755 and $2,792 56,556 55,700
Inventories:
Raw material 23,391 20,377
Work in progress 3,798 4,446
Finished goods 58,340 55,182
--------- ---------
85,529 80,005
Linens in service 31,310 33,075
Prepaid expenses 4,183 4,423
Income taxes 2,632 458
--------- ---------
Total Current Assets 202,603 189,312
--------- ---------
Property and Equipment 201,565 210,308
Less -- reserve for depreciation 117,356 118,121
--------- ---------
84,209 92,187
--------- ---------
Goodwill 5,447 5,765
Other acquired assets 3,111 4,575
Cash surrender value of life insurance 21,714 20,954
Miscellaneous 5,418 6,802
--------- ---------
35,690 38,096
--------- ---------
Total Assets $ 322,502 $ 319,595
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 2,677 $ 3,026
Accounts payable 24,613 23,535
Accrued expenses 24,612 21,629
--------- ---------
Total Current Liabilities 51,902 48,190
--------- ---------
Long-Term Debt, less current maturities 86,276 87,916
Other Long-Term Obligations 20,140 20,077
Shareholders' Equity:
Preferred Stock:
Class A, Series 1, $1 stated value,
authorized 100,000 shares, outstanding: None -- --
Class B, authorized 2,500,000 shares, outstanding: None -- --
Common stock, $1 par value, authorized 20,000,000
shares, issued: 9,471,538 9,472 9,472
Capital surplus 4,196 4,196
Retained earnings 168,155 166,574
Accumulated other comprehensive income (2,058) (1,699)
Common Stock in treasury, at cost: 879,270 and 795,856 (15,581) (15,131)
--------- ---------
164,184 163,412
--------- ---------
Total Liabilities and Shareholders' Equity $ 322,502 $ 319,595
========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
Three Quarters Ended
----------------------------
October 28, October 30,
2000 1999
----------- -----------
Cash Flows from Operating Activities:
Net income $ 5,378 $ 4,438
Non-cash items included in net income:
Depreciation 9,857 10,222
Amortization of acquisition costs 1,782 2,331
Change in working capital components,
net of businesses acquired/disposed of (2,488) 3,707
Other, net 687 (497)
-------- --------
Net cash provided by operating activities 15,216 20,201
-------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment, net (7,353) (5,354)
Cost of businesses acquired -- (505)
Disposals of businesses and property 5,474 3,741
-------- --------
Net cash used in investing activities (1,879) (2,118)
-------- --------
Cash Flows from Financing Activities:
Long-term debt repayments (1,989) (4,686)
Dividends paid (3,469) (6,246)
Repurchase of stock (822) (360)
Other, net (315) 593
-------- --------
Net cash used in financing activities (6,595) (10,699)
-------- --------
Net increase in cash and short-term investments 6,742 7,384
Balance at beginning of year 15,651 6,876
-------- --------
Balance at end of period $ 22,393 $ 14,260
======== ========
Supplemental cash flow information:
Income taxes paid $ 4,642 $ 1,389
Interest paid $ 5,488 $ 6,764
BUSINESS SEGMENT INFORMATION
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
Third Quarter Ended Three Quarters Ended
------------------------------- -------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Sales and textile service revenues:
Textile Services $ 61,159 $ 60,139 $ 181,770 $ 185,453
Manufacturing and Marketing 37,713 38,274 110,433 118,624
Retail Sales 24,876 24,372 69,521 67,753
Intersegment sales (6,815) (6,207) (19,893) (18,333)
--------- --------- --------- ---------
$ 116,933 $ 116,578 $ 341,831 $ 353,497
========= ========= ========= =========
Earnings:
Textile Services $ 3,133 $ 1,662 $ 11,357 $ 9,740
Manufacturing and Marketing 2,000 1,553 5,251 5,220
Retail Sales 1,248 1,411 1,938 2,972
Interest, corporate expenses and other, net (3,216) (3,575) (10,010) (10,774)
--------- --------- --------- ---------
$ 3,165 $ 1,051 $ 8,536 $ 7,158
========= ========= ========= =========
SUMMARY FINANCIAL POSITION DATA
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands, except ratios, shares and per share amounts)
Three Quarters Ended
------------------------------
October 28, October 30,
2000 1999
----------- -----------
Working capital $ 150,701 $ 142,504
Current ratio 3.9 to 1 3.9 to 1
Long-term debt $ 86,276 $ 88,927
Shareholders' equity $ 164,184 $ 164,684
Percent long-term debt to debt and equity 34.4% 35.1%
Equity per common share $ 19.11 $ 18.98
Common shares outstanding 8,592,268 8,675,781
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Forward-Looking Statements:
Any forward-looking statements made in this document reflect the Company's
current views with respect to future events and financial performance and
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties that may cause actual results to differ materially from
those set forth in these statements. These potential risks and uncertainties
include, but are not limited to, competitive and general ecomomic
conditions, the ability to retain current customers and to add new customers
in competitive market environments, competitive pricing in the marketplace,
delays in the shipment of orders, availability of labor at appropriate
rates, availability and cost of energy and water supplies, availability of
non-domestic image apparel contractors to manufacture and deliver at an
appropriate cost and in a timely manner, the ability to attract and retain
key personnel, unusual or unexpected cash needs for operations or capital
transactions, and other factors which may be identified in the Company's
filings with the Securities and Exchange Commission.
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