Exhibit 99
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TEXTILE SERVICES IMAGE APPAREL INNOVATION VALUE
Angelica Corporation
424 South Woods Mill Road
Suite 300
Angelica [Logo] Chesterfield, Missouri 63017 3406
Tel: 314.854.3800
Fax: 314.854.3890
May 17, 2002
Dear Fellow Shareholder:
Angelica is a far different company today than it was a year ago. Yes, we
are measurably smaller. We also are measurably more focused on responsible
revenue growth in the healthcare services industry and are measurably more
profitable. Asset use efficiency has improved as well. As we all know, "one
quarter does not a year make," however your management team is encouraged
that we will experience excellent earnings growth for continuing operations
this year based on the results of the first quarter. First quarter combined
sales and revenues increased 4.6 percent over last year, and earnings of
$.27 per share ($.26 fully diluted) for continuing operations represent an
impressive increase of 68.8 percent over $.16 share in last year's
comparable quarter.
Angelica's business segment improvements were not achieved overnight, nor
were they made without discipline to grow sales, reduce costs (coordinated
with a commitment to exceptional customer service), and hard work by a lot
of people. Adding shareholder value over the long term has been the primary
goal of your management team since my arrival in 1998. At times that goal
requires reallocation of resources (financial, physical and people) to
achieve value addition in the short and long term. We are currently
directing such a reallocation as a result of the sale of the Manufacturing
and Marketing segment.
The Textile Services segment performed exceptionally well in the quarter,
with revenues rising 4.7 percent to $68,381,000 compared with $65,285,000
for the same period last year. Operating earnings reached $5,884,000,
representing a 24.1 percent increase over the $4,740,000 earned in last
year's first quarter. (Incidentally, this was a record earnings quarter for
Textile Services.) We are pleased with the continued organic revenue growth
in this segment as $4,200,000 of net new business was generated in the
quarter. In addition, the segment has done a tremendous job of increasing
productivity, managing linen costs and responsibly managing the business.
The Textile Services management team has effectively positioned the segment
for continued growth in the geographic regions it serves. As we look for
opportunities to realize strategic growth initiatives, we are excited about
the future of this business segment.
Life Retail Stores had a same-store sales increase of 2.5 percent in the
first quarter, the first quarterly same-store sales increase in the last
four quarters. Overall, sales for the first quarter increased 4.1 percent to
$24,876,000 from $23,902,000 in last year's first quarter. This sales
increase was accomplished with fewer stores than the same period last year,
as we have closed 19 underperforming stores since last year end. Also
contributing to the top-line growth was a significant increase in sales in
the catalogue and e-commerce distribution channels. Earnings for the quarter
were $701,000 compared to an operating loss of $61,000 in the same period
last year. As healthcare employment continues to grow and consumer
confidence strengthens (and with the encouraging operating results of the
first quarter), we are optimistic that Life Retail will begin to add value
for our shareholders.
The divestiture of most of the assets associated with Manufacturing and
Marketing is now completed, with the assets split between two different
buyers, Cintas Corporation and Medline Industries. We will provide
transitional services to both buyers for a period of approximately six
months, and we will sell or otherwise dispose of other retained assets
prudently. The disposal, for the most part, is planned to be completed by
the end of this fiscal year. The results of all of these actions have been
and will be reported in the discontinued operations section of our financial
reports.
www.angelica-corp.com
The debt load of your Company will be reduced significantly as part of our
asset reallocation efforts. Refinancing actions under way will result in a
total debt level approximating $20,000,000 to $25,000,000 compared to a
"high-water" level of $127,000,000 at the end of fiscal 1998. Equally
important, interest rates initially will be below 4 percent compared to an
average rate of 9.2 percent that we are presently incurring. We also have
successfully negotiated a $70,000,000, three-year revolving line of credit,
some of which will be used to repay our current debt. This will still give
us ample borrowing power to continue our growth plans organically and
through acquisitions.
We have received Board approval to build and equip a new textile service
plant in the southwestern United States, and to acquire a small competitor
to bolster our southeastern regional cluster for this business segment. In
both cases, we already service these geographic regions, so the start-up
costs and transitional costs will be optimized. As stated previously, we
continue to focus our growth initiatives in the healthcare services
industries. Approximately 90 percent of all corporate revenues are now from
this sector.
The economy is certainly more friendly to us now than it was in the last
nine months of the preceding fiscal year, but clearly is not as strong as it
was previous to that. It is expected by many experts that the economy will
continue to strengthen, and we tend to agree, but are still proceeding
cautiously. Improvement in the economy should continue to help us achieve
our financial goals. It would be tempting to extrapolate our first quarter
results for the year and anticipate earnings from continuing operations to
exceed $1.00 per share. However, we are still a bit cautious as there are
nine months to go, and we are mindful of the uncertainty of our country's
economic recovery. At this time, your management team expects full year
earnings for continuing operations to be between $.90 and $.95 a share. Rest
assured that we are striving to reach or exceed the high end of this range
without compromising our long-term growth strategies.
Combining share price increases and dividends paid, shareholder value has
increased handsomely so far this year. Our strategic plans and tactical
action plans supporting these strategies would suggest continued shareholder
value increases as the year unfolds.
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)
First Quarter Ended
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April 27, 2002 April 28, 2001
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Continuing Operations:
Textile service revenues $68,381 $65,285
Net retail sales 24,876 23,902
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93,257 89,187
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Cost of textile services 54,300 54,103
Cost of goods sold 12,086 11,638
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66,386 65,741
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Gross profit 26,871 23,446
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Selling, general and administrative expenses 21,967 20,234
Interest expense 1,543 2,028
Other (income) expense, net (166) (353)
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23,344 21,909
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Income from continuing operations before taxes 3,527 1,537
Provision for income taxes 1,234 138
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Income from continuing operations 2,293 1,399
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Discontinued Operations:
Income from operations of discontinued segment,
net of taxes of $269 - 457
Loss on disposal of discontinued segment,
net of taxes of $2,394 (4,447) -
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(Loss) income from discontinued operations (4,447) 457
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Net (loss) income $(2,154) $ 1,856
============== ==============
Basic earnings (loss) per share:*
Income from continuing operations $ 0.27 $ 0.16
Discontinued operations (0.52) 0.06
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Net (loss) income $ (0.25) $ 0.22
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Diluted earnings (loss) per share:*
Income from continuing operations $ 0.26 $ 0.16
Discontinued operations (0.51) 0.05
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Net (loss) income $ (0.25) $ 0.21
============== ==============
Comprehensive (loss) income, consisting of net (loss) income and foreign
currency translation adjustments, totaled $(2,154) and $1,781 for the
quarters ended April 27, 2002 and April 28, 2001, respectively.
Certain amounts in the prior year have been reclassified to conform to
current year presentation.
Taxes on income from continuing operations have been provided for at an
effective tax rate of 35.0 percent in fiscal 2003 and 9.0 percent in fiscal
2002.
<FN>
* Based upon weighted average number of common shares outstanding of
8,616,488 and 8,571,892 (8,737,832 and 8,664,328 fully diluted) for fiscal
periods of 2003 and 2002, respectively.
CONSOLIDATED BALANCE SHEETS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
April 27, January 26,
2002 2002
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ASSETS
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Current Assets:
Cash and short-term investments $ 37,733 $ 18,742
Receivables, less reserves of $1,567 and $1,306 33,924 33,536
Inventories 13,697 14,435
Linens in service 32,504 32,196
Prepaid expenses and other current assets 2,697 2,968
Deferred income taxes 18,621 16,478
Net current assets of discontinued segment 26,316 61,774
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Total Current Assets 165,492 180,129
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Property and Equipment 176,426 174,893
Less -- reserve for depreciation 99,270 98,208
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77,156 76,685
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Goodwill 4,294 4,294
Other acquired assets 1,303 1,553
Cash surrender value of life insurance 25,775 25,349
Deferred income taxes 402 654
Miscellaneous 624 365
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32,398 32,215
Net noncurrent assets of discontinued segment 1,807 1,836
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Total Assets $276,853 $290,865
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Current maturities of long-term debt $ 59,602 $ 71,602
Accounts payable 20,389 20,958
Accrued expenses 41,826 40,609
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Total Current Liabilities 121,817 133,169
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Long-Term Debt, less current maturities 758 812
Other Long-Term Obligations 15,412 15,380
Shareholders' Equity:
Common Stock, $1 par value, authorized 20,000,000
shares, issued: 9,471,538 9,472 9,472
Capital surplus 4,200 4,200
Retained earnings 139,097 142,188
Common Stock in treasury, at cost: 847,056 and 863,329 (13,903) (14,356)
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138,866 141,504
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Total Liabilities and Shareholders' Equity $276,853 $290,865
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
First Quarter Ended
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April 27, 2002 April 28, 2001
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Cash Flows from Operating Activities:
Net (loss) income $ (2,154) $ 1,856
Net loss (income) from discontinued segment 4,447 (457)
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Income from continuing operations 2,293 1,399
Non-cash items included in net (loss) income:
Depreciation 2,703 2,711
Amortization 240 526
Change in working capital components,
net of businesses acquired/disposed of 1,979 (3,446)
Restructuring reserves (1,135) -
Other, net (391) (453)
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Net cash provided by continuing operations 5,689 737
Net cash provided by (used in) discontinued
operations 28,510 (2,020)
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Net cash provided by (used in) operating activities 34,199 (1,283)
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Cash Flows from Investing Activities:
Expenditures for property and equipment, net (2,647) (3,723)
Disposals of businesses and property - 302
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Net cash used in continuing operations (2,647) (3,421)
Net cash used in discontinued operations (23) (140)
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Net cash used in investing activities (2,670) (3,561)
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Cash Flows from Financing Activities:
Long-term debt repayments (12,054) (628)
Dividends paid (689) (685)
Other, net 205 447
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Net cash used in continuing operations (12,538) (866)
Net cash used in discontinued operations - -
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Net cash used in financing activities (12,538) (866)
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Net increase (decrease) in cash and
short-term investments 18,991 (5,710)
Balance at beginning of year 18,742 20,311
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Balance at end of period $ 37,733 $ 14,601
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Supplemental cash flow information:
Income taxes paid $ 420 $ 866
Interest paid $ 810 $ 1,322
BUSINESS SEGMENT INFORMATION
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
First Quarter Ended
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April 27, 2002 April 28, 2001
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Combined sales and revenues:
Textile Services $68,381 $65,285
Retail Sales 24,876 23,902
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$93,257 $89,187
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Income from continuing operations before taxes:
Textile Services $ 5,884 $ 4,740
Retail Sales 701 (61)
Interest, corporate expenses and other, net (3,058) (3,142)
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$ 3,527 $ 1,537
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Depreciation and amortization:
Textile Services $ 2,299 $ 2,357
Retail Sales 562 670
Corporate 82 210
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$ 2,943 $ 3,237
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SUMMARY FINANCIAL POSITION DATA
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands, except ratios, shares and per share amounts)
First Quarter Ended
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April 27, 2002 April 28, 2001
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Working capital $ 43,675 $ 124,765
Current ratio 1.4 to 1 2.6 to 1
Long-term debt, including current maturities $ 60,360 $ 88,176
Shareholders' equity $ 138,866 $ 165,937
Percent total debt to debt and equity 30.3% 34.7%
Book value per common share $ 16.10 $ 19.31
Common shares outstanding 8,624,482 8,594,037
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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 economic 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, consummation of the sale and discontinuation of
the Manufacturing and Marketing segment as presently contemplated,
unusual or unexpected cash needs for operations or capital transactions,
the ability to obtain financing in required amounts and at appropriate
rates, and other factors which may be identified in the Company's
filings with the Securities and Exchange Commission.
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