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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 26, 2002
Commission File Number 1-5674
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ANGELICA CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-0905260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
424 South Woods Mill Road 63017-3406
Chesterfield, Missouri (Zip Code)
(Address of principal executive offices)
(314) 854-3800
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
Preferred Stock Purchase Rights issuable pursuant to
Registrant's Shareholder Rights Plan New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
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State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing.
$129,854,945 March 28, 2002
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Value Date of Valuation
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 28, 2002.
Common Stock, $1.00 par value, 8,621,006 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement dated
April 29, 2002 are incorporated in Part III.
PART I
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ITEM 1. BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
Angelica Corporation (the "Company") and its subsidiaries provide products
and services to a wide variety of institutions and individuals, which are in
primarily three markets: health services, hospitality and other service
industries. The Company was founded in 1878 and was incorporated as Angelica
Corporation in 1968.
The Company's businesses are reported in three industry segments: Textile
Services, Manufacturing and Marketing and Retail Sales. The Company has
determined to treat the Manufacturing and Marketing segment as a
discontinued operation for accounting purposes as of January 26, 2002. The
Company's Manufacturing and Marketing operations consisted of Angelica Image
Apparel in the United States and Sally Fourmy & Associates, a smaller
operation in Canada, collectively engaged in the manufacture and sale of
uniforms and business career apparel for a wide variety of institutions and
businesses. The Company anticipates entering into a definitive agreement for
the sale of certain assets of the non-healthcare portion of the
Manufacturing and Marketing segment to Cintas Corporation in mid-April of
2002. Also, the Company anticipates entering into a definitive agreement for
the sale of certain assets of the healthcare portion of the Manufacturing
and Marketing segment to Medline Industries, Inc. in mid-April of 2002.
Information about the Company's industry segments appears in Note 11 to the
Notes to Consolidated Financial Statements included in response to Item 14
of this Form 10-K and is incorporated herein by reference. This information
includes, for each segment, sales and revenues, income from continuing
operations before income taxes, assets, depreciation and amortization and
capital additions for each of the three years in the period ended January
26, 2002.
TEXTILE SERVICES
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As of January 26, 2002, the Textile Services segment had 26 laundry plants
generally in or near various major metropolitan areas in the United States,
principally providing textile rental and laundry services for healthcare
institutions. This segment also provides a limited amount of general linen
services in selected areas, principally to hotels, motels and restaurants.
The markets in which the Textile Services segment operates are very
competitive, being characterized generally by a large number of independent,
privately-owned competitors. Industry statistics are not available, but the
Company believes that its Textile Services segment constitutes the largest
supplier of textile rental and laundry services to healthcare institutions
in the United States. Competition is on the basis of quality, reliability
and price.
RETAIL SALES
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The Retail Sales segment is a specialty retailer offering uniforms and
shoes primarily for nurses and other healthcare professionals through a
nationwide chain of retail stores under the name of Life Uniform and Shoe
Shops, located primarily in malls and strip shopping centers and to a
limited extent inside hospitals. In fiscal 2001, the Company began offering
merchandise by means of catalogues and e-commerce to complement its
retail stores.
The Company believes there are approximately 2,000 specialty retail stores
and approximately ten catalogue operations in the United States, all
primarily privately-owned, offering merchandise comparable to that offered
by the Company's Retail Sales segment. In addition, such merchandise is also
offered by others, including some large chain apparel retailers. Retail
operations are conducted under highly competitive conditions in the local
area where each of the Company's stores is located, with the Company
competing on the basis of store location, merchandise selection and value.
Industry statistics are not available, but the Company believes its Retail
Sales segment is the nation's largest specialty retailer offering uniforms
and shoes to nurses and other healthcare professionals.
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ADDITIONAL INFORMATION
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The Company does not hold any material patents, licenses, franchises or
concessions. It does not consider its business to be seasonal to any
significant extent. The Company has no unusual working capital requirements.
No segment of the Company's business is dependent on a single customer. No
portion of the Company's business is subject to renegotiation of profits
under a government contract.
ENVIRONMENTAL CONSIDERATIONS
- ----------------------------
The operations of the Company are subject to various laws and regulations
relating to public health, worker safety and the environment. The Company is
not presently engaged in any material issues or controversies related to
such matters. Compliance with laws regulating the discharge of materials
into the environment or otherwise relating to the protection of the
environment has not had a material effect on the Company's capital
expenditures, earnings or competitive position. The Company does not expect
any material expenditures will be required in order to comply with any
federal, state or local environmental regulations.
EMPLOYEES
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As of January 26, 2002, the Company employed approximately 7,000 persons
(including approximately 800 part-time employees).
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
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Sales of foreign operations and export sales are not significant.
ITEM 2. PROPERTIES
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A list of the Company's principal facilities as of January 26, 2002 follows.
Unless otherwise indicated, each of the facilities is owned by the Company.
There is no individual parcel of real estate owned or leased which is of
material significance to the Company's total assets. No difficulty in
renewing leases which expire in the near future is anticipated by the
Company. In the opinion of the Company, all such facilities are maintained
in good condition and are adequate and suitable for the purposes for which
they are used.
Textile Services Segment Laundries
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Antioch, CA
Ballston Spa, NY
Batavia, NY
Chicago, IL
Columbia, IL
Colton, CA
Dallas, TX (leased)
Denver, CO
Daytona Beach, FL
Edison, NJ
Fresno, CA
Holly Hill, FL
Houston, TX
Long Beach, CA
Lorain, OH
Los Angeles, CA
Ooltewah, TN
Orange, CA
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Pawtucket, RI
Philadelphia, PA (leased)
Pomona, CA
Rio Vista, CA
Rockmart, GA
San Diego, CA
San Fernando, CA
Stockton, CA
As of January 26, 2002, 26 laundries, both owned and leased, plus warehouse
facilities located in 12 states were used in the Textile Services segment.
Laundry facilities generally are not fully utilized, although some of them
operate on a multi-shift basis. The Company estimates that, assuming the
availability of labor, output of these facilities could be increased by
20 percent with existing equipment by working longer hours, and by an
additional 25 percent (for a total of 45 percent) with the installation of
additional equipment.
Life Retail Stores
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As of January 26, 2002 there were 287 retail specialty stores, located
in 36 states, used in the Retail Sales segment. All retail store premises
are leased.
Miscellaneous
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Corporate Headquarters
St. Louis County, MO (leased)
Manufacturing and Marketing Segment Plants (Discontinued Operations as of
January 26, 2002)
Alamo, TN (distribution center)
Collinwood, TN (leased)
Mountain View, MO (leased)
San Jose, Costa Rica (leased)
Savannah, TN (leased)
Tishomingo, MS (leased - closed 01/29/02)
The Company also has various warehouses and sales facilities in the
United States and Canada.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party, and none of its property is subject, to any
material pending legal proceeding other than ordinary routine litigation
incidental to the business. Management believes that liabilities, if any,
resulting from pending routine litigation in the ordinary course of the
Company's business should not materially affect the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of shareholders during the fourth
quarter of the Company's year ended January 26, 2002.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
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Year First
Elected as
Name Present Position (1) (2) an Officer Age
---- ------------------------- ---------- ---
Paul R. Anderegg(3) Vice President; President, 2001 51
Textile Services Business
Segment of Angelica
Theodore M. Armstrong Senior Vice President- 1986 62
Finance and Administration
and Chief Financial Officer
Steven L. Frey(4) Vice President, General Counsel 1999 52
and Secretary
Don W. Hubble(5) Chairman, President and Chief 1998 62
Executive Officer
Charles D. Molloy, Jr.(6) Vice President; President, 1998 57
Manufacturing and Marketing
Business Segment of Angelica
Denis R. Raab(7) Vice President; President, 1999 52
Life Retail Stores Business
Segment of Angelica
Edward P. Ryan(8) Vice President, Sales and 2000 58
Marketing; Executive Vice
President Sales & Marketing
of Textile Services Business
Segment of Angelica
James W. Shaffer(9) Vice President and Treasurer 1999 49
Daniel J. Westrich(10) Vice President and Chief 1999 58
Information Officer
(1) Except as set forth below, the principal occupations of the officers
throughout the past five years have been the performance of the
functions of the offices shown above.
(2) All officers serve at the pleasure of the Board of Directors.
(3) Paul R. Anderegg has been a Vice President of the Company and President
of the Textile Services Business Segment since February 1, 2001. Prior
to that, he served in the following capacities with The TruGreen
Companies, a residential and commercial landscape and lawn care business:
Vice President, Sales & Marketing from July 2000 to February 2001;
President/Chief Operating Officer of TruGreen Landcare from July 1999 to
July 2000; Executive Vice President/Chief Operating Officer of TruGreen
Landscape Division from January 1999 to July 1999; and Senior Vice
President-Operations of TruGreen Chemlawn from 1996 to 1999.
(4) Steven L. Frey has been Vice President, General Counsel and Secretary
of the Company since March 1, 1999. Prior to that, he was in private
practice from 1996 to 1999 with the law firm of Helfrey, Simon & Jones,
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P.C. He also served as Director of Legal and Regulatory Affairs for Sigma
Chemical Company, a producer of chemical products, from 1993 to 1996.
(5) Don W. Hubble has been Chairman, President and Chief Executive Officer
of the Company since January 1, 1998. Prior to that, he served as
President and Chief Operating Officer of National Service Industries,
Inc., a company engaged in the textile rental business and the
manufacture of custom envelopes and office products, from 1994 to
October 1996, and as Executive Vice President and Chief Operating
Officer from 1993 to 1994. From late 1996 through 1997, Mr. Hubble
served on the Board of Directors of eShare Technologies, Inc. and was
active in business consulting.
(6) Charles D. Molloy, Jr. has been Vice President of the Company since
August 25, 1998 and President of the Manufacturing and Marketing
Business Segment since July 20, 1998. He also served as Executive Vice
President of Angelica Image Apparel from February 1997 to June 1998,
and as Acting President of the Manufacturing and Marketing Business
Segment from June 1998 to July 1998. Prior to that, he served as Chief
Financial Officer of Tail Active Sportswear, a manufacturer of high-end
women's tennis and golf apparel, from August 1992 to January 1997.
(7) Denis R. Raab has been a Vice President of the Company and President of
the Life Retail Stores Business Segment since August 1999. Prior to
that, he was Vice President of Operations/Logistics of an e-Commerce
startup company from 1998 to 1999, Vice President-Director of Stores
for Maurices, Inc., specialty women's and young men's retailer, from
1997 to 1998 and General Manager of the St. Louis/Central Illinois
region of Sears, Roebuck & Company, a department store chain, from 1993
to 1997.
(8) Edward P. Ryan has been Vice President, Sales & Marketing of the Company
since May 2000, and Executive Vice President of Sales & Marketing of the
Textile Services Business Segment since April 2000. He also served as
Interim President of the Textile Services Business Segment from April
2000 to February 2001. Prior to that, he served as Vice President of
Marketing of the Textile Services Business Segment from October 1998 to
April 2000. Mr. Ryan was Vice President and General Manager of the
Georgia Business Unit of Xerox Corporation, a document solutions
provider, from 1994 to 1998.
(9) James W. Shaffer has been Vice President and Treasurer of the
Company since September 1999. He also served as Corporate
Controller of the Company from May 1999 to September 1999. Prior to
that, he was Director of Financial Reporting and Tax for Edison
Brothers Stores, Inc., a shoe and apparel retailer, from October 1995
to April 1999.
(10) Daniel J. Westrich has been Vice President and Chief Information
Officer of the Company since May 1999. He also served as Director of
Management Information Services from August 1998 to May 1999. Prior to
that, he was Senior Vice President of Maritz, Inc., a company
specializing in performance improvement, travel and marketing research
services, and President of Maritz Information Resources from 1991 to
August 1998.
None of the executive officers of the Company are related to any Director or
other executive officer of the Company.
There are no arrangements or understandings between any executive officer of
the Company or any other person pursuant to which such officer was selected.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock trades on the New York Stock Exchange under the
symbol "AGL." Set forth below are the high and low sale price of the common
stock and the dividends per share paid during each of the quarterly periods
in the two year period ended January 26, 2002.
Fiscal 2002 Fiscal 2001
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High Low Dividend High Low Dividend
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First quarter $ 14.00 $ 8.50 $ .08 $ 10.56 $ 6.31 $ .24
Second quarter $ 13.50 $ 10.56 $ .08 $ 8.94 $ 6.50 $ .08
Third quarter $ 13.00 $ 8.41 $ .08 $ 9.88 $ 7.69 $ .08
Fourth quarter $ 13.05 $ 8.67 $ .08 $ 10.31 $ 8.19 $ .08
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There were 1,269 shareholders of record as of March 29, 2002. The Company's
Board of Directors regularly reviews the dividends paid, and there can be
no assurance that dividends will be paid in the future because they are
dependent on earnings, the financial condition of the Company and other
factors.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
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The following selected financial data is derived from the audited
consolidated financial statements of the Company. The information set forth
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in the Form 10-K.
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For Years Ended
(Dollars in thousands, January 26, January 27, January 29, January 30, January 31, January 25,
except per share amounts) 2002 2001 2000 1999 1998 1997
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OPERATIONS
Combined sales and revenues $ 350,063 $ 335,298 $ 335,441 $ 342,500 $ 371,350 $ 339,042
Gross profit 91,299 86,953 83,967 89,126 89,283 78,317
Operating expenses and other, net,
excluding interest expense 79,137 74,320 72,158 68,301 68,451 61,502
Restructuring charge 2,982 (a) - - - 14,684 (b) -
Interest expense 7,390 8,085 8,593 9,658 10,605 9,496
Income (loss) from continuing operations
before income taxes 1,790 4,548 3,216 11,167 (4,457) 7,319
Provision (benefit) for income taxes 161 1,501 1,190 4,132 (1,783) 2,781
Income (loss) from continuing operations 1,629 3,047 2,026 7,035 (2,674) 4,538
(Loss) income from operations of
discontinued segment, net of tax (340) 3,539 3,248 1,857 (4,224) 3,484
Loss on disposal of discontinued segment,
net of tax (23,998) - - - - -
Net (loss) income $ (22,709) $ 6,586 $ 5,274 $ 8,892 $ (6,898) $ 8,022
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PER SHARE DATA
Diluted earnings (loss) from
continuing operations $ .19 (a) $ .35 $ .23 $ .78 $ (.29)(b) $ .50
Diluted (loss) earnings from discontinued
operations (2.81) .41 .38 .21 (.46)(b) .38
Diluted net (loss) income (2.62)(a) .76 .61 .99 (.75)(b) .88
Cash dividends paid .32 .48 .96 .96 .96 .96
Common shareholders' equity $ 16.44 $ 19.24 $ 18.84 $ 19.12 $ 18.97 $ 20.73
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RATIOS AND PERCENTAGES
Current ratio
(current assets to current liabilities) 1.4 to 1 2.5 to 1 3.9 to 1 3.2 to 1 2.6 to 1 3.3 to 1
Long-term debt to long-term debt and equity 0.6% 27.1% 35.0% 35.4% 35.7% 34.0%
Gross profit margin 26.1% 25.9% 25.0% 26.0% 24.0% 23.1%
Effective tax rate from continuing operations 9.0% 33.0% 37.0% 37.0% 40.0% 38.0%
Return on average shareholders' equity (14.9)% 4.0% 3.2% 5.2% (3.8)% 4.2%
Return on average total assets (7.3)% 2.0% 1.6% 2.5% (1.8)% 2.2%
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OTHER SELECTED DATA
Working capital $ 46,960 $ 124,449 $ 141,122 $ 136,071 $ 141,999 $ 163,015
Additions to property and equipment, net 13,873 10,595 6,677 7,404 18,425 20,360
Depreciation and amortization 13,074 13,502 14,383 13,907 13,108 12,418
Cash flow from operating activities 32,088 18,705 24,722 60,472 26,049 17,445
Long-term debt, including current maturities 72,414 88,804 90,942 96,751 100,029 100,106
Total assets $ 290,865 $ 330,255 $ 319,595 $ 339,090 $ 378,709 $ 374,104
Average number of shares of Common
Stock outstanding 8,663,586 8,681,417 8,686,146 9,014,070 9,153,358 9,156,861
Approximate number of associates 7,100 7,600 8,100 8,600 9,400 10,100
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(a) Portion of $4,180 restructuring and other charges taken in
fourth quarter of fiscal 2002. Effect on net income per share
is a reduction of $.44.
(b) Portion of $23,247 restructuring and other charges taken in
third quarter of fiscal 1998. Effect on net income per share is
a reduction of $1.57.
This information should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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FINANCIAL CONDITION
At the end of fiscal 2002, the Company had working capital of $47.0 million
and a current ratio of 1.4 to 1 compared with $124.4 million and 2.5 to 1 at
the end of fiscal 2001. The fiscal 2002 balance sheet reflects the writedown
of assets of the discontinued Manufacturing and Marketing segment to their
estimated net realizable value. Fiscal 2002 balances have been reclassified
to segregate the net assets of the discontinued business, including $61.8
million of current assets and $1.8 million of noncurrent assets. Receivables
decreased $2.5 million in the year, and receivable days outstanding improved
from 52 to 46. Current liabilities reflect the reclassification of notes
payable to insurance companies and bank debt from long-term to current
maturities, discussed further below. Accounts payable decreased $6.5 million
due mainly to a decrease in inventory levels in fiscal 2002 compared with
the prior year. Other accrued liabilities rose $7.0 million, primarily
related to additional liabilities for severance, lease termination and
closing costs associated with the sale of Manufacturing and Marketing,
additional self-insurance reserves and restructuring costs at Life Retail.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations in fiscal 2002 was $32.1 million versus
$18.7 million in the prior year. The increase is primarily due to the
reduction in inventories in the discontinued Manufacturing and Marketing
segment. Cash flow provided by operating activities in the continuing
operations decreased to $13.8 million in fiscal 2002 from $25.7 million in
fiscal 2001, due mainly to increases in accounts payable and other accruals
relating to the loss on sale of the Manufacturing and Marketing segment and
the restructuring and other charges in the Life Retail segment. Net cash
used in investing activities was $14.9 million, an increase of $8.7 million
over the prior year. Included in that increase was an increase in capital
expenditures of $3.3 million this year over last year, primarily to support
productivity improvements and energy efficiency in the Textile Services
segment and for investments in new Life Retail stores and supporting
information systems. An additional $5.3 million of the change is
attributable to cash flow provided in fiscal 2001 from plant closings in the
Textile Services and Manufacturing and Marketing segments, and the sale of
an office facility in that year. The $10.9 million increase in cash flow
used in financing activities in fiscal 2002 reflects the repayment of $27.0
million of insurance company debt, offset by the $12.0 million proceeds from
issuance of bank debt and by a reduction in dividend payments.
The loan agreements with insurance companies and bank require the Company to
comply with certain financial covenants. The most restrictive of these
covenants requires that the Company maintain a minimum of $160 million in
consolidated net worth, as defined. Due to the writedown of assets and
related loss on disposal of the Manufacturing and Marketing segment, the
Company is not in compliance with that net worth covenant. As a result, all
of the notes to insurance companies and bank have been reclassified to
current liabilities. The Company expects to obtain covenant waivers during
the 30-day cure period from the existing lenders pending the sale of the
Manufacturing and Marketing segment. The Company also expects to use
approximately $50 million of the proceeds from the sale to pay down a
significant portion of the debt. Management of the Company and its outside
financial advisors are engaged in discussions with current and prospective
lenders regarding refinancing alternatives for the remaining debt. Although
the Company expects to pay down the debt and refinance the remainder as
described, there is some risk that the sale of the Manufacturing and
Marketing segment will not be consummated as expected. Therefore, the
Company and its advisors are simultaneously pursuing negotiations for a bank
line of credit of sufficient size to allow the Company to pay off all of its
existing debt should that become necessary. It is Management's opinion that
the Company's financial condition is such that internal and external
resources are
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sufficient and available to satisfy the Company's requirements for debt
repayment, as well as future requirements for capital expenditures,
dividends and working capital.
ANALYSIS OF FISCAL 2002 CONTINUING OPERATIONS COMPARED TO 2001
Combined sales and revenues in fiscal 2002 were $350.1 million, an increase
of $14.8 million or 4.4 percent from the prior year. Textile Services
segment revenues increased 6.8 percent, from $242.6 million to $259.1
million. For the second consecutive year, this segment generated a record
amount of net new business additions (new business additions less lost
business). Sales at Life Retail Stores declined 1.8 percent, from $92.7
million to $91.0 million. Same store sales in fiscal 2002 decreased by 4.3
percent, the result of a weak retail market during the last three quarters
of the year. The largest sales decline occurred in the segment's hospitality
business, which the Company has decided to exit as part of its restructuring
plan. Sales in the catalogue and e-commerce distribution channels increased
to $3.2 million in fiscal 2002 from $1.0 million in fiscal 2001, but the
increase was more than offset by the decline in sales from the retail
stores.
The gross profit percent to combined sales and revenues in fiscal 2002 was
26.1 percent, up slightly from 25.9 percent in the prior year. An increase
in gross margins in the Textile Services segment more than offset a decrease
in gross margins at Life Retail Stores. Gross margins in the Textile
Services segment were positively affected by better pricing, continuing
improvements in plant productivity and linen cost management and effective
management of energy costs. As a result, earnings in this segment rose 29.0
percent from the prior year. In the Life Retail Stores segment, gross
margins and earnings were negatively affected by the restructuring and other
charges discussed below. Excluding the restructuring charges, gross margins
at Life Retail were up slightly in fiscal 2002, and earnings for the segment
declined from $2.5 million in fiscal 2001 to a loss of $.8 million in fiscal
2002.
Selling, general and administrative expenses increased $4.7 million or 6.2
percent in fiscal 2002 compared with fiscal 2001. This also represented an
increase as a percentage of combined sales and revenues to 22.7 percent from
22.4 percent in the prior year. The increase is primarily due to increased
selling expenses and incentive compensation payments in the Textile Services
segment and a full year of expenses relating to catalogue operations at Life
Retail in fiscal 2002. Interest expense decreased in fiscal 2002 to $7.4
million from $8.1 million in fiscal 2001 due to prepayment during the year
of $25 million of debt that was originally due to be paid in December, 2001.
The Company's overall effective tax rate for fiscal 2002 was 36.0 percent
compared with 37.0 percent in the prior year. The effective rate for
continuing operations in fiscal 2002 was 9.0 percent due to the high amount
of permanent differences in relation to the low level of income in that
year. This compares with a rate of 33.0 percent for continuing operations in
fiscal 2001.
ANALYSIS OF FISCAL 2001 CONTINUING OPERATIONS COMPARED TO 2000
In fiscal 2001, combined sales and revenues of $335.3 million were flat
compared to the prior year. In the Textile Services segment, revenues
decreased 0.9 percent for the year but increased in both the third and
fourth quarters, as this segment essentially completed its recovery from the
loss of business in fiscal 2000 to an aggressive competitor in the
marketplace. A record amount of net new business additions was generated in
this segment. Life Retail Stores sales improved $2.1 million or 2.3 percent,
the result of a 4.5 percent same-store sales increase partially offset by
having 12 fewer stores in operation at the end of the year compared to the
prior year.
The gross profit percent to combined sales and revenues in fiscal 2001 was
25.9 percent, up from 25.0 percent in the prior year. Gross margins in the
Textile Services segment were up due to better management of linen costs and
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productivity improvements from installation of labor-saving equipment.
Although earnings of this segment increased 7.7 percent from the prior year,
they were negatively affected by sizable increases in energy costs in the
second half of the year. In the Life Retail Stores segment, gross margins
were essentially unchanged from the prior year as the selective discounting
and markup cancellations initiated in fiscal 2000 were completed. Earnings
of this segment declined 24.7 percent as the sales increase was insufficient
to overcome increases in wages and other costs, including the initial costs
of entering the catalogue and e-commerce distribution channels in the third
quarter of fiscal 2001.
Selling, general and administrative expenses increased $2.9 million or 4.1
percent in fiscal 2001. As a percentage of combined sales and revenues,
these expenses increased to 22.4 percent from 21.5 percent in the prior
year, reflective of the investments made to revitalize sales efforts in the
Textile Services segment and the relocation of the Textile Services
administrative offices. Consolidated earnings in fiscal 2001 benefited from
lower interest expense as a result of lower debt balances and from increased
interest income due to higher cash balances. The total effective tax rate of
37.0 percent in fiscal 2001 was unchanged from the prior year.
DISCONTINUED OPERATIONS
Results from discontinued operations represent the activity of the
Manufacturing and Marketing segment, including the estimated loss on sale
and discontinuation of the segment. This business was adversely affected in
fiscal 2002 by weakness in the economy during the year and by the aftermath
of the September terrorist attacks on sales to certain market segments, such
as lodging, food service, gaming and recreation. In fiscal 2001, sales
suffered from lower-than-expected demand for certain products and delays in
large customer program rollouts. However, gross margins and earnings for the
segment in fiscal 2001 improved over the prior year as efforts to lower
costs through increased non-domestic contract sourcing continued to prove
successful.
On January 25, 2002, the Company's Board of Directors approved a plan to
discontinue the Manufacturing and Marketing segment. Assets of the segment
have been written down and a loss on disposal of the segment has been
recorded based on the estimated net realizable value from the pending sale,
as well as estimates of the cost of disposal and transition. Negotiations
continue with two prospective buyers, one of which would purchase certain
assets of the non-healthcare business of the segment and the other of which
would purchase certain assets of the healthcare business. Management
believes its estimates used to record the loss on disposal and related asset
writedown are reasonable. However, there is risk that the value received
upon ultimate disposition of the segment, including actual costs of disposal
and transition, may differ significantly from amounts recorded in the
financial statements for fiscal 2002.
RESTRUCTURING ACTIVITIES
In the fourth quarter of fiscal 2002, the Company developed plans to close
27 underperforming stores and exit the hospitality line of business in the
Life Retail Stores segment. The underperforming stores produced a collective
operating loss of $.9 million in fiscal 2002. The Company recorded
restructuring and other charges in fiscal 2002 of $4.2 million relating to
these activities. Of that amount, $1.2 million is included in cost of goods
sold and primarily represents a writedown of the remaining inventory in the
hospitality line and in stores to be closed. The remaining $3.0 million is
included in restructuring charge and represents the estimated cost for lease
terminations and a writedown of fixed assets and other assets related to the
closed stores. Certain estimates were used in the development of costs
included in the restructuring and other charges. Actual results may differ
from these estimates, which could result in additional costs.
-10-
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described in
Note 1 to the consolidated financial statements. Certain of the accounting
policies as discussed below require the application of significant judgment
by Management in selecting appropriate assumptions for calculating amounts
to record in the financial statements. By their nature, these judgments are
subject to an inherent degree of uncertainty.
SELF-INSURANCE LIABILITIES
The Company self insures liabilities for non-union employee medical coverage
and liabilities for casualty insurance claims, including workers'
compensation, general liability and vehicle liability, up to certain levels.
The Company purchases insurance coverage for large claims over the
self-insured retention levels. In fiscal 2000, the Company negotiated a
buyout of all casualty claims occurring prior to February 1, 1999. The
liability for casualty claims as of January 26, 2002 includes losses for
claims since the buyout date. Self-insurance liabilities are developed using
actuarial methods and historical data for payment patterns, cost trends and
other relevant factors. While Management believes that the recorded
liabilities for casualty and employee medical claims as of January 26, 2002
are adequate, and that appropriate judgment has been applied in determining
the estimates, such estimated liabilities could differ materially from
actual liabilities resulting from the ultimate disposition of the claims.
DEFERRED INCOME TAXES
The Company recognizes deferred income tax assets and liabilities based on
the differences between the financial statement carrying amounts and the tax
basis of the assets and liabilities. Balances in the deferred income tax
accounts are regularly reviewed for adequacy and recoverability by analyzing
the expected income necessary to realize the deferred assets, the
anticipated tax rates applicable when the deferred items are expected to be
recognized and the ability to utilize carryforward items. It is Management's
opinion that adequate provisions for income taxes have been made for all
periods presented, that all deferred tax assets will be fully recovered and
that no valuation allowance is required.
FORWARD-LOOKING STATEMENTS
Any forward-looking statements made in this report 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, the accuracy
of the estimation of restructuring and other charges in the Life Retail
segment, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Not Applicable.
-11-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements and financial statement schedule listed in
Item 14(a) of this Form 10-K are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- --------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
- ------------------------
Not Applicable.
-12-
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Information with respect to Directors of the Company under the caption
"Election of Directors" on pages 4 through 6 and under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" on page 11 of the Company's
Proxy Statement dated April 29, 2002 for the Annual Meeting of Shareholders
to be held on May 29, 2002 (hereinafter "Proxy Statement") is incorporated
herein by reference. Information with respect to executive officers of the
Company appears in Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Information with respect to executive compensation under the captions
"Director Compensation" on page 8, "Compensation and Organization Committee
Report on Executive Compensation" on pages 12 through 14, "Summary
Compensation Table" on pages 14 and 15, "Employment Contracts and Termination
of Employment and Change-In-Control Arrangements" on pages 15 through 17,
"Retirement Plans" on page 17 and "Stock Options" on pages 18 and 19 of the
Company's Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
Information with respect to security ownership of certain beneficial owners
and management under the caption "Stock Ownership of Certain Beneficial
Owners" and "Stock Ownership of Management" on pages 9 and 10 of the
Company's Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Not applicable.
-13-
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) Document List
1. Financial Statements Page
-------------------- ----
The following financial statements are attached hereto and
incorporated by reference in Item 8 above:
(i) Report of Independent Public Accountants F-2
(ii) Consolidated Statements of Income - Years ended F-3
January 26, 2002, January 27, 2001 and January 29, 2000
(iii) Consolidated Balance Sheets - January 26, 2002 and F-4
January 27, 2001
(iv) Consolidated Statements of Shareholders' Equity - F-5
Years ended January 26, 2002, January 27, 2001 and
January 29, 2000
(v) Consolidated Statements of Cash Flows - Years ended F-6
January 26, 2002, January 27, 2001 and January 29, 2000
(vi) Notes to Consolidated Financial Statements F-7 - F-18
2. Financial Statement Schedule
----------------------------
(i) The following financial statement schedule appears on page S-2
of this Form 10-K:
Schedule II - Valuation and Qualifying Accounts - For the
Three Years Ended January 26, 2002
All other schedules are not submitted because they are not
applicable or not required or because the information is
included in the financial statements or notes thereto.
(ii) Report of Independent Public Accountants on Schedule II
appears on page S-1 of this Form 10-K.
3. Exhibits
--------
See Exhibit Index for a list of all management contracts,
compensatory plans and arrangements required by this item
(Exhibit Nos. 10.1 through 10.29) and all other exhibits filed
or incorporated by reference as a part of this report.
-14-
(b) Reports on Form 8-K
The Registrant furnished a report on Form 8-K under Item 9 on
November 27, 2001 in which it furnished the Quarterly Report to
Shareholders dated November 15, 2001 (mailed to shareholders on
November 27, 2001), pursuant to Regulation FD.
(c) See Exhibit Index.
(d) See Item 14(a)2(i) above.
-15-
SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to
be signed on its behalf by the undersigned thereunto duly authorized.
ANGELICA CORPORATION
----------------------------------
(Registrant)
By: /s/ Don W. Hubble
----------------------------------
Don W. Hubble
Chairman, President and Chief
Executive Officer
Date: April 8, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By: /s/ Don W. Hubble By: /s/ T. M. Armstrong
---------------------------------- ----------------------------------
Don W. Hubble T. M. Armstrong
Chairman, President and Senior Vice President-
Chief Executive Officer Finance and Administration
(Principal Executive Officer) and Chief Financial Officer
(Principal Financial Officer)
By: /s/ James W. Shaffer
----------------------------------
James W. Shaffer
Vice President and Treasurer
(Principal Accounting Officer)
David A. Abrahamson * Susan S. Elliott *
- -------------------------------------- --------------------------------------
(David A. Abrahamson) (Susan S. Elliott)
Director Director
Alan C. Henderson * Charles W. Mueller *
- -------------------------------------- --------------------------------------
(Alan C. Henderson) (Charles W. Mueller)
Director Director
Stephen M. O'Hara * William A. Peck *
- -------------------------------------- --------------------------------------
(Stephen M. O'Hara) (William A. Peck)
Director Director
Kelvin R. Westbrook *
- --------------------------------------
(Kelvin R. Westbrook)
Director
By his signature below, Don W. Hubble has signed this Form 10-K on behalf of
each person named above whose name is followed by an asterisk, pursuant to
power of attorney filed with this Form 10-K.
/s/ Don W. Hubble
----------------------------------
Don W. Hubble, as attorney-in-fact
Date: April 8, 2002
-16-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants..............................................F-2
Consolidated Statements of Income for the Years Ended January 26, 2002,
January 27, 2001 and January 29, 2000.............................................F-3
Consolidated Balance Sheets as of January 26, 2002 and January 27, 2001...............F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
January 26, 2002, January 27, 2001 and January 29, 2000...........................F-5
Consolidated Statements of Cash Flows for the Years Ended January 26, 2002,
January 27, 2001 and January 29, 2000.............................................F-6
Notes to Consolidated Financial Statements............................................F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Public Accountants..............................................S-1
Schedule II -- Valuation and Qualifying Accounts for the Three Years Ended
January 26, 2002..................................................................S-2
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To Angelica Corporation:
We have audited the accompanying consolidated balance sheets of Angelica
Corporation (a Missouri corporation) and subsidiaries as of January 26, 2002
and January 27, 2001, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the
period ended January 26, 2002. 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 auditing standards generally
accepted in the United States. 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 Angelica Corporation and
subsidiaries as of January 26, 2002 and January 27, 2001, and the results of
their operations and their cash flows for each of three years in the period
ended January 26, 2002, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
March 21, 2002
F-2
CONSOLIDATED STATEMENTS OF INCOME
ANGELICA CORPORATION AND SUBSIDIARIES
For Years Ended January 26, January 27, January 29,
(Dollars in thousands, except per share amounts) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------
Textile service revenues $ 259,078 $ 242,623 $ 244,891
Net retail sales 90,985 92,675 90,550
- ----------------------------------------------------------------------------------------------------
Combined sales and revenues 350,063 335,298 335,441
- ----------------------------------------------------------------------------------------------------
Cost of textile services 212,984 203,042 207,309
Cost of goods sold (Note 8) 45,780 45,303 44,165
- ----------------------------------------------------------------------------------------------------
258,764 248,345 251,474
- ----------------------------------------------------------------------------------------------------
Gross profit 91,299 86,953 83,967
Selling, general and administrative expenses 79,641 74,979 72,051
Restructuring charge (Note 8) 2,982 - -
- ----------------------------------------------------------------------------------------------------
Operating income from continuing operations 8,676 11,974 11,916
Interest expense (7,390) (8,085) (8,593)
Other income (expense), net 504 659 (107)
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 1,790 4,548 3,216
Provision for income taxes 161 1,501 1,190
- ----------------------------------------------------------------------------------------------------
Income from continuing operations $ 1,629 $ 3,047 $ 2,026
- ----------------------------------------------------------------------------------------------------
Discontinued operations (Note 2):
(Loss) income from operations of discontinued segment,
net of tax (340) 3,539 3,248
Loss on disposal of discontinued segment, (including
provision of $2,398 pretax for operating losses
during phase-out period), net of tax (23,998) - -
- ----------------------------------------------------------------------------------------------------
(Loss) income from discontinued operations (24,338) 3,539 3,248
- ----------------------------------------------------------------------------------------------------
Net (loss) income $ (22,709) $ 6,586 $ 5,274
====================================================================================================
Basic earnings (loss) per share:
Income from continuing operations $ 0.19 $ 0.35 $ 0.23
Discontinued operations (2.83) 0.41 0.38
- ----------------------------------------------------------------------------------------------------
Net (loss) income $ (2.64) $ 0.76 $ 0.61
====================================================================================================
Diluted earnings (loss) per share:
Income from continuing operations $ 0.19 $ 0.35 $ 0.23
Discontinued operations (2.81) 0.41 0.38
- ----------------------------------------------------------------------------------------------------
Net (loss) income $ (2.62) $ 0.76 $ 0.61
====================================================================================================
The accompanying notes are an integral part of the financial statements.
F-3
CONSOLIDATED BALANCE SHEETS
ANGELICA CORPORATION AND SUBSIDIARIES
January 26, January 27,
(Dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and short-term investments $ 18,742 $ 20,311
Receivables, less reserves of $1,306 and $1,909 33,536 36,071
Inventories 14,435 16,946
Linens in service 32,196 32,846
Prepaid expenses and other current assets 2,968 3,944
Deferred income taxes 16,478 3,971
Net current assets of discontinued segment (Note 2) 61,774 95,599
- ---------------------------------------------------------------------------------------------
Total Current Assets 180,129 209,688
- ---------------------------------------------------------------------------------------------
Property and Equipment:
Land 5,449 4,991
Buildings and leasehold improvements 59,446 56,873
Machinery and equipment 109,101 104,988
Capitalized leased property 897 897
- ---------------------------------------------------------------------------------------------
174,893 167,749
Less--reserve for depreciation 98,208 91,294
- ---------------------------------------------------------------------------------------------
76,685 76,455
- ---------------------------------------------------------------------------------------------
Other:
Goodwill 4,294 4,531
Other acquired assets 1,553 2,659
Cash surrender value of life insurance 25,349 22,628
Deferred income taxes 654 -
Miscellaneous 365 536
- ---------------------------------------------------------------------------------------------
32,215 30,354
Net noncurrent assets of discontinued segment (Note 2) 1,836 13,758
- ---------------------------------------------------------------------------------------------
Total Assets $ 290,865 $ 330,255
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 4) $ 71,602 $ 27,841
Accounts payable 20,958 27,445
Accrued wages and other compensation 10,716 7,032
Other accrued liabilities 29,893 22,921
- ---------------------------------------------------------------------------------------------
Total Current Liabilities 133,169 85,239
- ---------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities (Note 4) 812 60,963
- ---------------------------------------------------------------------------------------------
Other:
Deferred compensation and other long-term liabilities 15,380 13,837
Deferred income taxes - 5,897
- ---------------------------------------------------------------------------------------------
15,380 19,734
- ---------------------------------------------------------------------------------------------
Shareholders' Equity:
Common Stock, $1 par value, authorized 20,000,000
shares, issued: 9,471,538 shares 9,472 9,472
Capital surplus 4,200 4,196
Retained earnings 142,188 168,677
Accumulated other comprehensive income (Note 2) - (1,980)
Common Stock in treasury, at cost: 863,329 and 929,070 shares (14,356) (16,046)
- ---------------------------------------------------------------------------------------------
141,504 164,319
- ---------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 290,865 $ 330,255
=============================================================================================
The accompanying notes are an integral part of the financial statements.
F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ANGELICA CORPORATION AND SUBSIDIARIES
For Years Ended January 26, January 27, January 29,
(Dollars in thousands) 2002 2001 2000
- ----------------------------------------------------------------------------------------
COMMON STOCK ($1 PAR VALUE)
Balance beginning of year $ 9,472 $ 9,472 $ 9,472
- ----------------------------------------------------------------------------------------
Balance end of year $ 9,472 $ 9,472 $ 9,472
- ----------------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance beginning of year $ 4,196 $ 4,196 $ 4,196
Exercise of stock options/stock awards 4 - -
- ----------------------------------------------------------------------------------------
Balance end of year $ 4,200 $ 4,196 $ 4,196
- ----------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance beginning of year $ 168,677 $ 166,574 $ 170,111
Net (loss) income (22,709) 6,586 5,274
Cash dividends (2,751) (4,155) (8,328)
Exercise of stock options/stock awards (1,029) (328) (483)
- ----------------------------------------------------------------------------------------
Balance end of year $ 142,188 $ 168,677 $ 166,574
- ----------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance beginning of year $ (1,980) $ (1,699) $ (2,285)
Translation adjustment (285) (281) 586
Effect of discontinued operations (Note 2) 2,265 - -
- ----------------------------------------------------------------------------------------
Balance end of year $ - $ (1,980) $ (1,699)
- ----------------------------------------------------------------------------------------
COMMON STOCK IN TREASURY, AT COST
Balance beginning of year $ (16,046) $ (15,131) $ (15,691)
Treasury stock purchased - (1,287) (360)
Exercise of stock options/stock awards 1,701 463 998
Other changes during year (11) (91) (78)
- ----------------------------------------------------------------------------------------
Balance end of year $ (14,356) $ (16,046) $ (15,131)
- ----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY, END OF YEAR $ 141,504 $ 164,319 $ 163,412
========================================================================================
COMPREHENSIVE INCOME
Net (loss) income $ (22,709) $ 6,586 $ 5,274
Change in cumulative translation adjustment (285) (281) 586
Effect of discontinued operations (Note 2) 2,265 - -
- ----------------------------------------------------------------------------------------
Total Comprehensive (Loss) Income $ (20,729) $ 6,305 $ 5,860
========================================================================================
The accompanying notes are an integral part of the financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
ANGELICA CORPORATION AND SUBSIDIARIES
For Years Ended January 26, January 27, January 29,
(Dollars in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (22,709) $ 6,586 $ 5,274
Net loss (income) from discontinued segment 24,338 (3,539) (3,248)
- -----------------------------------------------------------------------------------------------------
Income from continuing operations 1,629 3,047 2,026
Non-cash items included in net income:
Depreciation 11,100 11,267 11,556
Amortization 1,974 2,235 2,827
Restructuring and other charges 4,180 - -
Change in working capital components of continuing
operations, net of businesses acquired/disposed of:
Receivables, net 2,535 1,899 (2,404)
Inventories and linens in service 1,835 9 8,998
Prepaid expenses and other current assets (3,291) (1,148) (499)
Accounts payable (5,158) 3,384 (1,294)
Compensation and other accruals 2,369 4,508 (6,320)
Income taxes 1,636 993 484
Cash surrender value of life insurance (2,721) (1,674) (2,314)
Other, net (2,290) 1,214 (677)
- -----------------------------------------------------------------------------------------------------
Net cash flow provided by continuing operations 13,798 25,734 12,383
Net cash flow provided by (used in) discontinued operations 18,290 (7,029) 12,339
- -----------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 32,088 18,705 24,722
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment, net (13,873) (10,595) (6,677)
Cost of businesses acquired (785) - (505)
Disposition of businesses and property 302 1,874 5,777
- -----------------------------------------------------------------------------------------------------
Net cash flow (used in) continuing operations (14,356) (8,721) (1,405)
Net cash flow (used in) provided by discontinued operations (540) 2,493 (762)
- -----------------------------------------------------------------------------------------------------
Net cash flow (used in) investing activities (14,896) (6,228) (2,167)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term and short-term debt repayments (28,390) (1,789) (5,359)
Proceeds from issuance of long-term debt 12,000 - -
Repurchase of stock - (1,287) (360)
Dividends paid (2,751) (4,155) (8,328)
Other, net 665 44 440
- -----------------------------------------------------------------------------------------------------
Net cash flow (used in) continuing operations (18,476) (7,187) (13,607)
Net cash flow (used in) discontinued operations (285) (630) (173)
- -----------------------------------------------------------------------------------------------------
Net cash flow (used in) financing activities (18,761) (7,817) (13,780)
- -----------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and short-term investments (1,569) 4,660 8,775
Cash and short-term investments at beginning of year 20,311 15,651 6,876
- -----------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 18,742 $ 20,311 $ 15,651
=====================================================================================================
Supplemental cash flow information:
Income taxes paid $ 4,438 $ 3,508 $ 2,867
Interest paid $ 7,688 $ 7,767 $ 9,286
=====================================================================================================
The accompanying notes are an integral part of the financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Angelica Corporation and Subsidiaries
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company provides textile rental and laundry services principally to
healthcare institutions and to a limited extent to hotels, motels and
restaurants, in or near major metropolitan areas in the United States. The
Company also operates a nationwide chain of specialty retail stores
primarily for nurses and other healthcare professionals.
On January 25, 2002, the Company's Board of Directors approved a plan
to discontinue the Manufacturing and Marketing segment, as discussed in
Note 2, Discontinued Operations.
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 retail sales are recognized at the time the
merchandise is shipped to or picked up by the customer.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to current
year presentation. The consolidated financial statements have been
reclassified to reflect the Company's Manufacturing and Marketing business
segment as a discontinued operation for all periods presented.
In accordance with requirements of the Financial Accounting Standards
Board's Emerging Issues Task Force, in fiscal year 2002 the Company
reclassified volume-based rebates paid to customers from selling, general
and administrative expenses to reduction of textile service revenues. In
addition, in fiscal year 2001 the Company changed the classification of
shipping and handling revenues and costs to reflect amounts billed to
customers as sales and the related costs as cost of goods sold.
USE OF ESTIMATES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which required the use
of certain estimates by Management in determining the Company's assets,
liabilities, revenues and expenses. Actual results may vary from these
estimates.
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 accumulated other comprehensive income
in shareholders' equity.
INVENTORIES
Inventory costs are determined principally by the use of the retail
inventory method, and are stated at the lower of such cost or market.
LINENS IN SERVICE
Linens in service are stated at depreciated cost and amortized over their
expected useful lives of one to two years.
F-7
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 the lesser of
their useful lives or lease terms.
GOODWILL AND OTHER ACQUIRED ASSETS
Goodwill, the excess of cost over net assets of businesses acquired,
recorded as of June 30, 2001 is being amortized on the straight-line basis
over periods not exceeding 40 years. Goodwill recorded after June 30, 2001
is not amortized. See discussion under the caption "New Accounting
Pronouncements" below of the effect of SFAS No. 142, "Goodwill and Other
Intangible Assets," for the treatment of goodwill for future fiscal years
beginning with fiscal 2003. 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the
purchase method of accounting be used and governs the initial recognition
and measurement of intangible assets acquired in business combinations
initiated after June 30, 2001. The Company has adopted SFAS No. 141 for all
acquisitions consummated subsequent to June 30, 2001.
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill recorded as of
June 30, 2001 will no longer be amortized effective with the date of adoption,
which is January 27, 2002 for the Company. Additionally, any goodwill
recognized from a business combination completed after June 30, 2001 will
not be amortized. Instead, goodwill will be tested for impairment as of the
date of adoption and at least annually thereafter using a fair-value based
analysis. The Company does not believe the effect on its consolidated
financial statements that will result from the adoption of SFAS No. 142 will
be significant. Goodwill amortization expense was approximately $316,000 in
fiscal 2002 and would be a comparable amount in fiscal 2003, absent this
accounting change.
The FASB also issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" in June 2001. The new standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the
entity capitalizes a cost by increasing the carrying amount of the related
long-lived assets. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life of
the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss upon
settlement. The standard is effective for fiscal years beginning after June
15, 2002. Adoption of SFAS No. 143 is not expected to have a material impact
on the Company's consolidated financial position, results of operations or
cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 144 establishes the accounting
model for long-lived assets to be disposed of by sale, including discontinued
operations, and the disposal of segments of a business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Company
believes that the adoption of SFAS No. 144 will not have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
F-8
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of Common Stock outstanding during the year.
Diluted earnings per share is computed by dividing the net income applicable
to Common shareholders by the weighted average number of Common and Common
equivalent shares outstanding.
The following table reconciles weighted average shares outstanding to
amounts used to calculate basic and diluted earnings per share for fiscal
years 2002, 2001 and 2000:
(Dollars and shares in thousands, except per share amounts) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net income available to common shareholders:
Net income from continuing operations $ 1,629 $3,047 $2,026
Net (loss) income from operations of discontinued
segment, net of tax (340) 3,539 3,248
Loss on disposal of discontinued segment, net of tax (23,998) --- ---
- -----------------------------------------------------------------------------------------------------------------
Net (loss) income $(22,709) $6,586 $5,274
=================================================================================================================
Weighted average shares:
Average shares outstanding 8,598 8,634 8,677
Effect of dilutive securities - option shares 66 47 9
- -----------------------------------------------------------------------------------------------------------------
Average shares outstanding, adjusted for dilutive effects 8,664 8,681 8,686
=================================================================================================================
Net income per share - Basic:
Net income from continuing operations $ .19 $ .35 $ .23
Net (loss) income from operations of discontinued
segment, net of tax (.04) .41 .38
Loss on disposal of discontinued segment, net of tax (2.79) --- ---
- -----------------------------------------------------------------------------------------------------------------
Net (loss) income $ (2.64) $.76 $ .61
=================================================================================================================
Net income per share - Diluted:
Net income from continuing operations $ .19 $ .35 $ .23
Net (loss) income from operations of discontinued
segment, net of tax (.04) .41 .38
Loss on disposal of discontinued segment, net of tax (2.77) --- ---
- -----------------------------------------------------------------------------------------------------------------
Net (loss) income $ (2.62) $ .76 $ .61
=================================================================================================================
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.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, the Company periodically assesses the
carrying value of its long-lived assets and recognizes impairment losses if
it is determined that the carrying values are not recoverable.
ADVERTISING EXPENSE
Advertising expense, including cost of catalogues, charged to continuing
operations in fiscal years 2002, 2001 and 2000 totaled $3,343,000,
$3,465,000 and $2,875,000, respectively.
F-9
SELF-INSURANCE PROGRAMS
The Company is self insured up to certain levels for workers' compensation,
general liability and vehicle liability coverages after February 1, 1999.
Provision for losses relating to these programs are recorded based on the
Company's estimates for claims incurred. The estimated liabilities for these
programs recorded in other accrued liabilities were $12,510,000 and
$9,699,000 at January 26, 2002 and January 27, 2001, respectively. In
addition, the Company is primarily self insured for non-union employee
medical coverage. The liability is determined actuarially based on claims
filed and an estimate of claims incurred but not yet reported. The provision
included in accounts payable for this liability at January 26, 2002 and
January 27, 2001 was $2,100,000 and $1,690,000, respectively.
2. DISCONTINUED OPERATIONS
The Manufacturing and Marketing segment provides uniforms and business
career apparel for a wide variety of institutions and businesses in the
United States and Canada. The sale of this segment is expected to be
completed during fiscal 2003 at a loss of $36,734,000, less related tax
benefit of $12,736,000. The loss on disposal includes the writedown of
assets of the Manufacturing and Marketing business by $23,365,000 to
estimated net realizable value, the provision for operating losses during
the phaseout period of $2,398,000 and the estimated other costs to dispose
of this business of $10,971,000.
The Manufacturing and Marketing business is accounted for as a
discontinued segment and, accordingly, operating results and net assets are
segregated in the Company's consolidated financial statements and related
notes for all periods presented. The net current assets of this discontinued
segment are primarily accounts receivable and inventory. Net noncurrent
assets are primarily property and equipment.
Operating results for the Manufacturing and Marketing segment are
included in the Consolidated Statements of Income as net (loss) income from
operations of discontinued segment for all periods presented. Results for
the discontinued segment are as follows:
(Dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Sales, including intersegment sales $143,064 $148,789 $155,730
Less - intersegment sales 26,165 26,122 23,453
- ---------------------------------------------------------------------------------------------------------------
Net sales $116,899 $122,667 $132,277
===============================================================================================================
(Loss) income before income taxes $ (539) $ 5,906 $ 5,156
(Benefit) provision for income taxes (199) 2,367 1,908
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income $ (340) $ 3,539 $ 3,248
===============================================================================================================
The loss on disposal of the Manufacturing and Marketing segment
includes a curtailment gain of $1,358,000 on the defined benefit pension
plan due to the planned reduction of a significant portion of the workforce.
In accordance with SFAS No. 52, the cumulative translation adjustment,
which related entirely to foreign operations of the discontinued segment,
has been removed as a separate component of equity and has been reported as
part of the loss on disposal of discontinued operations.
F-10
3. 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. The funded status of the plan, the net pension liability at
January 1, 2002 and January 1, 2001, and the net pension (income) expense
for 2002, 2001 and 2000 were as follows:
January 1, January 1,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $19,301 $17,938
Service cost 641 601
Interest cost 1,307 1,281
Actuarial gain 421 751
Effect of curtailment - Manufacturing and Marketing participants (Note 2) (807) --
Benefits paid (1,289) (1,270)
- --------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $19,574 $19,301
====================================================================================================================
Change in plan assets:
Fair value of plan assets at beginning of year $20,047 $21,276
Actual (loss) return on plan assets (555) 41
Employer contributions -- --
Benefits paid (1,289) (1,270)
- --------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $18,203 $20,047
====================================================================================================================
Net pension liability:
Funded status $(1,371) $ 746
Unrecognized actuarial gain (1,625) (5,200)
Unrecognized prior service cost 91 150
Unrecognized initial obligation 367 648
- --------------------------------------------------------------------------------------------------------------------
Net pension liability at end of year $(2,538) $(3,656)
====================================================================================================================
(Dollars in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Pension expense:
Service cost $ 641 $ 601 $ 735
Interest cost 1,307 1,281 1,218
Expected return on plan assets (1,655) (1,585) (1,462)
Plan curtailment (Note 2) (1,358) -- --
Amortization of prior service cost 20 20 20
Recognized actuarial (gain) loss (73) (103) 126
- --------------------------------------------------------------------------------------------------------------------
Net pension (income) expense $(1,118) $ 214 $ 637
====================================================================================================================
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Actuarial assumptions used in determining projected benefit obligation:
Discount rate 6.75% 7.00% 7.40%
Expected return on plan assets 8.50% 8.50% 8.50%
Rate of compensation increase 5.00% 5.00% 5.00%
====================================================================================================================
The Company's 401(k) retirement savings plan provides retirement
benefits to eligible domestic employees in addition to those provided by the
defined benefit pension plan. The plan permits participants to voluntarily
defer up
F-11
to 12 percent of their compensation, subject to Internal Revenue
Code limitations. The Company also contributes a percentage of the
employee's salary to the account of each eligible employee. The Company's
policy is to fully fund this plan. The cost for this plan was $619,000,
$648,000 and $690,000, for fiscal years 2002, 2001, and 2000, respectively.
The Company maintains a voluntary deferred compensation plan providing
retirement benefits to certain employees and directors in return for
deferral of compensation payments. The amount of the retirement benefit is
determined based on the amount of compensation deferred and is payable over
15 years following retirement. In addition, the Company maintains a
supplemental retirement benefit plan for selected employees. The benefit
amount is determined as a percentage of final average compensation, as
defined, and is generally payable over 120 months beginning at age 65. The
liability recorded in deferred compensation and other long-term liabilities
for future retirement obligations related to these plans as of January 26,
2002 and January 27, 2001 was $12,883,000 and $12,629,000, respectively. The
Company funds these liabilities through the purchase of company-owned life
insurance policies on plan participants.
The Company does not provide retirees with post-retirement benefits
other than pensions.
4. LONG-TERM DEBT
The following table summarizes information with respect to long-term debt
for 2002 and 2001:
(Dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------
10.2% notes to insurance company, due
annually to November 1, 2004 $29,375 $31,375
9.15% notes to insurance companies, due December 31, 2001 --- 25,000
8.225% notes to insurance companies, due May 1, 2006 30,000 30,000
5.73% note to bank, due June 28, 2004 12,000 ---
Other long-term debt including obligations under capital leases 1,039 2,429
- ----------------------------------------------------------------------------------------------------
72,414 88,804
Less--current maturities 71,602 27,841
- ----------------------------------------------------------------------------------------------------
$ 812 $60,963
====================================================================================================
The most restrictive of the Company's loan agreements requires that the
Company maintain a minimum of $160,000,000 in consolidated net worth, as
defined. Due to the pending sale and related loss on disposal of the
Manufacturing and Marketing segment, the Company is not in compliance with
the net worth covenant. As a result, all of the notes to insurance companies
and bank have been reclassified to current liabilities. The Company expects
to use proceeds from the sale of Manufacturing and Marketing to
substantially pay down the debt and refinance the remainder over the long
term.
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 (assuming the original maturity dates), as of January 26,
2002 and January 27, 2001 was approximately $78,894,000 and $94,161,000,
respectively.
F-12
5. INCOME TAXES
The provision for income taxes from continuing operations consisted of the
following:
(Dollars in thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------
Current:
Federal $ 2,801 $ 2,180 $ 2,262
State 310 348 248
Foreign 70 75 35
Deferred (3,020) (1,102) (1,355)
- -------------------------------------------------------------------------------------------------
$ 161 $ 1,501 $ 1,190
=================================================================================================
Reconciliation between the statutory income tax rate and effective tax
rate from continuing operations is summarized below:
2002 2001 2000
- -------------------------------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State tax, net of federal benefit 1.0 3.5 3.2
Effect of permanent items (11.7) 1.1 3.3
Effect of tax credits (14.3) (5.6) (3.5)
- -------------------------------------------------------------------------------------------------
9.0% 33.0% 37.0%
=================================================================================================
Permanent items relate primarily to insurance products associated with
deferred compensation arrangements. Tax credits are received from various
federal and state employment programs.
The tax effect of significant temporary differences representing
deferred tax assets and liabilities were as follows:
January 26, January 27,
(Dollars in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 5,202 $ 5,342
Insurance reserves not yet deductible 4,885 5,103
Customer contracts 2,299 2,630
Loss on disposal of discontinued segment 12,736 ---
Other 10,538 9,186
- ----------------------------------------------------------------------------------------------
35,660 22,261
- ----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (9,838) (11,482)
Linen amortization (8,247) (12,002)
Other (443) (703)
- ----------------------------------------------------------------------------------------------
(18,528) (24,187)
- ----------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 17,132 $ (1,926)
==============================================================================================
The deferred tax asset related to discontinued operations consists
primarily of the writedown of inventory and fixed assets, estimated
severance payments and estimated losses on transitional operations.
Temporary differences of approximately $8,811,000 related to
investments in foreign subsidiaries are expected to reverse in fiscal 2003.
Included in deferred tax liabilities is $441,000 related to these temporary
differences.
F-13
6. PREFERRED STOCK
The Company has two classes of authorized Preferred Stock: Class A, $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 26, 2002,
no shares of Class A or Class B were outstanding.
7. SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder 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 holders thereof may be entitled to purchase
units of the Company's Class B Series 2 Junior Participating Preferred
Stock, shares of the Company's Common Stock or shares of common stock of the
surviving or acquiring company. The Rights will remain in existence until
September 7, 2008, unless they are earlier exercised, redeemed or exchanged.
8. RESTRUCTURING AND OTHER CHARGES
During the fourth quarter of fiscal 2002, the Company recorded restructuring
and other charges of $4,180,000 ($3,804,000 after-tax or $.44 per basic and
diluted share) related primarily to the closing of certain retail stores and
the liquidation of non-healthcare inventory in the Retail Sales segment.
These charges consisted of inventory writedowns of $1,198,000 included in
cost of goods sold and other charges totaling $2,982,000 included in
restructuring charge. The charges include an accrual for lease termination
costs of $2,263,000 and writedowns of inventory, fixed assets and other
assets totaling $1,917,000. As of January 26, 2002, there were no payments
charged to the restructuring reserve. The entire reserve is expected to be
utilized during fiscal 2003.
9. STOCK-BASED COMPENSATION PLANS
The Company has various stock option and stock bonus plans that 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 awards to be granted at a price
below fair market value. Options are exercisable not less than six months
nor more than 10 years after the date of grant.
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, as to which the amounts
charged to expense in fiscal years 2002, 2001 and 2000 totaled $3,343,000,
$3,465,000 and $2,875,000, respectively.
F-14
A summary of the status of the Company's stock option plans for fiscal
years 2002, 2001 and 2000 and changes during the years then ended is
presented in the table below:
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 906,150 $15.10 754,815 $20.18 674,175 $23.91
Granted 151,000 10.37 334,000 7.32 287,200 13.48
Exercised (3,625) 7.25 --- --- --- ---
Lapsed (78,500) 22.70 (182,665) 21.88 (206,560) 23.04
- --------------------------------------------------------------------------------------------------------------
Outstanding at end of year 975,025 $13.78 906,150 $15.10 754,815 $20.18
==============================================================================================================
Options exercisable at year end 473,511 $17.58 364,292 $21.70 320,797 $25.19
==============================================================================================================
Options available for future grant 302,253 431,982 656,945
==============================================================================================================
Weighted average fair value for
options granted during the year $ 2.81 $ 2.12 $ 3.15
==============================================================================================================
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 2002, 2001 and 2000, respectively: risk-free
interest rates of 5.2%, 6.8% and 6.1%; expected dividend yields of 4.5%,
4.4% and 4.2%; volatilities of 33.8%, 31.4% and 23.6%; and expected lives of
nine to 10 years in all periods. The range of exercise prices for the
975,025 options outstanding at year end was $7.25 to $26.63, and the
weighted-average remaining contractual life was 6.7 years.
Had compensation expense for stock-based compensation plans for 2002,
2001 and 2000 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 (in thousands except per share
data):
2002 2001 2000
- -----------------------------------------------------------------------------------
Net (loss) income:
As reported $(22,709) $6,586 $5,274
Pro forma (23,139) 6,250 4,766
Basic (loss) earnings per share:
As reported $ (2.64) $ .76 $ .61
Pro forma (2.69) .72 .55
Diluted (loss) earnings per share:
As reported $ (2.62) $ .76 $ .61
Pro forma (2.67) .72 .55
- -----------------------------------------------------------------------------------
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.
F-15
10. COMMITMENTS AND CONTINGENCIES
Future minimum payments by year and in the aggregate under operating leases
with initial or remaining terms of one year or more, consisted of the
following at January 26, 2002:
Minimum
(Dollars in thousands) Payments
- --------------------------------------------------------------------------
2003 $ 8,440
2004 7,260
2005 6,124
2006 4,988
2007 3,717
Later years 9,098
- --------------------------------------------------------------------------
Total minimum lease payments $39,627
==========================================================================
Rental expense for all operating leases consisted of:
(Dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------
Minimum rentals $14,787 $13,978 $13,447
Contingent rentals 346 437 418
- ---------------------------------------------------------------------------------------------
$15,133 $14,415 $13,865
=============================================================================================
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.
F-16
11. BUSINESS SEGMENT INFORMATION
The Company has operated principally in three industry segments: Textile
Services, Manufacturing and Marketing and Retail Sales. Manufacturing and
Marketing is being treated as a discontinued operation. These segments,
including products and principal markets, are described elsewhere in this
report.
(Dollars in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------
Combined sales and revenues:
Textile Services $ 259,078 $ 242,623 $ 244,891
Retail Sales 90,985 92,675 90,550
- --------------------------------------------------------------------------------------------------
$ 350,063 $ 335,298 $ 335,441
==================================================================================================
Income from continuing operations before income taxes:
Textile Services $ 18,741 $ 14,526 $ 13,482
Retail Sales (4,951) 2,454 3,260
Interest, corporate expenses and other, net (11,992) (12,232) (13,433)
Eliminations (8) (200) (93)
- --------------------------------------------------------------------------------------------------
$ 1,790 $ 4,548 $ 3,216
==================================================================================================
Assets (as of year end):
Textile Services $ 140,498 $ 141,916 $ 151,271
Retail Sales 30,318 32,177 28,826
Corporate 56,439 46,805 38,149
Net assets of discontinued segment 63,610 109,357 101,349
- --------------------------------------------------------------------------------------------------
$ 290,865 $ 330,255 $ 319,595
==================================================================================================
Depreciation and amortization:
Textile Services $ 9,621 $ 9,541 $ 10,227
Retail Sales 2,686 3,033 3,098
Corporate 767 928 1,058
- --------------------------------------------------------------------------------------------------
$ 13,074 $ 13,502 $ 14,383
==================================================================================================
Capital additions, net:
Textile Services $ 10,134 $ 6,998 $ 4,196
Retail Sales 3,694 3,591 2,082
Corporate 45 6 399
- --------------------------------------------------------------------------------------------------
$ 13,873 $ 10,595 $ 6,677
==================================================================================================
Sales of foreign operations and export sales were not significant. The
Company has no one major customer. Corporate assets consist primarily of
cash, investments, deferred income taxes, cash surrender value of
company-owned life insurance, information systems equipment 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.
F-17
12. UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly results for 2002 and 2001 for continuing operations are shown
below:
Fiscal 2002 Quarter Ended
(Dollars in thousands, except per share amounts) April 28 July 28 October 27 January 26
- -----------------------------------------------------------------------------------------------------------------
Combined sales and revenues:
Textile Services $ 65,285 $ 64,585 $ 65,095 $ 64,113
Retail Sales 23,902 20,774 23,930 22,379
- -----------------------------------------------------------------------------------------------------------------
$ 89,187 $ 85,359 $ 89,025 $ 86,492
=================================================================================================================
Gross profit:
Textile Services $ 11,182 $ 11,587 $ 11,548 $ 11,777
Retail Sales 12,264 11,046 12,445 9,450
- -----------------------------------------------------------------------------------------------------------------
$ 23,446 $ 22,633 $ 23,993 $ 21,227
=================================================================================================================
Operating earnings (loss) from continuing operations:
Textile Services $ 4,740 $ 4,831 $ 4,785 $ 4,385
Retail Sales (61) (712) 812 (4,990)
- -----------------------------------------------------------------------------------------------------------------
$ 4,679 $ 4,119 $ 5,597 $ (605)
=================================================================================================================
Net income (loss) from continuing operations $ 1,399 $ 687 $ 2,242 $ (2,699)
=================================================================================================================
Basic and diluted earnings (loss) per share $ .16 $ .08 $ .26 $ (0.31)
=================================================================================================================
Fiscal 2001 Quarter Ended
(Dollars in thousands, except per share amounts) April 29 July 29 October 28 January 27
- -----------------------------------------------------------------------------------------------------------------
Combined sales and revenues:
Textile Services $ 60,529 $ 59,747 $ 60,985 $ 61,362
Retail Sales 23,291 21,355 24,876 23,153
- -----------------------------------------------------------------------------------------------------------------
$ 83,820 $ 81,102 $ 85,861 $ 84,515
=================================================================================================================
Gross profit:
Textile Services $ 10,570 $ 10,026 $ 9,763 $ 9,222
Retail Sales 11,827 10,984 12,711 11,850
- -----------------------------------------------------------------------------------------------------------------
$ 22,397 $ 21,010 $ 22,474 $ 21,072
=================================================================================================================
Operating earnings from continuing operations:
Textile Services $ 4,356 $ 3,868 $ 3,133 $ 3,169
Retail Sales 543 146 1,248 517
- -----------------------------------------------------------------------------------------------------------------
$ 4,899 $ 4,014 $ 4,381 $ 3,686
=================================================================================================================
Net income from continuing operations $ 900 $ 582 $ 819 $ 746
=================================================================================================================
Basic and diluted earnings per share $ .10 $ .07 $ .09 $ .09
=================================================================================================================
F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Angelica Corporation:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Angelica
Corporation and subsidiaries included in this Form 10-K, and have issued our
report thereon dated March 21, 2002. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed
in Item 14(a)2(i) included in this Form 10-K is the responsibility of the
Corporation's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
March 21, 2002
S-1
Schedule II
ANGELICA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JANUARY 26, 2002
(In Thousands)
------------------------------
Balance at Charged Balance
Beginning to Costs at End of
Description of Period and Expenses Deductions (a) Period
- ----------- ---------- ------------ -------------- ---------
Reserve for doubtful
accounts - deducted
from receivables in
the balance sheet
YEAR ENDED JANUARY 26, 2002
---------------------------
$ 1,909 $ 869 $ 1,472 $ 1,306
===== ===== ===== =====
YEAR ENDED JANUARY 27, 2001
---------------------------
$ 2,072 $ 753 $ 916 $ 1,909
===== ===== ===== =====
YEAR ENDED JANUARY 29, 2000
---------------------------
$ 1,512 $ 857 $ 297 $ 2,072
===== ===== ===== =====
(a) Doubtful accounts written off against reserve provided, net of recoveries.
S-2
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
*Asterisk indicates exhibits filed herewith.
**Incorporated by reference from the document listed.
3.1 Restated Articles of Incorporation of the Company, as currently in
effect. Filed as Exhibit 3.1 to the Form 10-K for the fiscal year
ended January 26, 1991.**
3.2 Current By-Laws of the Company, as last amended March 27, 2001.
Filed as Exhibit 3.2 to the Form 10-K for the fiscal year ended
January 27, 2001.**
4.1 Shareholder Rights Plan dated August 25, 1998. Filed as Exhibit 1
to Registration Statement on Form 8-A on August 28, 1998.**
4.2 10.3% and 9.76% Senior Notes to insurance company due annually to
2004, together with Note Facility Agreement. Filed as Exhibit 4.2
to the Form 10-K for the fiscal year ended January 27, 1990.**
4.3 8.225% Senior Notes to Nationwide Life Insurance Company,
American United Life Insurance Company, Aid Association for
Lutherans (reissued to Nimer & Co. as of August 1, 1998) and Modern
Woodmen of America due May 1, 2006, together with Note Agreement.
Filed as Exhibit 4.4 to the Form 10-Q for the fiscal quarter ended
July 29, 1995.**
Note: No other long-term debt instrument issued by the
Registrant exceeds 10% of the consolidated total assets of the
Registrant and its subsidiaries. In accordance with Item 601(b)
(4) (iii) (A) of Regulation S-K, the Registrant will furnish to
the Commission upon request copies of long-term debt
instruments and related agreements.
10.1 Angelica Corporation 1994 Performance Plan (as amended 1/31/95).
Filed as Exhibit 10.1 to the Form 10-K for fiscal year ended
January 28, 1995.**
10.2 Form of Participation Agreement for the Angelica Corporation
Management Retention and Incentive Plan (filed as Exhibit 10.3 to
the Form 10-K for fiscal year ended 1/30/93 and incorporated herein
by reference) with revised schedule setting out executive officers
covered under such agreements and the "Benefit Multiple" listed
for each.*
10.3 Angelica Corporation Stock Award Plan. Filed as Exhibit 10 to the
Form 10-K for fiscal year ended February 1, 1992.**
10.4 Angelica Corporation Supplemental Plan restated as of
September 1, 2000. Filed as Exhibit 10.6 to the Form 10-Q for
fiscal quarter ended October 28, 2000.**
10.5 Deferred Compensation Option Plan for Selected Management Employees,
filed as Exhibit 19.9 to the Form 10-K for fiscal year ended
January 26, 1991. Amendment dated October 25, 1994 filed as
Exhibit 10.27 to the form 10-K for fiscal year ended January 28, 1995;
and amendment dated February 25, 1997 filed as Exhibit 10.34 to the
Form 10-K for fiscal year ended January 25, 1997.**
10.6 Deferred Compensation Option Plan for Directors, filed as
Exhibit 19.8 to the Form 10-K for fiscal year ended January 26,
1991. Amendment dated July 28, 1992 filed as Exhibit 19.3 to the
Form 10-K for fiscal year ended January 30, 1993; and amendment
dated November 29, 1994 filed as Exhibit 10.24 to the Form 10-K for
fiscal year ended January 28, 1995.**
10.7 Supplemental and Deferred Compensation Trust. Filed as Exhibit 19.5
to the Form 10-K for fiscal year ended February 1, 1992.**
10.8 Management Retention Trust. Filed as Exhibit 19.4 to the Form 10-K
for fiscal year ended February 1, 1992.**
10.9 Performance Shares Plan for Selected Senior Management (restated).
Filed as Exhibit 19.3 to the Form 10-K for fiscal year ended
January 26, 1991.**
10.10 Management Retention and Incentive Plan (restated). Filed
as Exhibit 19.1 to the Form 10-K for fiscal year ended
January 26, 1991.**
10.11 Restated Deferred Compensation Plan for Non-Employee Directors,
filed as Exhibit 10 (v) to the Form 10-K for fiscal year ended
January 28, 1984. Amendment No. 1 dated November 29, 1994 was
filed as Exhibit 10.25 to the Form 10-K for fiscal year ended
January 28, 1995.**
10.12 Restated Angelica Corporation Stock Bonus and Incentive Plan. Filed
as Exhibit 10.16 to the Form 10-K for the fiscal year ended
January 29, 2000.**
10.13 Angelica Corporation 1994 Non-Employee Directors Stock Plan. Filed
as Appendix A to the Proxy Statement for the Annual Meeting of
Shareholders held on May 23, 1995. First amendment dated
January 27, 1998 was filed as Exhibit 10.35 to the Form 10-K
for fiscal year ended January 31, 1998.**
10.14 Specimen form of Stock Option Agreement under the Angelica
Corporation 1994 Performance Plan. Filed as Exhibit 10.15 to the
Form 10-Q for fiscal quarter ended July 28, 2001.**
10.15 Specimen form of Stock Option Agreement under the Angelica
Corporation 1999 Performance Plan. Filed as Exhibit 10.16 to the
Form 10-Q for fiscal quarter ended July 28, 2001.**
10.16 Form of Indemnification Agreement between the Company and each of
its directors and executive officers (filed as Exhibit 10.22 to
the Form 10-K for fiscal year ended January 30, 1999).** An
amended schedule identifying the directors and current
executive officers who have executed such agreements was filed
as Exhibit 10.20 to the Form 10-K for fiscal year ended
January 27, 2001.**
10.17 Employment Agreement between the Company and Theodore M. Armstrong,
dated January 1, 2000. Filed as Exhibit 10.23 to the Form 10-K for
fiscal year ended January 29, 2000.**
10.18 Employment Agreement between the Company and Don W. Hubble, dated
December 12, 1997. Filed as Exhibit 10.30 to the Form 10-K for
fiscal year ended January 31, 1998.**
10.19 Retirement Benefit Agreement between the Company and Don W. Hubble
dated January 1, 1998. Filed as Exhibit 10.31 to the Form 10-K for
fiscal year ended January 31, 1998.**
10.20 Non-Qualified Stock Option Agreement between the Company and
Don W. Hubble dated January 2, 1998. Filed as Exhibit 10.32 to
the Form 10-K for fiscal year ended January 31, 1998.**
10.21 Employment Agreement between the Company and Steven L. Frey, dated
March 1, 2001. Filed as Exhibit 10.27 to the Form 10-K for
fiscal year ended January 27, 2001.**
10.22 Angelica Corporation 1999 Performance Plan. Filed as Appendix A to
the Proxy Statement for the Annual Meeting of Shareholders held
May 25, 1999.**
10.23 Employment Agreement between the Company and Denis R. Raab, dated
August 23, 1999. Filed as Exhibit 10.32 to the Form 10-Q for
fiscal quarter ended October 30, 1999.**
10.24 Employment Agreement between the Company and Daniel J. Westrich,
dated October 1, 1999. Filed as Exhibit 10.33 to the Form 10-Q
for fiscal quarter ended October 30, 1999.**
10.25 Employment Agreement between the Company and James W. Shaffer, dated
October 1, 1999. Filed as Exhibit 10.34 to the Form 10-Q for
fiscal quarter ended October 30, 1999.**
10.26 Employment Agreement between the Company and Edward P. Ryan, dated
November 6, 2001. Filed as Exhibit 10.27 to the Form 10-Q for
fiscal quarter ended October 27, 2001.**
10.27 Employment Agreement between the Company and Paul R. Anderegg, dated
February 1, 2001. Filed as Exhibit 10.33 to the Form 10-K for
fiscal year ended January 27, 2001.**
10.28 Restricted Stock Agreement between the Company and Edward P. Ryan,
dated April 1, 2001. Filed as Exhibit 10.34 to the Form 10-K
for fiscal year ended January 27, 2001.**
10.29 Letter Agreement between the Company and Charles D. Molloy, Jr.,
dated December 18, 2001.*
21 Subsidiaries of the Company.*
23 Consent of Independent Public Accountants.*
24.1 Powers of Attorney submitted by David A. Abrahamson,
Susan S. Elliott, Alan C. Henderson, Charles W. Mueller,
Stephen M. O'Hara, William A. Peck and Kelvin R. Westbrook.*
24.2 Certified copy of Board Resolution authorizing Form 10-K filing
utilizing powers of attorney.*
99.1 Letter from the Company to Securities and Exchange Commission
regarding representations made by Arthur Andersen LLP.*
The Company will furnish to any record or beneficial shareholder requesting
a copy of this Annual Report on Form 10-K a copy of any exhibit indicated in
the above list as filed with this Annual Report on Form 10-K upon payment to
it of its reasonable expenses in furnishing such exhibit.