<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________________ to
____________________________.
Commission file number: 0-6643
UNITOG COMPANY
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 44-0529828
- --------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 W. 11th Street, Kansas City, MO 64105
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(816) 474-7000
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of July 28, 1996, the registrant had 9,636,307 shares of common
stock, par value $.01 per share, outstanding.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
ITEM 1. Financial Statements
(1) Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of July 28, 1996
and January 28, 1996. 3
Condensed Consolidated Statements of Earnings for the Three
Months ended July 28, 1996 and July 30, 1995. 4
Condensed Consolidated Statements of Earnings for the Six
Months ended July 28, 1996 and July 30, 1995. 5
Condensed Consolidated Statements of Cash Flows for the Six
Months ended July 28, 1996 and July 30, 1995. 6
(2) Notes to Condensed Consolidated Financial Statements. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 28, 1996 AND JANUARY 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JULY 28, 1996 JANUARY 28, 1996
------------- ----------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 53,176 $ 28,321
Accounts receivable, less allowance
for doubtful receivables of $970,000
and $760,000, respectively 24,924,880 25,012,073
Inventories (note 2) 17,047,098 15,333,981
Rental garments in service, net 38,085,900 36,774,298
Prepaid expenses 1,555,232 1,233,948
------------ ------------
Total current assets 81,666,286 78,382,621
------------ ------------
Property, plant and equipment, at cost 150,881,755 140,834,624
Less accumulated depreciation 63,140,802 58,542,615
------------ ------------
Net property, plant and equipment 87,740,953 82,292,009
------------ ------------
Other assets, net 37,510,586 30,848,817
Excess cost over net assets of
businesses acquired, net 36,321,829 32,045,645
------------ ------------
$243,239,654 $223,569,092
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 758,055 $ 481,087
Accounts payable 12,095,895 15,300,599
Accrued expenses 11,419,539 13,399,851
Income taxes payable (206,266) 498,860
Deferred income taxes 11,401,000 10,788,000
------------ ------------
Total current liabilities 35,468,223 40,468,397
------------ ------------
Long-term debt, less current
installments 101,911,301 83,731,099
Other liabilities, noncurrent 763,452 1,200,878
Deferred income taxes, noncurrent 12,016,011 12,044,011
Stockholders' equity:
Common stock of $.01 par value. Authorized
30,000,000 shares; issued and
outstanding 9,636,307 shares 96,363 92,793
Additional paid-in capital 41,040,789 39,200,675
Retained earnings 51,943,515 46,831,239
------------ ------------
Total stockholders' equity 93,080,667 86,124,707
------------ ------------
$243,239,654 $223,569,092
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 28, 1996 JULY 30, 1995
------------- -------------
<S> <C> <C>
Revenues:
Rental operations $ 51,234,701 $ 37,822,136
Direct sales 14,005,119 12,999,109
------------- -------------
Total revenues 65,239,820 50,821,245
------------- -------------
Operating costs and expenses:
Cost of rental operations 41,812,240 30,389,135
Cost of direct sales 11,329,991 10,805,721
Depreciation and amortization 3,868,786 2,658,426
General and administrative 2,031,152 2,063,113
------------- -------------
Total costs and expenses 59,042,169 45,916,395
------------- -------------
Operating income 6,197,651 4,904,850
Interest expense 1,499,480 691,606
Other expense, net (26,197) 4,125
------------- -------------
Earnings before income taxes 4,724,368 4,209,119
Income taxes 1,795,000 1,642,000
------------- -------------
Net earnings $ 2,929,368 $ 2,567,119
============= =============
Net earnings per common share $ .30 $ .27
============= =============
Weighted average common and common equivalent
shares outstanding 9,645,196 9,365,733
============= =============
Dividends per common share (note 3) $ .06 $ .05
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
July 28, 1996 July 30, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rental operations $ 99,665,263 $ 73,792,950
Direct sales 29,509,420 27,621,255
-------------- --------------
Total revenues 129,174,683 101,414,205
-------------- --------------
Operating costs and expenses:
Cost of rental operations 81,705,720 59,559,248
Cost of direct sales 23,770,946 22,723,754
Depreciation and amortization 7,519,170 5,183,117
General and administrative 4,207,599 4,086,474
-------------- --------------
Total costs and expenses 117,203,435 91,552,593
-------------- --------------
Operating income 11,971,248 9,861,612
Interest expense 2,843,076 1,322,169
Other expense, net (49,274) 8,685
-------------- --------------
Earnings before income taxes $ 9,177,446 $ 8,530,758
Income taxes 3,487,000 3,327,000
-------------- --------------
Net earnings $ 5,690,446 $ 5,203,758
============== ==============
Net earnings per common share $ .60 $ .56
============== ==============
Weighted average common and common equivalent
shares outstanding 9,540,145 9,350,880
============== ==============
Dividends per common share (note 3) $ .06 $ .05
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
July 28, 1996 July 20, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,690,446 $ 5,203,758
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 7,519,170 5,183,117
Provision for deferred income taxes 585,000 1,331,000
Disposal of equipment, net of gains and losses -- 39,793
Changes in assets and liabilities:
Accounts receivable 1,057,851 (521,830)
Inventories (1,713,117) (333,774)
Rental garments in service 1,651,301 (1,281,304)
Prepaid expenses (321,284) (301,898)
Other noncurrent assets 400,599 (14,603)
Accounts payable (3,204,704) 86,014
Accrued expenses (2,939,883) 409,775
Income taxes payable (705,126) 793,633
Other noncurrent liabilities (437,426) 35,088
------------ ------------
Net cash provided by operating activities 7,582,827 10,628,769
------------ ------------
Cash flows from investing activities:
Acquisition of rental operations (17,385,686) (11,331,244)
Purchase of property, plant and equipment (8,784,851) (10,328,984)
------------ ------------
Net cash used by investing activities (26,170,537) (21,660,228)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options, net 1,843,684 16,617
Dividends paid (578,171) (463,605)
Increase (decrease) in long-term debt 17,347,052 4,291,436
------------ ------------
Net cash provided (used) by financing activities 18,612,565 3,844,448
------------ ------------
Net increase (decrease) in cash and cash equivalents 24,855 (7,187,011)
Cash and cash equivalents at beginning of period 28,321 7,717,999
------------ ------------
Cash and cash equivalents at end of period $ 53,176 $ 530,988
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 3,004,000 $ 1,411,000
============ ============
Income taxes $ 3,091,000 $ 1,201,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
Note 1
- ------
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of the Company as
of July 28, 1996, and the results of its operations and its cash flows for the
six months ended July 28, 1996 and July 30, 1995 and the results of its
operations for the three months ended July 28, 1996 and July 30, 1995. The
results of operations for the six months ended July 28, 1996 are not necessarily
indicative of the results to be expected for the full year.
Note 2 Inventories
- -------------------
The following is a summary of inventories at July 28, 1996 and January 28, 1996:
<TABLE>
<CAPTION>
July 28, 1996 January 28, 1996
------------- ----------------
<S> <C> <C>
Raw materials $ 4,367,883 $ 4,135,131
Work in progress 2,281,440 2,503,558
Finished goods 14,277,244 12,501,732
------------ -----------
20,926,567 19,140,421
Less LIFO allowance (3,879,469) (3,806,440)
------------ -----------
$17,047,098 $15,333,981
============ ===========
</TABLE>
Note 3 Cash Dividend
- --------------------
At its May 23, 1996 Board of Directors meeting the Board declared a $.06 per
share cash dividend payable on June 24, 1996 to stockholders of record on June
7, 1996. The $.06 per share dividend was a 20% increase over the prior year.
Note 4 Acquisitions:
- --------------------
During the first quarter of fiscal 1997 the Company acquired a portion of the
assets of Central Quality Services Corporation headquartered in Farmington
Hills, Michigan for approximately $17 million in cash. The assets acquired were
primarily industrial uniform routes and production facilities in central and
northern Michigan and eastern Illinois. The acquisition was accounted for as a
purchase.
During the first quarter of fiscal 1997 the Company also acquired American Dust
Control Co., Inc. in Philadelphia, Pennsylvania in exchange for Unitog common
stock. The acquisition was accounted for as a pooling-of-interests. Prior
period financial statements were not restated due to immateriality.
The operating results of these acquisitions have been included in the
consolidated results of the Company since their acquisition with an
insignificant effect on revenues and net earnings.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $7.6 million for the six months ended
July 28, 1996, a decrease of $3.0 million or 29% below last year. The decrease
was principally due to an increase in inventories and reductions in trade
accounts payable and accrued expenses resulting from the timing of certain
acquisition related liabilities and vendor payments. Cash and cash equivalents
were $53,000 at July 28, 1996. At July 28, 1996, the Company had $30.5 million
in borrowings outstanding under its bank credit facility. The amount of
borrowings available under the Company's bank credit facility was $19 million at
July 28, 1996. The Company's capitalization ratio was 52% at July 28, 1996
compared to 49% at January 28, 1996.
Working capital was $46.2 million at July 28, 1996 compared to $37.9 million at
January 28, 1996. Acquired working capital from purchased rental operations
coupled with reduced acquisition related liabilities and trade payables to
increase working capital. Capital expenditures were $8.8 million through July
28, 1996, 15% less than last year. Capital expenditures for fiscal 1996 are
expected to approximate $20 million.
During the first quarter of fiscal 1997, the Company issued $4.5 million in
variable rate tax-exempt Industrial Revenue Bonds which mature in 2020. The
bonds bear interest at floating rates based upon market conditions for tax-
exempt issues. The bond proceeds were used to repay bank debt which had been
incurred to finance facility construction.
During the first quarter of fiscal 1997 the Company acquired a portion of the
assets of Central Quality Services Corporation headquartered in Farmington
Hills, Michigan for approximately $17 million in cash. The assets acquired were
primarily industrial uniform routes and production facilities in central and
northern Michigan and eastern Illinois. The acquisition was accounted for as a
purchase and the operating results of this acquisition have been included in the
consolidated results of the Company since its purchase with an insignificant
effect on revenues and net earnings. The acquisition will add approximately $15
million in annual rental revenues.
During the first quarter of fiscal 1997 the Company acquired American Dust
Control Co., Inc. in Philadelphia, Pennsylvania in exchange for Unitog common
stock. The acquisition was accounted for as a pooling-of-interests. The
operating results of this acquisition have been included in the consolidated
results of the Company since its purchase with an insignificant effect on
revenues and net earnings. The acquisition will add approximately $3 million in
annual rental revenues. Prior period financial statements were not restated due
to immateriality.
On June 24, 1996 the Company paid a $.06 per share cash dividend to stockholders
of record on June 7, 1996. The $.06 per share dividend was 20% greater than the
semi-annual dividend paid in the second quarter of last year.
Management believes that cash generated from operations, and its bank credit
facility will be sufficient to meet its cash requirements for acquisitions and
capital expenditures in the foreseeable future.
8
<PAGE>
RESULTS OF OPERATIONS
Second quarter fiscal 1997 compared to second quarter fiscal 1996
- -----------------------------------------------------------------
Revenues for the second quarter of fiscal 1997 were $65.2 million, an increase
of $14.4 million or 28% over the comparable period last year. Rental revenues
for the quarter were $51.2 million, an increase of $13.4 million or 35% over
last year. Revenues from the Michigan acquisitions in March 1996 and November
1995 added $11 million in rental revenues during the quarter. The balance of
the increase came from growth within our existing network of locations. Direct
sales for the second quarter of fiscal 1997 were $14.0 million, an increase of
$1.0 million or 8% over the comparable period last year. The increase in Direct
sales was principally due to new image programs with new and existing customers.
Depreciation and amortization was $3.9 million, and increase of $1.2 million or
46% over the comparable period last year. Depreciation from our acquired rental
operations combined with increased amortization of acquisition related
intangible assets to create the increase.
Operating income for the second quarter of fiscal 1997 was $6.2 million an
increase of $1.3 million or 26% over the comparable period last year. The
improvement over last year was created by higher operating profits from both the
Rental and Direct sales businesses.
Interest expense for second quarter of fiscal 1997 was $1.5 million, an increase
of $808,000 over the comparable period last year. Higher debt levels related to
our fiscal 1996 and fiscal 1997 rental acquisitions created the increase in
interest expense.
Net earnings for the second quarter of fiscal 1997 were $2.9 million, an
increase of $362,000 or 14% over the comparable period last year. Improved
operating profits from both our business segments offset additional
depreciation, amortization and interest costs related to our acquisitions. Net
earnings per common share for the second quarter of fiscal 1997 were $.30 per
share, an increase of $.03 per share or 11% over the comparable period last
year.
Six months fiscal 1997 compared to six months fiscal 1996
- ---------------------------------------------------------
Revenues for the six months ended July 28, 1996 were $129.2 million, an increase
of $27.8 million or 27% over the comparable period last year. Rental revenues
for the six months ended July 28, 1996 were $99.7 million. Acquired revenues
and internal growth within our existing locations created the $25.9 million or
35% increase in Rental revenues over last year. Direct sales for the first six
months of fiscal 1997 were $29.5 million, an increase of $1.9 million or 7% over
the comparable period last year. The increase in Direct sales was principally
due to new image programs.
Depreciation and amortization was $7.5 million, an increase of $2.3 million or
45% over the comparable period last year. Depreciation from our acquired rental
operations combined with increased amortization of acquisition related
intangible assets to create the increase.
Operating income for the six months ended July 28, 1996 was $12.0 million, an
increase of $2.1 million or 21% over last year. Improved operating profits from
both the Rental and Direct sales business segments offset higher depreciation
and amortization costs to generate the increase in operating income.
Interest expense for the six months ended July 28, 1996 was $2.8 million, an
increase of $1.5 million over the comparable period last year. Higher debt
levels related to our fiscal 1996 and fiscal 1997 rental acquisitions created
the increase in interest expense.
9
<PAGE>
Net earnings for the six months ended July 28, 1996 were $5.7 million, an
increase of $487,000 or 9% higher than the comparable period last year.
Increased profitability from our business segments offset additional
depreciation, amortization and interest costs related to our acquisitions. As
expected, acquisition related costs have slowed growth in net earnings. Net
earnings per share were $.60 for the six months ended July 28, 1996, an increase
of $.04 per share or 7% over the comparable period last year. The average
shares outstanding have increased due to the shares issued to acquire American
Dust Control Co., Inc. and the exercise of employee stock options.
FORWARD LOOKING STATEMENTS
--------------------------
Forward-looking statements appear in this quarterly report, including in
Management's Discussion and Analysis. These statements reflect Management's
current expectations for future revenues from acquired operations. Actual
results may differ materially from those expectations. Factors that could cause
results to differ materially include labor-related events, and particularly
strikes and labor disputes and changes in the general economy, including
unemployment levels.
10
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
As discussed in the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996, volatile organic compound contamination has
been detected in the soil and groundwater at the Company's Whittier,
California rental plant. The plant is located in the Suburban Operable
Unit of the San Gabriel Valley Superfund Site. The Company has cleaned up
the soil at the plant and, based on groundwater testing performed to date,
does not believe groundwater clean up will be required. In August 1996,
the Company received correspondence from the United States Environmental
Protection Agency ("EPA") stating that EPA has made an "initial
determination" that the Company is a potentially responsible party for the
Suburban Operable Unit. The EPA indicates that it may seek reimbursement
of costs spent by EPA at the Suburban Operable Unit from the Company and
three other entities. At EPA's request, the Company entered into a Tolling
Agreement that stops the running of any statute of limitations to give the
parties time to discuss issues related to the claim. The Company believes
it has meritorious defenses to the EPA claim and intends to vigorously
defend itself.
Also, see the discussion of certain environmental matters in Part I, Item 1
of the Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 23, 1996 at
the Kansas City Club, 1228 Baltimore, Kansas City, Missouri.
The following directors were elected at the Annual Meeting:
Randolph K. Rolf
William D. Thomas
The term of office of the following other directors continued after the
Annual Meeting:
G. Kenneth Baum
John W. Caffry
D. Patrick Curran
Robert F. Hagans
David B. Sharrock
At the Annual Meeting, a total of 7,728,508 shares voted for and 12,700
shares were withheld with respect to the election of Randolph K. Rolf as
a director of the Company. There were no broker non-votes.
At the Annual Meeting, a total of 7,740,408 shares voted for and 800 shares
were withheld with respect to the election of William D. Thomas as a
director of the Company. There were no broker non-votes.
11
<PAGE>
At the Annual Meeting, a total of 7,730,399 shares voted for, 6,635
voted against and 4,174 shares abstained from approval of KPMG Peat
Marwick, as independent auditors of the Company for fiscal 1997. There
were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule for the Six Months ended July 28, 1996.
(b) Reports on Form 8-K.
Unitog Company has not filed any reports on Form 8-K during the quarter
ended July 28, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unitog Company
Dated: September 6, 1996 By: /S/ J. Craig Peterson
---------------------------
J. Craig Peterson
Senior Vice-President of
Finance and Administration,
Chief Financial Officer
(Duly Authorized Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-END> JUL-28-1996
<CASH> 53,176
<SECURITIES> 0
<RECEIVABLES> 24,924,880
<ALLOWANCES> 970,000
<INVENTORY> 17,047,098
<CURRENT-ASSETS> 81,666,286
<PP&E> 150,881,755
<DEPRECIATION> 63,140,802
<TOTAL-ASSETS> 243,239,654
<CURRENT-LIABILITIES> 35,468,223
<BONDS> 101,911,301
<COMMON> 96,363
0
0
<OTHER-SE> 92,984,304
<TOTAL-LIABILITY-AND-EQUITY> 243,239,654
<SALES> 29,509,420
<TOTAL-REVENUES> 129,174,683
<CGS> 23,770,946
<TOTAL-COSTS> 112,995,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,843,076
<INCOME-PRETAX> 9,177,446
<INCOME-TAX> 3,487,000
<INCOME-CONTINUING> 5,690,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,690,446
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
