<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 28, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (IRS Employer
incorporation or organization) Identification No.)
101 West 11th Street, Kansas City, Missouri 64105
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 474-7000
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01 per share
------------------------------------------------------------------
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
----- -----
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 ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $176,922,486 as of March 1, 1996.
As of April 18, 1996, Unitog Company had 9,419,161 shares of common stock
outstanding.
Part I and Part II incorporate information by reference from the
registrant's Annual Report to Stockholders for the fiscal year ended January 28,
1996. Part III incorporates information by reference from the registrant's
definitive proxy statement, dated April 22, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS.
Unitog Company, the registrant, together with its subsidiaries is referred
to herein as the "Company". The Company was first incorporated in Missouri in
1948 and was reincorporated under the laws of Delaware in 1969. The Company's
executive offices are located at 101 West 11th Street, Kansas City, Missouri
64105, and its telephone number is (816) 474-7000.
A. GENERAL DEVELOPMENT OF BUSINESS.
On November 10, 1995, the Company purchased all of the issued and
outstanding stock of Ace-Tex Corporation, a Michigan corporation ("Ace-Tex").
Ace-Tex is engaged in the rental, supply, service and sale of industrial
uniforms and garments, linens, dust control products and related products and
services in certain portions of Michigan, Ohio, Indiana and Maryland (the
"Uniform Rental Business"). Ace-Tex was also engaged in the manufacture and
sale of wiping and polishing cloths, tack cloths, disposable paper products and
rags (the "Wiper Business"). In conjunction with the purchase of the stock of
Ace-Tex, the Wiper Business and the assets of Ace-Tex used in the Wiper Business
were sold to the former principals of Ace-Tex. As a result, from and after the
completion of the purchase, Ace-Tex will only be engaged in the Uniform Rental
Business.
In addition to the Ace-Tex acquisition, the Company completed acquisitions
in northern Iowa, Los Angeles, California, Dallas, Texas and Columbus, Ohio
during fiscal 1996. In March 1996, the Company purchased two rental operations,
one in Michigan and the other in Philadelphia. In the past 14 months, the
Company has acquired approximately $58 million in annual rental revenues.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Information incorporated herein by reference from the Company's Annual
Report to Stockholders for the fiscal year ended January 28, 1996, page 26.
C. NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
The Company is a leading provider of high quality uniform rental services
to a variety of industries and sells custom-designed uniforms primarily to
national companies in connection with their corporate image programs. The
Company manufactures substantially all the uniforms it rents or sells. The
Company provides national uniform programs for many of the largest companies in
the United States on both a rental and direct sale
2
<PAGE>
basis. In addition, the Company believes it is one of the largest suppliers of
uniforms to employees of the United States Postal Service. Rental operations
accounted for 73.8%, 70.6% and 70.3% of the Company's total revenues in fiscal
1996, 1995 and 1994, respectively. Uniform Direct sales accounted for the
remaining revenues.
RENTAL OPERATIONS
The Company rents uniforms and other industrial items, such as dust mops,
wiping towels and entrance mats, and, to a lesser extent, linen items, such as
sheets, pillowcases, tablecloths and napkins, to customers who prefer a rental
laundry service instead of purchasing and maintaining such items themselves.
Uniform Rentals. The Company's rental services are designed to address
customers' requirements for managing employee uniform programs. The services
provided by Unitog include assistance in selecting fabrics, styles and colors
appropriate for a customer's needs; maintaining necessary inventory to match
the customer's changing employment levels; replacing worn items and providing
pick-up, cleaning, maintenance and delivery services on a regularly scheduled
basis.
The Company provides rental services in 52 markets to customers in 33
states. Rental services are provided through industrial laundry facilities at
which the cleaning and processing of garments is performed. In addition, the
Company operates sales and service branches which serve as sales offices and
warehouse and distribution sites, allowing the Company to provide rental
services to customers in geographic areas adjacent to the immediate area of an
industrial laundry facility.
Generally, the Company's uniform rental service contracts cover a multi-
year term and provide compensation to Unitog in the event a customer terminates
the contract before the end of the term. In addition, if a rental item is lost,
stolen or destroyed, Unitog receives a specified replacement value.
Linen Rentals. The Company rents linens, such as sheets, pillowcases,
tablecloths and napkins, primarily to customers in the hotel and food service
industries. Unitog has historically retained linen volume if the linen volume
does not adversely impact the operating efficiency of the rental plant. In
those instances where operating efficiency was affected, the Company has sold
linen volume.
DIRECT SALES
The Company has over 60 years of experience in supplying custom-designed
uniforms to national customers in connection with corporate image programs. A
majority of the Company's direct sales
3
<PAGE>
are to companies in diverse industries, including automotive services,
petroleum, brewing, soft drink bottling and transportation industries. The
Company believes that it has remained a leader in uniform sales by consistently
offering superior program management, prompt order fulfillment and high quality
uniforms in a variety of styles, colors and fabrics.
Unitog provides a total uniform management program to its customers. The
Company assists its customers in designing attractive, readily recognizable
uniforms to complement the customer's overall corporate identity. The Company's
product line consists of shirts, trousers, jackets, coveralls, rainwear,
selected women's apparel and related accessories. In many cases, a national
customer selects a particular style of uniform and designates approved suppliers
to sell the uniforms to the customer's independent distributors, franchisees or
employees throughout the customer's distribution system. Unitog specializes in
assisting these national customers by promoting the benefits of approved uniform
programs through the use of professionally designed brochures, promotional
programs and direct sales contacts.
The Company has sold uniforms to employees of the United States Postal
Service under the Brookfield label for over 25 years. The Postal Service
provides an annual allotment ranging from $50 to $341 to each postal employee
for uniform purchases. The individual employee is then free to select uniforms
from any supplier approved by the Postal Service. Payment is made by the Postal
Service directly to the Company to the extent of the employee's allotment and
any excess is paid directly by the employee.
SALES AND MARKETING
The Company considers its target market to be national and regional
customers seeking improved image and employee recognition as well as higher
levels of product quality and customer service.
The selling efforts of the Rental and Direct sales forces are combined
under common regional sales managers, creating a company-wide marketing approach
to maximize cross-selling opportunities by identifying customers' needs, whether
rental or direct sale. Unitog believes the combined selling effort has resulted
in a more professional sales team, upgraded sales training and improved
salesperson productivity.
Uniform programs on the national level are handled by the national account
marketing department, whose members call directly on existing and prospective
rental and direct sale national accounts. The Company's Rental sales force is
comprised of salespersons based at the rental locations who call on customers
within the geographic service area of the rental location. In addition to the
Rental sales force, the Company's route salespersons have responsibility for
increasing sales to customers
4
<PAGE>
on their routes. The Company maintains a Direct sales force that covers the
continental United States, with each member being assigned a specific sales
territory. Sales of Postal Service uniforms are made through direct sales calls
on postal employees by commissioned representatives.
MANUFACTURING AND DISTRIBUTION
The Company manufactures garments and emblems for both the Rental and
Direct sales operations at four plants located in Missouri, one plant located in
Alabama, one plant located in Arkansas and one plant located in Honduras. The
Company performs manufacturing operations, consisting mainly of cutting, sewing
and finishing garments, for substantially all its product line. From time to
time Unitog contracts with independent garment manufacturers for a portion of
its requirements. Certain uniform accessories sold or rented by the Company,
such as shoes, ties and belts, are purchased from other manufacturers.
The Company maintains distribution centers in Stevenson, Alabama, Ontario,
California and Kansas City and Warrensburg, Missouri where its uniforms are
stored pending shipment to customers.
SOURCES OF RAW MATERIALS
Substantially all of the fabrics used by Unitog in its manufacturing
process are acquired from textile mills located in the United States.
Alternative sources of these materials are generally available.
SEASONALITY
Rental operations are not generally subject to seasonality. Subject to the
effects of the introduction of new programs with national accounts, Direct sales
have historically been higher in the third and fourth quarters due to the sale
of fall and winter garments. As a result, operating income can be higher in
such quarters.
CUSTOMERS
No material part of the business of the Company is dependent upon a single
customer or a small number of customers.
COMPETITION
The business in which Unitog is engaged is highly competitive, and the
Company competes in both the sale and rental of uniforms with a large number of
other firms. The Company believes that the primary competitive factors that
affect its operations are design, quality, service and price. The Company
believes it maintains
5
<PAGE>
prices comparable to those of its major competitors and endeavors to offer
prompt and high quality service to its customers and superior products as the
principal methods of distinguishing itself from its competition. Unitog's
Rental operation competes with a number of national, regional and local
companies in the geographic areas it serves. The Company's Direct sales
operation also competes on a national basis with other suppliers and uniform
manufacturers. Some of these competitors are larger and have greater financial
resources than the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws governing the use
and disposal of various wastes, including wastewater from its washing
processes. The Company has a continuing program to upgrade wastewater treatment
processes, where necessary, to avoid improper disposal. Although the Company is
subject to administrative and judicial proceedings from time to time involving
environmental matters, the Company does not believe that costs incurred in
connection with environmental compliance will have a material adverse effect on
the consolidated financial statements of the Company.
The Company is subject to various federal, state and local laws which
require the investigation and, in some cases, remediation of environmental
contamination. Environmental contamination has been detected at the Company's
Tempe, Arizona, Minneapolis, Minnesota and Whittier, California rental plants.
The Tempe and Whittier plants are located in federal superfund sites several
square miles in size. The Company, along with certain unaffiliated parties, has
been designated by the U.S. EPA as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to the Tempe site. The Company entered into a consent order with EPA
requiring a soil and groundwater investigation at the Tempe site. The cost of
the investigation was borne by two other parties pursuant to a settlement
agreement with the Company. Test results at the Tempe site indicate that
volatile organic compound contamination is present in the soil, necessitating
soil remediation. Groundwater tests have not detected on-site contamination,
although additional periodic groundwater testing is expected. Test results at
the Minneapolis and Whittier plants indicate that volatile organic compound
contamination is present in the soil and groundwater at those plants. The
Company believes that it will be required to remediate the soil and groundwater
at the Minneapolis plant and has begun soil remediation at Whittier. Additional
testing is being conducted to determine if groundwater remediation will be
required at Whittier. The Company's estimate of the expense related to all
three of these sites has been accrued and charged to operating expense. Based
on information currently available, the Company does not believe that additional
costs of investigation and remediation at these sites are individually or in the
aggregate
6
<PAGE>
material to the consolidated financial statements of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the executive officers of the Company is set
forth below.
PRINCIPAL OCCUPATION FOR
NAME AGE LAST FIVE YEARS
--- -----------------------------------------
Randolph K. Rolf 54 Mr. Rolf has served as Chairman of the
Board since May 1991 and as a Director of
the Company since 1986. He has served as
its President and Chief Executive Officer
since May 1988.
John W. Hall 65 Mr. Hall has served as the Company's
Senior Vice President - Human Resources
and Industrial Relations since 1984.
J. Craig Peterson 43 Mr. Peterson has served as the Company's
Senior Vice President - Finance and
Administration and Chief Financial Offi-
cer since July 1991. Prior to that time
he was a partner at KPMG Peat Marwick.
Terence C. Shoreman 41 Mr. Shoreman has served as the Company's
Vice President and Chief Operating Officer
since January 1996. From May 1993 to
January 1996 he was Senior Vice President
- Rental Operations. From December 1989
to May 1993 he was a Vice President of the
Company's rental subsidiary.
Gary R. Russell 44 Mr. Russell has served as the Company's
Senior Vice President - Rental Operations
since January 1996. From October 1988 to
January 1996 he was a Vice President of the
Company's rental subsidiary.
G. Jay Arrowsmith 48 Mr. Arrowsmith has served as the Company's
Vice President - Manufacturing and Distribution
since August 1995. From August 1994 to August
1995, he was Vice President - Manufacturing.
From March 1994 to August 1994 he was a Vice
President - Manufacturing for Fruit of the
Loom. Prior to that time he was Sewing
Operations Manager for Jostens Sportswear.
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR
NAME AGE LAST FIVE YEARS
- ---- --- ------------------------------------------------
<S> <C> <C>
Robert M. Barnes 38 Mr. Barnes has served as Vice President, General
Counsel and Secretary of the Company since May
1994. From January 1990 until May 1994, he was
General Counsel and Secretary of the Company.
Ronald J. Harden 53 Mr. Harden has served as the Company's
Controller since 1981.
</TABLE>
EMPLOYEES
The Company had approximately 4,105 full-time employees as of January 28,
1996.
ITEM 2. PROPERTIES.
The Company's rental processing plants have the necessary equipment to
clean and process uniforms and non-uniform items and also contain
administrative, sales and service personnel for the market serviced by the
plant. The Company owns substantially all of the machinery and equipment used
in its operations and owns and leases a fleet of vehicles.
The Company believes its facilities are generally of adequate size and
productive capacity to meet its current needs. The following chart provides
information concerning the Company's principal facilities.
<TABLE>
<CAPTION>
Location Type of Facility
-------- ----------------
<S> <C>
Birmingham, Alabama.................... Processing Plant
Decatur, Alabama*...................... Processing Plant
Gadsden, Alabama*...................... Sales and Service Branch
Stevenson, Alabama*(1)................. Manufacturing and
Distribution Facility
Tempe, Arizona......................... Processing Plant
Fort Smith, Arkansas................... Manufacturing Facility
Long Beach, California................. Processing Plant
Long Beach, California................. Processing Plant
Ontario, California.................... Sales and Service Branch
and Distribution Center
San Diego, California.................. Processing Plant
San Fernando, California*.............. Sales and Service Branch
Union City, California*................ Processing Plant
Whittier, California................... Processing Plant
Colorado Springs, Colorado*............ Sales and Service Branch
Denver, Colorado*...................... Sales and Service Branch
Greeley, Colorado...................... Processing Plant
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Location Type of Facility
-------- ----------------
<S> <C>
Atlanta, Georgia*...................... Processing Plant
Cicero, Illinois*...................... Sales and Service Branch
Freeport, Illinois*.................... Sales and Service Branch
Villa Park, Illinois................... Processing Plant
Ft. Wayne, Indiana..................... Sales and Service Branch
Goshen, Indiana*....................... Processing Plant
Indianapolis, Indiana*................. Sales and Service Branch
Mishawaka, Indiana*.................... Sales and Service Branch
Muncie, Indiana........................ Processing Plant
Cedar Rapids, Iowa*.................... Sales and Service Branch
Charles City, Iowa*.................... Processing Plant
Des Moines, Iowa*...................... Sales and Service Branch
Glenwood, Iowa......................... Processing Plant
Battle Creek, Michigan................. Processing Plant
Bay City, Michigan..................... Sales and Service Branch
Bay City, Michigan..................... Sales and Service Branch
Detroit, Michigan...................... Processing Plant
Detroit, Michigan...................... Garage
Detroit, Michigan...................... Sales and Service Branch
Flint, Michigan........................ Processing Plant
Flint, Michigan........................ Sales and Service Branch
Grand Rapids, Michigan................. Sales and Service Branch
Jackson, Michigan...................... Sales and Service Branch
Kentwood, Michigan..................... Sales and Service Branch
Lansing, Michigan*..................... Sales and Service Branch
Port Huron, Michigan*.................. Sales and Service Branch
Traverse City, Michigan*............... Processing Plant
Duluth, Minnesota...................... Processing Plant
Eagan, Minnesota....................... Processing Plant
Minneapolis, Minnesota................. Processing Plant
Concordia, Missouri*................... Manufacturing Facility
Kansas City, Missouri*................. Corporate Offices
Kansas City, Missouri.................. Processing Plant and
Distribution Center
St. Charles, Missouri.................. Manufacturing Facility
University City, Missouri.............. Processing Plant
Warrensburg, Missouri.................. Manufacturing Facility and
Distribution Center
Warsaw, Missouri....................... Manufacturing Facility
North Las Vegas, Nevada................ Processing Plant
Charlotte, North Carolina*............. Sales and Service Branch
Cleveland, Ohio*....................... Sales and Service Branch
Lima, Ohio*............................ Sales and Service Branch
Toledo, Ohio*(1)....................... Processing Plant
Xenia, Ohio*........................... Sales and Service Branch
Bloomsburg, Pennsylvania*.............. Processing Plant
Bristol, Pennsylvania.................. Processing Plant
Exton, Pennsylvania.................... Processing Plant
Nashville, Tennessee*.................. Sales and Service Branch
Dallas, Texas*......................... Processing Plant
</TABLE>
9
<PAGE>
Location Type of Facility
-------- ----------------
Houston, Texas*........................ Processing Plant
La Ceiba, Honduras*.................... Manufacturing Facility
___________________________
* Leased for various terms expiring from fiscal 1997 to fiscal 2005. The
Company expects that it will be able to renew or replace its leases on
satisfactory terms. Except as otherwise noted, all other properties are
owned.
(1) Includes an option to purchase upon payment of a nominal amount.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation incidental to its business, primarily
involving claims for personal injury, employment claims and environmental
matters as described in Item 1 above. Based on information currently available,
the Company does not believe its costs with respect to pending legal matters
will have a material adverse effect on the consolidated financial statements of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information incorporated herein by reference from the information provided
under the caption "Common Stock Information" and "Price Range" in the Company's
Annual Report to Stockholders for the fiscal year ended January 28, 1996, page
29.
Dividends on the outstanding common stock totaled $.10 and $.08 per share
in fiscal 1996 and 1995, respectively, and are paid semi-annually. The
Company's principal credit agreements contain certain restrictions on dividends.
At January 28, 1996, the Company had $21.5 million in unrestricted stockholders'
equity available to pay future dividends.
ITEM 6. SELECTED FINANCIAL DATA.
Information incorporated herein by reference from the Company's Annual
Report to Stockholders for the fiscal year ended January 28, 1996, page 28.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information incorporated herein by reference from the Company's Annual
Report to Stockholders for the fiscal year ended January 28, 1996, pages 8 - 11.
Forward-Looking Statements
--------------------------
Forward-looking statements appear in this annual report or are incorporated
into this report by reference, including in the Description of Business and in
Management's Discussion and Analysis. These statements reflect Management's
current expectations for economic and business growth, future revenues and
profitability. Actual results may differ materially from those expectations.
Factors that could cause results to differ materially include labor-related
events, and particularly strikes, labor disputes or increased costs of labor;
fluctuations in the cost of materials; and changes in the general economy,
including unemployment levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information incorporated herein by reference from the Company's Annual
Report to Stockholders for the fiscal year ended January 28, 1996, pages 14 -
27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information incorporated herein by reference from the Company's definitive
proxy statement for its 1996 Annual Meeting of Stockholders under the captions
"Nominees for Three-Year Terms" and "Continuing Directors", pages 4 - 5, "Stock
Ownership and Trading Reports", page 7, and from Item 1, "Executive Officers of
the Company", in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Information incorporated herein by reference from the Company's definitive
proxy statement for its 1996 Annual Meeting of Stockholders under the captions
"Compensation of Directors" and "Executive Compensation and Other Information",
pages 6 - 12, except information under the captions "Board Compensation
Committee
11
<PAGE>
Report on Executive Compensation" and "Total Market Return" are not incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information incorporated herein by reference from the Company's definitive
proxy statement for its 1996 Annual Meeting of Stockholders under the caption
"Stock Ownership of Certain Beneficial Owners and Management", pages 2 and 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. Financial Statements (incorporated by reference from pages 14
- 27 of the Company's Annual Report to Stockholders for the fiscal year
ended January 28, 1996).
- - Independent Auditors' Report.
- - Consolidated Balance Sheets--January 28, 1996 and January 29, 1995.
- - Consolidated Statements of Earnings--Years ended January 28, 1996,
January 29, 1995 and January 30, 1994.
- - Consolidated Statements of Stockholders' Equity--Years ended January 28,
1996, January 29, 1995 and January 30, 1994.
- - Consolidated Statements of Cash Flows--Years ended January 28, 1996,
January 29, 1995 and January 30, 1994.
- - Notes to Consolidated Financial Statements.
2. Exhibits.
2 Stock Purchase Agreement, dated October 19, 1995, among Unitog Rental
Services, Inc., Ace-Tex Corporation and the shareholders of Ace-Tex
Corporation (incorporated by reference to Exhibit 2 to Current Report
on Form 8-K, filed on November 22, 1995).
3(a) Second Restated Certificate of Incorporation and amendment thereto
(incorporated by reference to Exhibit 3(i) of Quarterly Report on Form
10-Q for the quarterly period ended April 30, 1995).
12
<PAGE>
3(b) Fourth Amended and Restated Bylaws (incorporated by reference to
Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarterly
period ended July 30, 1995).
4(a) Specimen common stock certificate (incorporated by reference to
Exhibit 4(a) to Registration Statement on Form S-3 (SEC No. 33-
59628)).
4(b) Reference is made to the Fourth Article of the Second Restated
Certificate of Incorporation (Exhibit 3(a) hereto), and Sections 9,
47, 48, 49 and 50 of the Fourth Amended and Restated Bylaws (Exhibit
3(b) hereto).
4(c) Loan and Letter of Credit Reimbursement Agreement, dated September 10,
1993, among Unitog Company, Unitog Rental Services, Inc., UMB Bank,
N.A., Harris Trust and Savings Bank and NBD Bank, N.A., (incorporated
by reference to Exhibit 4(c) of Quarterly Report on Form 10-Q for the
quarterly period ended October 29, 1995).
4(d) Amendment No. 1 to Loan and Letter of Credit Reimbursement Agreement,
dated December 29, 1994, among Unitog Company, Unitog Rental Services,
Inc., UMB Bank, N.A., Harris Trust and Savings Bank and NBD Bank, N.A.
(incorporated by reference to Exhibit 4(c) of Quarterly Report on Form
10-Q for the quarterly period ended October 29, 1995).
4(e) Amendment No. 2 to Loan and Letter of Credit Reimbursement Agreement,
dated November 9, 1995, among Unitog Company, Unitog Rental Services,
Inc., UMB Bank, N.A., Harris Trust and Savings Bank and NBD Bank, N.A.
(incorporated by reference to Exhibit 4(c) of Quarterly Report on Form
10-Q for the quarterly period ended October 29, 1995).
4(f) Amendment No. 3 to Loan and Letter of Credit Reimbursement Agreement,
dated February 1, 1996, among Unitog Company, Unitog Rental Services,
Inc., UMB Bank, N.A., Harris Trust and Savings Bank and NBD Bank, N.A.
4(g) Note Agreement, dated as of December 1, 1993, among Unitog Company,
Unitog Rental Services, Inc. and Metropolitan Life Insurance Company
and First Amendment thereto, dated as of October 15, 1995
(incorporated by reference to Exhibit 4(a) to Quarterly Report on Form
10-Q for the quarterly period ended October 29, 1995).
13
<PAGE>
4(h) Note Agreement, dated as of October 15, 1995, among Unitog Company,
Unitog Rental Services, Inc. and Metropolitan Life Insurance Company
(incorporated by reference to Exhibit 4(b) to Quarterly Report on Form
10-Q for the quarterly period ended October 29, 1995).
10(a)* Employment Agreement, dated July 1, 1991, between the registrant and
J. Craig Peterson (incorporated by reference to Exhibit 10(c) to
registrant's Annual Report on Form 10-K for the fiscal year ended
January 26, 1992).
10(b)* Unitog Company 1992 Stock Option Plan (incorporated by reference to
Exhibit 10(d) to registrant's Annual Report on Form 10-K for the
fiscal year ended January 26, 1992).
10(c)* Amendment No. 1 to Unitog Company 1992 Stock Option Plan (incorporated
by reference to Exhibit 10(d) to registrant's Annual Report on Form
10-K for fiscal year ended January 30, 1994).
10(d)* Description of Management Incentive Plan (incorporated by reference to
Exhibit 10(e) to registrant's Annual Report on Form 10-K for the
fiscal year ended January 30, 1994).
10(e)* Unitog Company Outside Director Fee/Stock Program (incorporated by
reference to Exhibit B to registrant's definitive proxy statement for
its 1995 Annual Meeting of Stockholders).
13 Information incorporated by reference from the Annual Report to
Stockholders for the fiscal year ended January 28, 1996.
21 Subsidiaries of the registrant.
23 Consent of independent public accountant.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit by Item 601 of Regulation S-K.
(b) Reports on Form 8-K. On November 22, 1995, the Company filed a Form 8-K
with the Securities and Exchange Commission with respect to the acquisition
by the Company of the stock of Ace-Tex Corporation on November 10, 1995.
The Form 8-K was amended under cover of Form 8-K/A, filed on January 12,
1996. The items reported on the Form 8-K and the Form 8-K/A were Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits. The following financial statements and financial information
were filed in the Form 8-K/A:
14
<PAGE>
(i) Ace-Tex Corporation Consolidated Financial Statements.
Condensed Consolidated Balance Sheets, September 30, 1995 and 1994
(unaudited).
Condensed Consolidated Statements of Income and Retained Earnings, six
months ended September 30, 1995 and 1994 (unaudited).
Condensed Consolidated Statements of Cash Flows, six months ended
September 30, 1995 and 1994 (unaudited).
Consolidated Balance Sheets, March 31, 1995 and 1994.
Consolidated Statements of Income and Retained Earnings years ended
March 31, 1995 and 1994.
Consolidated Statements of Cash Flows, years ended March 31, 1995 and
1994.
Notes to Consolidated Financial Statements.
Independent Auditor's Report.
Consent of independent public accountant.
(ii) Pro Forma Financial Information.
Pro Forma Financial Information - General.
Pro Forma Balance Sheet, October 29, 1995 (unaudited).
Pro Forma Statement of Earnings, nine months ended October 29, 1995
(unaudited).
Pro Forma Statement of Earnings, year ended January 29, 1995
(unaudited).
Notes to Unaudited Pro Forma Financial Statements.
15
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page Reference
Annual Report
to
Stockholders
------------
Independent Auditors' Report 14
Financial Statements:
Consolidated Balance Sheets--January
28, 1996 and January 29, 1995 15
Consolidated Statements of Earnings--
Years Ended January 28, 1996, January
29, 1995 and January 30, 1994 16
Consolidated Statements of Stockholders'
Equity--Years Ended January 28, 1996,
January 29, 1995 and January 30, 1994 16
Consolidated Statements of Cash Flows--
Years Ended January 28, 1996, January
29, 1995 and January 30, 1994 17
Notes to Consolidated Financial Statements 18 - 27
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Randolph K. Rolf
--------------------------------
Randolph K. Rolf
Chairman, President and Chief
Executive Officer
April 22, 1996
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 dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Randolph K. Rolf Chairman, President April 22, 1996
- ------------------------- and Chief Executive
Randolph K. Rolf Officer
/s/ J. Craig Peterson Senior Vice President April 22, 1996
- -------------------------- Finance and Adminis-
J. Craig Peterson tration and Chief
Financial Officer
/s/ Ronald J. Harden Controller April 22, 1996
- --------------------------
Ronald J. Harden
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ G. Kenneth Baum Director April 22, 1996
- --------------------------
G. Kenneth Baum
/s/ John W. Caffry Director April 22, 1996
- ------------------
John W. Caffry
/s/ D. Patrick Curran Director April 22, 1996
- --------------------------
D. Patrick Curran
/s/ Robert F. Hagans Director April 22, 1996
- --------------------------
Robert F. Hagans
/s/ David B. Sharrock Director April 22, 1996
- ---------------------
David B. Sharrock
/s/ William D. Thomas Director April 22, 1996
- --------------------------
William D. Thomas
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------ -------
2 Stock Purchase Agreement, dated October 19,
1995, among Unitog Rental Services, Inc.,
Ace-Tex Corporation and the shareholders of
Ace-Tex Corporation (incorporated by reference
to Exhibit 2 to Current Report on Form 8-K,
filed on November 22, 1995).
3(a) Second Restated Certificate of Incorpora-
tion and amendment thereto (incorporated
by reference to Exhibit 3(i) of Quarterly
Report on Form 10-Q for the quarterly period
ended April 30, 1995).
3(b) Fourth Amended and Restated Bylaws and
amendment thereto (incorporated by refer-
ence to Exhibit 3(ii) to Quarterly Report
on Form 10-Q for the quarterly period ended
July 30, 1995).
4(a) Specimen common stock certificate
(incorporated by reference to Exhibit
4(a) to Registration Statement on Form S-3
(SEC No. 33-59628)).
4(b) Reference is made to the Fourth Article of
the Second Restated Certificate of Incorp-
oration (Exhibit 3(a) hereto), and Sec-
tions 9, 47, 48, 49 and 50 of the Third
Amended and Restated Bylaws, as amended
(Exhibit 3(b) hereto).
4(c) Loan and Letter of Credit Reimbursement Agree-
ment, dated September 10, 1993, among Unitog
Company, Unitog Rental Services, Inc., UMB Bank,
N.A., Harris Trust and Savings Bank and NBD Bank,
N.A., including promissory notes issued thereunder
(incorporated by reference to Exhibit 4(c) of
Quarterly Report on Form 10-Q for the quarterly
period ended October 29, 1995).
4(d) Amendment No. 1 to Loan and Letter of Credit
Reimbursement Agreement, dated December 29, 1994,
among Unitog Company, Unitog Rental Services, Inc.,
UMB Bank, N.A., Harris Trust and Savings Bank and
NBD Bank, N.A. (incorporated by reference to Exhibit
<PAGE>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
4(c) of Quarterly Report on Form 10-Q for the
quarterly period ended October 29, 1995).
4(e) Amendment No. 2 to Loan and Letter of Credit
Reimbursement Agreement, dated November 9, 1995,
among Unitog Company, Unitog Rental Services, Inc.,
UMB Bank, N.A., Harris Trust and Savings Bank and
NBD Bank, N.A. (incorporated by reference to Exhibit
4(c) of Quarterly Report on Form 10-Q for the
quarterly period ended October 29, 1995).
4(f) Amendment No. 3 to Loan and Letter of Credit
Reimbursement Agreement, dated February 1, 1996,
among Unitog Company, Unitog Rental Services, Inc.,
UMB Bank, N.A., Harris Trust and Savings Bank and
NBD Bank, N.A.
4(g) Note Agreement, dated as of December 1, 1993,
among Unitog Company, Unitog Rental Services,
Inc. and Metropolitan Life Insurance Company and
First Amendment thereto, dated as of October 15,
1995 (incorporated by reference to Exhibit 4(a)
to Quarterly Report on Form 10-Q for the
quarterly period ended October 29, 1995).
4(h) Note Agreement, dated as of October 15, 1995,
among Unitog Company, Unitog Rental Services,
Inc. and Metropolitan Life Insurance Company
(incorporated by reference to Exhibit 4(b) to
Quarterly Report on Form 10-Q for the quarterly
period ended October 29, 1995).
10(a)* Employment Agreement, dated July 1, 1991,
between the registrant and J. Craig
Peterson (incorporated by reference to Ex-
hibit 10(c) to registrant's Annual Report
on Form 10-K for the fiscal year ended January
26, 1992).
10(b)* Unitog Company 1992 Stock Option Plan
(incorporated by reference to Exhibit 10(d)
to registrant's Annual Report on Form 10-K
for the fiscal year ended January 26, 1992).
10(c)* Amendment No. 1 to Unitog Company 1992 Stock
Option Plan (incorporated by reference to Exhibit
10(d) to registrant's Annual Report on Form 10-K
for the fiscal year ended January 30, 1994).
<PAGE>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
10(d)* Description of Management Incentive Plan
(incorporated by reference to Exhibit 10(e)
to registrant's Annual Report on Form 10-K
for the fiscal year ended January 30, 1994).
10(e)* Unitog Company Outside Director Fee/Stock
Program (incorporated by reference to
Exhibit B to registrant's definitive proxy
statement for its 1995 Annual Meeting of
Stockholders).
13 Information incorporated by reference from
the Annual Report to Stockholders for the
fiscal year ended January 29, 1995.
21 Subsidiaries of the registrant (incorporated
by reference to Exhibit 22 of the regis-
trant's Annual Report on Form 10-K for
the fiscal year ended January 28, 1990).
23 Consent of independent public accountant.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit by Item 601 of Regulation S-K.
(b) Reports on Form 8-K. On November 22, 1995, the Company filed a Form 8-K
with the Securities and Exchange Commission with respect to the acquisition
by the Company of the stock of Ace-Tex Corporation on November 10, 1995.
The Form 8-K was amended under cover of Form 8-K/A, filed on January 12,
1996. The items reported on the Form 8-K and the Form 8-K/A were Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits. The following financial statements and financial information
were filed in the Form 8-K/A:
(i) Ace-Tex Corporation Consolidated Financial Statements.
Condensed Consolidated Balance Sheets, September 30, 1995 and 1994
(unaudited).
Condensed Consolidated Statements of Income and Retained Earnings, six
months ended September 30, 1995 and 1994 (unaudited).
Condensed Consolidated Statements of Cash Flows, six months ended
September 30, 1995 and 1994 (unaudited).
Consolidated Balance Sheets, March 31, 1995 and 1994.
<PAGE>
Consolidated Statements of Income and Retained Earnings years ended
March 31, 1995 and 1994.
Consolidated Statements of Cash Flows, years ended March 31, 1995 and
1994.
Notes to Consolidated Financial Statements.
Independent Auditor's Report.
Consent of independent public accountant.
(ii) Pro Forma Financial Information.
Pro Forma Financial Information - General.
Pro Forma Balance Sheet, October 29, 1995 (unaudited).
Pro Forma Statement of Earnings, nine months ended October 29, 1995
(unaudited).
Pro Forma Statement of Earnings, year ended January 29, 1995
(unaudited).
Notes to Unaudited Pro Forma Financial Statements.
<PAGE>
AMENDMENT NO. 3
---------------
TO LOAN AND LETTER OF CREDIT
----------------------------
REIMBURSEMENT AGREEMENT
-----------------------
THIS AMENDMENT NO. 3 ("Amendment") is made effective as of the 1st day of
February, 1996, among UNITOG COMPANY, a Delaware corporation (the "Company"),
UNITOG RENTAL SERVICES, INC., a California corporation ("Rental") (Company and
Rental being sometimes collectively referred to herein as the "Borrowers" or
individually as a "Borrower"), UMB Bank, n.a., Kansas City, Missouri, a national
banking association ("UMB"), HARRIS TRUST AND SAVINGS BANK, Chicago, Illinois,
an Illinois banking corporation ("Harris"), NBD BANK, Detroit, Michigan, a
Michigan banking corporation ("NBD") (UMB, Harris and NBD being sometimes
collectively referred to herein as the "Banks" or individually as a "Bank") and
UMB Bank, n.a., Kansas City, Missouri, a national banking association, as agent
for the Banks herein (in such capacity, the "Agent").
RECITALS
--------
WHEREAS, the Borrowers, the Banks and the Agent entered into a Loan and
Letter of Credit Reimbursement Agreement (the "Agreement") dated September 10,
1993, the terms of which were modified and amended by Amendment No. 1 to Loan
and Letter of Credit Reimbursement Agreement ("Amendment No. 1") dated December
29, 1994 executed by the Borrowers, the Banks and the Agent and further modified
and amended by Amendment No. 2 to Loan and Letter of Credit Reimbursement
Agreement ("Amendment No. 2") dated November 9, 1995 executed by the Borrowers,
the Banks and the Agent (the Agreement, as modified and amended by Amendment No.
1 and Amendment No. 2, herein the "Loan Agreement"); and
WHEREAS, pursuant to the Loan Agreement the Banks agreed to provide
revolving loans to the Borrowers of up to Fifty Million Dollars ($50,000,000);
and
WHEREAS, the Borrowers have requested an increase in the amount of
revolving loans available under the Loan Agreement to Fifty Four Million Five
Hundred Sixty One Thousand Six Hundred Forty Four Dollars ($54,561,644) and the
Banks have agreed to such request, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties mutually agree as follows:
<PAGE>
1. Amendment to Section 1.2 of the Loan Agreement. Section 1.2 of the
Loan Agreement is amended as follows:
a. The definition of "Obligations" is deleted in its entirety and
replaced with the following definition:
"Obligations" means (i) all obligations of the Borrowers to the Banks
of every type and description, direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, on account of the Loans,
including, without limitation, any Advances made pursuant to any discretionary
extension of the Commitment by the Banks beyond the Revolving Credit Maturity
Date or pursuant to any other amendment of the Loan Documents, and whether or
not contemplated by the Borrowers or the Banks as of the date of this Agreement,
(ii) the Borrowers' duty to reimburse the Banks, as the case may be, for all
amounts paid by the Banks in honoring drafts under the Direct Pay Letter(s) of
Credit, described in Section 2.2.2(c) hereof, or the documentary trade and
standby letters of credit described in Section 2.2.2(b) and the Borrowers' duty
to pay the Banks, as the case may be, the fees and commissions required
hereunder for issuing a Direct Pay Letter of Credit and such other letters of
credit, (iii) all other commitment fees and similar charges provided for in the
Loan Documents, and (iv) all other obligations arising under the Loan Documents
including, without limitation, all costs of collection and enforcement of any
and all of the Loan Documents, including reasonable attorneys' fees and expenses
(to the extent permitted by applicable law).
b. The amounts of the revolving credit commitments of the Banks set
forth in the definition of "Revolving Credit Commitments" are deleted and
replaced with the following: (i) Twenty One Million Eight Hundred Twenty Four
Thousand Six Hundred Fifty Eight Dollars ($21,824,658), in the case of UMB, and
(ii) Sixteen Million Three Hundred Sixty Eight Thousand Four Hundred Ninety
Three Dollars ($16,368,493), in the case of Harris, and (iii) Sixteen Million
Three Hundred Sixty Eight Thousand Four Hundred Ninety Three Dollars
($16,368,493), in the case of NBD; and
c. The following defined terms are inserted:
"Direct Pay Letter of Credit" shall have the meaning ascribed in
Section 2.2.2(c) and shall be deemed to include any renewal, replacement,
substitution, extension or modification thereof.
"Issuing Bank" shall have the meaning ascribed to such term in Section
2.2.2(c).
"Reimbursement Agreement" shall have the meaning ascribed to such term
in Section 2.2.2(c).
2
<PAGE>
2. Amendment to Section 2.2.1 of the Loan Agreement. Section 2.2.1 of the Loan
Agreement is deleted in its entirety and replaced with the following:
Subject to the conditions of Section 7, from the date hereto to the
Revolving Credit Maturity Date including any extension thereof, the
Banks agree to make Advances (collectively, the "Revolving Credit
Loans") or to provide the other financial accommodations described in
this Section 2.2 to the Borrowers from time to time in an aggregate
amount not to exceed at any one time outstanding the aggregate
Revolving Credit Commitments; provided, however, that it is expressly
agreed that Four Million Five Hundred Sixty One Thousand Six Hundred
Forty Four Dollars ($4,561,644) of the aggregate Revolving Credit
Commitments can be used only for purpose of Direct Pay Letters of
Credit issued pursuant to Section 2.2.2(c). Each Advance shall be
made by the Banks concurrently and in accordance with its Pro Rata
Share.
3. Amendment of Section 2.2.2(b) of the Loan Agreement. Section 2.2.2(b)
of the Loan Agreement is amended to provide that the aggregate of the
documentary trade and standby letters of credit issued thereunder, when
taken together with the aggregate principal amount of Revolving Credit
Loans and the aggregate Direct Pay Letters of Credit then outstanding,
shall at no time exceed the aggregate Revolving Credit Commitments.
4. New Section 2.2.2(c). Section 2.2.2 of the Agreement is amended by
inserting at the end thereof the following new Section 2.2.2(c):
(c) Direct Pay Letters of Credit. Subject to the terms and
conditions hereof, the Revolving Credit Commitments, at the option of
either Borrower, may also be utilized in the form of irrevocable
direct pay letters of credit (individually, "Direct Pay Letter of
Credit") issued by a Bank (the "Issuing Bank") selected by such
Borrower for the account of such Borrower as credit enhancement for
such Borrower's obligations with respect to Industrial Development
Bonds. Each Direct Pay Letter of Credit issued pursuant to this
Section 2.2.2(c) shall count against and reduce the Revolving Credit
Commitments by the amount of such Direct Pay Letter of Credit
outstanding unless and until such Direct Pay Letter of Credit expires
by its terms or otherwise terminates, in which event the Revolving
Credit Commitments shall be reinstated by the amount of such Direct
Pay Letter of Credit. The amount of any Direct Pay Letter of Credit
outstanding at any time for all purposes hereof shall be the maximum
amount which could be drawn thereunder under any circumstances from
and after the date of determination. The outstanding portion of each
Direct Pay Letter of Credit shall be deemed to utilize a Pro Rata
Share of the Revolving Credit Commitment of each Bank. The aggregate
of Direct Pay Letters of Credit issued hereunder, when taken together
with the aggregate principal amount of Revolving Credit Loans and the
aggregate
3
<PAGE>
documentary trade and standby letters of credit then outstanding,
shall at no time exceed the aggregate Revolving Credit Commitments.
The terms and provisions of each Direct Pay Letter of Credit
issued hereunder shall be determined by the Issuing Bank and the
Borrowers, subject to the approval of the other Banks and shall be set
forth in an application and agreement regarding such Direct Pay Letter
of Credit ("Reimbursement Agreement"), howsoever denominated, executed
by the Borrower(s) requesting the issuance of the Direct Pay Letter of
Credit and the Issuing Bank. On request of the Issuing Bank, the
other Banks will provide the Issuing Bank with written notice of their
approval of the issuance of a Direct Pay Letter of Credit hereunder
and the terms and provisions of such Direct Pay Letter of Credit and
the Reimbursement Agreement regarding the same.
Notwithstanding the generality of the foregoing, each Direct
Pay Letter of Credit shall have an expiration date not later than one
(1) day before the Revolving Credit Maturity Date, will be issued
subject to the terms and conditions of this Agreement, and will be
available to pay the principal portion of and all accrued interest on
the obligations of the Borrower with respect to which it is issued.
Any draw under a Direct Pay Letter of Credit not reimbursed by the
Borrowers on the Banking Day on which such draw is made shall be
converted to an Advance under the Revolving Credit Loans by the
Issuing Bank giving notice thereof to the Agent, and the Borrowers and
the Banks hereby irrevocably authorize Agent, upon receipt of such
notice, to refinance, with notice to the Borrowers or the Banks, the
reimbursement Obligation of the Borrowers arising out of any such
drawing into Revolving Credit Loans, evidenced by the Revolving Credit
Notes and for all purposes under, on and subject to the terms and
conditions of this Agreement, but without regard to the conditions
precedent as to making an Advance under the Revolving Credit Loans or
any requirement of this Agreement that such Revolving Credit Loan be
in a minimum amount or Permissible Increment.
Nothwithstanding the terms of any Reimbursement Agreement,
any discretionary action by the Issuing Bank thereunder, including but
not limited to the waiver of conditions precedent or compliance with
any affirmative or negative covenants or the exercise of any remedies
thereunder, shall be subject to the approval of all the Banks in
accordance with Section 10.17 of this Agreement. Borrowers authorize
an Issuing Bank to, and such Issuing Bank shall, discuss and furnish
to Banks and Agent any notices and other information received by such
Issuing Bank pertaining to Borrower whether given under a
Reimbursement Agreement by a Borrower or otherwise received by such
Issuing Bank. This Agreement and the other Loan Documents shall
supersede any terms of any Reimbursement Agreement or other documents
which are irreconcilably inconsistent with the terms hereof or
thereof. Except
4
<PAGE>
as expressly set forth herein, nothing in this Section 2.2.2(c) shall
be deemed to constitute a waiver of a Default or an Event of Default
caused by the failure to satisfy any of the conditions precedent to
making Revolving Credit Loans.
Borrowers agree to pay the Issuing Bank letter of credit
fees for each Direct Pay Letter of Credit issued and outstanding
hereunder quarterly in arrears from the date of issuance computed at a
rate equal to the greater of (i) the Applicable Margin for LIBOR
Advances minus 25 bp or (ii) 25 bp, multiplied by the face amount of
such Direct Pay Letter of Credit, and further multiplied by a fraction
the numerator of which shall equal the actual number of days elapsed
in the immediately preceeding three (3) month period during which such
Direct Pay Letter of Credit was issued and outstanding and the
denominator of which is 365. Such fees shall be allocated between the
Banks in accordance with their respective Pro Rata Share and shall be
remitted by the Issuing Bank to the other Banks promptly upon receipt.
In addition, the Issuing Bank may charge and receive for its sole
account additional fees or commission as agreed upon between the
Issuing Bank and Borrowers.
In the event Banks and Borrowers agree hereafter to an
extension of the Revolving Credit Maturity Date and this Agreement,
Banks agree to extend, renew or reissue any Direct Pay Letter of
Credit then outstanding to a date one (1) day prior to such extended
Revolving Credit Maturity Date under the terms and subject to the
conditions of this Agreement and the Reimbursement Agreement with
respect to such Direct Pay Letter of Credit; provided, however, that
upon any such extension, renewal or reissuance, Borrowers shall pay
the reasonable costs and expenses, including attorneys' fees and
expenses, incurred by the Issuing Bank in connection with such
extension, renewal or reissuance. Nothing herein or in any
Reimbursement Agreement shall be deemed to impose any obligation upon
Banks to agree to the extension of this Agreement or the Revolving
Credit Maturity Date.
Notwithstanding anything stated to the contrary in this
Agreement, if an Event of Default has occurred and is continuing, the
Banks shall not extend, renew or reissue any outstanding Direct Pay
Letters of Credit issued pursuant to this Section 2.2.2(c).
5. Amendment of Section 2.2.5 of the Loan Agreement. Section 2.2.5 of
the Loan Agreement is deleted in its entirety and replaced with the following:
Subject to the provisions of Section 2.2.1, Advances of the Revolving
Credit Loans may be used (i) to fund acquisitions, (ii) to meet
ongoing working capital requirements of the Borrowers and (iii) for
other corporate purposes not prohibited by this Agreement.
5
<PAGE>
6. Amendment of Section 6.2 of the Loan Agreement. Section 6.2 of the
Loan Agreement is amended by deleting the last sentence of such section in its
entirety and replacing such sentence with the following:
"The provisions of this Section 6.2 shall not prohibit loans between
the Borrowers and any of their Subsidiaries or guarantees by the
Borrowers or any of their Subsidiaries of their respective obligations
or guarantees by a Borrower in connection with such Borrower's
obligations with respect to Industrial Development Bonds.
7. Restatement of Section 12.8 of the Loan Agreement. Borrowers
restate and affirm the provisions of Section 12.8 of the Loan Agreement and
expressly acknowledge that the terms thereof apply with respect to the
Obligations arising under or pursuant to any Direct Pay Letter of Credit and any
Reimbursement Agreement related thereto.
8. Second Amended and Restated Master Credit Revolving Note. Borrowers
agree to execute and deliver to each of the Banks a Second Amended and Restated
Master Revolving Credit Note ("Second Amended Note") in the form of Exhibit C
attached hereto and incorporated herein by reference payable to each of the
Banks in accordance with the amount of their respective Revolving Credit
Commitments as increased hereunder. Following the execution and delivery of the
Second Amended Note to each Bank, the Second Amended Note shall evidence all the
indebtedness evidenced by Amended and Restated Master Revolving Credit Note
executed and delivered to such Bank by Borrower dated November 9, 1995, which
shall then be marked "Modified pursuant to that certain Second Amended and
Restated Master Revolving Credit Note, dated [the date hereof]" and returned to
Borrowers. Exhibit C to the Loan Agreement shall be deleted and replaced in its
entirety by Exhibit C hereto.
9. No Other Modifications. Except as hereby modified and amended, all of
the terms, conditions and covenants contained in the Loan Agreement shall remain
in full force and effect.
10. Representations and Warranties. The Borrowers hereby represent and
warrant that:
a. The representations and warranties contained in the Loan
Agreement and in each certificate or document furnished by the Borrowers and
delivered therewith are true and correct in all material respects on and as of
the date hereof as though made on and as of the date hereof;
b. No Event of Default, and to the Borrowers' knowledge no event
which with the passage of time or the giving of notice or both could become an
Event of Default, exists on the date hereof, and no offsets or defenses exist
against their obligations under the Loan Agreement or the documents delivered in
connection therewith;
6
<PAGE>
c. This Amendment has been duly authorized, executed and delivered
so as to constitute the legal, valid and binding obligation of the Borrowers,
enforceable in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditor's rights generally and general principles of equity;
d. The execution, delivery and performance of this Amendment will
not violate any applicable provision of law or judgment, order or regulation of
any court or of any public or governmental agency or authority nor conflict with
or constitute a breach of or a default under any instrument to which the
Borrowers are a party or by which the Borrowers or the Borrower's properties is
bound nor result in the creation of any lien, charge or encumbrance upon any
assets of the Borrowers.
11. Miscellaneous.
a. The laws of the State of Missouri shall govern this Amendment.
b. This Amendment shall be binding on the parties hereto and their
respective successors and assigns, and shall inure to the benefits of the
parties hereto.
c. This Amendment may be executed in any number of counterparts, all
of which when taken together shall constitute but one agreement and any of the
parties hereto may execute this Amendment by signing any such counterpart.
d. Section captions used in this Amendment are for convenience only
and shall not affect the construction of this Amendment.
e. Capitalized terms used herein and not specifically herein defined
shall have the meanings ascribed in the Loan Agreement.
12. Statutory Statement. (Mo. Rev. Stat. (S) 432.045)
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING PAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND
OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND
BANKS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING AND THE DOCUMENTS
REFERRED TO HEREIN, WHICH ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF
THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO
MODIFY IT.
7
<PAGE>
IN WITNESS WHEREOF, the Borrowers, the Banks and the Agent have caused this
Amendment No. 3 to be executed by their respective officers duly authorized as
of the dates written beside their respective names below.
DATE: March 6, 1996 UNITOG COMPANY
By: /s/ J. Craig Peterson
--------------------------------
Name: J. Craig Peterson
Title: Chief Financial Officer
DATE: March 6, 1996 UNITOG RENTAL SERVICES, INC.
By: /s/ J. Craig Peterson
--------------------------------
Name: J. Craig Peterson
Title: Chief Financial Officer
DATE: March 5, 1996 UMB BANK, N.A.
Individually and as Agent
By: /s/ David A. Proffitt
--------------------------------
Name: David A. Proffitt
Title: Senior Vice President
DATE: March 2, 1996 NBD BANK
By: /s/ Thomas A. Levasseur
--------------------------------
Name: Thomas A. Levasseur
Title: Vice President
DATE: March 6, 1996 HARRIS TRUST AND SAVINGS BANK
By: /s/ Len E. Meyer
--------------------------------
Name: Len E. Meyer
Title: Vice President
8
<PAGE>
EXHIBIT C
SECOND AMENDED AND RESTATED
MASTER REVOLVING CREDIT NOTE
$__,___,___.00 and Interest _______________, 1996
PAYMENTS, DISBURSEMENTS AND INTEREST
FOR VALUE RECEIVED, the undersigned each (the "undersigned" means each
maker and each jointly and severally agrees to all the provisions hereunder)
promise to pay to the order of ________________________________________________
(hereinafter called "Bank"), at its main office, on September 8, 1998, the
principal sum of _________________________________ and no/100 Dollars
($____________) or such other lesser amount as shall be noted on the Schedule of
Disbursements and Payments of Principal and Interest included herein or attached
hereto pursuant to the authority set forth herein, together with interest on the
unpaid principal balance hereof from time to time outstanding from date(s) of
disbursement until paid, at the rate or rates as provided in that certain Loan
and Letter of Credit Reimbursement Agreement ("Agreement") between the
undersigned, the Bank and others dated September 10, 1993, as amended and
modified by Amendment No. 1 to Loan and Letter of Credit Reimbursement Agreement
("Amendment No. 1") dated December 29, 1994 between the undersigned, the Bank
and others, by Amendment No. 2 to Loan and Letter of Credit Reimbursement
Agreement ("Amendment No. 2") dated November 9, 1995 between the undersigned,
the Bank and others, and by Amendment No. 3 to Loan and Letter of Credit
Reimbursement Agreement dated __________, 1996 between the undersigned, the Bank
and others ("Amendment No. 3") (the Agreement, as modified and amended by
Amendment No. 1, Amendment No. 2 and Amendment No. 3 hereinafter the "Loan
Agreement"), the provisions of which are incorporated herein by reference, and
adjusted from time to time as provided in said Loan Agreement, with all accrued
interest payable quarterly or as otherwise provided in the Loan Agreement.
Unless provided in the Loan Agreement to the contrary, all payments shall be
applied first to payment of accrued interest, and then to reduction of the
principal sum due hereunder. This note shall bear interest after maturity,
whether by reason of acceleration or otherwise, at a rate of interest equal to
two percent (2%) in excess of the rate otherwise then in effect until paid in
full or cured and such interest shall be compounded annually if not paid
annually. All or any part of the outstanding principal balance hereof may be
paid prior to maturity and the undersigned may from time to time until maturity
receive, except as limited by said Loan Agreement, further disbursements
hereunder; provided, however, the aggregate amount of all principal amounts
outstanding hereunder shall at no time exceed the face amount hereof; and
provided further, that each and every disbursement made under this SECOND
AMENDED AND RESTATED MASTER REVOLVING CREDIT NOTE shall be made pursuant to and
governed by the terms of the Loan Agreement. The principal amount due hereunder
shall be the last amount stated to be the Unpaid Principal Balance of Note on
the Schedule of Disbursements and Payments of Principal and Interest from time
to time to evidence payments and disbursements hereunder. The statements on
such schedules shall be rebuttably presumed to be correct. The Bank is
9
<PAGE>
hereby directed by the undersigned to credit all future advances in the manner
provided for in the Loan Agreement and the undersigned agrees that the Bank or
holder hereof may make advances, at its discretion, upon oral or written
instructions of any of the undersigned, or any other person(s) duly authorized
by either of the undersigned.
ACCELERATION AND EVENTS OF DEFAULT
Upon the occurrence of any of the events of default defined in Section 8 of
the Loan Agreement the provisions of which are hereby incorporated by reference,
then this note and all other obligations of each of the undersigned to the
holder shall, subject to the terms of Section 9 of the Loan Agreement,
immediately become due and payable in accordance with the terms of said Loan
Agreement.
MISSOURI LAW
The interpretation of this instrument and the rights and remedies of the
parties hereto shall be governed by the laws of the State of Missouri.
COLLECTION EXPENSES
To the extent permitted by applicable law, the undersigned agrees to pay
all expenses of the holder in collecting this note and enforcing all rights with
respect hereto including reasonable attorneys' fees.
DEMAND, NOTICE, ENDORSERS, GUARANTORS AND SURETIES
Demand for payment, notice of nonpayment, protest, dishonor, diligence and
suit are hereby waived by all parties liable hereon.
NO WAIVERS
Any failure by the holder hereof to exercise any right hereunder shall not
be construed as a waiver of the right to exercise the same or any other right at
any other time and from time to time thereafter.
HEADINGS
All headings or titles appearing in this note are used as a matter of
convenience only and shall not affect the interpretation of the provisions
hereof.
10
<PAGE>
UNITOG COMPANY
By:_________________________________
Title:______________________________
UNITOG RENTAL SERVICES, INC.
By:_________________________________
Title:______________________________
11
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Revenues for fiscal 1996 were $214.3 million, an increase of $25.2 million or
13% over fiscal 1995 revenues of $189.1 million.
Rental revenues were $158.1 million for fiscal 1996, an increase of $24.6
million, or 18% over last year. During the year we acquired five rental
operations which should add approximately $40 million in annual revenue. These
acquisitions contributed revenues of $14.2 million in fiscal 1996. Internal
growth from our existing locations totaled 6% for fiscal 1996. Revenues from
uniform rentals were stronger than last year, although offset by a decline in
our linen rental business. Revenues from the Southern California market were
stable during fiscal 1996 compared to declines we experienced in fiscal 1995.
Direct sales were $56.2 million for fiscal 1996, which were essentially the same
as last year. Sales of postal uniforms increased over last year aided by new
products introduced during the year. Direct sales of industrial uniforms
declined slightly as a result of limited implementations of new programs for
national accounts.
Rental operating contribution was $30.5 million for fiscal 1996, an increase of
$4.1 million, or 16% over last year. Rental operating contribution was 19.3% of
rental revenue compared to 19.8% in fiscal 1995. Costs related to assimilating
five acquisitions and the lower margins of newly acquired rental operations
reduced the operating contribution percentage during the year.
Direct sales operating contribution for fiscal 1996 was $10.2 million, a
decrease of $450,000, or 4% from fiscal 1995. Direct sales operating
contribution was 18.2% of sales in fiscal 1996 compared to 19.2% last year.
One-time costs incurred to close our Atlanta distribution operations and to
start-up a manufacturing and distribution facility in Stevenson, Alabama reduced
the operating contribution in fiscal 1996.
Depreciation and amortization charges for fiscal 1996 increased by $1.4 million
over last year due to our acquisition activity and a higher level of capital
expenditures during the year. The construction of new facilities and plant
expansions resulted in the increase in capital outlays to $22 million in fiscal
1996 compared to $9 million last year. General and administrative costs for
fiscal 1996 of $7.8 million or 3.6% of revenues were about the same as the $8.2
million incurred in fiscal 1995, although lower as a percentage of revenues.
8
<PAGE>
Interest expense for fiscal 1996 of $3.3 million was $700,000 or 26% more than
the prior year. Borrowings to fund our acquisitions during the year increased
our interest costs. Income taxes declined as a percentage of pretax earnings to
38% in fiscal 1996 compared to 39% in fiscal 1995 due to reductions in state and
local taxes.
Net earnings were $11.5 million for fiscal 1996, an increase of $1.5 million, or
15% over fiscal 1995. Improved operating contribution from the Rental business
offset higher depreciation, amortization and interest expenses. Net earnings per
share were $1.23 per share in fiscal 1996 compared to $1.07 per share last year,
a 15% gain.
Fiscal 1995 Compared to Fiscal 1994
Revenues for fiscal 1995 were $189.1 million, an increase of $11.2 million or 6%
over fiscal 1994. Rental revenues increased 7% over fiscal 1994 to $133.5
million. Internal rental revenue growth for fiscal 1995 was 4%. Revenues from
uniform rentals improved over the previous year. Declining revenues from linen
operations and softness in the Southern California market reduced the Company's
overall internal rental revenue growth. Direct sales increased 5% over the prior
year to $55.7 million. A 12% increase in sales of postal uniforms combined with
increased demand for industrial uniforms to produce higher Direct sales.
Rental operating contribution for fiscal 1995 was $26.4 million, an increase of
$3.5 million or 15% over fiscal 1994. Rental operating contribution was 19.8% of
rental revenue in fiscal 1995 compared to 18.3% in fiscal 1994. The improved
rental operating contribution was due to reductions in garment costs and better
plant processing and handling efficiencies.
Direct sales operating contribution for fiscal 1995 was $10.7 million, an
increase of $750,000, or 8% over fiscal 1994. Direct sales operating
contribution was 19.2% of sales in fiscal 1995 compared to 18.7% in the prior
year. Increased sales and cost controls created the gain over fiscal 1994.
General and administrative costs for fiscal 1995 were $8.2 million, a 17%
increase over fiscal 1994. Increased spending on technology enhancement projects
and other general expenses contributed to the higher costs in fiscal 1995.
Interest expense for fiscal 1995 of $2.6 million was $700,000 or 21% less than
the prior year. Debt repayments from our April 1993 public stock offering and
the replacement of higher cost bank debt with $20 million of 5.8% privately
placed notes in fiscal 1994 produced the interest expense savings during fiscal
1995.
Net earnings for fiscal 1995 were $10 million or $1.07 per share compared to
$7.8 million or $.87 per share in fiscal 1994. Net earnings increased 28% over
the prior year due to profitability improvements from the operations of both the
Rental and Direct sales businesses and reduced interest costs which offset
higher general and administrative costs. Net earnings per share in fiscal 1995
increased $.20 per share or 23% over the prior year. The 28% improvement in net
earnings in fiscal 1995 was offset slightly by 4% more average shares
outstanding due to our public stock offering in April 1993.
9
<PAGE>
Liquidity and Capital Resources
The Company completed the acquisition of five rental operations during
fiscal 1996, spending over $43 million. These acquisitions will add
approximately $40 million in annual rental revenue and expanded our market
presence in northern Iowa, Los Angeles, Dallas, Columbus, Detroit, Toledo, South
Bend and southern Michigan. These purchases were for cash and were financed
principally by $40 million in 6.8% privately-placed notes with an insurance
company. Since year-end we completed the purchase of rental routes and
facilities in northern and central Michigan and eastern Illinois and an entrance
mat and industrial dust control business in Philadelphia. These acquisitions
will add approximately $18 million in annual rental revenues.
Cash and cash equivalents at January 28, 1996 decreased $7.7 million from last
year as invested cash was spent on acquisitions and capital expenditures. At
January 28, 1996, the Company's capitalization ratio was 49% compared to 32% one
year ago. The Company's long-term debt increased $49 million due to funding of
acquisitions and the assumption of industrial revenue bonds in connection with
acquisition activity. The Company used its bank credit facility to prepay
without penalty $15 million of 10% long-term notes that were due in 1998. At
January 28, 1996 long-term debt carried a blended interest rate of 6.3% compared
to 7.6% last year. There were $17 million in borrowings outstanding under the
Company's $55 million long-term bank credit facility at year-end. On March 7,
1996 the Company issued $4.5 million in tax-exempt industrial revenue bonds
related to its facility in Stevenson, Alabama.
Cash provided by operating activities for fiscal 1996 was $24.7 million, a 24%
increase over last year. Working capital was $37.9 million at January 28, 1996
compared to $40.3 million at January 29, 1995. The decrease in working capital
was due to the reduction in cash and cash equivalents. The Company raised its
semi-annual dividend by 25% in fiscal 1996 to $.05 per share. Capital
expenditures were $22.1 million during fiscal 1996 compared to $9.2 million in
fiscal 1995. Spending to construct facilities in Stevenson and Las Vegas, to
expand both manufacturing and rental plants and to implement technology
enhancement projects, created the increase over fiscal 1995. Planned capital
expenditures for fiscal 1997 will approximate fiscal 1996.
Management believes that cash provided by operations and its bank credit
facility will be sufficient to meet its cash requirements for rental
acquisitions and capital expenditures in the foreseeable future.
10
<PAGE>
ENVIRONMENTAL AND OTHER
The Company is subject to various federal, state and local laws relating to
environmental matters, including laws which require the investigation and, in
some cases, remediation of environmental contamination. Environmental
contamination has been detected at the Company's Tempe, Minneapolis and Whittier
rental plants. The Company's Tempe and Whittier rental plants are located in
federal superfund sites several square miles in size. The Company, along with
certain unaffiliated parties, has been designated by the U.S. EPA as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act with respect to the Tempe site. The Company
entered into a consent order with EPA requiring a soil and groundwater
investigation at the Tempe site. The cost of the investigation was borne by two
other parties pursuant to a settlement agreement with the Company. Test results
at the Tempe site indicate that volatile organic compound contamination is
present in the soil, necessitating soil remediation. Groundwater tests have not
detected on-site contamination, although additional periodic groundwater testing
is expected. Test results at the Minneapolis and Whittier plants indicate that
volatile organic compound contamination is present in the soil and groundwater
at those plants. The Company believes that it will be required to remediate the
soil and groundwater at the Minneapolis plant and has begun soil remediation at
Whittier. Additional testing is being conducted to determine if groundwater
remediation will be required at Whittier. The Company's estimate of the expense
related to all three of these sites has been accrued and charged to operating
expense. Based on information currently available, the Company does not believe
that additional costs of investigation and remediation at these sites are
individually or in the aggregate material to the consolidated financial
statements of the Company.
Inflation has not significantly affected the Company in recent years. Labor and
raw materials are the Company's primary operating costs. Inventories are valued
on the LIFO (last-in first-out) method, which management believes more
accurately matches current costs with current revenues.
11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Unitog Company:
We have audited the accompanying consolidated balance sheets of Unitog Company
and subsidiaries as of January 28, 1996 and January 29, 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended January 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Unitog Company and
subsidiaries at January 28, 1996 and January 29, 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 28, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Kansas City, Missouri
March 15, 1996
14
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 28, 1996 and January 29, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,321 $ 7,717,999
Accounts receivable, less allowance for doubtful
receivables of $760,000 in 1996 and $425,000 in 1995 25,012,073 18,079,047
Inventories (note 3) 15,333,981 13,630,072
Rental garments in service, net 36,774,298 24,478,470
Prepaid expenses 1,233,948 991,674
------------ ------------
Total current assets 78,382,621 64,897,262
------------ ------------
Property, plant and equipment, at cost:
Land 5,983,780 5,161,539
Buildings and improvements 49,555,705 36,015,657
Machinery and equipment 85,295,139 66,313,390
------------ ------------
140,834,624 107,490,586
Less accumulated depreciation 58,542,615 47,974,078
------------ ------------
Net property, plant and equipment 82,292,009 59,516,508
------------ ------------
Other assets, net (note 5) 30,848,817 16,529,871
Excess cost over net assets of businesses acquired, net (note 2) 32,045,645 2,504,370
------------ ------------
$223,569,092 $143,448,011
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5) $ 481,087 $ 827,214
Accounts payable 15,300,599 6,691,845
Accrued expenses 9,427,941 5,292,387
Accrued payroll expenses 3,971,910 4,192,817
Income taxes payable 498,860 419,969
Deferred income taxes (note 6) 10,788,000 7,142,000
------------ ------------
Total current liabilities 40,468,397 24,566,232
------------ ------------
Long-term debt, less current installments (note 5) 83,731,099 34,837,880
Other liabilities 1,200,878 986,217
Deferred income taxes (note 6) 12,044,011 7,625,011
Stockholders' equity (notes 4, 5 and 7):
Common stock of $.01 par value. Authorized 30,000,000 shares;
issued and outstanding 9,279,337 shares in 1996
and 9,272,094 shares in 1995 92,793 92,721
Additional paid-in capital 39,200,675 39,070,262
Retained earnings 46,831,239 36,269,688
------------ ------------
Total stockholders' equity 86,124,707 75,432,671
------------ ------------
Commitments and contingencies (notes 5, 7 and 8)
$223,569,092 $143,448,011
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended January 28, 1996, January 29, 1995 and January 30, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental operations $158,074,437 $133,488,069 $125,006,214
Direct sales 56,242,363 55,655,727 52,908,968
------------ ------------ ------------
Total revenues 214,316,800 189,143,796 177,915,182
------------ ------------ ------------
Operating costs and expenses:
Cost of rental operations 127,574,457 107,091,152 102,108,762
Cost of direct sales 46,024,874 44,990,968 42,997,820
Depreciation and amortization 11,102,487 9,659,338 9,530,036
General and administrative 7,780,457 8,229,984 7,011,861
------------ ------------ ------------
Total costs and expenses 192,482,275 169,971,442 161,648,479
------------ ------------ ------------
Operating income 21,834,525 19,172,354 16,266,703
Interest expense, net 3,303,105 2,627,655 3,333,755
Other expenses, net 289 129,569 91,840
------------ ------------ ------------
Earnings before income taxes 18,531,131 16,415,130 12,841,108
Income taxes (note 6) 7,042,000 6,402,000 5,045,000
------------ ------------ ------------
Net earnings $ 11,489,131 $ 10,013,130 $ 7,796,108
============ ============ ============
Net earnings per common share $1.23 $1.07 $.87
===== ===== ====
Weighted average common and common
equivalent shares outstanding 9,368,394 9,334,781 8,952,911
============ ============ ============
Dividends per common share $ .10 $ .08 $.07
===== ===== ====
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended January 28, 1996, January 29, 1995 and January 30, 1994
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained stockholders'
stock capital earnings equity
------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993 $81,201 $17,352,858 $19,820,334 $37,254,393
Issuance of 1,725,000 common shares
in public offering (note 4) 11,500 21,679,000 -- 21,690,500
Employee stock options (note 7) 20 38,404 -- 38,424
Net earnings -- -- 7,796,108 7,796,108
Dividends paid -- -- (618,116) (618,116)
------- ----------- ----------- -----------
BALANCE AT JANUARY 30, 1994 92,721 39,070,262 26,998,326 66,161,309
Net earnings -- -- 10,013,130 10,013,130
Dividends paid -- -- (741,768) (741,768)
------- ----------- ----------- -----------
BALANCE AT JANUARY 29, 1995 92,721 39,070,262 36,269,688 75,432,671
Employee stock options (note 7) 72 130,413 -- 130,485
Net earnings -- -- 11,489,131 11,489,131
Dividends paid -- -- (927,580) (927,580)
------- ----------- ----------- -----------
BALANCE AT JANUARY 28, 1996 $92,793 $39,200,675 $46,831,239 $86,124,707
======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 28, 1996, January 29, 1995 and January 30, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,489,131 $ 10,013,130 $ 7,796,108
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 11,102,487 9,659,338 9,530,036
Provision (benefit) for deferred income taxes 1,813,000 1,017,000 (34,000)
Disposal of equipment, net of gains and losses 112,501 456,355 440,483
Changes in assets and liabilities:
Accounts receivable (2,539,770) (1,005,943) (557,624)
Inventories (229,861) 469,307 469,653
Rental garments in service (3,953,090) (2,093,823) 1,763,987
Prepaid expenses 27,198 (41,859) 310,305
Other noncurrent assets 42,002 (36,526) 298,341
Accounts payable 6,635,987 199,555 935,278
Accrued expenses (555,112) 1,884,043 (79,414)
Income taxes payable 542,546 (415,457) 210,532
Other noncurrent liabilities 214,661 (139,755) 16,249
------------ ------------ ------------
Net cash provided by operating activities 24,701,680 19,965,365 21,099,934
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of rental operations (43,296,202) (4,443,868) (5,174,996)
Purchase of property, plant and equipment (22,111,348) (9,246,085) (9,775,326)
------------ ------------ ------------
Net cash used by investing activities (65,407,550) (13,689,953) (14,950,322)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 130,485 -- 21,728,924
Dividends paid (927,580) (741,768) (618,116)
Increases in long-term debt 52,365,473 -- 24,957,860
Repayments of long-term debt (18,552,186) (1,232,633) (48,883,270)
------------ ------------ ------------
Net cash provided (used) by financing activities 33,016,192 (1,974,401) (2,814,602)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (7,689,678) 4,301,011 3,335,010
Cash and cash equivalents at beginning of year 7,717,999 3,416,988 81,978
------------ ------------ ------------
Cash and cash equivalents at end of year $ 28,321 $ 7,717,999 $ 3,416,988
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,989,000 $ 2,901,000 $ 3,501,000
============ ============ ============
Income taxes $ 4,662,000 $ 5,800,000 $ 4,864,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 28, 1996, January 29, 1995 and January 30, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND REVENUE RECOGNITION
The consolidated financial statements include the accounts of the Company, its
wholly-owned domestic subsidiaries and its wholly-owned foreign subsidiary. All
significant intercompany balances and transactions have been eliminated. The
Company recognizes rental revenues when the services are delivered to customers.
The Company records direct sales upon shipment to the customer.
FISCAL YEAR
The Company uses a fifty-two/fifty-three week period ending on the last Sunday
in January. Fifty-two week periods were included in the years ended January 28,
1996, January 29, 1995 and January 30, 1994, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, money market deposits, and investments
in highly liquid tax-exempt municipal bond funds. For purposes of reporting cash
flows, the Company considers investments with original maturities of three
months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market with costs applied on the
last-in, first-out (LIFO) method.
RENTAL GARMENTS IN SERVICE
Rental garments in service are stated at cost less accumulated amortization.
Amortization is provided using the straight-line method over the estimated
useful lives of the garments, generally twelve to eighteen months. Accumulated
amortization of rental garments in service was $18,547,000 and $18,102,000 at
January 28, 1996 and January 29, 1995, respectively.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for additions and improvements are capitalized to the appropriate
asset accounts. Maintenance and repairs are charged to earnings as incurred. On
sale or retirement of assets, the cost and related accumulated depreciation
applicable to such assets are removed from the accounts and any resulting gain
or loss is reflected in earnings. Gains (losses) on the disposal of plant and
equipment were $25,000, ($165,000) and ($67,000) for fiscal 1996, 1995 and 1994,
respectively.
Depreciation is provided using the straight-line method over the estimated
useful lives of the various assets. Useful lives range from ten to thirty-five
years for buildings and improvements and from three to ten years for machinery
and equipment.
18
<PAGE>
OTHER NONCURRENT ASSETS
Debt origination and placement fees and acquisition related expenditures
associated with noncompetition agreements, customer contracts and other acquired
intangible assets are stated at cost less accumulated amortization. Amortization
is provided using the straight-line method over the term of the underlying
agreements and estimated useful lives.
At January 28, 1996 and January 29, 1995 the cost and related accumulated
amortization pertaining to noncompetition agreements was $13,877,000 and
($5,112,000) and $10,246,000 and ($4,175,000), respectively. The contractual
term for noncompetition agreements is generally three to eight years. At January
28, 1996 and January 29, 1995 the cost and related accumulated amortization
pertaining to acquired customer contracts was $26,596,000 and ($7,104,000) and
$15,302,000 and ($5,219,000), respectively. The estimated useful lives of the
customer contracts is generally eight to twelve years.
EXCESS COST OVER NET ASSETS OF BUSINESSES ACQUIRED
The Company's acquisitions of rental operations were accounted for by using the
purchase method. The purchase method allocates the amounts paid to the net
assets acquired based on their respective fair values. The amounts paid in
excess of the fair value of the acquired net assets is amortized on a
straight-line basis over periods up to thirty-five years. The Company assesses
the recoverability of goodwill by determining whether the amortization of the
goodwill balance over the remaining life can be recovered through undiscounted
future operating cash flows.
OTHER LIABILITIES
The Company under certain insurance programs retains portions of expected
losses. The Company, upon consultation with its insurance carriers and advisors,
records the estimated aggregate liabilities for claims incurred and projects
their future settlement dates. The Company provides funded trust arrangements
for certain of these insurance programs.
INCOME TAXES
Provisions are made for deferred income taxes for temporary differences between
amounts recognized for income tax and financial reporting purposes.
NET EARNINGS PER COMMON SHARE
Net earnings per common share are computed based upon the weighted average
number of common shares and common equivalent shares outstanding. For fiscal
1996, 1995 and 1994, employee stock options were the Company's only common stock
equivalents; there were no other potentially dilutive securities.
USE OF ESTIMATES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates. The Company is not a party to any financial
derivative instruments. The carrying amount of cash, accounts receivable and
trade accounts payable approximates fair value because of the short maturity of
these instruments. The fair value of the Company's long-term debt was not
significantly different than its carrying value at January 28, 1996 and January
29, 1995.
19
<PAGE>
(2) ACQUISITIONS OF RENTAL OPERATIONS
On November 10, 1995, the Company purchased all of the issued and outstanding
stock of Ace-Tex Corporation (Ace-Tex). Ace-Tex was engaged in the rental
supply, service and sale of industrial uniforms and related products (the
Uniform Rental Business) and the manufacture and sale of wiping and polishing
cloths (the Wiper Business). In conjunction with the purchase of the stock of
Ace-Tex, the Company sold the Wiper Business and the assets of Ace-Tex used in
the Wiper Business to the former principals of Ace-Tex. As a result, after the
purchase, Ace-Tex was only engaged in the Uniform Rental Business under the name
Mechanics Uniform Rental Co. (Mechanics).
The net purchase price of Mechanics was as follow:
<TABLE>
<CAPTION>
<S> <C> <C>
Total purchase price $32,100,000
Current assets $ 12,900,000
Property, plant and equipment 7,200,000
Intangible and other assets 11,700,000
Liabilities assumed (6,400,000)
Debt assumed (14,700,000)
Deferred taxes (6,300,000)
------------ -----------
Net assets acquired 4,400,000
-----------
Excess of purchase price over
net assets acquired $27,700,000
===========
</TABLE>
The consolidated operating results of the Company for the fiscal years ended
January 28, 1996 and January 29, 1995 on a pro forma basis as though the
Mechanics acquisition had occurred on January 31, 1994 would be as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues $236,170,000 $216,343,000
Operating income 23,242,000 21,010,000
Net earnings 10,598,000 8,800,000
============ ============
Net earnings per common share $1.13 $.94
===== ====
</TABLE>
The pro forma results of operations are not necessarily indicative of the actual
operating results that would have occurred had the acquisition been consummated
on January 31, 1994 or of future operating results on a combined basis. The
operating results of Mechanics have been included in the consolidated results
of the Company since its acquisition. During fiscal 1996 Mechanics added $6.7
million in rental revenues with an insignificant effect on net earnings.
20
<PAGE>
During fiscal 1996, the Company also acquired certain uniform rental operations
in Iowa, Texas, California and Ohio for approximately $11.2 million in cash and
notes payable. The operating results of these rental acquisitions have been
included in the consolidated results of the Company since their acquisition.
During fiscal 1996 these rental acquisitions added approximately $7.5 million in
rental revenues with an insignificant effect on net earnings.
During fiscal 1995 and 1994, the Company acquired certain uniform rental routes
and equipment for approximately $4.4 million and $5.2 million, respectively, in
cash and notes payable. The operating results of these rental acquisitions have
been included in the consolidated results of the Company since their purchase
with an insignificant effect on revenues and net earnings.
(3) INVENTORIES
Components of inventories at January 28, 1996 and January 29, 1995 follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 4,135,131 $ 3,570,498
Work in progress 2,503,558 2,351,766
Finished goods 12,501,732 11,255,800
----------- -----------
19,140,421 17,178,064
Less LIFO allowance (3,806,440) (3,547,992)
----------- -----------
$15,333,981 $13,630,072
=========== ===========
</TABLE>
The use of the last in, first out (LIFO) method reduced net earnings by
approximately $160,000 ($.02 per share), $142,000 ($.02 per share) and $43,000
($.01 per share) during the years ended January 28, 1996, January 29, 1995 and
January 30, 1994, respectively.
(4) COMMON STOCK
In May 1995, the stockholders approved an increase in the number of authorized
shares of common stock from 15,000,000 shares to 30,000,000 shares.
In August 1994, the Board of Directors approved a 3-for-2 stock split. The split
was in the form of a stock dividend paid on September 23, 1994 to stockholders
of record on September 9, 1994. The outstanding common shares, weighted average
common and common equivalent shares outstanding, net earnings per share and
other related per share data have been restated for all periods previous to the
stock split.
In April 1993, the Company completed the sale of 1,725,000 shares of its common
stock. The public offering price was $13.50 per share. The net proceeds of
approximately $21.7 million were used to reduce long-term indebtedness.
21
<PAGE>
(5) LONG-TERM DEBT
A summary of long-term debt at January 28, 1996 and January 29, 1995 follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
6.83% Senior Notes $40,000,000 $ --
5.79% Senior Notes 20,000,000 20,000,000
10.06% Fixed Rate Notes -- 14,625,000
Bank Credit Agreement 16,600,000 --
Industrial Revenue Bonds 5,245,705 --
Other 2,366,481 1,040,094
----------- -----------
Total long-term debt 84,212,186 35,665,094
Less current installments (481,087) (827,214)
----------- -----------
Long-term debt, less current installments $83,731,099 $34,837,880
=========== ===========
</TABLE>
In February 1996, the Company amended its Bank Credit Agreement (the Bank
Agreement). The amended Bank Agreement provides for borrowings on a revolving
basis of up to $55 million at an interest rate based upon LIBOR or prime. The
interest rate in effect at January 28, 1996 was 5.98%. The Bank Agreement
expires in September 1998. At January 28, 1996 the Company had $33 million in
available borrowings under the Bank Agreement.
In October 1995, the Company issued $40 million of 6.83% Senior Notes to an
insurance company. The 6.83% Senior Notes have an average life of seven years
and mature in 2005. The proceeds were used to repay long-term debt and to fund
acquisitions. In December 1995, the Company prepaid without penalty the 10.06%
Fixed Rate Notes.
In December 1993, the Company issued $20 million of 5.79% Senior Notes to an
insurance company. The 5.79% Senior Notes have an average life of seven years
and mature in 2003. The proceeds were used to repay long-term bank debt.
The 6.83% Senior Notes, the 5.79% Senior Notes and the Bank Agreement require
the Company, among other things, to maintain certain minimum levels of
stockholders' equity and fixed charge coverage and they set a minimum current
ratio and a maximum capitalization ratio. The agreements also contain certain
restrictions on dividends and stock redemptions. At January 28, 1996, the
Company had $21.5 million in unrestricted stockholders' equity.
The Company's Industrial Revenue Bond obligations bear interest at stated
interest rates or interest rates that vary based upon market conditions for
floating tax-exempt bonds. The weighted average interest rate on the bond
obligations at January 28, 1996 was 4.27%. The bond issues are generally
secured by an irrevocable bank letter of credit. The bond issues mature at
varying dates through 2015. Included in other assets in the accompanying
consolidated balance sheets were $1.7 million in unexpended proceeds related to
these bond issues to be used for future facility construction and related
equipment purchases. On March 7, 1996 the Company issued $4.5 million in
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 bonds are secured by a bank letter of credit. Proceeds from the bond
offering were used to reduce bank debt which had been incurred to finance
construction of facilities.
The approximate aggregate principal installments of long-term debt for the next
five fiscal years are: 1997, $481,000; 1998, $2,042,000; 1999, $20,110,000;
2000, $6,521,000; 2001, $9,520,000 and for all years thereafter, $45,538,000.
22
<PAGE>
(6) INCOME TAXES
The components of income tax expense (benefit) for the years ended January 28,
1996, January 29, 1995 and January 30, 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $4,445,000 $4,482,000 $4,200,000
State and local 784,000 903,000 879,000
---------- ---------- ----------
5,229,000 5,385,000 5,079,000
Deferred 1,813,000 1,017,000 (34,000)
---------- ---------- ----------
Total income tax expense $7,042,000 $6,402,000 $5,045,000
========== ========== ==========
</TABLE>
For the years ended January 28, 1996, January 29, 1995 and January 30, 1994,
income taxes provided differed from the expected federal statutory rate of 35%
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Computed expected tax at statutory rate $6,486,000 $5,745,000 $4,494,000
State and local taxes, net of federal benefit 508,000 587,000 548,000
Adjustment to deferred tax assets and
liabilities for enacted changes in tax rates -- -- 165,000
Other 48,000 70,000 (162,000)
---------- ---------- ----------
$7,042,000 $6,402,000 $5,045,000
========== ========== ==========
Effective tax rate 38.0% 39.0% 39.3%
========== ========== ==========
</TABLE>
The tax effects of temporary differences that gave rise to deferred tax assets
and (liabilities) at January 28, 1996 and January 29, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Depreciation $ (9,198,011) $ (7,910,011)
Rental garments in service (12,127,000) (8,207,000)
Accrued expenses 2,032,000 1,698,000
Other assets, noncurrent (3,407,000) 104,000
Other (132,000) (452,000)
------------ ------------
Net deferred tax liability $(22,832,011) $(14,767,011)
============ ============
</TABLE>
Total deferred tax assets and liabilities at January 28, 1996 and January 29,
1995 were $2,648,000 and ($25,480,011) and $2,112,000 and ($16,879,011),
respectively. No valuation allowances for deferred tax assets have been
provided.
23
<PAGE>
(7) EMPLOYEE BENEFIT PLANS
The Company has contributory thrift plans covering substantially all of its
salaried and clerical employees and certain employees subject to collective
bargaining agreements. Under the provisions of these plans, employees are
permitted to contribute a maximum of 6% of their earnings and the Company makes
matching contributions of 25% to 50%. Employees may make additional unmatched
contributions to the plans of up to 9% of their earnings. The Company's
contributions were $874,000, $814,000 and $645,000 for the fiscal years ended
January 28, 1996, January 29, 1995 and January 30, 1994, respectively.
The Company has an employee stock option plan which provides for the
discretionary granting of options for up to 450,000 shares of the Company's
common stock to employees selected by the Compensation Committee of the Board of
Directors. The exercise price of the options may not be less than the fair
market value at the date of grant. The options granted to date were nonqualified
stock options which vest ratably over four years and expire ten years after the
date of grant. At January 28, 1996, 113,813 options were available for grant
under the plan and 221,750 shares under option were exercisable. The Company
granted a nonqualified stock option for 60,000 shares of common stock to an
officer. This option expires in 2001.
Stock option activity for the three fiscal years ended January 28, 1996 was as
follows:
<TABLE>
<CAPTION>
Option
Number Price
of Shares Range
--------- --------------
<S> <C> <C>
OUTSTANDING AT JANUARY 31, 1993 210,000 $ 7.00 - 11.17
Granted 40,500 12.83 - 13.50
Terminated (3,750) 11.17
Exercised (3,000) 11.17
-------
OUTSTANDING AT JANUARY 30, 1994 243,750 7.00 - 13.50
Granted 143,250 17.00
Terminated (5,250) 11.17 - 17.00
-------
OUTSTANDING AT JANUARY 29, 1995 381,750 7.00 - 17.00
Granted 21,000 17.63 - 25.00
Terminated (9,563) 11.17 - 17.00
Exercised (6,437) 11.17 - 17.00
-------
OUTSTANDING AT JANUARY 28, 1996 386,750 7.00 - 25.00
=======
</TABLE>
24
<PAGE>
(8) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company rents its general office building and certain facilities and
equipment under various operating leases. Rent charged to operations (including
month-to-month rentals on certain equipment) was $4.9 million in fiscal 1996,
$4.5 million in fiscal 1995 and $4.0 million in fiscal 1994.
A summary of noncancelable long-term lease commitments follows:
<TABLE>
<CAPTION>
Years Ending
January
------------
<S> <C>
1997 $1,430,000
1998 754,000
1999 645,000
2000 539,000
2001 330,000
Thereafter 652,000
----------
$4,350,000
==========
</TABLE>
Certain real estate taxes on leased property are obligations of the Company. It
is anticipated that leases that expire will be renewed or replaced, and future
lease commitments are not expected to aggregate less than the amount shown for
fiscal 1997.
ENVIRONMENTAL MATTERS AND LITIGATION
The Company is subject to various federal, state and local regulations relating
to environmental matters, including laws which require the investigation and, in
some cases, remediation of environmental contamination. The Company's policy is
to accrue and charge to operations environmental investigation and remediation
expenses when it is probable that a liability has been incurred and an amount is
reasonably estimable. The Company is also subject to legal proceedings and
claims arising from the conduct of its business, including personal injury,
customer contract and employment claims.
Based on information currently available, management does not believe the
liability, if any, arising from settlement of these matters will have a material
adverse effect on the consolidated financial statements of the Company.
25
<PAGE>
(9) BUSINESS SEGMENT INFORMATION
The Company rents uniforms and other items to customers through arrangements by
which the Company provides pick-up, cleaning, maintenance and delivery of its
rental products. The Company is also engaged in the manufacture and sale of
uniforms used by industrial personnel and other individuals who are in contact
with the public. Operating contribution has been determined by deducting from
segment revenues all costs and expenses directly related to the operations of
the segments, excluding depreciation and amortization, general and
administrative expense, other expense and interest expense. Identifiable assets
are those used directly in the segments' operations. Other corporate assets
consist primarily of cash and cash equivalents, prepaid expenses and other
noncurrent assets. Information with respect to these operations for the years
ended January 28, 1996, January 29, 1995 and January 30, 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Rental operations $158,074,437 $133,488,069 $125,006,214
Direct sales 56,242,363 55,655,727 52,908,968
------------ ------------ ------------
$214,316,800 $189,143,796 $177,915,182
============ ============ ============
Intersegment transfers to Rental operations, (at cost) $ 17,215,800 $ 16,193,862 $ 13,969,694
============ ============ ============
Operating contribution:
Rental operations $ 30,499,980 $ 26,396,917 $ 22,897,452
Direct sales 10,217,489 10,664,759 9,911,148
------------ ------------ ------------
Total operating contribution 40,717,469 37,061,676 32,808,600
Depreciation and amortization 11,102,487 9,659,338 9,530,036
General and administrative expense 7,780,457 8,229,984 7,011,861
Interest expense, net 3,303,105 2,627,655 3,333,755
Other expense, net 289 129,569 91,840
------------ ------------ ------------
Earnings before income taxes $ 18,531,131 $ 16,415,130 $ 12,841,108
============ ============ ============
Identifiable assets:
Rental operations $183,692,407 $103,578,360 $ 96,407,350
Direct sales 34,413,176 31,676,700 32,378,353
Corporate 5,463,509 8,192,951 4,004,575
------------ ------------ ------------
$223,569,092 $143,448,011 $132,790,278
============ ============ ============
Capital expenditures:
Rental operations $ 16,782,192 $ 7,223,374 $ 5,404,097
Direct sales 4,968,403 809,520 4,235,597
Corporate 360,753 1,213,191 135,632
------------ ------------ ------------
$ 22,111,348 $ 9,246,085 $ 9,775,326
============ ============ ============
Depreciation and amortization expense:
Rental operations $ 9,187,124 $ 7,857,700 $ 7,694,349
Direct sales 1,320,244 1,281,881 1,369,111
Corporate 595,119 519,757 466,576
------------ ------------ ------------
$ 11,102,487 $ 9,659,338 $ 9,530,036
============ ============ ============
</TABLE>
26
<PAGE>
(10) UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data was as follows:
<TABLE>
<CAPTION>
Fiscal Quarters Ended
--------------------------------------------------------
1996 April July October January Total
- ---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Rental operations $35,970,814 $37,822,136 $38,769,022 $45,512,465 $158,074,437
Direct sales 14,622,146 12,999,109 13,682,987 14,938,121 56,242,363
----------- ----------- ----------- ----------- ------------
Total revenues $50,592,960 $50,821,245 $52,452,009 $60,450,586 $214,316,800
=========== =========== =========== =========== ============
Operating income $ 4,956,762 $ 4,904,850 $ 5,908,081 $ 6,064,832 $ 21,834,525
=========== =========== =========== =========== ============
Net earnings $ 2,636,639 $ 2,567,119 $ 3,317,635 $ 2,967,738 $ 11,489,131
=========== =========== =========== =========== ============
Net earnings per common share $ .28 $ .27 $ .35 $ .32 $ 1.23
=========== =========== =========== =========== ============
Weighted average common and
common equivalent shares outstanding 9,336,026 9,365,733 9,381,681 9,389,378 9,368,394
=========== =========== =========== =========== ============
1995 April July October January Total
- ---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Rental operations $32,212,937 $32,707,302 $34,031,367 $34,536,463 $133,488,069
Direct sales 13,859,864 12,810,335 14,284,680 14,700,848 55,655,727
----------- ----------- ----------- ----------- ------------
Total revenues $46,072,801 $45,517,637 $48,316,047 $49,237,311 $189,143,796
=========== =========== =========== =========== ============
Operating income $ 4,255,351 $ 4,216,583 $ 5,247,210 $ 5,453,210 $ 19,172,354
=========== =========== =========== =========== ============
Net earnings $ 2,130,799 $ 2,172,326 $ 2,810,703 $ 2,899,302 $ 10,013,130
=========== =========== =========== =========== ============
Net earnings per common share $ .23 $ .23 $ .30 $ .31 $ 1.07
=========== =========== =========== =========== ============
Weighted average common and
common equivalent shares outstanding 9,326,580 9,332,703 9,339,408 9,340,432 9,334,781
=========== =========== =========== =========== ============
</TABLE>
27
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental operations $158,075 $133,488 $125,006 $115,496 $ 93,331
Direct sales 56,242 55,656 52,909 54,653 49,503
-------- -------- -------- -------- --------
Total $214,317 $189,144 $177,915 $170,149 $142,834
======== ======== ======== ======== ========
Operating profit contribution:
Rental operations $ 30,500 $ 26,397 $ 22,897 $ 20,844 $ 16,378
Direct Sales 10,217 10,664 9,912 9,059 7,571
-------- -------- -------- -------- --------
Total operating contribution 40,717 37,061 32,809 29,903 23,949
Depreciation and amortization (11,102) (9,659) (9,530) (8,836) (6,541)
General and administrative (7,780) (8,230) (7,012) (6,742) (6,455)
-------- -------- -------- -------- --------
Operating income $ 21,835 $ 19,172 $ 16,267 $ 14,325 $ 10,953
======== ======== ======== ======== ========
Operating income percentage 10.2% 10.1% 9.1% 8.4% 7.7%
Net earnings $ 11,489 $ 10,013 $ 7,796 $ 5,900 $ 4,337
Net earnings per common share (a) $ 1.23 $ 1.07 $ .87 $ .78 $ .57
Dividends per common share (a) $ .10 $ .08 $ .07 $ -- $ --
Financial position at year end:
Current assets $ 78,383 $ 64,897 $ 56,933 $ 54,368 $ 46,045
Net property, plant and equipment 82,292 59,517 57,349 54,775 41,553
Total assets 223,569 143,448 132,790 126,688 93,748
Working capital 37,914 40,331 34,420 27,431 24,688
Current ratio 1.9:1 2.6:1 2.5:1 2.0:1 2.2:1
Financial structure:
Long-term debt, less current installments $ 83,731 $ 34,838 $ 35,665 $ 54,600 $ 34,915
Stockholders' equity 86,125 75,433 66,161 37,254 31,354
Book value per share (a) 9.28 8.14 7.14 4.94 4.15
Capitalization ratio 49.3% 31.6% 35.0% 59.4% 52.7%
Cash flows:
Operating activities $ 24,702 $ 19,965 $ 21,100 $ 15,804 $ 10,926
Investing activities (65,408) (13,690) (14,950) (39,052) (5,696)
Financing activities 33,016 (1,974) (2,815) 23,162 (5,211)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents $ (7,690) $ 4,301 $ 3,335 $ (86) $ 19
======== ======== ======== ======== ========
General statistics:
Common shares outstanding at year end (a) 9,279 9,272 9,272 7,544 7,544
Capital expenditures $ 22,111 $ 9,246 $ 9,775 $ 6,894 $ 5,717
</TABLE>
(a) Restated for 3-for-2 stock split in the form of a stock dividend on
September 23, 1994.
28
<PAGE>
STOCKHOLDER INFORMATION
COMMON STOCK INFORMATION
The Common Stock is listed on the NASDAQ Stock Market under the symbol UTOG. At
January 28, 1996 there were 389 stockholders of record and the Company estimates
that there were approximately 1,500 stockholders as of that date.
PRICE RANGE
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
Quarter ended High Low Quarter Ended High Low
- ------------- ------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
April 1995 $19-1/4 $16-1/2 April 1994 $17-7/8 $15-5/8
July 1995 $24-1/8 $18-3/4 July 1994 $19 $16-1/2
October 1995 $24-1/4 $23 October 1994 $18-3/4 $16-1/2
January 1996 $25 $23-1/2 January 1995 $18-3/4 $17-1/2
</TABLE>
29
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
DOMESTIC SUBSIDIARIES
<TABLE>
<CAPTION>
Names Under Which
State of Subsidiary Does
Name Incorporation Business
---- ------------- -----------------
<S> <C> <C>
Unitog Rental Services, Inc. California Unitog Rental Services, Inc.
Unitog Distributing Company, Inc. California Unitog Distributing Company, Inc.
Ace-Tex Corporation Michigan Mechanics Uniform Rental Co.
Mechanics Uniform Rental Co. Michigan Mechanics Uniform Rental Co.
Hamilton Wiping Cloth Co. Michigan Hamilton Wiping Cloth Co.
(Inactive)
Textile Enterprises, Inc. Texas Textile Enterprises, Inc.
(Inactive)
Holden Manufacturing Co. Missouri Holden Manufacturing Co.
Foreign Subsidiary
Names Under Which
State of Subsidiary Does
Name Incorporation Business
---- ------------- -----------------
Unitog De Honduras, S.A. Honduras Unitog De Honduras, S.A.
</TABLE>
<PAGE>
Exhibit 23
The Board of Directors
Unitog Company:
We consent to incorporation by reference in the registration statements on Form
S-8 of Unitog Company (filing No. 33 - 48632, No. 33 - 48633 and No. 033-60303)
of our report dated March 15, 1996, relating to the consolidated balance sheets
of Unitog Company and subsidiaries as of January 28, 1996 and January 29, 1995
and the related consolidated statements of earnings, retained earnings, and cash
flows for each of the years in the three-year period ended January 28, 1996,
which report appears in the January 28, 1996 annual report on Form 10-K of
Unitog Company.
Kansas City, Missouri KPMG PEAT MARWICK LLP
April 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements of Unitog Company, dated as of and for the year ended
January 28, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JAN-28-1996
<CASH> 28,321
<SECURITIES> 0
<RECEIVABLES> 25,012,073
<ALLOWANCES> 760,000
<INVENTORY> 15,333,981
<CURRENT-ASSETS> 78,382,621
<PP&E> 140,834,624
<DEPRECIATION> 58,542,615
<TOTAL-ASSETS> 223,569,092
<CURRENT-LIABILITIES> 40,468,397
<BONDS> 83,731,099
<COMMON> 92,793
0
0
<OTHER-SE> 86,124,707
<TOTAL-LIABILITY-AND-EQUITY> 223,569,092
<SALES> 56,242,363
<TOTAL-REVENUES> 214,316,800
<CGS> 46,024,874
<TOTAL-COSTS> 184,701,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,303,105
<INCOME-PRETAX> 18,531,131
<INCOME-TAX> 7,042,000
<INCOME-CONTINUING> 11,489,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,489,131
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
