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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
For the fiscal year ended January 25, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-6643
UNITOG COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 44-0529828
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1300 Washington 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $158,027,900 as of March 1, 1998.
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As of April 15, 1998, Unitog Company had 9,392,896 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
25, 1998. Part III incorporates information by reference from the
registrant's definitive proxy statement, dated April 20, 1998.
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 1300 Washington Street, Kansas
City, Missouri 64105, and its telephone number is (816) 474-7000.
A. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Information incorporated herein by reference from the Company's Annual
Report to Stockholders for the fiscal year ended January 25, 1998, page 25.
B. 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
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 79.3%, 77.9% and 73.8% of the Company's total
revenues in fiscal 1998, 1997 and 1996, 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
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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 58 markets to customers in 34
states, plus the province of Ontario, Canada. 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 outside of 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 65 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 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 40 years. The Postal Service
provides an annual allotment ranging from $54.00 to $341.00 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.
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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, and working to satisfy those needs. Unitog believes the
combined selling effort results 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 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
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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 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 various federal, state and local laws
involving environmental matters, including laws requiring the investigation
and remediation of environmental contamination.
The Company has been named as a potentially responsible party, and thus
faces joint and several liability, under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") as a result of alleged
environmental contamination in Tempe, Arizona. Unitog's rental facility in
Tempe is located within the South Indian Bend Wash Federal Superfund ("SIBW")
site. The SIBW site is a several square mile area designated for action
because of the presence of volatile organic compounds in the groundwater
there. Soil testing at the Company's facility detected volatile organic
compounds in the soil and the Company is now in the process of remediating
the soil at its facility. The Company's estimate of the expense related to
soil remediation at its Tempe facility has been accrued and charged to
operating expense. Groundwater testing at the Company's property has detected
what the Company believes is very low levels of volatile organic compound
contamination on site. The United States Environmental Protection Agency
("EPA") has preliminarily proposed to treat the groundwater at the SIBW site
over a 30 year period at an estimated present value cost of $28 million. EPA
has received numerous comments from potentially responsible parties and
others disputing the need for any action at the SIBW site because of the low
levels of contamination. EPA has indicated that it is reassessing its
proposed preliminary remedy. It is not possible to determine whether the EPA
plan or any alternative plan will be implemented. It is also not possible to
determine the Company's liability for its share of the costs at the SIBW site
if groundwater treatment is implemented. Based on information currently known
to the Company, the Company does not believe that its
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liability, if any, with respect to the SIBW site will be material to the
consolidated financial position of the Company. The charge to net earnings
during any future quarterly period for costs should a groundwater treatment
plan be required could have a material adverse effect on net earnings of that
quarterly period.
The Company is remediating volatile organic compound contamination in
soil and ground water at the Company's Minneapolis, Minnesota rental
facility. The Company's estimate of the expense related to the remediation
of the contamination has been accrued and charged to operating expense.
The Company is also 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 wastewater discharge matters, the Company does not believe
that costs incurred in connection with wastewater compliance will have a
material adverse effect on the consolidated financial position or results of
operations or cash flows of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the executive officers of the Company is set
forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR
NAME AGE LAST FIVE YEARS
- ---- --- ---------------------------------------------
<S> <C> <C>
Randolph K. Rolf 56 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.
J. Craig Peterson 45 Mr. Peterson has served as the Company's
Executive Vice President - Chief
Administrative and Financial Officer since
January 1997. From July 1991 until January
1997 he was Senior Vice President - Finance
and Administration and Chief Financial
Officer.
Terence C. Shoreman 43 Mr. Shoreman has served as the Company's
Executive 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.
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR
NAME AGE LAST FIVE YEARS
- ---- --- ---------------------------------------------
<S> <C> <C>
G. Jay Arrowsmith 50 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.
Robert M. Barnes 40 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 55 Mr. Harden has served as the Company's
Controller since 1981.
</TABLE>
EMPLOYEES
The Company had 4,242 full-time employees as of January 25, 1998.
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
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Location Type of Facility
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North Hollywood, California*. . . . . . . . Sales and Service Branch
Ontario, California . . . . . . . . . . . . Sales and Service Branch
and Distribution Center
San Diego, California . . . . . . . . . . . Processing Plant
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
Tampa, Florida* . . . . . . . . . . . . Sales and Service Branch
Atlanta, Georgia* . . . . . . . . . . . . Processing Plant
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
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 . . . . . . . . . . .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. . . . . . . . . . . . . . .Sales and Service Branch
Grand Rapids, Michigan*. . . . . . . . . . .Processing Plant
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
Willmar, Minnesota*. . . . . . . . . . . . .Sales and Service Branch
Concordia, Missouri* . . . . . . . . . . . .Manufacturing Facility
Kansas City, Missouri. . . . . . . . . . . .Corporate Headquarters
Kansas City, Missouri. . . . . . . . . . . .Processing Plant
North Kansas City, Missouri* . . . . . . . .Sales, Service and Distribution
Facility
St. Charles, Missouri. . . . . . . . . . . .Manufacturing Facility
University City, Missouri. . . . . . . . . .Processing Plant
Warrensburg, Missouri. . . . . . . . . . . .Manufacturing Facility and
and Distribution Center
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Location Type of Facility
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Warsaw, Missouri . . . . . . . . . . . . . .Manufacturing Facility
North Las Vegas, Nevada. . . . . . . . . . .Processing Plant
Charlotte, North Carolina* . . . . . . . . .Sales and Service Branch
Brecksville, Ohio* . . . . . . . . . . . . .Sales and Service Branch
Lima, Ohio*. . . . . . . . . . . . . . . . .Sales and Service Branch
Springfield, Ohio* . . . . . . . . . . . . .Sales and Service Branch
Toledo, Ohio*(1) . . . . . . . . . . . . . .Processing Plant
Oklahoma City, Oklahoma* . . . . . . . . . .Sales and Service Branch
Bethlehem, Pennsylvania. . . . . . . . . . .Processing Plant
Bristol, Pennsylvania. . . . . . . . . . . .Processing Plant
Exton, Pennsylvania. . . . . . . . . . . . .Processing Plant
Harrisburg, Pennsylvania*. . . . . . . . . .Sales and Service Branch
Hazelton, Pennsylvania*. . . . . . . . . . .Sales and Service Branch
Memphis, Tennessee*. . . . . . . . . . . . .Sales and Service Branch
Nashville, Tennessee*. . . . . . . . . . . .Sales and Service Branch
Dallas, Texas* . . . . . . . . . . . . . . .Processing Plant
Houston, Texas*. . . . . . . . . . . . . . .Processing Plant
New Braunfels, Texas*. . . . . . . . . . . .Sales and Service Branch
Mississauga, Ontario, Canada . . . . . . . .Processing Plant
La Ceiba, Honduras*. . . . . . . . . . . . .Manufacturing Facility
</TABLE>
___________________________
* Leased for various terms expiring from fiscal 1999 to fiscal 2007. 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, contract disputes and employment claims.
The Company is also involved in environmental proceedings as described in Item 1
above.
The Company had previously been notified by the United States Department of
Justice that the Company was potentially responsible for environmental
contamination at the San Gabriel Valley Federal Superfund site in Whittier,
California. In December 1997 the Company was informed by the Justice Department
that the government no longer considered the Company potentially responsible
with respect to that site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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 25, 1998, page
28.
Dividends on the outstanding common stock totaled $.15 and $.12 per
share in fiscal 1998 and 1997, respectively, and are paid semi-annually. The
Company's principal credit agreements contain certain restrictions on
dividends. At January 25, 1998, the Company had $27.2 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 25, 1998, page 27.
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 25, 1998, pages
9 - 12.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This report contains
forward-looking statements that reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or those
anticipated. The words "should," "believe," "expect," "anticipate,"
"intend," "estimate" and other expressions that indicate future events and
trends identify forward-looking statements. Actual future results and trends
may differ materially from historical results or those anticipated depending
on a variety of factors, including, but not limited to, performance of
acquisitions; economic and business changes; fluctuations in the cost of
materials; labor strikes and unemployment levels; demand and price for the
Company's products and services; successfully addressing Year 2000 issues;
and the outcome of pending and future litigation and environmental matters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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 25, 1998,
pages 12 - 26.
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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 1998 Annual Meeting of Stockholders under the captions
"Nominees for Three-Year Terms" and "Continuing Directors", pages 4 and 5,
"Section 16(a) Beneficial Ownership Reporting Compliance", 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 1998 Annual Meeting of Stockholders under the captions
"Compensation of Directors" and "Executive Compensation and Other Information",
pages 8 - 13, except information under the captions "Board Compensation
Committee 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 1998 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 12 - 26 of
the Company's Annual Report to Stockholders for the fiscal year ended
January 25, 1998).
- - Independent Auditors' Report.
- - Consolidated Balance Sheets--January 25, 1998 and January 26, 1997.
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- - Consolidated Statements of Earnings--Years ended January 25, 1998,
January 26, 1997, and January 28, 1996.
- - Consolidated Statements of Stockholders' Equity--Years ended January 25,
1998, January 26, 1997 and January 28, 1996.
- - Consolidated Statements of Cash Flows--Years ended January 25, 1998,
January 26, 1997 and January 28, 1996.
- - Notes to Consolidated Financial Statements.
2. Exhibits.
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).
3(b) Fourth Amended and Restated Bylaws, as amended (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.
(incorporated by reference to Exhibit 4(f) of Annual Report on Form 10-K
for fiscal year ended January 28, 1996).
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4(g) Amendment No. 4 to Loan and Letter of Credit Reimbursement Agreement,
dated November 25, 1996, 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(a) to Quarterly Report on Form
10-Q for the quarterly period ended October 27, 1996).
4(h) Amendment No. 5 to Loan and Letter of Credit Reimbursement Agreement,
dated October 6, 1997, 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(a) to Quarterly Report on Form
10-Q for the quarterly period ended October 26, 1997).
4(i) 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(j) 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).
# # The Company hereby undertakes to file upon request of the Securities and
Exchange Commission a copy of any agreement defining the rights of
holders of long term debt not filed by virtue of Item 601(b)(4)(iii)(A)
of Regulation S-K.
10(a)* 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(b)* 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(c)* Description of Management Incentive Plan.
10(d)* 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).
10(e) Unitog Company 1997 Stock Option Plan (incorporated by reference to
Exhibit A to registrant's definitive proxy statement for its 1997 Annual
Meeting of Stockholders).
13 Information incorporated by reference from the Annual Report to
Stockholders for the fiscal year ended January 25, 1998.
13
<PAGE>
21 Subsidiaries of the registrant (incorporated by reference to Exhibit 21
of the registrant's Annual Report on Form 10-K for fiscal year ending
January 28, 1996).
23 Consent of independent public accountant.
27.1 Financial Data Schedule (Fiscal Year End 1998)
27.2 Financial Data Schedule (Restated).
27.3 Financial Data Schedule (Restated).
* 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. There were no reports on Form 8-K filed during the
fourth quarter of the last fiscal year.
14
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page Reference
Annual Report
to
Stockholders
Independent Auditor's Report 12
Financial Statements:
Consolidated Balance Sheets--January
25, 1998 and January 26, 1997 13
Consolidated Statements of Earnings--
Years Ended January 25, 1998, January
26, 1997 and January 28, 1996 14
Consolidated Statements of Stockholders'
Equity--Years Ended January 25, 1998,
January 26, 1997 and January 28, 1996 14
Consolidated Statements of Cash Flows--
Years Ended January 25, 1998, January
26, 1997 and January 28, 1996 15
Notes to Consolidated Financial Statements 16 - 26
15
<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 20, 1998
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Randolph K. Rolf Chairman, President April 20, 1998
- -----------------------
Randolph K. Rolf and Chief Executive
Officer
/s/ J. Craig Peterson Executive Vice President, April 20, 1998
- -----------------------
J. Craig Peterson Chief Administrative and
Financial Officer
/s/ Ronald J. Harden Controller April 20, 1998
- -----------------------
Ronald J. Harden
/s/ G. Kenneth Baum Director April 20, 1998
- -----------------------
G. Kenneth Baum
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director April ___, 1998
- -----------------------
Michael R. Boyce
Director April ___, 1998
- -----------------------
John W. Caffry
/s/ D. Patrick Curran Director April 20, 1998
- -----------------------
D. Patrick Curran
/s/ Andrew B. Schmitt Director April 20, 1998
- -----------------------
Andrew B. Schmitt
/s/ William D. Thomas Director April 20, 1998
- -----------------------
William D. Thomas
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
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).
3(b) Fourth Amended and Restated Bylaws and amendment thereto (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, as
amended (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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
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.
(incorporated by reference to Exhibit 4(f) of Annual Report on Form
10-K for fiscal year ended January 28, 1996).
4(g) Amendment No. 4 to Loan and Letter of Credit Reimbursement Agreement,
dated November 25, 1996, 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(a) to Quarterly Reports on
Form 10-Q for the quarterly period ended October 27, 1996).
4(h) Amendment No. 5 to Loan and Letter of Credit Reimbursement Agreement,
dated October 6, 1997, 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(a) to Quarterly Reports on
Form 10-Q for the quarterly period ended October 26, 1997).
4(i) 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(j) 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).
# # The Company hereby undertakes to file upon request of the Securities
and Exchange Commission a copy of any agreement defining the rights of
holders of long term debt not filed by virtue of Item
601(b)(4)(iii)(A) of Regulation S-K.
10(a)* 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).
<PAGE>
10(b)* 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).
10(c)* Description of Management Incentive Plan.
10(d)* 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).
10(e) Unitog Company 1997 Stock Option Plan (incorporated by reference to
Exhibit A to registrant's definitive proxy statement for its 1997
Annual Meeting of Stockholders).
13 Information incorporated by reference from the Annual Report to
Stockholders for the fiscal year ended January 25, 1998.
21 Subsidiaries of the registrant (incorporated by reference to Exhibit
21 of the registrant's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996).
23 Consent of independent public accountant.
27.1 Financial Data Schedule (Fiscal Year End 1998).
27.2 Financial Data Schedule (Restated).
27.3 Financial Data Schedule (Restated).
* 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. There were no reports on Form 8-K filed during
the last fiscal quarter.
</TABLE>
<PAGE>
Exhibit 10(c)
DESCRIPTION OF MANAGEMENT INCENTIVE PLAN
The purpose of the Company's Management Incentive Plan is to
provide a direct financial incentive in the form of an annual cash bonus for
achievement of Company, major business segment and individual goals. The
Plan limits the total amount that can be paid in a given year to a
predetermined percentage of operating income. At least 40% of an executive's
annual bonus opportunity is based on actual versus targeted earnings per
share of the Company. For those executives who work primarily in a
particular operating segment, up to 60% of the executive's bonus may be based
on the operating income of that business segment. Up to 20% of an
executive's bonus may be based on quantitative criteria applicable to the
executive's area of responsibility, such as revenues and expense control,
which are set by the executive's supervisor, and up to 20% of the bonus may
be based on an evaluation of whether personal goals applicable to the
executive were attained. To the extent the financial and individual goals
are met, an executive receives a cash bonus equivalent to a pre-determined
percentage of base salary that is based on the executive's level of
responsibility within the Company. The specific earnings per share goals for
the Company and operating income goals for the major business segments are
approved by the Compensation Committee of the Board of Directors at the
beginning of each fiscal year based on financial plans for the year. The
portion of bonuses paid based on earnings per share performance of the
Company and operating income of the particular business units is not paid
unless the Company's earnings per share exceed the goal set by the
Compensation Committee. The portion of an executive's bonus that is based on
individual accomplishment may be paid even if the corporate earnings per
share target is not achieved.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues for fiscal 1998 were $277.2 million, an increase of $15.5 million or 6%
over fiscal 1997 revenues of $261.7 million.
Rental revenues were $219.8 million for fiscal 1998, an increase of $16.0
million or 8% over last year. The increase was about evenly split between
acquired revenues and internal growth from existing locations. Industrial
uniform rental revenues experienced 5% internal growth, while linen rental
revenues were flat. We acquired rental operations in Detroit and Tampa during
fiscal 1998. Combined, these two acquisitions should add $2.5 million in annual
rental revenue.
Direct Sales were $57.4 million for fiscal 1998, a $500,000 or 1% decrease from
last year. Direct Sales of industrial uniforms were about the same as last year
while sales of postal uniforms declined. The decrease in postal sales occurred
mostly in the fourth quarter of fiscal 1998 as the U.S. Postal Service
experimented with revised methods for its employees to order and pay for
uniforms on a national scale.
Operating income was $26.3 million for fiscal 1998, an increase of $1.0 million
or 4% over last year. Included in operating income was a $2 million recovery
from a breach of contract lawsuit with a former customer. Also included in
operating income was a $1 million charge for additional costs resulting from
environmental and other matters. Exclusive of the legal recovery and the
additional environmental costs, operating income was the same as the previous
year. The legal recovery and the additional environmental costs were included
in the operations of each affected business segment.
Rental operating contribution was $42.8 million for fiscal 1998, an increase of
$4.2 million or 11% over last year. Rental operating contribution was 19.5% of
rental revenues compared to 18.9% in fiscal 1997. Exclusive of the legal
recovery and the additional environmental costs, the Rental operating
contribution increased 10% to 19.3% of rental revenues. Our Michigan operations
increased their operating profitability as expected. The remaining network of
rental locations also improved their operating profitability although at a
slightly lower rate than last year.
Direct Sales operating contribution was $10.0 million for fiscal 1998, $400,000
or 4% less than last year. Direct Sales operating contribution was 17.4% of
sales compared to 17.9% last year. Exclusive of the legal recovery, the Direct
Sales operating contribution decreased 10% to 16.3% of sales. Lower sales and
higher discounts and costs associated with new national account identity
programs produced the lower operating contribution percentage in fiscal 1998.
Depreciation and amortization charges for fiscal 1998 were $17.4 million, an
increase of $2.0 million or 13% over last year. The increase was created by
higher levels of capital expenditures during fiscal 1998 and amortization of
intangible assets related to fiscal 1997 and 1998 acquisitions of rental
operations. General and administrative costs for fiscal 1998 of $9.0 million
increased $800,000 or 10% over last year and remained slightly above 3% of
revenue for both years.
Interest expense for fiscal 1998 of $6.2 million was $400,000 or 7% more than
last year. Borrowings to fund current and prior year rental acquisitions and
current year common stock repurchases increased the average level of outstanding
borrowings during the year consequently producing higher interest costs.
Interest expense was 2.2% of revenue for both fiscal 1998 and 1997.
9
<PAGE>
Net earnings were $12.5 million for fiscal 1998, an increase of $400,000 or 3%
above last year. Exclusive of the net $1 million legal recovery less the
additional environmental costs, net earnings decreased $200,000 or 2% from last
year. Higher Rental operating contribution offset the lower operating
contribution of the Direct Sales group and increased depreciation, amortization,
general, administrative and interest costs. Diluted net earnings per share were
$1.29 in fiscal 1998 compared to $1.26 per share in fiscal 1997. Exclusive of
the net $1 million legal recovery less the additional environmental costs,
diluted net earnings per share decreased $.03 per share from last year to $1.23
per share.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues for fiscal 1997 were $261.7 million, an increase of $47.4 million or
22% over fiscal 1996 revenues of $214.3 million. Rental revenues increased
29% over fiscal 1996 to $203.8 million. We acquired certain assets of Central
Quality Services Corporation in Michigan and rental operations in Philadelphia,
Las Vegas and Toronto during fiscal 1997. Internal growth from our existing
locations was 6% for fiscal 1997, the same as fiscal 1996. A decline in linen
rentals offset gains in our industrial uniform rental business. Direct Sales of
$57.9 million in fiscal 1997 increased by 3% over fiscal 1996. Sales of
industrial uniforms to new and existing customers created the increase. Sales
of postal uniforms were about the same as the previous year.
Operating income increased $3.4 million or 16% over the previous year to $25.3
million in fiscal 1997. Rental operating contribution was $38.5 million for
fiscal 1997, an increase of $8.0 million, or 26% over fiscal 1996. Rental
operating contribution was 18.9% of rental revenue compared to 19.3% in fiscal
1996. Costs related to assimilating fiscal 1997 acquisitions and lower
margins of fiscal 1997 and fiscal 1996 acquisitions reduced the rental operating
contribution percentage during the year. Direct Sales operating contribution
for fiscal 1997 was $10.4 million, about the same as fiscal 1996. Direct Sales
operating contribution was 17.9% of sales compared to 18.2% the previous year.
Sales promotion activities and costs incurred to introduce a new data processing
system at our distribution centers reduced the operating contribution percentage
in fiscal 1997.
Depreciation and amortization for fiscal 1997 increased by $4.3 million over
fiscal 1996 due to acquisition activity and capital expenditures. General and
administrative costs for fiscal 1997 of $8.2 million were about the same as
fiscal 1996 although lower as a percentage of revenue.
Interest expense for fiscal 1997 of $5.8 million was $2.5 million or 77% above
fiscal 1996. Borrowings to fund fiscal 1997 and fiscal 1996 acquisitions
increased interest costs.
Net earnings for fiscal 1997 were $12.1 million, an increase of $600,000 or 6%
over fiscal 1996. Higher Rental operating contribution offset increased
depreciation, amortization and interest expenses to create the gain. Diluted
net earnings per share were $1.26 in fiscal 1997 compared to $1.23 in fiscal
1996, a 2% increase. The average shares outstanding were 3% higher in fiscal
1997 due to shares issued to acquire a rental operation and employee stock
option activity.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at January 25, 1998 were $1.5 million, an increase of
$1.5 million over last year. Cash provided from operating activities totaled
$36.6 million for fiscal 1998, an increase of $17.1 million or 87% above last
year. Better earnings before interest, taxes, depreciation and amortization and
higher current liabilities produced the increase over last year. At January 25,
1998 the Company's capitalization ratio was 51%, the same as last year. At
January 25, 1998 long-term debt was at a blended interest rate of 6.3%. There
were $45 million in borrowings outstanding under the Company's $67 million long-
term domestic and foreign bank credit facilities at January 25, 1998.
During fiscal 1998 the Company completed acquisitions in Detroit and Tampa
spending $3.0 million. These acquisitions should add $2.5 million in annual
rental revenues. Since year-end, we completed the purchase of certain linen and
industrial uniform routes and production and distribution facilities in
Bethlehem and Harrisburg, Pennsylvania and purchased rental routes in
Minneapolis and Omaha. These acquisitions should add approximately $10.6
million in annual rental revenue.
10
<PAGE>
Working capital was $46.1 million at January 25, 1998 compared to $49.2 million
at January 26, 1997. The decrease in working capital was created by increased
current liabilities principally related to capital expenditure projects. The
Company raised its semi-annual dividend in fiscal 1998 by 25% to $.075 per
share. Capital expenditures were $33.6 million in fiscal 1998 compared to $15.9
million last year as the Company constructed facility addition projects in
Detroit and Southwest Michigan in addition to normal modernization and
replacement activity. In fiscal 1998 the Company constructed a corporate
headquarters building in Kansas City which it occupied in December, 1997. The
Board of Directors has authorized a future sale-leaseback of the corporate
headquarters building should the appropriate circumstances exist. Planned
capital expenditures for fiscal 1999 are $17 million to $19 million. During
fiscal 1998, the Company repurchased 289,425 shares of its common stock totaling
$6.3 million. The Company may repurchase up to 750,000 shares of its common
stock in public market and private transactions at prevailing prices under its
share repurchase program.
Management believes that cash provided by operations and its bank credit
facilities will be sufficient to meet its cash requirements for rental
acquisitions and capital expenditures in the foreseeable future.
ENVIRONMENTAL AND OTHER
The Company is subject to various federal, state and local laws involving
environmental matters, including laws requiring the investigation and
remediation of environmental contamination.
The Company has been named as a potentially responsible party, and thus faces
joint and several liability, under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") as a result of alleged environmental
contamination in Tempe, Arizona. Unitog's rental facility in Tempe is located
within the South Indian Bend Wash Federal Superfund ("SIBW") site. The SIBW
site is several square miles in size designated for action because of the
presence of volatile organic compounds in soil and groundwater there. Soil
testing at the Company's facility detected volatile organic compounds in the
soil and the Company is now in the process of remediating the soil at its
facility. The Company's estimate of the expense related to soil remediation at
its Tempe facility has been accrued and charged to operating expense.
Groundwater testing at the Company's property has detected what the Company
believes are very low levels of volatile organic compound contamination on site.
The United States Environmental Protection Agency ("EPA") has proposed to treat
the groundwater at the SIBW site over a 30 year period at an estimated present
value project cost of $28 million. EPA has received comments from potentially
responsible parties, including Unitog and others, disputing the need for any
action at the SIBW because of the low levels of contamination. EPA has
indicated that it is reassessing its proposed preliminary remedy. It is not
possible to determine whether the EPA plan or any alternative plan will be
implemented. It is also not possible to determine the Company's liability for
its share of the costs at the SIBW site if groundwater treatment is implemented.
The Company does not believe that its liability, if any, with respect to the
SIBW site will be material to the consolidated financial position of the
Company. The charge, if any, to net earnings during any future quarterly period
for costs should a groundwater treatment plan be required could have a material
adverse effect on net earnings of that quarterly period.
The Company is remediating volatile organic compound contamination in soil and
groundwater at the Company's Minneapolis, Minnesota rental facility. The
Company's estimate of the expense related to the remediation of the
contamination has been accrued and charged to operating expense.
The Company is also 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 wastewater
discharge matters, the Company does not believe that costs incurred in
connection with wastewater compliance will have a material adverse effect on its
consolidated financial position or results of its operations.
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>
The Year 2000 issue involves computer programs and embedded logic devices that
utilize two digits rather than four to define the applicable year and the
possible failure of those programs and devices to properly recognize date-
sensitive information when the year changes to 2000. Systems that do not
properly recognize date-sensitive information could generate erroneous data or a
system failure. Unitog is conducting a review of its computer systems to
identify those that could be affected by the Year 2000 issue. The Company has
proactively changed its data processing equipment, its communication equipment
and its core business software applications to respond to increased customer
service opportunities with its present customers and vendors and to develop new
opportunities with future prospective customers and vendors. The Company
believes its key information technology systems should be Year 2000 compliant in
the normal course of maintaining or updating recently implemented systems. The
Company expects such upgrades will be made on a timely basis and does not
believe the cost of such upgrades will have a material adverse effect on the
Company's operating results. There can be no assurance that the vendor provided
upgrades and the systems of other companies with which the Company does
business, such as customers and suppliers, will be timely converted or that any
such failure to upgrade or convert would not have an adverse effect on Unitog's
systems and operations.
During fiscal 1998 the Financial Accounting Standards Board issued Financial
Accounting Standard (FAS) No. 130, REPORTING COMPREHENSIVE INCOME, and FAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
Company will adopt the financial reporting as required by these standards during
fiscal 1999.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
certain forward-looking statements. This Annual Report contains forward-looking
statements that reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from historical results or those anticipated. The words "should,"
"believe," "expect," "anticipate," "intend," "estimate," and other expressions
that indicate future events and trends identify forward-looking statements.
Actual future results and trends may differ materially from historical results
or those anticipated depending on a variety of factors, including but not
limited to, performance of acquisitions; economic and business changes;
fluctuations in the cost of materials; labor strikes and unemployment levels;
demand and price for the Company's products and services; successfully
addressing Year 2000 issues; and the outcome of pending and future litigation
and environmental matters.
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 25, 1998 and January 26, 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended January 25, 1998. 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 25, 1998 and January 26, 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 25, 1998 in conformity with generally accepted accounting
principles.
/s/KPMG PEAT MARWICK LLP
---------------------------------
KPMG PEAT MARWICK LLP
Kansas City, Missouri
March 6, 1998
12
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,492,720 $ 31,307
Accounts receivable, less allowance for doubtful
receivables of $1,009,000 in 1998 and $1,240,000 in 1997 29,631,566 28,090,702
Inventories (note 3) 18,508,958 17,525,175
Rental garments in service, net 41,862,753 40,329,880
Prepaid expenses 1,102,585 1,375,210
------------ ------------
Total current assets 92,598,582 87,352,274
------------ ------------
Property, plant and equipment, at cost:
Land 9,803,264 7,665,437
Buildings and improvements 70,025,931 52,929,065
Machinery and equipment 109,401,863 100,757,284
------------ ------------
189,231,058 161,351,786
Less accumulated depreciation 71,920,005 66,554,486
------------ ------------
Net property, plant and equipment 117,311,053 94,797,300
------------ ------------
Other assets, net (notes 1 and 4) 29,592,025 35,120,442
Excess cost over net assets of businesses acquired, net 36,806,869 37,294,970
------------ ------------
$276,308,529 $254,564,986
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 4) $ 3,502,885 $ 2,046,821
Accounts payable 18,591,196 13,820,339
Accrued expenses 7,716,339 7,118,553
Accrued payroll expenses 4,428,341 4,251,004
Accrued and deferred income taxes payable (note 5) 12,262,867 10,880,382
------------ ------------
Total current liabilities 46,501,628 38,117,099
------------ ------------
Long-term debt, less current installments (note 4) 110,268,916 103,524,014
Deferred income taxes and other liabilities (note 5) 15,340,392 13,819,237
Stockholders' equity (notes 4 and 6):
Common stock of $.01 par value. Authorized 30,000,000 shares;
issued 9,657,909 shares in 1998 and 9,643,857 shares in 1997 96,579 96,439
Treasury stock, 289,425 common shares in 1998, at cost (note 1) (6,295,337) ---
Additional paid-in capital 41,470,281 41,202,740
Retained earnings 68,926,070 57,805,457
------------ ------------
Total stockholders' equity 104,197,593 99,104,636
------------ ------------
Commitments and contingencies (notes 4, 6 and 7) $276,308,529 $254,564,986
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended January 25, 1998, January 26, 1997, and January 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental operations $219,779,595 $203,780,197 $158,074,437
Direct sales 57,432,756 57,937,166 56,242,363
------------ ------------ ------------
Total revenues 277,212,351 261,717,363 214,316,800
------------ ------------ ------------
Operating costs and expenses:
Cost of rental operations 177,006,884 165,240,186 127,574,457
Cost of direct sales 47,467,494 47,585,867 46,024,874
Depreciation and amortization 17,428,059 15,397,777 11,102,487
General and administrative 9,027,164 8,213,074 7,780,457
------------ ------------ ------------
Total costs and expenses 250,929,601 236,436,904 192,482,275
------------ ------------ ------------
Operating income 26,282,750 25,280,459 21,834,525
Interest expense, net 6,221,750 5,841,546 3,303,105
Other expenses (income), net (132,215) (96,335) 289
------------ ------------ ------------
Earnings before income taxes 20,193,215 19,535,248 18,531,131
Income taxes (note 5) 7,674,000 7,407,000 7,042,000
------------ ------------ ------------
Net earnings $12,519,215 $12,128,248 $11,489,131
------------ ------------ ------------
------------ ------------ ------------
Net earnings per common share, basic $1.30 $1.27 $1.24
----- ----- -----
----- ----- -----
Net earnings per common share, assuming dilution $1.29 $1.26 $1.23
----- ----- -----
----- ----- -----
Dividends per common share $0.15 $0.12 $0.10
----- ----- -----
----- ----- -----
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended January 25, 1998, January 26, 1997, and January 28, 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON TREASURY PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 29, 1995 $92,721 $ ---- $39,070,262 $36,269,688 $75,432,671
Employee stock options (note 6) 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
Acquisition of American Dust
Control Co., Inc. (note 2) 2,666 --- 502,998 --- 505,664
Employee stock options (note 6) 980 --- 1,499,067 ---- 1,500,047
Net earnings --- --- --- 12,128,248 12,128,248
Dividends paid --- --- --- (1,156,693) (1,156,693)
Foreign currency translation adjustment --- --- --- 2,663 2,663
------- ----------- ----------- ----------- ------------
BALANCE AT JANUARY 26, 1997 96,439 --- 41,202,740 57,805,457 99,104,636
Employee stock options (note 6) 140 --- 267,541 ---- 267,681
Net earnings --- --- --- 12,519,215 12,519,215
Dividends paid --- --- --- (1,447,682) (1,447,682)
Treasury stock purchase, at cost --- (6,295,337) --- --- (6,295,337)
Foreign currency translation adjustment --- --- --- 49,080 49,080
------- ----------- ----------- ----------- ------------
BALANCE AT JANUARY 25,1998 $96,579 $(6,295,337) $41,470,281 $68,926,070 $104,197,593
------- ----------- ----------- ----------- ------------
------- ----------- ----------- ----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 25, 1998, January 26, 1997, and January 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $12,519,215 $12,128,248 $11,489,131
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 17,428,059 15,397,777 11,102,487
Provision for deferred income taxes 969,000 2,554,000 1,813,000
Loss (gain) on disposal of equipment 54,457 (129,821) (24,898)
Changes in assets and liabilities:
Accounts receivable (1,540,864) (1,337,134) (2,539,770)
Inventories (873,226) (2,191,194) (229,861)
Rental garments in service (966,027) 119,969 (3,953,090)
Prepaid expenses 272,625 (137,744) 27,198
Other noncurrent assets 1,377,795 673,945 42,002
Accounts payable 4,770,857 (1,574,160) 6,635,987
Accrued expenses 680,123 (3,475,979) (555,112)
Income taxes payable 1,367,485 (1,705,478) 542,546
Other noncurrent liabilities 567,157 (780,652) 214,661
---------- ---------- ----------
Net cash provided by operating activities 36,626,656 19,541,777 24,564,281
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of rental operations (3,102,392) (24,609,296) (43,296,202)
Purchase of property, plant and equipment (33,617,221) (15,857,089) (22,111,348)
Proceeds from disposal of equipment 828,742 588,108 137,399
---------- ---------- ----------
Net cash used by investing activities (35,890,871) (39,878,277) (65,270,151)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 267,681 1,500,047 130,485
Dividends paid (1,447,682) (1,156,693) (927,580)
Purchase of treasury stock (6,295,337) --- ---
Increases in long-term debt 8,200,966 28,982,363 52,365,473
Repayments of long-term debt --- (8,986,231) (18,552,186)
---------- ---------- ----------
Net cash provided by financing activities 725,628 20,339,486 33,016,192
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,461,413 2,986 (7,689,678)
Cash and cash equivalents at beginning of year 31,307 28,321 7,717,999
---------- ---------- ----------
Cash and cash equivalents at end of year $1,492,720 $ 31,307 $ 28,321
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $6,876,000 $6,278,000 $2,989,000
---------- ---------- ----------
---------- ---------- ----------
Income taxes $5,297,000 $5,728,000 $4,662,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 25, 1998, January 26, 1997, and January 28, 1996
(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 25,
1998, January 26, 1997 and January 28, 1996.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial statements to
conform to the current year's presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, money market deposits, and highly liquid
investments. 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 $36,161,000 and $34,652,000 at
January 25, 1998 and January 26, 1997, respectively.
16
<PAGE>
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.
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.
The Company capitalizes interest cost as a component of the cost of construction
in progress. Interest cost capitalized was $618,000, $471,000 and $132,000 for
the fiscal years ended January 25, 1998, January 26, 1997 and January 28, 1996,
respectively.
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 25, 1998 and January 26, 1997 the cost and related accumulated
amortization pertaining to noncompetition agreements was $17,954,000 and
($9,815,000) and $17,138,000 and ($7,359,000), respectively. The contractual
term for noncompetition agreements is generally three to eight years. At
January 25, 1998 and January 26, 1997 the cost and related accumulated
amortization pertaining to acquired customer contracts was $32,497,000 and
($12,786,000) and $32,067,000 and ($9,852,000), 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 have generally been 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 twenty to thirty-five years. The Company assesses
the recoverability of goodwill and measures impairment, if any, 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.
17
<PAGE>
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, basic and net earnings per common share assuming
dilution have been computed in accordance with FASB No. 128, EARNINGS PER SHARE,
which was retroactively implemented during the fourth quarter of fiscal 1998 for
all periods presented. For fiscal 1998, 1997 and 1996 employee stock options
were the Company's only potentially dilutive securities. Weighted average
common shares outstanding and weighted average common shares outstanding,
assuming dilution, were as follows:
<TABLE>
<CAPTION>
1998. 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding 9,622,495 9,540,154 9,274,615
Dilutive effect of vested, in-the-money options 70,320 96,160 93,779
--------- --------- ---------
Weighted average common shares outstanding, assuming dilution 9,692,815 9,636,314 9,368,394
--------- --------- ---------
--------- --------- ---------
</TABLE>
TREASURY STOCK
During fiscal 1998, the Board of Directors approved a share repurchase program.
The program provides for the repurchase of up to 750,000 shares of Unitog common
stock in public market or private transactions at prevailing prices. The
Company records treasury stock at cost.
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 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 25, 1998 and January
26, 1997.
18
<PAGE>
(2) ACQUISITIONS OF RENTAL OPERATIONS AND SUBSEQUENT EVENTS
During fiscal 1998, the Company acquired certain uniform rental routes and
rental operations in Florida and Michigan for approximately $3.0 million in
cash. The assets acquired were primarily industrial uniform routes in Detroit,
Michigan and dust control rental routes and production equipment in Tampa,
Florida. The operating results of these rental acquisitions have been included
in the consolidated results of the Company since their acquisition. During
fiscal 1998 these rental acquisitions added approximately $2.1 million in rental
revenues with an insignificant effect on net earnings. The acquisitions were
accounted for as purchases.
During fiscal 1997, the Company acquired certain uniform rental assets for
approximately $24.6 million in cash and notes payable. The assets acquired were
primarily industrial uniform routes and production facilities in central and
northern Michigan; Toronto, Canada; and Las Vegas, Nevada. The acquisitions
were accounted for as purchases. The Company also entered into a business
combination with American Dust Control Co., Inc. in Philadelphia, Pennsylvania
through the issuance of Unitog common stock. The acquisition was accounted for
as a pooling-of-interests. Prior period financial statements were not restated
due to immateriality. The operating results of these acquisitions have been
included in the consolidated results of the Company since their acquisition.
During fiscal 1997, these acquisitions added $14.2 million in rental revenues
with an insignificant effect on net earnings.
During the first quarter of fiscal 1999, the Company acquired certain uniform
rental routes and rental operations in Minnesota, Nebraska and Pennsylvania for
approximately $12.7 million in cash. The assets acquired were primarily
industrial uniform routes in Minneapolis, Minnesota and Omaha, Nebraska and
industrial uniform and linen routes and production facilities in Bethlehem and
Harrisburg, Pennsylvania. These acquisitions are expected to add $10.6 million
in annual rental revenues. The acquisitions were accounted for as purchases.
(3) INVENTORIES
Components of inventories at January 25, 1998 and January 26, 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Raw materials $ 3,977,563 $ 3,899,072
Work in progress 2,683,273 2,800,062
Finished goods 16,250,295 14,842,481
------------- -------------
22,911,131 21,541,615
Less LIFO allowance (4,402,173) (4,016,440)
------------- -------------
$ 18,508,958 $ 17,525,175
------------- -------------
------------- -------------
</TABLE>
The use of the LIFO method reduced net earnings by approximately $239,000 ($.02
per basic and diluted share), $130,000 ($.01 per basic and diluted share) and
$160,000 ($.02 per basic and diluted share) for the years ended January 25,
1998, January 26, 1997 and January 28, 1996, respectively.
19
<PAGE>
(4) LONG-TERM DEBT
A summary of long-term debt at January 25, 1998 and January 26, 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
6.88% Senior Notes $ 40,000,000 $ 40,000,000
5.79% Senior Notes 18,461,540 20,000,000
Bank Agreements 45,292,524 35,029,000
Industrial Revenue Bonds 8,925,963 9,166,691
Other 1,091,774 1,375,144
------------- -------------
Total long-term debt 113,771,801 105,570,835
Less current installments (3,502,885) (2,046,821)
------------- -------------
Long-term debt, less
current installments $110,268,916 $103,524,014
------------- -------------
------------- -------------
</TABLE>
The Company is subject to a Domestic Bank Credit Agreement and a Revolving
Foreign Bank Credit Agreement (the Bank Agreements). The Bank Agreements
provide for borrowings on a revolving basis of up to $67 million at interest
rates based upon LIBOR, bankers' acceptance rates, or prime rates. The weighted
average interest rate in effect at January 25, 1998 was 6.3%. The Bank
Agreements expire in September 2000. At January 25, 1998 the Company had $21
million in available borrowings under the Bank Agreements.
In October 1995, the Company issued $40 million of 6.88% Senior Notes to an
insurance company. The 6.88% Senior Notes have an average life of seven years
and mature in 2005. 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 6.88% Senior Notes and the 5.79% Senior Notes and the Bank Agreements
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 25, 1998, the
Company had $27.2 million in unrestricted stockholders' equity.
The Company's Industrial Revenue Bond obligations bear interest at stated
interest rates or interests rates that vary based upon market conditions for
floating tax-exempt bonds. The weighted average interest rate in effect on the
bond obligations at January 25, 1998 was 4.1%. The bond issues are generally
secured by irrevocable bank letters of credit. The bond issues mature at
varying dates through 2020. Included in other non-current assets at January 25,
1998 were $638,000 in unexpended proceeds related to these bond issues to be
used for future facility construction and related equipment purchases.
The approximate aggregate principal installments of long-term debt for the next
five fiscal years are: 1999, $3,503,000; 2000, $12,440,000; 2001, $48,712,000;
2002, $9,491,000; 2003, $9,501,000 and for all years thereafter, $30,125,000.
20
<PAGE>
(5) INCOME TAXES
The components of income tax expense for the years ended January 25, 1998,
January 26, 1997 and January 28, 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 5,764,000 $ 4,093,000 $ 4,445,000
State and local 941,000 760,000 784,000
------------ ------------ ------------
6,705,000 4,853,000 5,229,000
Deferred 969,000 2,554,000 1,813,000
------------ ------------ ------------
Total income tax expense $ 7,674,000 $ 7,407,000 $ 7,042,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
For the years ended January 25, 1998, January 26, 1997 and January 28, 1996,
income taxes provided differed from the expected federal statutory rates of 35%
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Computed expected tax at statutory rate $ 7,068,000 $ 6,837,000 $ 6,486,000
State and local taxes, net of federal benefit 612,000 494,000 508,000
Other (6,000) 76,000 48,000
------------- ------------ ------------
$ 7,674,000 $ 7,407,000 $ 7,042,000
------------- ------------ ------------
------------- ------------ ------------
Effective tax rate 38% 38% 38%
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The tax effects of temporary differences that gave rise to deferred tax assets
and (liabilities) at January 25, 1998 and January 26, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Depreciation $(12,449,000) $(10,834,000)
Rental garments in service (13,649,000) (12,878,000)
Other assets, noncurrent (2,723,000) (3,065,000)
Accrued expenses and other 2,466,000 1,391,000
------------ ------------
Net deferred tax liability $(26,355,000) $(25,386,000)
------------ ------------
------------ ------------
</TABLE>
Total deferred tax assets and liabilities at January 25, 1998 and January 26,
1997 were $3,214,000 and ($29,569,000) and $2,139,000 and ($27,525,000),
respectively. No valuation allowances for deferred tax assets have been
provided.
21
<PAGE>
(6) 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 plan of up to 9% of their earnings. The Company's
contributions were $1.1 million, $1.1 million and $874,000 for the fiscal years
ended January 25, 1998, January 26, 1997 and January 28, 1996, respectively.
The Company has employee stock option plans which provide for the discretionary
granting of options for up to 950,000 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 granted was 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 25, 1998, 516,288 options were available for grant under the plans.
The Company continues to apply the provisions of Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and provides the
pro forma disclosures of Financial Accounting Standard No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION (FAS 123). Had the Company recorded
compensation cost based on the fair value at the grant date for its stock
options under FAS 123, the Company's net earnings for fiscal 1998, fiscal
1997 and fiscal 1996 would have been reduced by $185,000 ($.02 per basic and
diluted share), $128,000 ($.01 per basic and diluted share) and $19,000,
respectively. The full impact of calculating compensation cost for stock
options under FAS 123 is not reflected in the pro forma net income amounts
presented, as compensation cost is reflected over the options' vesting
period. The per share weighted-average fair value of stock options granted
during fiscal 1998, 1997 and fiscal 1996 was $298,000, $789,000 and $155,000,
respectively, on the date of grant using the Black-Scholes options pricing
model with the following weighted-average assumptions: fiscal 1998 - expected
dividend yield of .7%, risk-free interest rate of 5.6%, expected volatility
factor of 39%, and an expected life of six years; fiscal 1997 - expected
dividend yield of .5%, risk-free interest rate of 6.8%, expected volatility
factor of 38%, and an expected life of six years; fiscal 1996 - expected
dividend yield of .6%, risk-free interest rate of 5.4%, expected volatility
factor of 38%, and an expected life of six years.
<TABLE>
<CAPTION>
- -------------------------------OPTIONS OUTSTANDING--------------------------- ------OPTIONS EXERCISABLE------
Weighted-Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/25/98 Life in Years Price at 1/25/98 Price
----------------- -------------- ------------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
$11.17 - 16.00 146,250 4.4 $11.56 146,250 $11.56
$16.00 - 24.00 160,250 6.8 $17.93 91,063 $17.11
$24.00 - 28.00 75,650 8.2 $24.84 19,225 $24.85
-------------- -------------
382,150 6.1 $16.87 256,538 $14.50
-------------- -------------
</TABLE>
22
<PAGE>
Stock option activity for the three fiscal years ended January 25, 1998 was as
follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at January 29, 1995 381,750 $12.84
Granted 21,000 18.33
Terminated (9,563) 16.31
Exercised (6,437) 13.72
-------
Outstanding at January 28, 1996 386,750 13.03
Granted 75,900 24.84
Terminated (4,125) 19.82
Exercised (95,750) 9.29
-------
Outstanding at January 26, 1997 362,775 16.33
Granted 33,000 21.30
Terminated (2,250) 20.72
Exercised (11,375) 16.23
-------
Outstanding at January 25, 1998 382,150 16.87
-------
-------
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES
The Company rents certain facilities and equipment under various operating
leases. Rent charged to operations (including month-to-month rentals on certain
equipment) was $6.1 million in fiscal 1998, $5.7 million in fiscal 1997 and $4.9
million in fiscal 1996.
A summary of noncancelable long-term lease commitments is shown below:
<TABLE>
<CAPTION>
Years Ending
January
------------
<S> <C>
1999 $ 1,705,000
2000 1,431,000
2001 1,044,000
2002 867,000
2003 614,000
Thereafter 1,823,000
-----------
$ 7,484,000
-----------
-----------
</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 1999.
23
<PAGE>
(b) ENVIRONMENTAL MATTERS AND LITIGATION
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. 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.
The Company has been named as a potentially responsible party, and thus faces
joint and several liability, under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") as a result of alleged environmental
contamination in Tempe, Arizona. Unitog's rental facility in Tempe is located
within the South Indian Bend Wash Federal Superfund ("SIBW") site. The SIBW
site is several square miles in size designated for action because of the
presence of volatile organic compounds in soil and groundwater there. Soil
testing at the Company's facility detected volatile organic compounds in the
soil and the Company is now in the process of remediating the soil at its
facility. The Company's estimate of the expense related to soil remediation at
its Tempe facility has been accrued and charged to operating expense.
Groundwater testing at the Company's property has detected what the Company
believes are very low levels of volatile organic compound contamination on site.
The United States Environmental Protection Agency ("EPA") has proposed to treat
the groundwater at the SIBW site over a 30 year period at an estimated present
value project cost of $28 million. EPA has received comments from potentially
responsible parties, including Unitog and others, disputing the need for any
action at the SIBW because of the low levels of contamination. EPA has
indicated that it is reassessing its proposed preliminary remedy. It is not
possible to determine whether the EPA plan or any alternative plan will be
implemented. It is also not possible to determine the Company's liability for
its share of the costs at the SIBW site if groundwater treatment is implemented.
The Company does not believe that its liability, if any, with respect to the
SIBW site will be material to the consolidated financial position of the
Company. The charge, if any, to net earnings during any future quarterly period
for costs should a groundwater treatment plan be required could have a material
adverse effect on net earnings of that quarterly period.
The Company is remediating volatile organic compound contamination in soil and
groundwater at the Company's Minneapolis, Minnesota rental facility. The
Company's estimate of the expense related to the remediation of the
contamination has been accrued and charged to operating expense.
The Company is also 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 wastewater
discharge matters, the Company does not believe that costs incurred in
connection with wastewater compliance will have a material adverse effect on its
consolidated financial position or results of its operations.
(c) LEGAL SETTLEMENT AND ENVIRONMENTAL CHARGE
During the third quarter of fiscal 1998, the Company reached a $2 million breach
of contract settlement with a former customer. Also during the third quarter of
fiscal 1998, the Company charged $1 million to operations for additional
estimated costs resulting from environmental and other matters. The legal
recovery and the additional environmental costs were included in the operations
of each affected business segment.
24
<PAGE>
(8) 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. Identifiable assets are those used directly in the segments'
operations. Other corporate assets consist primarily of cash and cash
equivalents, prepaid expenses, an office building and other noncurrent assets.
Information with respect to these operations for the years ended January 25,
1998, January 26, 1997 and January 28, 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Rental operations $219,779,595 $203,780,197 $158,074,437
Direct sales 57,432,756 57,937,166 56,242,363
------------ ------------ ------------
$277,212,351 $261,717,363 $214,316,800
------------ ------------ ------------
------------ ------------ ------------
Intersegment transfers to Rental operations, (at cost) $ 21,708,976 $ 18,108,909 $ 17,215,800
------------ ------------ ------------
------------ ------------ ------------
Operating contribution:
Rental operations $ 42,772,711 $ 38,540,011 $ 30,499,980
Direct sales 9,965,262 10,351,299 10,217,489
------------ ------------ ------------
Total operating contribution 52,737,973 48,891,310 40,717,469
Depreciation and amortization 17,428,059 15,397,777 11,102,487
General and administrative expense 9,027,164 8,213,074 7,780,457
Interest expense, net 6,221,750 5,841,546 3,303,105
Other expense (income), net (132,215) (96,335) 289
------------ ------------ ------------
Earnings before income taxes $ 20,193,215 $ 19,535,248 $ 18,531,131
------------ ------------ ------------
------------ ------------ ------------
Identifiable assets:
Rental operations $207,656,848 $206,637,433 $183,796,165
Direct sales 38,663,999 37,128,821 34,982,226
Corporate 29,987,682 10,798,732 4,790,701
------------ ------------ ------------
$276,308,529 $254,564,986 $223,569,092
------------ ------------ ------------
------------ ------------ ------------
Capital expenditures:
Rental operations $ 13,174,646 $ 9,293,269 $ 14,531,859
Direct sales 2,361,910 1,286,132 4,968,403
Corporate 18,080,665 5,277,688 2,611,086
------------ ------------ ------------
$ 33,617,221 $ 15,857,089 $ 22,111,348
------------ ------------ ------------
------------ ------------ ------------
Depreciation and amortization expense:
Rental operations $ 14,619,153 $ 13,155,518 $ 9,187,124
Direct sales 1,649,692 1,652,160 1,320,244
Corporate 1,159,214 590,099 595,119
------------ ------------ ------------
$ 17,428,059 $ 15,397,777 $ 11,102,487
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
25
<PAGE>
(9) UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data was as follows:
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
----------------------------------------------------------------
1998 April July October January Total
- ---- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental operations $ 54,031,073 $ 54,674,420 $ 56,082,575 $ 54,991,527 $ 219,779,595
Direct sales 14,878,908 13,996,222 14,005,264 14,552,362 57,432,756
------------- ------------- ------------- ------------- -------------
Total revenues $ 68,909,981 $ 68,670,642 $ 70,087,839 $ 69,543,889 $ 277,212,351
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Operating income $ 6,243,673 $ 6,557,366 $ 7,798,289* $ 5,683,422 $ 26,282,750
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings $ 2,999,272 $ 3,072,617 $ 3,886,600* $ 2,560,726 $ 12,519,215
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings per common share, basic** $ .31 $ .32 $ .40* $ .27 $1.30
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings per common share,
assuming dilution** $ .31 $ .32 $ .40* $ .27 $1.29
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<CAPTION>
1997 April July October January Total
- ---- ------------- ------------- ------------- ------------- -------------
Rental operations $ 48,430,562 $ 51,234,701 $ 51,479,639 $ 52,635,295 $ 203,780,197
Direct sales 15,504,301 14,005,119 14,600,207 13,827,539 57,937,166
------------- ------------- ------------- ------------- -------------
Total revenues $ 63,934,863 $ 65,239,820 $ 66,079,846 $ 66,462,834 $ 261,717,363
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Operating income $ 5,773,596 $ 6,197,651 $ 7,328,700 $ 5,980,512 $ 25,280,459
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings $ 2,761,077 $ 2,929,368 $ 3,626,279 $ 2,811,524 $ 12,128,248
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings per common share, basic** $ .30 $ .31 $ .38 $ .29 $1.27
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings per common share,
assuming dilution** $ .29 $ .30 $ .37 $ .29 $1.26
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
* Includes a $2 million pretax, or $.12 per basic and diluted share after-
tax, recovery related to a legal settlement with a former customer and a
$1 million pretax, or $.06 per basic and diluted share after-tax, charge
for certain environmental and other matters during the third quarter of
fiscal 1998.
** Net earnings per common share has been restated to reflect the provisions
of Financial Accounting Standard No. 128 - Earnings per Share.
26
<PAGE>
UNITOG COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental operations $219,780 $203,780 $158,075 $133,488 $125,006
Direct sales 57,432 57,937 56,242 55,656 52,909
-------- -------- -------- -------- --------
Total $277,212 $261,717 $214,317 $189,144 $177,915
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating profit contribution:
Rental operations $ 42,773 $ 38,540 $ 30,500 $ 26,397 $ 22,897
Direct sales 9,965 10,351 10,217 10,664 9,912
-------- -------- -------- -------- --------
Total operating contribution 52,738 48,891 40,717 37,061 32,809
Depreciation and amortization (17,428) (15,398) (11,102) (9,659) (9,530)
General and administrative (9,027) (8,213) (7,780) (8,230) (7,012)
-------- -------- -------- -------- --------
Operating income $ 26,283(b) $ 25,280 $ 21,835 $ 19,172 $ 16,267
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net earnings $ 12,519(b) $ 12,128 $ 11,489 $ 10,013 $ 7,796
Net earnings per common share, basic (a) (c) $ 1.30(b) $ 1.27 $ 1.24 $ 1.08 $ 1.03
Net earnings per common share,
assuming dilution (a) (c) $ 1.29(b) $ 1.26 $ 1.23 $ 1.07 $ 0.87
Dividends per common share (a) $ 0.15 $ 0.12 $ 0.10 $ 0.08 $ 0.07
Financial position at year end:
Current assets $ 92,599 $ 87,352 $ 78,383 $ 64,897 $ 56,933
Net property, plant and equipment 117,311 94,797 82,292 59,517 57,349
Total assets 276,309 254,565 223,569 143,448 132,790
Working capital 46,097 49,235 37,914 40,331 34,420
Current ratio 2.0:1 2.3:1 1.9:1 2.6:1 2.5:1
Financial structure:
Long-term debt, less current installments $110,269 $103,524 $ 83,731 $ 34,838 $ 35,665
Stockholders' equity 104,198 99,105 86,125 75,433 66,161
Book value per share (a) 11.12 10.28 9.28 8.14 7.14
Capitalization ratio 51.40% 51.10% 49.30% 31.60% 35.00%
Cash flows:
Operating activities $ 36,626 $ 19,542 $ 24,564 $ 19,965 $ 21,100
Investing activities (35,891) (39,878) (65,270) (13,690) (14,950)
Financing activities 726 20,339 33,016 (1,974) (2,815)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents $ 1,461 $ 3 $ (7,690) $ 4,301 $ 3,335
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
General statistics:
Common shares outstanding at year end (a) 9,368 9,644 9,279 9,272 9,272
Capital expenditures $33,617 $15,857 $22,111 $9,246 $9,775
</TABLE>
(a) Restated for 3-for-2 stock split in the form of a stock dividend on
September 23, 1994.
(b) Includes a $2 million pretax, or $.12 per basic and diluted share after-
tax, recovery related to a legal settlement with a former customer and a
$1 million pretax, or $.06 per basic and diluted share after-tax, charge
for certain environmental and other matters during the third quarter of
fiscal 1998.
(c) Net earnings per common share has been restated to reflect the provisions
of Financial Accounting Standard No. 128 - EARNINGS PER SHARE.
27
<PAGE>
COMMON STOCK INFORMATION
The Common Stock is listed on the NASDAQ National Market under the symbol UTOG.
At January 25, 1998 there were 424 stockholders of record and the Company
estimates that there were approximately 1,500 stockholders as of that date.
PRICE RANGE
<TABLE>
<CAPTION>
Fiscal 1998
Quarter Ended High Low
- ------------- -------- --------
<S> <C> <C>
April 1997 $ 26 7/8 $ 19 3/4
July 1997 $ 28 1/2 $ 19
October 1997 $ 30 $ 23 3/4
January 1998 $ 25 1/2 $ 18
<CAPTION>
Fiscal 1997
Quarter Ended High Low
- ------------- -------- --------
April 1996 $ 30 1/4 $ 22 1/2
July 1996 $ 28 35/64 $ 24 1/8
October 1996 $ 32 1/4 $ 26 1/4
January 1997 $ 27 3/4 $ 24
</TABLE>
28
<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. 33-79628, No. 033-60303, and
No. 333-28379) of our report dated March 6, 1998, relating to the consolidated
balance sheets of Unitog Company and subsidiaries as of January 25, 1998 and
January 26, 1997 and the related consolidated statements of earnings, retained
earnings, and cash flows for each of the years in the three-year period ended
January 25, 1998, which report appears in the January 25, 1998 annual report
on Form 10-K of Unitog Company.
Kansas City, Missouri KPMG PEAT MARWICK LLP
April 20, 1998 /s/ KPMG Peat Marwick LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JAN-25-1998
<CASH> 1,492,720
<SECURITIES> 0
<RECEIVABLES> 29,631,566
<ALLOWANCES> 1,009,000
<INVENTORY> 18,508,958
<CURRENT-ASSETS> 92,598,582
<PP&E> 189,231,058
<DEPRECIATION> 71,920,005
<TOTAL-ASSETS> 276,308,529
<CURRENT-LIABILITIES> 46,501,628
<BONDS> 110,268,916
0
0
<COMMON> 96,579
<OTHER-SE> 104,101,014
<TOTAL-LIABILITY-AND-EQUITY> 276,308,529
<SALES> 57,432,756
<TOTAL-REVENUES> 277,212,351
<CGS> 47,467,494
<TOTAL-COSTS> 241,902,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,221,750
<INCOME-PRETAX> 20,193,215
<INCOME-TAX> 7,674,000
<INCOME-CONTINUING> 12,519,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,519,215
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.29
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> JAN-26-1997 JAN-28-1996 JAN-26-1997 JAN-26-1997
JAN-26-1997
<PERIOD-END> JAN-26-1997 JAN-28-1996 APR-28-1996 JUL-28-1996
OCT-27-1996
<CASH> 31,307 28,321 931,962 53,176
564,376
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 28,090,702 25,012,073 25,716,782 24,924,880
26,898,078
<ALLOWANCES> 1,240,000 760,000 863,000 970,000
1,002,000
<INVENTORY> 17,525,175 15,333,981 16,805,871 17,047,098
17,921,959
<CURRENT-ASSETS> 87,352,274 78,382,621 84,771,448 81,666,286
85,819,888
<PP&E> 161,351,786 140,834,624 147,735,203 150,881,755
153,083,432
<DEPRECIATION> 66,554,486 58,542,615 61,308,166 63,140,802
65,260,957
<TOTAL-ASSETS> 254,564,986 223,569,092 246,579,038 243,239,654
246,422,066
<CURRENT-LIABILITIES> 38,117,099 40,468,397 39,532,401 35,468,223
36,417,756
<BONDS> 103,524,014 83,731,099 104,127,582 101,911,301
100,289,731
0 0 0 0
0
0 0 0 0
0
<COMMON> 96,439 92,793 95,727 96,363
96,420
<OTHER-SE> 99,008,197 86,031,914 89,637,486 92,984,304
96,723,540
<TOTAL-LIABILITY-AND-EQUITY> 254,564,986 223,569,092 246,579,038 243,239,654
246,422,066
<SALES> 57,937,166 56,242,363 15,504,301 29,509,420
44,109,627
<TOTAL-REVENUES> 261,717,363 214,316,800 63,934,863 129,174,683
195,254,529
<CGS> 47,585,867 46,024,874 12,440,956 23,770,946
35,830,680
<TOTAL-COSTS> 228,223,830 184,701,818 55,984,820 112,995,836
169,843,581
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 5,841,546 3,303,105 1,343,596 2,843,076
4,332,348
<INCOME-PRETAX> 19,535,248 18,531,131 4,453,077 9,177,446
15,027,225
<INCOME-TAX> 7,407,000 7,042,000 1,692,000 3,487,000
5,710,500
<INCOME-CONTINUING> 12,128,248 11,489,131 2,761,077 5,690,446
9,316,725
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 12,128,248 11,489,131 2,761,077 5,690,446
9,316,725
<EPS-PRIMARY> 1.27 1.24 0.30 0.60
0.98
<EPS-DILUTED> 1.26 1.23 0.29 0.60
0.97
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JAN-25-1998 JAN-25-1998 JAN-25-1998
<PERIOD-END> APR-26-1997 JUL-26-1997 OCT-26-1997
<CASH> 1,269,539 940,453 17,430
<SECURITIES> 0 0 0
<RECEIVABLES> 28,499,325 29,316,222 34,218,377
<ALLOWANCES> 1,176,000 1,028,000 1,161,000
<INVENTORY> 18,201,667 18,445,805 19,264,434
<CURRENT-ASSETS> 89,304,320 91,269,685 95,970,063
<PP&E> 166,526,922 173,248,087 181,492,744
<DEPRECIATION> 68,558,706 70,884,703 72,385,171
<TOTAL-ASSETS> 258,858,890 263,685,141 273,258,960
<CURRENT-LIABILITIES> 40,531,366 43,759,068 46,431,133
<BONDS> 102,232,750 101,681,915 103,916,758
0 0 0
0 0 0
<COMMON> 96,448 96,476 96,556
<OTHER-SE> 102,039,206 104,441,707 108,475,006
<TOTAL-LIABILITY-AND-EQUITY> 258,858,890 263,685,141 273,258,960
<SALES> 14,878,907 28,875,130 42,880,394
<TOTAL-REVENUES> 68,909,980 137,580,623 207,668,462
<CGS> 12,236,555 23,926,242 34,990,825
<TOTAL-COSTS> 60,217,260 120,257,711 180,397,880
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,455,376 3,080,664 4,627,368
<INCOME-PRETAX> 4,836,272 9,792,889 16,061,489
<INCOME-TAX> 1,837,000 3,721,00 6,103,000
<INCOME-CONTINUING> 2,999,272 6,071,889 9,958,489
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,999,272 6,071,889 9,958,489
<EPS-PRIMARY> 0.31 0.63 1.03
<EPS-DILUTED> 0.31 0.62 1.02
</TABLE>