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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 26, 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 44-0529828
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Washington Street, Kansas City, MO 64105
- ------------------------------------------ -----------------------------------
(Address of principal executive offices) (Zip Code)
(816) 474-7000
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
As of April 26, 1998, the registrant had 9,392,896 shares of common
stock, par value $.01 per share, outstanding.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION Page Number
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ITEM 1. Financial Statements
(1) Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of April 26, 1998
and January 25, 1998. 3
Condensed Consolidated Statements of Earnings for the Three
Months ended April 26, 1998 and April 27, 1997. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months ended April 26, 1998 and April 27, 1997. 5
(2) Notes to Condensed Consolidated Financial Statements. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
PART II. - OTHER INFORMATION
ITEM I. Legal Proceedings 10
ITEM 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 26, 1998 and January 25, 1998
(unaudited)
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<CAPTION>
ASSETS April 26, 1998 January 25, 1998
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Current assets:
Cash and cash equivalents $ 705,523 $ 1,492,720
Accounts receivable, less allowance for doubtful
receivables of $1,141,000 and $1,009,000, respectively 29,476,081 29,631,566
Inventories (note 2) 21,554,503 18,508,958
Rental garments in service, net 44,756,274 41,862,753
Prepaid expenses 1,471,453 1,102,585
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Total current assets 97,963,834 92,598,582
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Property, plant and equipment, at cost 193,631,512 189,231,058
Less accumulated depreciation 71,754,704 71,920,005
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Net property, plant and equipment 121,876,808 117,311,053
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Other assets, net 32,579,794 29,592,025
Excess cost over net assets of businesses acquired, net 39,777,166 36,806,869
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$292,197,602 $276,308,529
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,624,007 $ 3,502,885
Accounts payable 12,473,727 18,591,196
Accrued expenses 12,851,738 12,144,680
Accrued and deferred income taxes payable 13,156,859 12,262,867
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Total current liabilities 42,106,331 46,501,628
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Long-term debt, less current installments 127,625,612 110,268,916
Deferred income taxes and other liabilities 15,702,428 15,340,392
Stockholders' equity:
Common stock of $.01 par value. Authorized
30,000,000 shares; issued 9,659,305 shares at
April 26, 1998 and 9,657,909 shares at January 25, 1998 96,593 96,579
Treasury stock, 266,409 common shares at April 26, 1998
and 289,425 shares at January 25, 1998, at cost (5,792,575) (6,295,337)
Additional paid-in capital
41,373,322 41,470,281
Retained earnings 71,085,891 68,926,070
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Total stockholders' equity 106,763,231 104,197,593
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$292,197,602 $276,308,529
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended April 26, 1998 and April 27, 1997
(unaudited)
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<CAPTION>
April 26, 1998 April 27, 1997
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<S> <C> <C>
Revenues:
Rental operations $ 57,423,559 $ 54,031,073
Direct sales 12,912,627 14,878,908
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Total revenues 70,336,186 68,909,981
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Operating costs and expenses:
Cost of rental operations 46,988,591 43,822,357
Cost of direct sales 10,923,027 12,236,555
Depreciation and amortization 4,825,553 4,158,348
General and administrative 2,083,867 2,449,048
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Total costs and expenses 64,821,038 62,666,308
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Operating income 5,515,148 6,243,673
Interest expense 1,982,213 1,455,375
Other expense (income), net (21,335) (47,974)
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Earnings before income taxes 3,554,270 4,836,272
Income taxes 1,351,900 1,837,000
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Net earnings $ 2,202,370 $ 2,999,272
============== ==============
Net earnings per common share, basic $ .23 $ .31
============== ==============
Net earnings per common share, assuming dilution $ .23 $ .31
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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UNITOG COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 26, 1998 and April 27, 1997
(unaudited)
<TABLE>
<CAPTION>
April 26, 1998 April 27, 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,202,370 $ 2,999,272
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,825,553 4,158,348
Provision for deferred income taxes 763,000 154,000
Loss (gain) on disposal of equipment (27,588) (9,321)
Changes in assets and liabilities:
Accounts receivable 155,485 (408,623)
Inventories (2,467,078) (676,492)
Rental garments in service (1,185,521) 1,058,456
Prepaid expenses (368,868) (222,709)
Other noncurrent assets (17,065) 981,886
Accounts payable (6,117,469) 346,351
Accrued expenses 517,058 486,462
Income taxes payable 369,992 1,473,204
Other noncurrent liabilities 123,036 15,883
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Net cash provided (used) by operating activities (1,227,095) 10,356,717
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Cash flows from investing activities:
Acquisition of rental operations (13,026,661) (2,363,600)
Purchase of property, plant and equipment (4,413,767) (5,560,791)
Proceeds from disposal of equipment 39,241 62,173
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Net cash used by investing activities (17,401,187) (7,862,218)
------------------- -------------------
Cash flows from financing activities:
Proceeds from stock issuance 422,898 31,746
Increases in long-term debt 17,477,818 --
Repayment of long-term debt -- (1,288,013)
Purchase of treasury stock (59,631) --
------------------- -------------------
Net cash provided (used) by financing activities 17,841,085 (1,256,267)
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (787,197) 1,238,232
Cash and cash equivalents at beginning of period 1,492,720 31,307
------------------- -------------------
Cash and cash equivalents at end of period $ 705,523 $ 1,269,539
=================== ===================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,970,000 $ 1,647,000
=================== ===================
Income taxes $ 128,000 $ 208,000
=================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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UNITOG COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three Months Ended April 26, 1998 and April 27, 1997
Note 1
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In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of the Company as
of April 26, 1998, and the results of its operations and its cash flows for the
three months ended April 26, 1998 and April 27, 1997. The results of operations
for the three months ended April 26, 1998 are not necessarily indicative of the
results to be expected for the full year.
Note 2 Inventories
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The following is a summary of inventories at April 26, 1998 and January 25,
1998:
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<CAPTION>
April 26, 1998 January 25, 1998
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Raw materials $ 4,087,873 $ 3,977,563
Work in progress 4,072,402 2,683,273
Finished goods 17,845,457 16,250,295
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26,005,732 22,911,131
Less LIFO allowance (4,451,229) (4,402,173)
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$21,554,503 $18,508,958
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</TABLE>
Note 3 Cash Dividend
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At its May 21, 1998 Board of Directors meeting the Board declared a $.09 per
share cash dividend payable on June 23, 1998 to stockholders of record on June
5, 1998. The $.09 per share dividend was 20% greater than the semi-annual
dividend paid in the second quarter of last year.
Note 4 Acquisitions
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During the first quarter of fiscal 1999, the Company acquired certain uniform
rental operations in Minnesota, Nebraska and Pennsylvania for approximately $13
million in cash. The assets acquired were primarily industrial uniform routes
in Minnesota and Omaha, Nebraska and industrial uniform and linen routes and
production facilities in Bethlehem and Harrisburg, Pennsylvania. These
acquisitions are expected to add over $10.5 million in annual rental revenues.
These acquisitions will be accounted for using the purchase method.
6
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Note 5 Other Comprehensive Income
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During the first quarter of fiscal 1999 the Company adopted Financial Accounting
Standard No. 130, Reporting Comprehensive Income (FAS 130). FAS 130 establishes
standards for the reporting and display of items that affect stockholders'
equity but are not components of reported net earnings. The Company's only
component of comprehensive income is foreign currency translation adjustments.
For the quarters ended April 26, 1998 and April 27, 1997 comprehensive income
differed from net earnings as follows:
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<CAPTION>
April 26, 1998 April 27, 1997
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Net earnings $2,202,370 $2,999,272
Other comprehensive income, net of tax:
Foreign currency translation adjustments (17,681) 16,639
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Comprehensive income $2,184,689 $3,015,911
========== ==========
</TABLE>
Accumulated other comprehensive income consisted entirely of foreign currency
translation adjustments at April 26, 1998 and January 25, 1998. Accumulated
other comprehensive income of $34,062 and $51,743 is included in retained
earnings at April 26, 1998 and January 25, 1998, respectively.
Note 6 Net Earnings Per Common Share
- ------------------------------------
Net earnings per common share and net earnings per common share assuming
dilution have been computed in accordance with FASB No. 128, Earnings Per Share.
Weighted average common shares outstanding and weighted average common shares
outstanding, assuming dilution, were as follows:
<TABLE>
<CAPTION>
April 26, 1998 April 27, 1997
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<S> <C> <C>
Weighted average common
shares outstanding 9,380,502 9,644,290
Dilutive effect of
in-the-money share options 53,993 61,697
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Weighted average common shares
outstanding, assuming dilution 9,434,495 9,705,987
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</TABLE>
For for the quarters ended April 26, 1998 and April 27, 1997, stock options were
the Company's only potentially dilutive securities.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
Cash used by operating activities was $1.2 million for the quarter ended April
26, 1998, a decrease of $11.6 million compared to last year. The decrease was
due to reductions in accounts payable related to the timing of payments for our
fiscal 1998 capital expenditure and stock repurchase programs and cash used to
fund higher levels of inventory and garments in service. At April 26, 1998, the
Company had $62 million in borrowings outstanding under its foreign and domestic
bank credit facilities. The Company's capitalization ratio was 54.4% at April
26, 1998 compared to 51.4% at January 25, 1998.
Working capital was $55.9 million at April 26, 1998 compared to $46.1 million at
January 25, 1998. The increase in current assets from our fiscal 1999 rental
acquisitions combined with higher inventory levels and reduced accounts payable
to produce the $9.8 million increase in working capital. Capital expenditures
were $4.4 million through April 26, 1998, $1.1 million less than the comparable
period last year. Capital expenditures for fiscal 1999 are expected to
approximate $17 to $18 million. The Board of Directors has authorized a future
sale-leaseback of the corporate headquarters building should the appropriate
circumstances exist.
During the first quarter of fiscal 1999, the Company acquired certain uniform
rental operations in Minnesota, Nebraska and Pennsylvania for approximately $13
million in cash. The assets acquired were primarily industrial uniform routes
in Minnesota and Omaha, Nebraska and industrial uniform and linen routes and
production facilities in Bethlehem and Harrisburg, Pennsylvania. These
acquisitions are expected to add over $10.5 million in annual rental revenues.
These acquisitions were accounted for using the purchase method.
On May 21, 1998 the Company declared a $.09 per share cash dividend payable on
June 23, 1998 to stockholders of record on June 5, 1998. The $.09 per share
dividend was 20% greater than the semi-annual dividend paid in the second
quarter of last year.
Management believes that cash generated from operations and its bank credit
facilities will be sufficient to meet its cash requirements for acquisitions and
capital expenditures in the foreseeable future.
Results of Operations
First quarter fiscal 1999 compared to first quarter fiscal 1998
- ---------------------------------------------------------------
Revenues for the first quarter of fiscal 1999 were $70 million, an increase of
2% over the comparable period last year. Rental revenues for the quarter were
$57 million, an increase of $3.4 million or 6% higher than last year. The
increase in rental revenues was due to our fiscal 1998 and fiscal 1999
acquisitions and internal growth within our network of existing locations.
Direct sales for the first quarter of fiscal 1999 were $13 million, a decrease
of $2.0 million or 13% below the comparable period last year. The decrease in
Direct sales was due to volume declines in four national account programs and
fewer implementations of new image programs with national accounts.
Depreciation and amortization was $4.8 million, an increase of $667,000 or 16%
over the comparable period last year. Amortization of intangible assets from
fiscal 1998 and fiscal 1999 rental acquisitions and capital expenditures created
the increase over last year.
8
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Operating income for the first quarter of fiscal 1999 was $5.5 million, a
decrease of $729,000 or 12% below the comparable period last year. Lower
operating contribution from the Direct sales business and higher depreciation
and amortization offset a modest increase in the operating profitability of the
Rental business.
Net earnings for the first quarter of fiscal 1999 were $2.2 million, a decrease
of $796,000 or 27% below the comparable period last year. Lower profitability
of the Direct Sales segment and increased depreciation, amortization and
interest costs created the decrease in net earnings in comparison to the
comparable period last year. Net earnings for the first quarter of fiscal 1999
were $.23 per diluted share, a decrease of $.08 per diluted share or 26% below
the comparable period last year. Weighted average shares outstanding, assuming
dilution, decreased by 3% due to stock repurchases initiated under the Company's
stock repurchase program.
FORWARD LOOKING STATEMENTS
--------------------------
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
certain forward-looking statements. This Form 10-Q 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; strikes and unemployment levels; demand
and price for the Company's products and services; and the outcome of pending
and future litigation and environmental matters.
9
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PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
See the discussion of certain environmental matters in Part I, Item 1 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 25,
1998.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
27 Financial Data Schedule for the Quarter ended April 26, 1998.
(b) Reports on Form 8-K.
Unitog Company did not file any reports on Form 8-K during the quarter
ended April 26, 1998.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unitog Company
Dated: June 4, 1997 By: /s/ J. Craig Peterson
----------------------
J. Craig Peterson
Executive Vice President
Chief Administrative and Financial Officer
(Duly Authorized Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-26-1998
<CASH> 705,523
<SECURITIES> 0
<RECEIVABLES> 29,476,081
<ALLOWANCES> 1,141,000
<INVENTORY> 21,554,503
<CURRENT-ASSETS> 97,963,834
<PP&E> 193,631,512
<DEPRECIATION> 71,754,704
<TOTAL-ASSETS> 292,197,602
<CURRENT-LIABILITIES> 42,106,331
<BONDS> 127,625,612
0
0
<COMMON> 96,593
<OTHER-SE> 106,666,638
<TOTAL-LIABILITY-AND-EQUITY> 292,197,602
<SALES> 12,912,627
<TOTAL-REVENUES> 70,336,186
<CGS> 10,923,027
<TOTAL-COSTS> 62,737,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,982,213
<INCOME-PRETAX> 3,554,270
<INCOME-TAX> 1,351,900
<INCOME-CONTINUING> 2,202,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,202,370
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
