EX-99 2 ex99.txt QUARTERLY REPORT TO SHAREHOLDERS TEXTILE SERVICES IMAGE APPAREL INNOVATION VALUE Angelica Corporation 424 South Woods Mill Road Angelica [logo] Suite 300 Chesterfield, Missouri 63017-3406 Tel: 314.854.3800 Fax: 314.854.3890 May 17, 2001 Dear Fellow Shareholder: While results for the first quarter of fiscal 2002 at $.17 per share are below those for the first quarter last year at $.18 per share, the decline was caused primarily by external factors mostly outside of our control -- increased energy costs that could not be passed along to our customers. Our Textile Services segment has eleven of its 26 laundry plants (accounting for 47 percent of our laundry processing requirements) in the State of California, which saw unprecedented increases in energy costs during the quarter. We estimate that our energy costs were $1,600,000 more in the first quarter than they were a year ago, or equal to about $.11 per share before offset for energy surcharges we are collecting from some customers. Combined sales and textile service revenues increased 5.5 percent to $119,473,000 compared with $113,252,000 in the same period last year, with all three business segments showing increases for the second quarter in a row. Pre-tax income was $2,264,000 in the quarter, compared with $2,503,000 last year, and net income was 8.1 percent lower at $1,449,000 versus $1,577,000 in last year's first quarter. At the Textile Services segment, revenues rose 7.9 percent in the first quarter to $65,487,000 compared with $60,691,000 last year, and operating earnings for the quarter were $4,740,000 versus $4,356,000, an increase of 8.8 percent. Helping to offset the impact of higher energy costs was a $500,000 gain on the sale of a small number of unproductive hospitality accounts from one of our plants in Florida. We were especially pleased with the increased revenues from Textile Services, our largest segment. Based on new business added of $10,300,000 in the first quarter against losses of $5,000,000, net business added was $5,300,000 in annual revenues, a first quarter record. Our customer retention is also at the highest rate in recent history. Certainly we are pleased with this, but even more importantly, the new business is being added at higher price levels than our current average prices. At Textile Services, our productivity has also increased impressively throughout the segment. This is a result of better management practices as well as the result of capital investments that have been made in the past two years. Capital expenditures are continuing to be made at relatively high levels to continue to reduce labor intensity and, more recently, to install more utility-efficient equipment in selected plants. The management team has embraced three important value-adding processes this year: Customer Profitability, Pricing and Customer Retention through increased customer satisfaction. Of course, intense cost scrutiny is a daily activity in this segment, as these efforts support responsible revenue growth. The Manufacturing and Marketing segment's sales for the first quarter were $37,641,000, compared with $36,036,000 or 4.5 percent above last year. However, this increase was less than expected, as we experienced a slow-down in the "rollouts" planned for new and existing customers during this year's first quarter, and this shows signs of continuing into later quarters this year. In addition, a good part of the increased sales were to the Textile Services and Life Retail Stores segments at lower margins than outside sales. As a result, operating earnings of $818,000 were below last year's level of $1,196,000. Our Canadian operations, which were combined from two independent units into one last year, had a very strong quarter with a sales increase of 19.1 percent and an operating earnings increase of 71.4 percent, although their contribution is small relative to the U.S. operations of this segment. With the less-than-expected sales levels, Manufacturing and Marketing inventory levels were reduced only marginally in the quarter. Due to the first quarter's results and the impact of a possible further weakening of the economy, we are planning to reduce operating costs significantly in this segment as soon as practical. The benefit of these actions should be felt in the second half of the year. In the first quarter, Life Retail Stores had a small same-store sales increase of 1.5 percent. This is the ninth quarter in a row where same-store sales have increased, which is an impressive accomplishment given the relatively weak retail environment of the past few months. Overall, sales increased 2.6 percent to $23,902,000, compared with $23,291,000 in the previous year first quarter. This increase, however, was not enough to offset the impact of normal increases in operating costs, nor the downward effect on earnings of opening in the quarter ten additional stores which have not yet become fully productive. As a result, Life had a modest loss of $61,000 in the quarter, compared with operating earnings of $543,000 in the first quarter last year. Among the new stores opened were five stores in the Boston, MA area and three new stores in the Atlanta, GA area. This reflects our strategy of having optimal presence in large healthcare marketplaces. We continue to be encouraged by the gradual growth of sales in the catalogue and e-commerce distribution channels, and we continue to invest for the future in these important channels. Interest income decreased in the first quarter, reflecting the use of cash for the inventory build-up in last year's fourth quarter in the domestic operations of Manufacturing and Marketing and for the capital investments made to improve productivity and reduce utility costs at Textile Services. The new stores at Life in the first quarter also required cash investments in store fixtures and inventory. As a result, our cash levels were reduced to $14,601,000 at the end of the quarter, down from $20,311,000 at last year end. We are pleased that corporate expenses, including interest expense, were 10.0 percent below the level of the same quarter a year ago. When the year began, it was expected that we would exceed last year's earnings by 25 to 30 percent. This now appears to be a challenge, given the economic conditions existing today and forecasted to continue throughout the remainder of the year. While the Health Services market - our largest single market, where we have 71 percent of our sales and revenues - is recession resistant, it is not immune from a weak economy. Consumer confidence is eroding nationally, and that will affect Life Retail sales along with all other retailers. At Manufacturing and Marketing, our Lodging and Food Service segments, along with Gaming (casinos) and Recreation (theme parks) may experience weaker demands. The most significant factor affecting our operating earnings, however, may not be on the revenue side, but rather on the cost side. Our Textile Services segment has utility-intensive plants and a large fleet of local and over-the-road vehicles. The continued increases in the cost of energy, especially in California but not restricted to that state, caused operating earnings to be lower than expectations. While we have offset these a bit by better labor and linen management, as well as energy surcharges to our customers, these savings are not sufficient to make up the cost differences. It is likely that we will experience fuel increases for our vehicles on a national basis this summer. We must reduce operating expenses at the Manufacturing and Marketing and the Life Retail segments to reflect their lower-than-planned sales levels as well. We still expect to achieve double-digit earnings increases for the year, despite the cost challenges that we are facing. To do this, we must continue to reduce costs in all of our operations, avoid margin erosion, and grow our revenues responsibly. It is extremely difficult to quantify the earnings increase, given the uncertain economic conditions we are facing. At this time, our goal is to achieve 15 to 20 percent earnings per share growth for fiscal 2002. This will require hard work and intense attention to detail by the management teams throughout our Company. Now is the time for Angelica to build upon its position in the Health Services market. We intend to expand our Textile Services operations in the future and have identified the Southwest and the Carolinas as target markets for us. These expansions will support our regional cluster strategy for this business. The healthcare linen supply business will continue to consolidate, and we are becoming ideally positioned to be a consolidator. As we emerge from the slowdown in the economy and are able to incorporate the increased costs of energy, I am confident that Angelica will add value for our shareholders. Respectfully submitted, /s/ Don W. Hubble Don W. Hubble Chairman, President and Chief Executive Officer CONSOLIDATED STATEMENTS OF INCOME Angelica Corporation and Subsidiaries Unaudited (Dollars in thousands, except per share amounts)
First Quarter Ended ---------------------------------- April 28, 2001 April 29, 2000 -------------- -------------- Textile service revenues $ 65,487 $ 60,691 Net sales 53,986 52,561 --------- --------- 119,473 113,252 --------- --------- Cost of textile services 51,312 47,869 Cost of goods sold 32,911 31,784 --------- --------- 84,223 79,653 --------- --------- Gross profit 35,250 33,599 --------- --------- Selling, general and administrative expenses 31,182 28,847 Interest expense 2,028 2,092 Other (income) expense, net (224) 157 --------- --------- 32,986 31,096 --------- --------- Income before income taxes 2,264 2,503 Provision for income taxes 815 926 --------- --------- Net income $ 1,449 $ 1,577 ========= ========= Basic and diluted earnings per share * $ 0.17 $ 0.18 ========= ========= Dividends per common share $ 0.08 $ 0.24 ========= =========
Comprehensive income consisting of net income and foreign currency translation adjustments, totaled $1,373 and $1,420 for the quarters ended April 28, 2001 and April 29, 2000, respectively. Certain amounts in the prior year have been reclassified to conform to current year presentation. In the first quarter of fiscal year 2002, the effective tax rate was adjusted downward from 37.0 percent to 36.0 percent to reflect lower actual state tax expense levels. [FN] * Based upon weighted average number of common and common equivalent shares outstanding of 8,664,328 and 8,675,517 for fiscal periods of 2002 and 2001, respectively. CONSOLIDATED BALANCE SHEETS Angelica Corporation and Subsidiaries Unaudited (Dollars in thousands) April 28, January 27, 2001 2001 ----------- ----------- ASSETS ------ Current Assets: Cash and short-term investments $ 14,601 $ 20,311 Receivables, less reserve of $2,930 and $2,581 55,422 54,983 Inventories: Raw material 25,365 27,223 Work in progress 4,081 5,895 Finished goods 62,054 58,726 ----------- ----------- 91,500 91,844 Linens in service 33,284 32,846 Prepaid expenses and other current assets 6,415 5,733 ----------- ----------- Total Current Assets 201,222 205,717 ----------- ----------- Property and Equipment 207,338 204,146 Less -- reserve for depreciation 121,449 119,026 ----------- ----------- 85,889 85,120 ----------- ----------- Goodwill 5,231 5,341 Other acquired assets 2,217 2,659 Cash surrender value of life insurance 22,873 22,628 Miscellaneous 4,751 4,819 ----------- ----------- 35,072 35,447 ----------- ----------- Total Assets $ 322,183 $ 326,284 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term debt $ 27,841 $ 27,841 Accounts payable 21,985 27,445 Accrued expenses 27,038 25,982 ----------- ----------- Total Current Liabilities 76,864 81,268 ----------- ----------- Long-Term Debt, less current maturities 60,335 60,963 Other Long-Term Obligations 19,454 19,734 Shareholders' Equity: Preferred Stock: Class A, Series 1, $1 stated value, authorized 100,000 shares, outstanding: None -- -- Class B, authorized 2,500,000 shares, outstanding: None -- -- Common Stock, $1 par value, authorized 20,000,000 shares, issued: 9,471,538 9,472 9,472 Capital surplus 4,196 4,196 Retained earnings 168,639 168,677 Accumulated other comprehensive income (2,056) (1,980) Common Stock in treasury, at cost: 877,501 and 929,070 (14,721) (16,046) ----------- ----------- 165,530 164,319 ----------- ----------- Total Liabilities and Shareholders' Equity $ 322,183 $ 326,284 =========== ===========
CONSOLIDATED STATEMENTS OF CASH FLOWS Angelica Corporation and Subsidiaries Unaudited (Dollars in thousands)
First Quarter Ended ------------------------------------- April 28, 2001 April 29, 2000 -------------- -------------- Cash Flows from Operating Activities: Net income $ 1,449 $ 1,577 Non-cash items included in net income: Depreciation 3,094 3,309 Amortization of acquisition costs 552 602 Change in working capital components, net of businesses acquired/disposed of: (5,921) (1,201) Other, net (457) 759 -------- -------- Net cash (used in) provided by operating activities (1,283) 5,046 -------- -------- Cash Flows from Investing Activities: Expenditures for property and equipment, net (3,863) (2,146) Disposals of businesses and property 302 1,874 -------- -------- Net cash used in investing activities (3,561) (272) -------- -------- Cash Flows from Financing Activities: Long-term debt repayments (628) (741) Dividends paid (685) (2,082) Other, net 447 (161) -------- -------- Net cash used in financing activities (866) (2,984) -------- -------- Net (decrease) increase in cash and short-term investments (5,710) 1,790 Balance at beginning of year 20,311 15,651 -------- -------- Balance at end of period $ 14,601 $ 17,441 ======== ======== Supplemental cash flow information: Income taxes paid $ 866 $ 1,217 Interest paid $ 1,322 $ 769
BUSINESS SEGMENT INFORMATION Angelica Corporation and Subsidiaries Unaudited (Dollars in thousands)
First Quarter Ended ----------------------------------- April 28, 2001 April 29, 2000 -------------- -------------- Sales and textile service revenues: Textile Services $ 65,487 $ 60,691 Manufacturing and Marketing 37,641 36,036 Retail Sales 23,902 23,291 Intersegment sales (7,557) (6,766) ---------- ---------- $ 119,473 $ 113,252 ========== ========== Earnings: Textile Services $ 4,740 $ 4,356 Manufacturing and Marketing 818 1,196 Retail Sales (61) 543 Interest, corporate expenses and other, net (3,233) (3,592) ---------- ---------- $ 2,264 $ 2,503 ========== ==========
SUMMARY FINANCIAL POSITION DATA Angelica Corporation and Subsidiaries Unaudited (Dollars in thousands, except ratios, shares and per share amounts)
First Quarter Ended ----------------------------------- April 28, 2001 April 29, 2000 -------------- -------------- Working capital $ 124,358 $ 144,237 Current ratio 2.6 to 1 4.2 to 1 Long-term debt $ 60,335 $ 87,299 Shareholders' equity $ 165,530 $ 162,746 Percent long-term debt to debt and equity 26.7% 34.9% Equity per common share $ 19.26 $ 18.76 Common shares outstanding 8,594,037 8,675,365
------------------------------------------------------------------------------- Forward-Looking Statements: Any forward-looking statements made in this document reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. These potential risks and uncertainties include, but are not limited to, competitive and general economic conditions, the ability to retain current customers and to add new customers in competitive market environments, competitive pricing in the marketplace, delays in the shipment of orders, availability of labor at appropriate rates, availability and cost of energy and water supplies, availability of non-domestic image apparel contractors to manufacture and deliver at an appropriate cost and in a timely manner, the ability to attract and retain key personnel, unusual or unexpected cash needs for operations or capital transactions, and other factors which may be identified in the Company's filings with the Securities and Exchange Commission. -------------------------------------------------------------------------------