-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0/KmcBgrhJFbKGGqYDCK5D1oWvHikNoZmJXk3HZaMnXKE+crNzPl32UmZiypgvd zPiTnuNlY3t/kyECyHaC/Q== 0000950131-97-002721.txt : 19970423 0000950131-97-002721.hdr.sgml : 19970423 ACCESSION NUMBER: 0000950131-97-002721 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970126 FILED AS OF DATE: 19970422 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITOG CO CENTRAL INDEX KEY: 0000101909 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 440529828 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06643 FILM NUMBER: 97584912 BUSINESS ADDRESS: STREET 1: 101 WEST 11TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164747000 MAIL ADDRESS: STREET 1: 101 W 11TH STREET CITY: KANSAS CITY STATE: MO ZIP: 64105 10-K405 1 FORM 10-K405 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 26, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ________. Commission File Number: 0-6643 ------ UNITOG COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 44-0529828 ------------------------ ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 101 West 11th Street, Kansas City, Missouri 64105 - ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (816) 474-7000 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $ .01 per share ------------------------------------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the registrant was $164,120,621 as of March 1, 1997. As of April 18, 1997, Unitog Company had 9,644,767 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 26, 1997. Part III incorporates information by reference from the registrant's definitive proxy statement, dated April 22, 1997. PART I Item l. Business. Unitog Company, the registrant, together with its subsidiaries is referred to herein as the "Company". The Company was first incorporated in Missouri in 1948 and was reincorporated under the laws of Delaware in 1969. The Company's executive offices are located at 101 West 11th Street, Kansas City, Missouri 64105, and its telephone number is (816) 474-7000. A. Financial information about industry segments. Information incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended January 26, 1997, 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 77.9%, 73.8% and 70.6% of the Company's total revenues in fiscal 1997, 1996 and 1995, respectively. Uniform Direct Sales accounted for the remaining revenues. Rental Operations The Company rents uniforms and other industrial items, such as dust mops, wiping towels and entrance mats, and, to a lesser extent, linen items, such as sheets, pillowcases, tablecloths and napkins, to customers who prefer a rental laundry service instead of purchasing and maintaining such items themselves. Uniform Rentals. The Company's rental services are designed to address customers' requirements for managing employee uniform programs. The services provided by Unitog include assistance in selecting fabrics, styles and colors appropriate for a customer's needs; maintaining necessary inventory to match the customer's changing employment levels; replacing worn items and providing pick- up, cleaning, maintenance and delivery services on a regularly scheduled basis. 2 The Company provides rental services in 55 markets to customers in 32 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. 3 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 and any excess is paid directly by the employee. Sales and Marketing The Company considers its target market to be national and regional customers seeking improved image and employee recognition as well as higher levels of product quality and customer service. The selling efforts of the Rental and Direct Sales forces are combined under common regional sales managers, creating a company-wide marketing approach to maximize cross-selling opportunities by identifying customers' needs, whether rental or direct sale, 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, 4 Missouri where its uniforms are stored pending shipment to customers. Sources of Raw Materials Substantially all of the fabrics used by Unitog in its manufacturing process are acquired from textile mills located in the United States. Alternative sources of these materials are generally available. Seasonality Rental operations are not generally subject to seasonality. Subject to the effects of the introduction of new programs with national accounts, Direct Sales have historically been higher in the third and fourth quarters due to the sale of fall and winter garments. As a result, operating income can be higher in such quarters. Customers No material part of the business of the Company is dependent upon a single customer or a small number of customers. Competition The business in which Unitog is engaged is highly competitive, and the Company competes in both the sale and rental of uniforms with a large number of other firms. The Company believes that the primary competitive factors that affect its operations are design, quality, service and price. The Company believes it maintains 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 currently has environmental matters pending with respect to contamination at three of its plants. Volatile organic compound contamination has been detected in the soil and groundwater at the Company's Whittier, California rental plant. The plant is located in the Suburban Operable Unit 5 of the San Gabriel Valley Federal Superfund site. The Company has cleaned up the soil at the plant and, based on groundwater testing done to date, does not believe groundwater cleanup will be required at the Company's plant. The Company received correspondence from the United States Department of Justice, Environment and Natural Resources Division ("Justice Department") and from the state of California stating that the Company and three other unrelated entities are potentially responsible parties and are jointly and severally liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for all costs incurred by the government with respect to the Suburban Operable Unit. The government is claiming that the total amount of costs incurred to date plus the present value of future monitoring costs at the site is approximately $4.2 million. The Company has entered into tolling agreements with the Justice Department and the state of California that stop the running of any statute of limitations to give the parties time to discuss issues related to the claims. At this time, it is not possible to estimate the Company's exposure with respect to the federal and state claims for reimbursement. The Company's Tempe, Arizona rental plant is located in the South Indian Bend Wash Federal Superfund site. The Company, along with unrelated parties, has been designated by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to the Tempe site. The Company entered into a Consent Order with EPA requiring a soil and groundwater investigation at the Tempe plant. Test results at the Tempe plant indicate that volatile organic compound contamination is present in the soil, necessitating soil remediation. Additional periodic groundwater testing is expected. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Tempe plant has been accrued and charged to operating expense. Test results at the Company's Minneapolis, Minnesota rental plant indicate that volatile organic compound contamination is present in the soil and groundwater there. The Company has begun soil and groundwater remediation at the Minneapolis plant. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Minneapolis plant 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 of the Company. 6 Executive Officers of the Company Certain information about the executive officers of the Company is set forth below. Principal Occupation for Name Age Last Five Years - ---- --- ------------------------------------------------------ Randolph K. Rolf 55 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 44 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 42 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. G. Jay Arrowsmith 49 Mr. Arrowsmith has served as the Company's Vice President - Manufacturing and Distribution since August 1995. From August 1994 to August 1995, he was Vice President - Manufacturing. From March 1994 to August 1994 he was a Vice President - Manufacturing for Fruit of the Loom. Prior to that time he was Sewing Operations Manager for Jostens Sportswear. 7 Principal Occupation for Name Age Last Five Years - ---- --- ------------------------------------------------------ Robert M. Barnes 39 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 54 Mr. Harden has served as the Company's Controller since 1981. Employees The Company had 4,431 full-time employees as of January 26, 1997. 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. Location Type of Facility -------- ---------------- 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 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 8 Location Type of Facility -------- ---------------- 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................. Sales and Service Branch Lansing, Michigan*..................... Sales and Service Branch Port Huron, Michigan*.................. Sales and Service Branch Traverse City, Michigan*............... Processing Plant Duluth, Minnesota...................... Processing Plant Eagan, Minnesota....................... Processing Plant Minneapolis, Minnesota................. Processing Plant Concordia, Missouri*................... Manufacturing Facility Kansas City, Missouri*................. Corporate Offices Kansas City, Missouri.................. Processing Plant and Distribution Center St. Charles, Missouri.................. Manufacturing Facility University City, Missouri.............. Processing Plant Warrensburg, Missouri.................. Manufacturing Facility and Distribution Center Warsaw, Missouri....................... Manufacturing Facility North Las Vegas, Nevada................ Processing Plant Charlotte, North Carolina*............. Sales and Service Branch 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 Bloomsburg, Pennsylvania*.............. Processing Plant Bristol, Pennsylvania.................. Processing Plant Exton, Pennsylvania.................... Processing Plant Memphis, Tennessee*.................... Sales and Service Branch Nashville, Tennessee*.................. Sales and Service Branch Dallas, Texas*......................... Processing Plant 9 Location Type of Facility -------- ---------------- Houston, Texas*........................ Processing Plant New Braunfels, Texas*.................. Sales and Service Branch Mississauga, Ontario, Canada........... Processing Plant La Ceiba, Honduras*.................... Manufacturing Facility ___________________________ * Leased for various terms expiring from fiscal 1998 to fiscal 2006. The Company expects that it will be able to renew or replace its leases on satisfactory terms. Except as otherwise noted, all other properties are owned. (1) Includes an option to purchase upon payment of a nominal amount. Item 3. Legal Proceedings. The Company is a party to litigation incidental to its business, primarily involving claims for personal injury, employment claims and environmental matters as described in Item 1 above. Based on information currently available, the Company does not believe its costs with respect to pending legal matters will have a material adverse effect on the consolidated financial position of the Company. Item 4. Submission of matters to a vote of security holders. None. PART II Item 5. Market for the registrant's common equity and related stockholder matters. Information incorporated herein by reference from the information provided under the caption "Common Stock Information" and "Price Range" in the Company's Annual Report to Stockholders for the fiscal year ended January 26, 1997, page 28. Dividends on the outstanding common stock totaled $.12 and $.10 per share in fiscal 1997 and 1996, respectively, and are paid semi-annually. The Company's principal credit agreements contain certain restrictions on dividends. At January 26, 1997, the Company had $28.4 million in unrestricted stockholders' equity available to pay future dividends. On March 29, 1996, American Dust Control Co., Inc., a company engaged in the entrance mat rental business in Philadelphia, Pennsylvania ("American Dust"), was acquired by the Company pursuant to an Agreement and Plan of Merger. Pursuant to the merger, stockholders of American Dust received a total of 266,590 shares of stock of Unitog Company. The Company relied on Section 4(2) of the 10 Securities Act of 1933 in issuing the shares based on statements made by the stockholders of American Dust to the effect that each was an "accredited investor" as defined in Rule 501 of Regulation D under the Securities Act of 1933. Item 6. Selected financial data. Information incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended January 26, 1997, 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 26, 1997, pages 8 - 11. 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; 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. 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 26, 1997, pages 12 - 26. Item 9. Changes in and disagreements with accountants on accounting and financial disclosure. None. 11 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 1997 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 6, 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 1997 Annual Meeting of Stockholders under the captions "Compensation of Directors" and "Executive Compensation and Other Information", pages 6 - 12, except information under the captions "Board Compensation Committee 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 1997 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 26, 1997). - - Independent Auditors' Report. - - Consolidated Balance Sheets--January 26, 1997 and January 28, 1996. - - Consolidated Statements of Earnings--Years ended January 26, 1997, January 28, 1996 and January 29, 1995. - - Consolidated Statements of Stockholders' Equity--Years ended January 26, 1997, January 28, 1996 and January 29, 1995. 12 - - Consolidated Statements of Cash Flows--Years ended January 26, 1997, January 28, 1996 and January 29, 1995. - - 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 (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 13 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) 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(i) Note Agreement, dated as of October 15, 1995, among Unitog Company, Unitog Rental Services, Inc. and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4(b) to Quarterly Report on Form 10-Q for the quarterly period ended October 29, 1995). 10(a)* 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). 13 Information incorporated by reference from the Annual Report to Stockholders for the fiscal year ended January 26, 1997. 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 Financial Data Schedule. 14 * 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. 15
UNITOG COMPANY AND SUBSIDIARIES Index to Consolidated Financial Statements INDEX Page Reference Annual Report to Stockholders ------------ Independent Auditors' Report 12 Financial Statements: Consolidated Balance Sheets--January 26, 1997 and January 28, 1996 13 Consolidated Statements of Earnings-- Years Ended January 26, 1997, January 28, 1996 and January 29, 1995 14 Consolidated Statements of Stockholders' Equity--Years Ended January 26, 1997, January 28, 1996 and January 29, 1995 14 Consolidated Statements of Cash Flows-- Years Ended January 26, 1997, January 28, 1996 and January 29, 1995 15 Notes to Consolidated Financial Statements 16 - 26
16 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 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Randolph K. Rolf Chairman, President April 21, 1997 - -------------------------- and Chief Executive Randolph K. Rolf Officer /s/ J. Craig Peterson Senior Vice President April 21, 1997 - -------------------------- Finance and Adminis- J. Craig Peterson tration and Chief Financial Officer /s/ Ronald J. Harden Controller April 21, 1997 - -------------------------- Ronald J. Harden
Signature Title Date - --------- ----- ---- /s/ G. Kenneth Baum Director April 21, 1997 - -------------------------- G. Kenneth Baum /s/ John W. Caffry Director April 21, 1997 - -------------------------- John W. Caffry /s/ D. Patrick Curran Director April 21, 1997 - -------------------------- D. Patrick Curran /s/ Robert F. Hagans Director April 21, 1997 - -------------------------- Robert F. Hagans /s/ David B. Sharrock Director April 21, 1997 - --------------------- David B. Sharrock /s/ William D. Thomas Director April 21, 1997 - -------------------------- William D. Thomas
INDEX TO EXHIBITS Exhibit Number Exhibit - ------- ------- 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
Exhibit Number Exhibit - ------- ------- 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). 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) 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(i) Note Agreement, dated as of October 15, 1995, among Unitog Company, Unitog Rental Services, Inc. and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4(b) to Quarterly Report on Form 10-Q for the quarterly period ended October 29, 1995). 10(a)* 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 the fiscal year ended January 30, 1994). 10(c)* Description of Management Incentive Plan.
Exhibit Number Exhibit - ------- ------- 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). 13 Information incorporated by reference from the Annual Report to Stockholders for the fiscal year ended January 26, 1997. 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 Financial Data Schedule.
* 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. EX-10.C 2 MANAGEMENT INCENTIVE PLAN 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. Eligible employees include officers and other key employees of the Company. The Plan limits the total amount that can be paid in a given year to a pre-determined percentage of operating income. At least sixty percent (60%) of an executive's annual bonus opportunity is based on actual versus targeted earnings per share performance, or, for those executives who work primarily in a particular operating segment, a combination of earnings per share of the Company and operating income of the executive's business segment. Up to twenty percent (20%) of an executive's bonus may be based on objective 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 twenty percent (20%) of the bonus may be based on a subjective evaluation of whether individual goals applicable to the executive were attained. The specific financial goals for the major business segments and the Company 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. 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. EX-13 3 INFORMATION FROM ANNUAL REPORT TO STOCKHOLDERS Exhibit 13 ---------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 were $203.8 million for fiscal 1997, an increase of $45.7 million, or 29% over last year. Our two Michigan operations acquired since November 1995 (Mechanics Uniform Rental Company and Central Quality Services Corporation) contributed $41 million to rental revenues during the year. In addition to the Central Quality Services Corporation purchase in March 1996, we acquired rental operations in Philadelphia, Las Vegas and Toronto during fiscal 1997. Combined, these four rental acquisitions should add $22 million in annual rental revenue. Internal growth from our existing locations was 6% for fiscal 1997. Revenue from industrial uniform rentals was stronger overall than last year. A decline in our linen rental business offset the uniform rental gain. Direct sales were $57.9 million for fiscal 1997, an increase of $1.7 million, or 3% over last year. Direct sales of industrial uniforms to new and existing customers created the increase over last year. Sales of postal uniforms were about the same as last year. Rental operating contribution was $38.5 million for fiscal 1997, an increase of $8.0 million, or 26% over last year. Rental operating contribution was 18.9% of rental revenue compared to 19.3% in fiscal 1996. Costs related to assimilating our acquisitions in fiscal 1997 and lower margins of prior year and current year 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 last year. Direct sales operating contribution was 17.9% of sales compared to 18.2% last 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 charges for fiscal 1997 increased by $4.3 million over last year due to our acquisition activity and capital expenditures. General and administrative costs for fiscal 1997 of $8.2 million or 3.1% of revenues were about the same as the $7.8 million incurred in fiscal 1996, although lower as a percentage of revenues. Interest expense for fiscal 1997 of $5.8 million was $2.5 million or 77% more than the prior year. Borrowings to fund our current and prior years' acquisitions increased our interest costs. Net earnings were $12.1 million for fiscal 1997, an increase of $600,000, or 6% over fiscal 1996. Higher operating contribution from the Rental business offset increased depreciation, amortization and interest expenses. Net earnings per share were $1.26 in fiscal 1997 compared to $1.23 per share last year, a 2% gain. The average shares outstanding increased 3% due to shares issued to acquire a rental operation and employee stock option activity. 8 Fiscal 1996 Compared to Fiscal 1995 Revenues for fiscal 1996 were $214.3 million, an increase of $25.2 million or 13% over fiscal 1995. Rental revenues increased 18% over fiscal 1995 to $158.1 million. Five acquisitions in fiscal 1996 added $14.2 million in rental revenues. Internal rental revenue growth for fiscal 1996 was 6%. Revenues from industrial uniform rentals were stronger than fiscal 1995 although offset by a decline in our linen rental business. Direct sales were essentially the same as fiscal 1995. Sales of postal uniforms increased over fiscal 1995 aided by new products introduced during the year. Direct sales of industrial uniforms declined slightly from fiscal 1995 as a result of limited implementations of new programs for national accounts. Rental operating contribution for fiscal 1996 was $30.5 million, an increase of $4.1 million or 16% over fiscal 1995. Rental operating contribution was 19.3% of rental revenue in fiscal 1996 compared to 19.8% in fiscal 1995. Costs related to assimilating five acquisitions and the lower margins of newly acquired rental operations reduced the operating contribution percentage during fiscal 1996. Direct sales operating contribution for fiscal 1996 was $10.2 million, a decrease of $450,000, or 4% from fiscal 1995. Direct sales operating contribution was 18.2% of sales in fiscal 1996 compared to 19.2% in the prior year. One-time costs incurred to close our Atlanta distribution operations and to start-up a manufacturing and distribution facility in Stevenson, Alabama reduced the operating contribution percentage in fiscal 1996. Depreciation and amortization charges for fiscal 1996 increased by $1.4 million over fiscal 1995 due to our acquisition activity and a higher level of capital expenditures. The construction of new facilities and plant expansions resulted in capital outlays of $22 million in fiscal 1996 compared to $9 million in fiscal 1995. General and administrative costs for fiscal 1996 were $7.8 million, or 3.6% of revenues, and were about the same as the $8.2 million incurred in fiscal 1995, although lower as a percentage of revenues. Interest expense for fiscal 1996 of $3.3 million was $700,000 or 26% more than the prior year. Borrowings to fund our acquisitions during fiscal 1996 increased our interest costs. Income taxes declined as a percentage of pretax earnings to 38% in fiscal 1996 compared to 39% in fiscal 1995 due to reductions in state and local taxes. Net earnings for fiscal 1996 were $11.5 million or $1.23 per share, a 15% increase over fiscal 1995. Improved operating contribution from our Rental business offset higher depreciation, amortization and interest expenses. 9 Liquidity and Capital Resources The Company completed the acquisition of four rental operations during fiscal 1997 spending $25 million in cash and issuing 266,000 shares of common stock. These acquisitions should add $22 million in annual rental revenue and expanded our market presence in northern and central Michigan, Las Vegas, Philadelphia and Toronto. Cash and cash equivalents at January 26, 1997 were the same as last year. At January 26, 1997, the Company's capitalization ratio was 51% compared to 49% one year ago. The Company's long-term debt increased $20 million due to the financing of acquisitions. At January 26, 1997 long-term debt was at a blended interest rate of 6.2%. There were $35 million in borrowings outstanding under the Company's $67 million long-term domestic and foreign bank credit facilities at January 26, 1997. On March 7, 1996 the Company issued $4.5 million in tax-exempt Industrial Revenue Bonds related to its manufacturing facility in Stevenson, Alabama. Working capital was $49.2 million at January 26, 1997 compared to $37.9 million at January 28, 1996. The increase in working capital was created by higher finished goods inventories, by rental acquisitions and by the reduction of trade payables and accrued expenses. The Company raised its semi-annual dividend by 20% in fiscal 1997 to $.06 per share. Capital expenditures were $16 million during fiscal 1997 compared to $22 million in fiscal 1996. Planned capital expenditures for fiscal 1998 are $28 million to $30 million. 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 currently has environmental matters pending with respect to contamination at three of its plants. Volatile organic compound contamination has been declared in the soil and groundwater at the Company's Whittier, California rental plant. The plant is located in the Suburban Operable Unit of the San Gabriel Valley Federal Superfund site. The Company has cleaned up the soil at the plant and, based on groundwater testing done to date, does not believe groundwater cleanup will be required at the Company's plant. The Company received correspondence from the United States Department of Justice, Environment and Natural Resources (Justice Department) and from the state of California stating that the Company and three other unrelated entities are potentially responsible parties and are jointly and severally liable under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for all costs incurred by the government with respect to the Suburban Operable Unit. The government is claiming that the total amount of costs incurred to date plus the present value of future monitoring costs at the site is approximately $4.2 million. The Company has entered into tolling agreements with the Justice Department and the state of California that stop the running of any statute of limitations to give the parties time to discuss issues related to the claims. At this time, it is not possible to estimate the Company's exposure with respect to the federal and state claims for reimbursement. The Company's Tempe, Arizona rental plant is located in the South Indian Bend Wash Federal Superfund site. The Company, along with unrelated parties, has been designated by the United States Environmental Protection Agency (EPA) as a potentially responsible party under CERCLA with respect to the Tempe site. The Company entered into a Consent Order with EPA requiring a soil and groundwater investigation at the Tempe plant. Test results at the Tempe plant indicate that volatile organic compound contamination is present in the soil, necessitating soil remediation. Additional periodic groundwater testing is expected. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Tempe plant has been accrued and charged to operating expense. 10 Test results at the Company's Minneapolis, Minnesota rental plant indicate that volatile organic compound contamination is present in the soil and groundwater. The Company has begun soil and groundwater remediation at the Minneapolis plant. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Minneapolis plant has been accrued and charged to operating expense. Based on the information currently available, management does not believe the liability, if any, arising from the settlement of these matters will have a material adverse effect on the consolidated financial position of the Company. 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 of the Company. Inflation has not significantly affected the Company in recent years. Labor and raw materials are the Company's primary operating costs. Inventories are valued on the LIFO (last-in first-out) method, which management believes more accurately matches current costs with current revenues. New Accounting Pronouncement In February 1997 the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which revises the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for the Company's fiscal year ending January 25, 1998. Retroactive application will be required. The Company believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. 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; 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. 11 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 26, 1997 and January 28, 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended January 26, 1997. 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 26, 1997 and January 28, 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended January 26, 1997 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG Peat Marwick LLP Kansas City, Missouri March 10, 1997 12 Unitog Company and Subsidiaries CONSOLIDATED BALANCE SHEETS January 26, 1997 and January 28, 1996
1997 1996 ---- ---- Assets Currents assets: Cash and cash equivalents $ 31,307 $ 28,321 Accounts receivable, less allowance for doubtful receivables of $1,240,000 in 1997 and $760,000 in 1996 28,090,702 25,012,073 Inventories (note 3) 17,525,175 15,333,981 Rental garments in service, net 40,329,880 36,774,298 Prepaid expenses 1,375,210 1,233,948 ------------ ------------ Total current assets 87,352,274 78,382,621 ------------ ------------ Property, plant and equipment, at cost: Land 7,665,437 5,983,780 Buildings and improvements 52,929,065 49,555,705 Machinery and equipment 100,757,284 85,295,139 ------------ ------------ 161,351,786 140,834,624 Less accumulated depreciation 66,554,486 58,542,615 ------------ ------------ Net property, plant and equipment 94,797,300 82,292,009 ------------ ------------ Other assets, net (notes 1 and 4) 35,120,442 30,848,817 Excess cost over net assets of business acquired, net 37,294,970 32,045,645 ------------ ------------ $254,564,986 $223,569,092 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term debt (note 4) $ 2,046,821 $ 481,087 Accounts payable 13,820,339 15,300,599 Accrued expenses 7,118,553 9,427,941 Accrued payroll expenses 4,251,004 3,971,910 Accrued and deferred income taxes payable (note 5) 10,880,382 11,286,860 ------------ ------------ Total current liabilities 38,117,099 40,468,397 ------------ ------------ Long-term debt, less current installments (note 4) 103,524,014 83,731,099 Deferred income taxes and other liabilities (note 5) 13,819,237 13,244,889 Stockholders' equity (notes 4 and 6): Common stock of $.01 par value. Authorized 30,000,000; issued and outstanding 9,643,857 shares in 1997 and 9,279,337 shares in 1996 96,439 92,793 Additional paid-in capital 41,202,740 39,200,675 Retained earning 57,805,457 46,831,239 ------------ ------------ Total stockholders' equity 99,104,636 86,124,707 ------------ ------------ Commitments and contingencies (notes 4, 6 and 7) $254,564,986 $223,569,092 ============ ============
See accompanying notes to consolidated financial statements. 13 Unitog Company and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS Years ended January 26, 1997, January 28, 1996 and January 29, 1995
1997 1996 1995 ---- ---- ---- Revenues: Rental operations $203,780,197 $158,074,437 $133,488,069 Direct sales 57,937,166 56,242,363 55,655,727 ------------ ------------ ------------ Total revenues 261,717,363 214,316,800 189,143,796 ------------ ------------ ------------ Operating costs and expenses: Cost of rental operations 165,240,186 127,574,457 107,091,152 Cost of direct sales 47,585,867 46,024,874 44,990,968 Depreciation and amortization 15,397,777 11,102,487 9,659,338 General and administrative 8,213,074 7,780,457 8,229,984 ------------ ------------ ------------ Total costs and expenses 236,436,904 192,482,275 169,971,442 ------------ ------------ ------------ Operating income 25,280,459 21,834,525 19,172,354 Interest expense, net 5,841,546 3,303,105 2,627,655 Other expenses (income), net (96,335) 289 129,569 ------------ ------------ ------------ Earnings before income taxes 19,535,248 18,531,131 16,415,130 Income taxes (note 5) 7,407,000 7,042,000 6,402,000 ------------ ------------ ------------ Net earnings $ 12,128,248 $ 11,489,131 $ 10,013,130 ============ ============ ============ Net earnings per common share $1.26 $1.23 $1.07 ===== ===== ===== Weighted average common and common equivalent shares outstanding 9,636,314 9,368,394 9,334,781 ============ ============ ============ Dividends per common share $.12 $.10 $.08 ==== ==== ====
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended January 26, 1997, January 28, 1996 and January 29, 1995
Additional Total Common paid-in Retained stockholders' stock capital earnings equity ------- ----------- ----------- ------------- Balance at January 30, 1994 $92,721 $39,070,262 $26,998,326 $66,161,309 Net earnings -- -- 10,013,130 10,013,130 Dividends paid -- -- (741,768) (741,768) ------- ----------- ----------- ----------- Balance at January 29, 1995 92,721 39,070,262 36,269,688 75,432,671 Employee stock options (note 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 6) 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 ======= =========== =========== ===========
See accompanying notes to consolidated financial statements. 14 Unitog Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended January 26, 1997, January 28, 1996 and January 29, 1995
1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 12,128,248 $ 11,489,131 $ 10,013,130 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15,397,777 11,102,487 9,659,338 Provision for deferred income taxes 2,554,000 1,813,000 1,017,000 Disposal of equipment, net of gains and losses 458,287 112,501 456,355 Changes in assets and liabilities: Accounts receivable (1,337,134) (2,539,770) (1,005,943) Inventories (2,191,194) (229,861) 469,307 Rental garments in service 119,969 (3,953,090) (2,093,823) Prepaid expenses (137,744) 27,198 (41,859) Other noncurrent assets 673,945 42,002 (36,526) Accounts payable (1,574,160) 6,635,987 199,555 Accrued expenses (3,475,979) (555,112) 1,884,043 Income taxes payable (1,705,478) 542,546 (415,457) Other noncurrent liabilities (780,652) 214,661 (139,755) ------------ ------------ ------------ Net cash provided by operating activities 20,129,885 24,701,680 19,965,365 ------------ ------------ ------------ Cash flows from investing activities: Acquisition of rental operations (24,609,296) (43,296,202) (4,443,868) Purchase of property, plant and equipment (15,857,089) (22,111,348) (9,246,085) ------------ ------------ ------------ Net cash used by investing activities (40,466,385) (65,407,550) (13,689,953) ------------ ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of common stock 1,500,047 130,485 -- Dividends paid (1,156,693) (927,580) (741,768) Increases in long-term debt 28,982,363 52,365,473 -- Repayments of long-term debt (8,986,231) (18,552,186) (1,232,633) ------------ ------------ ------------ Net cash provided (used) by financing activities 20,339,486 33,016,192 (1,974,401) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 2,986 (7,689,678) 4,301,011 Cash and cash equivalents at beginning of year 28,321 7,717,999 3,416,988 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 31,307 $ 28,321 $ 7,717,999 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 6,278,000 $ 2,989,000 $ 2,901,000 ============ ============ ============ Income taxes $ 5,728,000 $ 4,662,000 $ 5,800,000 ============ ============ ============
See accompanying notes to consolidated financial statements. 15 Unitog Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended January 26, 1997, January 28, 1996 and January 29, 1995 (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-to/fifty-three week period ending on the last Sunday in January. Fifty-two week periods were included in the years ended January 26, 1997, January 28, 1996 and January 29, 1995. Cash and Cash Equivalents Cash and cash equivalents include cash, money market deposits, and highly liquid investment. 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 $34,652,000 and $18,547,000 at January 26, 1997 and January 28, 1996, respectively. Property, Plant and Equipment Expenditures for additions and improvements are capitalized to the appropriate asset accounts. Maintenance and repairs are charged to earnings as incurred. On sale or retirement of assets, the cost and related accumulated depreciation applicable to such assets are removed from the accounts and any resulting gain or loss is reflected in earnings. Gains (losses) on the disposal of plant and equipment were $130,000, $25,000, and ($165,000) for fiscal 1997, 1996, and 1995, respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the various assets. Useful lives range from ten to thirty-five years for buildings and improvements and from three to ten years for machinery and equipment. 16 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 26, 1997 and January 28, 1996 the cost and related accumulated amortization pertaining to noncompetition agreements was $17,138,000 and ($7,359,000) and $13,877,000 and ($5,112,000), respectively. The contractual term for noncompetition agreements is generally three to eight years. At January 26, 1997 and January 28, 1996 the cost and related accumulated amortization pertaining to acquired customer contracts was $32,067,000 and ($9,852,000) and $26,596,000 and ($7,104,000), 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 by determining whether the amortization of the goodwill balance over the remaining life can be recovered through undiscounted future operating cash flows. Other Liabilities The Company, under certain insurance programs, retains portions of expected losses. The Company, upon consultation with its insurance carriers and advisors, records the estimated aggregate liabilities for claims incurred and projects their future settlement dates. The Company provides funded trust arrangements for certain of these insurance programs. Income Taxes Provisions are made for deferred income taxes for temporary differences between amounts recognized for income tax and financial reporting purposes. Net Earnings Per Common Share Net earnings per common share are computed based upon the weighted average number of common shares and common equivalent shares outstanding. For fiscal 1997, 1996 and 1995, employee stock options were the Company's only common stock equivalents; there were no other potentially dilutive securities. Use of Estimates and Fair Value of Financial Instruments Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and disclosure of contingent assets and liabilities to prepare these 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 26, 1997 and January 28, 1996. 17 New Accounting Pronouncement In February 1997 the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for the Company's fiscal year ending January 25, 1998. Retroactive application will be required. The Company believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. (2) ACQUISITIONS OF RENTAL OPERATIONS During fiscal 1997 the Company acquired 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. During fiscal 1997 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. On November 10, 1995, the Company purchased all of the issued and outstanding stock of Ace-Tex Corporation (Ace-Tex). Ace-Tex was engaged in the rental supply, service and sale of industrial uniforms ad related products (the Uniform Rental Business) and the manufacture and sale of wiping and polishing cloths (the Wiper Business). In conjunction with the purchase of the stock of Ace-Tex, the Company sold the Wiper Business and the assets of Ace-Tex used in the Wiper Business to the former principals of Ace-Tex. As a result, after the purchase, Ace-Tex was only engaged in the Uniform Rental Business under the name Mechanics Uniform Rental Co. (Mechanics). The net purchase price of Mechanics was as follows:
Total purchase price $32,100,000 Current assets $12,900,000 Property, plant and equipment 7,200,000 Intangible and other assets 11,700,000 Liabilities assumed (6,400,000) Debt assumed (14,700,000) Deferred taxes (6,300,000) ----------- ----------- Net assets acquired 4,400,000 ----------- Excess of purchase price over net assets acquired $27,700,000 -----------
18 The consolidated operating results of the Company for the fiscal year ended January 28, 1996 on a pro forma basis as though the Mechanics acquisition had occurred on January 30, 1995 would have been: consolidated revenues of $236,170,000; consolidated operating income of $23,242,000; consolidated net earnings of $10,598,000; net earnings per share of $1.13. The pro forma results of operations are not necessarily indicative of the actual operating results that would have occurred had the acquisition been consummated on January 30, 1995 or of future operating results on a combined basis. The operating results of Mechanics have been included in the consolidated results of the Company since its acquisition. During fiscal 1996 Mechanics added $6.7 million in rental revenues with an insignificant effect on net earnings. During fiscal 1996 the Company also acquired certain uniform rental operations in Iowa, Texas, California and Ohio for approximately $11.2 million in cash, and notes payable. The operating results of these rental acquisitions have been included in the consolidated results of the Company since their acquisition. During fiscal 1996 these rental acquisitions added approximately $7.5 million in rental revenues with an insignificant effect on net earnings. (3) INVENTORIES Components of inventories at January 26, 1997 and January 28, 1996 follows:
1997 1996 ----------- ----------- Raw materials $ 3,899,072 $ 4,135,131 Work in progress 1,085,883 2,503,558 Finished goods 16,556,660 12,501,732 ----------- ----------- 21,541,615 19,140,421 Less LIFO allowance (4,016,440) (3,806,440) ----------- ----------- $17,525,175 $15,333,981 =========== ===========
The use of the LIFO method reduced net earnings by approximately $130,000 ($.01 per share), $160,000 ($.02 per share) and $142,000 ($.02 per share) for the years ended January 26, 1997, January 28, 1996 and January 29, 1995, respectively. 19 (4) LONG-TERM DEBT A summary of long-term debt at January 26, 1997 and January 28, 1996 follows:
1997 1996 ----------- ---------- 6.83% Senior Notes $ 40,000,000 $40,000,000 5.79% Senior Notes 20,000,000 20,000,000 Bank Credit Agreements 35,029,000 16,600,000 Industrial Revenue Bonds 9,166,691 5,245,705 Other 1,375,144 2,366,481 ----------- ---------- Total long-term debt 105,570,835 84,212,186 Less current installments (2,046,821) (481,087) ----------- ---------- Long-term debt,less current installments $103,524,014 $83,731,099 =========== ==========
In fiscal 1997, the Company amended its Domestic Bank Credit Agreement and entered into 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 26, 1997 was 6.2%. The Bank Agreements expire in September 1999. At January 26, 1997 the Company had $32 million in available borrowings under the Bank Agreements. In fiscal 1997, the Company issued $4.5 million in variable rate tax-exempt Industrial Revenue Bonds which mature in 2020. The bonds bear interest at floating rates based upon market conditions for tax-exempt issues. The bond proceeds were used to repay bank debt which had been incurred to finance facility construction. In October 1995, the Company issued $40 million of 6.83% Senior Notes to an insurance company. The 6.83% Senior Notes have an average life of seven years and mature in 2005. The proceeds were used to repay long-term debt and to fund the acquisition of Mechanics. In December 1993, the Company issued $20 million of 5.79% Senior Notes to an insurance company. The 5.79% Senior Notes have an average life of seven years and mature in 2003. The proceeds were used to repay long-term bank debt. The 6.83% Senior Notes, the 5.79% Senior Notes and the Bank 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 26, 1997, the Company had $28.4 million in unrestricted stockholders' equity. The Company's Industrial Revenue Bond obligations bear interest at stated interest rates or interest rates that vary based upon market conditions for floating tax-exempt bonds. The weighted average interest rate in effect on the bond obligations at January 26, 1997 was 4.2%. The bond issues are generally secured by irrevocable bank letters of credit. The bond issues mature at varying dates through 2020. Included in other assets in the accompanying consolidated balance sheets were $1.9 million 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: 1998, $2,047,000; 1999, $3,503,000; 2000, $41,384,000; 2001, $9,512,000; 2002, $9,491,000 and for all years thereafter, $39,634,000. 20 (5) INCOME TAXES The components of income tax expense for the years ended January 26, 1997, January 28, 1996 and January 29, 1995 were as follows:
1995 1996 1995 --------- --------- --------- Current: Federal $4,093,000 $4,445,000 $4,482,000 State and local 760,000 784,000 903,000 --------- --------- --------- 4,853,000 5,229,000 5,385,000 Deferred 2,554,000 1,813,000 1,017,000 --------- --------- --------- Total income tax expense $7,407,000 $7,042,000 $6,402,000 ========= ========= =========
For the years ended January 26,1997, January 28, 1996 and January 29, 1995, income taxes provided differed from the expected federal statutory rates of 35% as follows:
1997 1996 1995 --------- ---------- --------- Computed expected tax at statutory rate $6,837,000 $6,486,000 $5,745,000 State and local taxes, net of federal benefit 494,000 508,000 587,000 Other 76,000 48,000 70,000 --------- --------- --------- $7,407,000 $7,042,000 6,402,000 ========= ========= ========= Effective tax rate 38% 38% 39% ========= ========= =========
The tax effects of temporary differences that gave rise to deferred tax assets and (liabilities) at January 26, 1997 and January 28, 1996 were as follows:
1997 1996 ---------- ---------- Depreciation $(10,834,011) $ (9,198,011) Rental garments in service (12,878,000) (12,127,000) Other assets, noncurrent (3,065,000) (3,407,000) Accrued expenses and other 1,391,000 1,900,000 ---------- ---------- Net deferred tax liability $(25,386,011) $(22,832,011) ========== ==========
Total deferred tax assets and liabilities at January 26, 1997 and January 28,1996 were $2,139,000 and ($27,525,000) and $2,648,000 and ($25,480,000), respectively. No valuation allowances for deferred tax assets have been provided. 21 (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 plans of up to 9% of their earnings. The Company's contributions were $1.1 million, $874,000 and $814,000 for the fiscal years ended January 26, 1997, January 28, 1996 and January 29, 1995, respectively. The Company has an employee stock option plan which provides for the discretionary granting of options for up to 450,000 shares of the Company's common stock to key employees selected by the Compensation Committee of the Board of Directors. The exercise price of the options may not be less than the fair market value at the date of grant. The options granted to date were nonqualified stock options which vest ratably over four years and expire ten years after the date of grant. Prior to fiscal 1997 the Company accounted for stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Account for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. During fiscal 1997 the Company adopted Financial Accounting Standard Number 123 (FAS 123), Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair-value-based method defined in FAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of FAS 123. Since the Company applies APB Opinion No. 25 in accounting for its plan, no compensation cost has been recognized for its stock options in the consolidated financial statements. 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 income for fiscal 1997 and fiscal 1996 would have been reduced by $128,000 ($.01 per share) and $19,000 respectively. The fair value of stock options granted during fiscal 1997 and fiscal 1996 was $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 1997 - expected dividend yield 3%, risk-free interest rate of 6.8%, expected volatility factor of 38% and an expected life of six years; fiscal 1996 - expected dividend yield 3%, risk- free interest rate of 5.4%, expected volatility factor of 38% and an expected life of six years. At January 26, 1997, 42,038 options were available for grant under the plan and 205,500 shares under option were exercisable with a weighted average exercise price of $14.48. At January 26, 1997 there were 362,775 options outstanding with a weighted average remaining contractual life of 6.8 years and exercise prices which ranged from $11.17 to $28.00. 22 Stock option activity for the three fiscal years ended January 26, 1997 was as follows:
Number Weighted Average of Shares Exercised Price --------- ---------------- Outstanding at January 30, 1994 243,750 $10.43 Granted 143,250 17.00 Exercised (5,250) 14.50 ------- 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 =======
(7) COMMITMENTS AND CONTINGENCIES (a) Operating Leases The Company rents its general office building and certain facilities and equipment under various operating leases. Rent charged to operations (including month-to-month rentals on certain equipment) was $5.7 million in fiscal 1997, $4.9 million in fiscal 1996 and $4.5 million in fiscal 1995. A summary of noncancelable long-term lease commitments follows: Years Ending January ------------ 1998 $1,783,000 1999 996,000 2000 836,000 2001 589,000 2002 336,000 Thereafter 433,000 ---------- $4,973,000 ========== 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 1998. 23 (b) Environmental Matters and Litigation 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'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 proceeding and claims arising from the conduct of its business, including personal injury, customer contract and employment claims. Volatile organic compound contamination has been detected in the soil and groundwater at the Company's Whittier, California rental plant. The plant is located in the Suburban Operable Unit of the San Gabriel Valley Federal Superfund site. The Company has cleaned up the soil at the plant and, based on groundwater testing done to date, does not believe groundwater cleanup will be required at the Company's plant. The Company received correspondence from the United States Department of Justice, Environment and Natural Resources Division (Justice Department) and from the state of California stating that the Company and three other unrelated entities are potentially responsible parties and are jointly and severally liable under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for all costs incurred by the government with respect to the Suburban Operable Unit. The government is claiming that the total amount of costs incurred to date plus the present value of future monitoring costs at the site is approximately $4.2 million. The Company has entered into tolling agreements with the Justice Department and the state of California that stop the running of any statute of limitations to give the parties time to discuss issues related to the claims. At this time, it is not possible to estimate the Company's exposure with respect to the federal and state claims for reimbursement. The Company's Tempe, Arizona rental plant is located in the South Indian Bend Wash Federal Superfund site. The Company, along with unrelated parties, has been designated by the United States Environmental Protection Agency (EPA) as a potentially responsible party under CERCLA with respect to the Tempe site. The Company entered into a Consent Order with EPA requiring a soil and groundwater investigation at the Tempe plant. Test results at the Tempe plant indicate that volatile organic compound contamination is present in the soil, necessitating soil remediation. Additional periodic groundwater testing is expected. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Tempe plant has been accrued and charged to operating expense. Test results at the Company's Minneapolis, Minnesota rental plant indicate that volatile organic compound contamination is present in the soil and groundwater. The Company has begun soil and groundwater remediation at the Minneapolis plant. The Company's estimate of the expense related to the investigation and remediation of the contamination at the Company's Minneapolis plant has been accrued and charged to operating expense. Based on information currently available, management does not believe the liability, if any, arising from settlement of these matters will have a material adverse effect on the consolidated financial position of the Company. 24 (8) BUSINESS SEGMENT INFORMATION The Company rents uniforms and other items to customers through arrangements by which the Company provides pickup, cleaning, maintenance and delivery of its rental products. The Company is also engaged in the manufacture and sale of uniforms used by industrial personnel and other individuals who are in contact with the public. Operating contribution has been determined by deducting from segment revenues all costs and expenses directly related to the operations of the segments, excluding depreciation and amortization, general and administrative expense, other expense and interest expense. Identifiable assets are those used directly in the segments' operations. Other corporate assets consist primarily of cash and cash equivalents, prepaid expenses, property and equipment and other noncurrent assets. Information with respect to these operations for the years ended January 26, 1997, January 28, 1996 and January 29, 1995 was as follows:
1997 1996 1995 ------------ ------------ ------------ Net sales to unaffiliated customers: Rental operations $203,780,197 $158,074,437 $133,488,069 Direct sales 57,937,166 56,242,363 55,655,727 ------------ ------------ ------------ $261,717,363 $214,316,800 $189,143,796 ============ ============ ============ Intersegment transfers to Rental operations (at cost) $ 18,108,909 $ 17,215,800 $ 16,193,862 ============ ============ ============ Operating contribution: Rental operations $ 38,540,011 $ 30,499,980 $ 26,396,917 Direct sales 10,351,299 10,217,489 10,664,759 ------------ ------------ ------------ Total operating contribution 48,891,310 40,717,469 37,061,676 Depreciation and amortization 15,397,777 11,102,487 9,659,338 General and administrative expense 8,213,074 7,780,457 8,229,984 Interest expense, net 5,841,546 3,303,105 2,627,655 Other expense (income), net (96,335) 289 129,569 ------------ ------------ ------------ Earnings before income taxes $ 19,535,248 $ 18,531,131 $ 16,415,130 ============ ============ ============ Identifiable assets: Rental operations $206,761,663 $183,692,407 $103,578,360 Direct sales 37,141,321 34,413,176 31,676,700 Corporate 10,662,002 5,463,509 8,192,951 ------------ ------------ ------------ $254,564,986 $223,569,092 $143,448,011 ============ ============ ============ Capital expenditures: Rental operations $ 9,293,269 $ 14,531,859 $ 7,223,374 Direct sales 742,752 4,968,403 749,418 Corporate 5,821,068 2,611,086 1,273,293 ------------ ------------ ------------ $ 15,857,089 $ 22,111,348 $ 9,246,085 ============ ============ ============ Depreciation and amortization expense: Rental operations $ 13,155,518 $ 9,187,124 $ 7,857,700 Direct sales 1,652,160 1,320,244 1,281,881 Corporate 590,099 595,119 519,757 ------------ ------------ ------------ $ 15,397,777 $ 11,102,487 $ 9,659,338 ============ ============ ============
25 (9) UNAUDITED QUARTERLY FINANCIAL DATA Unaudited quarterly financial data was as follows:
Fiscal Quarters Ended --------------------------------------------------------- 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 $.29 $.30 $.37 $.29 $1.26 ============ ============ ============ ============ ============= Weighted average common and Common equivalent shares outstanding 9,435,093 9,645,196 9,734,740 9,730,277 9,636,314 ============ ============ ============ ============ ============= 1996 April July October January Total - ---- ------------ ------------ ------------ ------------ ------------- Rental operations $ 35,970,814 $ 37,822,136 $ 38,769,022 $ 45,512,465 $ 158,074,437 Direct sales 14,622,146 12,999,109 13,682,987 14,938,121 56,242,363 ------------ ------------ ------------ ------------ ------------- Total revenues $ 50,592,960 $ 50,821,245 $ 52,452,009 $ 60,450,586 $ 214,316,800 ============ ============ ============ ============ ============= Operating income $ 4,956,762 $ 4,904,850 $ 5,908,081 $ 6,064,832 $ 21,834,525 ============ ============ ============ ============ ============= Net earnings $ 2,636,639 $ 2,567,119 $ 3,317,635 $ 2,967,738 $ 11,489,131 ============ ============ ============ ============ ============= Net earnings per common share $.28 $.27 $.35 $.32 $1.23 ============ ============ ============ ============ ============= Weighted average common and common equivalent shares outstanding 9,336,026 9,365,733 9,381,681 9,389,378 9,368,394 ============ ============ ============ ============ =============
26 Unitog Company and Subsidiaries
SELECTED FINANCIAL DATA (Dollars in thousands except per share data) 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Revenues: Rental operations $ 203,780 $ 158,075 $ 133,488 $ 125,006 $ 115,496 Direct sales 57,937 56,242 55,656 52,909 54,653 --------- --------- --------- --------- --------- Total $ 261,717 $ 214,317 $ 189,144 $ 177,915 $ 170,149 ========= ========= ========= ========= ========= Operating profit contribution: Rental operations $ 38,540 $ 30,500 $ 26,397 $ 22,897 $ 20,844 Direct sales 10,351 10,217 10,664 9,912 9,059 --------- --------- --------- --------- --------- Total operating contribution 48,891 40,717 37,061 32,809 29,903 Depreciation and amortization (15,398) (11,102) (9,659) (9,530) (8,836) General and administrative (8,213) (7,780) (8,230) (7,012) (6,742) --------- --------- --------- -------- --------- Operating Income $ 25,280 $ 21,835 $ 19,172 $ 16,267 $ 14,325 ========= ========= ========= ======== ========= Operating income percentage 9.7% 10.2% 10.1% 9.1% 8.4% Net earnings $ 12,128 $ 11,489 $ 10,013 $ 7,796 $ 5,900 Net earnings per common share(a) $ 1.26 $ 1.23 $ 1.07 $ .87 $ .78 Dividends per common share(a) $ .12 $ .10 $ .08 $ .07 $ --- Financial position at year end: Current assets $ 87,352 $ 78,383 $ 64,897 $ 56,933 $ 54,368 Net property, plant and equipment 94,797 82,292 59,517 57,349 54,775 Total assets 254,565 223,569 143,448 132,790 126,688 Working capital 49,235 37,914 40,331 34,420 27,431 Current ratio 2.3:1 1.9:1 2.6:1 2.5:1 2.0:1 Financial structure: Long-term debt, less current installments $ 103,524 $ 83,731 $ 34,838 $ 35,665 $ 54,600 Stockholders' equity 99,105 86,125 75,433 66,161 37,254 Book value per share(a) 10.28 9.28 8.14 7.14 4.94 Capitalization ratio 51.1% 49.3% 31.6% 35.0% 59.4% Cash flows: Operating activities $ 20,130 $ 24,702 $ 19,965 $ 21,100 $ 15,804 Investing activities (40,466) (65,408) (13,690) (14,950) (39,052) Financing activities 20,339 33,016 (1,974) (2,815) 23,162 --------- -------- -------- -------- --------- Net Increase (decrease) in cash and cash equivalents $ 3 $ (7,690) $ 4,301 $ 3,335 $ (86) ========= ======== ======== ======== ========= General statistics: Common shares outstanding at year end(a) 9,644 9,279 9,272 9,272 7,544 Capital expenditures $ 15,857 $ 22,111 $ 9,246 $ 9,775 $ 6,894
(a) Restated for 3-for-2 stock split in the form of a stock dividend on September 23, 1994. 27 COMMON STOCK INFORMATION The Common Stock is listed on the NASDAQ National Market under the symbol UTOG. At January 26, 1997 there were 433 stockholders of record and the Company estimates that there were approximately 1,500 stockholders as of that date.
PRICE RANGE Fiscal 1997 Fiscal 1996 Quarter Ended High Low Quarter Ended High Low - ------------- ---- --- ------------- ---- --- April 1996 $30 1/4 $22 1/2 April 1995 $19 1/4 $16 1/2 July 1996 $28 35/64 $24 1/8 July 1995 $24 1/8 $18 3/4 October 1996 $32 1/4 $26 1/4 October 1995 $24 1/4 $23 January 1997 $27 3/4 $24 January 1996 $25 $23 1/2
28 EX-23 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 The Board of Directors Unitog Company: We consent to incorporation by reference in the registration statements on Form S-8 of Unitog Company (filing No. 33 - 48632, No. 33 - 48633 and No. 033-60303) of our report dated March 15, 1996, relating to the consolidated balance sheets of Unitog Company and subsidiaries as of January 26, 1997 and January 28, 1996 and the related consolidated statements of earnings, retained earnings, and cash flows for each of the years in the three-year period ended January 26, 1997, which report appears in the January 26, 1997 annual report on Form 10-K of Unitog Company. Kansas City, Missouri KPMG PEAT MARWICK LLP April ___, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of Unitog Company, dated as of and for the year ended January 26, 1997 and is qualified in its entirety by reference to such financial statements. 12-MOS JAN-26-1997 JAN-27-1996 JAN-26-1997 31,307 0 28,090,702 1,240,000 17,525,175 87,352,274 161,351,786 66,554,486 254,564,986 38,117,099 103,524,014 0 0 96,439 99,008,197 254,564,986 57,937,166 261,717,363 47,585,867 228,223,830 0 0 5,841,546 19,535,248 7,407,000 12,128,248 0 0 0 12,128,248 1.26 1.26
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