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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended Commission File
July 30, 2005 Number 1-5674
ANGELICA CORPORATION
(Exact name of Registrant as specified in its charter)
MISSOURI 43-0905260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
424 South Woods Mill Road
CHESTERFIELD, MISSOURI 63017
(Address of principal executive offices) (Zip Code)
(314) 854-3800
(Registrant's telephone number, including area code)
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |_| No |X|
The number of shares outstanding of Registrant's Common Stock, par value
$1.00 per share, at September 1, 2005 was 9,275,823 shares.
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ANGELICA CORPORATION AND SUBSIDIARIES
INDEX TO
JULY 30, 2005 FORM 10-Q QUARTERLY REPORT
Page Number
-----------
Reference
---------
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements:
Consolidated Statements of Income - Second Quarter and
First Half ended July 30, 2005 and July 31, 2004 (Unaudited) 2
Consolidated Balance Sheets - July 30, 2005
and January 29, 2005 (Unaudited) 3
Consolidated Statements of Cash Flows - First Half
ended July 30, 2005 and July 31, 2004 (Unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 4. Controls and Procedures 19-20
PART II. OTHER INFORMATION:
Item 6. Exhibits 21
Signatures 22
Exhibit Index 23
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands, except per share amounts)
Second Quarter Ended First Half Ended
------------------------ --------------------------
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
-------- -------- --------- ---------
CONTINUING OPERATIONS:
Net revenues $107,240 $ 77,864 $ 209,820 $ 155,594
Cost of services (93,678) (65,354) (180,724) (130,917)
-------- -------- --------- ---------
Gross profit 13,562 12,510 29,096 24,677
Selling, general and administrative expenses (12,980) (10,095) (25,643) (20,275)
Amortization of other acquired assets (1,053) (229) (1,864) (454)
Other operating income, net 682 1,545 630 1,516
-------- -------- --------- ---------
Income from operations 211 3,731 2,219 5,464
Interest expense (1,756) (301) (2,906) (581)
Non-operating income, net (Note 4) 258 2 797 2,102
-------- -------- --------- ---------
(Loss) income from continuing operations pretax (1,287) 3,432 110 6,985
Benefit (provision) for income taxes (Note 5) 353 (661) (24) (1,691)
-------- -------- --------- ---------
(Loss) income from continuing operations (934) 2,771 86 5,294
-------- -------- --------- ---------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued segment,
net of tax - (1,307) - (635)
Gain (loss) on disposal of discontinued segment,
net of tax - 56 - (3,008)
-------- -------- --------- ---------
Loss from discontinued operations - (1,251) - (3,643)
-------- -------- --------- ---------
Net (loss) income $ (934) $ 1,520 $ 86 $ 1,651
======== ======== ========= =========
BASIC (LOSS) EARNINGS PER SHARE (NOTE 7):
(Loss) income from continuing operations $ (0.10) $ 0.31 $ 0.01 $ 0.60
Loss from discontinued operations - (0.14) - (0.41)
-------- -------- --------- ---------
Net (loss) income $ (0.10) $ 0.17 $ 0.01 $ 0.19
======== ======== ========= =========
DILUTED (LOSS) EARNINGS PER SHARE (NOTE 7):
(Loss) income from continuing operations $ (0.10) $ 0.30 $ 0.01 $ 0.58
Loss from discontinued operations - (0.13) - (0.40)
-------- -------- --------- ---------
Net (loss) income $ (0.10) $ 0.17 $ 0.01 $ 0.18
======== ======== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
July 30, January 29,
2005 2005
-------- --------
ASSETS
------
Current Assets:
Cash and short-term investments $ 658 $ 926
Receivables, less reserves of $806 and $510 57,160 44,454
Linens in service 43,892 38,846
Prepaid expenses and other current assets 2,602 3,817
Deferred income taxes 5,319 5,386
-------- --------
Total Current Assets 109,631 93,429
-------- --------
Property and Equipment 206,894 193,835
Less -- accumulated depreciation 98,163 92,170
-------- --------
Total Property and Equipment 108,731 101,665
-------- --------
Other:
Goodwill (Note 8) 50,584 31,272
Other acquired assets (Note 8) 42,705 24,860
Cash surrender value of life insurance (Note 9) 8,548 30,942
Deferred income taxes 1,205 2,040
Miscellaneous 5,110 4,745
-------- --------
Total Other Assets 108,152 93,859
-------- --------
Total Assets $326,514 $288,953
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 10,419 $ 419
Accounts payable 17,009 16,865
Accrued wages and other compensation 5,792 5,145
Deferred compensation and pension liabilities 3,720 4,226
Other accrued liabilities 30,372 29,063
-------- --------
Total Current Liabilities 67,312 55,718
-------- --------
Long-Term Debt, less current maturities (Note 9) 93,301 67,811
Other Long-Term Obligations 13,619 14,068
Shareholders' Equity:
Common Stock, $1 par value, authorized 20,000,000
shares, issued: 9,471,538 shares 9,472 9,472
Capital surplus 7,013 5,336
Retained earnings 142,686 144,621
Accumulated other comprehensive loss (1,248) (1,337)
Unamortized restricted stock (2,911) (1,007)
Common Stock in treasury, at cost: 202,711 and 405,304 shares (2,730) (5,729)
-------- --------
Total Shareholders' Equity 152,282 151,356
-------- --------
Total Liabilities and Shareholders' Equity $326,514 $288,953
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Angelica Corporation and Subsidiaries
Unaudited (Dollars in thousands)
First Half Ended
-------------------------------------
July 30, 2005 July 31, 2004
------------- -------------
Cash Flows from Operating Activities:
Income from continuing operations $ 86 $ 5,294
Non-cash items included in income from continuing operations:
Depreciation 7,786 5,690
Amortization 2,534 799
Deferred income taxes 902 1,080
Cash surrender value of life insurance (594) (1,232)
Gain on sale of assets (610) (2,807)
Change in working capital components of continuing
operations, net of businesses acquired/disposed of (5,837) (1,493)
Other, net (488) (358)
-------- --------
Net cash provided by operating activities of
continuing operations 3,779 6,973
-------- --------
Cash Flows from Investing Activities:
Expenditures for property and equipment, net (11,355) (6,185)
Cost of businesses and assets acquired (49,967) (7,500)
Disposals of assets 145 3,886
Life insurance premiums paid, net (211) 962
-------- --------
Net cash used in investing activities of continuing operations (61,388) (8,837)
-------- --------
Cash Flows from Financing Activities:
Repayments of long-term debt (81,910) (54,601)
Borrowings of long-term debt 117,400 55,500
Borrowings from life insurance policy loans 22,988 -
Debt issuance costs (192) (157)
Dividends paid (2,021) (1,969)
Treasury stock reissued 1,276 227
-------- --------
Net cash provided by (used in) financing activities of
continuing operations 57,541 (1,000)
-------- --------
Net cash (used in) provided by discontinued operations (200) 10,637
-------- --------
Net (decrease) increase in cash and short-term investments (268) 7,773
Balance at beginning of year 926 2,188
-------- --------
Balance at end of period $ 658 $ 9,961
======== ========
Supplemental cash flow information:
Income taxes paid $ 99 $ 89
Interest paid, net of amounts capitalized $ 2,286 $ 506
The accompanying notes are an integral part of the consolidated financial statements.
4
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER AND FIRST HALF ENDED
JULY 30, 2005 AND JULY 31, 2004
Note 1. Basis of Presentation
------------------------------
The accompanying condensed consolidated financial statements are
unaudited, and these consolidated statements should be read in
conjunction with the Company's audited consolidated financial
statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 2005 (fiscal
2004). It is management's opinion that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement
of the results during the interim periods have been included. All
significant intercompany accounts and transactions have been
eliminated. The results of operations for the second quarter and
first half ended July 30, 2005, and cash flows for the first half
ended July 30, 2005, are not necessarily indicative of the results of
operations and cash flows that will be achieved for the full fiscal
year 2005.
Certain amounts in the prior periods have been reclassified to
conform to current period presentation.
Note 2. Stock-Based Compensation
---------------------------------
In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS No. 148 amended SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair-value based method of
accounting for stock-based employee compensation. In addition, this
statement amended the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
The Company has various stock option and stock bonus plans that
provide for the granting of incentive stock options, non-qualified
stock options, restricted stock and performance awards to certain
employees and directors. As permitted by SFAS No. 123, the Company
applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans
other than for restricted stock and performance-based awards, as to
which the amounts charged to expense in the second quarter ended July
30, 2005 and July 31, 2004 totaled $354,000 and $227,000,
respectively; and $687,000 and $370,000 in the first half ended July
30, 2005 and July 31, 2004, respectively. During the first half ended
July 30, 2005, 100,000 shares of restricted stock were granted with a
weighted-average share price of $27.97.
Had compensation expense for stock-based compensation plans for the
second quarter and first half ended July 30, 2005 and July 31, 2004
been determined consistent with
5
SFAS No. 123, the Company's net (loss) income and (loss) earnings per
share would approximate the following pro forma amounts:
Second Quarter Ended First Half Ended
------------------------ -------------------------
(Dollars in thousands, July 30, July 31, July 30, July 31,
except per share amounts) 2005 2004 2005 2004
-----------------------------------------------------------------------------------------------------------------
Net (loss) income:
As reported $ (934) $1,520 $ 86 $1,651
Add: stock-based employee
compensation expense included in
net (loss) income, net of tax 293 184 536 286
Deduct: stock-based employee
compensation expense determined
under fair-value based method
for all awards, net of tax (769) (462) (1,331) (710)
------- ------ ------- ------
Pro forma net (loss) income $(1,410) $1,242 $ (709) $1,227
======= ====== ======= ======
Basic (loss) earnings per share:
As reported $ (0.10) $ 0.17 $ 0.01 $ 0.19
Pro forma (0.16) 0.14 (0.08) 0.14
Diluted (loss) earnings per share:
As reported $ (0.10) $ 0.17 $ 0.01 $ 0.18
Pro forma (0.16) 0.14 (0.08) 0.13
The effect of the application of SFAS No. 123 in this disclosure is
not necessarily indicative of the pro forma effect on net income in
future periods.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based
Payment," which revises SFAS No. 123 and supersedes APB No. 25 and
its related implementation guidance. SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock
options, to be recognized in the consolidated financial statements
based on their fair values and eliminates the alternative method of
accounting for employee share-based payments previously available
under APB No. 25. The provisions of this statement are required to be
adopted by the Company beginning in the first quarter of fiscal 2006.
The impact of adoption of this statement on the Company's net income
in future periods will include the remaining amortization of the fair
value of existing unamortized stock options currently disclosed as
pro-forma expense above, and is contingent upon the number of future
options granted, the selected transition method and the selection
between acceptable valuation methodologies for valuing options.
Note 3. Acquisitions
---------------------
On March 21, 2005, the Company acquired one hundred percent of the
issued and outstanding shares of common stock and warrants of Royal
Institutional Services, Inc. and its affiliate, The Surgi-Pack
Corporation (together "Royal"). The total purchase price of
$45,000,000 was paid in cash, plus an additional $896,000 of related
acquisition costs.
Royal is the largest healthcare linen services company in New
England, providing full linen
6
management services to the healthcare industry in a manner consistent
with the Company's core business. With annual revenues of
approximately $45,000,000, the Royal acquisition strengthens the
Company's market position in this region of the country. The net
assets acquired consisted primarily of working capital, leasehold
interests in two operating facilities and the related equipment, and
customer contracts. The Company recorded the preliminary purchase
price allocation for this acquisition in the first quarter ended
April 30, 2005, which was adjusted for a working capital adjustment
due the seller of $179,000 in the second quarter ended July 30, 2005,
and expects to finalize the allocation in the second half of fiscal
2005 once all required information is obtained.
The results of operations of Royal are included in the Company's
consolidated statements of income for the second quarter and first
half ended July 30, 2005 since the date of acquisition on March 21,
2005. Unaudited pro forma consolidated net revenues for the first
half ended July 30, 2005 and July 31, 2004, assuming the Royal
acquisition had been completed as of the beginning of those periods,
totaled $216,611,000 and $177,830,000, respectively; and unaudited
pro forma consolidated (loss) income from continuing operations
amounted to $(65,000) or $(.01) per diluted share, and $5,990,000 or
$.66 per diluted share, in the first half ended July 30, 2005 and
July 31, 2004, respectively. Unaudited pro forma consolidated net
revenues and income from continuing operations for the second quarter
ended July 31, 2004, had the Royal acquisition been completed as of
the beginning of fiscal 2004, totaled $88,957,000 and $3,117,000
($.34 per diluted share), respectively. These pro forma amounts are
not necessarily indicative of the consolidated results of operations
that would have occurred had this acquisition been made at the
beginning of each period.
Note 4. Non-Operating Income, Net
----------------------------------
In the first half ended July 30, 2005, the Company recorded
non-operating income of $797,000 which included $360,000 from the
second cash distribution received in connection with the liquidation
of the parent company of an issuer of life insurance policies owned
by the Company following its demutualization in 2000. These
distributions did not affect the life insurance policies or their
cash surrender value. The Company does not anticipate any further
significant distributions from this liquidation.
In the first half ended July 31, 2004, the Company recorded
non-operating income of $2,102,000 which included a gain of
$1,472,000 from the sale of real estate in Miami, FL. In addition,
the Company recognized gains totaling $610,000 for the excess of
death benefits from Company-owned life insurance policies surrendered
over the cash value of the policies.
Non-operating income, net, also includes interest earned on invested
cash balances and notes receivable.
Note 5. Income Taxes
---------------------
Taxes on income from continuing operations were provided for at an
effective tax rate of 22.0 percent in the first half ended July 30,
2005 based upon the Company's estimated effective tax rate for the
fiscal year including the effects of permanent items and tax credits.
The effective tax rate of 24.2 percent on income from continuing
operations in the first half ended July 31, 2004 reflects an
adjustment to reduce the income tax provision
7
due to the expected favorable resolution of outstanding tax issues.
The effective tax rate of 34.0 percent on the loss from discontinued
operations in the first half ended July 31, 2004 reflects the
statutory tax rate adjusted for unutilized state net operating
losses.
The Company maintains tax reserves pending the resolution of certain
tax issues. Once established, these reserves are adjusted as
information becomes available or when an event requiring a change in
the reserves occurs. The ultimate resolution of tax matters could
have a material impact on the Company's net income and financial
condition in the period in which the item is resolved.
The Company believes all deferred tax items will be realized and
therefore no valuation allowances have been recorded.
Note 6. Commitments and Contingencies
--------------------------------------
Prior to the sale of its Life Uniform retail business to Healthcare
Uniform Company in fiscal 2004, the Company was a guarantor under
certain Life Uniform store lease agreements. These guarantees
obligated the Company to make all payments due under the leases until
their expiration in the event of default of Life Uniform. In
connection with the sale of Life Uniform, the Company requested
consents, as required, from landlords to assign the store leases to
Healthcare Uniform Company. As a condition to such consents, certain
landlords required that the Company continue as a guarantor of the
leases. Under the Company's agreement with Healthcare Uniform
Company, these guarantees will only extend until the end of each
lease's current term. As of July 30, 2005, the Company is secondarily
obligated as a guarantor for 83 store lease agreements and the
estimated maximum potential amount of future payments the Company
could be required to make under these guarantees is $13,800,000.
Although these guarantees expire at various dates through fiscal year
2014, approximately 76 percent of the estimated maximum potential
future payments expires by the end of fiscal year 2008. These
guarantees are not subject to the initial recognition and measurement
provisions of FASB Interpretation No. 45, and the Company believes
the likelihood of making any payments under these guarantees is
remote based upon its review of Healthcare Uniform Company's
financial condition and results of operations.
The Company has provided certain indemnities to the buyer in
connection with the sale of Life Uniform. Although indemnification
claims are generally subject to an aggregate limit of $6,000,000, the
Company believes the likelihood of making any payments for
indemnification claims is remote and has reserved accordingly.
The Company faces a possible exposure to outstanding workers'
compensation claims incurred prior to fiscal 1999 that were sold to a
former insurance carrier, in addition to exposure for deposits with
that carrier for claims incurred in fiscal years 1999, 2000 and 2001
that have not yet been resolved and for claims in excess of the
deductible for fiscal years 1999, 2000, 2001 and 2002. This carrier
is experiencing financial difficulties and may be unable to fulfill
its obligation to pay these claims, which could have a material
unfavorable impact on the Company's results of operations and
financial condition if it is forced to assume these liabilities. The
Company estimates its exposure from these outstanding claims and
deposits to be approximately $1,645,000 as of July 30, 2005.
The Company faces certain risks and uncertainties related to having a
predominantly
8
union-represented workforce. Certain of its collective bargaining
agreements are scheduled to expire in the regular course of business
and several other Company locations will be negotiating initial
collective bargaining agreements in the second half of fiscal 2005.
Any work interruptions or stoppages resulting from labor disputes
could have a material unfavorable impact on the Company's results of
operations and financial condition. However, the Company believes
that the risk of such work interruptions or stoppages has been
diminished because the Company renewed several expired labor
contracts and reached agreement with UNITE HERE on Company-wide
union-organizing activities and related issues in June 2005. Aspects
of the settlement with the union include prohibiting the union from
disparaging the Company and putting certain limitations on the
union's ability to strike. The Company and the union also agreed upon
a process for unrepresented production employees to decide whether to
be represented by a union. Upon completion of this process, most of
the Company's employees will be covered by collective bargaining
agreements, either with UNITE HERE or other labor unions.
Note 7. (Loss) Earnings Per Share
----------------------------------
Basic (loss) earnings per share is computed by dividing net (loss)
income by the weighted average number of shares of common stock
outstanding during the period. Diluted (loss) earnings per share is
computed by dividing net (loss) income by the weighted average number
of common and common equivalent shares outstanding.
The following table reconciles weighted average shares outstanding to
amounts used to calculate basic and diluted (loss) earnings per share
for the second quarter and first half ended July 30, 2005 and July
31, 2004 (shares in thousands):
Second Quarter Ended First Half Ended
------------------------ --------------------------
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
-------- -------- -------- --------
Weighted average shares:
Average shares outstanding 9,072 8,898 9,052 8,887
Effect of dilutive securities - 243 263 238
----- ----- ----- -----
Average shares outstanding,
adjusted for dilutive effects 9,072 9,141 9,315 9,125
===== ===== ===== =====
Potentially dilutive securities of 246,000 shares were not included
in the calculation of weighted average shares outstanding for the
second quarter ended July 30, 2005 as their effect is antidilutive on
loss per share for the period.
Note 8. Goodwill and Other Acquired Assets
-------------------------------------------
In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets," the Company performed its annual goodwill impairment test at
the end of the third quarter of fiscal 2004 which resulted in no
indication of impairment. During the first half ended July 30, 2005,
the Company recorded goodwill from business combinations totaling
$19,312,000, due principally to the acquisition of Royal disclosed in
Note 3.
During the first half ended July 30, 2005, the Company acquired
customer contracts of Royal and various other laundry businesses
valued at $13,235,000, with amortization
9
periods of mainly 15 years, and non-compete covenants with a value of
$6,474,000 to be amortized over 10 years. Other acquired assets
consisted of the following (dollars in thousands):
July 30, 2005 January 29, 2005
---------------------------------------- ----------------------------------------
Gross Other Gross Other
Carrying Accumulated Acquired Carrying Accumulated Acquired
Amount Amortization Assets, net Amount Amortization Assets, net
------ ------------ ----------- ------ ------------ -----------
Customer contracts $40,870 $(6,934) $33,936 $27,635 $(5,619) $22,016
Non-compete covenants 10,484 (1,715) 8,769 4,010 (1,166) 2,844
------- ------- ------- ------- ------- -------
Other acquired assets $51,354 $(8,649) $42,705 $31,645 $(6,785) $24,860
======= ======= ======= ======= ======= =======
Goodwill and other acquired assets recorded in connection with the
Royal acquisition are based on the preliminary purchase price
allocation, which is subject to change once all required information
is obtained.
Other acquired assets are scheduled to be fully amortized by fiscal
year 2020 with corresponding annual amortization expense estimated
for the current and next four fiscal years as follows (dollars in
thousands):
2005 $3,941
2006 4,129
2007 4,047
2008 3,653
2009 3,369
Note 9. Long Term Debt
-----------------------
On March 21, 2005, the Company borrowed the entire amount of its term
loan of $50,000,000. The proceeds of the term loan were used to fund
the acquisition of Royal (see Note 3), and reduce the amount
outstanding on the Company's revolving credit facility. As of July
30, 2005, the $50,000,000 outstanding under the term loan bears
interest at 3.34 percent under a LIBOR contract, plus a margin (2.25
percent as of July 30, 2005) based on the Company's ratio of "Funded
Debt" to "EBITDA," as each is defined in the loan agreement. The term
loan is payable in quarterly installments beginning September 30,
2005, with the final payment due on January 27, 2010.
The Company is subject to certain financial covenants under its loan
agreement. One of these covenants requires that the Company maintain
a minimum consolidated net worth of $126,023,000 plus an aggregate
amount equal to 50 percent of quarterly net income beginning with the
fourth quarter of fiscal 2004 (with no reduction for net losses).
Other covenants require the Company to maintain a minimum ratio of
"EBITDA" to "fixed charges" of no less than 1.2 to 1, and a maximum
ratio of "Funded Debt" to "EBITDA" of no more than 2.75 to 1. On July
29, 2005, the loan agreement was amended to increase the maximum
ratio of "Funded Debt" to "EBITDA" covenant to no more than 4.0 to 1.
At the time of this amendment, the Company provided its lenders with
a first lien on all personal and intangible property excluding cash
surrender value of life insurance, and will pledge certain real
estate as additional security by October 31, 2005 or the maximum
total
10
leverage covenant will revert back to the previous level of 2.75 to
1. The Company was in compliance with these loan covenants, as
amended, as of July 30, 2005. In connection with this amendment, the
margin paid to the banks on amounts borrowed under the credit
facility increased from 2.0 percent to 2.25 percent as of July 30,
2005.
At the end of the first quarter fiscal 2005, the Company borrowed a
total of $19,474,000 from the issuers of its Company-owned life
insurance policies against the cash surrender value of the policies.
The Company borrowed an additional amount available under the
policies of $3,514,000 at the end of the second quarter. The proceeds
of the policy loans were used to reduce the amount outstanding on the
revolving credit facility. The loans bear interest at variable rates
ranging from 5.7 percent to 6.4 percent, or at a fixed rate of 8.0
percent. The proceeds upon surrender of the policies will be reduced
by the amount of any loans outstanding, unless repaid by the Company
prior to that time. The total amount borrowed of $22,988,000 is
netted against cash surrender value of life insurance in the
consolidated balance sheet as of July 30, 2005. On August 4, 2005,
the Company repaid all of the life insurance policy loans outstanding
from amounts borrowed under its existing revolving credit facility.
As of July 30, 2005, the Company had $13,274,000 in irrevocable
letters of credit outstanding, which reduced the amount available to
borrow under the credit facility to $17,852,000.
Note 10. Derivative Instruments and Hedging Activities
-------------------------------------------------------
The Company entered into an interest-rate swap agreement with one of
its lenders effective September 9, 2002. The swap agreement fixes the
variable portion of the interest rate (excluding a margin) at 3.58
percent on $10,000,000 of the outstanding debt under the revolving
line of credit until termination on May 30, 2007. The Company has
elected to apply cash flow hedge accounting for the interest-rate
swap agreement in accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Accordingly, the
derivative is recorded as an asset or liability at its fair value.
The effective portion of changes in the fair value of the derivative,
as measured quarterly, is reported in accumulated other comprehensive
income, and the ineffective portion, if any, is reported in net
income of the current period. The gain on the derivative included in
accumulated other comprehensive loss in the second quarter ended July
30, 2005 and July 31, 2004 amounted to $35,000 and $36,000,
respectively, net of tax; and $89,000 and $125,000 in the first half
ended July 30, 2005 and July 31, 2004, respectively, net of tax. The
Company has recorded a long-term asset (liability) of $120,000 and
$(9,000) for the fair value of the derivative as of July 30, 2005 and
January 29, 2005, respectively.
To moderate price risk due to market fluctuations, the Company has
entered into fixed-price contracts as of July 30, 2005 for
approximately 18 percent of its estimated natural gas purchase
requirements in the next 12 months. Although these contracts are
considered derivative instruments, they meet the normal purchases
exclusion contained in SFAS No. 133, as amended by SFAS No. 138 and
SFAS No. 149, and are therefore exempted from the related accounting
requirements.
Note 11. Comprehensive (Loss) Income
-------------------------------------
Comprehensive (loss) income, consisting primarily of net (loss)
income and changes in the
11
fair value of derivatives used for interest rate risk management, net
of taxes, totaled $(899,000) and $1,554,000 for the second quarter
ended July 30, 2005 and July 31, 2004, respectively; and $175,000 and
$1,771,000 for the first half ended July 30, 2005 and July 31, 2004,
respectively.
Note 12. Retirement Benefits
-----------------------------
The Company has a non-contributory defined benefit pension plan
covering primarily salaried and hourly administrative non-union
personnel. The benefit formula is based on years of service and
compensation during employment. The funding policy of the pension
plan is in accordance with the requirements of the Employee
Retirement Income Security Act of 1974. The Company amended the
pension plan, effective September 1, 2004, to freeze participation in
the plan. No employee shall become a participant in the pension plan
on or after that date.
The net periodic pension expense recognized in the second quarter and
first half ended July 30, 2005 and July 31, 2004 was as follows:
Second Quarter Ended First Half Ended
------------------------ -----------------------
July 30, July 31, July 30, July 31,
(Dollars in thousands) 2005 2004 2005 2004
---------------------------------------------------------------------------------------------------------------------
Pension expense:
Service cost $ 105 $ 149 $ 210 $ 298
Interest cost 317 319 634 638
Expected return on plan assets (333) (353) (666) (706)
Plan curtailment - sale of Life Uniform - 38 - 38
Amortization of prior service cost 5 5 10 10
Recognized actuarial loss - 29 - 58
---------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 94 $ 187 $ 188 $ 336
=====================================================================================================================
Note 13. New Accounting Pronouncements
---------------------------------------
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections." SFAS No. 154 replaces APB Opinion No. 20,
"Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes
in Interim Financial Statements," and changes the requirements for
the accounting for and reporting of a voluntary change in accounting
principle. This statement requires retrospective application to prior
periods' financial statements of changes in accounting principle,
unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change, instead of including
in net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154 is effective
for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
Note 14. Subsequent Events
---------------------------
On August 9, 2005, the Company acquired customer contracts and
selected assets located in the Cleveland, Ohio and upstate New York
areas. These contracts represent approximately $3,100,000 in annual
revenues, and will be serviced by the Company's
12
existing facilities in Lorain, Ohio and Batavia, New York.
On September 2, 2005, the Company completed the sale of customer
contracts serviced by its Columbia, Illinois facility and certain
other assets related to the servicing of those contracts. The
Columbia plant, which primarily serves the St. Louis, Missouri market
area, had been unprofitable for several periods and in fiscal 2005
suffered the loss of a major customer. Due to the limited potential
to improve the profitability of the plant, combined with its relative
geographic isolation to the Company's other facilities, the decision
was made to sell the customer contracts serviced by the plant and
related assets, and pursue a sale of the idle facility.
The transition of the servicing of customers to the buyer's facility
is expected to be completed by the end of September 2005. The Company
anticipates that the disposition of the real estate and personal
property of the Columbia plant will be completed in the near future
through sale of the assets or transfer to other facilities. The
manner of disposition of the assets and the consideration received
will impact the final results of this transaction, which cannot be
determined at this time. The net book value of the net assets of the
Columbia plant as of July 30, 2005 totaled $4,558,000, of which
$913,000 was for accounts receivable, $1,150,000 was in linens in
service, and $2,440,000 was represented by property and equipment.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER AND FIRST HALF ENDED JULY 30, 2005
COMPARED WITH
SECOND QUARTER AND FIRST HALF ENDED JULY 31, 2004
General
-------
Angelica Corporation is a leading provider of outsourced linen management
services to the healthcare industry in the United States. We offer
comprehensive linen management services to the U.S. healthcare industry,
including hospitals, long-term care facilities, surgery centers, medical
clinics, dental offices, and other medical providers. Among the items that
we clean and provide, on either a rental or customer-owned basis, are bed
linens, towels, gowns, scrubs, surgical linens and surgical packs, as well
as mops, mats and other dust control products. To a more limited extent, we
also provide linen management services to customers in the hospitality
business. As of July 30, 2005, we operated 34 laundry facilities and served
customers in 24 states.
Results of Operations
---------------------
Net revenues increased by 37.7 percent in the second quarter of fiscal 2005
to $107.2 million from $77.9 million in the same period in fiscal 2004.
Organic growth from net new business additions and price increases
contributed 2.0 percent, or $1.5 million, of the second quarter increase,
with the remaining 35.7 percent, or $27.8 million, attributed to recent
acquisitions net of divestitures. Net revenues in the first half of fiscal
2005 were $209.8 million, a 34.9 percent increase over net revenues of
$155.6 million in the same period in fiscal 2004. For the first half of
fiscal 2005, acquisitions net of divestitures represented $49.5 million, or
31.8 percent, of the revenue increase over the prior year and organic growth
contributed 3.1 percent, or $4.7 million, of the revenue increase. New
business installed during the first six months of fiscal 2005, net of
cancellations of existing business, represented $6.2 million in annualized
revenue compared with $9.7 million in last year's first half. Excluding the
impact of the acquisition from Duke Health Systems, net new business
installed in the first six months of fiscal 2004 was $4.7 million.
Cost of services of $93.7 million in the second quarter of fiscal 2005
increased by 43.3 percent from $65.4 million recorded in the same period in
fiscal 2004. The principal factor for this increase is our higher revenue
level resulting from the acquisitions we have completed. Production labor
costs increased $12.0 million to 35.1 percent of revenue in second quarter
fiscal 2005 versus 33.0 percent of revenue in second quarter fiscal 2004.
Included in this increase were $0.4 million of costs related to labor strike
contingency planning associated with the corporate campaign waged by UNITE
HERE, a labor union representing approximately two-thirds of our production
employees. Additionally, we recorded $0.4 million in costs incurred in
connection with closing our facility in Vallejo, California that was subject
to condemnation proceedings by the local sanitation district, for which we
are pursuing recovery. Also contributing to the increase is a $1.0 million
increase in workers' compensation expenses from the second quarter fiscal
2004. Rising energy
14
costs continue to negatively impact our cost of services as well. Natural
gas costs rose to 4.8 percent of revenues in second quarter fiscal 2005 from
3.9 percent of revenues in second quarter fiscal 2004 and delivery fuel
increased to 1.8 percent of revenues in this year's second quarter from 1.5
percent of revenues in second quarter fiscal 2004. Partially offsetting
these increases was a decline in linen expense to 17.3 percent of revenues
in the second quarter fiscal 2005 from 19.1 percent of revenues in second
quarter fiscal 2004. The reduction in linen expense as a percentage of
revenues primarily reflects an increase in non-rental customers obtained
through acquisitions and to a lesser extent, lower linen prices from new
procurement efforts.
In the first half of fiscal 2005, cost of services of $180.7 million
reflected a 38.0 percent increase from $130.9 million recorded in the same
period in fiscal 2004. Contributing to the increase were production labor
costs which increased $21.6 million to 34.7 percent of revenues in the first
six months of fiscal 2005 versus 33.0 percent of revenues during the same
period in fiscal 2004. Costs related to labor strike contingency planning of
$0.7 million are included in the increase, as well as the costs associated
with the closure of our Vallejo facility along with a $1.8 million increase
in workers' compensation costs. Energy costs also contributed to this
increase. Natural gas costs rose to 4.9 percent of revenues in the first
half fiscal 2005 from 4.2 percent of revenues in the first half of fiscal
2004 and delivery fuel increased to 1.8 percent of revenues in the first
half of fiscal 2005 from 1.5 percent of revenues in the first half of fiscal
2004. The decline in linen expense to 17.1 percent of revenues in the first
six months of fiscal 2005 from 19.0 percent of revenues in the same period
in fiscal 2004 partially offset these increases.
Gross profit margin declined to 12.6 percent and 13.9 percent in the second
quarter and first half of fiscal 2005, respectively, from 16.1 percent and
15.9 percent in the second quarter and first half of fiscal 2004,
respectively, for the reasons noted above.
Selling, general and administrative expenses declined as a percent of
revenues to 12.1 percent and 12.2 percent in the second quarter and first
half of fiscal 2005, respectively, compared with 13.0 percent in both the
second quarter and first half of fiscal 2004. The second quarter decline
reflects the efficiencies from our increasing scale partially offset by $0.4
million of expenses associated with recent changes in senior management,
$0.4 million incurred in connection with an evaluation of alternatives to
our present debt structure, and $0.6 million in professional fees associated
with the union corporate campaign. The decline in the first half of fiscal
2005 from the same period in fiscal 2004 also reflects efficiencies attained
from our greater scale partially offset by $0.8 million expended in
connection with the union action along with increased corporate expenses
associated with Sarbanes-Oxley compliance and long-term compensation expense
from the impact of our move in 2003 to using restricted stock, which is
expensed, as opposed to stock options.
Income from operations declined 94.3 percent in the second quarter this year
compared with second quarter fiscal 2004 due to the increased cost of
services and other operating expense of $0.4 million recorded in the second
quarter of fiscal 2005. A $0.5 million gain on the divestiture of
non-healthcare business was more than offset by amortization of acquired
15
assets of $1.1 million. Other operating income in second quarter fiscal 2004
of $1.3 million principally included a $1.3 million gain on the sale of
Daytona Beach non-healthcare accounts and $0.3 million on the settlement of
a property insurance claim partially offset by amortization of acquired
assets of $0.2 million. Income from operations for the first half of fiscal
2005 decreased 59.4 percent to $2.2 million from the $5.5 million recorded
during the same period a year ago, due mainly to unfavorable variances
discussed above more than offsetting the favorable impact of the revenue
increase.
Interest expense in second quarter fiscal 2005 increased by $1.5 million, or
483.4 percent, to $1.8 million. Interest expense for the first six months of
fiscal 2005 increased by $2.3 million, or 400.2 percent, to $2.9 million.
The increases resulted from the increased indebtedness incurred to finance
acquisitions, plus an increase in interest rates from an average 2.7 percent
in the first half of fiscal 2004 to an average 5.0 percent in the first half
of fiscal 2005. At July 30, 2005, we had $53.1 million in total debt
outstanding under a revolving loan agreement along with a $50.0 million term
loan. In second quarter fiscal 2005, we borrowed an additional $3.5 million
against the cash surrender value of life insurance policies we own in
addition to the $19.5 million we borrowed in the first quarter fiscal 2005.
Interest from bank and life insurance debt is included in our interest
expense.
We recorded $0.3 million pretax non-operating income during the second
quarter of fiscal 2005. In the first half of fiscal 2005, we recorded $0.8
million of non-operating income which includes a $0.4 million distribution
from the liquidation of the parent company of the issuer of life insurance
policies we own. During the first half of fiscal 2004, we recorded pretax
non-operating income of $2.1 million, due to a $1.5 million gain from the
sale of real estate we owned in Miami, Florida and $0.6 million of death
benefits from company-owned life insurance policies surrendered.
The income tax benefit of $0.4 million in the second quarter of fiscal 2005
reflects the pretax loss recorded in the quarter. The 98.6 percent decrease
in the provision for income taxes for the first half of fiscal 2005 reflects
the lower pretax income. We recorded a net loss from continuing operations
for the second quarter fiscal 2005 of $0.9 million compared with net income
from continuing operations of $2.8 million in the second quarter fiscal
2004. Net income from continuing operations of $0.1 million in the first
half of fiscal 2005 decreased 98.4 percent from $5.3 million in the same
period last year as the increased interest expense and decreased
non-operating income mentioned above more than offset the impact of the
increase in net revenues.
Financial Condition
-------------------
As of July 30, 2005, working capital totaled $42.3 million and the current
ratio (i.e., the ratio of current assets to current liabilities) was 1.6 to
1, compared with $37.7 million and 1.7 to 1, respectively, at January 29,
2005. The increase in the dollar amount of working capital reflects
increases in receivables and linens in service, partially offset by
increases in current maturities of long-term debt, accrued wages and other
compensation, and other accrued liabilities.
16
Receivables and linens in service increased by $12.7 million and $5.0
million, respectively, in the first half of fiscal 2005 as a result of our
larger scale after completing recent acquisitions. Accounts receivable days
outstanding increased to 47 days as of July 30, 2005 from 42 days sales
outstanding at the end of fiscal 2004. The increase reflects issues
encountered with the installation of a new billing system. This is expected
to be a temporary situation as days sales outstanding are projected to
return to a more normalized level of approximately 45 days. Increases in
total property and equipment of $7.1 million and goodwill and other acquired
assets of $37.2 million reflect mainly the cost of the business acquired in
first quarter fiscal 2005.
The increase in current maturities of long-term debt of $10.0 million in the
first six months this year reflects the current portion of our term loan.
Long-term debt of $93.3 million as of July 30, 2005 was $25.5 million
greater than at January 29, 2005, reflecting borrowing used to fund the
acquisition completed in first quarter fiscal 2005. Our ratio of total debt
to total capitalization as of July 30, 2005 was 40.5 percent compared to
31.1 percent as of January 29, 2005. Book value per share at the end of
second quarter fiscal 2005 was $16.43, compared with $16.69 as of January
29, 2005.
Liquidity and Capital Resources
-------------------------------
Cash flow provided by operating activities of continuing operations
decreased $3.2 million in the six months ended July 30, 2005 compared with
the same period a year ago. In the first half of fiscal 2005, we recorded a
$5.8 million net increase in working capital components of continuing
operations compared with a $1.5 million net increase in the year ago period
primarily due to increases in accounts receivable and linens in service,
partially offset by increased accrued liabilities. Cash flows from investing
activities in the six months ended July 30, 2005 include $50.0 million of
cost of businesses acquired, including cash paid for Royal and the final
payment of $3.6 million for the acquisition of the Duke University Health
System laundry in the previous year. Capital expenditures were $5.2 million
higher during the first half this year compared with the same period last
year as we continue to invest in energy-saving and labor-saving equipment in
our facilities.
As of July 30, 2005, there was $103.1 million of outstanding debt under our
credit facility, including a $50.0 million term loan and $53.1 million under
the revolving loan agreement. Of this amount, $10.0 million bears interest
at a fixed rate of 3.58 percent pursuant to an interest rate swap agreement
plus a margin under the credit facility (2.25 percent as of July 30, 2005).
Another $85.0 million was in LIBOR contracts bearing interest of 3.34
percent plus the margin. The remaining $8.1 million outstanding bears our
base rate (prime) of 6.25 percent as of July 30, 2005.
In addition to amounts due under our loan agreement, at the end of the
second quarter fiscal 2005 we borrowed an additional $3.5 million against
the cash surrender value of life insurance policies we own. Combined with
the $19.5 million borrowed during the first quarter, the total amount
borrowed against the life insurance policies was $23.0 million as of July
30, 2005. The proceeds of these loans, bearing interest at variable rates
ranging from 5.7 percent to 6.4 percent, or a fixed rate of 8.0 percent,
were used to pay down our revolving line of credit. Approximately 75 percent
of this debt was charged a variable rate.
17
On July 30, 2005, we also had $13.3 million in irrevocable letters of credit
outstanding, which reduced the amount available to borrow under the loan
agreement to $17.9 million.
On August 4, 2005, we repaid all loans outstanding against the cash value of
the life insurance policies we own from amounts borrowed under our revolving
credit facility.
As previously announced, we amended the terms of our credit facility during
the second quarter fiscal 2005 that relaxed our financial covenants. Under
the terms of the amendment, the credit facility becomes secured and the
total amount of the facility remains unchanged at $150 million. The
covenants require us to maintain a minimum ratio of "EBITDA" to "fixed
charges" (as defined in the loan documents) of no less than 1.2 to 1, and a
maximum ratio of "Funded Debt" to "EBITDA" of no more than 4.0 to 1, which
was raised from 2.75 to 1 in connection with the loan amendment. We are also
required to maintain a minimum consolidated net worth of $126.0 million plus
an aggregate amount equal to 50 percent of quarterly net income beginning
with the fourth quarter fiscal 2004 (with no reductions for net losses). We
were in compliance with these debt covenants, as amended, as of July 30,
2005.
We believe that our financial condition, operating cash flow and available
sources of external funds are sufficient to satisfy our requirements for
debt service, capital expenditures, acquisitions, dividends and working
capital over the course of the next 12 months. However, if we pursue a large
acquisition for which we pay cash as consideration for the assets purchased,
we may require alternative funding sources to finance the purchase price.
Forward-Looking Statements
Any forward-looking statements made in this document reflect the Company's
current views with respect to future events and financial performance and
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties that may cause actual results to differ materially from
those set forth in these statements. These potential risks and uncertainties
include, but are not limited to, competitive and general economic
conditions, the ability to retain current customers and to add new customers
in competitive market environments, competitive pricing in the marketplace,
delays in the shipment of orders, ability to mitigate work disruptions at
our plants arising from work interruptions or stoppages, availability of
labor at appropriate rates, availability and cost of energy and water
supplies, the cost of workers' compensation and healthcare benefits, the
ability to attract and retain key personnel, the ability of the Company to
recover its seller note and avoid future lease obligations as part of its
sale of Life Uniform, the ability of the Company to accomplish its strategy
of redirecting its resources to its healthcare linen management business in
a timely and financially advantageous manner, unusual or unexpected cash
needs for operations or capital transactions, the effectiveness of certain
expense reduction initiatives, the ability to obtain financing in required
amounts and at appropriate rates and terms, the ability to identify,
negotiate, fund, consummate and integrate acquisitions, and other factors
which may be identified in the Company's filings with the Securities and
Exchange Commission.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to commodity price risk related to the use of natural
gas in its laundry plants. The total cost of natural gas in the second
quarter and first half ended July 30, 2005 was $5,158,000 and $10,278,000,
respectively. To reduce the uncertainty of fluctuating energy prices, the
Company has entered into fixed-price contracts as of July 30, 2005 for
approximately 18 percent of its estimated natural gas purchase requirements
in the next 12 months. A hypothetical 10 percent increase in the cost of
natural gas not covered by these contracts would result in a reduction of
approximately $1,686,000 in annual pretax earnings.
The Company is also exposed to commodity price risk resulting from the
consumption of gasoline and diesel fuel for delivery trucks. The total cost
of delivery fuel in the second quarter and first half ended July 30, 2005
was $1,917,000 and $3,753,000, respectively. A hypothetical 10 percent
increase in the cost of delivery fuel would result in a decrease of
approximately $751,000 in annual pretax earnings.
The Company's exposure to interest rate risk relates primarily to its
variable-rate bank debt. As of July 30, 2005, there was $103,100,000 of
outstanding debt under the bank credit facility, of which $10,000,000 bears
interest at a fixed rate of 3.58 percent (plus a margin) under an
interest-rate swap agreement entered into by the Company with one of its
lenders to moderate the exposure. Amounts borrowed under the credit facility
in excess of the $10,000,000 covered by the interest-rate swap agreement
bear interest at a rate equal to either (i) LIBOR plus a margin, or (ii) a
Base Rate, defined as the higher of (a) the Federal Funds Rate plus .50
percent or (b) the Prime Rate. The margin is based on the Company's ratio of
"Funded Debt" to "EBITDA," as each is defined in the Loan Agreement. As of
July 30, 2005, the margin was 2.25 percent. A hypothetical increase of 100
basis points in short-term interest rates applicable to the outstanding
variable-rate debt not covered by the interest-rate swap agreement would
result in a reduction of approximately $931,000 in annual pretax earnings.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
----------------------------------
The Company maintains a system of internal controls and procedures designed
to provide reasonable assurance as to the reliability of the unaudited
consolidated financial statements and other disclosures included in this
report. The Company's Board of Directors, operating through its Audit
Committee which is composed entirely of independent Directors, provides
oversight to the financial reporting process.
As of the end of the period covered by this report, the Company's Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended). Based upon their evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in ensuring that material information
relating to the Company, including its consolidated subsidiaries, is made
known to them by others within those entities in a timely manner,
particularly during the period for which this quarterly report is being
prepared. The Chief Executive Officer and Chief Financial Officer also
concluded based upon their evaluation that the Company's disclosure controls
and procedures are effective in ensuring that the information required to be
19
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms.
Changes in Internal Control over Financial Reporting
----------------------------------------------------
During the second quarter of fiscal 2005, the Company began replacing its
legacy plant accounting system with a more integrated technology platform
which includes invoicing and accounts receivable, purchasing, and laundry
management applications. As part of this initiative, the Company completed
the implementation of the Accounts Receivable module of Oracle financials
during the second quarter of fiscal 2005. The purchasing and laundry
management applications are scheduled to be implemented on a plant by plant
basis over the next 24 months.
The Company also implemented a new human resource, payroll and time and
attendance system during the second quarter of fiscal 2005. This new system,
Ceridian, will improve the efficiency of the Company's payroll processes.
As with any new technology application the Company implements, the design of
the internal controls affected by the implementation of the Accounts
Receivable module of Oracle financials and the new human resource, payroll
and time and attendance system have been evaluated by management and deemed
to be effective.
Other than the changes noted above, there were no other changes in the
Company's internal control over financial reporting during the second
quarter of fiscal 2005 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
-----------------
(a) See Exhibit Index on page 23.
21
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Angelica Corporation
--------------------
(Registrant)
Date: September 8, 2005 /s/ James W. Shaffer
--------------------
James W. Shaffer
Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Richard M. Fiorillo
-----------------------
Richard M. Fiorillo
Principal Accounting Officer
22
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
*Asterisk indicates exhibits filed herewith.
**Incorporated by reference from the document listed.
3.1 Restated Articles of Incorporation of the Company, as currently in
effect. Filed as Exhibit 3.1 to the Form 10-K for the fiscal year
ended January 26, 1991.**
3.2 Current By-Laws of the Company, as last amended January 27, 2004.
Filed as Exhibit 3.2 to the Form 10-K for the fiscal year ended
January 31, 2004.**
4.1 Shareholder Rights Plan dated August 25, 1998. Filed as Exhibit 1 to
Registration Statement on Form 8-A on August 28, 1998.**
10.1 Settlement Agreement between the Company and Paul R. Anderegg, dated
May 31, 2005.*
10.2 Amendment No. 1 to Angelica Corporation Mirror 401(k) and Deferred
Compensation Plan, dated September 1, 2005.*
10.3 First Amendment to Loan Agreement dated July 29, 2005, among
Angelica Corporation, LaSalle Bank National Association, as
Administrative Agent, and LaSalle and other Lenders. Filed as
Exhibit 99 to a Form 8-K filed on August 4, 2005.**
10.4 Memorandum of Settlement dated June 14, 2005, including the
related Employee Free Choice Agreement and National Labor Peace
Agreement, of even date therewith filed as Exhibits A and B
thereto, by and between the Company and UNITE HERE. Filed as
Exhibit 10.1 to a Form 8-K filed on June 15, 2005.**
31.1 Section 302 Certification of Chief Executive Officer.*
31.2 Section 302 Certification of Chief Financial Officer.*
32.1 Section 906 Certification of Chief Executive Officer.*
32.2 Section 906 Certification of Chief Financial Officer.*
23