For
The Quarterly Period Ended
|
Commission
File
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April
26, 2008
|
Number
1-5674
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MISSOURI
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43-0905260
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(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
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424
South Woods Mill Road
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CHESTERFIELD,
MISSOURI
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63017
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(Address
of principal executive offices)
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(Zip
Code)
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Page
Number
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|||
Reference
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|||
Part
I. Financial Information:
|
|||
Item
1. Condensed Consolidated Financial Statements:
|
|||
Condensed
Consolidated Statements of Income - First Quarter ended April 26, 2008 and
April 28, 2007 (Unaudited)
|
2
|
||
Condensed
Consolidated Balance Sheets – April 26, 2008 and January 26, 2008
(Unaudited)
|
3
|
||
Condensed
Consolidated Statements of Cash Flows – First Quarter ended April 26, 2008
and April 28, 2007 (Unaudited)
|
4
|
||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
5-15
|
||
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
16-20
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||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
21
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||
Item
4. Controls and Procedures
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21-22
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||
Part
II. Other Information:
|
|||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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23
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||
Item
6. Exhibits
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23
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||
Signatures
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24
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||
Exhibit
Index
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25-26
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First Quarter
Ended
|
||||||||
April 26,
2008
|
April 28,
2007
|
|||||||
Revenues
|
$ | 109,704 | $ | 107,777 | ||||
Cost of
services
|
(90,838 | ) | (93,496 | ) | ||||
Gross
profit
|
18,866 | 14,281 | ||||||
Selling,
general and administrative expenses
|
(13,537 | ) | (13,398 | ) | ||||
Amortization
of other acquired assets
|
(951 | ) | (1,063 | ) | ||||
Other
operating income, net
|
338 | 198 | ||||||
Income from
operations
|
4,716 | 18 | ||||||
Interest
expense
|
(1,875 | ) | (2,336 | ) | ||||
Non-operating
income, net
|
169 | 262 | ||||||
Income (loss)
before income taxes
|
3,010 | (2,056 | ) | |||||
Income tax
(provision) benefit
|
(922 | ) | 915 | |||||
Net
income (loss)
|
$ | 2,088 | $ | (1,141 | ) | |||
Basic
net income (loss) per share
|
$ | 0.22 | $ | (0.12 | ) | |||
Diluted
net income (loss) per share
|
$ | 0.22 | $ | (0.12 | ) |
April
26,
|
January
26,
|
|||||||
2008
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 2,832 | $ | 3,258 | ||||
Receivables,
less reserves of $849 and $926
|
60,545 | 63,803 | ||||||
Linen
inventory
|
50,242 | 48,547 | ||||||
Deferred
income taxes
|
7,233 | 8,539 | ||||||
Prepaid
expenses and other current assets
|
7,633 | 6,540 | ||||||
Total Current
Assets
|
128,485 | 130,687 | ||||||
Property and
Equipment
|
208,811 | 198,048 | ||||||
Less --
accumulated depreciation
|
112,391 | 105,705 | ||||||
Total
Property and Equipment
|
96,420 | 92,343 | ||||||
Other:
|
||||||||
Goodwill
|
49,259 | 49,259 | ||||||
Other
acquired assets, net
|
32,978 | 33,929 | ||||||
Cash
surrender value of life insurance
|
1,348 | 2,308 | ||||||
Deferred
income taxes
|
4,583 | 5,962 | ||||||
Miscellaneous
|
6,443 | 5,921 | ||||||
Total Other
Assets
|
94,611 | 97,379 | ||||||
Total
Assets
|
$ | 319,516 | $ | 320,409 | ||||
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 34,763 | $ | 33,902 | ||||
Accrued wages
and other compensation
|
6,824 | 6,186 | ||||||
Deferred
compensation and pension liabilities
|
1,650 | 1,650 | ||||||
Other accrued
liabilities
|
21,200 | 24,052 | ||||||
Total Current
Liabilities
|
64,437 | 65,790 | ||||||
Long-Term
Debt, less current maturities
|
86,200 | 90,000 | ||||||
Other
Long-Term Liabilities
|
12,620 | 13,156 | ||||||
Shareholders'
Equity:
|
||||||||
Common Stock,
$1 par value, authorized 20,000,000
|
||||||||
shares,
issued: 9,576,138 and 9,572,938 shares
|
9,576 | 9,573 | ||||||
Capital
surplus
|
9,564 | 9,230 | ||||||
Retained
earnings
|
141,079 | 140,053 | ||||||
Accumulated
other comprehensive income (loss)
|
436 | (2,947 | ) | |||||
Common Stock
in treasury, at cost: 285,087 and 287,987 shares
|
(4,396 | ) | (4,446 | ) | ||||
Total
Shareholders' Equity
|
156,259 | 151,463 | ||||||
Total
Liabilities and Shareholders' Equity
|
$ | 319,516 | $ | 320,409 |
First Quarter
Ended
|
||||||||
April 26,
2008
|
April 28,
2007
|
|||||||
Cash Flows
from Operating Activities:
|
||||||||
Income (loss)
from continuing operations
|
$ | 2,088 | $ | (1,141 | ) | |||
Non-cash
items included in income (loss) from continuing
operations:
|
||||||||
Depreciation
|
3,416 | 3,631 | ||||||
Amortization
|
1,294 | 1,454 | ||||||
Deferred
income taxes
|
922 | (1,065 | ) | |||||
Cash
surrender value of life insurance
|
(292 | ) | (302 | ) | ||||
Gain on
disposal of assets
|
(91 | ) | (29 | ) | ||||
Change in
working capital components of continuing
|
||||||||
operations
|
2,825 | (4,829 | ) | |||||
Other,
net
|
261 | (821 | ) | |||||
Net cash
provided by (used in) operating activities of
|
||||||||
continuing
operations
|
10,423 | (3,102 | ) | |||||
Cash Flows
from Investing Activities:
|
||||||||
Expenditures
for property and equipment
|
(6,928 | ) | (2,144 | ) | ||||
Disposals of
assets
|
103 | 70 | ||||||
Life
insurance premiums paid, net
|
(143 | ) | (144 | ) | ||||
Net cash used
in investing activities of continuing operations
|
(6,968 | ) | (2,218 | ) | ||||
Cash Flows
from Financing Activities:
|
||||||||
Repayments of
long-term debt
|
(37,900 | ) | (32,866 | ) | ||||
Borrowings of
long-term debt
|
34,100 | 36,300 | ||||||
Repayments of
life insurance policy loans
|
(5,563 | ) | (8,298 | ) | ||||
Borrowings
from life insurance policy loans
|
6,815 | 8,514 | ||||||
Dividends
paid
|
(1,045 | ) | (1,037 | ) | ||||
Exercise of
stock options
|
49 | 658 | ||||||
Net cash
(used in) provided by financing activities of
|
||||||||
continuing
operations
|
(3,544 | ) | 3,271 | |||||
Cash Flows
from Discontinued Operations:
|
||||||||
Operating
cash flows
|
(337 | ) | (12 | ) | ||||
Net decrease
in cash
|
(426 | ) | (2,061 | ) | ||||
Balance at
beginning of year
|
3,258 | 6,254 | ||||||
Balance at
end of period
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$ | 2,832 | $ | 4,193 | ||||
Supplemental
cash flow information:
|
||||||||
Purchases of
property and equipment included in
|
||||||||
accounts
payable
|
$ | 1,610 | $ | 219 |
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Basis of
Presentation
|
|
The
accompanying condensed consolidated financial statements are unaudited,
and these consolidated financial 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 26, 2008 (fiscal 2007). 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 period have been included. All significant intercompany accounts
and transactions have been eliminated. The results of operations and cash
flows for the first quarter ended April 26, 2008 are not necessarily
indicative of the results that will be achieved for the full fiscal year
2008. Cash flows related to operations that were discontinued prior to
fiscal year 2007 are segregated for reporting purposes in the Condensed
Consolidated Statements of Cash
Flows.
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|
New Accounting
Pronouncements
|
|
The
Company has various equity-based compensation plans that provide for the
granting of incentive stock options, non-qualified stock options,
restricted stock and performance awards to certain employees and
directors. Options and awards have been granted at or above the fair
market value at the date of grant, although certain plans allow for awards
to be granted at a price below fair market value. Options vest over
periods ranging from six months to four years, and are exercisable not
less than six months nor more than 10 years after the date of grant.
Restricted shares granted to non-employee directors generally vest over
one to three years. Restricted shares granted to employees generally
represent performance-contingent awards that vest at the end of three
years upon the attainment of certain earnings performance goals, with the
exception of certain retention awards granted in the third quarter of
fiscal 2006 that vest over a ten year period upon the attainment of
certain earnings performance goals. Certain of these plans provide that
stock options and/or stock grants that have not previously vested will
immediately vest in the event of a change of control transaction as
defined and determined under the terms of each
plan.
|
|
The Company
estimates the fair value of its option awards on the date of grant using
the Black-Scholes option pricing model. No options were granted in the
quarters ended
April 26, 2008 or April 28, 2007. A summary of the status of the Company’s
stock option plans as of April 26, 2008, and changes for the quarter then
ended is presented in the table
below:
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term (Years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
Options
outstanding at January 27, 2008
|
515,100 | $ | 21.85 | 5.6 | $ | 455,000 | ||||||||||
Granted
|
- | - | ||||||||||||||
Exercised
|
(3,200 | ) | 15.27 | |||||||||||||
Forfeited
|
(500 | ) | 32.88 | |||||||||||||
Expired
|
(5,500 | ) | 22.09 | |||||||||||||
Options
outstanding at April 26, 2008
|
505,900 | $ | 21.88 | 5.4 | $ | 409,000 | ||||||||||
Options
exercisable at April 26, 2008
|
449,650 | $ | 21.68 | 5.0 | $ | 409,000 |
|
The Company
determines the fair value of its restricted stock awards based on the
market price of its common stock on the date of grant. Restricted stock
activity for the quarter ended April 26, 2008 was as
follows:
|
Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||
Nonvested at
January 27, 2008
|
301,045 | $ | 21.09 | |||||
Granted
|
- | - | ||||||
Vested
|
(3,213 | ) | 18.71 | |||||
Forfeited
|
(56,757 | ) | 28.18 | |||||
Nonvested at
April 26, 2008
|
241,075 | $ | 19.62 |
|
Total
compensation expense charged to income for all stock option and stock
bonus plans during the quarters ended April 26, 2008 and April 28, 2007
was $214,000 and $243,000, respectively (net of $129,000 and $148,000
related income taxes). The total compensation cost related to nonvested
stock options and awards not yet recognized is currently expected to be a
combined total of approximately $2,536,000. This cost is expected to be
recognized over a weighted average period of 4.1 years. Restricted stock
awards comprise approximately $2,245,000 of the Company’s expected future
stock-based compensation expense, with the remainder related to stock
option awards.
|
|
The
Company recorded a tax provision of $922,000 for the first quarter ended
April 26, 2008. This expense consisted of $1,129,000 based upon the
Company’s estimated effective tax rate of 37.5% for the year and a benefit
of $207,000 from federal and state tax credits. The effective tax rate for
the first quarter ended April 26, 2008, reflects the statutory tax rate
adjusted for permanent items and state tax benefits, as
applicable.
|
|
The
Company adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes
– An Interpretation of FASB Statement No. 109” (FIN 48) on January 28,
2007, the first day of its 2007
fiscal
|
|
year.
The implementation of FIN 48 did not result in a cumulative adjustment to
the Company’s previously recorded liability for gross unrecognized tax
benefits, which amounted to $2,333,000 as of the date of adoption. In the
third quarter of fiscal 2007, the statute of limitations on certain tax
return years expired. The expiration of those statutes of limitation
resulted in the recognition of uncertain tax positions in the amount of
$2,330,000 through the effective tax
rate.
|
|
The
Company recognizes interest and penalties accrued related to unrecognized
tax benefits in its tax provision. Due to its net operating loss and tax
credit carryforward position, the Company recognized no penalties or
interest during the quarters ended April 26, 2008 or April 28, 2007, and
had no interest or penalties accrued as of April 26, 2008 or January 26,
2008. Because both permanent and temporary items can be
considered uncertain tax positions, the Company has reflected its deferred
tax assets and liabilities on the basis of the more likely than not
standard required by FIN 48.
|
|
As
of the beginning of fiscal year 2008, the Company had $15,617,000 of
unrecognized tax benefits. If recognized, $11,000 of unrecognized tax
benefits would affect the effective tax rate. An estimate of changes to
the unrecognized tax benefits within 12 months of April 26, 2008 cannot be
made at this point.
|
|
The
Company is subject to taxation in the United States, and its tax years for
2004 through 2007 are subject to examination by the tax authorities. With
few exceptions, the Company is no longer subject to U.S. federal, state or
local examinations by tax authorities for years before
2004.
|
|
As
of the beginning of fiscal year 2008, the Company had a federal net
operating loss carryover of $43,674,000 which will expire beginning in
2025; $3,938,000 in federal tax credit carryovers which expire at various
dates beginning in 2021 or have no expiration date; $10,223,000 of state
tax credit carryovers which expire at various dates beginning in 2012 or
have no expiration date; and various other charitable contribution
carryovers, tax credits and state net operating loss carryovers. After
adjustment for uncertain tax positions identified in accordance with the
provisions of FIN 48, the Company’s net operating loss carryover for
financial reporting purposes has been reduced from $43,674,000 to
$6,694,000. This adjustment has no impact on the Company’s effective tax
rate.
|
First Quarter
Ended
|
||||||||
April
26,
|
April
28,
|
|||||||
2008
|
2007
|
|||||||
Weighted
Average Shares:
|
||||||||
Average
shares outstanding
|
9,287 | 9,239 | ||||||
Effect of
dilutive securities
|
22 | - | ||||||
Average
shares outstanding,
|
||||||||
adjusted
for dilutive effects
|
9,309 | 9,239 |
April 26,
2008
|
January 26,
2008
|
|||||||||||||||||||||||
Gross
|
Other
|
Gross
|
Other
|
|||||||||||||||||||||
Carrying
|
Accumulated
|
Acquired
|
Carrying
|
Accumulated
|
Acquired
|
|||||||||||||||||||
Amount
|
Amortization
|
Assets, net
|
Amount
|
Amortization
|
Assets, net
|
|||||||||||||||||||
Customer
contracts
|
$ | 41,831 | $ | (14,433 | ) | $ | 27,398 | $ | 41,831 | $ | (13,792 | ) | $ | 28,039 | ||||||||||
Non-compete
covenants
|
9,718 | (4,138 | ) | 5,580 | 9,718 | (3,828 | ) | 5,890 | ||||||||||||||||
Other
acquired assets
|
$ | 51,549 | $ | (18,571 | ) | $ | 32,978 | $ | 51,549 | $ | (17,620 | ) | $ | 33,929 |
2008
|
$ | 3,797 | ||
2009
|
3,508 | |||
2010
|
3,051 | |||
2011
|
3,041 | |||
2012
|
3,040 |
First Quarter
Ended
|
||||||||
April
26,
|
April
28,
|
|||||||
(Dollars in
thousands)
|
2008
|
2007
|
||||||
Pension
expense:
|
||||||||
Service
cost
|
$ | 53 | $ | 86 | ||||
Interest
cost
|
345 | 331 | ||||||
Expected
return on plan assets
|
(364 | ) | (333 | ) | ||||
Unrecognized
loss
|
9 | 17 | ||||||
Net periodic
pension expense
|
$ | 43 | $ | 101 |
|
·
|
Level
1 Inputs – unadjusted quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the
measurement date.
|
|
·
|
Level
2 Inputs – inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or
indirectly.
|
|
·
|
Level
3 Inputs – unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own
assumptions.
|
Period
|
Total
Number
of
Shares
Purchased
(a)
|
Average
Price
Paid
Per
Share
|
Total
Number
of
Shares
Purchased
as
Part
of
Publicly
Announced
Programs
|
Maximum
Number
of
Shares That
May
Yet Be
Purchased
Under
the
Programs
|
||||||||||
Jan.
27, 2008 – Feb. 23, 2008
|
—
|
—
|
—
|
—
|
||||||||||
Feb.
24, 2008 – Mar. 22, 2008
|
313
|
$
|
17.10
|
—
|
—
|
|||||||||
Mar.
23, 2008 – Apr. 26, 2008
|
—
|
—
|
—
|
—
|
||||||||||
Total
|
313
|
$
|
17.10
|
—
|
—
|
(a)
|
The
shares purchased were restricted stock withheld for the payment of
withholding taxes upon vesting of restricted
stock.
|
(a)
|
See
Exhibit Index on page 25.
|
Angelica
Corporation
|
|
(Registrant)
|
|
Date: June
5, 2008
|
/s/ Stephen M.
O’Hara
|
Stephen
M. O’Hara
|
|
President
and
|
|
Chief
Executive Officer
|
|
/s/ James W.
Shaffer
|
|
James
W. Shaffer
|
|
Vice
President and Chief
|
|
Financial
Officer
|
|
(Principal
Financial Officer)
|
|
(Principal
Accounting Officer)
|
Exhibit
|
||
Number
|
Description
|
*Asterisk
indicates exhibits filed herewith.
|
||
**Incorporated
by reference from the document listed.
|
||
2.1
|
Agreement
and Plan of Merger, dated as of May 22, 2008, by and among Angelica
Corporation, Clothesline Holdings, Inc. and Clothesline Acquisition
Corporation. Filed as Exhibit 2.1 to a current report on Form 8-K on May
23, 2008.**
|
|
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
|
Amendment
to Certificate of Designation, Preferences and Rights of Class B Series 2
Junior Participating Preferred Stock. Filed as Exhibit 3.1 to a current
report on Form 8-K on September 5, 2006.**
|
|
3.3
|
Current
By-Laws of the Company, as amended and restated. Filed as Exhibit 3.2 to
the Form 10-K for fiscal year ended January 27, 2007.**
|
|
4.1
|
Shareholder
Rights Plan dated August 25, 1998. Filed as Exhibit 1 to
Registration Statement on Form 8-A on August 28,
1998.**
|
|
4.2
|
Form
of Amendment No. 1 to Rights Agreement, dated as of August 29, 2006,
between Angelica Corporation and UMB Bank, N.A. Filed as Exhibit 4.1 to a
current report on Form 8-K on September 5, 2006.**
|
|
4.3
|
Form
of Amendment No. 2 to Rights Agreement, dated September 19, 2006, by and
between Angelica Corporation and UMB Bank, N.A. Filed as Exhibit 4.1 to a
current report on Form 8-K on September 22, 2006.**
|
|
4.4
|
Form
of Amendment No. 3 to Rights Agreement, dated May 22, 2008, by and between
Angelica Corporation and Computershare Trust Company, N.A. Filed as
Exhibit 4.1 to a current report on Form 8-K on May 23,
2008.**
|
|
4.5
|
Letter
agreement between Computershare Trust Company, N.A., UMB Bank, N.A. and
Angelica Corporation, dated as of November 20, 2007, acknowledging
acceptance of Computershare Trust Company, N.A. as successor Rights Agent
under the Shareholder Rights Plan. Filed as Exhibit 4.4 to the Form 10-Q
for the fiscal quarter ended October 27, 2007.**
|
|
10.1
|
Guarantee
Letter, dated as of May 22, 2008, from Lehman Brothers Merchant Banking
Partners IV L.P. in favor of Angelica Corporation. Filed as
Exhibit 10.1 to a current report on Form 8-K on May 23,
2008.**
|
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.*
|