ITEM 1. 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 1300 Washington 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 25, 1998, 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 79.3%, 77.9% and 73.8% of the Company's total revenues in fiscal 1998, 1997 and 1996, 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.
The Company provides rental services in 58 markets to customers in 34 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. 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.
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, 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 has been named as a potentially responsible party, and thus faces joint and several liability, under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as a result of alleged environmental contamination in Tempe, Arizona. Unitog's rental facility in Tempe is located within the South Indian Bend Wash Federal Superfund ("SIBW") site. The SIBW site is a several square mile area designated for action because of the presence of volatile organic compounds in the groundwater there. Soil testing at the Company's facility detected volatile organic compounds in the soil and the Company is now in the process of remediating the soil at its facility. The Company's estimate of the expense related to soil remediation at its Tempe facility has been accrued and charged to operating expense. Groundwater testing at the Company's property has detected what the Company believes is very low levels of volatile organic compound contamination on site. The United States Environmental Protection Agency ("EPA") has preliminarily proposed to treat the groundwater at the SIBW site over a 30 year period at an estimated present value cost of $28 million. EPA has received numerous comments from potentially responsible parties and others disputing the need for any action at the SIBW site because of the low levels of contamination. EPA has indicated that it is reassessing its proposed preliminary remedy. It is not possible to determine whether the EPA plan or any alternative plan will be implemented. It is also not possible to determine the Company's liability for its share of the costs at the SIBW site if groundwater treatment is implemented. Based on information currently known to the Company, the Company does not believe that its
liability, if any, with respect to the SIBW site will be material to the consolidated financial position of the Company. The charge to net earnings during any future quarterly period for costs should a groundwater treatment plan be required could have a material adverse effect on net earnings of that quarterly period.
The Company is remediating volatile organic compound contamination in soil and ground water at the Company's Minneapolis, Minnesota rental facility. The Company's estimate of the expense related to the remediation of the contamination 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 or results of operations or cash flows of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information about the executive officers of the Company is set forth below.
EMPLOYEES
The Company had 4,242 full-time employees as of January 25, 1998.
ITEM 2.
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.
___________________________ * Leased for various terms expiring from fiscal 1999 to fiscal 2007. 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.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation incidental to its business, primarily involving claims for personal injury, contract disputes and employment claims. The Company is also involved in environmental proceedings as described in Item 1 above.
The Company had previously been notified by the United States Department of Justice that the Company was potentially responsible for environmental contamination at the San Gabriel Valley Federal Superfund site in Whittier, California. In December 1997 the Company was informed by the Justice Department that the government no longer considered the Company potentially responsible with respect to that site.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
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 25, 1998, page 28.
Dividends on the outstanding common stock totaled $.15 and $.12 per share in fiscal 1998 and 1997, respectively, and are paid semi-annually. The Company's principal credit agreements contain certain restrictions on dividends. At January 25, 1998, the Company had $27.2 million in unrestricted stockholders' equity available to pay future dividends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Information incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended January 25, 1998, page 27.
ITEM 7.
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 25, 1998, pages 9 - 12.
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; labor strikes and unemployment levels; demand and price for the Company's products and services; successfully addressing Year 2000 issues; and the outcome of pending and future litigation and environmental matters.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8.
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 25, 1998, pages 12 - 26.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information incorporated herein by reference from the Company's definitive proxy statement for its 1998 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 7, and from Item 1, "Executive Officers of the Company", in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information incorporated herein by reference from the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders under the captions "Compensation of Directors" and "Executive Compensation and Other Information", pages 8 - 13, except information under the captions "Board Compensation Committee Report on Executive Compensation" and "Total Market Return" are not incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information incorporated herein by reference from the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders under the caption "Stock Ownership of Certain Beneficial Owners and Management", pages 2 and 3.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14.
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 25, 1998).
- - Independent Auditors' Report. - - Consolidated Balance Sheets--January 25, 1998 and January 26, 1997.
- - Consolidated Statements of Earnings--Years ended January 25, 1998, January 26, 1997, and January 28, 1996. - - Consolidated Statements of Stockholders' Equity--Years ended January 25, 1998, January 26, 1997 and January 28, 1996. - - Consolidated Statements of Cash Flows--Years ended January 25, 1998, January 26, 1997 and January 28, 1996. - - 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, as amended (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 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 Report on Form 10-Q for the quarterly period ended October 27, 1996).
4(h) Amendment No. 5 to Loan and Letter of Credit Reimbursement Agreement, dated October 6, 1997, 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 Report on Form 10-Q for the quarterly period ended October 26, 1997).
4(i) 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(j) 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).
# # The Company hereby undertakes to file upon request of the Securities and Exchange Commission a copy of any agreement defining the rights of holders of long term debt not filed by virtue of Item 601(b)(4)(iii)(A) of Regulation S-K.
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).
10(e) Unitog Company 1997 Stock Option Plan (incorporated by reference to Exhibit A to registrant's definitive proxy statement for its 1997 Annual Meeting of Stockholders).
13 Information incorporated by reference from the Annual Report to Stockholders for the fiscal year ended January 25, 1998.
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.
27.1 Financial Data Schedule (Fiscal Year End 1998)
27.2 Financial Data Schedule (Restated).
27.3 Financial Data Schedule (Restated).
* 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 fourth quarter of the last fiscal year.
UNITOG COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page Reference Annual Report to Stockholders
Independent Auditor's Report 12
Financial Statements:
Consolidated Balance Sheets--January 25, 1998 and January 26, 1997 13
Consolidated Statements of Earnings-- Years Ended January 25, 1998, January 26, 1997 and January 28, 1996 14
Consolidated Statements of Stockholders' Equity--Years Ended January 25, 1998, January 26, 1997 and January 28, 1996 14
Consolidated Statements of Cash Flows-- Years Ended January 25, 1998, January 26, 1997 and January 28, 1996 15
Notes to Consolidated Financial Statements 16 - 26
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 20, 1998
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.
INDEX TO EXHIBITS