==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): MARCH 21, 2005
ANGELICA CORPORATION
(Exact name of Company as specified in its charter)
MISSOURI 1-5674 43-0905260
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
424 SOUTH WOODS MILL ROAD
CHESTERFIELD, MISSOURI 63017-3406
(Address of principal executive offices) (Zip Code)
(314) 854-3800
(Company's telephone number, including area code)
NOT APPLICABLE
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Company under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
==============================================================================
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
As previously reported on the Current Report on Form 8-K filed on
March 24, 2005, Angelica Corporation, a Missouri corporation, announced that
Angelica Textile Services, Inc., a New York corporation and wholly owned
subsidiary of the Company, consummated a stock purchase as of March 21,
2005, whereby Angelica Textile Services acquired all of the issued and
outstanding common stock and warrants of Royal Institutional Services, Inc.,
a Massachusetts corporation and The Surgi-Pack Corporation, a Massachusetts
corporation for $45 million payable in cash subject to escrow of a portion
of the purchase price at closing pending release of funds pursuant to the
terms of the escrow agreement.
This Form 8-K/A amends the Current Report on Form 8-K filed on
March 24, 2005 to include Item 9.01(a) - Financial Statements of Businesses
----------------------------------
Acquired and Item 9.01(b) - Pro Forma Financial Information. As indicated
-------- -------------------------------
in the footnotes to the pro forma financial information, certain of the
assumptions in the pro forma financial information included in this Form
8-K/A are based, in part, on the preliminary purchase price allocation
recorded for this acquisition, which is subject to change once all required
information is obtained.
(a) Financial statements of businesses acquired.
-------------------------------------------
The following combined financial statements of Royal
Institutional Services, Inc. and The Surgi-Pack
Corporation are attached hereto and are incorporated in
their entirety by reference into this Item 9.01(a):
PAGE
----
Report of Independent Auditors F-1
Combined Balance Sheet - December 31, 2004 F-2
Combined Statement of Income and Retained Earnings -
Year Ended December 31, 2004 F-4
Combined Statement of Cash Flows - Year Ended
December 31, 2004 F-5
Notes to Combined Financial Statements F-6
(b) Pro forma financial information.
-------------------------------
The following pro forma financial information is attached
hereto and is incorporated in its entirety by reference
into this Item 9.01(b):
PAGE
----
Pro Forma Consolidated Balance Sheet - January 29, 2005 F-10
Pro Forma Consolidated Statement of Income - Year Ended
January 29, 2005 F-11
(c) Exhibits. See Exhibit Index.
--------
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: June 6, 2005
ANGELICA CORPORATION
By: /s/ James W. Shaffer
--------------------------
James W. Shaffer
Vice President and
Chief Financial Officer
3
[Bannon & Company, P.C. logo] 255 PARK AVENUE o SUITE 1102
WORCESTER, MA 01609-1977
TEL (508) 752-3360
FAX (508) 752-3897
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Royal Institutional Services, Inc. and Affiliate
We have audited the accompanying combined balance sheet of Royal
Institutional Services, Inc. (an S corporation) and affiliate as of December
31, 2004 and the related combined statements of income and retained
earnings, and cash flows for the year then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of Royal
Institutional Services, Inc. and affiliate as of December 31, 2004, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United
States of America.
/s/ BANNON & COMPANY, P.C.
Worcester, Massachusetts
February 8, 2005
F-1
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
COMBINED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS
Cash $ 420,323
Accounts receivable 3,895,659
Linens in service 11,753,097
Other current assets 289,063
-----------
TOTAL CURRENT ASSETS $16,358,142
PROPERTY AND EQUIPMENT
Land -
Leasehold improvements 1,195,922
Machinery and equipment 9,110,828
Office and computer equipment 767,160
Motor vehicles 97,819
-----------
TOTAL 11,171,729
Less accumulated depreciation (5,091,993)
-----------
NET PROPERTY AND EQUIPMENT 6,079,736
-----------
OTHER ASSETS
Deposits 89,405
-----------
TOTAL ASSETS $22,527,283
===========
F-2
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
COMBINED BALANCE SHEET
DECEMBER 31, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - revolving line of credit $ 5,325,091
Note payable - short-term -
Current portion of long-term debt 1,644,088
Current portion of subordinated debt 666,667
Accounts payable and accrued liabilities 5,149,646
-----------
TOTAL CURRENT LIABILITIES $12,785,492
LONG-TERM DEBT 5,617,633
SUBORDINATED DEBT 1,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - no par value; authorized
400,000 shares, issued and outstanding
18,000 shares 2,000
Retained earnings (deficit) 3,122,158
-----------
TOTAL STOCKHOLDERS' EQUITY 3,124,158
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,527,283
===========
F-3
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2004
REVENUES $46,416,693
-----------
OPERATING EXPENSES
Production $36,399,503
General and administrative 4,976,301
Interest 750,918
Goodwill impairment charge 70,159
-----------
TOTAL OPERATING EXPENSES 42,196,881
-----------
INCOME BEFORE PROVISION FOR STATE INCOME TAXES 4,219,812
PROVISION FOR STATE INCOME TAXES 170,000
-----------
NET INCOME 4,049,812
RETAINED EARNINGS, BEGINNING OF YEAR 2,682,484
TRANSFER OF ASSETS IN HOSPITALITY RESTRUCTURING (760,974)
S CORPORATION DISTRIBUTIONS (2,849,164)
-----------
RETAINED EARNINGS, END OF YEAR $ 3,122,158
===========
F-4
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,049,812
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,047,958
Goodwill impairment charge 70,159
Changes in assets and liabilities:
Accounts receivable (169,859)
Linens in service (987,489)
Other current assets (65,137)
Other assets (89,406)
Accounts payable and accrued liabilities 442,973
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,299,011
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (4,094,774)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) revolving line of credit, net 569,818
Proceeds from short-term debt -
Repayment of short-term debt (665,000)
Proceeds from long-term debt 4,798,346
Repayment of long-term debt (1,038,540)
Repayment of subordinated debt (846,667)
S corporation distributions (2,849,164)
-----------
NET CASH USED IN (PROVIDED BY) FINANCING ACTIVITIES (31,207)
-----------
NET INCREASE IN CASH 173,030
CASH, BEGINNING OF YEAR 247,293
-----------
CASH, END OF YEAR $ 420,323
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ 748,441
===========
Income taxes $ 291,300
===========
F-5
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(1) BUSINESS RESTRUCTURING
On December 31, 2004 the stockholders of Royal Institutional
Services, Inc. and its affiliate, Surgi-Pack Corporation, (the
Company) consummated a restructuring of the business of the Company
involving the contribution by all of the stockholders of the
Company (the Stockholders) of all of the outstanding shares of
common stock of the Company to a newly formed corporation, Royal
Hospitality Services, Inc. (RHS) in exchange for shares of common
stock of RHS such that after the contribution, the Stockholders
held all of the outstanding shares of RHS, and Royal Institutional
Services, Inc. and Surgi-Pack Corporation became wholly owned
subsidiaries of RHS. In addition, the restructuring involved the
transfer of certain assets to RHS relating to the business of
providing laundry services to the hospitality industry. The net
book value of the assets transferred totaled $1,754,908. The
liabilities transferred to RHS totaled $993,934. The accompanying
balance sheet does not include the transferred assets, liabilities,
or stockholders' equity of RHS as of December 31, 2004.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
---------------------------
The combined financial statements include the accounts of
Royal Institutional Services, Inc. and its affiliate,
Surgi-Pack Corporation (the Company). All significant
intercompany transactions and balances have been
eliminated. As discussed in Note (1) the financial
statements do not include the accounts of Royal
Hospitality Services, Inc.
(b) Business Activity
-----------------
The Company provides linen rental and commercial laundry
services primarily to hospitals, other health care
institutions, and hotels.
(c) Concentration of Credit Risk
----------------------------
The Company extends credit to its customers on a regular
basis and exposure for credit losses is regularly
monitored by management. The Company has historically
incurred minimal credit losses with respect to its trade
receivables.
(d) Linens In Service
-----------------
Linens in service represent linens owned by the Company
and provided to customers as part of its linen rental
service. Linens in service are stated at depreciated cost,
not in excess of market. Depreciation is computed on a
straight line basis over an estimated useful life of three
years and is reflected in the income statement as linen
replacement cost.
(e) Depreciation
------------
Property and equipment are recorded at cost and are
depreciated over their estimated useful lives.
Depreciation has been computed using the straight-line
method for financial reporting purposes. Accelerated
methods are utilized for income tax purposes. Estimated
useful lives are as follows:
Years
-----
Leasehold improvements 10 - 20
Machinery and equipment 5 - 10
Office and computer equipment 5
Motor vehicles 5
F-6
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(f) Income Taxes
------------
Royal Institutional Services, Inc. and Surgi-Pack
Corporation, with the consent of their shareholders, have
elected to be S corporations under the Internal Revenue
Code. In lieu of corporation income taxes, the
shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income
taxes has been included in the financial statements.
The Commonwealth of Massachusetts assesses a
corporate-level tax at a rate of four and one-half percent
of state taxable income on S corporations with gross
revenues in excess of nine million dollars. During fiscal
year ended December 31, 2004 the Company's revenues
exceeded this threshold resulting in a corporate income
tax liability of approximately $170,000.
(g) Use of Estimates
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Actual results could differ from those
estimates.
(3) GOODWILL IMPAIRMENT CHARGE
During 2004 the Company recorded a non-cash goodwill impairment
charge of $70,159 based on management's evaluation of its fair
market value.
(4) REVOLVING CREDIT FACILITY AND SHORT-TERM NOTE PAYABLE
The Company has a revolving credit facility with a commercial bank
providing for a maximum borrowing of $7,500,000 subject to the
availability of collateral and maturing June 30, 2005. The debt is
cross-collateralized and cross-defaulted with the Company's other
bank debt (Note (5)) and borrowings are secured by a first position
lien on all Company assets and the personal guarantees of the
stockholders. Interest is payable monthly at prime plus 1/2%. The
agreement contains financial covenants requiring compliance with
certain ratios with respect to financial leverage, cash flow, and
maximum unfinanced capital expenditures. The Company was not in
compliance with certain of these covenants as of December 31, 2004
and had received a waiver from the bank.
F-7
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(5) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2004:
SENIOR NOTES PAYABLE:
Note payable, bank, secured by all Company
assets and personally guaranteed by the
stockholders, payable in monthly principal
installments of $100,000 plus interest at prime. $ 4,400,000
Capital lease payable re: the acquisition of
equipment with an aggregate cost up to $3,046,000.
Interest only payments required at prime until
total amount advanced. Thereafter payable in
60 monthly installments of $59,242 including
interest at 6.25%. The obligation is secured
by equipment and is guaranteed by the stockholders
and the Company's affiliate, Gold Street
Realty, LLC. 2,861,721
-----------
TOTAL SENIOR NOTES PAYABLE 7,261,721
SUBORDINATED DEBT:
Note payable, Massachusetts Capital Resource
Company (MCRC), 11%, unsecured, requiring
quarterly payments of interest only through
September 2004 with quarterly payments of
$166,667 plus interest beginning December
2004 through March 2006 with a final payment
of $833,333 due June 2006. The agreement
contains certain restrictive covenants and
financial ratio requirements for which the
Company had received a waiver at December 31,
2004. 1,666,667
-----------
TOTAL 8,928,388
Less current portion (2,310,755)
-----------
LONG-TERM DEBT $ 6,617,633
===========
Approximate aggregate maturities of long-term debt are as follows:
2005 $2,310,755
2006 2,764,272
2007 1,800,567
2008 1,439,197
2009 613,597
Thereafter -
(6) STOCK WARRANTS
In connection with the long-term financing obtained from MCRC as
described in Note (5), the Company issued stock purchase warrants
to MCRC for the purchase of 1,000 shares of the Company's common
stock for $55.55 per share and 700 shares for $61.69 per share
prior to the expiration date of June 30, 2006. The warrant
agreement contains put and call options which provide for the
payment to the warrant holders of the excess of the fair market
value of one (1) share of common stock over the exercise price
multiplied by the number of shares of common stock for which the
warrants may then be exercised.
F-8
ROYAL INSTITUTIONAL SERVICES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(7) COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(a) The Company leases certain real estate, machinery and
equipment, and motor vehicles under operating lease
agreements. Certain of the leases contain purchase options
based upon estimated fair market values at the end of the
lease terms. Aggregate rental expense under operating leases
amounted to $1,749,048 in 2004.
Approximate future minimum lease payments for the succeeding
five years under noncancellable operating leases as of
December 31, 2004 are as follows:
2005 $1,777,000
2006 1,665,000
2007 1,559,000
2008 1,581,000
2009 1,626,000
(b) The Company is subject to legal and administrative proceedings
and claims of various types which arise in the ordinary course
of its business. However, management believes that any such
claims will not materially affect the financial position or
operating results of the Company.
(c) In 2004 the Company initiated a partially self-insured health
insurance plan for the benefit of its employees. The plan has
a stop-loss feature limiting the Company's potential liability
to $25,000 annually per individual with an annual limit of
$1,035,000 in the aggregate as of December 31, 2004. The
Company's policy is to accrue amounts for claims incurred and
presented as of the balance sheet date as well as an estimated
amount for claims incurred but not yet presented for payment.
The total amount accrued as of December 31, 2004 was
approximately $65,000. Changes in assumptions for such matters
as medical costs and changes in actual experience could cause
these estimates to change in the near term.
(e) The Company's Worcester, MA plant is leased from Gold Street
Realty, LLC, a limited liability company comprised of the
stockholders of the Company. The Company has guaranteed the
mortgage on the property which obligates the Company to make
payment in the event of a default by Gold Street Realty, LLC.
As of December 31, 2004 the Company's maximum exposure to loss
as a result of the guaranty was approximately $2,527,000
representing the outstanding balance on the mortgage.
Management does not anticipate any material adverse effect on
the Company's financial condition as a result of this
contingent liability.
The Company has also entered into a 15 year lease with Gold
Street Realty, LLC for the Worcester, MA facility. Total lease
payments totaled $360,000 in 2004. The lease is classified as
an operating lease and the agreement includes a 5% annual
escalation clause.
(8) PROFIT SHARING PLAN
The Company has a qualified 401(k) profit sharing plan covering
substantially all of its full-time employees not covered by a
collective bargaining agreement. The plan also provides for annual
contributions at the discretion of the board of directors and
participation in the plan is subject to certain eligibility
requirements. Employer contributions to the plan totaled $86,608 in
2004.
F-9
PRO FORMA
CONSOLIDATED BALANCE SHEET
JANUARY 29, 2005
ANGELICA /
ANGELICA ROYAL ROYAL ROYAL
For Year Ended HISTORICAL HISTORICAL PRO FORMA PRO FORMA
(Dollars in thousands) 1/29/2005 12/31/2004 ADJUSTMENTS COMBINED
------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and short-term investments $ 926 $ 420 $ 1,346
Receivables, less reserves of $510 for Angelica 44,454 3,896 48,350
Linens in service 38,846 11,753 (7,548) (a) 43,051
Prepaid expenses and other current assets 3,817 289 4,106
Deferred income taxes 5,386 - 5,386
------------------------------------------------------------------------------------------------------------------------
Total Current Assets 93,429 16,358 (7,548) 102,239
------------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Land 7,766 - - 7,766
Buildings and leasehold improvements 58,353 1,196 (156) (a) 59,393
Machinery and equipment 126,886 9,976 (7,640) (a) 129,222
Capitalized leased equipment 830 - 830
------------------------------------------------------------------------------------------------------------------------
193,835 11,172 (7,796) 197,211
Less - accumulated depreciation 92,170 5,092 (5,092) 92,170
------------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 101,665 6,080 (2,704) 105,041
------------------------------------------------------------------------------------------------------------------------
Other:
Goodwill 31,272 - 19,308 (b) 50,580
Other acquired assets 24,860 - 19,670 (c) 44,530
Cash surrender value of life insurance 30,942 - 30,942
Deferred income taxes 2,040 - 2,040
Miscellaneous 4,745 89 4,834
------------------------------------------------------------------------------------------------------------------------
Total Other Assets 93,859 89 38,978 132,926
------------------------------------------------------------------------------------------------------------------------
Total Assets $288,953 $22,527 $28,726 $340,206
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 419 $ 2,311 $(2,311) (d) $ 419
Notes payable - 5,325 (5,325) (d) -
Accounts payable 16,865 5,150 22,015
Accrued wages and other compensation 5,145 5,145
Deferred compensation and pension liabilities 4,226 4,226
Other accrued liabilities 29,063 29,063
------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 55,718 12,785 (7,636) 60,868
------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 67,811 6,618 39,486 (d) 113,915
------------------------------------------------------------------------------------------------------------------------
Other:
Deferred compensation and pension liabilities 13,594 - 13,594
Other long-term liabilities 474 - 474
------------------------------------------------------------------------------------------------------------------------
Total Other Liabilities 14,068 - - 14,068
------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common Stock, $1 par value, authorized
20,000,000 shares, issued:
9,471,538 shares 9,472 2 (2) (e) 9,472
Capital surplus 5,336 5,336
Retained earnings 144,621 3,122 (3,122) (e) 144,621
Accumulated other comprehensive loss (1,337) (1,337)
Unamortized restricted stock (1,007) (1,007)
Common Stock in treasury, at cost: 405,304
shares (5,729) (5,729)
------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 151,356 3,124 (3,124) 151,356
------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $288,953 $22,527 $28,726 $340,206
========================================================================================================================
FOOTNOTES:
---------
(a) Adjustment to reflect the fair value of the acquired tangible assets as assessed by Angelica.
(b) Goodwill adjustment represents the amount paid in excess of the fair value of the net assets, plus any
transactional fees incurred during the acquisition process.
(c) Customer contracts valued at $13,196,000 will be amortized on a straight line basis over 15 years.
Restrictive covenants valued at $6,474,000 will be amortized on a straight line basis over 10 years.
(d) None of Royal's debt was assumed in the transaction. All Royal debt was eliminated and the debt
incurred as a result of the acquisition of Royal was added to long-term debt.
(e) Elimination of Royal's shareholders' equity due to acquisition accounted for under the purchase method.
F-10
PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR FISCAL YEAR ENDED JANUARY 29, 2005
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL
ANGELICA ROYAL ANGELICA /
YEAR ENDED YEAR ENDED ROYAL ROYAL
JANUARY DECEMBER PRO FORMA PRO FORMA
29, 2005 31, 2004 ADJUSTMENTS COMBINED
------------------------------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS:
Textile Services revenues 316,074 46,417 (1,436) (a) 361,055
Cost of textile services (267,138) (36,474) 874 (a) (303,330)
355 (b)
(947) (c)
------------------------------------------------------------------------------------------------------------------------
Gross Profit 48,936 9,943 (1,154) 57,725
Selling, general and administrative expenses (38,366) (4,902) 754 (d) (42,514)
Other operating income (expense), net 678 (70) (1,527) (e) (930)
(11) (a)
Income from operations 11,248 4,971 (1,938) 14,281
Interest expense (1,356) (751) (889) (f) (2,996)
Non-operating income, net 2,659 - - 2,659
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 12,551 4,220 (2,827) 13,944
Provision for income taxes (2,179) (170) (391) (g) (2,740)
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 10,372 4,050 (3,218) 11,204
------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 8,919 8,919
Average shares outstanding, adjusted for dilutive
effects 9,125 9,125
Basic earning per share 1.16 1.26
Diluted earnings per share 1.14 1.23
FOOTNOTES:
(a) Adjustment to eliminate any revenue or expense associated with the
hospitality portion of the Royal business. Royal operated in two
markets prior to the acquisition by Angelica: healthcare and
hospitality. The historical statements of income for the year ended
December 31, 2004 included both healthcare and hospitality business,
but only the healthcare business was acquired, so all revenue and
operating expenses associated with Royal's hospitality business have
been removed from the historical amounts in the historical statement of
income for Royal. The adjustment amount is derived from the actual
historical weekly revenue of each of Royal's hospitality customers less
the processing costs, on a cost per pound basis, of the hospitality
business.
(b) Adjustment to align the historical lives of the acquired assets to
match the lives used by Angelica. Total asset values are based on the
preliminary purchase price allocation for Royal, which was distributed
over multiple asset categories. Angelica has assigned lives to the
acquired equipment in accordance with its fixed asset policy for used
equipment and lives for the leasehold improvements equal to the
remaining life of each lease.
(c) Adjustment to align the life of all acquired linen to match the
depreciation methods used by Angelica. The preliminary purchase price
allocation assigned a one-year life to the acquired linen, which is the
typical life given to standard replacement linen for Angelica. This
amount was added to Royal's actual replacement linen purchases, which
were also reassigned a one year life.
(d) Adjustment to eliminate salaries and related fringes for associates
that were not retained upon acquisition of Royal. The historical
statement of income for Royal also includes professional fees
associated with a one-time, prior settlement entered into by Royal. A
pro forma adjustment was not made in respect of the settlement amount,
however, because the adjustment of such non-recurring charges is not
permissible under the applicable pro forma rules. This one-time
settlement and its associated fees totaled $971,000 and is included in
its entirety in the historical statement of income data for Royal.
(e) Adjustment to reflect all intangible asset amortization as it would
have occurred under Angelica's ownership using the values assigned in
the purchase price allocation. Royal had no amortization expense
associated with the customer contracts or non-competition agreements
obtained by Angelica as part of the acquisition, so the pro forma
adjustments reflect the expense of this amortization. The customer
contracts acquired in the transaction were valued at $13,196,000 and
given a life of 15 years. The non-competition agreements entered into
as part of the transaction were valued at $6,474,000 and given a life
of 10 years. The adjustments reflect the current annual amortization
for those contracts.
(f) Adjustment to record pro forma interest expense related to the
additional debt incurred for the purchase of Royal.
(g) Adjustment to record the pro forma income tax expense for the
operations of Royal for which no federal income taxes were provided in
the historical statements of income for Royal because Royal was an S
Corporation.
F-11
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Stock Purchase Agreement dated as of March 21, 2005 by and among
Angelica Textile Services, Inc., the shareholders of Royal
Hospitality Services, Inc., Royal Hospitality Services, Inc.,
Royal Institutional Services, Inc., The Surgi-Pack Corporation and
Massachusetts Capital Resource Company, filed as Exhibit 2.1 to
the Company's Form 8-K filed March 24, 2005, is incorporated
herein by this reference.
2.2 Escrow Agreement dated as of March 21, 2005 by and among Angelica
Textile Services, Inc., Royal Hospitality Services, Inc., Mark C.
Johnson, Mark S. Leibovitz and LaSalle Bank National Association,
filed as Exhibit 2.2 to the Company's Form 8-K filed March 24,
2005, is incorporated herein by this reference.
2.3 Right of First Offer and Refusal dated as of March 21, 2005 by and
between Gold Street Realty, LLC and Angelica Textile Services,
Inc., filed as Exhibit 2.3 to the Company's Form 8-K filed March
24, 2005, is incorporated herein by this reference.
2.4 Option to Purchase dated as of March 21, 2005 by and between Gold
Street Realty, LLC and Angelica Textile Services, Inc., filed as
Exhibit 2.1 to the Company's Form 8-K filed March 24, 2005, is
incorporated herein by this reference.
23.1 Consent of Bannon & Company, P.C. independent accountants for
Royal Institutional Services, Inc. and The Surgi-Pack Corporation.