U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission file number 0-439
American Locker Group Incorporated
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(Exact Name of registrant as specified in its charter)
Delaware 16-0338330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
608 Allen Street, Jamestown, New York 14701-3966
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 1-716-664-9600 Securities
registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock Par Value $1.00 Per Share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 12, 2002, the Registrant had outstanding 2,043,046 shares of
its Common Stock. The aggregate market value of the Registrant's voting stock
held by non-affiliates at this date was approximately $13,997,000, based on the
closing price per share of Common Stock on this date of $11.72 as reported on
the NASDAQ. Shares of Common Stock known by the Registrant to be beneficially
owned by directors of the Registrant and officers of the Registrant and other
persons reporting beneficial ownership of 5% or more of Common Stock pursuant to
the reporting requirements of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are not included in the computation. The
Registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the definitive Proxy Statement for the Annual Stockholders'
Meeting to be held May 14, 2002, are incorporated by reference into Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
American Locker Group Incorporated (the "Company") is engaged primarily in the
sale and rental of lockers. This includes coin, key-only, and electronically
controlled checking lockers and related locks and plastic and aluminum
centralized mail and parcel distribution lockers. The key controlled checking
lockers are sold to the recreational and transportation industries, bookstores,
military posts, law enforcement agencies, libraries and for export. The
electronically controlled lockers are sold for use as secure storage in the
business environment and the electronically controlled, coin operated lockers
are sold for use in transportation industry and other uses. The plastic and
aluminum centralized mail and parcel distribution lockers are sold to the United
States Postal Service ("USPS") and to distributors and resellers for use in
centralized mail and parcel delivery in new housing and industrial developments,
inside postal lobbies and apartment buildings and for replacement of older style
lockers in existing locations.
The Company is an engineering, assembling, manufacturing and marketing
enterprise.
The Company was incorporated on December 15, 1958, as a subsidiary of its former
publicly-owned parent. In April 1964, the Company's shares were distributed to
the stockholders of its former parent, and it became a publicly-held
corporation. From 1965 to 1989, the Company acquired and disposed of a number of
businesses including the disposition of its original voting machine business.
On July 6, 2001, the Company acquired Security Manufacturing Corporation (SMC).
SMC manufactures aluminum CBUs, which are sold to the USPS, as well as other
postal unit lockers. The Company made this acquisition to increase its product
offerings to existing customers, provide additional products to attract new
customers and to increase its share in the postal unit market.
One of the Company's subsidiaries is a party to a Manufacturing Agreement dated
October 1, 2000 with Signore, Inc., formerly a wholly owned subsidiary of the
Company, to furnish fabricating, assembly and shipping services. The Agreement,
which replaced a similar agreement dated January 1, 1990, became effective
October 1, 2000 and is for a term of three years, with options to extend the
agreement to August 31, 2007. The Agreement provides that the cost to the
Company for these services be equal to Signore's standard cost divided by 80%.
BUSINESS SEGMENT INFORMATION
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The Company, including its foreign subsidiary, is engaged in one business: sale
and rental of lockers, including coin, key-only and electronically controlled
checking lockers and locks and the sale of plastic and aluminum centralized mail
and parcel distribution lockers.
The Company has developed a range of products to support the United States
Postal Service (USPS) Centralized Delivery program. Outdoor Parcel Lockers
(OPLs) are used by the USPS for delivery of parcels. Since March 1989, the
Company has shipped over 165,000 plastic OPLs to
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the USPS. Cluster Box Units (CBUs) are used by the USPS for delivery of letters
and parcels and for the collection of outgoing mail. In November 1994, the
Company negotiated a contract to sell Type Three plastic CBUs in quantity to the
United States Postal Service. The Company, including SMC, is approved to ship
Type One, Two, Three and Four plastic CBUs, and Type Two, Three and Four
aluminum CBUs. As of March 13, 2002, plastic Cluster Box Units with aggregate
invoice prices in excess of $140 million have been shipped to the United States
Postal Service pursuant to the 1994 contract and subsequent contracts.
Components of these units are made by outside vendors and the units are
assembled by the Company's wholly-owned subsidiary, American Locker Security
Systems, Inc. (ALSSI). The units are sold directly by ALSSI to the USPS.
Aluminum CBUs are manufactured by SMC and sold directly to the USPS
The checking lockers are fabricated by Signore, Inc. and are marketed in the
United States by ALSSI. Lockers for the Canadian market are manufactured by
Signore, Inc. with locks supplied from ALSSI. Lockers are marketed in Canada by
the Canadian Locker Company, Ltd. ("Canadian Locker"), a wholly-owned
subsidiary. These sales are made outright, through salaried employees and
distributors, to customers who need storage facilities requiring a key
controlled lock system in the recreational, governmental and institutional type
industries. Canadian Locker also owns and operates coin operated lockers in air,
bus and rail terminals and retail locations in Canada. ALSSI manufactures the
lock system, which is coin or key controlled and operated, for use in lockers
sold by ALSSI and Canadian Locker. ALSSI also provides nationwide and Canadian
maintenance and repair services with respect to coin operated lockers previously
sold by ALSSI. The Company has developed a coin operated baggage cart system and
is operating the system at one major Canadian airport, one major United States
airport and has sold several cart systems for use in U.S. airports.
Additional information with respect to business segment data, including
significant customers, is disclosed in Note 13 of the financial statements
included in Item 8 of this Form 10-K.
COMPETITION
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While the Company is not aware of any reliable trade statistics, it believes
that its subsidiaries, ALSSI and Canadian Locker are the dominant suppliers of
key controlled checking lockers in the United States and Canada. However, the
Company faces more active competition from several other manufacturers of locker
products sold to the United States Postal Service and other purchasers.
RAW MATERIALS
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Present sources of supplies and raw materials incorporated into the Company's
metal, aluminum and plastic lockers and locks are generally considered to be
adequate and are currently available in the market place. The Company's supplier
of polycarbonate plastic which is used in the parcel lockers and CBUs entered
this market in March 1992 and is presently supplying this raw material which
meets strict specifications imposed by the United States Postal Service. In the
event the present supplier declines to continue to supply this material, the
Company would be required to seek an alternate source of supply.
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The Company's metal coin operated and electronic lockers are manufactured by
Signore, Inc. pursuant to the Manufacturing Agreement, except for the locks,
which are manufactured by ALSSI. The Company's aluminum CBUs and mailboxes are
manufactured and sold by the Company's subsidiary, Security Manufacturing
Corporation.
PATENTS
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The Company owns a number of patents, none of which it considers material to the
conduct of its business.
EMPLOYEES
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The Company and its subsidiaries actively employed 198 individuals on a
full-time basis as of December 31, 2001, in its businesses, 45 of whom are in
Canada. The Company considers its relations with its employees to be
satisfactory. None of the Company's employees are represented by a union.
DEPENDENCE ON MATERIAL CUSTOMER
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During 2001, 2000 and 1999, one customer, the United States Postal Service,
accounted for 63.1%, 70.9% and 74.3% of net sales, respectively. The loss of
this customer, or a reduction in its orders, could adversely affect the
Company's operations and financial results.
RESEARCH AND DEVELOPMENT
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The Company engages in research and development activities relating to new and
improved products as an incident of its normal manufacturing operations in
conjunction with the continuing operations. It expended $91,000, $93,000 and
$26,000, in 2001, 2000 and 1999, respectively, for such activity in its
continuing businesses, which does not include new product development costs.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
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Based on the information available to it, the Company believes that it is in
compliance with present federal, state and local environmental laws and
regulations.
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York, which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation, soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives,"
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$10,000,000 for "nuisance, inconveniences and disruption to plaintiffs' lives,"
$25,000,000 in punitive damages, and $15,000,000 to establish a "trust account"
for monitoring indoor air quality and other remedies." The Company believes that
its potential liability with respect to this site, if any, is not material.
Therefore, based on the information currently available, management does not
believe the outcome of this suit will have a material adverse impact on the
Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a reservation of rights.
On July 30, 2001, the Company received a letter from the New York State
Department of Environmental Conservation (the "DEC") advising the Company that
it is a potentially responsible party with respect to environmental
contamination at the site mentioned above located in Gowanda, New York, which
was sold by the Company to Gowanda Electronics Corp. prior to 1980. The letter
from the DEC states that a Remedial Investigation and Feasibility Study has been
conducted at the site and a remediation plan selected. Based on information
currently available, the Company believes that its potential liability with
respect to current action by the DEC with regard to this site will not have a
material adverse impact on the Company's operations or financial condition.
Defense of this matter has been assumed by the Company's insurance carrier,
subject to a reservation of rights.
GENERAL
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Backlog of orders is not significant in the Company's business as shipments
usually are made shortly after orders are received. The Company's sales do not
have marked seasonal variations.
EXECUTIVE OFFICERS OF THE COMPANY
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YEAR FIRST
ASSUMED
NAME AGE OFFICE HELD WITH COMPANY POSITION
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Edward F. Ruttenberg 55 Chairman of the Board and 1998
Chief Executive Officer
Roy J. Glosser 41 President, Chief Operating 1996
Officer and Treasurer
Mr. E.F. Ruttenberg has been employed in his positions since September, 1998.
Prior to that date he served as Vice Chairman of the Company. Mr. Glosser
assumed his position as President and Chief Operating Officer in May 1996 and
became Treasurer in September 1998. Prior to that date, Mr. Glosser served as
Vice President - Operations of the Company since 1995 and has been employed by
the Company since 1992 in operations and product development.
There are no arrangements or understandings pursuant to which any of the
officers were elected as officers, except for an employment contract between the
Company and Roy J. Glosser and an employment contract between the Company and
Edward F. Ruttenberg. Except as provided in
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such employment contracts, all officers hold office for one year and until their
successors are elected and qualified; provided, however, that any officer is
subject to removal with or without cause, at any time, by a vote of the majority
of the Board of Directors.
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
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ITEM 2. DESCRIPTION OF PROPERTY
The location and approximate floor space of the Company's principal plants,
warehouses and office facilities are as follows ( * indicates leased facility):
APPROXIMATE
FLOOR SPACE
LOCATION SUBSIDIARY IN SQ. FT. USE
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Jamestown, NY Principal Executive Office 37,000* Office space/
American Locker Company, Inc. Assembly and
and American Locker Security Warehouse
Systems, Inc.
Jamestown, NY American Locker Security 30,200* Assembly and
Systems, Inc. Warehouse
Pittsburgh, PA Executive Office 500* Office space
Ellicottville, NY American Locker Security 12,800 Lock manufacturing
Systems, Inc. - Lock Shop service and repair
Toronto, Canadian Locker Company, Ltd. 4,000* Coin-operated
Ontario lockers and locks
Toronto,
Ontario Canadian Locker Company, Ltd. 3,000* Warehouse
Grapevine, TX Security Manufacturing Corporation 70,000 Manufacturing
and office
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TOTAL 157,500
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The Company believes that its facilities which are of varying ages and types of
construction and the machinery and equipment utilized in such plants are in good
condition and are adequate for its presently contemplated needs. All facilities
are leased except for the Ellicottville, New York and Grapevine, Texas facility.
The leases on these properties terminate at various times from 2002 through
2007.
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ITEM 3. LEGAL PROCEEDINGS
In September 1998 and subsequent months, the Company was named as an additional
defendant in 134 cases pending in state court in Massachusetts. The plaintiffs
in each case assert that a division of the Company manufactured and furnished to
various shipyards components containing asbestos during the period from 1948 to
1972 and that injuries resulted from exposure to such products. The assets of
this division were sold by the Company in 1973. During the process of discovery
in certain of these actions, documents from sources outside the Company have
been produced which indicate that the Company appears to have been included in
the chain of title for certain wall panels which contained asbestos and which
were delivered to the Massachusetts shipyards. Defense of these cases has been
assumed by the Company's insurance carrier, subject to a reservation of rights.
As of March 13, 2002, settlement agreements have been entered in 11 cases with
funds authorized and provided by the Company's insurance carrier. Further, 52
cases originally filed in 1995, 1996, 1997 and 1998 against other defendants to
which the Company was joined as an additional defendant have been terminated as
to the Company without liability to the Company under Massachusetts procedural
rules. Therefore, the balance of unresolved cases against the Company as of
March 13, 2002 is 71 cases originally filed against other defendants in 1999
through 2001. While the Company cannot predict what the ultimate resolution of
these cases may be because the discovery proceedings on the cases are not
complete, based upon the Company's experience to date with similar cases, as
well as the assumption that insurance coverage will continue to be provided with
respect to these cases, at the present time, the Company does not believe that
the outcome of these cases will have a significant adverse impact on the
Company's operations or financial condition.
See "Item 1. Business - Compliance with Environmental Laws and Regulations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders, by means of
solicitation of proxies or otherwise, during the fourth quarter of 2001.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock (Par Value $1.00 per share) are not listed
on any exchange, but are traded on the over-the-counter market and quotations
are reported by the National Association of Security Dealers, Inc. through their
Automated Quotation System (NASDAQ) on the National Market System. The trading
symbol is ALGI. The following table shows the range of the low and high sale
prices for each of the calendar quarters indicated.
PER COMMON SHARE
MARKET PRICE
DIVIDEND
2001 HIGH LOW DECLARED
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First Quarter $ 8.125 $ 5.250 $ 0.00
Second Quarter 12.000 6.500 0.00
Third Quarter 13.500 7.000 0.00
Fourth Quarter 18.000 7.950 0.00
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Total $ 0.00
======
DIVIDEND
2000 HIGH LOW DECLARED
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First Quarter $ 8.438 $ 5.375 $ 0.00
Second Quarter 7.750 5.500 0.00
Third Quarter 6.500 4.750 0.00
Fourth Quarter 6.750 4.250 0.00
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Total $ 0.00
======
As of March 12, 2002, the Company had 1,181 security holders of record.
By agreement with its principal lender, the Company's ability to declare future
dividends is restricted. See Note 5 to the financial statements included in Item
8 of this Form 10-K.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the Company
as of, and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997. The
financial data set forth below should be read in conjunction with the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 of this Form 10-K and the
Financial Statements of the Company and the notes thereto included in Item 8 of
this Form 10-K.
2001 2000 1999 1998 1997
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Sales $39,627,216 $37,662,140 $34,950,104 $45,011,327 $29,295,533
Income before income taxes 4,939,946 4,840,632 4,395,208 7,103,364 3,454,508
Income taxes 1,879,585 1,891,419 1,771,407 2,788,822 1,342,033
Net income 3,060,361 2,949,213 2,623,801 4,314,542 2,112,475
Earnings per share - basic (2) 1.49 1.33 1.11 1.78 0.72
Earnings per share - diluted (2) 1.47 1.32 1.09 1.70 0.70
Weighted average common shares 2,053,838 2,214,406 2,363,338 2,420,078 2,909,788
outstanding - basic (2)
Weighted average common shares 2,083,484 2,230,785 2,402,108 2,542,684 3,000,128
outstanding - diluted (2)
Dividends declared 0.00 0.00 0.00 0.00 0.00
Interest expense 441,773 140,920 153,861 231,875 181,678
Depreciation and amortization expense 956,430 796,140 630,047 646,379 600,632
Expenditures for property, plant and 801,009 206,604 1,915,139 536,819 520,358
equipment
YEAR-END POSITION
Total assets 29,735,420 15,582,599 15,179,069 13,469,516 11,263,725
Long-term debt, including current portion 11,578,687 333,320 2,034,324 733,333 3,094,000
Stockholders' equity 14,553,876 11,723,825 10,107,210 9,264,056 4,919,145
Stockholders' equity per share of common 7.12 5.68 4.44 3.82 2.04
stock (1) (2)
Common shares outstanding at year-end (2) 2,043,046 2,062,540 2,277,118 2,422,772 2,405,780
Number of employees 198 144 137 135 120
(1) Based on shares outstanding at year-end.
(2) All years presented have been restated to reflect the impact of a
four-for-one stock distribution during 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the amounts reported in the
financial statements and the accompanying notes. On an on-going basis, the
Company evaluates its estimates, including those related to product returns, bad
debts, inventories, intangible assets, income taxes, pensions and other
post-retirement benefits, and contingencies and litigation. The Company bases
its estimates on experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
BAD DEBTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
INVENTORY
The Company records reserves for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
LEGAL MATTERS
The Company is subject to certain legal proceedings as discussed in Note 16 of
the consolidated financial statements. Currently the Company does not believe
that these matters will have a material impact on its financial results or
financial position. This conclusion is based primarily on the Company's
insurance coverage for these matters. It is possible, however, that future
results of operations for any particular quarter or annual period could be
materially affected by changes in assumptions or other circumstances involving
these legal matters.
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GOODWILL
As described in Note 2 to the consolidated financial statements the Company has
recorded goodwill in connection with its acquisition in 2001. Beginning in 2002,
the Company is required to analyze its goodwill for impairment issues. In
assessing impairment the Company must make assumptions regarding estimated
future cash flows and other factors to determine the fair value of the
respective net assets. If these estimates or their related assumptions change in
the future, the Company may be required to record an impairment charge for the
recorded goodwill.
RESULTS OF OPERATIONS - 2001 COMPARED TO 2000
Consolidated sales in 2001 totaled $39,627,000, a 5% increase from sales of
$37,662,000 in 2000. Income before income taxes in 2001 increased by $99,000 or
2% to $4,940,000 compared to $4,841,000 in 2000. Plastic locker sales to the
United States Postal Service (USPS) totaled $25,166,000 in 2001 compared to
$26,705,000 in 2000. Plastic Cluster Box Units (CBUs) to the United States
Postal Service (USPS) decreased 5% to $23,864,000 in 2001 from $25,226,000 in
2000. Sales of Plastic Outdoor Parcel Lockers (OPLs) were $1,302,000 in 2001
compared to $1,479,000 in 2000. The decreases in CBU sales in 2001 compared to
2000 was the result of product mix, as a lower priced CBU was introduced in mid
2001, and price reductions of 3% to 5% that became effective in April 2001 on
existing CBU models. CBUs shipped in 2001 were consistent with 2000 levels; OPL
volume decreased by approximately 13% in 2001 versus 2000, due to lower
purchases by the USPS. Revenues from the Company's other locker products,
primarily the sale and rental of metal, coin and key-only and electronically
controlled lockers, were $13,382,000 in 2001 compared to $9,871,000 in 2000, an
increase of $3,511,000. This increase of $3,511,000 consists of $3,136,000 form
the Company's new subsidiary, Security Manufacturing Corporation (SMC), which
was purchased on July 6, 2001. The remaining increase from 2000 to 2001 relates
to price increases, increased penetration in the shopping center market and a
general increase in demand across certain markets served. Revenues from the
luggage cart business for airport terminals were $1,080,000 in 2001, a decrease
of $6,000 compared to 2000 revenues of $1,086,000. This decrease is primarily
due to the growth in the first eight months of 2001 being offset by declines in
September and the fourth quarter due to lower airline passenger volume.
The Company's present contract with the USPS was awarded on April 15, 2001 and
covers all four types of CBUs and the OPL. The contract is for indefinite
quantities of CBUs and OPLs. The contract is for a two-year term and the USPS
has the option to renew for four additional two-year terms. The USPS also
awarded indefinite quantity contracts to two competitors, including SMC, which
the Company acquired on July 6, 2001; the remaining competitor produces aluminum
CBUs.
The Company believes that the long-term outlook for CBU volume remains favorable
in light of the continued USPS commitment to the CBU program and its resulting
operating cost reduction benefits. The USPS decision to discontinue the purchase
of Neighborhood Delivery and Collection Box Units (NDCBUs) in 1999 has also had
a positive impact on the CBU market. The CBU is the modernization of the NDCBU
and is an integral part of the USPS delivery cost reduction program identified
as Centralized Delivery. As previously disclosed, total CBU
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demand is influenced by a number of factors over which the Company has no
control, including but not limited to: USPS budgets, policies and financial
performance, domestic new housing starts, postal rate increases, and the weather
as these units are installed outdoors. The Company's share of the CBU market
increased in 2001, in part due to its acquisition of SMC, one of its prior
competitors. The Company believes its CBU product line, including the acquired
line of aluminum CBUs made by the Company's new subsidiary, SMC, continues to
represent the best value when all factors including price, quality of design and
construction, long-term durability and service are considered.
Consolidated cost of sales as a percentage of sales was 70.8% in 2001 compared
to 71.8% in 2000. The improvement in 2001 is due to higher margins obtained from
SMC and other non-Plastic products, and stable margins for the Plastics
products.
Selling, administrative and general expenses were $6,689,000 during 2001, an
increase of 11% from $6,040,000 in 2000. This increase of $649,000 is primarily
due to additional expenses from SMC of approximately $750,000, which offset
decreases in selling expenses from the Company's existing products. Selling,
administrative and general expenses were 17% and 16% of sales in 2001 and 2000,
respectively.
Interest income decreased by $27,000 in 2001 compared to 2000 as a result of
lower interest rates earned on cash deposits during 2001 versus 2000.
Interest expense increased in 2001 as a result of the Company incurring
$11,927,000 of new debt in connection with the acquisition of SMC and related
real estate on July 6, 2001.
RESULTS OF OPERATIONS - 2000 COMPARED TO 1999
Consolidated sales in 2000 totaled $37,662,000, an 8% increase from sales of
$34,950,000 in 1999. Income before income taxes in 2000 increased by $446,000 or
10% to $4,841,000 compared to $4,395,000 in 1999. Sales of the Company's plastic
Cluster Box Units (CBUs) and Outdoor Parcel Lockers (OPLs) to the United States
Postal Service (USPS) increased 3% to $26,705,000 in 2000 from $25,969,000 in
1999. The increase in sales of plastic postal lockers resulted from an increase
in the total number of CBUs sold to the USPS in 2000 as compared to 1999.
Revenues from the Company's other locker products, primarily the sale and rental
of metal, coin and key-only and electronically controlled lockers, increased 17%
to $9,871,000 in 2000 from $8,442,000 in 1999. This increase is due, in part, to
the new plastic coin-operated locker, which the Company introduced in April
2000, as well as increases in various other locker product lines. Revenues from
the luggage cart business for airport terminals were $1,086,000 in 2000, an
increase of $547,000 or 102% compared to 1999 revenues of $539,000. This
increase is the result of a full year of operations at the Detroit Metropolitan
Airport in 2000 versus three months in 1999.
Consolidated cost of sales as a percentage of sales remained consistent in 2000,
at 71.8% the same percentage as 1999. Operating efficiencies obtained from
higher volume were offset by price concessions on the CBUs.
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Selling, administrative and general expenses of $6,040,000 during 2000 increased
7% from $5,652,000 in 1999. This is primarily the result of higher selling
expenses in 2000 which corresponds to the 8% increase in sales from 1999 to
2000. Selling, administrative and general expenses were 16% of sales in both
2000 and 1999.
Interest income increased by $103,000 in 2000 compared to 1999 as a result of
higher cash balances during 2000 versus 1999.
Interest expense decreased in 2000 as a result of the Company paying its
$1,500,000 term loan during the third quarter of 2000.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity is reflected in the ratio of current assets to current
liabilities or current ratio and its working capital. The current ratio was 3.55
to 1 and 4.39 to 1 at December 31, 2001 and 2000, respectively. Working capital,
or the excess of current assets over current liabilities was $12,309,000 and
$10,706,000 at December 31, 2001 and 2000, respectively. The increase in working
capital resulted primarily from operations. In 2001, cash generated from
operations was $2,830,000.
The Company's policy is to maintain modern equipment and adequate capacity.
During 2001, 2000 and 1999 the Company expended $801,000, $207,000, and
$1,915,000, respectively, for capital additions. Capital expenditures in all
three years were financed principally from operations.
During 2001, the Company acquired B.L.L. Corporation, d/b/a Security
Manufacturing Corporation (SMC) and related real estate for approximately
$12,100,000, excluding cash received. This acquisition was funded with term loan
borrowings of approximately $11,000,000, a $960,000 note payable to the former
owners and $140,000 of cash. These borrowings require principal payments of
approximately $1,630,000 during 2002.
The Company expects that cash generated from operations in 2002 will be adequate
to fund the needs for working capital, capital expenditures and debt payments.
However, if necessary, the Company has a $3,000,000 revolving bank
line-of-credit available to assist in satisfying future operating cash needs.
The Company has contractual obligations at December 31, 2001, relating to
long-term debt and operating lease arrangements. The Company does not have any
significant purchase obligations or commitments at December 31, 2001. The
Company does not have any investments in joint ventures or special purpose
entities, and does not guarantee the debt of any third parties. All of the
Company's subsidiaries are 100% owned by the Company and are included in its
consolidated financial statements. Total payments under long-term debt and
operating leases are listed below:
- 15 -
LONG-TERM DEBT OPERATING LEASES TOTAL
-------------- ---------------- -----
2002 $1,630,000 $ 283,000 $ 1,913,000
2003 1,635,000 245,000 1,880,000
2004 1,641,000 146,000 1,787,000
2005 1,331,000 146,000 1,477,000
2006 3,497,000 146,000 3,643,000
2007 1,200,000 134,000 1,334,000
2008 645,000 - 645,000
The increase in 2006 long-term debt repayment is the result of a balloon payment
due on the Company's mortgage payable. The Company expects to refinance the
mortgage payable in 2006.
IMPACT OF INFLATION AND CHANGING PRICES
Although inflation has been low in recent years, it is still a factor in the
economy and the Company continues to seek ways to mitigate its impact. To the
extent permitted by competition, the Company passes increased costs on to its
customers by increasing sales prices over time. Specifically, the Company does
have the ability to modify its contract with the USPS regarding sales prices in
the event of a significant price increase for materials subject however to
competitive situations. In respect to its other products, steel, aluminum and
plastic, the Company expects that any raw material price changes would be
reflected in adjusted sales prices.
The Company intends to seek additional ways to control the administrative
overhead necessary to successfully run the business. By controlling these costs,
the Company can continue to competitively price its products with other top
quality locker manufacturers and distributors.
The Company has used the LIFO method of accounting for its inventories since
1974. This method matches current costs with current revenues and during an
inflationary period, reduces reported income but improves cash flow due to a
reduction of taxes based on income.
MARKET RISKS - FOREIGN CURRENCY AND INTEREST RATE RISKS
The Company's Canadian operation subjects the Company to foreign currency risk,
though it is not considered a significant risk since the Canadian operation's
net assets represent less than 10% of the Company's aggregate net assets at
December 31, 2001. Presently, management does not hedge its foreign currency
risk as it plans to indefinitely reinvest the Canadian net assets in the
Canadian operation.
The Company's has fixed interest rates on $5,730,000 of its long-term debt at
December 31, 2001 and variable interest rates based on three month LIBOR on
$5,850,000 of its long term debt at December 31, 2001. Based upon the Company's
outstanding long-term debt subject to variable interest rates at December 31,
2001, a 1% increase in the LIBOR rate would result in an annual increase to
interest expense of approximately $58,500.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
The Company has adopted the provision of Statement of Accounting Standards No.
142
- 16 -
Goodwill and Other Intangible Assets (SFAS 142), which prohibits the
amortization of goodwill associated with acquisitions made after June 30, 2001.
SFAS 142 also requires an impairment test on goodwill be performed at least
annually beginning in 2002. The Company will perform the impairment test during
2002, the test is expected to be based on cash flow and earnings projections,
and is not expected to result in an impairment charge. Since the Company did not
have any goodwill recorded prior to the SMC acquisition, the provision of SFAS
142 requiring companies to stop amortizing goodwill will have no impact on the
ongoing operating results of the Company or the comparability of such results
with prior periods.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, but retains its fundamental provisions for recognition and
measurement of the impairment of long-lived assets to be held and used and those
to be disposed of by sale. The Company must adopt this standard in 2002. The
Company is evaluating the effect that this standard will have on its results of
operations and financial condition.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations, and intentions are subject to
change at any time at the discretion of the Company, (ii) the Company's plans
and results of operations will be affected by the Company's ability to manage
its growth and inventory, and (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required is reported under "Impact of Inflation and Changing
Prices" and "Market Risks - Foreign Currency and Interest Rate Risk" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
- 17 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors and Stockholders
American Locker Group Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheets of American Locker
Group Incorporated and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2001. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
management of the Company. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Locker
Group Incorporated and Subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/Ernst & Young LLP
Buffalo, New York
February 20, 2002
- 18 -
American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
2001 2000
-----------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,579,034 $ 3,696,359
Accounts and notes receivable, less allowance
for doubtful accounts of $249,000 in 2001
and $324,000 in 2000 5,042,685 4,633,422
Inventories 6,813,511 4,818,348
Prepaid expenses 125,805 45,209
Deferred income taxes 570,731 668,769
-----------------------------------------
Total current assets 17,131,766 13,862,107
Property, plant and equipment:
Land 500,500 500
Buildings 3,441,616 389,959
Machinery and equipment 11,771,099 10,378,983
-----------------------------------------
15,713,215 10,769,442
Less allowance for depreciation (9,879,825) (9,048,950)
-----------------------------------------
5,833,390 1,720,492
Deferred income taxes 73,393 -
Goodwill 6,405,204 -
Other assets 291,667 -
-----------------------------------------
Total assets $29,735,420 $ 15,582,599
=========================================
- 19 -
DECEMBER 31
2001 2000
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 1,348,396 $ 1,513,203
Commissions, salaries, wages and taxes thereon 555,326 323,769
Other accrued expenses 895,274 659,852
Federal, state and foreign income taxes payable 393,781 458,825
Current portion of long-term debt 1,630,000 200,000
---------------------------------------
Total current liabilities 4,822,777 3,155,649
Long-term liabilities:
Long-term debt 9,948,687 133,320
Pension and other benefits 410,080 470,375
Deferred income taxes - 99,430
---------------------------------------
10,358,767 703,125
Stockholders' equity:
Common stock, $1 par value:
Authorized shares - 4,000,000
Issued shares - 2,504,526 in 2001, 2,511,550 in 2000
Outstanding shares - 2,043,046 in 2001,
2,062,540 in 2000 2,504,526 2,511,550
Other capital 496,708 565,331
Retained earnings 15,610,362 12,550,001
Treasury stock at cost (461,480 shares in 2001
449,010 in 2000) (3,816,533) (3,717,603)
Accumulated other comprehensive income (loss) (241,187) (185,454)
---------------------------------------
Total stockholders' equity 14,553,876 11,723,825
---------------------------------------
Total liabilities and stockholders' equity $29,735,420 $ 15,582,599
=======================================
See accompanying notes.
- 20 -
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
2001 2000 1999
--------------------------------------------------------------
Net sales $39,627,216 $ 37,662,140 $ 34,950,104
Cost of products sold 28,061,281 27,025,940 25,099,003
--------------------------------------------------------------
11,565,935 10,636,200 9,851,101
Selling, administrative and general expenses 6,688,676 6,039,584 5,652,262
--------------------------------------------------------------
4,877,259 4,596,616 4,198,839
Interest income 163,497 190,486 96,057
Other income - net 340,963 194,450 254,173
Interest expense (441,773) (140,920) (153,861)
--------------------------------------------------------------
Income before income taxes 4,939,946 4,840,632 4,395,208
Income taxes 1,879,585 1,891,419 1,771,407
--------------------------------------------------------------
Net income $ 3,060,361 $ 2,949,213 $ 2,623,801
==============================================================
Earnings per share of common stock:
Basic $1.49 $1.33 $1.11
==============================================================
Diluted $1.47 $1.32 $1.09
==============================================================
Dividends per share of common stock: $0.00 $0.00 $0.00
==============================================================
See accompanying notes.
- 21 -
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
ACCUMULATED
OTHER TOTAL
COMMON OTHER RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY
-------------------------------------------------------------------------------------------
Balance at January 1, 1999 $ 2,422,772 $ 74,867 $ 6,976,987 $ - $(210,570) $ 9,264,056
Comprehensive income:
Net income - - 2,623,801 - - 2,623,801
Other comprehensive income:
Foreign currency translation - - - - 47,735 47,735
------------
Total comprehensive income 2,671,536
Common stock issued (76,000 shares) 76,000 (21,375) - - - 54,265
Tax benefit of exercised stock options - 485,000 - - - 485,000
Common stock purchased for treasury
(221,650 shares) - - - (2,367,966) - (2,367,966)
Common stock purchased and retired
(4 shares) (4) (37) - - - (41)
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,498,767 538,455 9,600,788 (2,367,966) (162,835) 10,107,210
Comprehensive income:
Net income - - 2,949,213 - - 2,949,213
Other comprehensive income:
Foreign currency translation - - - - (22,619) (22,619)
------------
Total comprehensive income 2,926,594
Common stock issued (13,400 shares) 13,400 3,012 - - - 16,412
Tax benefit of exercised stock options - 27,000 - - - 27,000
Common stock purchased for treasury
(227,360 shares) - - - (1,349,637) - (1,349,637)
Common stock purchased and retired
(618 shares) (618) (3,136) - - - (3,754)
-------------------------------------------------------------------------------------------
Balance at December 31, 2000 2,511,550 565,331 12,550,001 (3,717,603) (185,454) 11,723,825
Comprehensive income:
Net income - - 3,060,361 - - 3,060,361
Other comprehensive income
Foreign currency transaction - - - - (55,733) (55,733)
------------
Total comprehensive income 3,004,628
Common stock purchased for treasury
(12,470 shares) - - - (98,930) - (98,930)
Common stock purchased and retired
7,024 shares) (7,024) (68,623) - - - (75,647)
-------------------------------------------------------------------------------------------
$2,504,526 $496,708 $15,610,362 $(3,816,533) $ (241,187) $ 14,553,876
===========================================================================================
See accompanying notes.
- 22 -
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
2001 2000 1999
---------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,060,361 $ 2,949,213 $ 2,623,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 956,430 796,140 630,047
Deferred income taxes (credits) (93,678) 469 69,314
Changes in assets and liabilities:
Accounts and notes receivable 281,462 (826,958) 263,872
Inventories (601,363) 154,780 1,338,862
Prepaid expenses (52,698) 80,251 25,805
Accounts payable and accrued expenses (423,235) 173,656 (493,590)
Income taxes (236,924) 436,393 451,491
Pension and other benefits (60,295) (192,511) 84,863
---------------------------------------------------
Net cash provided by operating activities 2,830,060 3,571,433 4,994,465
INVESTING ACTIVITIES
Purchase of business and related real estate, net of cash (12,084,711) - -
acquired
Purchase of property, plant and equipment (801,009) (206,604) (1,915,139)
Payment for other assets (100,000) - -
Proceeds from sale of property, plant and equipment - 87,378 -
---------------------------------------------------
Net cash used in investing activities (12,985,720) (119,226) (1,915,139)
FINANCING ACTIVITIES
Long-term debt borrowings 11,926,682 - 1,500,000
Long-term debt payments (681,315) (1,700,004) (200,000)
Common stock issued - 16,412 54,625
Common stock purchased for treasury (98,930) (1,349,637) (2,367,966)
Common stock purchased and retired (75,647) (3,754) (41)
---------------------------------------------------
Net cash provided by (used in) financing activities 11,070,790 (3,036,983) (1,013,382)
Effect of exchange rate changes on cash (32,455) (4,848) 32,032
---------------------------------------------------
Net increase in cash 882,675 410,376 2,097,976
Cash and cash equivalents at beginning of year 3,696,359 3,285,983 1,188,007
---------------------------------------------------
Cash and cash equivalents at end of year $ 4,579,034 $ 3,696,359 $ 3,285,983
===================================================
Supplemental cash flow information: Cash paid during the year for:
Interest $ 325,351 $ 151,749 $ 143,032
===================================================
Income taxes $ 2,215,000 $ 1,455,026 $ 1,250,602
===================================================
See accompanying notes.
- 23 -
Notes to Consolidated Financial Statements
American Locker Group Incorporated and Subsidiaries
December 31, 2001
1. BASIS OF PRESENTATION
CONSOLIDATION AND BUSINESS DESCRIPTION
The consolidated financial statements include the accounts of American Locker
Group Incorporated and its subsidiaries (The Company), all of which are
wholly-owned. Intercompany accounts and transactions have been eliminated in
consolidation. The Company is primarily engaged in one business, sale and rental
of lockers. This includes coin, key-only and electronically controlled checking
lockers and locks and sale of plastic and aluminum centralized mail and parcel
distribution lockers. The Company sells to customers throughout North America as
well as internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash includes currency on hand and demand deposits with financial institutions.
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued principally at the lower of cost or market, cost
determined by the last-in, first-out method (LIFO) for approximately 80% of the
Company's inventories at December 31, 2001 (100% at December 31, 2000). For the
remaining inventories, cost is determined by the first-in, first out method
(FIFO).
PROPERTIES AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed by
the straight-line and declining-balance methods for financial reporting purposes
and by accelerated methods for income tax purposes. Estimated useful lives for
financial reporting purposes are 30 years for buildings and 3 to 12 years for
machinery and equipment.
Long-lived assets, including intangible assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts
of those assets may not be recoverable. The Company uses undiscounted cash flows
to determine whether impairment exists and measures any impairment loss using
discounted cash flows.
- 24 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has adopted the provision of Statement of Accounting Standards No.
142 Goodwill and Other Intangible Assets (SFAS 142), which prohibits the
amortization of goodwill associated with acquisitions made after June 30, 2001.
The Company has recorded approximately $6,405,000 of goodwill in connection with
its acquisition of B.L.L. Corporation; d/b/a Security Manufacturing Corporation
(SMC) on July 6, 2001. SFAS 142 also requires an impairment test on goodwill be
performed at least annually beginning in 2002. The Company will perform the
impairment test during the first quarter of 2002, the test is expected to be
based on cash flow and earnings projections, and is not expected to result in an
impairment charge. Since the Company did not have any goodwill recorded prior to
the SMC acquisition, the provision of SFAS 142 requiring companies to stop
amortizing goodwill will have no impact on the ongoing operating results of the
Company or the comparability of such results with prior periods.
Other intangible assets consist of a covenant not-to-compete in connection with
the SMC acquisition. This asset is being amortized over the three-year term of
the agreement. The agreement is recorded at $291,667 at December 31, 2001 which
consists of its original value of $350,000 less $58,333 of amortization charged
to expense in 2001.
REVENUE RECOGNITION
Revenue is recognized at the point of passage of title, which is at the time of
shipment to the customer. Less than five percent of the Company's revenues were
derived from sales to distributors during 2001, 2000 and 1999. No distributor
stocks a material amount of inventory of the Company's products and no
distributor has the right to return.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are expensed as incurred and are included in
selling, administrative and general expenses in the accompanying consolidated
statements of income. These costs were approximately $276,000, $185,000 and
$190,000 during 2001, 2000 and 1999, respectively.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred $215,000,
$274,000 and $332,000 in advertising costs during 2001, 2000 and 1999,
respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109).
- 25 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company reports earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, Earnings per Share (SFAS 128). Under SFAS 128
basic earnings per share excludes any dilutive effects of stock options, whereas
diluted earnings per share assumes exercise of stock options, when dilutive,
resulting in an increase in outstanding shares.
FOREIGN CURRENCY
The assets and liabilities of the Company's Canadian subsidiary are translated
to U.S. dollars at current exchange rates. Income statement amounts are
translated using the average exchange rate for the year. The gains and losses
resulting from the changes in exchange rates from year to year have been
reported in other comprehensive income. The effect on the statements of income
of transaction gains and losses is insignificant for all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable, and accrued liabilities approximate fair value due
to the short-term maturities of these assets and liabilities. The fair value of
the Company's long-term debt has been estimated using cash flow methods and
applying current interest rates for similar term instruments in place of the
actual fixed interest rates. Based on these calculations the fair value of
long-term debt is approximately $11,730,000 and the carrying value is
$11,578,687 at December 31, 2001.
STOCK-BASED COMPENSATION
The Company accounts for stock options granted under its stock-based
compensation plan in accordance with the intrinsic value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), as allowed under Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Accordingly, no compensation cost for stock options is recognized because
the number of options granted is fixed and the exercise price of the stock
options equals the market price of the underlying stock on the date of the
grant.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency translations
and is reported in the consolidated statements of stockholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
- 26 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, but retains its fundamental provisions for recognition and
measurement of the impairment of long-lived assets to be held and used and those
to be disposed of by sale. The Company must adopt this standard in 2002. The
Company is evaluating the effect that this standard will have on its results of
operations and financial condition.
3. ACQUISITION
On July 6, 2001, the Company purchased 100% of the outstanding capital stock of
B.L.L. Corporation, d/b/a Security Manufacturing Corporation (SMC), a privately
held Texas corporation, for $9,100,000. SMC is engaged in the manufacture and
sale of postal unit lockers. The Company made this acquisition to increase its
product offerings to existing customers, provide additional products to attract
new customers and to increase its share in the postal unit market. The Company
incurred transaction related costs of approximately $210,000. Of the $9,100,000
purchase price, $8,140,000 was paid at closing and $960,000 is payable over
three years. The Company also purchased related real estate (Real Estate) from
the owners of SMC for cash consideration of $3,500,000. The purchase price of
the stock and the related real estate was funded with cash on hand, the
three-year note payable of $960,000 described above and the proceeds of
additional term loan borrowings of approximately $11,000,000. Goodwill of
approximately $6,400,000 has been recorded in connection with the acquisition.
This goodwill is not deductible for tax purposes. The operating results of SMC
have been included in the accompanying consolidated statements of income from
the July 6, 2001 acquisition date. The assets and liabilities of SMC are
included in the accompanying consolidated balance sheet at December 31, 2001.
Below is an unaudited condensed listing of the assets and liabilities of SMC and
Real Estate on the acquisition date, July 6, 2001.
(UNAUDITED)
Accounts receivable $ 706,000
Inventories 1,162,000
Other current assets 779,000
Long-lived assets 4,433,000
Current liabilities 642,000
Long-term liabilities 179,000
- 27 -
3. ACQUISITION (CONTINUED)
The following unaudited pro forma condensed statement of operations is presented
as if the acquisition of SMC and Real Estate had occurred as of January 1, 2000.
The pro forma financial information is based on the historical financial
information of the Company and SMC and the historical transactions regarding
Real Estate and should be read in conjunction with those financial statements
and notes thereto. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made. The condensed pro forma
financial information is not necessarily indicative of the financial position or
results of operations that actually would have occurred if such transactions had
been consummated on the dates described, nor does it purport to represent the
Company's results of operations for future periods.
YEARS ENDED DECEMBER 31
2001 2000
---------------------------------
(UNAUDITED)
Total sales $ 42,540,000 $ 44,510,000
Net income 3,086,000 3,329,000
Earnings per share - basic $ 1.50 $ 1.50
Earnings per share - diluted $ 1.48 $ 1.49
The above financial information does not include amortization of goodwill that
was recorded in connection with the acquisition of SMC. This is due to the
provisions of SFAS 142, which requires that existing goodwill and certain
intangible assets no longer be amortized, but tested for impairment.
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31
2001 2000
---------------------------------
Finished products $ 1,962,881 $ 986,369
Work-in-process 2,373,549 1,541,110
Raw materials 2,898,908 2,888,897
---------------------------------
7,235,338 5,416,376
Less allowance to reduce to LIFO basis (421,827) (598,028)
---------------------------------
$ 6,813,511 $ 4,818,348
=================================
- 28 -
5. DEBT
Long-term debt consists of the following:
DECEMBER 31
2001 2000
----------------------------
Bank note payable through July 6, 2008 at $225,000 quarterly plus interest
at the 3-month LIBOR rate plus 2% (4.5% at December 31,
2001) $ 5,850,000 $ -
Bank note payable through July 6, 2008 at $25,000 monthly plus
interest at 8.07% 2,000,000 -
Mortgage payable to bank through July 2006 at $26,823 monthly
including interest at 8.04% with payment for remaining balance
due August 1, 2006 2,768,687 -
Note payable in annual installments of $320,000 through July 6,
2004 plus interest at 6.50% 960,000 -
Note payable to bank, unsecured, payable through August 31, 2002
at $16,667 per month plus interest at prime plus 0.15%
- 333,320
----------------------------
Total long-term debt 11,578,687 333,320
Less current portion 1,630,000 200,000
----------------------------
Long-term portion $ 9,948,687 $ 133,320
============================
The bank notes are secured by all equipment, accounts receivable, inventories
and general intangibles. The credit agreement underlying the bank notes payable
requires compliance with certain covenants and has restrictions on the payment
of dividends. The Company was in compliance with the terms of the agreement in
connection with the notes payable at December 31, 2001.
Based upon the outstanding balances at December 31, 2001, the required principal
payments on long-term obligations for the next five years are as follows:
2002 $ 1,630,000
2003 1,634,579
2004 1,641,316
2005 1,331,438
2006 3,496,564
The Company has a $3,000,000 unsecured line of credit agreement with a bank with
interest at the prime rate (4.75% at December 31, 2001). There were no
borrowings outstanding under the line of credit at December 31, 2001.
- 29 -
6. OPERATING LEASES
The Company leases several operating facilities and vehicles under noncancelable
operating leases. Future minimum lease payments consist of the following at
December 31, 2001:
2002 $ 283,000
2003 245,000
2004 146,000
2005 146,000
2006 146,000
Rent expense amounted to approximately $296,000, $313,000 and $322,000 in 2001,
2000 and 1999, respectively.
7. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following:
2001 2000 1999
-------------------------------------------------------------
United States $ 4,845,146 $ 4,846,963 $ 4,286,818
Foreign income (loss) 94,800 (6,331) 108,390
-------------------------------------------------------------
$ 4,939,946 $ 4,840,632 $ 4,395,208
=============================================================
Significant components of the provision for income taxes are as follows:
2001 2000 1999
---------------------------------------------------------------
Current:
Federal $ 1,624,225 $ 1,601,253 $ 1,386,855
State 304,028 286,924 266,557
Foreign 45,010 2,773 48,681
---------------------------------------------------------------
Total current 1,973,263 1,890,950 1,702,093
Deferred:
Federal (79,626) 70 58,917
State (14,052) 399 10,397
---------------------------------------------------------------
(93,678) 469 69,314
---------------------------------------------------------------
$ 1,879,585 $ 1,891,419 $ 1,771,407
===============================================================
The differences between the federal statutory rate and the effective tax rate as
a percentage of income before taxes are as follows:
2001 2000 1999
-----------------------------------------------------
Statutory income tax rate 34% 34% 34%
State and foreign income taxes, net of federal benefit
4 6 5
Other permanent differences - (1) 1
-----------------------------------------------------
38% 39% 40%
=====================================================
- 30 -
7. INCOME TAXES (CONTINUED)
Differences between accounting rules and tax laws cause differences between the
bases of certain assets and liabilities for financial reporting purposes and tax
purposes. The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities. Significant
components of the Company's deferred tax assets and liabilities at December 31
are as follows:
2001 2000
--------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 125,703 $ 136,228
Prepaid expenses and other 114,904 112,937
--------------------------------------
Total deferred tax liabilities 240,607 249,165
Deferred tax assets:
Postretirement benefits 47,292 58,301
Pension costs 164,967 200,619
Allowance for doubtful accounts 99,558 93,658
Other assets 18,669 -
Accrued expenses 137,709 120,031
Other employee benefits 36,024 32,236
Inventory costs 380,512 313,659
--------------------------------------
Total deferred tax assets 884,731 818,504
--------------------------------------
Net deferred tax assets $ 644,124 $ 569,339
======================================
Current deferred tax asset $ 570,731 $ 668,769
Long-term deferred tax asset (liability) 73,393 (99,430)
--------------------------------------
$ 644,124 $ 569,339
======================================
The Company does not provide deferred taxes for amounts that could result from
the remittance of undistributed earnings of the Company's foreign subsidiary
since it is generally the Company's intention to reinvest these earnings
indefinitely. Undistributed earnings that could be subject to additional income
taxes if remitted was approximately $1,100,000 at December 31, 2001.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation; however unrecognized foreign tax credits would be available to
reduce some portion of the U.S. tax liability.
8. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and its subsidiaries have a defined benefit pension plan covering
substantially all employees. Benefits for the salaried employees are based on
specified percentages of the employees annual compensation. The benefits for
hourly employees are based on stated amounts for each year of service. The
plan's assets are invested in fixed interest rate group annuity contracts with
an insurance company.
- 31 -
8. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the changes in benefit obligation, changes in
plan assets, the funded status, the accrued benefit cost recognized in the
consolidated balance sheets at December 31, 2001 and 2000, and the net periodic
cost and assumptions.
PENSION BENEFITS
2001 2000
--------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 2,430,400 $ 2,197,716
Service cost 182,135 175,072
Interest cost 172,969 161,880
Actuarial loss (gain) 132,382 (2,313)
Benefits paid (435,810) (101,955)
--------------------------------------
Benefit obligation at end of year 2,482,076 2,430,400
CHANGE IN PLAN ASSETS
Fair value of plan assets as beginning of year 2,193,267 1,853,052
Actual return on plan assets 159,143 144,421
Employer contribution 196,806 297,749
Benefits paid (435,810) (101,955)
--------------------------------------
Fair value of plan assets at end of year 2,113,406 2,193,267
--------------------------------------
Funded status (368,670) (237,133)
Unrecognized net transition asset (104,892) (210,933)
Unrecognized net actuarial loss 392,383 271,234
Unrecognized prior service cost 1,418 1,843
--------------------------------------
Accrued benefit cost $ (79,761) $ (174,989)
======================================
PENSION BENEFITS
2001 2000
--------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 182,135 $ 175,072
Interest cost 172,969 161,880
Expected return on plan assets (149,779) (134,676)
Amortization of unrecognized net transition asset (106,041) (106,041)
Net actuarial loss 1,869 4,890
Amortization of prior service cost 425 425
--------------------------------------
Net periodic benefit cost $ 101,578 $ 101,550
======================================
PENSION BENEFITS
2001 2000
--------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate 7.25% 7.5%
Expected return on plan assets 7.0% 7.0%
Rate of compensation increase 5.5% 5.5%
- 32 -
8. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The Company also provides a life insurance benefit for retired former employees
of the Company. Effective in 2000, the Company discontinued this benefit for
active employees. The life insurance benefit is not a funded plan. The Company
pays the benefit upon the death of the retiree. The Company has fully recorded
its liability in connection with this plan. The expense recorded in connection
with these benefits was approximately $3,000 in each of the years ended December
31, 2000 and 1999 (none in 2001).
Effective January 1, 1998, the Company implemented a Supplemental Executive
Retirement Plan. The Plan provides for a monthly payment to the widow of a
former executive for the remainder of her life. Based upon actuarial
calculations, the projected liability under the plan is approximately $333,000
at December 31, 2001 and is recorded as other accrued expenses and pension and
other benefits in the consolidated balance sheets.
During 1999, the Company established a 401(k) plan for the benefit of its
full-time employees. Under the plan, employees may contribute a portion of their
salary up to IRS limits. The Company matches a portion of the employees'
contribution. The Company recorded expense of approximately $15,000, $15,000 and
$12,000 in connection with its contribution to the plan during 2001, 2000, and
1999, respectively.
9. CAPITAL STOCK
The Certificate of Incorporation, as amended, authorizes 4,000,000 shares of
common stock and 1,000,000 shares of preferred stock, 200,000 shares of which
have been designated as Series A Junior Participating Preferred Stock.
10. STOCK OPTIONS
In 1999, the Company adopted the American Locker Group Incorporated Stock
Incentive Plan, permitting the Company to provide incentive compensation of the
types commonly known as incentive stock options, stock options and stock
appreciation rights. The price of option shares or appreciation rights granted
under the plan shall not be less than the fair market value of common stock on
the date of grant, and the term of the stock option or appreciation right shall
not exceed ten years from date of grant. Upon exercise of a stock appreciation
right granted in connection with a stock option, the optionee shall surrender
the option and receive payment from the Company of an amount equal to the
difference between the option price and the fair market value of the shares
applicable to the options surrendered on the date of surrender. Such payment may
be in shares, cash or both at the discretion of the Company's Stock
Option-Executive Compensation Committee. Prior to 1999, the Company issued stock
options and stock appreciation rights under a 1988 plan. The 1988 plan expired
in 1999, as such no further options can be granted under the 1988 plan. Options
with respect to 44,000 shares remain outstanding under the 1988 plan.
- 33 -
10. STOCK OPTIONS (CONTINUED)
At December 31, 2001 and 2000, there were no stock appreciation rights
outstanding.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation (SFAS 123), and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rates of 6.5% for 2000 and 7.0% for 1999; dividend yields of 0.0 for
both years; volatility factors of the expected market price of the Company's
common stock of .69 for 2000 and .70 for 1999; and a weighted-average expected
life of the option of 5 years for both years. The per share fair value of the
options granted in 2000 and 1999 using these assumptions was $4.55 and $4.35,
respectively. No options were granted in 2001 and all previously granted options
were fully vested prior to 2001. The pro forma effect on earnings for the year
ended December 31, 2000 is as follows: net income $2,908,000; basic earnings per
share $1.31, and diluted earnings per share $1.30. The pro forma effect on
earnings for the year ended December 31, 1999 is as follows: net income
$2,456,000; basic earnings per share $1.04, and diluted earnings per share
$1.02.
The following table sets forth the activity related to the Company's stock
options for the years ended December 31:
2001 2000 1999
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------------------------------------------------------------------------
Outstanding - beginning of
year 120,600 $ 5.41 124,000 $5.11 133,000 $ 1.45
Exercised and
surrendered - - (13,400) 1.23 (76,000) .72
Granted - - 10,000 7.25 67,000 6.98
======================================================================================
Outstanding -
end of year 120,600 $ 5.41 120,600 $5.41 124,000 $5.11
======================================================================================
Exercisable - end of year
120,600 120,600 114,000
============ ========= =========
The exercise prices for options outstanding as of December 31, 2001 were as
follows: $2.813 - 44,000 shares, $6.50 - 56,600 shares $7.25 - 10,000 shares and
$8.875 - 10,000 shares. The weighted-average remaining contractual life of those
options is 5.6 years.
At December 31, 2001, 73,000 options remain available for future issuance under
the 1999 plan.
- 34 -
11. SHAREHOLDER RIGHTS PLAN
In November 1999, the Company adopted a Shareholder Rights Agreement and
declared a dividend distribution of one Right for each outstanding share of
common stock. Under certain conditions, each right may be exercised to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock at
a price of $40 (Purchase Price), subject to adjustment. The Right will be
exercisable only if a person or group (an Acquiring Person) has acquired
beneficial ownership of 20% or more of the outstanding common stock, or
following the commencement of a tender or exchange offer for 20% or more of such
outstanding common stock. The Rights Plan includes certain exceptions from the
definitions of Acquiring Person and beneficial ownership to take into account
the existing ownership of common shares by members of one family. If any person
becomes an Acquiring Person, each Right will entitle its holder to receive, upon
exercise of the Right, such number of common shares determined by (A)
multiplying the current purchase price by the number of one one-hundredths of a
preferred share for which a right is now exercisable and dividing that product
by (B) 50% of the current market price of the common shares.
In addition, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to receive, upon
exercise, that number of the acquiring Company's common shares having a market
value of twice the exercise price of the Right. The Company will be entitled to
redeem the Rights at $.01 per Right at any time prior to the earlier of the
expiration of the Rights in November 2009 or the time that a person becomes an
Acquiring Person. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the Company's earnings.
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:
2001 2000 1999
---------------------- --------------------- ------------------
Numerator:
Net income $ 3,060,361 $ 2,949,213 $ 2,623,801
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 2,053,838 2,214,406 2,363,338
Effect of dilutive securities:
Employee stock options 29,646 16,379 38,770
---------------------- --------------------- ------------------
Denominator for diluted earnings per share -
weighted average shares out- standing and assumed
conversions 2,083,484 2,230,785 2,402,108
====================== ===================== ==================
Basic earnings per share $ 1.49 $ 1.33 $ 1.11
====================== ===================== ==================
Diluted earnings per share $ 1.47 $ 1.32 $ 1.09
====================== ===================== ==================
- 35 -
13. GEOGRAPHIC AND CUSTOMER CONCENTRATION DATA
The Company is primarily engaged in one business, sale and rental of lockers.
This includes coin, key-only and electronically controlled checking lockers and
related locks and sale of plastic centralized mail and parcel distribution
lockers. The Company sells to customers in the United States, Canada and other
foreign locations. Net sales to external customers are as follows:
2001 2000 1999
-----------------------------------------------------
United States customers $ 36,742,001 $ 35,215,373 $ 32,596,075
Foreign customers 2,885,215 2,446,767 2,354,029
------------------------------------------------------
$ 39,627,216 $ 37,662,140 $ 34,950,104
======================================================
Sales to the U.S. Postal Service represented 63.1%, 70.9% and 74.3% of net sales
in 2001, 2000, and 1999, respectively.
At December 31, 2001 and 2000, the Company had secured receivables from
customers under time payment arrangements totaling $366,176 and $131,635,
respectively. At December 31, 2001 and 2000, the Company had unsecured trade
receivables from governmental agencies of $1,830,000 and $2,551,000,
respectively, and from customers considered to be distributors of $598,000 and
$374,000, respectively.
Other concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base and their dispersion across many industries. The Company generally
does not require collateral for trade accounts receivable.
- 36 -
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the years ended December 31, 2001 and 2000:
2001
-----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------------------
Net sales $ 8,116,568 $ 9,825,943 $ 11,375,429 $ 10,309,276
=======================================================================
Gross profit 2,412,343 2,791,217 3,098,955 3,263,420
=======================================================================
Net income 656,837 883,905 652,492 867,127
=======================================================================
Earnings per share - Basic .32 .43 .32 .42
=======================================================================
Earnings per share - Diluted .32 .42 .31 .42
=======================================================================
2000
-----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------------------
Net sales $ 7,859,150 $ 10,635,913 $ 8,413,176 $ 10,753,901
=======================================================================
Gross profit $ 2,315,608 $ 3,113,429 $ 2,451,977 $ 2,755,186
=======================================================================
Net income $ 522,891 $ 884,030 $ 533,648 $ 1,008,644
=======================================================================
Earnings per share - Basic $ .23 $ .39 $ .24 $ .49
=======================================================================
Earnings per share - Diluted $ .23 $ .39 $ .24 $ .48
=======================================================================
The Company's accounting practice for interim periods provides for possible
accounting adjustments in the fourth quarter or at year end. In 2001, such
adjustments resulted in increasing fourth quarter pretax income by $330,000 for
inventory costs. In 2000, such adjustments resulted in increasing fourth quarter
pretax income by $23,000 for inventory costs and $99,000 for pension costs, and
decreasing pretax income by $76,000 for accounts receivable allowances. In 1999
such adjustments resulted in decreasing fourth quarter pretax income by $216,000
for inventory costs.
Also in the forth quarter of 2000, the Company reclassified certain costs that
in the previous three quarters of 2000 had been reported as selling,
administrative and general expenses to cost of sales. The reclassification,
which had no impact on net income, was approximately $360,000.
- 37 -
15. RELATED PARTIES
The Chairman and Chief Executive Officer of the Company is a stockholder and
director of Rollform of Jamestown Inc., a rollforming company. One of the
Company's subsidiaries purchased $215,000, $152,000, and $218,000 of fabricated
parts from Rollform of Jamestown, Inc. in 2001, 2000, and 1999, respectively, at
prices that the Company believes are at arms length.
16. CONTINGENCIES
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York, which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation, soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance, inconveniences and disruption to plaintiffs'
lives," $25,000,000 in punitive damages, and $15,000,000 to establish a "trust
account" for monitoring indoor air quality and other remedies." The Company
believes that its potential liability with respect to this site, if any, is not
material. Therefore, based on the information currently available, management
does not believe the outcome of this suit will have a material adverse impact on
the Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a reservation of rights.
On July 30, 2001, the Company received a letter from the New York State
Department of Environmental Conservation (the "DEC") advising the Company that
it is a potentially responsible party with respect to environmental
contamination at the site mentioned above located in Gowanda, New York, which
was sold by the Company to Gowanda Electronics Corp. prior to 1980. The letter
from the DEC states that a Remedial Investigation and Feasibility Study has been
conducted at the site and a remediation plan selected. Based on information
currently available, the Company believes that its potential liability with
respect to current action by the DEC with regard to this site will not have a
material adverse impact on the Company's operations or financial condition.
Defense of this matter has been assumed by the Company's insurance carrier,
subject to a reservation of rights.
- 38 -
16. CONTINGENCIES (CONTINUED)
In September 1998 and subsequent months, the Company was named as an additional
defendant in 134 cases pending in state court in Massachusetts. The plaintiffs
in each case assert that a division of the Company manufactured and furnished to
various shipyards components containing asbestos during the period from 1948 to
1972 and that injuries resulted from exposure to such products. The assets of
this division were sold by the Company in 1973. During the process of discovery
in certain of these actions, documents from sources outside the Company have
been produced which indicate that the Company appears to have been included in
the chain of title for certain wall panels which contained asbestos and which
were delivered to the Massachusetts shipyards. Defense of these cases has been
assumed by the Company's insurance carrier, subject to a reservation of rights.
As of March 13, 2002, settlement agreements have been entered in 11 cases with
funds authorized and provided by the Company's insurance carrier. Further, 52
cases originally filed in 1995, 1996, 1997 and 1998 against other defendants to
which the Company was joined as an additional defendant have been terminated as
to the Company without liability to the Company under Massachusetts procedural
rules. Therefore, the balance of unresolved cases against the Company as of
March 13, 2002 is 71 cases originally filed against other defendants in 1999
through 2001. While the Company cannot predict what the ultimate resolution of
these cases may be because the discovery proceedings on the cases are not
complete, based upon the Company's experience to date with similar cases, as
well as the assumption that insurance coverage will continue to be provided with
respect to these case, at the present time, the Company does not believe that
the outcome of these cases will have a significant adverse impact on the
Company's operations or financial condition.
The Company is involved in other claims and litigation from time to time in the
normal course of business. The Company does not believe these matters will have
a significant adverse impact on the Company's operations or financial condition.
- 39 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosures during 2001 or 2000.
PART III
Item 10, 11, 12 and 13 will be contained in American Locker Group Incorporated's
Annual Proxy Statement, incorporated herein by reference, which will be filed
within 120 days after year-end.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The documents filed as part of this report are as follows:
1. Financial Statements
2. Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedules
All other consolidated financial schedules are omitted because they
are inapplicable, not required or the information is included elsewhere
in the consolidated financial statements or the notes thereto.
3. Exhibits
(a) Exhibits required by Item 601 of Regulation S-K are
submitted as a separate section herein immediately
following the "Exhibit Index".
(b) Reports on Form 8-K filed in the fourth quarter of 2001.
(i) None
- 40 -
American Locker Group Incorporated
Index to Financial Statements and Financial Statement Schedules
The financial statements together with the report of Ernst & Young LLP dated
February 20, 2002, is included in Item 8 Financial Statements and Supplementary
Data in the Annual Report on Form 10-K.
Financial Schedules for the years 2001, 2000 and 1999:
Valuation and Qualifying Accounts
- 41 -
SCHEDULE II
American Locker Group Incorporated
VALUATION AND QUALIFYING ACCOUNTS
Balance at the Charged to
Beginning of Costs and Write-offs/ Balance at
Year Description Period Expense Recoveries End of Period
- ---------------------------------------------------------------------------------------------------------------
2001 Allowance for Doubtful Accounts $324,000 $ 15,000 $(90,000) $ 249,000
2000 Allowance for Doubtful Accounts 222,000 138,000 (36,000) 324,000
1999 Allowance for Doubtful Accounts 216,000 12,000 (6,000) 222,000
- 42 -
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.
AMERICAN LOCKER GROUP INCORPORATED
/S/EDWARD F. RUTTENBERG
--------------------------------------
Edward F. Ruttenberg
Chairman and Chief Executive
Officer
/S/WAYNE L. NELSON
--------------------------------------
Wayne L. Nelson
Principal Accounting Officer and Assistant Secretary
March 21, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Edward F. Ruttenberg Chairman, Chief Executive Officer March 21, 2002
- ------------------------------ and Director
Edward F. Ruttenberg
/s/Roy J. Glosser President, Chief Operating March 21, 2002
- ------------------------------ Officer, Treasurer and Director
Roy J. Glosser
/s/Alan H. Finegold Director March 21, 2002
- ------------------------------
Alan H. Finegold
/s/Thomas Lynch, IV Director March 21, 2002
- ------------------------------
Thomas Lynch, IV
/s/James E. Ruttenberg Director March 21, 2002
- ------------------------------
James E. Ruttenberg
/s/Jeffrey C. Swoveland Director March 21, 2002
- ------------------------------
Jeffrey C. Swoveland
/s/Donald I. Dussing, Jr. Director March 21, 2002
- ------------------------------
Donald I. Dussing, Jr.
- 43 -
EXHIBIT INDEX
PRIOR FILING OR SEQUENTIAL
EXHIBIT NO. PAGE NO. HEREIN
- ----------- ---------------------------
3.1 Certificate of Incorporation of American Locker Exhibits to Form 10-K for Year
Group Incorporated ended December 31, 1980
3.2 Amendment to Certificate of Incorporation changing Form 10-C filed May 6, 1985
name of company
3.3 Amendment to Certificate of Incorporation limiting Exhibit to Form 10-K for year ended
liability of Directors and Officers December 31, 1987
3.4 By-laws of American Locker Group Incorporated as Exhibit to Form 10-K for year ended
amended and restated December 31, 1985
3.5 Certificate of Designations of Series Exhibit to Form 10-K for year ended
A Junior Participating Preferred Stock December 31, 1999
3.6 Amendment to By-laws of American Locker Group Exhibit to Form 10-K for year ended
Incorporated dated January 15, 1992 December 31, 1991
3.7 Amendment to Bylaws dated March 3, 1999 Exhibit to Form 10-K for year ended
December 31, 1998
3.8 Amendment to Bylaws dated November 19, 1999 Exhibit to Form 10-K for year ended
December 31, 1999
10.1 American Locker Group Incorporated 1988 Stock Exhibit to Form 10-K for year ended
Incentive Plan December 31, 1988
10.2 First Amendment dated March 28, 1990 to American Exhibit to Form 10-K for year ended
Locker Group Incorporated 1988 Stock Incentive December 31, 1989
Plan
10.3 Form of Indemnification Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and its directors and December 31, 1987
officers
- 44 -
10.4 Corporate Term Loan Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and Manufacturers and December 31, 1991
Traders Trust Company covering $2,400,000 loan
10.5 Approved Line of Credit from Manufacturers and Exhibit to Form 10-K for year ended
Traders Trust Company to American Locker Group December 31, 1990
Incorporated in the amount of $1,000,000
10.6 Amendment Agreement dated May 1, 1994 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1994
American Locker Group Incorporated [Increase in
Term Loan to $1,850,000]
10.7 Amendment Agreement dated March 12, 1996 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1995
American Locker Group Incorporated [Increase in
Term Loan to $1,800,000]
10.8 Employment Agreement between American Locker Group Exhibit to Form 10-GSB for quarter
Incorporated and Roy J. Glosser ended June 30, 1996
10.8 Amendment dated as of March 3, 1999 to Employment Exhibit to Form 10-KSB for year
Agreement between American Locker Group ended December 31, 1998
Incorporated and Roy J. Glosser
10.9 Manufacturing Agreement dated as of October 1, Exhibit to Form 10-K for year ended
2000 between American Locker Security Systems Inc. December 31, 2000
and Signore, Inc.
10.14 Contract dated March 27, 1996 between the U.S. Exhibit to Form 10-QSB for the
Postal Service and American Locker Security quarter ended March 31, 1996
Systems, Inc.
10.15 Modification #MO3 to USPS Contract Exhibits to Form 10-QSB for the
#072368-96-B-0741 dated April 16, 1997 quarter ended March 31, 1997
10.18 Amendment dated August 22, 1997 to Corporate Term Exhibit to Form 10-QSB for the
Loan Agreement dated August 30, 1991 between quarter ended September 30, 1997
American Locker Group Incorporated and
Manufacturers and Traders Trust Company
- 45 -
10.19 Modification M05 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 9, 1997, which quarter ended September 30, 1997
replaces steel pedestals with aluminum pedestals
for American Locker Outdoor Parcel Lockers
10.20 Modification M06 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 23, 1997 quarter ended September 30, 1997
regarding prices and minimum quantities through
April 14, 1998
10.20 Modification M07 to USPS Contract Exhibit to Form 10-QSB for quarter
#072368-96-B-0741, dated April 14, 1998 regarding ended March 31, 1998
prices and minimum quantities
10.21 Modification #M010 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated May 6, 1999 quarter ended March 31, 1999
10.23 American Locker Group Incorporated 1999 Stock Exhibit to Form 10-QSB for the
Incentive Plan quarter ended June 30, 1999
10.24 Amendment dated June 9, 1999 between American Exhibit to Form 10-QSB for the
Locker Group Incorporated and Manufacturers and quarter ended June 30, 1999
Traders Trust Company
10.25 Rights Agreement dated November 19, 1999 between Exhibit to Form 8-K dated November
American Locker Group Incorporated and Chase 18, 1999
Mellon Shareholder Services LLC
10.26 Form of American Locker Group Incorporated Exhibit to Form 10-QSB for year
Supplemental Executive Retirement Benefit Plan ending December 31, 1998
10.27 Employment Agreement dated November 19, 1999 Exhibit to Form 10-K for year ended
between American Locker Group Incorporated and December 31, 1999
Edward F. Ruttenberg
10.28 Form of Option Agreement under 1999 Stock Exhibit to Form 10-K for year ended
Incentive Plan December 31, 1999
10.29 Promissory Note dated July 6, 2001 made by Exhibit to Form 8-K filed July 12,
American Locker Group Incorporated in favor of 2001
Janie D'Addio
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10.30 Amendment Agreement dated as of July 5, 2001 Exhibit to Form 8-K filed July 12,
between American Locker Group Incorporated and 2001
Manufacturers and Traders Trust Company
10.31 Deed of Trust Note dated as of July 5, 2001 made Exhibit to Form 8-K filed July 12,
by ALTRECO, Incorporated in favor of M&T Real 2001
Estate, Inc.
22.1 List of Subsidiaries Page ____
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Exhibit 22.1 List of Subsidiaries
The following companies are subsidiaries of the Company and are included in the
consolidated financial statements of the Company:
Percentage of Voting
NAME JURISDICTION OF ORGANIZATION SECURITIES OWNED
- ---- ---------------------------- ---------------------
American Locker Security Systems, Inc. Delaware 100%
American Locker Company, Inc. Delaware 100%
American Locker Company of Canada, Ltd. Dominion of Canada 100% (1)
Canadian Locker Company, Ltd. Dominion of Canada 100% (2)
American Locker Security Systems International Virgin Islands 100% (1)
Security Manufacturing Corporation Delaware 100%(1)
B.L.L. Corporation Texas 100%(1)
ALTRECO, Incorporated Delaware 100%(1)
(1) Owned by American Locker Security Systems, Inc.
(2) Owned by American Locker Company of Canada, Ltd.
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