10-K 1 0001.txt FORM 10-K 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, 2000 [ ] 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 -------------------------------------------------------------------------------- (Exact Name of registrant as specified in its charter) Delaware 16-0338330 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 608 Allen Street, Jamestown, New York 14701-3966 -------------------------------------------------------------------------------- (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 --------------------------------- ------------------------------------------ Securities registered under Section 12(g) of the Exchange Act: Common Stock Par Value $1.00 Per Share -------------------------------------------------------------------------------- (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 16, 2001, the Registrant had outstanding 2,062,440 shares of its Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates at this date was approximately $8,212,456, based on the closing price per share of Common Stock on this date of $6.625 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 15, 2001, are incorporated by reference into Part III. 2 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 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 centralized mail and parcel distribution lockers are sold to the United States Postal Service ("USPS") for use in centralized mail and parcel delivery in new housing and industrial developments, as well as replacement of older style lockers in existing locations. The Company is an engineering, assembling and marketing enterprise which also manufactures its own mechanical locks for use in its products. 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. 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 ---------------------------- 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 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 160,000 OPLs to 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 CBUs in quantity to the United States Postal Service. Type One and Type Two CBUs are approved and included in the current contract. As of March 16, 2001, Cluster Box Units with aggregate invoice prices in excess of $120,000,000 have been shipped to the United States Postal Service pursuant to the 1994 contract and subsequent contracts. Components of 3 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 United States Postal Service. 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 12 of the financial statements included in Item 8 of this Form 10-K. COMPETITION ----------- 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 ------------- Present sources of supplies and raw materials incorporated into the Company's metal 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. The Company's metal lockers are manufactured by Signore, Inc. pursuant to the Manufacturing Agreement, except for the locks which are manufactured by ALSSI. PATENTS ------- The Company owns a number of patents, none of which it considers material to the conduct of its business. 4 EMPLOYEES --------- The Company and its subsidiaries actively employed 144 individuals on a full-time basis as of December 31, 2000, in its businesses of whom 52 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 ------------------------------- During 2000, 1999 and 1998, one customer, the United States Postal Service, accounted for 70.9%, 74.3%, and 76.9% 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 ------------------------ 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 $92,848, $26,403, and $17,081, in 2000, 1999 and 1998, respectively, for such activity in its continuing businesses, which does not include new product development costs. COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS -------------------------------------------------- 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," $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 diminimus. Therefore, based on the information currently available, management does not believe the outcome of this suit will have a substantial 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 customary reservation of rights. 5 GENERAL ------- 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 --------------------------------- YEAR FIRST ASSUMED NAME AGE OFFICE HELD WITH COMPANY POSITION -------------------------------------------------------------------------------- Edward F. Ruttenberg 54 Chairman of the Board and 1998 Chief Executive Officer Roy J. Glosser 40 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 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. 6 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. PRODUCTS -------- --------- ----------- -------- 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 ------- TOTAL 87,500 =======
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 facility. The leases on these properties terminate at various times from 2001 through 2005. 7 ITEM 3. LEGAL PROCEEDINGS In September 1998 and subsequent months, the Company was named as an additional defendant in 110 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 customary reservation of rights. As of March 13, 2001, settlement agreements have been entered in 6 cases with funds authorized and provided by the Company's insurance carrier. Further, 32 cases originally filed in 1995, 1996 and 1997 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 March 13, 2001 is 72 cases originally filed against other defendants in 1998 through 2001. 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 2000. 8 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 1999 HIGH LOW DECLARED -------------------------------------------------------------------------------- First Quarter $26.00 $13.25 $0.00 Second Quarter 14.25 6.375 0.00 Third Quarter 9.62 5.25 0.00 Fourth Quarter 8.75 5.125 0.00 ----- Total $0.00 ===== DIVIDEND 2000 HIGH LOW DECLARED -------------------------------------------------------------------------------- First Quarter $8.438 $5.375 $0.00 Second Quarter 7.75 5.50 0.00 Third Quarter 6.50 4.75 0.00 Fourth Quarter 6.75 4.25 0.00 ----- Total $0.00 ===== As of March 16, 2001, the Company had 1,307 security holders of record. By agreement with its principal lender, the Company's ability to declare future dividends is restricted. See Note 4 to the financial statements included in Item 8 of this Form 10-K. 9 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, 2000, 1999, 1998, 1997 and 1996. 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.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Sales $37,662,140 $34,950,104 $45,011,327 $29,295,533 $22,517,589 Income before income taxes 4,840,632 4,395,208 7,103,364 3,454,508 1,819,184 Income taxes 1,891,419 1,771,407 2,788,822 1,342,033 674,352 Net income 2,949,213 2,623,801 4,314,542 2,112,475 1,144,832 Earnings per share - basic (2) 1.33 1.11 1.78 0.72 0.35 Earnings per share - diluted (2) 1.32 1.09 1.70 0.70 0.35 Weighted average common shares outstanding - basic (2) 2,214,406 2,363,338 2,420,078 2,909,788 3,232,408 Weighted average common shares outstanding - diluted (2) 2,230,785 2,402,108 2,542,684 3,000,128 3,307,876 Dividends declared 0.00 0.00 0.00 0.00 0.00 Interest expense 140,920 153,861 231,875 181,678 208,827 Depreciation expense 796,140 630,047 646,379 600,632 622,392 Expenditures for property, plant and 206,604 1,915,139 536,819 520,358 234,621 equipment YEAR-END POSITION Total assets 15,582,599 15,179,069 13,469,516 11,263,725 10,020,078 Long-term debt, including current portion 333,320 2,034,324 733,333 3,094,000 1,300,000 Stockholders' equity 11,723,825 10,107,210 9,264,056 4,919,145 5,358,147 Stockholders' equity per share of common 5.68 4.44 3.82 2.04 1.67 stock (1) (2) Common shares outstanding at year-end (2) 2,062,540 2,277,118 2,422,772 2,405,780 3,200,096 Number of employees 144 137 135 120 134 (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.
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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) to the United States Postal Service (USPS) increased 3% to $26,705,000 in 2000 from $25,969,000 in 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. 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. 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. The Company's present contract with the USPS covers all three types of CBUs and the Outdoor Parcel Locker (OPL). The contract was originally awarded March 27, 1996 and the USPS has exercised four one-year options, which extended the contract to mid-April 2001. The Company has submitted a proposal and is currently negotiating with the USPS for a two year contract with four, two-year options to renew. 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 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 slightly in 2000. The Company believes its CBU product line continues to represent the best value when all factors including price, quality of design and construction, long-term durability and service are considered. The increase in the revenue from the Company's other locker products is, in part due to the new plastic coin-operated locker, which the Company introduced in April 2000, as well as increases in various other locker product lines. 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. 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 11 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. RESULTS OF OPERATIONS - 1999 COMPARED TO 1998 Consolidated sales in 1999 totaled $34,950,000, a 22% decrease from sales of $45,011,000 in 1998. Income before income taxes in 1999 declined 38% to $4,395,000 compared to $7,103,000 in 1998. Sales of the Company's plastic Cluster Box Units (CBUs) to the United States Postal Service (USPS) decreased 23% to $25,969,000 in 1999 from $33,611,000 in 1998. Revenues from the Company's other locker products, primarily the sale and rental of metal, coin and key- only and electronically controlled lockers, decreased 23% to $8,442,000 in 1999 from $11,038,000 in 1998. During 1999, the Company expanded its luggage cart business for airport terminals by commencing service at the Detroit Metropolitan Airport. The luggage cart business generated revenue of approximately $539,000 in 1999 compared to $362,000 in 1998. The decline in sales of plastic lockers resulted from a decline in the total number of CBUs sold to the USPS in 1999 as compared to 1998 and also to lower selling prices per unit. As a result of the USPS accumulation of CBU inventories in 1998 and the USPS operating losses associated with deferring a postal rate increase, the USPS purchased fewer CBUs in 1999. Sales of the Company's other locker products decreased due to a general decrease in demand across all markets served by the Company as well as increased competition. Consolidated cost of sales as a percentage of sales increased to 71.8% in 1999 compared to 70.0% in 1998. The increase was the result of the lower unit sales of the Company's products, primarily the CBUs, as well as CBU price concessions. Selling, administrative and general expenses of $5,652,000 during 1999 decreased 14% from $6,608,000 in 1998. The decrease is primarily the result of two unusual 1998 expenses. In 1998, Roy J. Glosser, President and Chief Operating Officer was granted and exercised stock appreciation rights which resulted in $327,000 of additional compensation expense. The Company also expensed $400,000 to provide for the entire obligation under the supplemental executive retirement program (SERP) as a result of the death of the former chairman and chief executive officer of the Company. The remaining decrease in 1999 compared to 1998 is due to lower selling expenses as a result of the decrease in sales volume. Interest expense decreased to $154,000 in 1999 from $232,000 in 1998. The decrease in 1999 is due to lower average outstanding debt during 1999 as compared to 1998. The increase in long-term debt at December 31, 1999 compared to December 31, 1998 is due to the Company entering into a term loan during June 1999, which increased long-term debt by $1,500,000. 12 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 4.39 to 1 and 4.68 to 1 at December 31, 2000 and 1999, respectively. Working capital, or the excess of current assets over current liabilities was $10,706,000 and $9,973,000 at December 31, 2000 and 1999, respectively. The increase in working capital resulted primarily from operations. In 2000, the Company's operations generated $3,571,000 of cash. The Company's policy is to maintain modern equipment and adequate capacity. During 2000, 1999, and 1998, the Company expended $207,000, $1,915,000, and $537,000, respectively, for capital additions. Capital expenditures in all three years were financed principally from operations. The Company expects that cash generated from operations in 2001 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. 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, both steel and plastic, the Company expects that any raw material price changes would be reflected in adjusted sales prices. The Company intends to seek 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 asset position at December 31, 2000. Presently, management does not hedge its foreign currency risk as it plans to indefinitely reinvest the Canadian net assets in the Canadian operation. 13 The interest rate on the Company's long-term debt is based upon the prime interest rate; accordingly the Company is exposed to interest rate risk, though the low outstanding debt balance of $333,000 mitigates this risk at December 31, 2000. Based upon the Company's outstanding long-term debt at December 31, 2000, a 1% increase in interest rates would result in an increase to interest expenses of approximately $3,000. EFFECT OF NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (a fair value hedge), (2) a hedge of the exposure to variable cash flows of a forecasted transaction (a cash flow hedge), or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation (a foreign currency hedge), will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. This new standard must be adopted for year 2001 financial reporting. At this time, management does not believe that the pronouncement will impact the Company's financial statements. 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. 14 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, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, 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 21, 2001 15 American Locker Group Incorporated and Subsidiaries Consolidated Balance Sheets
DECEMBER 31 2000 1999 ----------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,696,359 $ 3,285,983 Accounts and notes receivable, less allowance for doubtful accounts of $324,000 in 2000 and $222,000 in 1999 4,633,422 3,814,185 Inventories 4,818,348 4,973,269 Prepaid expenses 45,209 125,581 Deferred income taxes 668,769 481,163 ----------------------------------------- Total current assets 13,862,107 12,680,181 Property, plant and equipment: Land 500 500 Buildings 389,959 390,953 Machinery and equipment 10,378,983 10,309,324 ----------------------------------------- 10,769,442 10,700,777 Less allowance for depreciation (9,048,950) (8,290,534) ----------------------------------------- 1,720,492 2,410,243 Deferred income taxes - 88,645 ----------------------------------------- ----------------------------------------- Total assets $15,582,599 $ 15,179,069 =========================================
16
DECEMBER 31 2000 1999 --------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,513,203 $ 1,410,948 Commissions, salaries, wages and taxes thereon 323,769 311,172 Other accrued expenses 659,852 610,947 Federal, state and foreign income taxes payable 458,825 49,432 Current portion of long-term debt 200,000 325,000 --------------------------------------- Total current liabilities 3,155,649 2,707,499 Long-term liabilities: Long-term debt 133,320 1,708,324 Pension and other benefits 470,375 656,036 Deferred income taxes 99,430 - --------------------------------------- 703,125 2,364,360 Stockholders' equity: Common stock, $1 par value: Authorized shares - 4,000,000 Issued shares - 2,511,550 in 2000, 2,498,768 in 1999 Outstanding shares - 2,062,540 in 2000, 2,277,118 in 1999 2,511,550 2,498,768 Other capital 565,331 538,455 Retained earnings 12,550,001 9,600,788 Treasury stock at cost (449,010 shares in 2000 221,650 in 1999) (3,717,603) (2,367,966) Accumulated other comprehensive income (185,454) (162,835) --------------------------------------- Total stockholders' equity 11,723,825 10,107,210 --------------------------------------- Total liabilities and stockholders' equity $15,582,599 $ 15,179,069 ======================================= See accompanying notes.
17 American Locker Group Incorporated and Subsidiaries Consolidated Statements of Income
YEAR ENDED DECEMBER 31 2000 1999 1998 -------------------------------------------------------------- Net sales $ 37,662,140 $ 34,950,104 $ 45,011,327 Cost of products sold 27,025,940 25,099,003 31,493,280 -------------------------------------------------------------- 10,636,200 9,851,101 13,518,047 Selling, administrative and general expenses 6,039,584 5,652,262 6,608,376 -------------------------------------------------------------- 4,596,616 4,198,839 6,909,671 Interest income 190,486 96,057 102,826 Other income - net 194,450 254,173 322,742 Interest expense (140,920) (153,861) (231,875) -------------------------------------------------------------- Income before income taxes 4,840,632 4,395,208 7,103,364 Income taxes 1,891,419 1,771,407 2,788,822 -------------------------------------------------------------- Net income $ 2,949,213 $ 2,623,801 $ 4,314,542 ============================================================== Earnings per share of common stock: Basic $1.33 $1.11 $1.78 ============================================================== ============================================================== Diluted $1.32 $1.09 $1.70 ============================================================== Dividends per share of common stock: $0.00 $0.00 $0.00 ============================================================== See accompanying notes.
18 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 Equity ------------------------------------------------------------------------------------------ Balance at January 1, 1998 $ 2,405,780 $ - $ 2,662,445 $ - $ (149,080) $ 4,919,145 Comprehensive income: Net income - - 4,314,542 - - 4,314,542 Other comprehensive income: Foreign currency translation - - - - (61,490) (61,490) ---------------- Total comprehensive income 4,253,052 Common stock issued (17,000 shares) 17,000 8,063 - - - 25,063 Tax benefit of exercised stock options - 66,894 - - - 66,894 Common stock purchased and retired (8 shares) (8) (90) - - - (98) --------------------------------------------------------------------------------------- Balance at December 31, 1998 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) - - - 54,625 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 2,498,768 538,455 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 ======================================================================================== See accompanying notes.
19 American Locker Group Incorporated and Subsidiaries Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 2000 1999 1998 --------------------------------------------------- OPERATING ACTIVITIES Net income $ 2,949,213 $ 2,623,801 $ 4,314,542 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 796,140 630,047 646,379 Loss on disposition of property, plant and equipment - - 1,265 Deferred income taxes (credits) 469 69,314 (57,139) Changes in assets and liabilities: Accounts and notes receivable (826,958) 263,872 438,478 Inventories 154,780 1,338,862 (2,675,794) Prepaid expenses 80,251 25,805 (62,058) Accounts payable and accrued expenses 173,656 (493,590) 687,462 Income taxes 436,393 451,491 182,350 Pension and other benefits (192,511) 84,863 311,613 --------------------------------------------------- Net cash provided by operating activities 3,571,433 4,994,465 3,787,098 INVESTING ACTIVITIES Purchase of property, plant and equipment (206,604) (1,915,139) (536,819) Proceeds from sale of property, plant and equipment 87,378 - 9,426 --------------------------------------------------- Net cash used in investing activities (119,226) (1,915,139) (527,393) FINANCING ACTIVITIES Net repayment under line of credit - - (850,000) Long-term debt borrowings - 1,500,000 - Long-term debt payments (1,700,004) (200,000) (2,360,667) Common stock issued 16,412 54,625 25,063 Common stock purchased for treasury (1,349,637) (2,367,966) - Common stock purchased and retired (3,754) (41) (98) --------------------------------------------------- Net cash used in financing activities (3,036,983) (1,013,382) (3,185,702) Effect of exchange rate changes on cash (4,848) 32,032 (40,041) --------------------------------------------------- Net increase in cash 410,376 2,097,976 33,962 Cash and cash equivalents at beginning of year 3,285,983 1,188,007 1,154,045 --------------------------------------------------- Cash and cash equivalents at end of year $ 3,696,359 $ 3,285,983 $ 1,188,007 =================================================== Supplemental cash flow information: Cash paid during the year for: Interest $ 151,749 $ 143,032 $ 240,600 =================================================== Income taxes $ 1,455,026 $ 1,250,602 $ 2,665,587 =================================================== See accompanying notes.
20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN LOCKER GROUP INCORPORATED AND SUBSIDIARIES 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 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. 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. REVENUE RECOGNITION Revenue is recognized at the point of passage of title, which is at the time of shipment to the customer. Less than three percent of the Company's revenues were derived from sales to distributors. No distributor stocks a material inventory of the Company's products and no distributor has the right to return. 21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 $185,000, $190,000 and $235,000 during 2000, 1999 and 1998, respectively. ADVERTISING EXPENSE The cost of advertising is expensed as incurred. The Company incurred $274,000, $332,000 and $310,000 in advertising costs during 2000, 1999 and 1998, 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"). 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 foreign 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 carrying amounts of the Company's bank borrowings also approximate fair value since the interest rates are adjusted based upon changes in the prime interest rate. 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 22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. EFFECT OF NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize as either assets or liabilities in the balance sheets and measure those instruments at fair value. The intended use of the derivative and its designation as either (1) a hedge of the exposure to change in the fair value of a recognized asset or liability or a firm commitment (a fair value hedge), (2) a hedge of the exposure to variable cash flows of a forecasted transaction (a cash flow hedge), or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation (a foreign currency hedge), will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. This new standard must be adopted for year 2001 financial reporting. Management has determined that it does not have current transactions that would require reporting under SFAS 133. 3. INVENTORIES Inventories consist of the following: DECEMBER 31 2000 1999 --------------------------------------- Finished products $ 986,369 $1,363,889 Work-in-process 1,541,110 1,856,704 Raw materials 2,888,897 2,373,527 --------------------------------------- 5,416,376 5,594,120 Less allowance to reduce to LIFO basis (598,028) (620,851) --------------------------------------- Net inventories $ 4,818,348 $4,973,269 ======================================= 23 4. DEBT Long-term debt consists of the following:
DECEMBER 31 2000 1999 --------------------------------------- Note payable to bank, unsecured, payable through August 31, 2002 at $16,667 per month plus interest at prime plus 0.15% $ 333,320 $ 533,324 Note payable to bank, unsecured, with interest at prime - 1,500,000 --------------------------------------- Total long-term debt 333,320 2,033,324 Less current portion 200,000 325,000 --------------------------------------- Long-term portion $ 133,320 $1,708,324 =======================================
The credit agreement underlying the notes payable to bank 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, 2000. Based upon the outstanding balances at December 31, 2000, the required principal payments on long-term obligations in each of the years through final maturity are as follows: 2001 $ 200,000 2002 133,320 The Company has a $3,000,000 unsecured line of credit agreement with a bank with interest at the prime rate (9.5% at December 31, 2000). There were no borrowings outstanding under the line of credit at December 31, 2000. 5. 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, 2000: 2001 $ 298,000 2002 203,000 ----------- $ 501,000 =========== Rent expense amounted to approximately $313,000, $322,000 and $252,000 in 2000, 1999 and 1998, respectively. 24 6. INCOME TAXES For financial reporting purposes, income before income taxes includes the following components: 2000 1999 1998 ------------------------------------------------------- United States $ 4,846,963 $ 4,286,818 $ 7,055,116 Foreign income (loss) (6,331) 108,390 48,248 ------------------------------------------------------- $ 4,840,632 $ 4,395,208 $ 7,103,364 ======================================================= Significant components of the provision for income taxes are as follows: 2000 1999 1998 ------------------------------------------------------- Current: Federal $ 1,601,253 $ 1,386,855 $ 2,431,459 State 286,924 266,557 390,548 Foreign 2,773 48,681 23,954 ------------------------------------------------------- Total current 1,890,950 1,702,093 2,845,961 Deferred: Federal 70 58,917 (48,569) State 399 10,397 (8,570) ------------------------------------------------------- 469 69,314 (57,139) ------------------------------------------------------- $ 1,891,419 $ 1,771,407 $ 2,788,822 ======================================================= The differences between the federal statutory rate and the effective tax rate as a percentage of income before taxes are as follows: 2000 1999 1998 ---------------------------------------- Statutory income tax rate 34% 34% 34% State and foreign income taxes 6 5 4 Other permanent differences (1) 1 1 ---------------------------------------- 39% 40% 39% ======================================== 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: 2000 1999 ------------------------------------ Deferred tax liabilities: Property, plant and equipment $ 136,228 $ 220,796 Prepaid expenses and other 112,937 85,005 ------------------------------------ Total deferred tax liabilities 249,165 305,801 25 6. INCOME TAXES (CONTINUED) Deferred tax assets: Postretirement benefits 58,301 58,301 Pension costs 200,619 289,663 Allowance for doubtful accounts 93,658 46,283 Accrued expenses 120,031 110,476 Other employee benefits 32,236 28,608 Inventory costs 313,659 342,278 ------------------------------------ Total deferred tax assets 818,504 875,609 ------------------------------------ Net deferred tax assets $ 569,339 $ 569,808 ==================================== Current deferred tax asset $ 668,769 $ 481,163 Long-term deferred tax (liability) asset (99,430) 88,645 ----------------------------------- $ 569,339 $ 569,808 =================================== 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 $1,000,000 at December 31, 2000. If such dividends were to be remitted, foreign tax credits available under present law would reduce the amount of U.S. taxes payable. 7. 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. 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, 2000 and 1999, and the net periodic cost and assumptions. PENSION BENEFITS 2000 1999 ----------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 2,197,716 $ 2,123,786 Service cost 175,072 177,064 Interest cost 161,880 147,538 Actuarial gain (2,313) (151,581) Benefits paid (101,955) (99,091) ----------------------------------- Benefit obligation at end of year 2,430,400 2,197,716 ----------------------------------- 26 7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 1,853,052 1,825,209 Actual return on plan assets 144,421 126,914 Employer contribution 297,749 - Benefits paid (101,955) (99,091) --------------------------------- Fair value of plan assets at end of year 2,193,267 1,853,052 --------------------------------- Funded status (237,133) (344,664) Unrecognized net transition asset (210,933) (316,974) Unrecognized net actuarial loss 271,234 288,202 Unrecognized prior service cost 1,843 2,268 --------------------------------- Accrued benefit cost $ (174,989) $ (371,168) ================================= PENSION BENEFITS 2000 1999 --------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 175,072 $ 177,064 Interest cost 161,880 147,538 Expected return on plan assets (134,676) (124,677) Amortization of unrecognized net transition asset (106,041) (106,041) Net actuarial loss 4,890 15,645 Amortization of prior service cost 425 425 --------------------------------- Net periodic benefit cost $ 101,550 $ 109,954 ================================= PENSION BENEFITS 2000 1999 --------------------------------- WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.5% 7.50% Expected return on plan assets 7.0% 7.00% Rate of compensation increase 5.5% 5.50% 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 27 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. 7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) Effective January 1, 1998, the Company implemented a Supplemental Executive Retirement Plan. During 1998, the Company recorded an expense of approximately $400,000 in accordance with the plan provisions, as a result of the death of the Company's chief executive officer. The Plan provides for monthly payments to the former executive's widow for the remainder of her life. Based upon actuarial calculations, the projected liability under the plan is approximately $352,000 at December 31, 2000 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 and $12,000 in connection with its contribution to the plan during 2000 and 1999, respectively. 8. 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. 9. 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. During 1998, the Company recorded approximately $327,000 of expense related to stock appreciation rights that were granted and exercised. At December 31, 2000, 1999 and 1998, there were no stock appreciation rights outstanding. 28 9. STOCK OPTIONS (CONTINUED) 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. The pro forma effect on earnings for the year ended December 31, 2000 is as follows: net income $2,908,184; 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 $2,455,803; basic earnings per share $1.04, and diluted earnings per share $1.02. The 1998 net income and earnings per share would not have been impacted, since no stock options were granted in 1998, and the options granted in 1997, vested immediately. A summary of the activity in the Company's Employee Option Plan and related information for the years ended December 31 follows:
2000 1999 1998 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Price Options Price Options Price Options ---------------------------------------------------------------------------------------- Outstanding - beginning of year 124,000 $ 5.11 133,000 $1.45 162,000 $ 1.55 Exercised and surrendered (13,400) 1.23 (76,000) .72 (29,000) 2.03 Granted 10,000 7.25 67,000 6.98 - - ========================================================================================= Outstanding - end of year 120,600 $ 5.41 124,000 $5.11 133,000 $1.45 ========================================================================================= Exercisable - end of year 120,600 114,000 133,000 =========================================================================================
29 9. STOCK OPTIONS (CONTINUED) The exercise prices for options outstanding as of December 31, 2000 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 6.6 years. At December 31, 2000, 73,000 options remain available for future issuance under the 1999 plan. 10. 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. 30 11. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
2000 1999 1998 ------------------------------------------------------------ Numerator: Net income $ 2,949,213 $ 2,623,801 $ 4,314,542 Denominator: Denominator for basic earnings per share - weighted average shares outstanding 2,214,406 2,363,338 2,420,078 Effect of dilutive securities: Employee stock options 16,379 38,770 122,606 ------------------------------------------------------------ Denominator for diluted earnings per share - weighted average shares out- standing and assumed conversions 2,230,785 2,402,108 2,542,684 ============================================================ Basic earnings per share $ 1.33 $ 1.11 $ 1.78 ============================================================ Diluted earnings per share $ 1.32 $ 1.09 $ 1.70 ============================================================
12. 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:
2000 1999 1998 ------------------------------------------------------------- United States customers $ 35,215,373 $ 32,596,075 $ 41,735,153 Foreign customers 2,446,767 2,354,029 3,276,174 ------------------------------------------------------------- $ 37,662,140 $ 34,950,104 $ 45,011,327 =============================================================
Sales to the U.S. Postal Service represented 70.9%, 74.3% and 76.9% of net sales in 2000, 1999, and 1998, respectively. At December 31, 2000 and 1999, the Company had secured receivables from customers under time payment arrangements totaling $131,635 and $63,000, respectively. At December 31, 2000 and 1999, the Company had unsecured trade receivables from governmental agencies of $2,551,000 and $2,416,000, respectively, and from customers considered to be distributors of $374,000 and $192,000, 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 different industries. The Company generally does not require collateral for trade accounts receivable. 31 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 2000 and 1999:
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 ======================================================================= 1999 ----------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------------------------------------------------------------------- Net sales $ 7,857,688 $ 10,029,123 $ 7,761,363 $ 9,301,930 ======================================================================= Gross profit 2,323,713 2,890,548 2,327,709 2,309,131 ======================================================================= Net income 591,807 911,546 502,159 618,289 ======================================================================= Earnings per share - Basic .24 .37 .22 .27 ======================================================================= Earnings per share - Diluted .23 .37 .22 .27 =======================================================================
The Company's accounting practice for interim periods provides for possible accounting adjustments at year end. 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. In 1998 such adjustments resulted in increasing fourth quarter pretax income by $240,000 for inventory costs, decreasing fourth quarter pretax income by $150,000 for accounts receivable allowances and increasing fourth quarter pretax income by $74,000 for liability reserves. 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 has no impact on net income, was approximately $360,000. 14. RELATED PARTIES One Director of the Company is a stockholder and director of Rollform of Jamestown Inc., a rollforming company. One of the Company's subsidiaries purchased $152,000, $218,000, and 32 $235,000 of fabricated parts from Rollform of Jamestown, Inc. in 2000, 1999, and 1998, respectively, at prices that the Company believes are at arms length. 15. 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 diminimus. Therefore, based on the information currently available, management does not believe the outcome of this suit will have a substantial 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 customary reservation of rights. In September 1998 and subsequent months, the Company was named as an additional defendant in 110 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 customary reservation of rights. As of February 21, 2001, settlement agreements have been entered in 6 cases with funds authorized and provided by the Company's insurance carrier. Further, 32 cases originally filed in 1995, 1996 and 1997 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 February 21, 2001 is 72 cases originally filed against other defendants in 1998 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, management does not believe that the outcome of these cases will have a significant adverse impact on the Company's operations or financial condition. 33 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 2000. (i) None 34 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 21, 2001, is included in Item 8 Financial Statements and Supplementary Data in the Annual Report on Form 10-K. Financial Schedules for the years 2000, 1999 and 1998: Valuation and Qualifying Accounts 35 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 ----------------------------------------------------------------------------------------------------- 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 1998 Allowance for Doubtful Accounts 439,000 12,000 (235,000) 216,000
36 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 23, 2001 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 23, 2001 ------------------------------ and Director Edward F. Ruttenberg /s/Roy J. Glosser President, Chief Operating March 23, 2001 ------------------------------ Officer Treasurer and Director Roy J. Glosser /s/Alan H. Finegold Director March 23, 2001 ------------------------------ Alan H. Finegold /s/Thomas Lynch, IV Director March 23, 2001 ------------------------------ Thomas Lynch, IV /s/James E. Ruttenberg Director March 23, 2001 ------------------------------ James E. Ruttenberg /s/Jeffrey C. Swoveland Director March 23, 2001 ------------------------------ Jeffrey C. Swoveland /s/Donald I. Dussing, Jr. Director March 23, 2001 ------------------------------ Donald I. Dussing, Jr.
37 EXHIBIT INDEX
PRIOR FILING OR SEQUENTIAL PAGE EXHIBIT NO. 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 38 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, Page __ 2000 between American Locker Security Systems Inc. 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 39 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 American Locker Group Incorporated and Chase November 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 22.1 List of Subsidiaries Page ____
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