10-Q 1 form_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM TO ---- Commission file number 0-439 ----- AMERICAN LOCKER GROUP INCORPORATED ---------------------------------- (Exact name of business issuer as specified in its charter) DELAWARE 16-0338330 -------------------------------- ---------------------- (State of other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 608 ALLEN STREET, JAMESTOWN, NY 14701 ------------------------------------- (Address of principal executive offices) (716) 664-9600 -------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No Not Applicable ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of each of the issuer's class of common stock equity as of the latest practicable date: July 25, 2002. Common Stock $1.00 par value - 1,992,146 Transitional Small Business Disclosure (check one) Yes No X --- --- Part I - Financial Information Item 1 - Financial Statements
American Locker Group Incorporated and Subsidiaries Consolidated Balance Sheets JUNE 30, December 31, 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 4,622,250 $ 4,579,034 Accounts and notes receivable, less allowance for doubtful accounts of $255,000 in 2002 and $249,000 in 2001 5,314,499 5,042,685 Inventories 6,204,507 6,813,511 Prepaid expenses 204,818 125,805 Prepaid income taxes 173,489 - Deferred income taxes 570,731 570,731 -------------- ------------- Total current assets 17,090,294 17,131,766 Property, plant and equipment: Land 500,500 500,500 Buildings 3,447,899 3,441,616 Machinery and equipment 11,925,990 11,771,099 -------------- -------------- 15,874,389 15,713,215 Less allowance for depreciation (10,378,814) (9,879,825) -------------- -------------- 5,495,575 5,833,390 Goodwill 6,155,204 6,405,204 Deferred income taxes - 73,393 Other assets 233,333 291,667 -------------- -------------- Total assets $28,974,406 $29,735,420 ============== ==============
American Locker Group Incorporated and Subsidiaries Consolidated Balance Sheets JUNE 30, December 31, 2002 2001 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 1,481,341 $ 1,348,396 Commissions, salaries, wages and taxes thereon 235,191 555,326 Other accrued expenses 615,298 895,274 Federal, state and foreign income taxes payable - 393,781 Current portion of long-term debt 1,630,000 1,630,000 --------------- --------------- Total current liabilities 3,961,830 4,822,777 Long-term liabilities: Long-term debt 9,274,459 9,948,687 Pension and other benefits 118,230 410,080 Deferred income taxes 54,379 - --------------- --------------- 9,447,068 10,358,767 Total liabilities 13,408,898 15,181,544 Stockholders' equity: Common stock, $1 par value: Authorized shares - 4,000,000 Issued shares - 2,508,626 in 2002, 2,504,526 in 2001 Outstanding shares - 1,992,146 in 2002, 2,043,046 in 2001 2,508,626 2,504,526 Other capital 446,011 496,708 Retained earnings 17,234,360 15,610,362 Treasury stock at cost (516,480 shares in 2002, 461,480 in 2001) (4,421,533) (3,816,533) Accumulated other comprehensive loss (201,956) (241,187) --------------- --------------- Total stockholders' equity 15,565,508 14,553,876 --------------- --------------- Total liabilities and stockholders' equity $ 28,974,406 $ 29,735,420 =============== =============== See accompanying notes.
American Locker Group Incorporated and Subsidiaries Consolidated Statements of Income SIX MONTHS ENDED JUNE 30, 2002 2001 ---- ---- Net sales $20,262,885 $17,942,511 Cost of products sold 13,972,004 12,738,951 -------------- -------------- 6,290,881 5,203,560 Selling, administrative and general expenses 3,457,183 2,918,896 -------------- -------------- 2,833,698 2,284,664 Interest income 42,797 88,126 Other (expense) income--net 132,125 185,967 Interest expense (353,162) (28,837) -------------- -------------- Income before income taxes 2,655,458 2,529,920 Income taxes 1,031,460 989,178 -------------- -------------- Net Income $ 1,623,998 $ 1,540,742 ============== ============== Earnings per share of common stock: Basic $0.80 $0.75 ============== ============== Diluted $0.79 $0.74 ============== ============== Dividends per share of common stock: $0.00 $0.00 ============== ============== See accompanying notes.
American Locker Group Incorporated and Subsidiaries Consolidated Statements of Income THREE MONTHS ENDED JUNE 30, 2002 2001 ---- ---- Net sales $11,008,835 $9,825,943 Cost of products sold 7,576,067 7,034,726 --------------- --------------- 3,432,768 2,791,217 Selling, administrative and general expenses 1,965,794 1,470,928 --------------- --------------- 1,466,974 1,320,289 Interest income 18,645 32,117 Other (expense) income--net 69,131 107,564 Interest expense (172,827) (13,332) --------------- --------------- Income before income taxes 1,381,923 1,446,638 Income taxes 534,722 562,733 --------------- --------------- Net Income $847,201 $883,905 =============== =============== Earnings per share of common stock: Basic $0.42 $0.43 =============== =============== Diluted $0.42 $0.42 =============== =============== Dividends per share of common stock: $0.00 $0.00 =============== =============== See accompanying notes.
American Locker Group Incorporated and Subsidiaries Consolidated Statements of Cash Flows SIX MONTHS ENDED JUNE 30, 2002 2001 ---- ---- OPERATING ACTIVITIES Net income $1,623,998 $1,540,742 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 539,055 358,905 Deferred income taxes 127,772 - Change in assets and liabilities: Accounts and notes receivable (271,814) 206,579 Inventories 609,004 (727,038) Prepaid expenses (79,013) (186,889) Accounts payable and accrued expenses (217,166) (402,176) Long-term pension and other benefits (291,850) (41,269) Income taxes (507,270) (199,395) --------------- --------------- Net cash provided by operating activities 1,532,716 549,459 INVESTING ACTIVITIES Purchase of property, plant and equipment (131,137) (580,233) --------------- --------------- Net cash used in investing activities (131,137) (580,233) FINANCING ACTIVITIES Debt repayment (674,228) (100,002) Common stock purchased for treasury (605,000) (98,930) Common stock purchased and retired (148,785) (4,147) Proceeds from common stock issued 42,188 - --------------- --------------- New cash used in financing activities (1,385,825) (203,079) Effect of exchange rate changes on cash 27,462 (12,855) --------------- ---------------- Net increase (decrease) in cash 43,216 (246,708) Cash and cash equivalents at beginning of period 4,579,034 3,696,359 --------------- ---------------- Cash and cash equivalents at end of period $4,622,250 $3,449,651 ================ ================ See accompanying notes.
Notes to Consolidated Financial Statements American Locker Group Incorporated and Subsidiaries 1. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, the condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such condensed financial statements have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the Company's consolidated financial statements and the footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. 2. 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, and related real estate for approximately $12,100,000 net of cash received. The purchase was financed with long-term debt of approximately $11,900,000. Goodwill of approximately $6,400,000 was initially recorded in connection with the acquisition, during the second quarter of 2002, the parties agreed to a price adjustment resulting in a $250,000 reduction of the purchase price. This adjustment resulted in a decrease of $250,000 to the goodwill balance. See the Company's Report on Form 8-K dated July 12, 2001, Report on Form 8-K/A filed September 5, 2001, and Form 10-K for the year ended December 31, 2001 for more information regarding this acquisition. The operating results of SMC have been included in the accompanying consolidated statements of income for the three and six month periods ended June 30, 2002 and the assets and liabilities of SMC are included in the accompanying consolidated balance sheet at June 30, 2002 and December 31, 2001. 3. Provision for income taxes is based upon the estimated annual effective tax rate. 4. Net income per common share is computed by dividing net income by the weighted average number of shares outstanding, plus, when dilutive, the common stock equivalents which would arise from the exercise of stock options, during the periods. Basic and diluted weighted average shares outstanding were 2,019,822 (2,058,977 in 2001) and 2,059,694 (2,081,272 in 2001) respectively for the six month period ending June 30, 2002. 5. During the quarter ended June 30, 2002, the Company paid $605,000 to purchase 55,000 shares of the Company's common stock from the estate of its former chairman and chief executive officer. These shares are recorded as treasury stock at June 30, 2002. Additionally, during the second quarter of 2002, the Company's President and Chief Operating Officer exercised stock options covering 15,000 shares of common stock, and subsequent to the stock option exercise, the Company purchased and retired 10,900 of these shares for $148,785. 6. Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out method for substantially all of the inventories.
JUNE 30, December 31, 2002 2001 ---- ---- Raw materials $2,473,884 $2,898,908 Work-in-process 1,889,222 2,373,549 Finished goods 2,263,228 1,962,881 ---------- ---------- $6,626,334 $7,235,338 Less allowance to reduce carrying value to LIFO basis (421,827) (421,827) ---------- ---------- $6,204,507 $6,813,511 ========== ==========
7. Total comprehensive income consisting of net income and foreign currency translation adjustment was $1,663,229 and $1,527,887 for the six months ended June 30, 2002 and June 30, 2001 respectively. Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations American Locker Group Incorporated and Subsidiaries FIRST SIX MONTHS 2002 VS FIRST SIX MONTHS 2001 Sales for the first six months of 2002 of $20,263,000 increased $2,320,000 or 13% compared to sales of $17,943,000 during the same period in 2001. Plastic locker sales to the United States Postal Service (USPS) totaled $11,652,000 during the first six months of 2002 compared to $11,940,000 during the same period of 2001. Plastic Cluster Box Units (CBUs) sales were $11,196,000 in 2002 compared to $11,263,000 during the first half of 2001. The decrease in sales of Plastic CBUs is the result of product mix as a lower priced Plastic CBU was introduced in mid 2001, and price reductions of 3% to 5% that became effective in April 2001 on existing Plastic CBU models. The price reductions were offset by modest increases in the number of Plastic CBUs shipped in the first six months of 2002 versus 2001. Sales of Outdoor Parcel Lockers (OPLs) were $456,000 in the first six months of 2002 compared to $677,000 in 2001. The decrease in OPLs is the result of more USPS spending on Plastic CBUs. Sales of metal, mechanical and electronic lockers, which includes the Company's luggage cart business, were $8,611,000 for the first six months of 2002 compared to $6,002,000 for the first six months of 2001. This increase of $2,609,000 or 44% consists of sales of $3,831,000 made by the Company's new subsidiary, Security Manufacturing Corporation (SMC), offset by a decrease from other products and services most notably the luggage cart business at the Detroit Metropolitan Airport, where sales decreased due to reduced air passenger volume and a decline in locker sales to amusement parks as a result of current economic conditions. 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. 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 has increased during 2001 and 2002, 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. Cost of products sold as a percentage of sales was 69.0% during the first six months of 2002 compared to 71.0% in the first six months of 2001. The improvement in 2002 is due to higher margins obtained from SMC and stable margins for other products. Selling, general and administrative costs for the first six months of 2002 increased $538,000 over the same period in 2001. This increase is due primarily to SMC expenses of $804,000 offset by a one time reduction of $319,000 as the result of the reversal of a liability which existed under the Supplemental Executive Retirement Plan due to the death in March of 2002 of the only current beneficiary under the Plan. This one time reduction, which was recorded in the first quarter of 2002, increased basic and diluted earnings per share by $.09 for the six months ended June 30, 2002. This item had no impact on basic and diluted earnings per share for the three months ended June 30, 2002. Selling, general and administrative expenses as a percentage of sales were 17.1% in 2002 compared to 16.3% in 2001. Interest expense was $353,000 in 2002 compared to $29,000 in 2001. The increase resulted form the Company's increased debt to finance the acquisition of SMC in July 2001. SECOND QUARTER 2002 VS SECOND QUARTER 2001 Second quarter sales were $11,009,000 in 2002, an increase of $1,183,000 from the same period in 2001. The increase consisted of sales of $2,110,000 made by SMC in 2002, this was offset by a reduction in sales of metal, mechanical and electronic lockers, due to lower demand and volume across various markets including the luggage cart business at Detroit Metropolitan Airport. Plastic locker sales, consisting of CBUs and OPLs were $6,365,000 in 2002 versus $6,324,000 in 2001. Cost of products sold as a percentage of sales was 68.8% during the second quarter of 2002, compared to 71.6% during the second quarter of 2001. The improvement in 2002 is due to higher margins obtained from SMC and stable margins for other products. Selling, administrative and general expenses were 17.8% of net sales during the second quarter of 2002 compared to 15.0% in the second quarter of 2001, as a result of the additional SMC expenses. Interest expense in the second quarter of 2002 of $173,000 increased from $13,000 in the second quarter of 2000 due to the Company's increased debt to finance the acquisition of SMC in July 2001. LIQUIDITY AND SOURCES OF CAPITAL The Company's liquidity is reflected in its current ratio and its working capital. The current ratio, the ratio of current assets to current liabilities, was 4.31 to 1 at June 30, 2002 and 3.55 to 1 at December 31, 2001, respectively. Working capital, the excess of current assets over current liabilities, was $13,128,000 at June 30, 2002, an increase of $819,000 over $12,309,000 at December 31, 2001. Cash provided by operating activities was $1,533,000 during the first six months of 2002, compared to $549,000 provided by operating activities for the same period in 2001. The Company's $3,000,000 line of credit is available to assist in satisfying future working capital needs, if required. The Company anticipates that cash on hand and cash generated from operations in 2002 will be adequate to fund working capital needs, 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. No amount is outstanding under the line of credit at June 30, 2002. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. During 2001, the Company adopted the provision of SFAS No. 142 which prohibited the amortization of goodwill associated with acquisitions made after June 30, 2001, in connection with its acquisition of SMC on July 6, 2001. Under SFAS No. 142, goodwill is reviewed for impairment at least annually at the reporting unit level. In accordance with SFAS No. 142, the Company completed its transitional goodwill impairment test effective January 1, 2002 and no impairment loss was necessary. The Company adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 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. There was no impact upon adoption of SFAS No. 144. 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. PART II. OTHER INFORMATION Item 1. Legal Proceedings In June 2002, the Company was named as a defendant in a lawsuit titled "ALFRED TODAK AND STEPHANIE TODAK V. ALLEN-BRADLEY COMPANY, ET AL" filed in King County Superior Court, King County, Washington. The plaintiffs assert that the Company, together with multiple additional named and unnamed defendants, manufactured and sold products containing asbestos exposure to which has resulted in injury to the plaintiffs. The plaintiffs are seeking unspecified economic damages. Defense of the case has been assumed by the Company's insurance carrier, subject to a reservation of rights. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Amendment dated as of May 20, 2002 to Employment Agreement dated November 18, 1999 between American Locker Group Incorporated and Edward F. Ruttenberg. 10.2 Second Amendment dated as of May 20, 2002 to Employment Agreement dated November 18, 1999 between American Locker Group Incorporated and Roy J. Glosser (b) The Company did not file any reports on Form 8-K during the three months ended June 30, 2002. S I G N A T U R E ----------------- In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN LOCKER GROUP INCORPORATED (Registrant) /s/Edward F. Ruttenberg --------------------------------------- Edward F. Ruttenberg Chairman and Chief Executive Officer Date: August 1, 2002 Index Exhibit No. 10.3 Amendment dated as of May 20, 2002 to Employment Agreement dated November 18, 1999 between American Locker Group Incorporated and Edward F. Ruttenberg. 10.4 Second Amendment dated as of May 20, 2002 to Employment Agreement dated November 18, 1999 between American Locker Group Incorporated and Roy J. Glosser ------------------