UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2012
¨ | 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 registrant as specified in its charter)
Delaware | 16-0338330 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
2701 Regent Blvd., Suite 200 DFW Airport, TX | 75261 | |
(Address of principal executive offices) | (Zip code) |
(817) 329-1600
(Registrants telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨
Indicated by a check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 1,683,985 shares of common stock, par value $1.00, issued and outstanding as of August 13, 2012.
2
This Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve certain known and unknown risks and uncertainties, including, among others, those contained in Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words anticipates, plans, believes, estimates, intends, expects, projects, will and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements, including, but not limited to, the Companys statements regarding business strategy, implementation of its restructuring plan, competition, new product development, liquidity and capital resources are based on managements beliefs, as well as on assumptions made by, and information currently available to, management, and involve various risks and uncertainties, some of which are beyond the Companys control. The Companys actual results could differ materially from those expressed in any forward-looking statement made by or on the Companys behalf. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. The Company has undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements. |
The interim financial statements included herein are unaudited but reflect, in managements opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position and the results of our operations for the interim periods presented.
The interim financial statements should be read in conjunction with the financial statements of American Locker Group Incorporated (the Company) and the notes thereto contained in the Companys audited financial statements for the year ended December 31, 2011 presented in the Companys Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the SEC) on March 15, 2012.
Interim results are not necessarily indicative of results for the full fiscal year.
3
American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets
June 30, 2012 (Unaudited) |
December 31, 2011 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 297,824 | $ | 525,632 | ||||
Accounts receivable, less allowance for doubtful accounts of approximately $158,000 in 2012 and $149,000 in 2011 |
2,059,867 | 1,754,959 | ||||||
Inventories, net |
2,563,858 | 2,845,563 | ||||||
Prepaid expenses |
480,436 | 330,403 | ||||||
Deferred income taxes |
369,224 | 278,437 | ||||||
|
|
|
|
|||||
Total current assets |
5,771,209 | 5,734,994 | ||||||
Property, plant and equipment: |
||||||||
Land |
500 | 500 | ||||||
Buildings and leasehold improvements |
825,857 | 754,922 | ||||||
Machinery and equipment |
10,904,383 | 10,891,820 | ||||||
|
|
|
|
|||||
11,730,740 | 11,647,242 | |||||||
Less allowance for depreciation and amortization |
(8,444,891 | ) | (8,087,988 | ) | ||||
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|
|
|
|||||
3,285,849 | 3,559,254 | |||||||
Other noncurrent assets |
47,268 | 47,259 | ||||||
Deferred income taxes |
636,019 | 727,118 | ||||||
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|
|
|
|||||
Total assets |
$ | 9,740,345 | $ | 10,068,625 | ||||
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|
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The accompanying notes are an integral part of these consolidated financial statements.
4
American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
Balance Sheet
June 30, 2012 (Unaudited) |
December 31, 2011 |
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Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,463,289 | $ | 1,627,489 | ||||
Customer deposits |
200,349 | 398,167 | ||||||
Commissions, salaries, wages, and taxes thereon |
136,374 | 162,507 | ||||||
Income taxes payable |
3,397 | 69,718 | ||||||
Revolving line of credit |
900,000 | 700,000 | ||||||
Current portion of long-term debt |
200,000 | 200,000 | ||||||
Other accrued expenses |
761,048 | 491,188 | ||||||
|
|
|
|
|||||
Total current liabilities |
3,664,457 | 3,649,069 | ||||||
Long-term liabilities: |
||||||||
Long-term debt, net of current portion |
500,000 | 600,000 | ||||||
Pension and other benefits |
2,025,196 | 2,051,054 | ||||||
|
|
|
|
|||||
2,525,196 | 2,651,054 | |||||||
Total liabilities |
6,189,653 | 6,300,123 | ||||||
Commitments and contingencies (Note 11) |
||||||||
Stockholders equity: |
||||||||
Common stock, $1.00 par value: |
||||||||
Authorized shares 4,000,000 |
||||||||
Issued shares 1,875,985 in 2012 and 1,871,999 in 2011; Outstanding shares 1,683,985 in 2012 and 1,679,999 in 2011 |
1,875,983 | 1,871,999 | ||||||
Other capital |
285,994 | 284,478 | ||||||
Retained earnings |
4,771,285 | 5,001,097 | ||||||
Treasury stock at cost, 192,000 shares |
(2,112,000 | ) | (2,112,000 | ) | ||||
Accumulated other comprehensive loss |
(1,270,570 | ) | (1,277,072 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
3,550,692 | 3,768,502 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 9,740,345 | $ | 10,068,625 | ||||
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|
The accompanying notes are an integral part of these consolidated financial statements.
5
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net sales |
$ | 6,398,858 | $ | 6,159,051 | ||||
Cost of products sold |
4,442,334 | 4,211,195 | ||||||
|
|
|
|
|||||
Gross profit |
1,956,524 | 1,947,856 | ||||||
Selling, general and administrative expenses |
1,954,084 | 2,050,821 | ||||||
Restructuring costs |
217,739 | | ||||||
|
|
|
|
|||||
Total operating loss |
(215,299 | ) | (102,965 | ) | ||||
Other income (expense): |
||||||||
Interest income |
7 | 74 | ||||||
Other income (expense) net |
(14,716 | ) | 130,670 | |||||
Interest expense |
(56,790 | ) | (27,861 | ) | ||||
|
|
|
|
|||||
Total other income (expense) |
(71,499 | ) | 102,883 | |||||
|
|
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|
|||||
Loss before income taxes |
(286,798 | ) | (82 | ) | ||||
Income tax benefit (expense) |
56,976 | (69,778 | ) | |||||
|
|
|
|
|||||
Net loss |
$ | (229,822 | ) | $ | (69,860 | ) | ||
|
|
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|
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Weighted average common shares: |
||||||||
Basic |
1,681,992 | 1,648,313 | ||||||
|
|
|
|
|||||
Diluted |
1,681,992 | 1,648,313 | ||||||
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|
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Loss per share of common stock: |
||||||||
Basic |
$ | (0.14 | ) | $ | (0.04 | ) | ||
|
|
|
|
|||||
Diluted |
$ | (0.14 | ) | $ | (0.04 | ) | ||
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The accompanying notes are an integral part of these consolidated financial statements.
6
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net sales |
$ | 3,131,777 | $ | 3,309,340 | ||||
Cost of products sold |
2,099,627 | 2,160,755 | ||||||
|
|
|
|
|||||
Gross profit |
1,032,150 | 1,148,585 | ||||||
Selling, general and administrative expenses |
919,402 | 1,072,737 | ||||||
Restructuring costs |
217,739 | | ||||||
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|
|
|
|||||
Total operating (loss) profit |
(104,991 | ) | 75,848 | |||||
Other income (expense): |
||||||||
Interest income |
| 66 | ||||||
Other income (expense) net |
(5,396 | ) | 142,493 | |||||
Interest expense |
(28,030 | ) | (14,384 | ) | ||||
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|
|
|||||
Total other income (expense) |
(33,426 | ) | 128,175 | |||||
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|
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Net (loss) income before income taxes |
(138,417 | ) | 204,023 | |||||
Income tax expense |
(6,187 | ) | (63,042 | ) | ||||
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|
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Net (loss) income |
$ | (144,604 | ) | $ | 140,981 | |||
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|
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Weighted average common shares: |
||||||||
Basic |
1,683,985 | 1,654,519 | ||||||
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|
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Diluted |
1,683,985 | 1,654,519 | ||||||
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(Loss) income per share of common stock: |
||||||||
Basic |
$ | (0.09 | ) | $ | 0.09 | |||
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|
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|
|||||
Diluted |
$ | (0.09 | ) | $ | 0.09 | |||
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The accompanying notes are an integral part of these consolidated financial statements.
7
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net loss |
$ | (229,822 | ) | $ | (69,860 | ) | ||
Other comprehensive income: |
||||||||
Foreign currency translation adjustment |
4,550 | 13,144 | ||||||
Adjustment to minimum pension liability, net of tax effect of $769 in 2012 and $(2,905) in 2011 |
1,953 | (4,343 | ) | |||||
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|
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Other comprehensive income |
6,503 | 8,801 | ||||||
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|
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Total comprehensive loss |
(223,319 | ) | (61,059 | ) | ||||
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|
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Three Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net income |
$ | (144,604 | ) | $ | 140,981 | |||
Other comprehensive income: |
||||||||
Foreign currency translation adjustment |
(15,468 | ) | (2,485 | ) | ||||
Adjustment to minimum pension liability, net of tax effect of $4,268 in 2012 and $550 in 2011 |
10,840 | 825 | ||||||
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|
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|
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Other comprehensive loss |
(4,628 | ) | (1,660 | ) | ||||
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|
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|
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Total comprehensive income |
(149,232 | ) | 139,321 | |||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
8
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Operating activities |
||||||||
Net loss |
$ | (229,822 | ) | $ | (69,860 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
363,625 | 322,605 | ||||||
Provision for uncollectible accounts |
21,000 | 21,000 | ||||||
Equity based compensation |
5,500 | 30,100 | ||||||
Deferred income taxes |
770 | 56,645 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(355,730 | ) | 898,670 | |||||
Inventories |
281,504 | (243,203 | ) | |||||
Prepaid expenses |
(150,224 | ) | (39,713 | ) | ||||
Deferred revenue |
| (331,000 | ) | |||||
Accounts payable, customer deposits and accrued expenses |
87,853 | (235,504 | ) | |||||
Pension and other benefits |
(25,503 | ) | 101 | |||||
Income taxes |
(66,321 | ) | 4,079 | |||||
|
|
|
|
|||||
Net cash (used in) provided by operating activities |
(243,054 | ) | 413,920 | |||||
Investing activities |
||||||||
Purchase of property, plant and equipment |
(90,240 | ) | (884,622 | ) | ||||
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|
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Net cash used in investing activities |
(90,240 | ) | (884,622 | ) | ||||
Financing activities |
||||||||
Long-term debt payments |
(100,000 | ) | (100,000 | ) | ||||
Borrowing on line of credit |
200,000 | 500,000 | ||||||
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|
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Net cash provided by financing activities |
100,000 | 400,000 | ||||||
Effect of exchange rate changes on cash |
5,486 | 10,075 | ||||||
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|
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Net decrease in cash and cash equivalents |
(227,808 | ) | (60,627 | ) | ||||
Cash and cash equivalents at beginning of period |
525,632 | 649,952 | ||||||
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|
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Cash and cash equivalents at end of period |
$ | 297,824 | $ | 589,325 | ||||
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Supplemental cash flow information: |
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Cash paid for: |
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Interest |
$ | 52,191 | $ | 27,603 | ||||
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|
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Income taxes |
$ | 15,210 | $ | 6,390 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
9
American Locker Group Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of American Locker Group Incorporated (the Company) 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 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 Companys management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such consolidated financial statements, have been included. Operating results for the three and six-month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.
The consolidated balance sheet at December 31, 2011 has been derived from the Companys audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Companys consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
Additional risks and uncertainties not presently known or that the Company currently deems immaterial may also impair its business operations. Should one or more of these risks or uncertainties materialize, the Companys business, financial condition or results of operations could be materially adversely affected.
Certain 2011 financial statement line items have been reclassified to conform to the current years presentation.
2. Sale of Property
During May 2011, the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, Texas to a new 100,500 sq. ft. building in DFW Airport, Texas. The Company sold its prior location to the City of Grapevine (the City) in 2009 and, as part of that transaction, the City provided a $341,000 relocation allowance to offset the moving costs. This relocation allowance was recorded as Deferred revenue in the Companys consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against such deferred revenue in the second quarter of 2011 and the remaining $129,232 in relocation allowance was recorded as Other income in the second quarter of 2011. Proceeds of the sale were used to pay off the $2 million mortgage secured by the property and for general working capital purposes.
The Company invested approximately $875,000 during 2011 for leasehold improvements and machinery and equipment related to relocating.
3. Disneyland Concession Agreement
On September 24, 2010, the Company entered into an agreement (the Disney Agreement) with Disneyland Resort, a division of Walt Disney Parks and Resorts U.S., Inc., and Hong Kong International Theme Parks Limited, (collectively referred to as Disney) to provide locker services under a concession arrangement. Under the Disney Agreement, the Company installed, operates and maintains electronic lockers at Disneyland Park and Disneys California Adventure Park in Anaheim, California and at Hong Kong Disneyland Park in Hong Kong.
The Company installed approximately 4,300 electronic lockers under the Disney Agreement. The Company retains ownership of the lockers and receives a portion of the revenue generated by the locker operations. The term of the Disney Agreement is five years, with an option to renew for one year at Disneys option, and operations began in late November 2010. The Agreement contains a buyout option at the end of each contract year and a provision to compensate the Company in the event Disney terminates the Agreement without cause.
10
Under appropriate accounting guidance, the Company capitalized its costs related to the Disney Agreement and the Company is depreciating such costs over the five year term of the agreement. The Company recognizes revenue for its portion of the revenue as it is collected.
4. Inventories
Inventories are valued at the lower of cost or market value. Cost is determined using the first-in first-out method (FIFO).
Inventories consist of the following:
June 30, 2012 | December 31, 2011 | |||||||
Finished products |
$ | 294,827 | $ | 321,378 | ||||
Work-in-process |
669,995 | 862,000 | ||||||
Raw materials |
1,599,036 | 1,662,185 | ||||||
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Net inventories |
$ | 2,563,858 | $ | 2,845,563 | ||||
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5. Income Taxes
Provision for income taxes is based upon the estimated annual effective tax rate. The effective tax rate for the six months ended June 30, 2012 and 2011 was (19.9%) and 852.1%. The difference in the effective rate from the statutory rate is primarily due to permanent timing differences between expenses recorded for financial and tax reporting, increases in the valuation allowance of $95,410 and $46,237 for the six months ended June 30, 2012 and 2011, respectively, and the reversal of a previously accrued tax provision. During the first six months of 2012, certain statutes of limitations expired. As a result, in the first six months of 2012, the Company reduced its income tax payable and tax provision by a net favorable amount of $69,791.
6. Stockholders Equity
On March 31, 2012, the Company issued 3,986 shares of common stock to non-employee directors and increased other capital by $1,516, which represents a compensation expense of $5,502.
Effective May 25, 2012, the board of directors will no longer have the option of receiving common stock in lieu of cash compensation as directors fees. As a result, the Company did not issue any shares of common stock to directors in the second quarter of 2012.
7. Pension Benefits
The following sets forth the components of net periodic employee benefit cost of the Companys defined benefit pension plans for the three and six months ended June 30, 2012 and 2011:
Six Months Ended June 30, | ||||||||||||||||
Pension Benefits | ||||||||||||||||
U.S. Plan | Canadian Plan | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 10,500 | $ | 10,550 | $ | | $ | | ||||||||
Interest cost |
85,000 | 86,100 | 37,840 | 38,883 | ||||||||||||
Expected return on plan assets |
(80,500 | ) | (71,050 | ) | (41,525 | ) | (42,670 | ) | ||||||||
Net actuarial loss |
| | 6,871 | 7,061 | ||||||||||||
Amortization |
47,000 | 25,650 | | | ||||||||||||
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Net periodic benefit cost |
$ | 62,000 | $ | 51,250 | $ | 3,186 | $ | 3,274 | ||||||||
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Three Months Ended June 30, | ||||||||||||||||
Pension Benefits | ||||||||||||||||
U.S. Plan | Canadian Plan | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 5,250 | $ | 5,275 | $ | | $ | | ||||||||
Interest cost |
42,500 | 43,050 | 18,884 | 19,625 | ||||||||||||
Expected return on plan assets |
(40,250 | ) | (35,525 | ) | (20,723 | ) | (21,536 | ) | ||||||||
Net actuarial loss |
| | 3,429 | 3,564 | ||||||||||||
Amortization |
23,500 | 12,825 | | | ||||||||||||
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Net periodic benefit cost |
$ | 31,000 | $ | 25,625 | $ | 1,590 | $ | 1,653 | ||||||||
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11
The Company has frozen the accrual of any additional benefits under the U.S. defined benefit pension plan effective July 15, 2005.
Effective January 1, 2009, the Company converted its pension plan for its Canadian employees (the Canadian Plan) from a noncontributory defined benefit plan to a defined contribution plan. Until the conversion, benefits for the salaried employees were based on specified percentages of the employees monthly compensation. The conversion of the Canadian plan has the effect of freezing the accrual of future defined benefits under the plan. Under the defined contribution plan, the Company will contribute 3% of employee compensation plus 50% of employee elective contributions up to a maximum contribution of 5% of employee compensation.
The Fair Value Measurements and Disclosure Topic of the ASC requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. The various values of the Fair Value Measurements and Disclosure Topic of the ASC fair value hierarchy are described as follows:
Level 1 Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
The fair value hierarchy of the plan assets are as follows:
June 30, 2012 | ||||||||||
US Plan | Canadian Plan | |||||||||
Cash and cash equivalents |
Level 1 | $ | 213,280 | $ | 65,469 | |||||
Mutual funds |
Level 1 | 257,961 | 1,190,800 | |||||||
Corporate/Government Bonds |
Level 1 | 712,292 | | |||||||
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Equities |
Level 1 | 1,033,920 | | |||||||
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Total |
$ | 2,217,453 | $ | 1,256,269 | ||||||
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On April 15, 2012, the Company transferred its US pension plan assets to Bank of America Merrill Lynch (BAML). It was previously being managed by Metlife. As a result of this change, $2,203,978 of Level 2 assets were transferred to Level 1.
For additional information on the defined benefit pension plans, please refer to Note 10 of the consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
12
8. Earnings Per Share
The Company reports earnings per share in accordance with appropriate accounting guidance. The following table sets forth the computation of basic and diluted earnings per common share:
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Numerator: |
||||||||
Net loss |
$ | (229,822 | ) | $ | (69,860 | ) | ||
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Denominator: |
||||||||
Denominator for earnings per share (basic and diluted) weighted average shares |
1,681,992 | 1,648,313 | ||||||
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|||||
Loss per common share (basic and diluted): |
$ | (0.14 | ) | $ | (0.04 | ) | ||
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Three Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Numerator: |
||||||||
Net (loss) income |
$ | (144,604 | ) | $ | 140,981 | |||
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|||||
Denominator: |
||||||||
Denominator for earnings per share (basic and diluted) weighted average shares |
1,683,985 | 1,654,519 | ||||||
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|
|||||
(Loss) income per common share (basic and diluted): |
$ | (0.09 | ) | $ | 0.09 | |||
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|
|
The Company had 12,000 stock options outstanding at June 30, 2012 and at June 30, 2011. These options were not included in the common share computation for loss per share, as the common stock equivalents were anti-dilutive.
9. Debt
On December 8, 2010, the Company entered into a credit agreement (the Loan Agreement) with BAML, pursuant to which the Company obtained a $1 million term loan (the Term Loan) and a $2.5 million revolving line of credit (the Line of Credit). On November 4, 2011, the Company entered into an amendment to the Loan Agreement (the Amendment) that extended the maturity date of the Line of Credit through December 8, 2012. The Amendment also included the addition of a $500,000 draw note (the Draw Note).
The Draw Note is to be used to fund the Companys investment in future concession contracts. The Company can draw up to $500,000 on the Draw Note before October 27, 2012. The Company will pay interest only on the Draw Note through November 26, 2012, after which the Company will pay interest and principal so that the balance will be paid in full as of October 27, 2015. As of June 30, 2012, there were no borrowings on the Draw Note.
The proceeds of the Term Loan were used to fund the Companys investment in lockers used in the Disney Agreement. The proceeds of the Line of Credit will be used primarily for working capital needs in the ordinary course of business and for general corporate purposes.
The Company can borrow, repay and re-borrow principal under the Line of Credit from time to time during its term, but the outstanding principal balance of the Line of Credit may not exceed the lesser of the borrowing base or $2,500,000. For purposes of the Line of Credit, borrowing base is calculated by multiplying eligible accounts receivable of the Company by 80% and eligible raw material and finished goods by 50%. As of June 30, 2012, there was $900,000 outstanding on the Line of Credit.
The outstanding principal balances of the Line of Credit, the Draw Note and the Term Loan bear interest at the one-month LIBOR rate plus 375 basis points (3.75%). Accrued interest payments on the outstanding principal balance of the Line of Credit are due monthly, and all outstanding principal payments under the Line of Credit, together with all accrued but unpaid interest, is due at maturity, or December 8, 2012. Payments on the Term Loan, consisting of $16,667 in principal plus accrued interest, began in 2011. The entire outstanding balance of the Term Loan is due on December 8, 2015.
The Loan Agreement is secured by a first priority lien on all of the Companys accounts receivable, inventory and equipment pursuant to a Security Agreement between the Company and BAML (the Credit Security Agreement).
The Credit Security Agreement and Loan Agreement contain covenants, including financial covenants, with which the Company must comply, including a debt service coverage ratio and a funded debt to EBITDA ratio. Subject to the Lenders consent, the Company is prohibited under the Credit Security Agreement and the Loan Agreement, except under certain circumstances, from incurring or assuming additional debt and from permitting liens to be placed upon any of its property, assets or revenues. Additionally, the Company is prohibited from entering into certain transactions, including a merger or consolidation, without the Lenders consent.
13
10. Restructuring
As a result of the economic crisis, in January 2009 the Company restructured to rationalize its cost structure in an uncertain economic environment. The restructuring planned for the relocation and consolidation of its Ellicottville, New York operations into its Texas facility. This resulted in severance and payroll charges during the year ended December 31, 2009 of $264,000. The remaining December 31, 2011 balance of $123,000 of these payments is expected to be made over the next six months.
During the second quarter of 2012, the Company commenced the Ellicottville relocation, resulting in the realization of expense for discontinued inventory, severance and professional fees to complete the move and recognize the anticipated cost savings. As a result, the Company recorded a restructuring charge of approximately $174,000. Additionally, in the six months ended June 30, 2012, the Company expensed approximately $43,700 of related moving expenses, bringing the total moving expense recorded to $217,700.
In the six month period ending June 30, 2012 the Company expensed $43,739 of related moving expense. The Company expects to incur an additional $50,000 in relocation expenses during the third quarter of 2012. This amount is not accrued at June 30, 2012.
When completed, the restructuring and relocation is expected to result in approximately $240,000 in annual savings. Accrued restructuring expenses of $236,400 are included in Other accrued expenses in the Companys consolidated balance sheet, while the $89,000 increase to inventory obsolescence is included in Inventory Reserve.
The following table analyzes the changes in the Companys reserve with respect to the restructuring plan for the six months ended June 30, 2012:
December 31, 2011 | 2012 Expense |
Payment | June 30, 2012 | |||||||||||||
Severance |
$ | 111,000 | $ | 43,000 | $ | (15,300 | ) | $ | 138,700 | |||||||
Professional fees |
| 42,000 | | 42,000 | ||||||||||||
Inventory |
| 89,000 | 89,000 | |||||||||||||
Other |
12,000 | 43,700 | | 55,700 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 123,000 | $ | 217,700 | $ | (15,300 | ) | $ | 325,400 | |||||||
|
|
|
|
|
|
|
|
The following table analyzes the changes in the Companys reserve with respect to the restructuring plan for the three months ended June 30, 2012:
March 31, 2012 | 2012 Expense |
Payment | June 30, 2012 | |||||||||||||
Severance |
$ | 99,700 | $ | 43,000 | $ | (4,000 | ) | $ | 138,700 | |||||||
Professional fees |
| 42,000 | | 42,000 | ||||||||||||
Inventory |
| 89,000 | 89,000 | |||||||||||||
Other |
12,000 | 43,700 | | 55,700 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 111,700 | $ | 217,700 | $ | (4,000 | ) | $ | 325,400 | |||||||
|
|
|
|
|
|
|
|
11. Commitments and Contingencies
In July 2001, the Company received a letter from the New York State Department of Environmental Conservation (the NYSDEC) advising the Company that it is a potentially responsible party (PRP) with respect to environmental contamination at and alleged migration from property located in Gowanda, New York which was sold by the Company to Gowanda Electronics Corporation prior to 1980. In March 2001, the NYSDEC issued a Record of Decision with respect to the Gowanda site in which it
14
set forth a remedy including continued operation of an existing extraction well and air stripper, installation of groundwater pumping wells and a collection trench, construction of a treatment system in a separate building on the site, installation of a reactive iron wall covering 250 linear feet, which is intended to intercept any contaminates and implementation of an on-going monitoring system. The NYSDEC has estimated that its selected remediation plan will cost approximately $688,000 for initial construction and a total of $1,997,000 with respect to expected operation and maintenance expenses over a 30-year period after completion of initial construction. The Company has not conceded to the NYSDEC that the Company is liable with respect to this matter and has not agreed with the NYSDEC that the remediation plan selected by NYSDEC is the most appropriate plan. This matter has not been litigated, and at the present time the Company has only been identified as a PRP. The Company also believes that other parties may have been identified by the NYSDEC as PRPs, and the allocation of financial responsibility of such parties has not been litigated. To the Companys knowledge, the NYSDEC has not commenced implementation of the remediation plan and has not indicated when construction will start, if ever. Based upon currently available information, the Company is unable to estimate timing with respect to the resolution of this matter. The Companys primary insurance carrier has assumed the cost of the Companys defense in this matter, subject to a reservation of rights.
Beginning in September 1998 and continuing through the date of filing of this Annual Report on Form 10-K, the Company has been named as an additional defendant in approximately 191 cases pending in state court in Massachusetts and 1 in the state of Washington. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a shipyard during the period from 1948 to 1972 and that injury 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 Companys insurance carrier, subject to a reservation of rights. Settlement agreements have been entered in approximately 33 cases with funds authorized and provided by the Companys insurance carrier. Further, over 120 cases have been terminated as to the Company without liability to the Company under Massachusetts procedural rules. Therefore, the balance of unresolved cases against the Company as of March 8, 2012, the most recent date information is available, is approximately 38 cases.
While the Company cannot estimate potential damages or predict what the ultimate resolution of these asbestos cases may be because the discovery proceedings on the cases are not complete, based upon the Companys experience to date with similar cases, as well as the assumption that insurance coverage will continue to be provided with respect to these cases, at the present time, the Company does not believe that the outcome of these cases will have a significant adverse impact on the Companys operations or financial condition.
The Company is involved in other claims and litigation from time to time in the normal course of business. The Company does not believe these matters will have a significant adverse impact on the Companys operations or financial condition.
15
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Effect of New Accounting Guidance
In June 2011, the FASB issued amendments to guidance regarding the presentation of comprehensive income. The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders equity. The amendments require that comprehensive income be presented in either a single continuous statement or in two separate but consecutive statements. In a single continuous statement, the entity would present the components of net income and total net income, the components of other comprehensive income and a total of other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, the entity would present components of net income and total net income in the statement of net income and a statement of other comprehensive income would immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. The amendments also require the entity to present on the face of the financial statements any reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments do not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be re-classed to net income or the option to present components of other comprehensive income either net of related tax effects or before related tax effects. The amendments, excluding the specific requirement to present on the face of the financial statements any reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented which was deferred by the FASB in December 2011, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively. The Company adopted ASU 2011-05 in the first quarter of 2012. Upon adoption, the Company elected the two-statement approach and presents a separate consolidated statement of comprehensive loss.
Results of Operations the Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011
Overall Results and Outlook
Consolidated net sales for the first six months of 2012 reflect an increase of $239,807, as compared to 2011, to $6,398,858, representing a 3.9% increase. This increase was primarily attributable to increases in contract manufacturing revenue as well as increased concession revenue from the Disney and Ocean Park agreements. Pre-tax operating results declined to a pre-tax loss of $286,798 for the first six months of 2012 from pre-tax loss of $82 for the first six months of 2011. After tax operating results declined to a net loss of $229,822 for the first six months of 2012 from a net loss of $69,860 for the first six months of 2011. Net loss per share (basic and diluted) was $0.14 in the first six months of 2012, a $0.10 decline from a net loss per share (basic and diluted) of $0.04 for the first six months of 2011.
Net Sales
Consolidated net sales for the six months ended June 30, 2012 were $6,398,858, an increase of $239,807, or 3.9%, compared to net sales of $6,159,051 for the same period of 2011. Sales of lockers for the six months ended June 30, 2012 were $4,303,214, a decrease of $95,491, or 2.2%, compared to locker sales of $4,398,705 for the same period of 2011.
Sales
Sales of mailboxes were $917,028 for the six months ended June 30, 2012, a decrease of $145,473, or 13.7%, compared to mailbox sales of $1,062,501 for the same period of 2011. Decreased mailbox sales were the result of decreased sales of Horizontal 4c and 2b+ mailboxes to distributors.
Sales of contract manufacturing services were $526,552 for the six months ended June 30, 2012 compared to $136,618 for the same period of 2011. This increase was primarily due to increased sales of electrical enclosures and fabricated parts to existing and new customers.
Concession revenue for the six months ended June 30, 2012 was $652,064, an increase of $90,837 or 16.2% from concession revenue of $561,227 for the same period of 2011. The concession revenue increase was driven by the inception of the Ocean Park concession contract, as well as year-over-year increase at Disneyland California.
Six Months Ended June 30, | Percentage | |||||||||||
2012 | 2011 | Increase/(Decrease) | ||||||||||
Lockers |
$ | 4,303,214 | $ | 4,398,705 | (2.2 | )% | ||||||
Mailboxes |
917,028 | 1,062,501 | (13.7 | )% | ||||||||
Contract manufacturing |
526,552 | 136,618 | 285.4 | % | ||||||||
Concession revenues |
652,064 | 561,227 | 16.2 | % | ||||||||
|
|
|
|
|||||||||
Total |
$ | 6,398,858 | $ | 6,159,051 | ||||||||
|
|
|
|
16
Gross Margin
Consolidated gross margin for the six months ended June 30, 2012 was $1,956,524, or 30.6% of net sales, compared to $1,947,856, or 31.6% of net sales, for the same period of 2011, an increase of $8,668, or 0.4%. Gross margin as a percentage of net sales decreased by 100 basis points from 2011 due to the increase in contract manufacturing revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30, 2012 were $1,954,084 or 30.5% of net sales, compared to $2,050,821 or 33.3% of net sales for the same period of 2011, a decrease of $96,737, or 4.7%. The decrease was primarily due to decreases in marketing, travel and audit expenses of approximately $27,000, $29,000 and $20,000, respectively, for the six months ended June 30, 2012, as compared to the same period in 2011.
Restructuring Costs
During the first six months of 2012, the Company commenced the Ellicottville relocation, resulting in the realization of discontinued inventory, severance and professional fee expenses to complete the move and recognize the anticipated cost savings. As a result, the Company recorded a restructuring charge of $217,739. See Note 10, Restructuring.
Interest Expense
Interest expense for the six months ended June 30, 2012 was $56,790, an increase of $28,929, or 103.8%, compared to interest expense of $27,861 for the same period of 2011. This increase is due to a larger draw on the line of credit with Bank of America Merrill Lynch compared to the same period in 2011.
Other Income (expense) - net
During May 2011 the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, TX to a new 100,500 sq. ft. building in DFW Airport, TX.
The Company sold its prior location to the City of Grapevine (the City) in 2009, and as part of the transaction, the City provided a $341,000 relocation allowance to offset the moving costs. This relocation allowance was recorded as Deferred revenue in the Companys consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against deferred revenue in the second quarter of 2011 and the remaining $129,232 was recorded as an increase to Other Income in the second quarter of 2011. See Note 2 to the consolidated financial statements.
Income Taxes
For the six months ended June 30, 2012, the Company recorded an income tax benefit of $56,976, compared to an income tax expense of $69,778 for the same period of 2011. The Companys effective tax rate differs significantly from the statutory rate primarily due to an increase in the valuation allowance of $95,410, as well as permanent timing differences between expenses recorded for financial and tax reporting. In addition, during the first quarter of 2012, certain statutes of limitations expired resulting in a decrease in income tax payable and a favorable tax provision of $69,791.
Non-GAAP Financial Measure Adjusted EBITDA
The Company presents the non-GAAP financial performance measure of Adjusted EBITDA because management uses this measure to monitor and evaluate the performance of the business and believes the presentation of this measure will enhance investors ability to analyze trends in the Companys business, evaluate the Companys performance relative to other companies, and evaluate the Companys ability to service debt.
Adjusted EBITDA is not a presentation made in accordance with GAAP and our computation of Adjusted EBITDA may vary from other companies. Adjusted EBITDA should not be considered as an alternative to operating earnings or net income as a measure of operating performance. In addition, Adjusted EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
| Does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
17
| Does not reflect changes in, or cash requirements for, our working capital needs; |
| Does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
| Excludes tax payments that represent a reduction in available cash; |
| Excludes non-cash equity based compensation; |
| Excludes one-time restructuring costs and pension settlement costs; and |
| Does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future. |
The following table reconciles earnings as reflected in our condensed consolidated statements of operations prepared in accordance with GAAP to Adjusted EBITDA:
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net loss |
$ | (229,822 | ) | $ | (69,860 | ) | ||
Income tax expense (benefit) |
(56,976 | ) | 69,778 | |||||
Interest expense |
56,790 | 27,861 | ||||||
Other expense |
14,716 | | ||||||
|
|
|
|
|||||
Other income (move allowance in excess of expense) |
| (126,683 | ) | |||||
Restructuring costs |
217,739 | | ||||||
Depreciation and amortization expense |
363,625 | 322,605 | ||||||
Equity based compensation |
5,500 | 30,100 | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 371,572 | $ | 253,800 | ||||
Adjusted EBITDA as a percentage of revenues |
5.8 | % | 4.2 | % |
Results of Operations Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011
Overall Results and Outlook
Consolidated net sales for the second quarter of 2012 reflect a decrease in net sales of $177,563 to $3,131,777 when compared to net sales of $3,309,340 for the same period of 2011, representing a 5.4% decrease. Pre-tax operating results declined to a pre-tax loss of $138,417 for the second quarter of 2012 from a pre-tax profit of $204,023 for the second quarter of 2011. After tax operating results declined to a net loss of $144,604 for the second quarter of 2012 from a net income of $140,981 for the second quarter of 2011. Net loss per share (basic and diluted) was $0.09 in the second quarter of 2012, a decline from a net income per share (basic and diluted) of $0.09 for the second quarter of 2011.
Net Sales
Consolidated net sales for the three months ended June 30, 2012 were $3,131,777, a decrease of $177,563, or 5.4%, compared to net sales of $3,309,340 for the same period of 2011. This was primarily due to locker orders in backlog shipping in July 2012 rather than June 2012. Approximately $90,000 in scheduled June 2012 locker shipments was delayed as a result of waiting for delivery of new keypads from a sole source vendor. Further, the product mix changed rapidly generating a demand for welding capacity faster than the Company could hire welders. The Company hired additional staff to address the issue in July 2012.
18
Sales of lockers for the three months ended June 30, 2012 were $1,982,469, a decrease of $555,602, or 21.9%, compared to sales of $2,538,071 for the same period of 2011. The decrease is primarily attributable to the vendor part issue mentioned above. Further, some orders were shipped in Q1 as evidenced by Q1 locker sales being $460,111, or 24.7%, above 2011 levels.
Sales of mailboxes were $479,526 for the three months ended June 30, 2012, an increase of $72,395, or 17.8%, compared to sales of $407,131 for the same period of 2011.
Sales of contract manufacturing services were $330,729 for the three months ended June 30, 2012 compared to $62,544 for the same period of 2011. This increase was primarily due to increased sales of electrical enclosures and fabricated parts to existing and new customers.
Concession revenue for the three months ended June 30, 2012 was $339,053, an increase of $37,459 or 12.4% from concession revenue of $301,594 for the same period of 2011. The concession revenue increase was driven by the inception of Ocean Park in November 2011, as well as improved year-over-year revenue at Disneyland California.
Three Months Ended June 30, | Percentage | |||||||||||
2012 | 2011 | Increase/(Decrease) | ||||||||||
Lockers |
$ | 1,982,469 | $ | 2,538,071 | (21.9 | )% | ||||||
Mailboxes |
479,526 | 407,131 | 17.8 | % | ||||||||
Contract Manufacturing |
330,729 | 62,544 | 428.8 | % | ||||||||
Concession Revenues |
339,053 | 301,594 | 12.4 | % | ||||||||
|
|
|
|
|||||||||
Total |
$ | 3,131,777 | $ | 3,309,340 | ||||||||
|
|
|
|
Gross Margin
Consolidated gross margin for the three months ended June 30, 2012 was $1,032,150, or 33.0% of net sales, compared to $1,148,585, or 34.7% of net sales, for the same period of 2011, a decrease of $116,435, or 10.1%. The decrease in gross margin as a percentage of sales was primarily due to an increase in depreciation expense of $41,020 resulting from installing new manufacturing equipment at the DFW Airport location. Gross margin as a percentage of sales decreased by 170 basis points due to the increased contract manufacturing revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2012 were $919,402 or 29.4% of net sales, compared to $1,072,737, or 32.4% of net sales for the same period of 2011, a decrease of $153,335, or 14.3%. The decrease in SG&A as a percentage of sales is primarily a result of decreased freight, travel, vacation, marketing and audit expense.
Restructuring Costs
During the second quarter of 2012, the Company commenced the Ellicottville relocation, resulting in the realization of discontinued inventory, severance and professional fee expenses to complete the move. As a result, the Company recorded a restructuring charge of $217,700. See Note 10, Restructuring.
19
Interest Expense
Interest expense for the three month period ended June 30, 2012 was $28,030, an increase of $13,646, or 94.9%, compared to interest expense of $14,384 for the same period of 2011. This increase is due to larger borrowings on the line of credit with Bank of America Merrill Lynch.
Other Income (expense) - net
On May 1, 2011 the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, TX to a new 100,500 sq. ft. building in DFW Airport, TX.
The Company sold its prior location to the City of Grapevine (the City) in 2009 and, as part of the transaction the City provided a $341,000 relocation allowance to offset moving costs. This relocation allowance was recorded as Deferred revenue in the Companys consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against deferred revenue in the second quarter of 2011 and the remaining $129,232 was recorded as an increase to Other Income in the second quarter of 2011. See Note 2 to the consolidated financial statements.
Income Taxes
For the second quarter of 2012, the Company recorded an income tax expense of $6,187 compared to an income tax expense of $63,042 for the same period of 2011. The Companys effective tax rate on earnings was approximately (4.4%) and 30.9% in the second quarter of 2012 and 2011, respectively. The Companys effective tax rate differs from the statutory rate primarily due to an increase in the valuation allowance of $64,194.
Non-GAAP Financial Measure Adjusted EBITDA
The Company presents the non-GAAP financial performance measure of Adjusted EBITDA because management uses this measure to monitor and evaluate the performance of the business and believe the presentation of this measure will enhance investors ability to analyze trends in the Companys business, evaluate the Companys performance relative to other companies and evaluate the Companys ability to service debt.
Adjusted EBITDA is not a presentation made in accordance with GAAP and our computation of Adjusted EBITDA may vary from other companies. Adjusted EBITDA should not be considered as an alternative to operating earnings or net income as a measure of operating performance. In addition, Adjusted EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
| Does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
20
| Does not reflect changes in, or cash requirements for, our working capital needs; |
| Does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
| Does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future; and |
| Excludes onetime expenses and equity compensation. |
The following table reconciles earnings as reflected in our condensed consolidated statements of operations prepared in accordance with GAAP to Adjusted EBITDA:
Three Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Net (loss) income |
$ | (144,604 | ) | $ | 140,981 | |||
Income tax expense |
6,187 | 63,042 | ||||||
Interest expense |
28,030 | 14,384 | ||||||
Other expense |
5,396 | | ||||||
Other income (move allowance in excess of expense) |
| (123,683 | ) | |||||
Restructuring costs |
217,739 | | ||||||
Depreciation and amortization expense |
181,868 | 165,160 | ||||||
Equity based compensation |
| 9,000 | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 294,616 | $ | 268,884 | ||||
Adjusted EBITDA as a percentage of revenues |
9.4 | % | 8.1 | % |
21
Liquidity and Sources of Capital
The Companys liquidity is reflected by its current ratio, which is the ratio of current assets to current liabilities, and its working capital, which is the excess of current assets over current liabilities. These measures of liquidity were as follows:
As of June 30, | As of December 31, | |||||||
2012 | 2011 | |||||||
Current Ratio |
1.57 to 1 | 1.57 to 1 | ||||||
Working Capital |
$ | 2,106,752 | $ | 2,085,925 |
The Companys capital expenditures approximated $90,000 and $1,228,000 for the six months ended June 30, 2012 and twelve months ended December 31, 2011, respectively. The significant decrease in capital expenditures was a result of larger 2011 capital expenditures due to the relocation of our headquarters and required equipment to support concession contracts.
In addition to cash flow from operations, the Companys primary sources of liquidity include available cash and cash equivalents and borrowings available under the Line of Credit.
Expected uses of cash in fiscal 2012 include funds required to support the Companys operating activities, capital expenditures and contributions to the Companys defined benefit pension plans.
The Company has considered the impact of the financial outlook on its liquidity and has performed an analysis of the key assumptions in its forecast. Based upon these analyses and evaluations, the Company expects that its anticipated sources of liquidity will be sufficient to meet its obligations without disposition of assets outside of the ordinary course of business or significant revisions of the Companys planned operations through 2012.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company.
Unregistered Sale of Equity Securities
In March 2012, the Company granted a total of 3,986 shares of common stock to non-employee directors and an officer. The shares were granted in consideration of services, and were valued at the market value on the date of grant. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act, as the issuance did not involve a public offering of securities.
22
The Company did not grant any shares of common stock to non-employee directors in the second quarter of 2012.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Raw Materials
The Company does not have any long-term commitments for the purchase of raw materials. With respect to its products that use steel and aluminum, the Company expects that any raw material price changes would be reflected in adjusted sales prices. The Company believes that the risk of supply interruptions due to such matters as strikes at the source of supply or to logistics systems is limited. Present sources of supplies and raw materials incorporated into the Companys products are generally considered to be adequate and are currently available in the marketplace.
Foreign Currency
The Companys Canadian and Hong Kong operations subject the Company to foreign currency risk, though it is not considered a significant risk since the foreign operations net assets represented only 8.1% of the Companys aggregate net assets at June 30, 2012. Presently, management does not hedge its foreign currency risk.
Item 4. | Controls and Procedures |
The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal accounting officer, of the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2012. These disclosure controls and procedures are designed to provide reasonable assurance to the Companys management and board of directors that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the principal executive officer and principal accounting officer of the Company have concluded that the Companys disclosure controls and procedures as of June 30, 2012 were effective, at the reasonable assurance level, to ensure that (a) material information relating to the Company is accumulated and made known to the Companys management, including its principal executive officer and principal accounting officer, to allow timely decisions regarding required disclosure and (b) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. There have been no changes in the Companys internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
23
Item 6. | Exhibits. |
Except as otherwise indicated, the following documents are filed as part of this Quarterly Report on Form 10-Q:
Exhibit |
Description | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934. | |
32.1 | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL INSTANCE DOCUMENT | |
101.SCH | XBRL EXTENSION SCHEMA DOCUMENT | |
101.CAZ | XBRL CALCULATION LINKBASE DOCUMENT | |
101.LAB | XBRL LABELS LINKBASE DOCUMENT | |
101.PRE | XBRL PRESENTATION LINKBASE DOCUMENT |
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Pursuant to the requirements 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 | ||||||
August 14, 2012 | By: | /s/ Paul M. Zaidins | ||||
Paul M. Zaidins | ||||||
Chief Executive Officer | ||||||
August 14, 2012 | By: | /s/ David C. Shiring | ||||
David C. Shiring | ||||||
Chief Financial Officer |
25
Exhibit 31.1
CERTIFICATION
I, Paul M. Zaidins, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of American Locker Group Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 14, 2012 | By: | /s/ Paul M. Zaidins | ||||
Paul M. Zaidins | ||||||
Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION
I, David C. Shiring, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of American Locker Group Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 14, 2012 | By: | /s/ David C. Shiring | ||||
David C. Shiring | ||||||
Chief Financial Officer |
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Exhibit 32.1
Certifications Pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of American Locker Group Incorporated (the Company) on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned, in the respective capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 14, 2012
/s/ Paul M. Zaidins |
Paul M. Zaidins |
Chief Executive Officer |
/s/ David C. Shiring |
David C. Shiring |
Chief Financial Officer |
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Inventories (Details) (USD $)
|
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Inventories | ||
Finished products | $ 294,827 | $ 321,378 |
Work-in-process | 669,995 | 862,000 |
Raw materials | 1,599,036 | 1,662,185 |
Net inventories | $ 2,563,858 | $ 2,845,563 |
Sale of Property
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Sale of Property [Abstract] | |
Sale of Property |
2. Sale of Property During May 2011, the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, Texas to a new 100,500 sq. ft. building in DFW Airport, Texas. The Company sold its prior location to the City of Grapevine (the “City”) in 2009 and, as part of that transaction, the City provided a $341,000 relocation allowance to offset the moving costs. This relocation allowance was recorded as “Deferred revenue” in the Company’s consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against such deferred revenue in the second quarter of 2011 and the remaining $129,232 in relocation allowance was recorded as “Other income” in the second quarter of 2011. Proceeds of the sale were used to pay off the $2 million mortgage secured by the property and for general working capital purposes. The Company invested approximately $875,000 during 2011 for leasehold improvements and machinery and equipment related to relocating. |