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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission file number 0-439
American Locker Group Incorporated
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(Exact Name of registrant as specified in its charter)
Delaware 16-0338330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
608 Allen Street, Jamestown, New York 14701-3966
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 1-716-664-9600
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock Par Value $1.00 Per Share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained in this form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
At March 16, 2001, the Registrant had outstanding 2,062,440 shares of
its Common Stock. The aggregate market value of the Registrant's voting stock
held by non-affiliates at this date was approximately $8,212,456, based on the
closing price per share of Common Stock on this date of $6.625 as reported on
the NASDAQ. Shares of Common Stock known by the Registrant to be beneficially
owned by directors of the Registrant and officers of the Registrant and other
persons reporting beneficial ownership of 5% or more of Common Stock pursuant to
the reporting requirements of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are not included in the computation. The
Registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Stockholders'
Meeting to be held May 15, 2001, are incorporated by reference into Part III.
2
PART I
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ITEM 1. DESCRIPTION OF BUSINESS
American Locker Group Incorporated (the "Company") is engaged primarily in the
sale and rental of lockers. This includes coin, key-only, and electronically
controlled checking lockers and related locks and plastic centralized mail and
parcel distribution lockers. The key controlled checking lockers are sold to the
recreational and transportation industries, bookstores, military posts, law
enforcement agencies, libraries and for export. The electronically controlled
lockers are sold for use as secure storage in the business environment and the
electronically controlled, coin operated lockers are sold for use in
transportation industry and other uses. The plastic centralized mail and parcel
distribution lockers are sold to the United States Postal Service ("USPS") for
use in centralized mail and parcel delivery in new housing and industrial
developments, as well as replacement of older style lockers in existing
locations.
The Company is an engineering, assembling and marketing enterprise which also
manufactures its own mechanical locks for use in its products.
The Company was incorporated on December 15, 1958, as a subsidiary of its former
publicly-owned parent. In April 1964, the Company's shares were distributed to
the stockholders of its former parent, and it became a publicly-held
corporation. From 1965 to 1989, the Company acquired and disposed of a number of
businesses including the disposition of its original voting machine business.
One of the Company's subsidiaries is a party to a Manufacturing Agreement dated
October 1, 2000 with Signore, Inc., formerly a wholly owned subsidiary of the
Company, to furnish fabricating, assembly and shipping services. The Agreement,
which replaced a similar agreement dated January 1, 1990, became effective
October 1, 2000 and is for a term of three years, with options to extend the
agreement to August 31, 2007. The Agreement provides that the cost to the
Company for these services be equal to Signore's standard cost divided by 80%.
BUSINESS SEGMENT INFORMATION
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The Company, including its foreign subsidiary, is engaged in one business: sale
and rental of lockers, including coin, key-only and electronically controlled
checking lockers and locks and the sale of plastic centralized mail and parcel
distribution lockers.
The Company has developed a range of products to support the United States
Postal Service (USPS) Centralized Delivery program. Outdoor Parcel Lockers
(OPLs) are used by the USPS for delivery of parcels. Since March 1989, the
Company has shipped over 160,000 OPLs to the USPS. Cluster Box Units (CBUs) are
used by the USPS for delivery of letters and parcels and for the collection of
outgoing mail. In November 1994, the Company negotiated a contract to sell Type
Three CBUs in quantity to the United States Postal Service. Type One and Type
Two CBUs are approved and included in the current contract. As of March 16,
2001, Cluster Box Units with aggregate invoice prices in excess of $120,000,000
have been shipped to the United States Postal Service pursuant to the 1994
contract and subsequent contracts. Components of
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these units are made by outside vendors and the units are assembled by The
Company's wholly-owned subsidiary, American Locker Security Systems, Inc.
(ALSSI). The units are sold directly by ALSSI to the United States Postal
Service.
The checking lockers are fabricated by Signore, Inc. and are marketed in the
United States by ALSSI. Lockers for the Canadian market are manufactured by
Signore, Inc. with locks supplied from ALSSI. Lockers are marketed in Canada by
the Canadian Locker Company, Ltd. ("Canadian Locker"), a wholly-owned
subsidiary. These sales are made outright, through salaried employees and
distributors, to customers who need storage facilities requiring a key
controlled lock system in the recreational, governmental and institutional type
industries. Canadian Locker also owns and operates coin operated lockers in air,
bus and rail terminals and retail locations in Canada. ALSSI manufactures the
lock system, which is coin or key controlled and operated, for use in lockers
sold by ALSSI and Canadian Locker. ALSSI also provides nationwide and Canadian
maintenance and repair services with respect to coin operated lockers previously
sold by ALSSI. The Company has developed a coin operated baggage cart system and
is operating the system at one major Canadian airport, one major United States
airport and has sold several cart systems for use in U.S. airports.
Additional information with respect to business segment data, including
significant customers, is disclosed in Note 12 of the financial statements
included in Item 8 of this Form 10-K.
COMPETITION
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While the Company is not aware of any reliable trade statistics, it believes
that its subsidiaries, ALSSI and Canadian Locker are the dominant suppliers of
key controlled checking lockers in the United States and Canada. However, the
Company faces more active competition from several other manufacturers of locker
products sold to the United States Postal Service and other purchasers.
RAW MATERIALS
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Present sources of supplies and raw materials incorporated into the Company's
metal and plastic lockers and locks are generally considered to be adequate and
are currently available in the market place. The Company's supplier of
polycarbonate plastic which is used in the parcel lockers and CBUs entered this
market in March 1992 and is presently supplying this raw material which meets
strict specifications imposed by the United States Postal Service. In the event
the present supplier declines to continue to supply this material, the Company
would be required to seek an alternate source of supply.
The Company's metal lockers are manufactured by Signore, Inc. pursuant to the
Manufacturing Agreement, except for the locks which are manufactured by ALSSI.
PATENTS
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The Company owns a number of patents, none of which it considers material to the
conduct of its business.
4
EMPLOYEES
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The Company and its subsidiaries actively employed 144 individuals on a
full-time basis as of December 31, 2000, in its businesses of whom 52 are in
Canada. The Company considers its relations with its employees to be
satisfactory. None of the Company's employees are represented by a union.
DEPENDENCE ON MATERIAL CUSTOMER
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During 2000, 1999 and 1998, one customer, the United States Postal Service,
accounted for 70.9%, 74.3%, and 76.9% of net sales, respectively. The loss of
this customer, or a reduction in its orders, could adversely affect the
Company's operations and financial results.
RESEARCH AND DEVELOPMENT
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The Company engages in research and development activities relating to new and
improved products as an incident of its normal manufacturing operations in
conjunction with the continuing operations. It expended $92,848, $26,403, and
$17,081, in 2000, 1999 and 1998, respectively, for such activity in its
continuing businesses, which does not include new product development costs.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
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Based on the information available to it, the Company believes that it is in
compliance with present federal, state and local environmental laws and
regulations.
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance, inconveniences and disruption to plaintiffs'
lives," $25,000,000 in punitive damages, and $15,000,000 to establish a "trust
account" for monitoring indoor air quality and other remedies." The Company
believes that its potential liability with respect to this site, if any, is
diminimus. Therefore, based on the information currently available, management
does not believe the outcome of this suit will have a substantial impact on the
Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights.
5
GENERAL
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Backlog of orders is not significant in the Company's business as shipments
usually are made shortly after orders are received. The Company's sales do not
have marked seasonal variations.
EXECUTIVE OFFICERS OF THE COMPANY
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YEAR FIRST
ASSUMED
NAME AGE OFFICE HELD WITH COMPANY POSITION
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Edward F. Ruttenberg 54 Chairman of the Board and 1998
Chief Executive Officer
Roy J. Glosser 40 President, Chief Operating 1996
Officer and Treasurer
Mr. E.F. Ruttenberg has been employed in his positions since September, 1998.
Prior to that date he served as Vice Chairman of the Company. Mr. Glosser
assumed his position as President and Chief Operating Officer in May 1996 and
became Treasurer in September 1998. Prior to that date, Mr. Glosser served as
Vice President - Operations of the Company since 1995 and has been employed by
the Company since 1992 in operations and product development.
There are no arrangements or understandings pursuant to which any of the
officers were elected as officers, except for an employment contract between the
Company and Roy J. Glosser and an employment contract between the Company and
Edward F. Ruttenberg. Except as provided in such employment contracts, all
officers hold office for one year and until their successors are elected and
qualified; provided, however, that any officer is subject to removal with or
without cause, at any time, by a vote of the majority of the Board of Directors.
There have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
6
ITEM 2. DESCRIPTION OF PROPERTY
The location and approximate floor space of the Company's principal plants,
warehouses and office facilities are as follows ( * indicates leased facility):
APPROXIMATE
FLOOR SPACE
LOCATION SUBSIDIARY IN SQ. FT. PRODUCTS
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Jamestown, NY Principal Executive Office 37,000* Office space/
American Locker Company, Inc. Assembly and
and American Locker Security Warehouse
Systems, Inc.
Jamestown, NY American Locker Security 30,200* Assembly and
Systems, Inc. Warehouse
Pittsburgh, PA Executive Office 500* Office space
Ellicottville, NY American Locker Security 12,800 Lock manufacturing
Systems, Inc. - Lock Shop service and repair
Toronto, Canadian Locker Company, Ltd. 4,000* Coin-operated
Ontario lockers and locks
Toronto,
Ontario Canadian Locker Company, Ltd. 3,000* Warehouse
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TOTAL 87,500
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The Company believes that its facilities which are of varying ages and types of
construction and the machinery and equipment utilized in such plants are in good
condition and are adequate for its presently contemplated needs. All facilities
are leased except for the Ellicottville facility. The leases on these properties
terminate at various times from 2001 through 2005.
7
ITEM 3. LEGAL PROCEEDINGS
In September 1998 and subsequent months, the Company was named as an additional
defendant in 110 cases pending in state court in Massachusetts. The plaintiffs
in each case assert that a division of the Company manufactured and furnished to
various shipyards components containing asbestos during the period from 1948 to
1972 and that injuries resulted from exposure to such products. The assets of
this division were sold by the Company in 1973. During the process of discovery
in certain of these actions, documents from sources outside the Company have
been produced which indicate that the Company appears to have been included in
the chain of title for certain wall panels which contained asbestos and which
were delivered to the Massachusetts shipyards. Defense of these cases has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights. As of March 13, 2001, settlement agreements have been entered in 6
cases with funds authorized and provided by the Company's insurance carrier.
Further, 32 cases originally filed in 1995, 1996 and 1997 against other
defendants to which the Company was joined as an additional defendant have been
terminated as to the Company without liability to the Company under
Massachusetts procedural rules. Therefore, the balance of unresolved cases
against the Company as March 13, 2001 is 72 cases originally filed against other
defendants in 1998 through 2001.
See "Item 1. Business - Compliance with Environmental Laws and Regulations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders, by means of
solicitation of proxies or otherwise, during the fourth quarter of 2000.
8
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock (Par Value $1.00 per share) are not listed
on any exchange, but are traded on the over-the-counter market and quotations
are reported by the National Association of Security Dealers, Inc. through their
Automated Quotation System (NASDAQ) on the National Market System. The trading
symbol is ALGI. The following table shows the range of the low and high sale
prices for each of the calendar quarters indicated.
PER COMMON SHARE
MARKET PRICE
DIVIDEND
1999 HIGH LOW DECLARED
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First Quarter $26.00 $13.25 $0.00
Second Quarter 14.25 6.375 0.00
Third Quarter 9.62 5.25 0.00
Fourth Quarter 8.75 5.125 0.00
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Total $0.00
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DIVIDEND
2000 HIGH LOW DECLARED
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First Quarter $8.438 $5.375 $0.00
Second Quarter 7.75 5.50 0.00
Third Quarter 6.50 4.75 0.00
Fourth Quarter 6.75 4.25 0.00
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Total $0.00
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As of March 16, 2001, the Company had 1,307 security holders of record.
By agreement with its principal lender, the Company's ability to declare future
dividends is restricted. See Note 4 to the financial statements included in Item
8 of this Form 10-K.
9
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the Company
as of, and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. The
financial data set forth below should be read in conjunction with the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 of this Form 10-K and the
Financial Statements of the Company and the notes thereto included in Item 8 of
this Form 10-K.
2000 1999 1998 1997 1996
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Sales $37,662,140 $34,950,104 $45,011,327 $29,295,533 $22,517,589
Income before income taxes 4,840,632 4,395,208 7,103,364 3,454,508 1,819,184
Income taxes 1,891,419 1,771,407 2,788,822 1,342,033 674,352
Net income 2,949,213 2,623,801 4,314,542 2,112,475 1,144,832
Earnings per share - basic (2) 1.33 1.11 1.78 0.72 0.35
Earnings per share - diluted (2) 1.32 1.09 1.70 0.70 0.35
Weighted average common shares
outstanding - basic (2) 2,214,406 2,363,338 2,420,078 2,909,788 3,232,408
Weighted average common shares
outstanding - diluted (2) 2,230,785 2,402,108 2,542,684 3,000,128 3,307,876
Dividends declared 0.00 0.00 0.00 0.00 0.00
Interest expense 140,920 153,861 231,875 181,678 208,827
Depreciation expense 796,140 630,047 646,379 600,632 622,392
Expenditures for property, plant and 206,604 1,915,139 536,819 520,358 234,621
equipment
YEAR-END POSITION
Total assets 15,582,599 15,179,069 13,469,516 11,263,725 10,020,078
Long-term debt, including current portion 333,320 2,034,324 733,333 3,094,000 1,300,000
Stockholders' equity 11,723,825 10,107,210 9,264,056 4,919,145 5,358,147
Stockholders' equity per share of common 5.68 4.44 3.82 2.04 1.67
stock (1) (2)
Common shares outstanding at year-end (2) 2,062,540 2,277,118 2,422,772 2,405,780 3,200,096
Number of employees 144 137 135 120 134
(1) Based on shares outstanding at year-end.
(2) All years presented have been restated to reflect the impact of a
four-for-one stock distribution during 1998.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - 2000 COMPARED TO 1999
Consolidated sales in 2000 totaled $37,662,000, an 8% increase from sales of
$34,950,000 in 1999. Income before income taxes in 2000 increased by $446,000 or
10% to $4,841,000 compared to $4,395,000 in 1999. Sales of the Company's plastic
Cluster Box Units (CBUs) to the United States Postal Service (USPS) increased 3%
to $26,705,000 in 2000 from $25,969,000 in 1999. Revenues from the Company's
other locker products, primarily the sale and rental of metal, coin and key-only
and electronically controlled lockers, increased 17% to $9,871,000 in 2000 from
$8,442,000 in 1999. Revenues from the luggage cart business for airport
terminals were $1,086,000 in 2000, an increase of $547,000 or 102% compared to
1999 revenues of $539,000. This increase is the result of a full year of
operations at the Detroit Metropolitan Airport in 2000 versus three months in
1999.
The increase in sales of plastic postal lockers resulted from an increase in the
total number of CBUs sold to the USPS in 2000 as compared to 1999. The Company's
present contract with the USPS covers all three types of CBUs and the Outdoor
Parcel Locker (OPL). The contract was originally awarded March 27, 1996 and the
USPS has exercised four one-year options, which extended the contract to
mid-April 2001. The Company has submitted a proposal and is currently
negotiating with the USPS for a two year contract with four, two-year options to
renew.
The Company believes that the long-term outlook for CBU volume remains favorable
in light of the continued USPS commitment to the CBU program and its resulting
operating cost reduction benefits. The USPS decision to discontinue the purchase
of Neighborhood Delivery and Collection Box Units (NDCBUs) in 1999 has also had
a positive impact on the CBU market. The CBU is the modernization of the NDCBU
and is an integral part of the USPS delivery cost reduction program identified
as Centralized Delivery. As previously disclosed, total CBU demand is influenced
by a number of factors over which the Company has no control, including but not
limited to: USPS budgets, policies and financial performance, domestic new
housing starts, postal rate increases, and the weather as these units are
installed outdoors. The Company's share of the CBU market increased slightly in
2000. The Company believes its CBU product line continues to represent the best
value when all factors including price, quality of design and construction,
long-term durability and service are considered.
The increase in the revenue from the Company's other locker products is, in part
due to the new plastic coin-operated locker, which the Company introduced in
April 2000, as well as increases in various other locker product lines.
Consolidated cost of sales as a percentage of sales remained consistent in 2000,
at 71.8% the same percentage as 1999. Operating efficiencies obtained from
higher volume were offset by price concessions on the CBUs.
Selling, administrative and general expenses of $6,040,000 during 2000 increased
7% from $5,652,000 in 1999. This is primarily the result of higher selling
expenses in 2000 which
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corresponds to the 8% increase in sales from 1999 to 2000. Selling,
administrative and general expenses were 16% of sales in both 2000 and 1999.
Interest income increased by $103,000 in 2000 compared to 1999 as a result of
higher cash balances during 2000 versus 1999.
Interest expense decreased in 2000 as a result of the Company paying its
$1,500,000 term loan during the third quarter of 2000.
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Consolidated sales in 1999 totaled $34,950,000, a 22% decrease from sales of
$45,011,000 in 1998. Income before income taxes in 1999 declined 38% to
$4,395,000 compared to $7,103,000 in 1998. Sales of the Company's plastic
Cluster Box Units (CBUs) to the United States Postal Service (USPS) decreased
23% to $25,969,000 in 1999 from $33,611,000 in 1998. Revenues from the Company's
other locker products, primarily the sale and rental of metal, coin and key-
only and electronically controlled lockers, decreased 23% to $8,442,000 in 1999
from $11,038,000 in 1998. During 1999, the Company expanded its luggage cart
business for airport terminals by commencing service at the Detroit Metropolitan
Airport. The luggage cart business generated revenue of approximately $539,000
in 1999 compared to $362,000 in 1998.
The decline in sales of plastic lockers resulted from a decline in the total
number of CBUs sold to the USPS in 1999 as compared to 1998 and also to lower
selling prices per unit. As a result of the USPS accumulation of CBU inventories
in 1998 and the USPS operating losses associated with deferring a postal rate
increase, the USPS purchased fewer CBUs in 1999.
Sales of the Company's other locker products decreased due to a general decrease
in demand across all markets served by the Company as well as increased
competition.
Consolidated cost of sales as a percentage of sales increased to 71.8% in 1999
compared to 70.0% in 1998. The increase was the result of the lower unit sales
of the Company's products, primarily the CBUs, as well as CBU price concessions.
Selling, administrative and general expenses of $5,652,000 during 1999 decreased
14% from $6,608,000 in 1998. The decrease is primarily the result of two unusual
1998 expenses. In 1998, Roy J. Glosser, President and Chief Operating Officer
was granted and exercised stock appreciation rights which resulted in $327,000
of additional compensation expense. The Company also expensed $400,000 to
provide for the entire obligation under the supplemental executive retirement
program (SERP) as a result of the death of the former chairman and chief
executive officer of the Company. The remaining decrease in 1999 compared to
1998 is due to lower selling expenses as a result of the decrease in sales
volume.
Interest expense decreased to $154,000 in 1999 from $232,000 in 1998. The
decrease in 1999 is due to lower average outstanding debt during 1999 as
compared to 1998. The increase in long-term debt at December 31, 1999 compared
to December 31, 1998 is due to the Company entering into a term loan during June
1999, which increased long-term debt by $1,500,000.
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LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity is reflected in the ratio of current assets to current
liabilities or current ratio and its working capital. The current ratio was 4.39
to 1 and 4.68 to 1 at December 31, 2000 and 1999, respectively. Working capital,
or the excess of current assets over current liabilities was $10,706,000 and
$9,973,000 at December 31, 2000 and 1999, respectively. The increase in working
capital resulted primarily from operations. In 2000, the Company's operations
generated $3,571,000 of cash.
The Company's policy is to maintain modern equipment and adequate capacity.
During 2000, 1999, and 1998, the Company expended $207,000, $1,915,000, and
$537,000, respectively, for capital additions. Capital expenditures in all three
years were financed principally from operations.
The Company expects that cash generated from operations in 2001 will be adequate
to fund the needs for working capital, capital expenditures and debt payments.
However, if necessary, the Company has a $3,000,000 revolving bank
line-of-credit available to assist in satisfying future operating cash needs.
IMPACT OF INFLATION AND CHANGING PRICES
Although inflation has been low in recent years, it is still a factor in the
economy and the Company continues to seek ways to mitigate its impact. To the
extent permitted by competition, the Company passes increased costs on to its
customers by increasing sales prices over time. Specifically, the Company does
have the ability to modify its contract with the USPS regarding sales prices in
the event of a significant price increase for materials subject however to
competitive situations. In respect to its other products, both steel and
plastic, the Company expects that any raw material price changes would be
reflected in adjusted sales prices.
The Company intends to seek ways to control the administrative overhead
necessary to successfully run the business. By controlling these costs, the
Company can continue to competitively price its products with other top quality
locker manufacturers and distributors.
The Company has used the LIFO method of accounting for its inventories since
1974. This method matches current costs with current revenues and during an
inflationary period, reduces reported income but improves cash flow due to a
reduction of taxes based on income.
MARKET RISKS - FOREIGN CURRENCY AND INTEREST RATE RISKS
The Company's Canadian operation subjects the Company to foreign currency risk,
though it is not considered a significant risk since the Canadian operation's
net assets represent less than 10% of the Company's aggregate net asset position
at December 31, 2000. Presently, management does not hedge its foreign currency
risk as it plans to indefinitely reinvest the Canadian net assets in the
Canadian operation.
13
The interest rate on the Company's long-term debt is based upon the prime
interest rate; accordingly the Company is exposed to interest rate risk, though
the low outstanding debt balance of $333,000 mitigates this risk at December 31,
2000. Based upon the Company's outstanding long-term debt at December 31, 2000,
a 1% increase in interest rates would result in an increase to interest expenses
of approximately $3,000.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The intended use of the
derivative and its designation as either (1) a hedge of the exposure to changes
in the fair value of a recognized asset or liability or a firm commitment (a
fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (a cash flow hedge), or (3) a hedge of the foreign
currency exposure of a net investment in a foreign operation (a foreign currency
hedge), will determine when the gains or losses on the derivatives are to be
reported in earnings and when they are to be reported as a component of other
comprehensive income. This new standard must be adopted for year 2001 financial
reporting. At this time, management does not believe that the pronouncement will
impact the Company's financial statements.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations, and intentions are subject to
change at any time at the discretion of the Company, (ii) the Company's plans
and results of operations will be affected by the Company's ability to manage
its growth and inventory, and (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required is reported under "Impact of Inflation and Changing
Prices" and "Market Risks - Foreign Currency and Interest Rate Risk" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors and Stockholders
American Locker Group Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheets of American Locker
Group Incorporated and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
management of the Company. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Locker
Group Incorporated and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/Ernst & Young LLP
Buffalo, New York
February 21, 2001
15
American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
2000 1999
-----------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,696,359 $ 3,285,983
Accounts and notes receivable, less allowance
for doubtful accounts of $324,000 in 2000
and $222,000 in 1999 4,633,422 3,814,185
Inventories 4,818,348 4,973,269
Prepaid expenses 45,209 125,581
Deferred income taxes 668,769 481,163
-----------------------------------------
Total current assets 13,862,107 12,680,181
Property, plant and equipment:
Land 500 500
Buildings 389,959 390,953
Machinery and equipment 10,378,983 10,309,324
-----------------------------------------
10,769,442 10,700,777
Less allowance for depreciation (9,048,950) (8,290,534)
-----------------------------------------
1,720,492 2,410,243
Deferred income taxes - 88,645
-----------------------------------------
-----------------------------------------
Total assets $15,582,599 $ 15,179,069
=========================================
16
DECEMBER 31
2000 1999
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,513,203 $ 1,410,948
Commissions, salaries, wages and taxes thereon 323,769 311,172
Other accrued expenses 659,852 610,947
Federal, state and foreign income taxes payable 458,825 49,432
Current portion of long-term debt 200,000 325,000
---------------------------------------
Total current liabilities 3,155,649 2,707,499
Long-term liabilities:
Long-term debt 133,320 1,708,324
Pension and other benefits 470,375 656,036
Deferred income taxes 99,430 -
---------------------------------------
703,125 2,364,360
Stockholders' equity:
Common stock, $1 par value:
Authorized shares - 4,000,000
Issued shares - 2,511,550 in 2000, 2,498,768 in 1999
Outstanding shares - 2,062,540 in 2000,
2,277,118 in 1999 2,511,550 2,498,768
Other capital 565,331 538,455
Retained earnings 12,550,001 9,600,788
Treasury stock at cost (449,010 shares in 2000
221,650 in 1999) (3,717,603) (2,367,966)
Accumulated other comprehensive income (185,454) (162,835)
---------------------------------------
Total stockholders' equity 11,723,825 10,107,210
---------------------------------------
Total liabilities and stockholders' equity $15,582,599 $ 15,179,069
=======================================
See accompanying notes.
17
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
2000 1999 1998
--------------------------------------------------------------
Net sales $ 37,662,140 $ 34,950,104 $ 45,011,327
Cost of products sold 27,025,940 25,099,003 31,493,280
--------------------------------------------------------------
10,636,200 9,851,101 13,518,047
Selling, administrative and general expenses 6,039,584 5,652,262 6,608,376
--------------------------------------------------------------
4,596,616 4,198,839 6,909,671
Interest income 190,486 96,057 102,826
Other income - net 194,450 254,173 322,742
Interest expense (140,920) (153,861) (231,875)
--------------------------------------------------------------
Income before income taxes 4,840,632 4,395,208 7,103,364
Income taxes 1,891,419 1,771,407 2,788,822
--------------------------------------------------------------
Net income $ 2,949,213 $ 2,623,801 $ 4,314,542
==============================================================
Earnings per share of common stock:
Basic $1.33 $1.11 $1.78
==============================================================
==============================================================
Diluted $1.32 $1.09 $1.70
==============================================================
Dividends per share of common stock: $0.00 $0.00 $0.00
==============================================================
See accompanying notes.
18
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
Accumulated
Other Total
Common Other Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
------------------------------------------------------------------------------------------
Balance at January 1, 1998 $ 2,405,780 $ - $ 2,662,445 $ - $ (149,080) $ 4,919,145
Comprehensive income:
Net income - - 4,314,542 - - 4,314,542
Other comprehensive income:
Foreign currency translation - - - - (61,490) (61,490)
----------------
Total comprehensive income 4,253,052
Common stock issued (17,000 shares) 17,000 8,063 - - - 25,063
Tax benefit of exercised stock options - 66,894 - - - 66,894
Common stock purchased and
retired (8 shares) (8) (90) - - - (98)
---------------------------------------------------------------------------------------
Balance at December 31, 1998 2,422,772 74,867 6,976,987 - (210,570) 9,264,056
Comprehensive income:
Net income - - 2,623,801 - - 2,623,801
Other comprehensive income:
Foreign currency translation - - - - 47,735 47,735
----------------
Total comprehensive income 2,671,536
Common stock issued (76,000 shares) 76,000 (21,375) - - - 54,625
Tax benefit of exercised stock options - 485,000 - - - 485,000
Common stock purchased for
treasury (221,650 shares) - - - (2,367,966) - (2,367,966)
Common stock purchased and retired
(4 shares) (4) (37) - - - (41)
----------------------------------------------------------------------------------------
Balance at December 31, 1999 2,498,768 538,455 9,600,788 (2,367,966) (162,835) 10,107,210
Comprehensive income:
Net income - - 2,949,213 - - 2,949,213
Other comprehensive income:
Foreign currency translation - - - - (22,619) (22,619)
---------------
Total comprehensive income 2,926,594
Common stock issued (13,400 shares) 13,400 3,012 - - - 16,412
Tax benefit of exercised stock options - 27,000 - - - 27,000
Common stock purchased for
treasury (227,360 shares) - - - (1,349,637) - (1,349,637)
Common stock purchased and retired
(618 shares) (618) (3,136) - - - (3,754)
----------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 2,511,550 $ 565,331 $ 12,550,001 $ (3,717,603) $ (185,454) $ 11,723,825
========================================================================================
See accompanying notes.
19
American Locker Group Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
2000 1999 1998
---------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,949,213 $ 2,623,801 $ 4,314,542
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 796,140 630,047 646,379
Loss on disposition of property, plant and equipment - - 1,265
Deferred income taxes (credits) 469 69,314 (57,139)
Changes in assets and liabilities:
Accounts and notes receivable (826,958) 263,872 438,478
Inventories 154,780 1,338,862 (2,675,794)
Prepaid expenses 80,251 25,805 (62,058)
Accounts payable and accrued expenses 173,656 (493,590) 687,462
Income taxes 436,393 451,491 182,350
Pension and other benefits (192,511) 84,863 311,613
---------------------------------------------------
Net cash provided by operating activities 3,571,433 4,994,465 3,787,098
INVESTING ACTIVITIES
Purchase of property, plant and equipment (206,604) (1,915,139) (536,819)
Proceeds from sale of property, plant and equipment 87,378 - 9,426
---------------------------------------------------
Net cash used in investing activities (119,226) (1,915,139) (527,393)
FINANCING ACTIVITIES
Net repayment under line of credit - - (850,000)
Long-term debt borrowings - 1,500,000 -
Long-term debt payments (1,700,004) (200,000) (2,360,667)
Common stock issued 16,412 54,625 25,063
Common stock purchased for treasury (1,349,637) (2,367,966) -
Common stock purchased and retired (3,754) (41) (98)
---------------------------------------------------
Net cash used in financing activities (3,036,983) (1,013,382) (3,185,702)
Effect of exchange rate changes on cash (4,848) 32,032 (40,041)
---------------------------------------------------
Net increase in cash 410,376 2,097,976 33,962
Cash and cash equivalents at beginning of year 3,285,983 1,188,007 1,154,045
---------------------------------------------------
Cash and cash equivalents at end of year $ 3,696,359 $ 3,285,983 $ 1,188,007
===================================================
Supplemental cash flow information: Cash paid during the year for:
Interest $ 151,749 $ 143,032 $ 240,600
===================================================
Income taxes $ 1,455,026 $ 1,250,602 $ 2,665,587
===================================================
See accompanying notes.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN LOCKER GROUP INCORPORATED AND SUBSIDIARIES
1. BASIS OF PRESENTATION
CONSOLIDATION AND BUSINESS DESCRIPTION
The consolidated financial statements include the accounts of American Locker
Group Incorporated and its subsidiaries (the Company), all of which are
wholly-owned. Intercompany accounts and transactions have been eliminated in
consolidation. The Company is primarily engaged in one business, sale and rental
of lockers. This includes coin, key-only and electronically controlled checking
lockers and locks and sale of plastic centralized mail and parcel distribution
lockers. The Company sells to customers throughout North America as well as
internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash includes currency on hand and demand deposits with financial institutions.
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued principally at the lower of cost or market, cost
determined by the last-in, first-out method.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed by
the straight-line and declining-balance methods for financial reporting purposes
and by accelerated methods for income tax purposes. Estimated useful lives for
financial reporting purposes are 30 years for buildings and 3 to 12 years for
machinery and equipment.
REVENUE RECOGNITION
Revenue is recognized at the point of passage of title, which is at the time of
shipment to the customer. Less than three percent of the Company's revenues were
derived from sales to distributors. No distributor stocks a material inventory
of the Company's products and no distributor has the right to return.
21
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHIPPING AND HANDLING COSTS
Shipping and handling costs are expensed as incurred and are included in
selling, administrative and general expenses in the accompanying consolidated
statements of income. These costs were approximately $185,000, $190,000 and
$235,000 during 2000, 1999 and 1998, respectively.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred $274,000,
$332,000 and $310,000 in advertising costs during 2000, 1999 and 1998,
respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109").
EARNINGS PER SHARE
The Company reports earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128
basic earnings per share excludes any dilutive effects of stock options, whereas
diluted earnings per share assumes exercise of stock options, when dilutive,
resulting in an increase in outstanding shares.
FOREIGN CURRENCY
The assets and liabilities of the Company's foreign subsidiary are translated to
U.S. dollars at current exchange rates. Income statement amounts are translated
using the average exchange rate for the year. The gains and losses resulting
from the changes in exchange rates from year to year have been reported in other
comprehensive income. The effect on the statements of income of transaction
gains and losses is insignificant for all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable, and accrued liabilities approximate fair value due
to the short-term maturities of these assets and liabilities. The carrying
amounts of the Company's bank borrowings also approximate fair value since the
interest rates are adjusted based upon changes in the prime interest rate.
STOCK-BASED COMPENSATION
The Company accounts for stock options granted under its stock-based
compensation plan in accordance with the intrinsic value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as allowed under
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost for stock options
is
22
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized because the number of options granted is fixed and the exercise price
of the stock options equals the market price of the underlying stock on the date
of the grant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize as
either assets or liabilities in the balance sheets and measure those instruments
at fair value. The intended use of the derivative and its designation as either
(1) a hedge of the exposure to change in the fair value of a recognized asset or
liability or a firm commitment (a fair value hedge), (2) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation (a foreign currency hedge), will determine when the gains or losses on
the derivatives are to be reported in earnings and when they are to be reported
as a component of other comprehensive income.
This new standard must be adopted for year 2001 financial reporting. Management
has determined that it does not have current transactions that would require
reporting under SFAS 133.
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31
2000 1999
---------------------------------------
Finished products $ 986,369 $1,363,889
Work-in-process 1,541,110 1,856,704
Raw materials 2,888,897 2,373,527
---------------------------------------
5,416,376 5,594,120
Less allowance to reduce to LIFO basis (598,028) (620,851)
---------------------------------------
Net inventories $ 4,818,348 $4,973,269
=======================================
23
4. DEBT
Long-term debt consists of the following:
DECEMBER 31
2000 1999
---------------------------------------
Note payable to bank, unsecured, payable through August 31,
2002 at $16,667 per month plus interest at prime plus 0.15% $ 333,320 $ 533,324
Note payable to bank, unsecured, with interest at prime - 1,500,000
---------------------------------------
Total long-term debt 333,320 2,033,324
Less current portion 200,000 325,000
---------------------------------------
Long-term portion $ 133,320 $1,708,324
=======================================
The credit agreement underlying the notes payable to bank requires compliance
with certain covenants and has restrictions on the payment of dividends. The
Company was in compliance with the terms of the agreement in connection with the
notes payable at December 31, 2000.
Based upon the outstanding balances at December 31, 2000, the required principal
payments on long-term obligations in each of the years through final maturity
are as follows:
2001 $ 200,000
2002 133,320
The Company has a $3,000,000 unsecured line of credit agreement with a bank with
interest at the prime rate (9.5% at December 31, 2000). There were no borrowings
outstanding under the line of credit at December 31, 2000.
5. OPERATING LEASES
The Company leases several operating facilities and vehicles under noncancelable
operating leases. Future minimum lease payments consist of the following at
December 31, 2000:
2001 $ 298,000
2002 203,000
-----------
$ 501,000
===========
Rent expense amounted to approximately $313,000, $322,000 and $252,000 in 2000,
1999 and 1998, respectively.
24
6. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
2000 1999 1998
-------------------------------------------------------
United States $ 4,846,963 $ 4,286,818 $ 7,055,116
Foreign income (loss) (6,331) 108,390 48,248
-------------------------------------------------------
$ 4,840,632 $ 4,395,208 $ 7,103,364
=======================================================
Significant components of the provision for income taxes are as follows:
2000 1999 1998
-------------------------------------------------------
Current:
Federal $ 1,601,253 $ 1,386,855 $ 2,431,459
State 286,924 266,557 390,548
Foreign 2,773 48,681 23,954
-------------------------------------------------------
Total current 1,890,950 1,702,093 2,845,961
Deferred:
Federal 70 58,917 (48,569)
State 399 10,397 (8,570)
-------------------------------------------------------
469 69,314 (57,139)
-------------------------------------------------------
$ 1,891,419 $ 1,771,407 $ 2,788,822
=======================================================
The differences between the federal statutory rate and the effective tax rate as
a percentage of income before taxes are as follows:
2000 1999 1998
----------------------------------------
Statutory income tax rate 34% 34% 34%
State and foreign income taxes 6 5 4
Other permanent differences (1) 1 1
----------------------------------------
39% 40% 39%
========================================
Differences between accounting rules and tax laws cause differences between the
bases of certain assets and liabilities for financial reporting purposes and tax
purposes. The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities. Significant
components of the Company's deferred tax assets and liabilities at December 31
are as follows:
2000 1999
------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 136,228 $ 220,796
Prepaid expenses and other 112,937 85,005
------------------------------------
Total deferred tax liabilities 249,165 305,801
25
6. INCOME TAXES (CONTINUED)
Deferred tax assets:
Postretirement benefits 58,301 58,301
Pension costs 200,619 289,663
Allowance for doubtful accounts 93,658 46,283
Accrued expenses 120,031 110,476
Other employee benefits 32,236 28,608
Inventory costs 313,659 342,278
------------------------------------
Total deferred tax assets 818,504 875,609
------------------------------------
Net deferred tax assets $ 569,339 $ 569,808
====================================
Current deferred tax asset $ 668,769 $ 481,163
Long-term deferred tax (liability) asset (99,430) 88,645
-----------------------------------
$ 569,339 $ 569,808
===================================
The Company does not provide deferred taxes for amounts that could result from
the remittance of undistributed earnings of the Company's foreign subsidiary
since it is generally the Company's intention to reinvest these earnings
indefinitely. Undistributed earnings that could be subject to additional income
taxes if remitted was approximately $1,000,000 at December 31, 2000. If such
dividends were to be remitted, foreign tax credits available under present law
would reduce the amount of U.S. taxes payable.
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and its subsidiaries have a defined benefit pension plan covering
substantially all employees. Benefits for the salaried employees are based on
specified percentages of the employees annual compensation. The benefits for
hourly employees are based on stated amounts for each year of service. The
plan's assets are invested in fixed interest rate group annuity contracts with
an insurance company.
The following table sets forth the changes in benefit obligation, changes in
plan assets, the funded status, the accrued benefit cost recognized in the
consolidated balance sheets at December 31, 2000 and 1999, and the net periodic
cost and assumptions.
PENSION BENEFITS
2000 1999
-----------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year $ 2,197,716 $ 2,123,786
Service cost 175,072 177,064
Interest cost 161,880 147,538
Actuarial gain (2,313) (151,581)
Benefits paid (101,955) (99,091)
-----------------------------------
Benefit obligation at end of year 2,430,400 2,197,716
-----------------------------------
26
7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 1,853,052 1,825,209
Actual return on plan assets 144,421 126,914
Employer contribution 297,749 -
Benefits paid (101,955) (99,091)
---------------------------------
Fair value of plan assets at end of year 2,193,267 1,853,052
---------------------------------
Funded status (237,133) (344,664)
Unrecognized net transition asset (210,933) (316,974)
Unrecognized net actuarial loss 271,234 288,202
Unrecognized prior service cost 1,843 2,268
---------------------------------
Accrued benefit cost $ (174,989) $ (371,168)
=================================
PENSION BENEFITS
2000 1999
---------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 175,072 $ 177,064
Interest cost 161,880 147,538
Expected return on plan assets (134,676) (124,677)
Amortization of unrecognized net
transition asset (106,041) (106,041)
Net actuarial loss 4,890 15,645
Amortization of prior service cost 425 425
---------------------------------
Net periodic benefit cost $ 101,550 $ 109,954
=================================
PENSION BENEFITS
2000 1999
---------------------------------
WEIGHTED AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
Discount rate 7.5% 7.50%
Expected return on plan assets 7.0% 7.00%
Rate of compensation increase 5.5% 5.50%
The Company also provides a life insurance benefit for retired former employees
of the Company. Effective in 2000, the Company discontinued this benefit for
active employees. The life insurance benefit is not a funded plan. The Company
pays the benefit upon the death of the
27
retiree. The Company has fully recorded its liability in connection with this
plan. The expense recorded in connection with these benefits was approximately
$3,000 in each of the years ended December 31, 2000 and 1999.
7. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
Effective January 1, 1998, the Company implemented a Supplemental Executive
Retirement Plan. During 1998, the Company recorded an expense of approximately
$400,000 in accordance with the plan provisions, as a result of the death of the
Company's chief executive officer. The Plan provides for monthly payments to the
former executive's widow for the remainder of her life. Based upon actuarial
calculations, the projected liability under the plan is approximately $352,000
at December 31, 2000 and is recorded as other accrued expenses and pension and
other benefits in the consolidated balance sheets.
During 1999, the Company established a 401(k) plan for the benefit of its
full-time employees. Under the plan, employees may contribute a portion of their
salary up to IRS limits. The Company matches a portion of the employees'
contribution. The Company recorded expense of approximately $15,000 and $12,000
in connection with its contribution to the plan during 2000 and 1999,
respectively.
8. CAPITAL STOCK
The Certificate of Incorporation, as amended, authorizes 4,000,000 shares of
common stock and 1,000,000 shares of preferred stock, 200,000 shares of which
have been designated as Series A Junior Participating Preferred Stock.
9. STOCK OPTIONS
In 1999, the Company adopted the American Locker Group Incorporated Stock
Incentive Plan, permitting the Company to provide incentive compensation of the
types commonly known as incentive stock options, stock options and stock
appreciation rights. The price of option shares or appreciation rights granted
under the plan shall not be less than the fair market value of common stock on
the date of grant, and the term of the stock option or appreciation right shall
not exceed ten years from date of grant. Upon exercise of a stock appreciation
right granted in connection with a stock option, the optionee shall surrender
the option and receive payment from the Company of an amount equal to the
difference between the option price and the fair market value of the shares
applicable to the options surrendered on the date of surrender. Such payment may
be in shares, cash or both at the discretion of the Company's Stock
Option-Executive Compensation Committee. Prior to 1999, the Company issued stock
options and stock appreciation rights under a 1988 plan. The 1988 plan expired
in 1999, as such no further options can be granted under the 1988 plan. Options
with respect to 44,000 shares remain outstanding under the 1988 plan.
During 1998, the Company recorded approximately $327,000 of expense related to
stock appreciation rights that were granted and exercised. At December 31, 2000,
1999 and 1998, there were no stock appreciation rights outstanding.
28
9. STOCK OPTIONS (CONTINUED)
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 6.5% for 2000 and 7.0% for 1999;
dividend yields of 0.0 for both years; volatility factors of the expected market
price of the Company's common stock of .69 for 2000 and .70 for 1999; and a
weighted-average expected life of the option of 5 years for both years. The per
share fair value of the options granted in 2000 and 1999 using these assumptions
was $4.55 and $4.35, respectively. The pro forma effect on earnings for the year
ended December 31, 2000 is as follows: net income $2,908,184; basic earnings per
share $1.31, and diluted earnings per share $1.30. The pro forma effect on
earnings for the year ended December 31, 1999 is as follows: net income
$2,455,803; basic earnings per share $1.04, and diluted earnings per share
$1.02. The 1998 net income and earnings per share would not have been impacted,
since no stock options were granted in 1998, and the options granted in 1997,
vested immediately.
A summary of the activity in the Company's Employee Option Plan and related
information for the years ended December 31 follows:
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Price
Options Price Options Price Options
----------------------------------------------------------------------------------------
Outstanding -
beginning of year 124,000 $ 5.11 133,000 $1.45 162,000 $ 1.55
Exercised and
surrendered (13,400) 1.23 (76,000) .72 (29,000) 2.03
Granted 10,000 7.25 67,000 6.98 - -
=========================================================================================
Outstanding -
end of year 120,600 $ 5.41 124,000 $5.11 133,000 $1.45
=========================================================================================
Exercisable -
end of year 120,600 114,000 133,000
=========================================================================================
29
9. STOCK OPTIONS (CONTINUED)
The exercise prices for options outstanding as of December 31, 2000 were as
follows: $2.813 - 44,000 shares, $6.50 - 56,600 shares $7.25 - 10,000 shares and
$8.875 - 10,000 shares. The weighted-average remaining contractual life of those
options is 6.6 years.
At December 31, 2000, 73,000 options remain available for future issuance under
the 1999 plan.
10. Shareholder Rights Plan
In November 1999, the Company adopted a Shareholder Rights Agreement and
declared a dividend distribution of one Right for each outstanding share of
common stock. Under certain conditions, each right may be exercised to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock at
a price of $40 ("Purchase Price"), subject to adjustment. The Right will be
exercisable only if a person or group (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding common stock, or
following the commencement of a tender or exchange offer for 20% or more of such
outstanding common stock. The Rights Plan includes certain exceptions from the
definitions of Acquiring Person and beneficial ownership to take into account
the existing ownership of common shares by members of one family. If any person
becomes an Acquiring Person, each Right will entitle its holder to receive, upon
exercise of the Right, such number of common shares determined by (A)
multiplying the current purchase price by the number of one one-hundredths of a
preferred share for which a right is now exercisable and dividing that product
by (B) 50% of the current market price of the common shares.
In addition, if the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to receive, upon
exercise, that number of the acquiring Company's common shares having a market
value of twice the exercise price of the Right. The Company will be entitled to
redeem the Rights at $.01 per Right at any time prior to the earlier of the
expiration of the Rights in November 2009 or the time that a person becomes an
Acquiring Person. The Rights do not have voting or dividend rights, and until
they become exercisable, have no dilutive effect on the Company's earnings.
30
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:
2000 1999 1998
------------------------------------------------------------
Numerator:
Net income $ 2,949,213 $ 2,623,801 $ 4,314,542
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding 2,214,406 2,363,338 2,420,078
Effect of dilutive securities:
Employee stock options 16,379 38,770 122,606
------------------------------------------------------------
Denominator for diluted earnings per share -
weighted average shares out- standing and
assumed conversions 2,230,785 2,402,108 2,542,684
============================================================
Basic earnings per share $ 1.33 $ 1.11 $ 1.78
============================================================
Diluted earnings per share $ 1.32 $ 1.09 $ 1.70
============================================================
12. GEOGRAPHIC AND CUSTOMER CONCENTRATION DATA
The Company is primarily engaged in one business, sale and rental of lockers.
This includes coin, key-only and electronically controlled checking lockers and
related locks and sale of plastic centralized mail and parcel distribution
lockers. The Company sells to customers in the United States, Canada and other
foreign locations. Net sales to external customers are as follows:
2000 1999 1998
-------------------------------------------------------------
United States customers $ 35,215,373 $ 32,596,075 $ 41,735,153
Foreign customers 2,446,767 2,354,029 3,276,174
-------------------------------------------------------------
$ 37,662,140 $ 34,950,104 $ 45,011,327
=============================================================
Sales to the U.S. Postal Service represented 70.9%, 74.3% and 76.9% of net sales
in 2000, 1999, and 1998, respectively.
At December 31, 2000 and 1999, the Company had secured receivables from
customers under time payment arrangements totaling $131,635 and $63,000,
respectively. At December 31, 2000 and 1999, the Company had unsecured trade
receivables from governmental agencies of $2,551,000 and $2,416,000,
respectively, and from customers considered to be distributors of $374,000 and
$192,000, respectively.
Other concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries. The Company
generally does not require collateral for trade accounts receivable.
31
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the years ended December 31, 2000 and 1999:
2000
-----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------------------
Net sales $ 7,859,150 $ 10,635,913 $ 8,413,176 $ 10,753,901
=======================================================================
Gross profit $ 2,315,608 $ 3,113,429 $ 2,451,977 $ 2,755,186
=======================================================================
Net income $ 522,891 $ 884,030 $ 533,648 $ 1,008,644
=======================================================================
Earnings per share - Basic $ .23 $ .39 $ .24 $ .49
=======================================================================
Earnings per share - Diluted $ .23 $ .39 $ .24 $ .48
=======================================================================
1999
-----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------------------
Net sales $ 7,857,688 $ 10,029,123 $ 7,761,363 $ 9,301,930
=======================================================================
Gross profit 2,323,713 2,890,548 2,327,709 2,309,131
=======================================================================
Net income 591,807 911,546 502,159 618,289
=======================================================================
Earnings per share - Basic .24 .37 .22 .27
=======================================================================
Earnings per share - Diluted .23 .37 .22 .27
=======================================================================
The Company's accounting practice for interim periods provides for possible
accounting adjustments at year end. In 2000, such adjustments resulted in
increasing fourth quarter pretax income by $23,000 for inventory costs and
$99,000 for pension costs, and decreasing pretax income by $76,000 for accounts
receivable allowances. In 1999, such adjustments resulted in decreasing fourth
quarter pretax income by $216,000 for inventory costs. In 1998 such adjustments
resulted in increasing fourth quarter pretax income by $240,000 for inventory
costs, decreasing fourth quarter pretax income by $150,000 for accounts
receivable allowances and increasing fourth quarter pretax income by $74,000 for
liability reserves.
Also in the forth quarter of 2000, the Company reclassified certain costs that
in the previous three quarters of 2000 had been reported as selling,
administrative and general expenses to cost of sales. The reclassification,
which has no impact on net income, was approximately $360,000.
14. RELATED PARTIES
One Director of the Company is a stockholder and director of Rollform of
Jamestown Inc., a rollforming company. One of the Company's subsidiaries
purchased $152,000, $218,000, and
32
$235,000 of fabricated parts from Rollform of Jamestown, Inc. in 2000, 1999, and
1998, respectively, at prices that the Company believes are at arms length.
15. CONTINGENCIES
In December 1998, the Company was named as a defendant in a lawsuit titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus. The
suit involves property located in Gowanda, New York which was sold by the
Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, current or
former property owners in Gowanda, New York, assert that defendants each
operated machine shops at the site during their respective periods of ownership
and that as a result of such operation, soil and groundwater contamination
occurred which has adversely affected the plaintiffs and the value of
plaintiffs' properties. The plaintiffs assert a number of causes of action and
seek compensatory damages of $5,000,000 related to alleged diminution of
property values, $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance, inconveniences and disruption to plaintiffs'
lives," $25,000,000 in punitive damages, and $15,000,000 to establish a "trust
account" for monitoring indoor air quality and other remedies." The Company
believes that its potential liability with respect to this site, if any, is
diminimus. Therefore, based on the information currently available, management
does not believe the outcome of this suit will have a substantial impact on the
Company's operations or financial condition. Defense of this case has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights.
In September 1998 and subsequent months, the Company was named as an additional
defendant in 110 cases pending in state court in Massachusetts. The plaintiffs
in each case assert that a division of the Company manufactured and furnished to
various shipyards components containing asbestos during the period from 1948 to
1972 and that injuries resulted from exposure to such products. The assets of
this division were sold by the Company in 1973. During the process of discovery
in certain of these actions, documents from sources outside the Company have
been produced which indicate that the Company appears to have been included in
the chain of title for certain wall panels which contained asbestos and which
were delivered to the Massachusetts shipyards. Defense of these cases has been
assumed by the Company's insurance carrier, subject to a customary reservation
of rights. As of February 21, 2001, settlement agreements have been entered in 6
cases with funds authorized and provided by the Company's insurance carrier.
Further, 32 cases originally filed in 1995, 1996 and 1997 against other
defendants to which the Company was joined as an additional defendant have been
terminated as to the Company without liability to the Company under
Massachusetts procedural rules. Therefore, the balance of unresolved cases
against the Company as of February 21, 2001 is 72 cases originally filed against
other defendants in 1998 through 2001. While the Company cannot predict what the
ultimate resolution of these cases may be because the discovery proceedings on
the cases are not complete, based upon the Company's experience to date with
similar cases, as well as the assumption that insurance coverage will continue
to be provided with respect to these cases, at the present time, management does
not believe that the outcome of these cases will have a significant adverse
impact on the Company's operations or financial condition.
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosures during 2001 or 2000.
PART III
- --------
Item 10, 11, 12 and 13 will be contained in American Locker Group Incorporated's
Annual Proxy Statement, incorporated herein by reference, which will be filed
within 120 days after year-end.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The documents filed as part of this report are as follows:
1. Financial Statements
2. Financial Statement Schedules
See Index to Financial Statements and Financial Statement
Schedules
All other consolidated financial schedules are omitted
because they are inapplicable, not required or the
information is included elsewhere in the consolidated
financial statements or the notes thereto.
3. Exhibits
(a) Exhibits required by Item 601 of Regulation
S-K are submitted as a separate section
herein immediately following the "Exhibit
Index".
(b) Reports on Form 8-K filed in the fourth
quarter of 2000.
(i) None
34
American Locker Group Incorporated
Index to Financial Statements and Financial Statement Schedules
The financial statements together with the report of Ernst & Young LLP dated
February 21, 2001, is included in Item 8 Financial Statements and Supplementary
Data in the Annual Report on Form 10-K.
Financial Schedules for the years 2000, 1999 and 1998:
Valuation and Qualifying Accounts
35
SCHEDULE II
American Locker Group Incorporated
VALUATION AND QUALIFYING ACCOUNTS
Balance at the Charged to
Beginning of Costs and Write-offs/ Balance at
Year Description Period Expense Recoveries End of Period
- -----------------------------------------------------------------------------------------------------
2000 Allowance for Doubtful Accounts $222,000 $138,000 $ (36,000) $324,000
1999 Allowance for Doubtful Accounts 216,000 12,000 (6,000) 222,000
1998 Allowance for Doubtful Accounts 439,000 12,000 (235,000) 216,000
36
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN LOCKER GROUP INCORPORATED
/s/Edward F. Ruttenberg
---------------------------------------------------------
Edward F. Ruttenberg
Chairman and Chief Executive
Officer
/s/Wayne L. Nelson
-----------------------------------------------------
Wayne L. Nelson
Principal Accounting Officer and Assistant Secretary
March 23, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Edward F. Ruttenberg Chairman, Chief Executive Officer March 23, 2001
- ------------------------------ and Director
Edward F. Ruttenberg
/s/Roy J. Glosser President, Chief Operating March 23, 2001
- ------------------------------ Officer Treasurer and Director
Roy J. Glosser
/s/Alan H. Finegold Director March 23, 2001
- ------------------------------
Alan H. Finegold
/s/Thomas Lynch, IV Director March 23, 2001
- ------------------------------
Thomas Lynch, IV
/s/James E. Ruttenberg Director March 23, 2001
- ------------------------------
James E. Ruttenberg
/s/Jeffrey C. Swoveland Director March 23, 2001
- ------------------------------
Jeffrey C. Swoveland
/s/Donald I. Dussing, Jr. Director March 23, 2001
- ------------------------------
Donald I. Dussing, Jr.
37
EXHIBIT INDEX
PRIOR FILING OR SEQUENTIAL PAGE
EXHIBIT NO. NO. HEREIN
- ----------- -------------------------------
3.1 Certificate of Incorporation of American Locker Exhibits to Form 10-K for Year
Group Incorporated ended December 31, 1980
3.2 Amendment to Certificate of Incorporation changing Form 10-C filed May 6, 1985
name of company
3.3 Amendment to Certificate of Incorporation limiting Exhibit to Form 10-K for year ended
liability of Directors and Officers December 31, 1987
3.4 By-laws of American Locker Group Incorporated as Exhibit to Form 10-K for year ended
amended and restated December 31, 1985
3.5 Certificate of Designations of Series Exhibit to Form 10-K for year ended
A Junior Participating Preferred Stock December 31, 1999
3.6 Amendment to By-laws of American Locker Group Exhibit to Form 10-K for year ended
Incorporated dated January 15, 1992 December 31, 1991
3.7 Amendment to Bylaws dated March 3, 1999 Exhibit to Form 10-K for year ended
December 31, 1998
3.8 Amendment to Bylaws dated November 19, 1999 Exhibit to Form 10-K for year ended
December 31, 1999
10.1 American Locker Group Incorporated 1988 Stock Exhibit to Form 10-K for year ended
Incentive Plan December 31, 1988
10.2 First Amendment dated March 28, 1990 to American Exhibit to Form 10-K for year ended
Locker Group Incorporated 1988 Stock Incentive December 31, 1989
Plan
10.3 Form of Indemnification Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and its directors and December 31, 1987
officers
38
10.4 Corporate Term Loan Agreement between American Exhibit to Form 10-K for year ended
Locker Group Incorporated and Manufacturers and December 31, 1991
Traders Trust Company covering $2,400,000 loan
10.5 Approved Line of Credit from Manufacturers and Exhibit to Form 10-K for year ended
Traders Trust Company to American Locker Group December 31, 1990
Incorporated in the amount of $1,000,000
10.6 Amendment Agreement dated May 1, 1994 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1994
American Locker Group Incorporated [Increase in
Term Loan to $1,850,000]
10.7 Amendment Agreement dated March 12, 1996 between Exhibit to Form 10-KSB for year
Manufacturing and Traders Trust Company and ended December 31, 1995
American Locker Group Incorporated [Increase in
Term Loan to $1,800,000]
10.8 Employment Agreement between American Locker Group Exhibit to Form 10-GSB for quarter
Incorporated and Roy J. Glosser ended June 30, 1996
10.8 Amendment dated as of March 3, 1999 to Employment Exhibit to Form 10-KSB for year
Agreement between American Locker Group ended December 31, 1998
Incorporated and Roy J. Glosser
10.9 Manufacturing Agreement dated as of October 1, Page __
2000 between American Locker Security Systems Inc.
and Signore, Inc.
10.14 Contract dated March 27, 1996 between the U.S. Exhibit to Form 10-QSB for the
Postal Service and American Locker Security quarter ended March 31, 1996
Systems, Inc.
10.15 Modification #MO3 to USPS Contract Exhibits to Form 10-QSB for the
#072368-96-B-0741 dated April 16, 1997 quarter ended March 31, 1997
10.18 Amendment dated August 22, 1997 to Corporate Term Exhibit to Form 10-QSB for the
Loan Agreement dated August 30, 1991 between quarter ended September 30, 1997
American Locker Group Incorporated and
Manufacturers and Traders Trust Company
39
10.19 Modification M05 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 9, 1997, which quarter ended September 30, 1997
replaces steel pedestals with aluminum pedestals
for American Locker Outdoor Parcel Lockers
10.20 Modification M06 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated October 23, 1997 quarter ended September 30, 1997
regarding prices and minimum quantities through
April 14, 1998
10.20 Modification M07 to USPS Contract Exhibit to Form 10-QSB for quarter
#072368-96-B-0741, dated April 14, 1998 regarding ended March 31, 1998
prices and minimum quantities
10.21 Modification #M010 to USPS Contract Exhibit to Form 10-QSB for the
#072368-96-B-0741, dated May 6, 1999 quarter ended March 31, 1999
10.23 American Locker Group Incorporated 1999 Stock Exhibit to Form 10-QSB for the
Incentive Plan quarter ended June 30, 1999
10.24 Amendment dated June 9, 1999 between American Exhibit to Form 10-QSB for the
Locker Group Incorporated and Manufacturers and quarter ended June 30, 1999
Traders Trust Company
10.25 Rights Agreement dated November 19, 1999 between Exhibit to Form 8-K dated
American Locker Group Incorporated and Chase November 18, 1999
Mellon Shareholder Services LLC
10.26 Form of American Locker Group Incorporated Exhibit to Form 10-QSB for year
Supplemental Executive Retirement Benefit Plan ending December 31, 1998
10.27 Employment Agreement dated November 19, 1999 Exhibit to Form 10-K for year ended
between American Locker Group Incorporated and December 31, 1999
Edward F. Ruttenberg
10.28 Form of Option Agreement under 1999 Stock Exhibit to Form 10-K for year ended
Incentive Plan December 31, 1999
22.1 List of Subsidiaries Page ____
40