UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 2)

 

☑	Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012

 

☐	Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to             .

 

Commission File Number 0-439

 

American Locker Group Incorporated

(Exact Name of registrant as specified in its charter)

 

Delaware		16-0338330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

2701 Regent Blvd., Suite 200 DFW Airport, Texas		75261
(Address of principal executive offices)		(Zip Code)

 

(817) 329-1600

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $1.00 Per Share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐    No  ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☑

 

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  ☑    No  ☐

 

Indicate by 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 such shorter period that the registrant was required to submit and post such files).    Yes  ☑    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.  ☐

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer   ☐	Smaller reporting company   ☑
(Do not check if a smaller reporting company)

         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ☐    No  ☑

 

The aggregate market value of the Common Stock held by non-affiliates was approximately $1,506,251 based on the $1.05 price at which the Common Stock was last sold on June 30, 2012, the last business day of the registrant’s most recently completed second quarter. Shares of Common Stock known by the Registrant to be beneficially owned by directors and officers of the Registrant and other persons known to the Registrant to have beneficial ownership of 5% or more of the outstanding Common Stock 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 Securities Exchange Act of 1934.

 

As of March 20, 2013, 1,687,319 shares of Common Stock, $1.00 par value per share, were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The information required to be furnished pursuant to Part III of this Annual Report on Form 10-K will be set forth in, and is incorporated by reference to, the registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders (2012 Proxy Statement), which will be filed no later than 120 days after the end of the registrant’s 2012 fiscal year.

 

 

TABLE OF CONTENTS

 

EXPLANATORY NOTE	1
PART II	1
Item 8. Financial Statements and Supplementary Data	1
PART IV	21
Item 15. Exhibits, Financial Statement Schedules	21
EXHIBIT INDEX	21
SIGNATURES	23

 

 

EXPLANATORY NOTE

 

This Amendment No. 2 to American Locker Group Incorporated’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as originally filed on April 1, 2013 (the “original Form 10-K”) and amended by Amendment No. 1 to the original Form 10-K filed on April 9, 2013, is being filed in response to comments we received from the Staff of the Securities and Exchange Commission. This Amendment No. 2 amends Amendment No. 1 to correct a reference in paragraph one of Exhibits 31.1 and 31.2, which are the certifications required by Exchange Act Rule 13a-14(a). The certifications that were filed with Amendment No. 1 incorrectly referenced the original Form 10-K rather than Amendment No. 1 to which they were attached.

 

No attempt has been made in this Amendment No. 2 to modify or update any disclosures presented in the original Form 10-K or Amendment No. 1, other than the changes noted above and to revise Item 15 and the Exhibit Index. This Amendment No. 2 does not reflect events occurring subsequent to the filing of the original Form 10-K or to modify or update any disclosures therein, other than as noted above. Accordingly, this Amendment No. 2 should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K, including any amendments to those filings.  

 

PART II

 

Item 8. Financial Statements and Supplementary Data. 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

American Locker Group Incorporated

 

We have audited the accompanying consolidated balance sheets of American Locker Group Incorporated and Subsidiaries (the Company) as of December 31, 2012 and 2011 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the three year period ended December 31, 2012. Our audits also included the financial statement schedule listed in the index at Item 15(2). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of American Locker Group Incorporated and Subsidiaries as of December 31, 2012 and 2011 and the consolidated results of their operations and cash flows for each of the years in the three year period ended December 31, 2012 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, presents fairly, in all material respects, the information set forth therein.

 

/s/ Travis Wolff, LLP

 

Dallas, Texas

April 1, 2013

 

  

American Locker Group Incorporated and Subsidiaries

 

Consolidated Balance Sheets

 

		December 31,
		2012				2011
Assets
Current assets:
Cash and cash equivalents		$	413,353			$	525,632
Accounts receivable, less allowance for doubtful accounts of $162,000 in 2012 and $149,000 in 2011			2,385,644				1,754,959
Inventories, net			2,671,616				2,845,563
Prepaid expenses			298,185				330,403
Deferred income taxes			287,417				278,437
Total current assets			6,056,215				5,734,994
Property, plant and equipment:
Land			500				500
Buildings and leasehold improvements			803,021				754,922
Machinery and equipment			11,292,235				10,891,820
			12,095,756				11,647,242
Less allowance for depreciation and amortization			(8,861,997	)			(8,087,988	)
			3,233,759				3,559,254
Other noncurrent assets			45,173				47,259
Deferred income taxes			628,351				727,118
Total assets		$	9,963,498			$	10,068,625

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

American Locker Group Incorporated and Subsidiaries

 

Consolidated Balance Sheets (continued)

 

		December 31,
		2012				2011
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	1,856,023			$	1,627,489
Customer deposits			255,753				398,167
Commissions, salaries, wages and taxes thereon			157,087				162,507
Income taxes payable			3,888				69,718
Revolving line of credit			1,300,000				700,000
Current portion of long-term debt			200,000				200,000
Other accrued expenses			690,584				491,188
Total current liabilities			4,463,335				3,649,069
Long-term liabilities:
Long-term debt, net of current portion			400,000				600,000
Pension and other benefits			2,128,210				2,051,054
			2,528,210				2,651,054
Total liabilities			6,991,545				6,300,123
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $1 par value:
Authorized shares—4,000,000 Issued shares—1,879,319 and 1,871,999 in 2012 and 2011, respectively Outstanding shares—1,687,319 and 1,679,999 in 2012 and 2011, respectively			1,879,319				1,871,999
Other capital			288,395				284,478
Retained earnings			4,386,520				5,001,097
Treasury stock at cost (192,000 shares)			(2,112,000	)			(2,112,000	)
Accumulated other comprehensive loss			(1,470,281	)			(1,277,072	)
Total stockholders’ equity			2,971,953				3,768,502
Total liabilities and stockholders’ equity		$	9,963,498			$	10,068,625

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

American Locker Group Incorporated and Subsidiaries

 

Consolidated Statements of Operations

 

		Year ended December 31,
		2012				2011				2010
Net sales		$	13,676,186			$	13,386,336			$	12,099,012
Cost of products sold			9,767,377				9,286,025				7,726,497
Gross profit			3,908,809				4,100,311				4,372,515
Selling, administrative and general expenses			3,991,280				4,070,957				4,217,205
Restructuring charge			283,924				—				—
Total operating expenses			4,275,204				4,070,957				4,217,205
Total operating income (loss)			(366,395	)			29,354				155,310
Interest income (expense)			13,637				(47	)			—
Other income (expense)—net			(14,005	)			120,033				61,087
Interest expense			(116,382	)			(68,733	)			(16,232	)
Net income (loss) before income taxes			(483,145	)			80,607				200,165
Income tax expense (benefit)			131,433				43,516				131,796
Net income (loss)		$	(614,578	)		$	37,091			$	68,369
Weighted average common shares:
Basic			1,682,994				1,655,805				1,605,769
Diluted			1,682,994				1,655,805				1,605,769
Income (loss) per share of common stock:
Basic		$	(0.37	)		$	0.02			$	0.04
Diluted		$	(0.37	)		$	0.02			$	0.04
Dividends per share of common stock		$	0.00			$	0.00			$	0.00

 

 

American Locker Group Incorporated and Subsidiaries

 

Consolidated Statements of Comprehensive Income

 

		Twelve Months Ended December 31,
		2012				2011				2010
Net income (loss)		$	(614,578	)		$	37,091			$	68,369
Other comprehensive income (loss):
Foreign currency translation adjustment			(6,130	)			(18,028	)			11,925
Adjustment to minimum pension liability, net of tax effect of $91,544 in 2012, $158,869 in 2011, and $79,354 in 2010			(187,078	)			(610,220	)			(119,033	)
Other comprehensive loss			(193,208	)			(628,248	)			(107,108	)
Total comprehensive loss		$	(807,786	)		$	(591,157	)		$	(38,739	)

 

 

American Locker Group Incorporated and Subsidiaries

 

Consolidated Statements of Stockholders’ Equity

 

		Common Stock				Other Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
Balance at December 31, 2009		$	1,781,015			$	242,846			$	4,895,637			$	(2,112,000	)		$	(541,716	)		$	4,265,782
Net income (loss)			—				—				68,369				—				—				68,369
Other comprehensive income (loss):
Foreign currency translation			—				—				—				—				11,925				11,925
Minimum pension liability adjustment, net of tax benefit of $79,354			—				—				—				—				(119,033	)			(119,033	)
Total comprehensive loss																							(38,739	)
Common stock issued as compensation (53,091 shares)			53,091				22,425				—				—				—				75,516
Balance at December 31, 2010		$	1,834,106			$	265,271			$	4,964,006			$	(2,112,000	)		$	(648,824	)		$	4,302,559
Net income (loss)			—				—				37,091				—				—				37,091
Other comprehensive income (loss):
Foreign currency translation			—				—				—				—				(18,028	)			(18,028	)
Minimum pension liability adjustment, net of tax benefit of $158,869			—				—				—				—				(610,220	)			(610,220	)
Total comprehensive loss																							(591,157	)
Common stock issued as compensation (37,893 shares)			37,893				19,207				—				—				—				57,100
Balance at December 31, 2011		$	1,871,999			$	284,478			$	5,001,097			$	(2,112,000	)		$	(1,277,072	)		$	3,768,502
Net income (loss)			—				—				(614,578	)			—				—				(614,578	)
Other comprehensive income (loss):
Foreign currency translation			—				—				—				—				(6,130	)			(6,130	)
Minimum pension liability adjustment, net of tax benefit of $91,544			—				—				—				—				(187,078	)			(187,078	)
Total comprehensive loss																							(807,786	)
Common stock issued as compensation (7,320 shares)			7,320				3,917				—				—				—				11,237
Balance at December 31, 2012		$	1,879,319			$	288,395			$	4,386,519			$	(2,112,000	)		$	(1,470,280	)		$	2,971,953

 

 

American Locker Group Incorporated and Subsidiaries

 

Consolidated Statements of Cash Flows

 

		Year ended December 31,
		2012				2011				2010
Operating activities:
Net income (loss)		$	(614,578	)		$	37,091			$	68,369
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			744,094				671,009				336,037
Provision for uncollectible accounts			48,342				22,585				31,290
Equity based compensation			11,237				62,025				75,516
Loss on disposal of assets			—				—				686
Deferred income taxes			(770	)			(297,640	)			(36,088	)
Changes in assets and liabilities:
Accounts and other receivables			(740,794	)			1,000,269				1,526,273
Inventories			174,037				(300,472	)			(297,059	)
Prepaid expenses			32,680				(103,376	)			(131,793	)
Deferred revenue			—				(341,000	)			—
Accounts payable and accrued expenses			345,205				(274,209	)			(214,132	)
Income taxes			(65,830	)			4,519				(10,973	)
Pension and other benefits			(11,844	)			123,983				169,543
Net cash provided by (used in) operating activities			(78,221	)			604,784				1,517,669
Net cash used in investing activities:
Purchase of property, plant and equipment			(413,737	)			(1,227,798	)			(1,968,592	)
Financing activities:
Long-term debt payments			(200,000	)			(200,000	)			—
Long-term debt borrowings			—				—				1,000,000
Borrowings under revolving line of credit			600,000				700,000				—
Repayment of factoring agreement			—				—				(428,588	)
Net cash provided by financing activities			400,000				500,000				571,412
Effect of exchange rate changes on cash			(20,321	)			(1,306	)			2,711
Net increase (decrease) in cash and cash equivalents			(112,279	)			(124,320	)			123,200
Cash and cash equivalents at beginning of year			525,632				649,952				526,752
Cash and cash equivalents at end of year		$	413,353			$	525,632			$	649,952
Supplemental cash flow information:
Cash paid during the year for:
Interest		$	107,057			$	67,555			$	15,447
Income taxes		$	15,210			$	15,647			$	20,311

 

 

Notes to Consolidated Financial Statements

 

American Locker Group Incorporated and Subsidiaries

 

December 31, 2012

 

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 a leading manufacturer and distributor of lockers, locks and keys. The Company’s lockers can be categorized as either lockers or mailboxes. Mailboxes are used for the delivery of mail. Most lockers are key controlled checking lockers. The Company is best known for manufacturing and servicing the key and lock system with the plastic orange cap. The Company serves customers in a variety of industries in all 50 states and in Canada, Mexico, Europe, Asia and South America.

 

Certain 2011 and 2010 financial statement line items have been reclassified to conform to the current year’s presentation.

 

2. Summary of Significant Accounting Policies

 

Cash and Cash Equivalents

 

Cash and cash equivalents include 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. The Company maintains cash and cash equivalents on deposit in amounts in excess of federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk.

 

Accounts Receivable

 

The Company grants credit to its customers and generally does not require collateral. Accounts receivable are reported at net realizable value and do not accrue interest. Management uses judgmental factors such as a customer’s payment history and the general economic climate, as well as considering the age of and past due status of invoices in assessing collectability and establishing allowances for doubtful accounts. Accounts receivable are written off after all collection efforts have been exhausted.

 

Estimated losses for bad debts are provided for in the consolidated financial statements through a charge to expense of approximately $48,000, $23,000 and $31,000 for 2012, 2011 and 2010, respectively. The net charge-off of bad debts was approximately $29,000, $1,300 and $113,000 for 2012, 2011 and 2010, respectively.

 

Inventories

 

Inventories are stated at the lower of cost or market value using the FIFO method and are categorized as raw materials, work-in-progress or finished goods.

 

The Company records reserves for estimated obsolescence or unmarketable inventory equal to the difference between the actual cost of inventory and the estimated market value based upon assumptions about future demand and market conditions and management’s review of existing inventory. If actual demand and market conditions are less favorable than those projected by management, additional inventory reserves resulting in a charge to expense would be required.

 

 Property, Plant and Equipment

 

Property, plant and equipment are stated at historical 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 20 to 40 years for buildings and 3 to 12 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the building or the lease term. Expenditures for repairs and maintenance are expensed as incurred. Gains and losses resulting from the sale or disposal of property and equipment are included in other income.

 

 

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable in accordance with appropriate guidance. The Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. The Company recorded no asset impairment charges related to property, plant and equipment in 2012, 2011 or 2010.

 

Depreciation expense was $744,094 in 2012, of which $728,869 was included in cost of products sold, and $15,225 was included in selling, administrative and general expenses. Depreciation expense was $671,009 in 2011, of which $651,237 was included in cost of products sold, and $19,772 was included in selling, administrative and general expenses. Depreciation expense was $336,037 in 2010, of which $277,580 was included in cost of products sold, and $58,457 was included in selling, administrative and general expenses.

 

Pensions and Postretirement Benefits

 

The Company has two defined benefit plans which recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income (loss) to report the funded status of the plans. The plan assets and obligations are measured at their year-end balance sheet date. Refer to Note 10 “Pensions and Other Postretirement Benefits” for further detail on the plans.

 

Revenue Recognition

 

The Company recognizes revenue upon passage of title and when risks and rewards have passed to customers, which occurs at the time of shipment to the customer. The Company derived approximately 25.5%, 16.9% and 19.4% of its revenue in 2012, 2011 and 2010, respectively, from sales to distributors. These distributors do not have a right to return unsold products; however, returns may be permitted in specific situations. Historically, returns have not had a significant impact on the Company’s results of operations. Revenues are reported net of discounts and returns and net of sales tax.

 

For concession operations, the Company recognizes revenue when receipts are collected. Revenue is recognized for the Company’s proportional share of receipts with the remaining amounts collected recorded as an accrued liability until they are remitted to the concession contract counterparty.

 

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 operations. These costs were approximately $674,000, $696,000 and $579,000 during 2012, 2011 and 2010, respectively.

 

Advertising Expense

 

The cost of advertising is generally expensed as incurred. The cost of catalogs and brochures are recorded as a prepaid cost and are expensed over their useful lives, generally one year. The Company incurred approximately $165,000, $149,000 and $134,000 in advertising costs during 2012, 2011 and 2010, respectively.

 

 Income Taxes

 

The Company and its domestic subsidiaries file a consolidated U.S. income tax return. Canadian operations file income tax returns in Canada. Hong Kong operations file income tax returns in Hong Kong. The Company accounts for income taxes using the liability method in accordance with appropriate accounting guidance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized.

 

Pursuant to appropriate accounting guidance, ASC-740—Income Taxes, when establishing a valuation allowance, the Company considers future sources of taxable income such as “future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards” and “tax planning strategies.” Appropriate accounting guidance defines a tax planning strategy as “an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets.” In the event the Company determines that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets is charged to earnings in the period in which the Company makes such a determination. If it is later determined that it is more likely than not that the deferred tax assets will be realized, the Company will release the valuation allowance to current earnings.

 

 

The amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time, pursuant to appropriate accounting guidance. Appropriate accounting guidance requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured pursuant to appropriate accounting guidance and tax position taken or expected to be taken on the tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

 

Research and Development

 

The Company engages in research and development activities relating to new and improved products. It expended approximately $99,000, $77,000 and $108,000 in 2012, 2011 and 2010, respectively, for such activity in its continuing businesses. Research and development costs are included in selling, administrative and general expenses.

 

Earnings Per Share

 

The Company reports earnings per share in accordance with appropriate accounting guidance. Under appropriate accounting guidance 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. Please refer to Note 13 for further information.

 

Foreign Currency

 

In accordance with appropriate accounting guidance the Company translates the financial statements of the Canadian and Hong Kong subsidiaries from its functional currency into the U.S. dollar. Assets and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Income statement amounts are translated using the average exchange rate for the year. All translation gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income. Foreign currency gains and losses resulting from current year exchange rate transactions are insignificant for all years presented.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt approximate fair value.

 

Comprehensive Income

 

Comprehensive income consists of net income, foreign currency translation and minimum pension liability adjustments and is reported in the consolidated statements of stockholders’ equity.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include allowance for doubtful accounts, inventory obsolescence, product returns, pension, post-retirement benefits, contingencies, and deferred tax asset valuation allowance. Actual results could differ from those estimates.

 

 

New Accounting Pronouncements

 

In June 2011, the FASB issued amendments to guidance regarding the presentation of comprehensive income (ASU 2011-05—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.

 

 3. Sale of Property

 

On September 18, 2009, the Company sold its headquarters and primary manufacturing facility to the City of Grapevine, Texas (the “City”) for a purchase price of $2,747,000.

 

The Company was entitled to continue to occupy the facility, through December 31, 2010 at no cost. The City has further agreed to pay the Company’s relocation costs within the Dallas-Fort Worth area and to pay the Company’s real property taxes for the facility through June 2011. During May 2011, the Company relocated its corporate headquarters and primary manufacturing facility from Grapevine, Texas to a new 100,500 sq. ft. building in DFW Airport, Texas. The Company received a $341,000 payment towards the moving costs at closing which 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 deferred revenue in 2011. The difference of $129,232 between the deferred revenue balance at December 31, 2010 and the amount offset against moving expenses was recorded as “Other income.” 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.

 

4. 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 Disney’s 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 Disney’s 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.

 

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.

 

5. Inventories

 

Inventories consist of the following:

 

		December 31,
		2012				2011
Finished products		$	602,753			$	321,378
Work-in-process			666,830				862,000
Raw materials			1,402,033				1,662,185
Net inventories		$	2,671,616			$	2,845,563

 

 

6. Other Accrued Expenses and Current Liabilities

 

Accrued expenses consist of the following at December 31:

 

		December 31,
		2012				2011
Restructuring liability		$	39,883			$	123,037
Accrued rent liability			286,544				190,229
Accrued expenses, other			364,157				177,922
Total accrued expenses		$	690,584			$	491,188

 

7. Debt

 

Long-term debt consists of the following:

 

		December 31,
		2012				2011
Term loan payable to Bank of America Merrill Lynch through December 2015 at $16,667 monthly plus interest at LIBOR rate plus 375 basis points (3.963% at December 31, 2012) collateralized by accounts receivable, inventory, and equipment		$	600,000			$	800,000
Less current portion			200,000				200,000
Long-term portion		$	400,000			$	600,000

 

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 9, 2012, the Company entered into an amendment to the Loan Agreement (the “Amendment”) that included the addition of a $500,000 draw note (the “Draw Note”). On November 9, 2012, the Company entered into a second amendment to the Loan Agreement, which extended availability under the Draw Note, and the maturity date of the Line of Credit, to October 31, 2013.

 

The Draw Note is to be used to fund the Company’s investment in future concession contracts. The Company can draw up to $500,000 on the Draw Note before October 31, 2013. The Company will pay interest only on the Draw Note through November 27, 2013, after which the Company will pay interest and principal so that the balance will be paid in full as of October 31, 2016. As of December 31, 2012 there were no borrowings on the Draw Note.

 

The proceeds of the Term Loan were used to fund the Company’s 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 December 31, 2012, there was $1,300,000 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 October 31, 2013. 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 Company’s 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 Lender’s 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 Lender’s consent.

 

 

8. Operating Leases

 

The Company leases several operating facilities, vehicles and equipment under non-cancelable operating leases. The Company accounts for operating leases on a straight line basis over the lease term. Future minimum lease payments consist of the following at December 31, 2012:

 

2013		$	467,386
2014			452,602
2015			435,909
2016			435,909
2017			435,909
Thereafter			349,113
Total		$	2,576,828

 

Rent expense amounted to approximately $407,600, $380,800 and $34,000 in 2012, 2011 and 2010, respectively.

 

9. Income Taxes

 

For financial reporting purposes, income before income taxes includes the following during the years ended December 31:

 

		2012				2011				2010
United States income (loss)		$	(507,197	)		$	91,329			$	225,555
Foreign income (loss)		$	24,052			$	(10,722	)		$	(25,390	)
		$	(483,145	)		$	80,607			$	200,165

 

Significant components of the provision for income taxes are as follows:

 

		2012				2011				2010
Current:
Federal		$	(68,791	)		$	—			$	(13,280	)
State			21,503				19,122				—
Foreign			—				—				9,334
Total current			(47,288	)			19,122				(3,946	)
Deferred:
Federal			169,923				13,302				114,738
State			1,628				463				(530	)
Foreign			7,170				10,629				21,534
			178,721				24,394				135,742
		$	131,433			$	43,516			$	131,796

 

The differences between the federal statutory rate and the effective tax rate as a percentage of income before taxes are as follows:

 

		2012				2011				2010
Statutory income tax rate			34	%			34	%			34	%
State and foreign income taxes, net of federal benefit			1				1				1
Change in valuation allowance			(69	)			—				23
Foreign earnings taxed at different rate			—				(24	)			—
Change in estimated state income tax rate			(5	)			3				—
Other permanent differences			12				40				8
Effective tax rate			(27	)%			54	%			66	%

 

 

Differences between the application of accounting principles 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:

 

		2012				2011
Deferred tax liabilities:
Property, plant and equipment		$	(192,136	)		$	(165,421	)
Prepaid expenses and other			(4,599	)			(4,599	)
Total deferred tax liabilities			(196,735	)			(170,020	)
Deferred tax assets:
Operating loss carryforwards			1,209,966				929,061
Postretirement benefits			22,047				22,047
Pension costs			691,824				666,138
Allowance for doubtful accounts			52,385				45,667
Other assets			5,719				8,008
Accrued expenses			171,444				121,219
Other employee benefits			16,009				8,746
Inventory costs			85,742				74,563
Total deferred tax assets			2,255,136				1,875,449
Net			2,058,401				1,705,429
Valuation allowance			(1,142,633	)			(699,874	)
Net		$	915,768			$	1,005,555
Current deferred tax asset		$	287,417			$	278,437
Long-term deferred tax asset			628,351				727,118
		$	915,768			$	1,005,555

 

As of December 31, 2012 and 2011, the Company’s gross deferred tax assets were approximately $2,058,000 and $1,705,000, respectively. Gross deferred tax assets as of December 31, 2012 reflect the benefit of approximately $2,993,000 in net operating loss carryforwards for federal and state income tax purposes which are available to offset future income tax and expire in varying amounts between 2027 and 2032. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to expiration of the net operating loss carryforwards. Due to negative evidence, primarily limited operating income, indicating that a valuation allowance is required, gross deferred tax assets are reduced by a valuation allowance as of December 31, 2012 and 2011 of approximately $1,142,000 and $699,000, respectively. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Increases in the valuation allowance in 2012 are primarily due to decreased forecasted future U.S. taxable income exclusive of timing reversals.

 

The Company has not provided deferred taxes for taxes that could result from the remittance of undistributed earnings of the Company’s foreign subsidiary since it has generally been the Company’s intention to reinvest these earnings indefinitely. Undistributed earnings that could be subject to additional income taxes if remitted were approximately $164,000 at December 31, 2012.

 

The Company files an income tax return in the U.S. federal jurisdiction, Texas, and a number of other U.S. state and local jurisdictions. Tax returns for the years 2008 through 2012 remain open for examination in various tax jurisdictions in which it operates. On January 1, 2007 the Company adopted the provisions of a new accounting pronouncement that addresses the accounting for uncertainty in income taxes recognized in the financial statements. As a result of this adoption, the Company recognized no material adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, and at December 31, 2012, there were no unrecognized tax benefits. As of December 31, 2012, no interest related to uncertain tax positions had been accrued.

 

10. Pension and Other Postretirement Benefits

 

U.S. Pension Plan

 

The Company maintains a defined benefit pension plan for its domestic employees (the “U.S. Plan”), which was frozen effective July 15, 2005. Accordingly, no new benefits are being accrued under the U.S. Plan. Participant accounts are credited with interest at the federally mandated rates. Company contributions are based on computations by independent actuaries.

 

The plan’s assets are invested in a balanced index fund (the “Fund”) where the assets were invested during 2010, 2011 and 2012. The principal investment objective of the Fund is to provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for the Fund is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted by up to 20% based on economic or market conditions and liquidity needs. Therefore, the stock allocation may fluctuate from 30% to 70% of the total portfolio, with a corresponding bond allocation of from 70% to 30%. Fund reallocation may take place at any time.

 

 

Canadian Pension Plan

 

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 Canadian Plan’s assets are invested in various pooled funds (the “Canadian Funds”) managed by a third party fund manager. The principal investment objective of the Canadian Funds is to provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for the Canadian Funds is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted based on economic or market conditions and liquidity needs.

 

On July 6, 2012, the U.S. Government enacted the “Moving Ahead for Progress in the 21st Century Act”, which contained provisions that changed the interest rate methodology used to calculate Employee Retirement Income Security Act (“ERISA”) minimum pension funding requirements in the U.S. This change reduced the Company’s near-term annual cash funding requirements for the U.S. pension plan. Contributions to be made to the plan in 2013 are expected to approximate $100,000 for the U.S. Plan and $79,000 for the Canadian Plan. However, contributions for 2014 and beyond have not been quantified at this time.

 

The change in projected benefit obligation, change in plan assets and reconciliation of funded status for the plans were as follows:

 

		Pension Benefits
		U.S. Plan								Canadian Plan
		2012				2011				2012				2011
Change in projected benefit obligation
Projected benefit obligation at beginning of year		$	3,829,727			$	3,176,669			$	1,441,482			$	1,262,526
Service cost			—				21,100				—				—
Interest cost			166,534				172,221				58,812				76,866
Benefit payments			(257,958	)			(72,132	)			(94,119	)			(94,262	)
Administrative expenses			(28,019	)			(24,669	)			—				—
Actuarial (gain) loss			389,763				556,538				60,912				227,666
Plan amendments			—				—				—				—
Currency translation adjustment			—				—				33,450				(31,314	)
Settlements			—				—				—				—
Projected benefit obligation at end of year			4,100,047				3,829,727				1,500,537				1,441,482
Change in plan assets
Fair value of plan assets at beginning of year			2,067,871				1,835,326				1,212,167				1,203,920
Actual return on plan assets			227,201				117,350				58,042				44,198
Benefit payments			(257,958	)			(72,132	)			(94,119	)			(94,262	)
Employer contribution			239,830				211,996				83,387				83,036
Administrative expenses			(28,019	)			(24,669	)			—				—
Currency translation adjustment			—				—				28,203				(24,725	)
Fair value of plan assets at end of year			2,248,925				2,067,871				1,287,679				1,212,167
Plan assets (less) greater than benefit obligation		$	(1,851,122	)		$	(1,761,856	)		$	(212,858	)		$	(229,316	)

 

The net amounts recognized on the consolidated balance sheets were as follows:

 

		U.S. Plan								Canadian Plan
		2012				2011				2012				2011
Non-current liabilities			(1,851,122	)			(1,761,856	)			(212,858	)			(229,316	)
Net amount recognized		$	(1,851,122	)		$	(1,761,856	)		$	(212,858	)		$	(229,316	)

 

 

Amounts in accumulated other comprehensive loss at year end, consist of:

 

		U.S. Plan								Canadian Plan
		2012				2011				2012				2011
Unrecognized net loss		$	1,636,551			$	1,413,239			$	599,824			$	544,514
		$	1,636,551			$	1,413,239			$	599,824			$	544,514

 

The estimated net loss that will be amortized from accumulated other comprehensive income for net periodic pension cost over the next year is $116,000 and $37,516 for the U.S. Plan and Canadian Plan, respectively.

 

Net pension expense is included in selling, administrative and general expenses on the consolidated statements of operations. The components of net pension expense for the plans were as follows:

 

		U.S. Plan												Canadian Plan
		2012				2011				2010				2012				2011				2010
Components of net periodic benefit cost:
Service cost		$	—			$	21,100			$	21,200			$	—			$	—			$	—
Interest cost			166,534				172,221				174,649				58,812				76,866				78,845
Expected return on plan assets			(154,411	)			(142,104	)			(132,093	)			(73,715	)			(84,452	)			(81,273	)
Net actuarial loss			93,661				51,287				42,191				—				—				—
Amortization of prior service cost			—				—				—				34,007				15,070				7,380
Net periodic benefit cost		$	105,784			$	102,504			$	105,947			$	19,104			$	7,484			$	4,952

 

The Fair Value Measurements and Disclosure Topic require 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 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:

 

			December 31, 2012
			US Plan				Canadian Plan
Cash and cash equivalents	Level 1		$	261,655			$	50,329
Mutual funds	Level 1			254,580				1,237,350
Corporate/Government Bonds	Level 1			693,950
Equities	Level 1			1,038,740				—
Total			$	2,248,925			$	1,287,679

 

The plans’ weighted-average allocations by asset category are as follows:

 

		December 31, 2012
		US Plan				Canadian Plan
Equities			58	%			39	%
Fixed income			42	%			61	%
Total			100	%			100	%

 

 

Expected benefits to be paid by the plans during the next five years and in the aggregate for the five fiscal years thereafter, are as follows:

 

		U.S. Plan				Canadian Plan
2013		$	135,274			$	94,392
2014			139,104				88,273
2015			135,018				84,060
2016			135,102				79,546
2017			138,280				74,731
2018 through 2022			841,875				245,860

 

Benefit obligations are determined using assumptions at the end of each fiscal year and are not impacted by expected rate of return on plan assets. The weighted average assumptions used in computing the benefit obligations for the plans were as follows:

 

		U.S. Plan								Canadian Plan
		2012				2011				2012				2011
Weighted average assumptions as of December 31:
Discount rate			3.85	%			4.50	%			3.60	%			4.13	%
Rate of compensation increase			—				—				2.00	%			2.00	%

 

The weighted average assumptions used in computing net pension expense for the plans were as follows:

 

		U.S. Plan								Canadian Plan
		2012				2011				2012				2011
Weighted average assumptions as of December 31:
Discount rate			4.50	%			5.50	%			4.13	%			6.25	%
Expected return on plan assets			7.50	%			7.50	%			6.00	%			7.00	%
Rate of compensation increase			—				—				2.00	%			2.00	%

 

The expected return on plan assets is based upon anticipated returns generated by the investment vehicle. Any shortfall in the actual return has the effect of increasing the benefit obligation. The benefit obligation represents the actuarial present value of benefits attributed to employee service rendered; assuming future compensation levels are used to measure the obligation. The accumulated benefit obligation for the U.S. Plan was $4,100,047 and $3,829,727 at December 31, 2012 and 2011, respectively. The accumulated benefit obligation for the Canadian Plan was $1,500,537 and $1,441,482 at December 31, 2012 and 2011, respectively.

 

Death Benefit Plan

 

The Company also provides a death benefit for retired former employees of the Company. Effective in 2000, the Company discontinued this benefit for active employees. The death benefit is not a funded plan. The Company pays the benefit upon the death of the retiree. The Company has fully recorded its liability in connection with this plan. The liability was approximately $64,000 at December 31, 2012 and 2011, respectively, and is recorded as long-term pension and other benefits in the accompanying balance sheets. No expense was recorded in 2012, 2011 or 2010 related to the death benefit, as the plan is closed to new participants.

 

Defined Contribution Plan

 

During 1999, the Company established a 401(k) plan for the benefit of its U.S. full-time employees. Under the Company’s 401(k) plan, the Company makes an employer matching contribution equal to $0.10 for each $1.00 of an employee’s salary contributions up to a total of 10% of that employee’s compensation. The Company’s contributions vest over a period of five years. The Company recorded expense of approximately $12,000, $4,000 and $12,000 in connection with its contribution to the plan during 2012, 2011 and 2010, respectively.

 

Effective January 1, 2009, the Company converted the Canadian Plan from a defined benefit plan to a defined contribution 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 Company recorded expense of approximately $4,600, $4,000 and $4,000 in connection with its contribution to the plan during 2012, 2011 and 2010, respectively.

 

 

11. Capital Stock

 

The Company’s Certificate of Incorporation, as amended, authorizes 4,000,000 shares of common stock and 1,000,000 shares of preferred stock, and 200,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock. During 2012, the Company issued 3,986 shares of common stock as compensation to the directors and 3,334 shares as compensation to executive officers, and increased other capital by $3,917 representing compensation expense of $11,237. During 2011, the Company issued 26,313 shares of common stock as compensation to the directors and 11,580 shares as compensation to executive officers, and increased other capital by $19,207 representing compensation expense of $57,100. As of December 31, 2012, 1,879,319 shares of common stock had been issued, of which 1,687,319 shares were outstanding, and zero shares of preferred stock were outstanding.

 

12. Stock-Based Compensation

 

In 1999, the Company adopted the American Locker Group Incorporated 1999 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.

 

At December 31, 2012 and 2011, there were no stock appreciation rights outstanding.

 

Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, the risk-free rate, estimated forfeitures and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.

 

No stock options were granted during 2012, 2011 and 2010, and no stock option expense was recorded.

 

The following table sets forth the activity related to the Company’s stock options for the years ended December 31:

 

		2012								2011								2009
		Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price				Options				Weighted Average Exercise Price
Outstanding—beginning of year			12,000			$	4.95				12,000			$	4.95				12,000			$	4.95
Expired or forfeited			—				—				—				—								—
Outstanding—end of year			12,000			$	4.95				12,000			$	4.95				12,000			$	4.95
Exercisable—end of year			12,000								12,000								12,000

 

The following tables summarize information about stock options vested and unvested as of December 31, 2012:

 

Vested
Exercise Price		Number of Options		Intrinsic Value		Remaining Years of Contractual Life
$4.95		12,000		—		4.7

 

At December 31, 2012, the total unrecognized compensation cost related to stock options expected to vest was $0. At December 31, 2012, 37,000 options remain available for future issuance under the Plan.

 

13. Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:

 

		2012				2011				2010
Numerator:
Net income (loss)		$	(614,578	)		$	37,091			$	68,369
Denominator:
Denominator for basic earnings per share—weighted average shares outstanding			1,682,994				1,655,805				1,605,769
Denominator for diluted earnings per share—weighted average shares outstanding and assumed conversions			1,682,994				1,655,805				1,605,769
Basic earnings (loss) per share		$	(0.37	)		$	0.02			$	0.04
Diluted earnings (loss) per share		$	(0.37	)		$	0.02			$	0.04

 

 

For each of the years ended December 31, 2012, 2011 and 2010, 12,000 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings (loss) per share because the effect was antidilutive.

 

14. Geographical, Customer Concentration and Products Data

 

The Company is primarily engaged in one business, the 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. Net sales by product group for the years ended December 31 are as follows:

 

		2012				2011				2010
Lockers		$	8,327,294			$	9,522,019			$	8,961,181
Mailboxes			2,350,717				2,284,582				2,374,682
Contract manufacturing			1,729,898				430,586				451,898
Concession revenues			1,268,277				1,149,149				311,251
		$	13,676,186			$	13,386,336			$	12,099,012

 

The Company sells to customers in the United States, Canada and other foreign locations. Sales are attributed based on the country they are shipped to. Net sales to external customers for the years ended December 31 are as follows:

 

		2012				2011				2010
United States customers		$	11,283,881			$	10,646,590			$	9,266,197
Canadian and other foreign customers			2,392,305				2,739,746				2,832,815
		$	13,676,186			$	13,386,336			$	12,099,012

 

The Company did not have any customers that accounted for more than 10% of consolidated sales in 2012, 2011, or 2010.

 

At December 31, 2012 and 2011, the Company had unsecured trade receivables from governmental agencies of approximately $8,000 and $26,000, respectively. At December 31, 2012 and 2011, the Company had trade receivables from customers considered to be distributors of approximately $583,000 and $334,000, respectively.

 

At December 31, 2012, the Company had six customers that accounted for 27.0% of accounts receivable. At December 31, 2011, the Company had four customers that accounted for 43.2% of accounts receivable. Other concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company’s customer base and their dispersion across many industries.

 

15. 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 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 Company’s 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 Company’s primary insurance carrier has assumed the cost of the Company’s 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 234 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 Company’s insurance carrier, subject to a reservation of rights. Settlement agreements have been entered in approximately 35 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 167 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 25, 2013, the most recent date information is available, is approximately 32 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 Company’s experience to date with similar cases, as well as the assumption that insurance coverage will continue to be provided with respect to these cases, at the present time, the Company does not believe that the outcome of these cases will have a significant adverse impact on the Company’s operations or financial condition.

 

On February 5, 2013, the Company was notified by one of its customers that certain product purchased by that customer had quality issues. On March 11, 2013, the Company and the customer entered into an agreement whereby the Company will reimburse the customer for reasonable costs and expenses incurred on or before December 31, 2013 by the customer in its efforts to resolve the quality issue. The Company has no current obligation to reimburse the customer for costs incurred after December 31, 2013 and has in place liability coverage for third-party injury and property damage that might occur as a result of the product’s quality issue. At December 31, 2012, the Company recorded a liability of $50,000 for estimated costs to be reimbursed to the customer pursuant to the terms of the agreement.

 

The Company is involved in other claims and litigation from time to time in the normal course of business. The Company does not believe these matters will have a significant adverse impact on the Company’s operations or financial condition.

 

16. Restructuring

 

In 2009, the Company restructured its business operations to rationalize its cost structure in an uncertain economic environment. The restructuring included plans for the relocation and consolidation of its Ellicottville, New York operations into its Texas facility. This planned relocation resulted in severance and payroll charges during the year ended December 31, 2009 of $264,000. At December 31, 2012 the balance remaining of such payments was $27,900 and the Company expects to make such payment before March 31, 2013.

 

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. As a result, the Company recorded a restructuring charge in 2012 of approximately $283,900.

 

When completed, the restructuring and relocation is expected to result in approximately $240,000 in annual cost savings. Accrued restructuring expenses of $39,900 are included in “Other accrued expenses” in the Company’s consolidated balance sheet, while the $89,000 increase to inventory obsolescence is included in “Inventory reserve.”

 

The following table analyzes the changes incurred related to the Company’s reserve with respect to the restructuring plan for the year ended December 31, 2012:

 

		December 31, 2011				Expense/ (Benefit)				Payment/Charges				December 31, 2012
Severance		$	111,000			$	64,000			$	(147,100	)		$	27,900
Professional Fees			—				42,000				(42,000	)			—
Inventory			—				89,000				—				89,000
Other			12,000				88,900				(88,900	)			12,000
Total		$	123,000			$	283,900			$	(278,000	)		$	128,900

 

 

The following table analyzes the changes incurred related to the Company’s reserve with respect to the restructuring plan for the year ended December 31, 2011:

 

		December 31, 2010				Expense/ (Benefit)				Payment/Charges				December 31, 2011
Severance		$	132,000			$	—			$	(21,000	)		$	111,000
Other			12,000				—				—				12,000
Total		$	144,000			$	—			$	(21,000	)		$	123,000

 

17. Subsequent Events

 

None.

 

PART IV

 

 

Item 15. Exhibits, Financial Statement Schedules.

 

EXHIBIT INDEX

 

Exhibit  No.		Document Description		Prior Filing or Notation of Filing Herewith
3.1		Certificate of Incorporation of American Locker Group Incorporated		Exhibit to Form 10-K for Year ended December 31, 1980
3.2		Amendment to Certificate of Incorporation		Form 10-C filed May 6, 1985
3.3		Amendment to Certificate of Incorporation		Exhibit to Form 10-K for year ended December 31, 1987
3.4		Amended and Restated By-laws of American Locker Group Incorporated		Exhibit to Form 10-K for the year ended December 31, 2007
4.1		Certificate of Designations of Series A Junior Participating Preferred Stock		Exhibit to Form 10-K for year ended December 31, 1999
10.1		Form of Indemnification Agreement between American Locker Group Incorporated and its directors and officers		Exhibit to Form 8-K filed May 18, 2005
10.2		American Locker Group Incorporated 1999 Stock Incentive Plan		Exhibit to Form 10-Q for the quarter ended June 30, 1999
10.3		Form of Option Agreement under 1999 Stock Incentive Plan		Exhibit to Form 10-K for year ended December 31, 1999
10.4		Employment Agreement dated February 1, 2010 between American Locker Group Incorporated and Paul M. Zaidins		Exhibit to Form 10-K for year ended December 31, 2009
10.5		Loan Agreement dated December 8, 2010 between American Locker Group and Bank of America (Line of Credit and Term Loan)		Exhibit to Form 10-K for year ended December 31, 2010
10.6		Lease Agreement dated November 16, 2010 between American Locker Group and BV DFWA I, LP		Exhibit to Form 10-K for year ended December 31, 2010
10.7		Amendment dated October 27, 2011 to Loan Agreement dated December 8, 2010 between American Locker Group and Bank of America (Line of Credit and Term Loan)		Exhibit to Form 10-K for year ended December 31, 2011
10.8		First Amendment to Employment Agreement dated February 1, 2010 between American Locker Group Incorporated and Paul M. Zaidins		Exhibit to Form 10-K for year ended December 31, 2011
10.9		Amendment dated November 9, 2012 to Loan Agreement dated December 8, 2010 between American Locker Group and Bank of America (Line of Credit and Term Loan)		(1)
21.1		List of Subsidiaries		(1)
23.1		Consent of Travis Wolff, LLP		Filed herewith
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		Filed herewith
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		Filed herewith
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.		(2)

 

 

101.INS **		XBRL Instance Document		(1)
101.SCH **		XBRL Taxonomy Extension Schema Document		(1)
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document		(1)
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document		(1)
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document		(1)
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document		(1)

 

 

(1)	These exhibits were previously included in American Locker Group Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 1, 2013.
(2)	These exhibits were previously included in American Locker Group Incorporated’s Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 9, 2013.
**	In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

 

SIGNATURES 

 

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
October 11, 2013		By:		/S/ STEPHEN P. SLAY
				Stephen P. Slay
				Chief Financial Officer