Other Income and (Expense)
The Company
incurred $67,000 in interest expense during the first quarter of 2009, a
decrease of $7,000 from the first quarter of 2008. Interest income for the first
quarter of 2009 was $5,000, down $14,000 from the first quarter of 2008. Because
bank interest rates have fallen, interest earned on overnight investments is
down substantially compared to last year.
Taxes
In the first quarter of 2009, the Company
recorded an income tax benefit of $32,000 based on current federal and estimated
state income tax rates. The federal income tax portion of the tax provision is a
non-cash expense, because the Company has substantial net operating loss
carryforwards for federal income tax purposes resulting from losses in prior
years.
The current ongoing downturn in the national and world economies has
caused the Company to consider cost reductions in all aspects of its operations
in order to offset lost revenue. Total sales in the first quarter of 2009 were
down by 13% compared with the prior year (15% in the work gloves, boots and
rainwear segment) and the Company expects further erosion of sales during the
remainder of 2009. Industrial sales of work gloves, boots and rainwear are being
especially adversely affected by the ongoing recession, down over 22% in the
first quarter. Based on disruption in the U.S. automobile manufacturing sector and related industrial businesses including
the Chrysler Corporation bankruptcy, anticipated
bankruptcy or restructuring of General Motors and production slow-downs at
Caterpillar, it appears that a portion of the Companys industrial sales base
is not likely to
regenerate even if the economy rebounds. The Company already has reduced its
work force, both in warehousing and office staff, and all hourly workers are
reduced to a 32 hour workweek. Inventory has been reduced and capital
expenditures are being closely evaluated. Management will continue to consider
further areas in which to reduce its operating costs.
Liquidity and Capital Resources
Operating activities provided $3,694,000 in cash during the first quarter
of 2009, compared to $165,000 in 2008. This favorable cash performance in 2009
was attributable to reduced inventory and accounts receivable partially offset
by decreases in payables and accruals. Inventory levels are being reduced to be
in line with current sales projections. The reduction in accounts receivable is
a result of the 13.3% decline in sales during the first quarter.
Investing activities used $80,000 in the first quarter of 2009, compared
to $15,000 during the comparable period in 2008. The $80,000 spent during the
first quarter was for facility improvements and the initial payments on a new
shipping system at the work gloves and protective wear segment. The only capital
investment the Company is planning for the second quarter and the rest of the
year is $100,000 for the completion of the new shipping system at the work
gloves and protective wear segment.
Financing
activities used $14,000 during the first quarter of 2009. Pay down of long-term
debt used $123,000 and Boss Canada used $31,000 for repayment on their revolving
line of credit. These amounts were partially offset by proceeds from exercised
stock options of $140,000. Stock options outstanding as of March 28, 2009 are
231,000. There are currently no borrowings against the Companys primary line of
credit.
At March
28, 2009 the Company had $4,388,000 in cash with zero borrowings against its
$7,000,000 revolving line of credit. The Company was in compliance with its
credit facility loan covenants as of March 28, 2009. Management believes the
Companys cash on hand and availability under the credit facility should provide
ample liquidity for the Companys expected working capital and operating
needs.
10
Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS
The
Company has minimal exposure to market risks such as changes in foreign currency
exchange rates and interest rates. The value of the Companys financial
instruments is generally not materially impacted by changes in interest rates.
The Company has entered into two interest rate swap agreements. The first
effectively fixes at 5.83% the interest rate on its mortgage note with a current
value of approximately $732,000 related to Kewanee warehouse facilities. The
second swap fixes at 6.32% the rate on approximately $583,000 of the Companys
term loan related to the Galaxy acquisition. Fluctuations in interest rates are
not expected to have a material impact on the interest expense incurred under
the Companys revolving credit facility.
Item 4T. CONTROLS AND PROCEDURES
As of the
end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the principal executive
officer and principal financial officer, of the Companys disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the
principal executive officer and principal financial officer concluded that the
Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. There was no change in the Companys internal control over financial
reporting during the Companys most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting
.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The
Company is a party to various legal actions incident to the normal operation of
its business. These lawsuits primarily involve claims for damages arising out of
commercial disputes. The Company has been named as a defendant in several
lawsuits alleging past exposure to asbestos contained in gloves sold by one of
the Companys predecessors-in-interest, all of which actions are being defended
by one or more of the Companys products liability insurers. Management believes
the ultimate disposition of these matters should not materially impact the
Companys consolidated financial position or liquidity.
Item 2. Unregistered Sale of Equity
Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior
Securities
Not applicable.
Item 4. Submission of Matters to a
Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a)
Exhibits
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31.1
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Certification of Principal
Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
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31.2
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Certification of Principal
Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
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32
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Certification of Chief Executive
Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
|
12
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
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BOSS HOLDINGS, INC.
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Dated:
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May 12, 2009
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By:
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/s/ Steven G.
Pont
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|
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Steven G. Pont
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Vice President of Finance
|
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(Principal financial officer)
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13
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