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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
of the securities exchange act of 1934
For the transition period from to
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Commission file number 0-1491
BEST LOCK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 35-1092570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 50444, INDIANAPOLIS, INDIANA 46250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 849-2250
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the registrant's classes of
common, as of April 24,1997.
COMMON STOCK 120,653.85 SHARES
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INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Loss) for the
three months ended March 31, 1997 and March 31, 1996 3
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 4-5
Condensed Consolidated Statements of Shareholders' Equity at
March 31, 1997 and December 31, 1996 6
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
2
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BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NON-OPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NON-OPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
NET SALES $ 33,049,931 $ 27,287,087
COST OF GOODS SOLD 17,401,747 15,436,105
-------------- -------------
GROSS MARGIN 15,648,184 11,850,982
OPERATING EXPENSES
Selling 8,216,792 8,685,191
General and administrative 5,006,509 4,280,119
Engineering, research and development 179,481 428,058
-------------- -------------
Total operating expenses 13,402,782 13,393,368
-------------- -------------
OPERATING INCOME (LOSS) 2,245,402 (1,542,386)
Interest expense (266,587) (300,289)
Other income, net 64,617 81,552
-------------- -------------
INCOME (LOSS) before provision for income taxes 2,043,432 (1,761,123)
Provision (benefit) for income taxes 863,463 (669,344)
-------------- -------------
NET INCOME (LOSS), Best Lock Corporation and Subsidiary 1,179,969 (1,091,779)
Minority interest in net (income) loss, Best Lock Corporation and Subsidiary (245,449) 234,298
Corporate - Best Universal Lock Co. (expense) (7,917) (6,448)
-------------- -------------
NET INCOME (LOSS), Best Universal Lock Co. and Subsidiaries 926,603 (863,929)
Minority interest in net (income) loss, Best Universal Lock Co. and Subsidiaries (153,655) 145,475
Corporate - Frank E. Best, Inc. income (expense) 21,957 21,066
-------------- -------------
NET INCOME (LOSS), Frank E. Best, Inc. and Subsidiaries $ 794,905 $ (697,388)
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Best Universal Lock Co.
Best Lock ------------------------- Frank E.
Corporation Series A Series B Best, Inc.
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings (loss) per common share, three months ended:
March 31, 1997 $ 9.71 $ 2.57 $ 2.57 $ 2.89
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
March 31, 1996 $ (8.97) $ (2.39) $ (2.39) $ (2.53)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average shares outstanding, three months ended:
March 31, 1997 121,517.24 60,588.76 300,000.00 274,999.05
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
March 31, 1996 121,653.85 60,739.31 300,000.00 275,408.89
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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BEST LOCK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31 December 31
1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 2,290,542 $ 2,049,022
Trade receivables
Direct 15,058,419 15,453,983
Sales representatives and other 3,151,732 2,486,882
Allowance for uncollectible accounts (233,373) (244,866)
Estimated refundable income taxes 51,335 51,632
Current portion of notes receivable 54,126 64,909
Inventories 13,866,833 13,779,015
Prepaid income taxes 2,920,333 3,224,592
Other prepaid expenses 546,817 490,872
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Total current assets 37,706,764 37,356,041
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PROPERTY, PLANT AND EQUIPMENT, at cost
Land and buildings 14,152,229 14,155,116
Machinery and equipment 27,800,125 27,810,609
Tooling 8,831,332 8,633,648
Furniture, fixtures and other 12,456,240 12,314,557
Construction work-in-progress 464,521 184,311
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63,704,447 63,098,241
Less - accumulated depreciation (37,470,879) (36,202,495)
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Total property, plant and equipment 26,233,568 26,895,746
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OTHER ASSETS
Long-term notes receivable 3,303,799 3,303,799
Other assets 1,295,546 1,326,957
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Total assets $ 68,539,677 $ 68,882,543
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See accompanying notes to condensed consolidated financial statements.
4
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BEST LOCK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31 December 31
1997 1996
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CURRENT LIABILITIES
Current portion of retirement benefit obligations 1,358,124 1,364,671
Accounts payable 3,170,436 2,685,191
Customer advances 1,912,630 1,849,175
Accrued liabilities
Income taxes 1,021,581 923,254
Property and other taxes 1,105,695 876,669
Payroll and vacation pay 3,018,913 4,413,772
Accrued medical claims 750,000 750,000
Accrued warranty 843,428 998,835
Other 593,209 1,155,766
----------- -----------
Total current liabilities 13,774,016 15,017,333
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LONG-TERM DEBT 15,000,000 15,000,000
RETIREMENT BENEFIT OBLIGATION 3,108,880 3,213,399
DEFERRED INCOME TAXES 2,248,997 2,305,265
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Total liabilities 34,131,893 35,535,997
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COMMON STOCK AND COMMON STOCK OF UNIVERSAL
REDEEMABLE UNDER STOCK BONUS PLAN 6,083,413 6,083,413
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SHAREHOLDERS' EQUITY
Common stock, no par value, 200,000 shares
authorized; 145,128.85 shares issued; 120,653.85
shares outstanding 1,407,841 1,407,841
Accumulated earnings 48,645,561 47,568,339
Cumulative translation adjustment (244,589) (228,605)
Common stock and common stock of Universal
redeemable under Stock Bonus Plan (6,083,413) (6,083,413)
Treasury stock (15,401,029) (15,401,029)
----------- -----------
Total shareholders' equity 28,324,371 27,263,133
----------- -----------
Total liabilities and shareholders' equity $ 68,539,677 $ 68,882,543
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
5
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BEST LOCK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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March 31 December 31
1997 1996
----------- -----------
COMMON STOCK, no par value, 200,000 shares
authorized; 145,128.85 shares issued; 120,653.85
shares outstanding $ 1,407,841 $ 1,407,841
----------- -----------
ACCUMULATED EARNINGS
Balance at beginning of year 47,568,339 44,826,657
Net income - (three months ended March 31, 1997
and twelve months ended December 31, 1996) 1,179,969 3,454,613
Cash dividends received - 211,859
Cash dividends paid - (653,938)
Additional minimum liability for pension (102,747) (270,852)
----------- -----------
Balance at end of period 48,645,561 47,568,339
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COMMON STOCK AND COMMON STOCK OF UNIVERSAL
REDEEMABLE UNDER STOCK BONUS PLAN (6,083,413) (6,083,413)
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CUMULATIVE TRANSLATION ADJUSTMENT (244,589) (228,605)
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TREASURY STOCK
Balance at beginning of year (15,401,029) (14,810,661)
Shares purchased - (590,368)
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Balance at end of period (15,401,029) (15,401,029)
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Total shareholders' equity $ 28,324,371 $ 27,263,133
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Cash dividends per share $ - $ 5.42
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See accompanying notes to condensed consolidated financial statements.
6
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BEST LOCK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 32,747,839 $ 26,230,984
Cash paid to suppliers and employees (30,999,252) (27,440,690)
Interest received 18,144 53,141
Interest paid (286,711) (378,085)
Income taxes refunded (paid) (516,594) 426,659
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Net cash provided by (used in) operating activities 963,426 (1,107,991)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (713,695) (517,865)
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Net cash used in investing activities (713,695) (517,865)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of credit 2,900,000 14,100,000
Payments on unsecured line of credit (2,900,000) (13,580,843)
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Net cash provided by financing activities - 519,157
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (8,211) (4,707)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 241,520 (1,111,406)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,049,022 1,348,876
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,290,542 $ 237,470
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RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 1,179,969 $ (1,091,779)
Adjustments-
Depreciation and amortization 1,419,249 1,363,116
Provision for losses on accounts receivable 27,191 13,950
Loss on sale of property, plant and equipment 14,224 47,192
Deferred income taxes 247,991 411,282
Changes in assets and liabilities-
(Increase) decrease in
Accounts and notes receivable (362,789) (1,131,707)
Refundable income taxes 298 (347,413)
Inventories (92,604) 219,885
Prepaid income taxes and other 2,038 77,269
Other assets (29,945) (790)
Increase (decrease) in
Accounts payable, customer advances and accrued liabilities (1,326,964) (36,859)
Income taxes payable 98,581 (307,293)
Retirement benefit obligation (111,066) (324,844)
Additional minimum liability for pension (102,747) -
------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 963,426 $ (1,107,991)
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have not been
audited by independent accountants. In the opinion of the Company's management,
the financial statements reflect all adjustments necessary to fairly present the
results of operations for the three-month periods ended March, 31, 1997 and
1996, the Company's financial position at March 31, 1997 and December 31, 1996,
and the cash flows for the three-month periods ended March, 31, 1997 and 1996.
These adjustments are of a normal recurring nature.
Certain notes and other information have been omitted from the interim
financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1996 Form 10-K.
The results for the first quarter of 1997 are not necessarily indicative of
future financial results.
The condensed consolidated financial statements for each parent company in
the Best Lock Companies (the Company) include their respective subsidiaries as
indicated below:
Percent Owned
Parent Company Subsidiaries As of March, 31, 1997
-------------- ------------ ---------------------
Frank E. Best, Inc. Best Universal Lock Co. 83%
(Best)
Best Universal Lock Best Lock Corporation 79%
Co. (Universal)
Best Lock Best Universal Locks Limited (Canada) 100%
Corporation (Lock or the Company)
2. INCOME TAXES
The effective tax rate for the first quarter of 1997 was 42.2%, compared with
(38.0)% for the first quarter of 1996. Foreign tax expense provided on the
first quarter 1996 income in Canada decreased the benefit generated on the first
quarter 1996 loss in the United States. The effective tax rates are higher than
the U.S. Federal statutory rate of 34% due to a higher tax rate in Canada and
state income taxes.
8
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3. FINANCING ARRANGEMENTS
The Company entered into a $25.0 million line of credit agreement on
February 15, 1995, which was amended effective December 31, 1996 and December
31, 1995. The agreement expires on May 5, 1998 and bears interest at a variable
rate, based upon the prime rate or LIBOR, at the Company's election. The line
of credit is secured by a blanket lien on all accounts and notes receivable,
inventory, machinery and equipment, and intangible assets with a negative pledge
on real estate. The agreement contains financial covenants including those
relating to debt service coverage, tangible net worth, and liabilities to
tangible net worth. As of March 31, 1997 and December 31, 1996, the Company was
in compliance with all required covenants.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the statement of income and
balance sheet for the prior periods to conform to the current period
presentation.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since Frank E. Best, Inc. and Best Universal Lock Co. are non-operating parents
of Best Lock Corporation, a discussion of Best Lock Corporation's business is
necessary in order to understand the character and development of the total
enterprise. As the variations between the financial statements of these three
companies are not significant, the discussion and analysis of Best Lock
Corporation is representative of all. The following, therefore, is a discussion
of the business of Best Lock Corporation (the Company).
ANALYSIS OF RESULTS OF OPERATIONS
Sales for the first quarter of 1997 were $5.8 million higher than the same
period of 1996. Higher sales from the manufacturing division (BLM) to
independent distributors and Authorized Contract Construction Dealers accounted
for approximately $2.7 million of the increase. Sales from the distribution
division (BLS) to end users increased approximately $3.0 million over the same
period of 1996, mainly due to higher sales of electronic access control
products.
The gross profit on sales improved to 47.3% of sales, compared to 43.4% in the
prior year. Higher absorption of fixed costs in the BLM division, due to the
increased sales, caused most of the improvement in the gross profit percentage.
Margins were also impacted favorably by $168,000 in the first quarter of 1997
due to a change in the Company's method for accounting for vacation benefits.
Prior to 1997, vacation was earned in one year and taken in the next. Effective
in 1997, vacation will be earned and taken in the same year.
Operating income (loss) increased $3.8 million to 6.8% of sales from (5.7)% for
the same period in 1996, mainly due to the higher sales and improved gross
margin percentage. Selling, general and administrative, and engineering
expenses were flat in the first quarter of 1997 compared to 1996. Expenditures
for freight out, sales commissions, seminars and training and professional fees
increased approximately $794,000 over the prior year, but were offset by lower
salaries, wages and fringe benefits of approximately $748,000. The lower
expenditures for salaries, wages and fringe benefits in 1997 is due to the
separation of 63 employees during 1996 under a plan that was announced in 1995.
The change in the method for accounting for vacation, described above, also
positively impacted selling, general and administrative, and engineering
expenses by $237,000 during the first quarter of 1997. This change will result
in a one-time benefit to the Company of approximately $2.2 million for the
year.
The effective tax rate for the first quarter of 1997 was 42.2%, compared with
(38.0)% for the first quarter of 1996. Foreign tax expense provided on the
first quarter 1996 income in Canada decreased the benefit generated on the first
quarter 1996 loss in the United States. The effective tax rates are higher than
the U.S. Federal statutory rate of 34% due to a higher tax rate in Canada and
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity continues to be strong for the first quarter of 1997.
Working capital increased by approximately $1.5 million, mainly due to payouts
of payroll and vacation that were accrued at December 31, 1996. The current
ratio of 2.7:1 at March, 31, 1997 improved slightly from the ratio of 2.5:1 at
December 31, 1996. Cash and cash equivalents increased by $242,000. Inventory
turns declined slightly to 5.0 in the first quarter of 1997, compared to 5.5 in
the first quarter of 1996.
10
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Capital expenditures for the first quarter of 1997 were $707,000. Capital
spending is projected to total approximately $4.0 million for the year. The
Company plans to meet its 1997 working capital and capital expenditure
requirements through funds from operations and from its existing credit
facility.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Form 10-K for the year ended
December 31, 1996. There have been no new legal proceedings initiated during
the quarter, nor has there been a change in status or termination of any
previously reported legal proceeding.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEST LOCK CORPORATION
---------------------
(Registrant)
Date: May 15, 1997 By:
/s/ Stephen J. Cooper
-----------------
Treasurer
/s/ Paula J. Tinkey
---------------
Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2290542
<SECURITIES> 0
<RECEIVABLES> 18210151
<ALLOWANCES> 233373
<INVENTORY> 13866833
<CURRENT-ASSETS> 37706764
<PP&E> 63704447
<DEPRECIATION> 37470879
<TOTAL-ASSETS> 68539677
<CURRENT-LIABILITIES> 13774016
<BONDS> 15000000
0
0
<COMMON> 1407841
<OTHER-SE> 26916530
<TOTAL-LIABILITY-AND-EQUITY> 68539677
<SALES> 33049931
<TOTAL-REVENUES> 33049931
<CGS> 17401747
<TOTAL-COSTS> 30804529
<OTHER-EXPENSES> 201970
<LOSS-PROVISION> 27191
<INTEREST-EXPENSE> 266587
<INCOME-PRETAX> 2043432
<INCOME-TAX> 863463
<INCOME-CONTINUING> 1179969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1179969
<EPS-PRIMARY> 9.71
<EPS-DILUTED> 9.71
</TABLE>
