<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-1489
BEST UNIVERSAL LOCK CO.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0144790
(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
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT NOMINAL OR PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(Any sales of the registrant's stock by nonaffiliates within 60 days prior to
the date of filing would have sold at a price unknown to the registrant.)
Indicate the number of shares outstanding of each of the registrant's classes of
common, as of March 15, 1995.
SERIES A COMMON STOCK 86,469 SHARES
SERIES B COMMON STOCK 300,000 SHARES
Documents incorporated by reference: List the following documents if
incorporated by reference and the part of the form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1993. The listed documents should be clearly
described for identification purposes.
NONE
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY)
FORM 10-K ANNUAL REPORT
INDEX
Item No. Page
and Title No.
--------- ----
1 Description of Business 3
2 Properties 6
3 Pending Legal Proceedings 6
4 Submission of Matters to a Vote of Security Holders 7
5 Market for the Registrant's Common Stock and Related Security-Holder
Matters 7
6 Selected Financial Data 9
7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
8 Financial Statements and Supplementary Data 17
9 Disagreements on Accounting and Financial Disclosure 44
10 Directors and Executive Officers of the Registrant 44
11 Executive Compensation 46
12 Security Ownership of Certain Beneficial Owners and Management 48
13 Certain Relationships and Related Transactions 50
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 51
Signatures 52
Index to Exhibits 53
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. Registrant was organized in
1923 as a Corporation under the laws of the State of Washington. Neither the
registrant nor any subsidiary has ever been the subject of any bankruptcy,
receivership or similar proceedings. There has not been any material
reclassification, merger, consolidation, nor changes in the mode of conducting
business of the registrant or of any of its significant subsidiaries during the
fiscal year just ended, other than the formation of two operating divisions for
Best Lock Corporation (subsidiary): Best Locking Systems (BLS) focusing on its
sales and distribution activities, and Best Lock Manufacturing (BLM), focusing
on its manufacturing activities.
Registrant originally obtained certain licenses and assignments
of patent rights to a removable key-controlled core mechanism and other
inventions and started the manufacture of certain of the Best locking devices
incorporating said removable key-controlled core mechanism.
About 1928 registrant reassigned and transferred its equipment,
inventory and patents to its subsidiary, Best Lock Corporation, in exchange for
controlling stock; and Best Lock Corporation has continued since said date, in
its own right or through its agents and its totally-held subsidiaries, to
manufacture and sell Best locking devices.
Since registrant is a nonoperating parent of Best Lock
Corporation, it is necessary to include a description of Best Lock Corporation's
business in order to understand the character and development of the total
enterprise. The following, therefore, is a description of the business of Best
Lock Corporation (hereinafter sometimes referred to as "Lock").
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
(1) Industry segments. Lock is engaged in only one
industry segment. All reports and comments in this Form 10-K apply to that one
industry.
(2) Lines of business. Lock is engaged in only one line of
business, i.e., the manufacture or sourcing, distribution and sale of access
control products and related services.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(1) The principal business of Lock is the manufacture or
sourcing, distribution and sale of access control products and services,
primarily including locks, lock components and adaptations. Lock specializes in
providing locking systems for commercial end-users, including institutional,
industrial and government facilities.
(i) Lock's mechanical locking system is built
around a removable key-controlled core and housing utilizing the tumbler system.
The sale of Lock's system of locks includes the adaptation of other lock
manufacturers' hardware to receive this removable key-controlled core and
housing which is manufactured by Lock. Additionally, Lock has supplemented its
product offerings to end-users with other access control and auxiliary products.
Best Lock Corporation's mechanical locks,
lock components and adaptations are manufactured or assembled in its plant
located in Indianapolis,
3
<PAGE>
Indiana and sold by Lock through sales representatives throughout the United
States, Canada and other countries. Lock's representatives are independent
representatives maintaining separate inventories, or corporate-owned sales
offices, both selling directly to end-users.
Lock does not manufacture all of the access
control products it sells, but purchases a number of such items from other
manufacturers. Lock is not exclusively represented by any regional hardware
house as are most of the large lock manufacturers but its products are sold
through many regional hardware houses as a modification of their regular lines.
In connection with the sale of its system of locks, Lock assists in maintaining
and setting up for its customers a masterkey plan for proper control and
security of the customer's locking system.
Lock sells its products in the United States
and abroad. Some of its foreign sales are made by its agent and totally-held
subsidiary, Best Universal Locks Limited, of the Province of Ontario, Canada.
Sales have generally increased during the past five years.
Information as to approximate percentage of
total sales revenue of classes of similar products for each of the specified
fiscal years is as follows. It is not believed that the changes in percentages
represent a material change in the mix of the product line.
<TABLE>
<CAPTION>
Name Of Class 1994 1993 1992
------------- ---- ---- ----
<S> <C> <C> <C>
Door Security Products 67% 67% 65%
All Others 33 33 35
</TABLE>
There have not been any significant changes
in the kinds of products produced or products or services sold since the
beginning of the fiscal year.
Lock is continuing its program of selling to
contract hardware houses in an attempt to enlarge its sales to new construction
projects.
(ii) There has not been any public announcement of
a new product or industry segment which would require the investment of a
material amount of the assets of Lock during the next fiscal year.
(iii) The raw materials essential to Lock's
manufacturing business are standard metals in bar stock of various cross-
sectional shapes. Approximately 80% of the shapes are standard and
approximately 20% are specially made. The vast majority of essential raw
materials are purchased from five or six midwestern suppliers. There are no
significant problems in securing the essential raw materials for Lock's
manufacturing business, other than the normal forces of supply and demand,
possible strikes or other production factors of the suppliers.
(iv) Patents and patent rights have been and are a
significant factor in Lock's business. Lock has acquired from Frank E. Best and
Lock's parents (Best Universal Lock Co. and Frank E. Best, Inc.) a substantial
number of licenses and patent rights relating to the locking art and other
mechanical fields, and has engaged in substantial experimental and developmental
work in connection with such licenses and patent rights. The first patent
rights acquired by registrant were related to the Best Universal removable core.
A number
4
<PAGE>
of the early patent rights licensed or otherwise acquired have expired.
Continuing research and development results in patents being issued to Lock on
various aspects of its product line. Legal action related to a recent patent
was pursued to trial in early 1995, involving design and utility patents on a
patented keying system. Reference is made to Item 3 for further discussion.
Registrant has several registered trademarks regarding the use of the word
Best in association with security products. These are considered important
and valuable assets of the company.
(v) While there is no particular seasonal factor in
Lock's business, a backlog for its manufacturing business exists for production
planning.
(vi) There is no unusual working capital requirement
by Lock. Normal working capital requirements for inventory and accounts
receivable are met through internal funding or borrowings from outside bank
sources.
(vii) The manufacturing or sourcing, distribution and
selling business of Lock is not dependent upon any one single customer, or very
few customers, the loss of which would have a material adverse effect on Lock.
(viii) Lock's backlog of orders as of the dates shown
below are believed to be firm.
March 15, 1995 $ 6,417,949
March 25, 1994 6,797,000
It is expected that 100% of the backlog on
March 15, 1995 will be filled within the current fiscal year. Lock's order
sales and order flow do not generally reflect any seasonal fluctuations.
(ix) It is not believed that any material portion of
the business of Lock is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government.
(x) The business of Lock is highly competitive.
The principal methods of competition are in the areas of price, product
performance, delivery and service. There are ten to fifteen major lock
manufacturing companies in the United States, some of which have substantially
greater sales and resources than Lock. These companies manufacture and sell a
wide variety of locks and locking hardware or other access control products.
The major companies also sell masterkeyed systems of locks in competition with
Lock's lock systems.
Due to the fact that registrant and Lock have
been engaged in business for more than sixty-five years and have specialized in
the sale of masterkeyed systems of locks, it believes that Lock is a significant
factor in this specialized field. Since industry statistics are not available,
registrant is not able to state Lock's relative standing in the overall lock
market or in the more specialized masterkeyed system of locks market.
(xi) Registrant did not expend any funds on
research. Lock expended approximately $2,663,000, $2,246,000 and $3,032,000 on
research activities relating to the development of new products or the
improvement of existing products in the years ending December 31, 1994, 1993 and
1992, respectively.
Lock has not engaged in any material customer
sponsored research during the past three fiscal years.
5
<PAGE>
(xii) Lock does not believe there will be any
material effect that compliance with Federal, state or local provisions
regarding the discharge of materials into the environment, or otherwise relating
to the protection of the environment, will have upon the capital expenditures,
earnings and competitive position of Lock or its subsidiary.
Lock estimates it will voluntarily invest
approximately $510,000 during its current and succeeding fiscal year to continue
to enhance the Company's overall environmental standards. This amount includes
capital expenditures ($110,000) and operating expenses of environmental
protection facilities.
(xiii) The staff of registrant, being a nonoperating
holding corporation, consisted of its directors, officers and their assistants,
being four in number. The staff of Lock as of the close of its fiscal year
consisted of approximately 456 production and maintenance employees; and 731
office, sales and executive employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. Lock is engaged, through its totally-held subsidiary, Best
Universal Locks Limited, in sales in Canada. There are other foreign sales
throughout the world. The total of all such foreign sales amounted to
approximately 7%, 7% and 8% of Lock's total sales during 1994, 1993 and 1992,
respectively. The risk and profitability of such business does not differ
substantially from domestic sales.
ITEM 2. PROPERTIES.
Registrant and its parent, Frank E. Best, Inc., do not own or operate
any plants, manufacturing or physical properties. The following is a
description of the properties of registrant's subsidiary, Best Lock Corporation
and its subsidiary.
Manufacturing facilities and engineering and executive offices of Lock
are located in multi-purpose brick and masonry buildings containing a total of
approximately 215,000 square feet of manufacturing space, 30,000 square feet of
warehouse space and 57,000 square feet of office space at 6161 East 75th Street,
Indianapolis, Indiana. The buildings were built specifically for Lock's use in
four major phases in 1958, 1965, 1977 and 1989. Lock is using all of the floor
space in the premises. The production facilities located on the premises
include stamping, drilling, broaching, automatic screw machines and all other
equipment used by registrant in its manufacturing business. Lock also maintains
an engineering department, masterkey department, general accounting, marketing
and executive offices in the office portion of the buildings. These buildings
are located on an approximately 50 acre tract of real estate owned in fee simple
by Lock.
The registrant and its totally-held subsidiary also occupy corporate
sales distribution offices, six of which are owned in fee simple and 24 of which
are leased. All properties, both owned and leased, together with the related
machinery and equipment contained therein, are considered to be well maintained,
in good operating condition and suitable and adequate for present and
foreseeable future needs.
ITEM 3. PENDING LEGAL PROCEEDINGS.
Best Lock Corporation vs. ILCO - Unican Corporation (Federal District
court, Indianapolis, Cause No. IP 93-1092C). This action by Lock against ILCO,
a North Carolina corporation, charges ILCO with infringement of Lock's trade
dress and trademark right in certain patented keys and other keys, and with
unfair competition. ILCO has subsequently brought a declaratory judgment action
against Lock in Federal District court in North Carolina (Civil Action No. 3 93
CV 314 - MW), challenging the validity of Lock's patents, and alleging non-
infringement of Lock's trade dress rights, and charging Lock with antitrust law
violations regarding Lock's pat-
6
<PAGE>
ented key system. The Federal District court in Indianapolis has kept
jurisdiction of the case and ordered the dismissal of the North Carolina action.
Trial began February 27, 1995 and was concluded on March 14, 1995, and Lock is
awaiting the court's decision.
Genoveva Ayala et. al v. The Texas Department of Mental Health et.
al., No. 93-CL-12577, in the District Court 288 Judicial District Bexar County,
Texas, filed against Best Lock Corporation as one of several defendants on
August 16, 1994. The plaintiffs allege that the Company's negligent acts and/or
omissions were a proximate cause of the death of Robert Ochoa Ayala. The
plaintiffs seek total money damages of "not less than" $3,000,000. The
Company's insurance carrier has retained a Texas law firm to serve as its
defense counsel.
In the ongoing operation of Lock's business, it is from time to time
subjected to various claims and lawsuits incidental to its business and believes
that the outcome of any of those matters will not have a material adverse effect
on its consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY-HOLDER
MATTERS.
The registrant's Series A stock is classified as over-the-counter, and
from time to time may be listed in the National Quotation Bureau, Inc.'s "Pink
Sheets." Such quotations may not necessarily represent the value of actual
transactions. As determined by a third party professional appraiser each year
for the purpose of the Best Lock Corporation Stock Bonus Plan, the value of
registrant's Class A shares as of December 31, 1993 and 1992 was $65.96 and
62.53 per share respectively. There are 779 shareholders of record of
registrant's Series A stock as of March 15, 1995.
The registrant's Series B stock is totally-held by its parent, Frank
E. Best, Inc. This stock was valued as of December 31, 1993 and 1992 at $72.56
and $68.78 per share, respectively, by a third party professional appraiser.
The registrant's preferred stock is held by 11 shareholders as of
March 15, 1995, and was valued at $100.00 per share by a third party
professional appraiser in both 1994 and 1993.
Dividends have been declared and paid annually in October, 1994 and
1993 in the respective amounts of $1.66 and $1.63 per share on the Series A
common stock, and $1.09 and $1.06 per share on the Series B common stock.
Dividends of $7.00 per share on the preferred stock were paid annually for both
1994 and 1993. There is no known restriction on registrant's present or future
ability to pay such dividends other than the availability of sufficient funds.
There is a present expectation that dividends will continue to be paid in the
future.
Registrant is utilizing an independent clearinghouse to facilitate
submission of stock deemed to be "abandoned property" under various state laws.
During 1994, 1993, and 1992, 0, 182 and 30,533 shares respectively, were
submitted to the appropriate state authorities through this clearinghouse. Such
property will be held for various periods of time as required by each state
prior to being placed on the market for disposition.
7
<PAGE>
This page not used.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
PAGE 1 0F 2
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1994 THROUGH 1990
- - - -------------------------------------------------------------------------------
The following consolidated summary of selected financial data should be read in
conjunction with the accompanying notes to consolidated financial statements:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 104,669,003 $ 98,521,396 $ 84,865,287 $ 74,752,175 $ 74,443,092
Net income before cumulative effect
of change in accounting principle 1,514,931 802,612 1,766,630 3,074,244 2,260,518
Net income 1,514,931 1,275,877 1,766,630 3,074,244 2,260,518
Total assets 71,028,674 64,178,858 62,233,977 61,800,053 59,499,737
Long-term obligations 4,444,971 4,745,065 4,552,378 2,228,349 4,740,894
(excluding deferred taxes)
Common stock and common stock
of Best, redeemable under Stock
Bonus Plan 4,087,473
</TABLE>
Earnings and dividends per common share - see page 2 of 2.
9
<PAGE>
ITEM 6
Page 2 of 2
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
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1994 THROUGH 1990
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings per share of common stock:
Best Lock Corporation and Subsidiary
(131,185.85 shares outstanding in 1994; 131,238.85
shares outstanding each year 1993-1990) -
Net income before cumulative effect of
change in accounting principle $ 16.83 $ 8.76 $ 18.73 $ 32.32 $ 23.75
Cumulative effect of SFAS 109 "Accounting
for Income Taxes" $ 0.00 $ 4.95 $ 0.00 $ 0.00 $ 0.00
------------- ------------- ------------ ------------ ------------
$ 16.83 $ 13.71 $ 18.73 $ 32.32 $ 23.75
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Best Universal Lock Co. and Subsidiaries
(Series A - 86,469 shares and Series B - 300,000
shares outstanding each year) -
Series A -
Net income $ 3.92 $ 3.30 $ 4.57 $ 7.95 $ 5.85
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Series B -
Net income $ 3.92 $ 3.30 $ 4.57 $ 7.95 $ 5.85
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Frank E. Best, Inc. and Subsidiaries
(598,710 shares outstanding each year) -
Net income $ 1.93 $ 1.45 $ 2.27 $ 3.97 $ 2.91
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Dividends per share:
Best Lock Corporation, common $ 5.40 $ 5.00 $ 4.90 $ 4.70 $ 3.95
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Best Universal Lock Co. -
Preferred (7% cumulative) $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
Series A Common (Note 2) 1.66 1.63 1.61 1.59 1.57
Series B Common (Note 2) 1.09 1.06 1.04 1.02 1.00
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Frank E. Best, Inc. Common $ 0.52 $ 0.51 $ 0.49 $ 0.47 $ 0.45
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
</TABLE>
10
<PAGE>
Item 7. 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 consolidated 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.
RESULTS OF OPERATIONS - 1994 vs. 1993
In order to more efficiently manage its operations, the Company reorganized
into two divisions during 1994. The Best Lock Manufacturing (BLM) Division is
responsible for manufacturing and supplying security products to the Company's
distribution division, Best Locking Systems (BLS).
The Company's net sales for 1994 increased 6% over 1993, primarily due to
improved sales volume in the Best Locking Systems Division and the recognition
of a full year of sales for offices that began operations during 1993. The
overall higher level of retail sales at the distribution level improved gross
margins to 48.4%, compared to 45.2% in 1993. The Company also negotiated a
three year purchase agreement with its major brass supplier which resulted in
the Company not experiencing an increase in the per pound cost of brass despite
the market price for brass, the largest raw material component of its products,
increasing approximately 11% in 1994.
Salaries and wages were $4.3 million higher than 1993 levels. A portion of
the increase relates to a charge of $2.1 million in the fourth quarter for
anticipated employee-related expenses related to the settlement of claims
arising from a derivative action. This matter, completed on February 15, 1995,
included the resignation of Walter E. Best, Chairman and President, as well as
the resignations of Richard E. Best and Marshall W. Best, both Vice Presidents
of the Company. This event is discussed in more detail in Note 14 to the
consolidated financial statements. Expansion of the Company's sales
distribution offices during 1993, when only a partial year of operating expenses
were recognized, also resulted in an increase in salaries and wages during 1994.
Employee benefit costs increased $2 million over 1993 due primarily to (1) an
increase in health insurance claims costs of approximately $1.0 million, which
the company is self-funding; and (2) a change in the assumptions used in
calculating the present value of the retirement benefit for the former
President, Walter E. Best, which increased expense by $800,000. The discount
rate used to calculate the actuarial present value of the accumulated retirement
benefit obligation was changed from 7.5% in 1993 to 8% in 1994, resulting in a
reduction in employee benefits expense of $434,000.
Total selling, general and administrative and engineering expenses
increased $5.3 million, or 12% over 1993. Reductions in bad debt expense of
approximately $500,000 and lower repairs and utilities expenditures of
approximately $500,000 partially offset the increase in salaries and benefits
costs described above. Professional fees increased by $1.1 million as the
Company sought assistance in selecting software for the order processing,
inventory management, and
11
<PAGE>
accounting functions as well as for other special projects. Research and
development expenditures increased to $2.7 million in 1994 over the 1993 total
of $2.2 million. The Company is continuing to develop an electronic access
security product. The costs of this development are being expensed currently.
Net income of $2.2 million increased 23% over 1993. Income taxes decreased
to 8% of income before taxes, compared to an effective tax rate of 43% in 1993.
The reduction in the effective tax rate for 1994 is primarily attributable to
the recognition of a $656,000 income tax benefit in 1994 and certain other tax
credits. In connection with the finalization of the Company's 1993 U. S.
Federal income tax return in September, 1994, it was determined that the Company
would have $656,000 of unutilized foreign tax credits available to offset
certain future U. S. tax obligations. The Company believes these foreign tax
credits will be utilized during the carryover period and thus has recorded the
benefit of the item as a reduction to the provision for income taxes for the
year ended December 31, 1994.
On February 15, 1995, the Company settled all claims arising from a
derivative action that had been threatened by a director during the third
quarter of 1994. Professional fees incurred related to the settlement of the
claims increased other non-operating expenses by $700,000 during 1994.
RESULTS OF OPERATIONS - 1993 VS. 1992
Net sales for 1993 increased 16% over 1992. The increase was principally
due to expansion of corporate owned sales distribution offices throughout the
country and a price increase of approximately 5%. The expansion of the sales
offices at the distribution level allows for greater sales at retail compared to
wholesale sales to independent distributors, which improved the gross margin to
45.2%, compared with 41.4% in 1992. These higher sales and margins were
partially offset by higher selling and general and administrative expenses
required by operating the additional offices, such as sales and support
personnel.
The Company has continued to enhance its distribution structure in
anticipation of a higher level of sales in the future. During 1993, the Company
established regions across the United States, each of which has a manager who
will assist the company in providing greater customer service and satisfaction.
In addition, a sales training program was presented across the nation in the
fall of 1993 to enhance the abilities and knowledge of the Company's sales
force, at a cost of approximately $350,000.
Net income decreased in 1993 to $1.8 million , or 1.8% of sales, from $2.46
million or 2.9% of sales in 1992. Operating expenses increased $11 million
primarily due to higher salaries, wages, related taxes and benefits of $6.9
million. Repairs and rent, travel, and professional fees also increased $1.2
million, $660,000 and $705,000, respectively, mainly due to the expansion and
development of the Company's sales distribution offices as described above.
Profitability was affected by a variety of specific factors, several of which
were determined during the fourth quarter of 1993. The Company paid a
discretionary bonus to all employees in November, 1993, in the amount of
slightly over $1.1 million. Furthermore, the change in the discount rate for
the retirement benefit obligation from 8% in 1992 to 7.5% in 1993 resulted in
additional pension
12
<PAGE>
expense of approximately $431,000 in 1993. Year end physical inventories
resulted in an unexpected charge of $700,000.
Total research and development expenditures were approximately $2.2 million
in 1993 compared to $2.0 million in 1992, as the Company continued to develop an
electronic security access product, the costs of which are being expensed
currently. The increased expenditures for research and development, the
enhancements made related to expanding the corporate owned sales distribution
offices, and the increase in capital expenditures represent the Company's
investment in the future, which will result in an increased emphasis on the
customer and will enhance the growth potential and profitability of the Company
in future years.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio, while continuing to be strong, decreased to
2.6 at December 31, 1994 compared to 3.9 at December 31, 1993. Cash and cash
equivalents increased $3.2 million as a result of (1) the implementation of a
company-wide enhanced cash management system in late 1993 and (2) a modest
reduction in days sales outstanding. Any excess cash generated over current
operating needs is invested in a daily money market fund at a variable interest
rate. At December 31, 1994, $2.3 million was invested in this fund. The
current ratio was affected by an increase in current liabilities of $5.9 million
due to the establishment of an accrual for estimated severance expenses,
increases in customer advances, and an increase in accrued medical claims.
The Company's continued emphasis on inventory management and control in
1994 resulted in a slight decrease in finished goods inventory from 1993, even
though the number of corporate owned sales distribution facilities increased.
The overall inventory increased less than 1%.
Property, plant and equipment additions decreased by approximately $800,000
to $3.9 million in 1994 from the 1993 total of $4.7 million and by $1.2 million
from the 1992 total of $5.1 million. Expenditures in 1993 and 1992 included
costs of the expansion of the corporate owned sales distribution offices, which
slowed slightly during 1994. The majority of the capital additions were to
improve productivity and efficiency. Capital expenditures for 1995 are expected
to be in the $7 million range, which includes approximately $3 million for
enhanced computer systems and related software. From time to time, the Company
acquires property that is constructed over time, normally at a vendor's
facility. Such costs are accumulated in a construction in progress account
until placed into service.
On May 18, 1994, the Company loaned $3.4 million to Russell C. Best, Chief
Executive Officer, under the terms of an Employment Agreement entered into by
Best Lock Corporation and Russell C. Best on May 5, 1994. The terms of the loan
include repayment over a 30 year period and interest at 7.2%.
Total current liabilities increased by $5.8 million from 1993 to 1994. The
Company continues to do more business in the construction industry, which
resulted in an increase of $685,000 in customer advances. Payments are received
from these customers prior to the
13
<PAGE>
fulfillment of the orders, and the income is not recognized until the completion
of the work. Accrued income taxes increased by $692,000. As described above,
the Company established a $2.3 million liability for estimated severance costs,
a portion of which were incurred on February 15, 1995. The severance is
expected to reduce annual employee costs by approximately $1.0 million beginning
in the third quarter of 1995. The liability for estimated medical claims was
increased by $635,000 due to an overall increase in 1994 health insurance
claims.
The Company desires to retain its strong credit rating, and
therefore attempts to pay all vendors according to terms and take all discounts
offered.
During 1994, the principal source of the Company's funds was from
operations. Cash provided by operating activities totaled $11 million for 1994,
compared with $5.4 million in 1993. The increase was due primarily due to a
$4.1 million increase in accounts payable, customer advances, and accrued
liabilities. In addition, accounts and notes receivable increased only $703,000
in 1994 compared to an increase of $3 million in 1993 and $2 million in 1992.
Prior to the refinancing in February 1995, the Company maintained
an unsecured bank line of credit under which it could borrow up to $7 million.
No borrowings were needed during 1994. The line was utilized for short-term
needs during 1993, the largest amount borrowed being $2 million. In February
1995, the Company negotiated a $25 million unsecured bank line of credit, in
part for the purpose of acquiring shares of Best Lock Corporation and an 87%
interest in a partnership which owns directly or indirectly shares in Best Lock
Companies, as discussed in Note 14 to the consolidated financial statements. On
February 15, 1995, $12 million was borrowed under the line of credit in order to
finance this and other transactions as described in Note 14 to the consolidated
financial statements. The remainder of the line remains available for
additional funds, if required. The Company expects to repay the loan from
current operating funds. The Company believes that the amounts available from
operating cash flows and under the line of credit will be sufficient to meet its
expected cash needs, including planned capital expenditures.
While not having a material impact on the current level of sales,
the growth potential of future sales may be affected by the outcome of the
following action: Best Lock Corporation vs. ILCO - Unican Corporation (Federal
District Court, Indianapolis, Cause No. IP 93-1092C). This action by the
Company against ILCO, a North Carolina corporation, charges ILCO with
infringement of the Company's trade dress and trademark right in certain
patented keys and other keys, and with unfair competition. The trial was
concluded on March 14, 1995, but no verdict has been rendered in the case to
date. Management is not able to assess the likelihood of a favorable outcome in
this case.
OTHER
Foreign sales continued at approximately 7% of total sales during
1994 and 1993. The profit on these sales improved slightly during 1994. The
profit on foreign sales improved more significantly from 1992 to 1993, because,
in 1992, significant costs related to the installation of a retirement benefit
in the Company's Canadian subsidiary were recognized in the amount of $813,000.
14
<PAGE>
The Best Lock Corporation Stock Bonus Plan was amended in 1994.
Under the plan, participants, upon reaching certain eligibility requirements,
may receive cash or shares of the Company. In the event the participants elect
or are required to receive shares, the participants have the right to require
Lock to repurchase such shares in cash at its fair market value. As a result,
in 1994, the fair market value of the shares, determined based on an independent
appraisal, held by the Stock Bonus Plan, has been reflected in the accompanying
balance sheet as "Common Stock and Common Stock of Universal and Best,
Redeemable Under Stock Bonus Plan."
The firm backlog of approximately $6.4 million as of March 15,
1995 is slightly lower than the level of the prior year. The Company continues
to focus on customer satisfaction in the areas of delivery and service, which
includes shorter lead times.
The Company has not experienced any unusual inflation in its purchases or
sales for the years 1994, 1993, or 1992.
The Company is not aware of any environmental expenses, past or present,
which the Company believes will result in a significant liability or cost.
15
<PAGE>
This page not used.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) 1. Financial Statements:
Report of Independent Public Accountants
Corporate Balamce Sheets, December 31, 1994 and 1993
Corporate Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
Schedules Supporting Financial Statements-
Schedule
Number
-------
II Valuation and Qualifying Accounts - Corporate and
Consolidated - for the Years Ended December 31, 1994,
1993 and 1992
III Investments in, Equity in Earnings of, and Dividends
Received From Affiliates and Other Persons - for the
Years Ended December 31, 1994, 1993 and 1992
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Best Universal Lock Co.:
We have audited the accompanying corporate balance sheets of BEST UNIVERSAL LOCK
CO. (a nonoperating holding company and a Washington corporation) as of
December 31, 1994 and 1993, and the related corporate statements of
cash flows for each of the three years in the period ended December 31,
1994 and the accompanying consolidated balance sheets of BEST UNIVERSAL LOCK
CO. AND SUBSIDIARIES as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Companies as of
December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Companies changed their method of accounting for income
taxes.
Our audits were made for the purpose of forming an opinion on the consolidated
statements taken as a whole. The schedules listed under Item 8 are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied to the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
March 28, 1995.
18
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY)
CORPORATE BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 23,764 $ 43,904
-------------- --------------
Total current assets 23,764 43,904
Investment in subsidiary at underlying
book value, eliminated in consolidation
(Note 1)(Schedule III) 36,329,401 35,356,287
-------------- --------------
Total assets $ 36,353,165 $ 35,400,191
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 72,034 $ 82,034
Other liabilities 22,390 38,222
-------------- --------------
Total liabilities 94,424 120,256
-------------- --------------
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, 7% cumulative,
$100 par value, callable at
par, 500 shares authorized,
63 shares outstanding 6,300 6,300
Series A common stock, no par value,
100,000 shares authorized, 86,469
shares outstanding (Note 2) 1,102,579 1,102,579
Series B common stock, no par value,
300,000 shares authorized and
outstanding (Note 2) 1 1
-------------- --------------
Total capital stock 1,108,880 1,108,880
-------------- --------------
Accumulated earnings:
Balance at beginning of year 34,250,100 33,433,607
-------------- --------------
Net income:
Equity in income of Lock Consolidated,
eliminated in consolidation
(Note 1) 1,554,263 1,310,229
Corporate (expense), net (39,332) (34,352)
-------------- --------------
Total net income 1,514,931 1,275,877
-------------- --------------
Cash dividends paid-
Preferred ($7 per share in 1994
and 1993) (441) (441)
Series A common ($1.66 per share
in 1994 and $1.63 per share
in 1993) (Note 2) (143,539) (140,943)
Series B common ($1.09 per share
in 1994 and $1.06 per share
in 1993) (Note 2) (327,000) (318,000)
-------------- --------------
Balance at end of year 35,294,051 34,250,100
-------------- --------------
Cumulative translation adjustment (144,190) (79,045)
-------------- --------------
Total shareholders' equity 36,258,741 35,279,935
-------------- --------------
Total liabilities and shareholders'
equity $ 36,353,165 $ 35,400,191
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE>
BEST UNIVERSAL LOCK CO. (a nonoperating holding company)
CORPORATE STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------
Year Ended December 31
-----------------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers
$ - $ - $ -
Cash paid to suppliers (21,764) (3,609) (318,461)
Dividend received from subsidiary 516,004 477,782 468,226
Interest received - 12 17,530
Interest paid - - (9)
Income taxes paid (43,400) (27,054) (33,895)
------------- ------------- -------------
Net cash provided by operating activities 450,840 447,131 133,391
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note receivable from subsidiary - - 300,000
Dividend payments (470,980) (459,384) (451,657)
------------- ------------- -------------
Net cash used in financing activities (470,980) (459,384) (151,657)
------------- ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (20,140) (12,253) (18,266)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 43,904 56,157 74,423
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,764 $ 43,904 $ 56,157
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ (39,332) $ (34,352) $ (23,279)
Adjustments-
Dividend received from subsidiary 516,004 477,782 468,226
Changes in assets and liabilities-
Increase (decrease) in:
Accounts payable and accrued expenses (15,632) 774 (307,715)
Income taxes payable (10,200) 2,927 (3,841)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 450,840 $ 447,131 $ 133,391
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 4,815,847 $ 1,646,396
Trade receivables:
Direct 11,680,289 10,988,105
Sales representatives and other 2,688,434 2,901,333
Allowance for uncollectible accounts (244,829) (350,136)
Estimated refundable income taxes 141,708 1,553,398
Current portion of notes receivable (Note 7) 81,987 49,062
Inventories (Notes 1 and 4) 14,579,058 14,489,528
Prepaid income taxes (Notes 1 and 5) 3,566,922 1,723,670
Other prepaid expenses 152,342 135,061
-------------- --------------
Total current assets 37,461,758 33,136,417
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1 and 3)
Land and buildings 13,770,826 13,674,303
Machinery and equipment 29,478,143 27,996,738
Tooling 8,090,184 7,612,076
Furniture, fixtures and other 8,342,408 7,393,413
Construction work-in-progress 975,301 641,574
-------------- --------------
60,656,862 57,318,104
Less - accumulated depreciation (30,519,725) (26,528,755)
-------------- --------------
Total property, plant and equipment 30,137,137 30,789,349
-------------- --------------
OTHER ASSETS
Long-term notes receivable (Note 7) 3,280,332 -
Other assets 149,447 253,092
-------------- --------------
Total assets $ 71,028,674 $ 64,178,858
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
---------------------------------
1994 1993
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 2,500 $ 2,500
Current portion of retirement benefit obligations 1,381,967 1,112,091
Trade accounts payable 1,641,302 1,697,018
Customer advances 1,501,304 815,771
Accrued liabilities:
Income taxes 941,490 186,712
Property and other taxes 960,153 930,527
Payroll and vacation pay 3,918,751 3,392,031
Accrued severance (Note 14) 2,394,593 -
Accrued medical claims 850,000 215,030
Other 843,321 203,519
------------- -------------
Total current liabilities 14,435,381 8,555,199
------------- -------------
RETIREMENT BENEFIT OBLIGATION (Note 10) 4,444,971 4,745,065
DEFERRED INCOME TAXES (Notes 1 and 5) 2,269,369 2,395,226
------------- -------------
Total liabilities 21,149,721 15,695,490
------------- -------------
MINORITY INTEREST IN SUBSIDIARIES 13,620,212 13,203,433
------------- -------------
COMMON STOCK AND COMMON STOCK OF BEST,
REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) 4,087,473 -
------------- -------------
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred stock, 7% cumulative, $100 par
value, callable at par, 500 shares authorized,
63 shares outstanding 6,300 6,300
Series A common stock, no par value, 100,000
shares authorized, 86,469 shares outstanding 1,102,579 1,102,579
Series B common stock, no par value, 300,000
shares authorized and outstanding 1 1
------------- -------------
Total capital stock 1,108,880 1,108,880
Accumulated earnings 35,294,051 34,250,100
Cumulative translation adjustment (Note 1) (144,190) (79,045)
Common stock and common stock of Best,
redeemable under Stock Bonus Plan (Note 8) (4,087,473) -
------------- -------------
Total shareholders' equity 32,171,268 35,279,935
------------- -------------
Total liabilities and shareholders' equity $ 71,028,674 $ 64,178,858
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE>
BEST LOCK COMPANIES
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
CONSOLIDATED STATEMENTS OF INCOME
- - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $104,669,003 $ 98,521,396 $ 84,865,287
OPERATING EXPENSES
Cost of Goods Sold 53,983,763 54,014,629 49,768,652
Selling 26,846,032 26,459,206 18,382,176
General and Administrative 16,040,704 12,090,837 9,361,276
Engineering, research and development 5,021,596 4,087,147 3,618,848
------------ ------------ ------------
Total operating expenses 101,892,095 96,651,819 81,130,952
------------ ------------ ------------
OPERATING INCOME 2,776,908 1,869,577 3,734,335
Interest expense (6,853) (48,227) (61,813)
Other income (expense), net (Note 14) (366,641) 209,826 229,169
------------ ------------ ------------
INCOME before provision for income taxes 2,403,414 2,031,176 3,901,691
Provision for income taxes (Note 5) 195,259 881,658 1,443,363
------------ ------------ ------------
NET INCOME before cumulative effect of change in accounting principle 2,208,155 1,149,518 2,458,328
Cumulative effect of change in accounting principle (Note 1) -- 650,000 --
------------ ------------ ------------
NET INCOME, Best Lock Corporation and Subsidiary 2,208,155 1,799,518 2,458,328
Minority interest in net income, Best Lock Corporation and Subsidiary (653,892) (489,289) (668,419)
Corporate - Best Universal Lock Co. expense (39,332) (34,352) (23,279)
------------ ------------ ------------
NET INCOME, Best Universal Lock Co. and Subsidiaries 1,514,931 1,275,877 1,766,630
Minority interest in net income, Best Universal Lock Co.
and subsidiaries (339,232) (285,415) (395,195)
Corporate - Frank E. Best, Inc. expense (22,409) (125,438) (13,081)
------------ ------------ ------------
NET INCOME, Frank E. Best, Inc. and Subsidiaries $ 1,153,290 $ 865,024 $ 1,358,354
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Best Lock Best Universal Lock Co. Frank E.
Earnings per common share: Corporation Series A Series B Best, Inc.
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1994 $ 16.83 $ 3.92 $ 3.92 $ 1.93
1993: ------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Income before cumulative effect of change in accounting principle $ 8.76 $ 2.08 $ 2.08 $ 0.83
Cumulative effect on prior years of adopting
SFAS 109 "Accounting for Income Taxes" 4.95 1.22 1.22 0.62
------------ ------------ ------------ -------------
NET INCOME $ 13.71 $ 3.30 $ 3.30 $ 1.45
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
1992 $ 18.73 $ 4.57 $ 4.57 $ 2.27
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Weighted average shares outstanding:
1994 131,235.37 86,469 300,000 598,710
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
1993 and 1992 131,238.85 86,469 300,000 598,710
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral of
these statements.
23
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
CAPITAL STOCK:
Preferred stock, 7% cumulative, $100
par value, callable at par, 500 shares
authorized, 63 shares outstanding $ 6,300 $ 6,300 $ 6,300
Series A common stock, no par value,
100,000 shares authorized, 86,469
shares outstanding 1,102,579 1,102,579 1,102,579
Series B common stock, no par value,
300,000 shares authorized and
outstanding 1 1 1
-------------- -------------- --------------
Total capital stock 1,108,880 1,108,880 1,108,880
-------------- -------------- --------------
ACCUMULATED EARNINGS:
Balance at beginning of year 34,250,100 33,433,607 32,118,634
Net income 1,514,931 1,275,877 1,766,630
Cash dividends (see below) (470,980) (459,384) (451,657)
-------------- -------------- --------------
Balance at end of year 35,294,051 34,250,100 33,433,607
-------------- -------------- --------------
COMMON STOCK AND COMMON STOCK OF BEST,
REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) (4,087,473) - -
-------------- -------------- --------------
CUMULATIVE TRANSLATION ADJUSTMENT (144,190) (79,045) (11,186)
-------------- -------------- --------------
Total shareholders' equity $ 32,171,268 $ 35,279,935 34,531,301
-------------- -------------- --------------
-------------- -------------- --------------
Cash dividends per share:
Preferred $ 7.00 $ 7.00 $ 7.00
Series A common 1.66 1.63 1.61
Series B common 1.09 1.06 1.04
-------------- -------------- --------------
-------------- -------------- --------------
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
24
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 103,456,897 $ 95,602,652 $ 82,811,420
Cash paid to suppliers and employees (92,572,945) (88,644,068) (79,011,797)
Interest received 137,171 78,190 207,827
Interest paid (3,353) (48,065) (44,172)
Income taxes paid (29,356) (1,627,444) (2,697,487)
-------------- -------------- --------------
Net cash provided by operating activities 10,988,414 5,361,265 1,265,791
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net from short-term investments - - 506,951
Proceeds from sale of property, plant and equipment 167,790 34,654 145,437
Capital expenditures (3,895,823) (4,738,876) (5,145,846)
Note receivable from an officer (3,400,000) - -
-------------- -------------- --------------
Net cash used in investing activities (7,128,033) (4,704,222) (4,493,458)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable - - (300,000)
Purchase of treasury stock (20,405) - -
Dividend payments (663,665) (637,797) (626,500)
-------------- -------------- --------------
Net cash used in financing activities (684,070) (637,797) (926,500)
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,860) (24,895) (108,810)
-------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,169,451 (5,649) (4,262,977)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,646,396 1,652,045 5,915,022
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,815,847 $ 1,646,396 $ 1,652,045
-------------- -------------- --------------
-------------- -------------- --------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 1,514,931 $ 1,275,877 $ 1,766,630
Adjustments-
Depreciation 4,364,558 4,057,571 3,618,717
Provision for losses on accounts receivable 38,413 503,023 222,802
(Gain) loss on sale of property, plant and equipment (4,875) 18,304 (40,350)
Minority interest related to current year earnings 653,892 489,289 668,419
Changes in assets and liabilities-
(Increase) decrease in :
Accounts and notes receivable (703,419) (3,071,112) (2,034,890)
Refundable income taxes 1,484,991 (887,465) (303,153)
Inventories (139,575) 1,843,195 (2,978,226)
Prepaid expenses (1,860,533) 99,677 327,178
Other assets 222,977 67,934 (71,603)
Increase (decrease) in :
Accounts payable, customer advances and accrued liabilities 4,889,908 805,397 (195,179)
Income taxes payable 683,221 89,820 (106,578)
Deferred income taxes (125,857) (406,307) (1,221,379)
Retirement benefit and benefit obligation (30,218) 476,062 1,613,403
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,988,414 $ 5,361,265 $ 1,265,791
-------------- -------------- --------------
-------------- -------------- --------------
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
25
<PAGE>
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK COMPANY (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements for each parent company in the
Best Lock Companies (the Company) include their respective subsidiaries as
indicated below:
Percent
Parent Company Subsidiaries Owned
-------------- ------------ -------
Frank E. Best, Inc. Best Universal Lock Co. 78%
(Best)
Best Universal Lock Best Lock Corporation 73%
Co. (Universal)
Best Lock Best Universal Locks Limited (Canada) 100%
Corporation (Lock)
All significant intercompany accounts, investments and transactions
have been eliminated in the consolidations.
Best and Universal, other than their investment in subsidiaries, have
no significant assets or liabilities.
b. Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost, which approximates market value. Cash
equivalents consist of government securities.
c. Other Policies
Depreciation is provided on the straight-line method for book purposes
and on an accelerated method for income tax purposes.
26
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company adopted the provisions of Financial Accounting Standards
Board Statement No. 109 "Accounting for Income Taxes" (SFAS 109) effective
January 1, 1993. SFAS 109 requires a change from the deferral method to the
asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized by applying enacted
statutory tax rates applicable to future years to temporary differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS 109, the effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. Under the deferral method, deferred taxes were recognized using the tax
rate applicable to the year of the calculation and were not adjusted for subse-
quent changes in tax rates. The effect of adopting SFAS 109 has been reflected
in the Consolidated Statement of Income for the year ended December 31, 1993 as
a cumulative effect of a change in accounting principle of $650,000. The 1992
financial statements have not been restated to apply the provisions of SFAS 109.
Inventories are valued using the last-in, first-out (LIFO) method for
approximately 96% of consolidated inventories. The remaining inventories are
valued at the lower of cost, first-in, first-out (FIFO) or market.
Sales are recognized when product is shipped to customers.
Research and development costs are expensed as incurred and totaled
approximately $2,663,000, $2,246,000 and $2,032,000 in 1994, 1993, and 1992,
respectively.
The accounts of Lock's Canadian subsidiary are translated in
accordance with Financial Accounting Standards Board Statement No. 52, whereby
the balance sheet accounts are translated at the exchange rate in effect at
period end, income accounts are translated at the average rate of exchange
during the period, and translation gains and losses are excluded from net
earnings by being recorded as a component of shareholders' equity (Cumulative
Translation Adjustment). The consolidated financial statements include
translation losses of $89,392, $93,199, and $264,786 in 1994, 1993, and 1992,
respectively, all of which are reflected as a component of shareholders' equity.
2. DIVIDENDS
The Articles of Incorporation of Universal require that for any dividends
on common stock: a) of the first approximately $138,000 in dividends, 50% are
to be distributed to Series A holders and 50% to Series B holders and, b) the
remainder is to be distributed on an equal per share basis to Series A and B
holders (all on a noncumulative basis). These disproportionate distributions
are reflected in calculating the minority interest of Best.
3. PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation is provided using the
following straight-line rates:
27
<PAGE>
Buildings 3% to 5%
Land Improvements 10%
Machinery and equipment 5%, 8-1/3% & 20%
Tooling 12-1/2% & 20%
Furniture, fixtures and other 10% & 20%
A 5-year depreciation life was adopted for tooling additions in 1992 to
reflect the useful life of new tooling additions. Depreciation for tooling
additions in 1991 and prior years reflects estimated useful lives of 8 years.
Expenditures for property, plant and equipment are carried as construction
work-in-progress until they are placed into service. The type and nature of the
costs capitalized include only invoices from unrelated third parties for
equipment and installation.
Maintenance and repairs are charged to income as incurred. Replacements
and betterments are capitalized in the property accounts.
Retirements are removed from property accounts at cost and the related
depreciation is removed from the accumulated depreciation accounts. Gains or
losses on dispositions of property and equipment are reflected in other income
(expense) in the consolidated statements of income.
4. INVENTORIES
FIFO cost of inventories is higher than LIFO cost as follows:
<TABLE>
<CAPTION>
December 31
-----------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
$ 7,615,836 $ 7,562,436 $ 6,644,802
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
Inventories reflected at LIFO cost were as follows:
December 31
-----------
1994 1993 1992
---- ---- ----
Finished goods $ 6,526,239 $ 6,691,204 $ 6,423,249
Work-in-process 7,816,878 7,546,117 9,496,893
Raw material 235,941 252,207 462,874
----------- ----------- -----------
Total Inventory $14,579,058 $14,489,528 $16,383,016
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The cost of materials, direct labor and manufacturing overhead associated
with the production of inventories is included in the valuation of inventory.
28
<PAGE>
During 1993, inventory quantities were reduced. This reduction resulted in
a liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1993 purchases. The effect of these
liquidations increased net income by approximately $40,193 or $.31 per share of
common stock.
5. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U. S. Federal -
Current $ 1,688,594 $ 726,795 $ 1,431,569
Deferred (1,847,248) 39,772 (145,848)
Foreign -
Current 12,880 (49,569) (102,759)
Deferred 17,694 36,105 (219,018)
State -
Current 462,885 122,590 511,422
Deferred (139,546) 5,965 (32,003)
------------ ------------- -------------
$ 195,259 $ 881,658 $ 1,443,363
------------ ------------- -------------
------------ ------------- -------------
<CAPTION>
Earnings before income taxes were as follows:
Year Ended December 31
----------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic $ 2,335,442 $ 2,063,230 $ 4,667,833
Foreign 67,972 (32,054) (766,142)
------------ ------------- -------------
$ 2,403,414 $ 2,031,176 $ 3,901,691
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The effective rate of income taxes provided varied from the statutory rate
for the following reasons:
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory Federal tax rate 34.0% 34.0% 34.0%
The statutory rate of tax provided
was increased (decreased) by:
State income taxes, net of
Federal income tax benefit 8.8 4.0 8.1
Foreign tax credit (27.3) - -
Foreign 0.3 9.2 (2.0)
Other credits (10.8) (5.0) (1.7)
Nondeductible expenses 5.0 2.1 .6
Other (1.9) (.9) (2.0)
----- ----- -----
Effective rate of tax provided 8.1% 43.4% 37.0%
----- ----- -----
----- ----- -----
</TABLE>
In connection with the finalization of the Company's 1993 U. S. Federal
income tax return in September, 1994, it was determined that the Company would
have $656,000 of unutilized foreign tax credits available to offset certain
future U. S. tax obligations. These credits expire in 1998. The Company
believes these foreign tax credits will be utilized during the carryover period
and thus has recorded the benefit of the item as a reduction to the provision
for income taxes for the year ended December 31, 1994.
The tax effect of temporary differences giving rise to the Company's
consolidated current and noncurrent deferred income taxes are as follows:
30
<PAGE>
<TABLE>
<CAPTION>
Asset (Liability)
-----------------
as of December 31,
------------------
1994 1993
---- ----
<S> <C> <C>
Current deferred income taxes :
Vacation accrual $ 759,511 $ 731,706
Inventory capitalized for tax purposes,
expensed for book purposes 256,711 208,718
Current portion of pension and qualified
retirement benefit obligations 598,462 546,551
Severance accrual 1,071,003 -
Medical claims accrual 248,274 -
Inventory reserve 283,475 -
Current portion of foreign tax credit 142,609 -
Other 206,877 236,695
------------ ------------
$ 3,566,922 $ 1,723,670
------------ ------------
------------ ------------
Noncurrent deferred income taxes:
Excess tax over book depreciation $ (4,154,697) $ (3,931,832)
Noncurrent portion of foreign tax credit 513,391 -
Noncurrent portion of pension and quali-
fied retirement benefit obligations 1,371,937 1,550,248
Other - (13,642)
------------ ------------
$ (2,269,369) $ (2,395,226)
------------ ------------
------------ ------------
</TABLE>
6. LICENSE AGREEMENT
Under the terms of a 1928 license agreement between Lock and its parent
companies (Universal and Best), Lock agreed to issue a companion share of stock
to Universal for each share of voting stock sold or otherwise disposed of during
the full period of the corporate existence.
31
<PAGE>
7. FINANCING AND RELATED PARTY ARRANGEMENTS
The Company has an agreement with a financial institution for letters of
credit available primarily for issuance to a foreign vendor. At December 31,
1994, the Company had outstanding letters of credit in the amount of $1,110,486.
At December 31, 1994, the Company, under an agreement with a bank, had
available an unsecured line of credit from which it could borrow up to
$7,000,000. The unsecured line of credit bore interest at a variable rate (8.5%
at December 31, 1994). There were no borrowings against this line of credit
during 1994. The largest amount borrowed during 1993 was $2,000,000. Effective
February 15, 1995 this agreement was terminated by the Company.
The Company entered into a new unsecured line of credit agreement on
February 15, 1995. The new credit agreement expires on February 15, 2002 and
bears interest at a variable rate, based upon the prime rate, LIBOR or the
Federal Funds rate, at the Company's election. The variable rate also
fluctuates based upon the amounts borrowed under the credit agreement. The
Company is subject to the maintenance of certain financial ratio covenants
under terms of the credit agreement. The amounts available under this credit
agreement are $25,000,000 through February 14, 1998 less $3,750,000 for each
one year period thereafter until expiration. Borrowings under the credit
agreement are convertible, at the Company's option, into term notes ranging
from five to seven years, up through February 14, 1998. The Company borrowed
$12,000,000 under this agreement on February 15, 1995 in connection with the
matter discussed in Note 14.
On May 5, 1994, Best Lock Corporation's Board of Directors approved a loan
of $3.4 million to Russell C. Best, Chief Executive Officer, under the terms of
an Employment Agreement entered into by Best Lock Corporation and Russell C.
Best. On May 18, 1994, $3.4 million was borrowed, with interest at 7.2% by
Russell C. Best. The terms of the loan include repayment over a thirty (30)
year period in equal annual installments of principal and interest totaling
$279,519.
The Company leases various office and warehouse facilities under
noncancelable lease arrangements. Lease terms are from one to six years and
most provide options to renew. Future minimum lease payments under
noncancelable operating leases as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1995 $ 589,043
1996 $ 457,732
1997 $ 400,671
1998 $ 256,716
1999 $ 71,268
</TABLE>
Rent expense charged to operations totaled $852,565, $935,645, and $513,277
in 1994, 1993, and 1992, respectively.
32
<PAGE>
Walter E. Best, President of the Company at December 31, 1994, is the
President and owns in excess of 10% of the stock of Best Aircraft Corporation.
The Company leased aircraft and automobiles from Best Aircraft Corporation,
paying $183,470, $180,656, and $133,651 for such services in 1994, 1993, and
1992, respectively. Larry W. Rottmeyer, who became an employee of the Company
during 1994, is the President and owns in excess of 10% of Marcon, Inc. The
Company purchased market research services from Marcon, Inc., during 1994,
paying $291,716 for such services.
8. STOCK BONUS PLAN
The Best Lock Corporation Stock Bonus Plan (Stock Bonus Plan) is available
to Lock employees meeting certain eligibility requirements. The Stock Bonus
Plan is noncontributory and is qualified pursuant to the applicable provisions
of the Internal Revenue Code. Lock's cash contributions to the Stock Bonus Plan
were zero in 1994 and $250,000 in 1993 and 1992, which amounts have been charged
to expense in the accompanying financial statements. Contributions are
determined by Lock's Board of Directors.
The Stock Bonus Plan was amended in 1994. Under the plan, participants,
upon reaching certain eligibility requirements, may receive cash or shares of
Lock, Universal and/or Best. In the event the participants elect or are
required to receive shares, the participants have the right to require Lock to
repurchase such shares in cash at its fair market value. As a result, in 1994,
the fair market value of the shares, determined based on an independent
appraisal, held by the Stock Bonus Plan, has been reflected in the accompanying
balance sheet as "Common stock and common stock of Universal and Best,
redeemable under Stock Bonus Plan."
The fair market value of the shares held by the Stock Bonus Plan at
December 31, 1994, was $8,939,316; however, the Company has calculated the
present value of the potential future cash payments under the Stock Bonus Plan
payable in years 1995 through 2020 to be approximately $1,800,000. The
significant assumptions used to calculate the present value of the potential
future cash payments referred to above are as follows:
1) The fair market value of Lock (12,602.19 common shares), Universal (11
preferred shares and 27,262 common shares) and Best (77,935 common
shares) shares will not appreciate or depreciate in future periods.
2) Annual cash dividends per share will continue to be paid as follows:
Lock $5.40, Universal $1.66 and Best $0.52. The calculation assumes
the cash dividend received by the Stock Bonus Plan will be available
to repurchase shares if the participant exercises the right to require
Lock to repurchase such shares. Thus, the present value of the
potential future cash payments has been reduced by the cash dividends
assumed to be available.
3) All payments with the exception of certain known future terminations
are presumed to occur one year after the participant's retirement.
Retirement is assumed to be in the year the participant reaches age
65.
33
<PAGE>
4) The discount rate used to calculate the present value of Lock's
potential future cash payments was 9.5%.
9. SEGMENT REPORTING
The Best Lock Companies are engaged in the manufacture and sale of access
control products and services only, and as such do not report on a segment
basis. Foreign sales amounted to approximately 7% of total sales during 1994
and 1993, and 8% of total sales during 1992.
10. RETIREMENT PLANS
Effective September 1, 1989, the Company adopted a noncontributory defined
benefit Employees' Pension Plan (the Plan) to provide retirement benefits to
substantially all current and retired U. S. employees as of September 1, 1989.
The Company has received a favorable determination letter for the Plan from the
Internal Revenue Service. The Plan provides benefits for past service only.
The monthly benefit is based on the employee's years of service and
compensation as of September 1, 1989. The benefits for retired employees were
based upon amounts specified in the Plan. Under the Plan provisions, all
participants were 100% vested at September 1, 1989. Normal retirement age is
65 with provisions for earlier retirement with reduced benefits. After several
years of accelerated funding, the Company is currently making quarterly
contributions to the Plan in amounts necessary to meet minimum governmental
funding requirements. Company contributions are made to a trust fund whose
assets consist of investments in high-quality short-term money market
instruments.
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
December 31
-----------
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of the accumu-
lated benefit obligation $7,246,736 $ 7,405,201
Plan assets at fair value 4,938,080 4,457,420
---------- -----------
Retirement benefit obligation
included in the consolidated
balance sheets $ 2,308,656 $ 2,947,781
----------- -----------
----------- -----------
</TABLE>
The Company's method of accounting for pension costs was to expense the
cost of this Plan (excluding interest) over approximately four years beginning
in 1989. The discount rate used to calculate the actuarial present value of the
accumulated benefit obligation was 8% in 1994, 7.5% in 1993 and 8% in 1992. The
long-term rate of return on plan assets was 8% in 1994, 7.5% in 1993 and 8% in
1992. The changes in the discount rate for 1994 and 1993 resulted in a
reduction in pension expense in 1994 of $434,000, and an increase in pension
expense in 1993 of $431,000. Net periodic pension cost including interest
totaled $31,842 in 1994, $865,485 in 1993 and $1,172,296 in 1992.
34
<PAGE>
In addition to the Plan adopted on September 1, 1989, the Company executed
supplemental retirement benefit agreements with certain retirees and officers.
For financial reporting purposes, the actuarial present value (discounted at 8%
in 1994, 7.5% in 1993 and 8% in 1992) of the benefits to be provided under the
terms of these agreements were recognized in 1989 and subsequent years, except
for the agreement with the Company's President, which, prior to 1994, was
amortized over his estimated remaining service life. Effective in 1994, the
actuarial present value of the benefit to be provided to the Company's President
under the terms of the agreement was fully recognized. This change in
assumptions resulted in an increase in expense of approximately $800,000. The
Company recognized costs related to these agreements of $1,030,833, $365,533 and
$482,615 in 1994, 1993 and 1992, respectively. The retirement benefit
obligation for supplemental benefits included in the consolidated balance sheets
totaled $3,104,885 and $2,447,464 at December 31, 1994 and 1993, respectively.
The benefits under these agreements will be paid monthly by the Company over the
lifetime of the recipients and, upon their death, 50% of the scheduled amount
for the lifetime of the surviving spouse. These agreements may be amended by
the Company.
During 1992, the Company adopted a retirement benefit program in its
Canadian subsidiary, Best Universal Locks, Limited, to become effective January
1, 1993. This Registered Retirement Savings Plan (the RRSP), which conforms to
Canadian pension law, will be funded for all current employees based on years
of service and compensation as of December 31, 1992. Under the RRSP
provisions, the accounts of all participants are 100% vested, and are
registered in their own names. This individual savings plan allows employee
and Company contributions up to annual limits specified by Canadian law. The
Company expensed the past service obligation (excluding interest) in 1992. The
Company is funding the past service obligation over approximately four years,
beginning in 1993. The expenses related to this benefit were $15,817, $22,721
and $414,733 in 1994, 1993, and 1992, respectively. The retirement benefit
obligation for the RRSP included in the consolidated balance sheets totaled
$35,563 and $51,268 at December 31, 1994 and 1993, respectively.
In addition, the Company executed supplemental retirement benefit
agreements with present Canadian retirees beginning January 1, 1993. For
financial reporting purposes, the actuarial present value (discounted at 7.5% in
1994 and 1993 and 9% in 1992) of the benefits to be provided under the terms of
these agreements was charged to expense in the amounts of $34,359, $62,379 and
$398,116 in 1994, 1993, and 1992, respectively. The retirement benefit
obligation for the Canadian agreements included in the consolidated balance
sheets totaled $377,834 and $410,643 at December 31, 1994 and 1993,
respectively. The benefits under these agreements will be paid monthly by the
Company over the lifetime of the recipients and, upon their death, 50% of the
scheduled amount for the lifetime of the surviving spouse.
Prior to January 1, 1993, the Company provided discretionary retirement
payments to Canadian retirees, expensing these costs when paid. The amounts so
expensed were $48,966 in 1992.
A summary of the retirement benefit obligations included in the
consolidated balance sheets is presented below:
35
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Defined Benefit Employees
Pension Plan $ 2,308,656 $ 2,947,781
Supplemental Retirement Benefit
Agreements 3,104,885 2,447,464
Registered Retirement Savings
Plan (Canada) 35,563 51,268
Supplemental Retirement Benefit
Agreements (Canada) 377,834 410,643
----------- -----------
$ 5,826,938 $ 5,857,156
----------- -----------
----------- -----------
Current Portion $ 1,381,967 $ 1,112,091
Non-current Portion 4,444,971 4,745,065
----------- ------------
$ 5,826,938 $ 5,857,156
----------- ------------
----------- ------------
</TABLE>
The Company implemented a 401(k) profit sharing plan (the 401(k) Plan)
during 1994 covering all employees who had completed one year of continuous
service and had reached the age of 21 years as of October 1, 1994. Employer
contributions to the 401(k) Plan are determined by the Company's Board of
Directors. Participants begin vesting in the employer contributions after 1
year of service at which time they are 20% vested. Employees become 100%
vested after 5 years of service. Company contributions to the 401(k) Plan
amounted to $221,000 in 1994.
11. CONTINGENCIES
From time to time the Company may be a party to litigation incidental to
its business. Management is of the opinion that the ultimate resolution of any
such claims will not have a material adverse impact on the Company's financial
position or results of operations.
12. UNDISTRIBUTED EARNINGS
In general, it is Lock's intention to reinvest the earnings of its foreign
subsidiary in its operations and to repatriate these earnings only when it is
advantageous to do so. Also, it is Universal's and Best's intention to
minimize, if not eliminate, any income taxes associated with amounts distributed
by its domestic subsidiaries. As a result, it is expected that the amount of
income taxes resulting from a repatriation will not be significant.
Accordingly, deferred tax is not being recorded related to undistributed
earnings. The cumulative amounts of undistributed earnings on which income
taxes have not been recognized are as follows:
36
<PAGE>
<TABLE>
<CAPTION>
December 31
-----------
1994 1993
---- ----
<S> <C> <C>
Best $27,200,000 $26,400,000
Universal $35,000,000 $34,000,000
Lock $ 1,600,000 $ 1,600,000
</TABLE>
13. RECLASSIFICATIONS
Certain reclassifications have been made in the consolidated balance sheets
and statements of income for the years ended December 31, 1993 and 1992 to
conform to the current year presentation.
14. EVENTS SUBSEQUENT TO FINANCIAL STATEMENT DATE
On February 15, 1995, the Company settled all claims arising from a
derivative action threatened against it by a director, as well as all claims
against Lock's Chief Executive Officer and another officer. The material
components of the settlement include: (i) the resignation of Walter E. Best from
the Board of Directors and as President of each of Lock, Universal, Best, and
Walter E. Best Company, Inc.; (ii) the resignation of Richard E. Best and
Marshall W. Best as officers and employees of Lock and the resignation of Robert
W. Best as an employee; (iii) the payment of the total sum of $2,134,349 as
severance, vacation and bonus payments to Walter E. Best, Robert W. Best,
Richard E. Best, Marshall W. Best and Edwina McLemore, an employee of Lock; (iv)
the payment of the total sum of $1,240,000 in exchange for covenants not to
compete from Walter E. Best, Robert W. Best, Richard E. Best and Marshall W.
Best; and (v) the payment of the total sum of $8,178,296 for the acquisition of
shares of Lock and interests in a partnership as described below. At December
31, 1994, the Company had accrued all costs associated with the severance,
vacation and bonus payments referred to above. In addition, the Company accrued
$701,060 of professional fees incurred related to the settlement of the claims
referred to above, which has been reflected in other income (expense) in the
consolidated statements of income.
On February 15, 1995, Lock purchased for cash an 87% non-voting interest in
a partnership for $5,582,626. The sole purpose of the partnership, which was
newly formed, was to acquire shares of Best and Universal from Walter E. Best
and certain other family members and related trusts. The purchase price of the
shares was based on the appraised value of such shares as of December 31, 1993
as determined by an independent appraiser. An opinion that the transactions
were fair to the Company was rendered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Company's Board of Directors.
The partnership owns directly or indirectly 204,053 shares of Best common
stock, 8,787 shares of Universal Series A common stock and 11.25 shares of
Universal preferred stock.
37
<PAGE>
In addition, on February 15, 1995, Lock acquired 6,742 shares of its own
common stock at an appraised value of $385.00 per share or $2,595,670.
Lock's acquisition of its interest in the partnership and its redemption of
its own common shares were funded through the utilization of a portion of the
unsecured line of credit of $25,000,000 as discussed in Note 7.
The Company will account for the purchase of the Lock shares and the 87%
partnership interest as treasury stock, which will result in a reduction to
shareholders' equity of Lock of $8,178,296, Universal of $5,582,626 and Best of
$5,077,403. As a result of these transactions, the minority interest of
Universal would decrease from 27% to 23% and the minority interest of Best would
decrease from 22% to 21%.
38
<PAGE>
This page not used
39
<PAGE>
SCHEDULE II
PAGE 1 OF 3
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
VALUATION AND QUALIFYING ACCOUNTS - CORPORATE AND CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, 1994
- - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Collection Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- - - -------------------------------- ------------ ------------ ------------ ------------ ------------
CORPORATE
<S> <C> <C> <C> <C> <C>
Best Universal Lock $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Frank E. Best, Inc. $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
CONSOLIDATED (Best Lock
Corporation and Subsidiaries)
Allowance for uncollectible
accounts receivable $ 350,136 $ 38,413 $ 4,134 $ (147,854) $ 244,829
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Note: Best Universal Lock Co. and the Frank E. Best, Inc. are nonoperating
holding companies and do not have any significant assets or
liabilities, other than their investment in subsidiaries.
40
<PAGE>
SCHEDULE II
PAGE 2 OF 3
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
VALUATION AND QUALIFYING ACCOUNTS - CORPORATE AND CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, 1993
- - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Collection Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- - - ------------------------------ ----------- ----------- ----------- ----------- -----------
CORPORATE
<S> <C> <C> <C> <C> <C>
Best Universal Lock $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Frank E. Best, Inc. $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
CONSOLIDATED (Best Lock
Corporation and and Subsidiaries)
Allowance for uncollectible
accounts receivable $ 249,969 $ 503,023 $ 275 $ (403,131) $ 350,136
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Note: Best Universal Lock Co. and the Frank E. Best, Inc. are nonoperating
holding companies and do not have any significant assets or
liabilities, other than their investment in subsidiaries.
41
<PAGE>
SCHEDULE II
PAGE 3 OF 3
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
VALUATION AND QUALIFYING ACCOUNTS - CORPORATE AND CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, 1992
- - - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Collection Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- - - ------------------------------ ----------- ----------- ----------- ----------- -----------
CORPORATE
<S> <C> <C> <C> <C> <C>
Best Universal Lock $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Frank E. Best, Inc. $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
CONSOLIDATED (Best Lock
Corporation and Subsidiaries)
Allowance for uncollectible
accounts $ 197,143 $ 222,802 $ 0 $ (169,976) $ 249,969
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Note: Best Universal Lock Co. and the Frank E. Best, Inc. are nonoperating
holding companies and do not have any significant assets or
liabilities, other than their investment in subsidiaries.
42
<PAGE>
SCHEDULE III
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM
AFFILIATES AND OTHER PERSONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of Issuer and Title of Issue 1994 1993 1992
- - - --------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Best Universal Lock Co.
SUBSIDIARY CONSOLIDATED:
Best Lock Corporation
Common stock, no par value, 61,560.34 shares
issued for a nontransferable license to use
certain patents and processes; 33,996.00
issued in consideration for the net assets of
Best Universal Lock Co. (Notes 1 and 6)
Year acquired: 1928 Through 1948
Consideration: Asset and Intangibles
Number of shares 95,556.34 95,556.34 95,556.34
------------- ------------- -------------
------------- ------------- -------------
Balance, January 1 $ 35,356,287 $ 34,591,699 $ 33,462,807
------------- ------------- -------------
Equity in net income of subsidiary consolidated, before market value
adjustment related to shares held by Stock Bonus Plan 1,607,822 1,310,229 1,789,909
Equity in excess of market value over book value of
subsidiary's shares held by Stock Bonus Plan - Note 8 (53,559) - -
------------- ------------- -------------
Equity in net income of subsidiary, consolidated 1,554,263 1,310,229 1,789,909
Distribution of earnings by subsidiary (516,004) (477,782) (468,226)
Change in cumulative translation adjustment (65,145) (67,859) (192,791)
------------- ------------- -------------
Balance, December 31 $ 36,329,401 $ 35,356,287 $ 34,591,699
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
43
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and officers have not been selected as such under any
arrangement or understanding between them and any other person(s).
(a) IDENTIFICATION OF DIRECTORS.
Tenure as Expiration
NAME AGE POSITIONS DIRECTOR OF TERM
Russell C. Best 33 Chief Executive Since 1991 6-17-95
Officer
and Director
Walter E. Best* 77 President and Since 1949 2-15-95
Director
R. Gene McCullum** 61 Director Since 1986 12-30-94
(b) IDENTIFICATION OF EXECUTIVE OFFICERS.
All Positions Period Served
Expiration and Offices with in such
NAME AGE OF OFFICE REGISTRANT POSITION
Russell C. Best 33 6-17-95 Chief Executive Since 1994
Officer
Walter E. Best* 77 2-15-95 President Since 1966
Roger E. Beaverson*** 58 3-24-95 Secretary/ Since 1968
Treasurer
Gregg A. Dykstra 38 6-17-95 Secretary/ Since 1995
Treasurer
Edward C. Memmen, Jr. 45 6-17-95 Vice President Since 1995
* Walter E. Best resigned his positions with registrant effective February 15,
1995. Mariea L. Best was elected as a Director on February 15, 1995.
** Gene McCullum resigned as a Director of registrant on December 30, 1994. A
termination from employment with registrant occurred effective March 1,
1995.
***Roger E. Beaverson was replaced as Secretary/Treasurer of registrant on March
24, 1995 by Gregg A. Dykstra, who is also Lock's General Counsel. Mr.
Beaverson remains an employee of registrant until the expiration, on April
10, 1995, of a severance offer made to him by registrant.
44
<PAGE>
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES.
None.
(d) FAMILY RELATIONSHIPS. Russell C. Best is the son of Walter
E. Best. Mariea L. Best is the spouse of Russell C. Best.
(e) BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
DURING THE PAST FIVE YEARS.
(1) Walter E. Best, President and Director, has served
registrant in those capacities during the last five years.
Russell C. Best, Vice-President and Director, has
served registrant in those capacities during the last three years. He has
served as Vice-President or Assistant to the Vice-President of Lock for the two
years prior to 1990. Since February 15, 1995, he has served as Chief Executive
Officer and President of the registrant and Frank E. Best, Inc. Since May 5,
1994, he has served as Chief Executive Officer of Lock.
R. Gene McCullum, Director, has served registrant in
that capacity during the last five years.
Roger E. Beaverson, former Secretary/Treasurer,
served registrant in those capacities during the last five years.
Gregg A. Dykstra, General Counsel, has served
registrant in this capacity since November, 1989.
Edward C. Memmen, Jr., Vice President, has served
registrant in those capacities since March 24, 1995. He has served as Vice-
President (Finance) and Controller of Lock since January, 1994 and as General
Manager of Best Lock Manufacturing Division of Lock since September, 1994.
Prior to that he served Lock as Controller and Senior Manager of Accounting of
Lock since his employment in June, 1992.
Mariea L. Best, Director, has served registrant in
that capacity since February 15, 1995.
(2) Directorships. Walter E. Best, Russell C. Best and
R. Gene McCullum, who were all Directors of registrant through December 30,
1994, were also Directors of Lock and Frank E. Best, Inc. through December 30,
1994. R. Gene McCullum resigned as a Director of registrant, Lock and Frank E.
Best, Inc. on December 30, 1994. Walter E. Best resigned as a Director of all
three companies on February 15, 1995. Mariea L. Best was elected on February
15, 1995 as a Director of Lock and Frank E. Best, Inc.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. To the knowledge
of the registrant, none of the directors within the previous five years has
filed a petition under the Bankruptcy Act or any state insolvency law nor was a
receiver, fiscal agent or similar officer appointed for such persons or any
partnership in which they may have been general partners or any corporation of
which they were executive officers. Furthermore, to the knowledge of the
registrant no director or executive officer has been convicted in a criminal
proceeding (except traffic violation or other minor offense) or is subject to a
criminal proceeding presently pending, nor to the knowledge of management is any
director subject to any order, judgment or decree by any Court of competent
jurisdiction, permanently or temporarily enjoining such director from acting as
an
45
<PAGE>
investment adviser, underwriter, broker or dealer in securities or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company or from engaging in or conducting any
conduct or practice in connection with such activity or in connection with the
purchase or sale of any security.
ITEM 11. EXECUTIVE COMPENSATION.
(a) COMPENSATION. The information in the following table
discloses all remuneration paid to the Chief Executive Officer and the other
four most highly compensated executive officers or directors of registrant, for
services in all capacities to the registrant and its subsidiaries during the
fiscal years ended December 31, 1994, 1993 and 1992, all of such remuneration
having been paid by Lock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual
Principal Compensation
Position Year (Salary)
-------- ---- ------
<S> <C> <C>
Walter E. Best 1994 $ 448,630
Chairman and President 1993 442,447
Director* 1992 445,863
Russell C. Best 1994 409,864
Chief Executive Officer 1993 254,271
Director 1992 241,011
R. Gene McCullum 1994 190,887
Vice-President, Admin- 1993 198,928
istration, Director** 1992 212,094
Roger E. Beaverson*** 1994 182,436
Secretary/Treasurer 1993 190,060
1992 204,519
Gregg A. Dykstra 1994 167,090
Secretary/Treasurer 1993 134,815
1992 125,135
<FN>
* Resigned February 15, 1995.
** Resigned as Director December 30, 1994. Employment terminated March 1,
1995.
*** Roger E. Beaverson was replaced as Secretary/Treasurer of Registrant on
March 24, 1995 by Gregg A. Dykstra.
</TABLE>
(b) COMPENSATION PURSUANT TO PLANS.
(1) The Best Lock Corporation Stock Bonus Plan is a
qualified noncontributory defined contribution plan available to all employees
above the age of 21 with one year of full-time service. Voluntary contributions
by Lock to the plan are made upon the authority of the Board of Directors, and
are allocated on the basis of annual compensation and years of service. The
funds of the Plan are to be invested primarily in securities of the registrant
or its affiliates. Amounts are distributed from the Plan upon the resignation,
retirement, termination, or death of the employee in accordance with Plan
provisions. Employer contributions for the account of the individuals named in
the Compensation Table are less than $50,000 in each year presented.
46
<PAGE>
(2) Messrs. Roger E. Beaverson, Russell C. Best and R.
Gene McCullum, along with other employees, participate in a qualified
noncontributory defined benefit pension plan approved by Lock's Board of
Directors in 1989. The monthly benefit payable thereunder is based on the
employee's compensation and years of past service as of September 1, 1989.
Normal retirement age is 65, with provisions for earlier retirement with reduced
benefits. Such payments are to be made for their lifetime, following which 50%
of the monthly amount will be provided for the lifetime of a surviving spouse.
(3) Effective in 1989, Lock executed a Supplemental
Retirement Benefit Agreement with Walter E. Best. The payments to be made under
this agreement are based on his compensation and years of past service as of
September 1, 1989, and are payable on a monthly basis following his retirement.
Such payments are to be made for his lifetime, following which 50% of the
monthly amount will be provided for the lifetime of his surviving spouse.
<TABLE>
<CAPTION>
Plan Compensation Table
-----------------------
Monthly Benefit
---------------
<S> <C>
Walter E. Best $ 11,025*
Russell C. Best 490**
R. Gene McCullum 3,120**
Roger E. Beaverson 2,990**
Gregg A. Dykstra 0**
<FN>
*Pursuant to Agreement described in (b)(3)
**Pursuant to Plan described in (b)(2)
</TABLE>
(c) OTHER COMPENSATION. There was no other compensation paid
to the named individuals exceeding 10% of the compensation reported for such
individual.
(d) COMPENSATION OF DIRECTORS. There are no standard or other
arrangements by which directors of the Registrant were compensated during the
past fiscal year for all services as a director, other than the current
compensation disclosed in Item 11.
(e) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENT. On May 5, 1994, Lock and Russell C. Best entered
into an Employment Agreement (the "Agreement") pursuant to which Russell C. Best
assumed the duties of Chief Executive Officer of Lock. The initial term of the
Agreement expires December 31, 1998; however, the term is automatically extended
by one additional year on December 31 of each year unless earlier terminated
such as by notice by either party to the other at least thirty (30) days prior
to December 31 of such year.
The Agreement provides for a base salary of $425,000 pear
year, subject to increases for inflation and other factors, plus the
participation of Russell C. Best in all general and executive compensation and
benefit plans of Lock, including any incentive or bonus plans. The Agreement
further provides for a loan of up to $3,400,000 to Russell C. Best, to be repaid
to Lock over a thirty year period with interest at 7.2% per annum. Such loan
must be secured by acceptable collateral, but in any event by all assets
acquired with the proceeds of the loan. The loan is secured by a pledge of
certain of the shares of Frank E. Best, Inc. acquired with its
47
<PAGE>
proceeds and certain shares of registrant owned by Russell C. Best. Such shares
will be released from this pledge pro rata as the principal of the loan is
repaid to Lock.
The Agreement also provides severance benefits in the event
of termination of employment under certain circumstances. In the event of
termination of employment by Lock without "cause" or by Russell C. Best with
"cause" (as such terms are defined in the Agreement), he will receive in each
year throughout the unexpired portion of the term of the Agreement including any
extensions occurring prior to the date of termination, his then current base
salary, plus the average of the aggregate amounts of any bonuses, incentive
payments, and/or contingent compensation received by him in each of the three
immediately preceding calendar years. If Lock terminates Russell C. Best's
employment with "cause," or if he terminates employment without "cause," Russell
C. Best would forfeit all compensation and benefits following such termination.
Consistent with the terms of the Agreement, on May 18,
1994, Lock loaned $3,400,000 to Russell C. Best pursuant to the terms of a Loan
Agreement dated May 5, 1994, to which Lock and Russell C. Best are parties. The
terms of the loan were as provided in the Agreement.
On May 16, 1994, the Company entered into an Agreement
Respecting Sale of Stock (the "Put Agreement") with Russell C. Best. The Put
Agreement provided that Russell C. Best had the right, exercisable at any time
on or before December 31, 1994, to require the Corporation to purchase from him
any shares of Frank E. Best, Inc. owned by him at the time of exercise at a
price of $29.36 per share. The Put Agreement expired unexercised on December
31, 1994. There are no compensatory plans or arrangements with respect to any
individual named in the compensation tables, resulting from the individual's
resignation, retirement, or any changes following a change in control of the
registrant.
There are no compensatory plans or arrangements with
respect to any individual named in the compensation tables, resulting from the
individual's resignation, retirement, or any changes following a change in
control of the registrant, except for the arrangements described in Note 14 to
the consolidated financial statements.
(f) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION. There are no interlock or insider participation arrangements
involving any executive or board member of registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The
following information is given as of March 15, 1995.
48
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (3) (4)
Title of Name and Type of Amount Percent
Class Address Ownership Owned Of Class
- - - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series B, Frank E. Best, Inc. Of Record 300,000 100%
common c/o Best Lock
Corporation
P. O. Box 50444
Indianapolis, Indiana
46250
Series A, The NBD Bank, N.A. As Trustee 27,262 32%
common One Indiana Square for Stock
Indianapolis, Bonus Plan
Indiana 46204
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following
information is given as of March 15, 1995:
<TABLE>
<CAPTION>
Amount Percent
Title Of Class Beneficially Owned Of Class
-------------- ------------------ --------
<S> <C> <C>
Common stock, $1 par value, of Frank E.
Best, Inc., (registrant's parent)
(Owned by Russell C. Best, Director and
President) 395,299.00 (1) 66%
(Owned by Mariea L. Best, Director) 77,936.00 (2) 13%
(Owned by Roger E. Beaverson,
Secretary/Treasurer) 80,661.00 (3) 13%
(Owned by Directors and Officers of regis-
trant, as a group, 3 in number) 398,026.00 66%
Series A, common stock, no par value, of
registrant
(Owned by Russell C. Best, Director and
President) 38,176.00 (4) 44%
(Owned by Mariea L. Best, Director) 27,263.00 (4) 32%
(Owned by Roger E. Beaverson,
Secretary/Treasurer) 27,588.00 (4) 32%
(Owned by Directors and Officers of the
registrant, as a group, 3 in number) 38,503.00 45%
49
<PAGE>
Series B, common stock, no par value, of registrant
(Owned by Russell C. Best, Director and
President) 300,000.00 (5) 100%
Common stock, no par value, of Lock,
(registrant's subsidiary)
(Owned by Russell C. Best, Director and
President) 109,844.53 (6) 88%
(Owned by Mariea L. Best, Director) 12,603.19 (6) 10%
(Owned by Roger E. Beaverson,
Secretary/Treasurer) 13,244.19 (6) 11%
(Owned by Directors and Officers of the
registrant, as a group, 3 in number) 110,487.53 89%
<FN>
(1) This figure represents Russell C. Best's direct and beneficial ownership
by virtue of his power to vote or direct the voting of 113,311 shares held
by him and 204,053 shares held by Best Lock Partnership, and his shared
power to direct the disposition of 77,935 shares held by the Best Lock
Corporation Stock Bonus Plan.
(2) This figure represents Mariea L. Best's direct and beneficial ownership by
virtue of her power to vote or direct the voting of 1 share held by her,
and her shared power to direct the disposition of 77,935 shares held by the
Best Lock Corporation Stock Bonus Plan.
(3) This figure represents Roger E. Beaverson's direct and beneficial
ownership by virtue of his power to vote or direct the voting of 2,726
shares held by him, and his shared power to direct the disposition of
77,935 shares held by the Best Lock Corporation Stock Bonus Plan.
(4) This figure represents the named individual's direct and beneficial
ownership by virtue of his or her power to vote or to direct the voting of
shares held in his own name (or in the case of Russell C. Best, 8,787
shares owned by Best Lock Partnership), and shared power to direct the
disposition of 27,262 shares held by the Best Lock Corporation Stock Bonus
Plan.
(5) This figure represents Russell C. Best's beneficial ownership by virtue of
his power to vote or to direct the voting of 300,000 shares held by Frank
E. Best, Inc., of which he has voting control.
(6) This figure represents the named individual's direct and beneficial
ownership by virtue of his power to vote or to direct the voting of shares
held in his own name (or in the case of Russell C. Best, 95,556.34 shares
owned by registrant, of which he has voting control), and shared power to
direct the disposition of 12,602.19 shares held by the Best Lock
Corporation Stock Bonus Plan.
</TABLE>
(c) CHANGES IN CONTROL. There are no arrangements known to
registrant, the operation of which may at a subsequent date result in a change
in control of the registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. On May 5, 1994,
Best Lock Corporation's Board of Directors approved a loan of $3.4 million to
Russell C. Best, Chief
50
<PAGE>
Executive Officer, under the terms of an Employment Agreement entered into by
Best Lock Corporation and Russell C. Best. On May 18, 1994, $3.4 million was
borrowed by Russell C. Best under the terms of the loan, which include repayment
over a thirty (30) year period in equal annual installments of $279,519,
including interest at 7.2%
(b) CERTAIN BUSINESS RELATIONSHIPS. Walter E. Best is the
president and owns in excess of 10% of the stock of Best Aircraft Corporation.
During the past fiscal year, Lock leased aircraft and automobiles from Best
Aircraft Corporation, paying $180,656 for such services.
(c) Indebtedness of management. There was no indebtedness to
the registrant at any time since the beginning of the registrant's last fiscal
year in an amount in excess of $60,000 by any (1) executive officer, director,
nominee for director, or immediate family member of the preceding; (2) entity in
which any executive officer or director is an executive officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; or (3) trust or estate in which any executive officer or
director has a substantial beneficial interest or as to which he serves as a
trustee or in a similar capacity, other than the indebtedness described in (a)
above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS: All required financial statements
and schedules are included in Item 8 of this Form 10-K. The Loan Agreement
executed in connection with the loan from Lock to Russell C. Best described in
Item 11(e) is attached hereto as an exhibit.
(b) REPORTS ON FORM 8-K: None filed in last quarter of 1994.
Exhibits are omitted because they are not required or
because the required information is included in the notes to consolidated
financial statements.
51
<PAGE>
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 and
representing a majority of the Board of Directors.
Date: March 31, 1995
BEST UNIVERSAL LOCK CO.
By: /S/ EDWARD C. MEMMEN, JR. By: /S/ RUSSELL C. BEST
--------------------------- ---------------------
Edward C. Memmen, Jr. Russell C. Best
Vice President and Chief Executive Officer
Principal Accounting Officer and Director
52
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
------- ----
Loan Agreement 54
53
<PAGE>
LOAN AGREEMENT
This Loan Agreement (the "Agreement"), entered into this 5th day of May,
1994, by and between Best Lock Corporation, a Delaware corporation, (the
"Corporation") and Russell C. Best, a resident of Zionsville, Indiana, (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive has been for several years, and is now, employed as
an executive officer of the Corporation and has made, and is expected to make, a
major contribution to the profitability, growth, and financial strength of the
Corporation;
WHEREAS, the Corporation considers the continued services of the Executive
to be in the best interests of the Corporation and its shareholders and desires
to assure the continued services of the Executive on behalf of the Corporation
on an objective and impartial basis and without distraction or conflict of
interest in the event of an attempt to obtain control of the Corporation;
WHEREAS, the Executive is willing to remain in the employ of the
Corporation upon the understanding that the Corporation will provide him with
certain economic benefits;
WHEREAS, the Corporation and the Executive have entered into an Employment
Agreement dated May 5th, 1994 (the "Employment Agreement"), pursuant to which
the Corporation and the Executive have agreed that the Executive will continue
to be employed as an executive officer of the Corporation and will provide
certain services in return for the Corporation providing certain economic
benefits to Executive, including the loaning of funds to Executive;
WHEREAS, the Executive desires to borrow funds from the Corporation and the
Corporation is willing to loan funds to the Executive pursuant to the terms of
the Employment Agreement; and
WHEREAS, the Corporation and the Executive wish to record the terms of
their agreement in writing in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises made hereunder and
consistent with the terms of the Employment Agreement, the parties agree as
follows:
SECTION 1. LOAN OF FUNDS. The Corporation will loan the Executive at such
time as the Executive requests within the next Ninety (90) days of the date of
this Agreement an amount not to exceed Three Million Four Hundred Thousand
Dollars ($3,400,000) at an interest rate of seven and two-tenths percent (7.2%)
per annum and on such other terms pursuant to the provisions of a Promissory
Note substantially in the form attached hereto as Exhibit 1. The Executive will
repay the principal amount and all interest accrued on the principal amount in
accordance with the terms of the Promissory Note and not later than April 30,
2024. The Executive may prepay without penalty any or all of the
<PAGE>
principal and accrued interest owing under the terms of this Agreement and the
Promissory Note.
SECTION 2. EXECUTION OF PROMISSORY NOTE BY THE EXECUTIVE. On the date of
this Agreement, the Executive will execute a Promissory Note substantially in
the form attached hereto as Exhibit 1.
SECTION 3. EXECUTIVE'S USE OF FUNDS. The Executive may use the funds
loaned to him by the Corporation for such purpose or purposes as the Executive
desires.
SECTION 4. COLLATERAL SECURITY. Within ten (10) days after the loan
transaction contemplated hereunder is closed, the Executive shall deliver to the
Corporation stock certificates representing any shares of capital stock of Frank
E. Best, Inc., a Washington corporation, ("FEB") which the Executive shall have
purchased with the proceeds of the loan contemplated hereunder, to secure full
payment by the Executive of amounts owing under the terms of this Agreement and
the Promissory Note. So long as the Executive is not in default under the terms
of this Agreement and the Promissory Note, all voting and dividend rights in any
such FEB shares so pledged shall belong to the Executive. As payments of
principal are made under the terms of the Promissory Note, the Corporation shall
release stock certificates representing ownership of FEB shares in such amounts
so that the Corporation will never hold stock certificates as security hereunder
representing FEB shares having an aggregate value greater than the aggregate
amount of principal and accrued interest owing under the terms of the Promissory
Note. Upon the full payment of the total amount of principal and accrued
interest owing under the terms of the Promissory Note, the Corporation shall
deliver to the Executive all stock certificates and other collateral security
which it may hold under the terms of this Agreement and shall release all such
security into the possession of and to the account of the Executive.
SECTION 5. EVENT OF DEFAULT. The occurrence of any of the following shall
constitute a default under the Promissory Note and under this Agreement: (i)
the failure of the Executive to make timely payment of principal or interest
under the terms of the Promissory Note; (ii) the admission by the Executive in
writing of an inability to pay his debts as they become due; (iii) the
appointment of a receiver or trustee for any part of the Executive's property;
or (iv) an assignment for the benefit of the Executor's creditors.
Upon any default, the Corporation, at its option and without notice or
demand, may declare all amounts owing to it by the Executive secured hereby
immediately to be due and payable, and shall have all the remedies of a secured
party available under Indiana law. These remedies include, without limitation,
the right to take permanent possession of all collateral, including stock
certificates, held at such time hereunder and to succeed to all voting and
dividend rights related thereto.
<PAGE>
SECTION 6. AMENDMENT OF AGREEMENT. This Agreement may be amended in any
or all of its provisions only if the amendment is reduced to writing and signed
by the Corporation and either the Executive or, if he is legally incompetent,
his personal representative.
SECTION 7. SUCCESSORS. All of the terms or provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto,
their heirs, administrators, executors, successors, and permitted assigns.
SECTION 8. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
if placed in the United States mail, registered or certified, return receipt
requested, postage prepaid, or if personally delivered, addressed as follows:
To the Corporation: Best Lock Corporation
6161 East 75th Street
Indianapolis, Indiana 46250
To the Executive: Russell C. Best
755 Eagle Creek Drive
Zionsville, Indiana 46077
SECTION 9. GOVERNING LAW. This Agreement shall be construed and
interpreted in accordance with, and shall be governed by, the laws of the State
of Indiana.
IN WITNESS WHEREOF, the Corporation and the Executive have caused this
Agreement to be executed on the day and year first above written.
"CORPORATION"
___________________________________
Walter E. Best, President
Attest: _____________________________
Roger E. Beaverson, Secretary
"EXECUTIVE"
___________________________________
Russell C. Best
<PAGE>
EXHIBIT 1
INSTALLMENT PROMISSORY NOTE
$3,400,000 Final Installment Due Date: April 30, 2024
For value received, the undersigned promises to pay to the order of Best
Lock Corporation, a Delaware corporation, the sum of Three Million Four Hundred
Thousand Dollars ($3,400,000), at 6161 East 75th Street, Indianapolis, Indiana,
or at such other place as the holder hereof may direct in writing, with interest
upon the unpaid principal balance at the rate of seven and two-tenths percent
(7.2%) per annum from the date of this instrument until maturity, and nine and
two-tenths percent (9.2%) per annum after maturity until paid, with attorneys'
fees and costs of collection and without relief from valuation and appraisement
laws, payment of principal and interest to be made as follows:
Principal and interest shall be paid in equal annual installments
(each installment including both principal and interest) in the amount
of $279,519. Each annual installment shall be paid on April 30. The
first annual installment shall be paid on April 30, 1995, with
additional installments to be paid on April 30 each year thereafter.
The final annual installment shall be paid on April 30, 2024 and shall
be in the amount of $279,519.
This note may be prepaid in full or in part at any time.
In the event of default in payment of any of said installments when due,
the entire unpaid balance of principal and interest shall become due and payable
immediately, without notice, at the election of the holder hereof.
The maker and any indorser(s) jointly and severally waive demand,
presentment, protest, notice of protest, and notice of nonpayment or dishonor of
this note, and each of them consents to extensions of the time of payment of
this note.
No delay or omission on the part of the holder hereof in the exercise of
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the holder hereof of any right or remedy shall preclude other or
further exercise thereof or of any other right or remedy.
This note, and any extensions or renewals hereof, is secured by a Loan
Agreement dated May 5th, 1994 and executed in favor of and delivered to the
payee hereof by the undersigned, to which reference is made for other rights as
to prepayment and acceleration.
<PAGE>
Signed and delivered at Indianapolis, Indiana, this 5th day of May, 1994.
Signature
______________________________
Russell C. Best
755 Eagle Creek Drive
Zionsville, Indiana 46077
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,815,847
<SECURITIES> 0
<RECEIVABLES> 14,450,710
<ALLOWANCES> 244,829
<INVENTORY> 14,579,058
<CURRENT-ASSETS> 37,461,758
<PP&E> 60,656,862
<DEPRECIATION> 30,519,725
<TOTAL-ASSETS> 71,028,674
<CURRENT-LIABILITIES> 14,435,381
<BONDS> 0
<COMMON> 1,102,580
0
6,300
<OTHER-SE> 31,062,388
<TOTAL-LIABILITY-AND-EQUITY> 71,028,674
<SALES> 104,669,003
<TOTAL-REVENUES> 104,669,003
<CGS> 53,983,763
<TOTAL-COSTS> 101,892,095
<OTHER-EXPENSES> 466,385
<LOSS-PROVISION> 38,413
<INTEREST-EXPENSE> 6,853
<INCOME-PRETAX> 2,403,414
<INCOME-TAX> 195,259
<INCOME-CONTINUING> 1,514,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514,931
<EPS-PRIMARY> 3.92
<EPS-DILUTED> 3.92
</TABLE>
