EDWARDS AND LOCK MANAGEMENT CORPORATION
FINANCIAL STATEMENTS AS OF
MARCH 31, 1996, 1995 AND
FOR THE FISCAL YEARS ENDED MARCH 31, 1996
1995, AND 1994 TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of EDWARDS AND LOCK MANAGEMENT
CORPORATION:
We have audited the accompanying balance sheets of EDWARDS AND
LOCK MANAGEMENT CORPORATION (a California Corporation) as of
March 31, 1996, and 1995, and the related statements of
operations and retained earnings and cash flows for the fiscal
years ended March 31, 1996, 1995 and 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 EDWARDS AND LOCK MANAGEMENT CORPORATION as of March 31, 1996
and 1995, and the results of its operations and its cash flows
for the fiscal years ended March 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 7, 1997
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS - MARCH 31, 1996 AND 1995
ASSETS
(in thousands)
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 335 $ 486
Investment in bond (see Note 2) 1,560 1,527
Accounts receivable, net of
allowance for doubtful accounts
of $53 at March 31, 1996 and 1995 5,415 3,500
Inventories, net 12,916 7,810
Deferred tax asset 1,101 910
-------- -------
Total current assets 21,327 14,233
PROPERTY AND EQUIPMENT:
Office equipment 751 656
Warehouse equipment 238 180
Leasehold improvements 327 327
Building 797 797
------- -------
2,113 1,960
Less--Accumulated depreciation (606) (464)
------- -------
Net property and equipment 1,507 1,496
Other assets 43 44
------- -------
$22,877 $15,773
Total assets ======= =======
The accompanying notes are an integral part of these balance
sheets.
EDWARDS AND LOCK MANAGEMENT CORPORATION
BALANCE SHEETS - MARCH 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDER'S EQUITY
(in thousands)
1996 1995
CURRENT LIABILITIES:
Accounts payable $ 4,427 $ 1,573
Accrued expenses 617 399
Income taxes payable 409 82
Current portion of capital lease obligation 167 155
---------------
Total current liabilities 5,620 2,209
---------------
CAPITAL LEASE OBLIGATION 410 564
---------------
COMMITMENTS & CONTINGENCIES
SHAREHOLDER'S EQUITY:
Capital stock, no par value;
authorized 100,000 shares;
outstanding 45,000 shares 9 9
Retained earnings 16,838 12,991
------- -------
Total shareholder's equity 16,847 13,000
------- -------
$22,877 $15,773
Total liabilities and shareholder's equity ======= =======
The accompanying notes are an integral part of these balance
sheets
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE FISCAL YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(in thousands)
1996 1995 1994
Net sales $37,698 $26,196 $21,841
Cost of sales 24,313 17,567 15,096
------- ------- -------
Gross profit 13,385 8,629 6,745
Selling, general and
administrative expenses 7,085 6,037 4,943
------- ------- -------
Income from operations 6,300 2,592 1,802
------- ------- -------
Interest income 123 63 198
Gain on legal settlement (see Note 6) - - 825
Other income - 18 242
------- ------- -------
Net income prior to income tax 6,423 2,673 3,067
Income taxes 2,576 1,065 1,167
------- ------- -------
Net income 3,847 1,608 1,900
RETAINED EARNINGS, beginning of year 12,991 11,833 13,693
Dividends paid - (450) (383)
Retirement of shares held by minority
shareholder - - (3,377)
------- ------- -------
RETAINED EARNINGS, end of year $16,838 $12,991 $11,833
======= ======= =======
The accompanying notes are an integral part of these financial
statements.
EDWARDS AND LOCK MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(in thousands)
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,847 $ 1,608 $ 1,900
Adjustments to reconcile net income to net
cash (used) in operating activities-
Increase in inventory (5,106) (1,788) (410)
(Increase)decrease in other assets - (36) 2
Depreciation and amortization 195 101 77
(Increase) decrease in accounts
receivable (1,915) (972) 160
Increase in deferred tax asset (191) (127) (355)
Increase in accounts payable 2,855 725 90
Increase in accrued liabilities 218 37 148
Decrease in capital lease obligation(142) (77) -
Increase (decrease) in taxes 327 200 (231)
Gain on the sale of fixed assets - (18) -
Gain on sale of bond - - (234)
Gain on legal settlement - - (825)
------- ------- -------
Net cash provided by (used in)
operating activities 88 (347) 322
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (206) (623) (139)
Proceeds from the sale of fixed assets - 31 -
Purchase of bond(s) (33) (1,527) (3,022)
Proceeds from sale of bond(s) - 3,012 4,244
------- ------- -------
Net cash (used in) provided by
investing activities (239) 893 1,083
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - (450) (383)
Net cash paid for retirement of
shares held by minority shareholder - - (2,552)
------- ------- -------
Net cash used in financing
activities - (450) (2,935)
------- ------- -------
NET CHANGE IN CASH (151) 96 (1,530)
CASH, beginning of year 486 390 1,920
------- ------- -------
CASH, end of year $ 335 $ 486 $ 390
======= ======= =======
- 2 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes during fiscal year 1996, 1995, and
1994 was $2,441, $1,260, and $1,646, respectively. There was no
cash paid for interest during any of the aforementioned years.
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITY:
During fiscal year 1994, a legal suit was settled and the
Company paid $2,552 to retire common shares held by a minority
shareholder with a fair value of $3,490. The difference between
the fair value of the shares retired and cash paid primarily
represents legal expenses paid by the Company that were
reimbursed by the minority shareholder as part of the legal
settlement.
The accompanying notes are an integral part of these financial
statements.
EDWARDS AND LOCK MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(in thousands)
1. Organization
Edwards and Lock Management Corp. (the "Company"), a
California corporation doing business as Special-T
Fasteners ("Special-T"), was formed on April 20, 1977.
Special-T distributes precision fasteners, utilized
primarily in the aerospace industry, to both the government
and commercial manufacturers in the United States and
abroad. The Company is individually-owned by one of the
original stockholders of the Company (the "sole
shareholder").
2. Summary of Significant Accounting Policies
General
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Accordingly, actual results could differ from estimated
amounts. Management believes that these estimates provide
a reasonable basis for the fair presentation of the
Company's financial position and results of operations.
Risks and uncertainties
Since Special-T's products are used primarily by
manufacturers in the aerospace industry, significant
changes in the aerospace industry could have a significant
impact on the Company's results of operations for any
particular year.
Cash and cash equivalents
The Company considers all highly liquid investments with
original maturities of three months or less at the time of
purchase to be cash equivalents.
Accounts receivable
Accounts receivable are recorded at the time product is
shipped. Any amounts which are at least 12 months past due
and deemed uncollectable are written off in full. The
allowance for uncollectable accounts is based on historical
experience and review of periodic aging of accounts.
2. Summary of Significant Accounting Policies (continued)
Investment in bond
Investment in bond consists of an available-for-sale
municipal security and is stated at cost, which
approximates fair market value. This security matures in
April 1996.
Inventories
Inventories are priced at lower of cost or market (net
realizable value). Cost is determined primarily using the
weighed average cost method, which approximates the first-
in first-out (FIFO) method. Appropriate consideration is
given to price deterioration, obsolescence and other
factors in evaluating net realizable value. Reserves for
excess and obsolete inventory at March 31, 1996 and 1995,
aggregated approximately $2,244 and $2,067, respectively.
Property and equipment
Property and equipment are stated at cost less accumulated
depreciation. Gains or losses on disposition of property
and equipment are credited or charged to income.
Depreciation is computed principally using accelerated tax
methods for both income tax and financial statement
purposes. The method used for financial statement purposes
approximates the double-declining balance method and is
determined by management to be a reasonable allocation of
the assets' cost to expense over the assets' useful lives
as detailed below:
Years
Office equipment 5 to 7
Warehouse equipment 5 to 7
Leasehold Improvements 15 to 31.5
Depreciation expense for the years ended March 31, 1996,
1995 and 1994 was $194, $101, and $78, respectively.
In March 1995, the FASB issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires
impairment losses to be recorded on long-lived assets used
in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
The Company follows the provision of SFAS 121 and no
adjustment to the fixed assets' carrying values was
required as of March 31, 1996 and 1995.
Other assets
Other assets consist of deposits on the Company's leased
facility, including a deposit towards the purchase of the
facility (see Note 4).
Revenue recognition
Revenues and related accounts receivables are recorded at
the time the products are shipped.
3. Significant Vendors and Purchase Commitments
Approximately 80% of the Company's sales are derived from
products purchased from three subsidiaries of The Fairchild
Corporation (the "Manufacturer"). The Company has entered
into three master distribution agreements with the
Manufacturer which appoint the Company as nonexclusive
"authorized distributor".
Furthermore, the Company has various contractual
arrangements with the Manufacturer whereby a total of
approximately $3,200 of product was purchased at 7% of the
Manufacturer's cost. When sold, the Company must remit 50%
of the invoice price less shipping and handling costs back
to the Manufacturer. The expiration dates of the
aforementioned contracts range from July 1997 through July
2001. Any proceeds derived from the sale of product after
its respective contractual expiration date are retained by
the Company.
The Company also warehouses consignment inventory owned by
the Manufacturer. As the inventory is sold, the proceeds
from the sale are split equally between the Company and the
Manufacturer.
Amounts due to the Manufacturer under the aforementioned
arrangements approximated $65 and $0 at March 31, 1996 and
1995, respectively.
4. Commitments and Contingencies
Leases
The Company leases its facility under a capital lease.
During fiscal 1995, the Company made a $25 deposit towards
the purchase of the facility. As set forth in the option
to purchase agreement, the Company can exercise the option
within six to twelve months of the close of the original
lease term on August 31, 1999, or any time during the
extension period, which expires August 31, 2004. The
following is an analysis of the future lease commitment
related to this lease:
Minimum
Lease
Payments
(in thousands)
1997 $193
1998 193
1999 193
2000 80
2001 -
Thereafter -
----
$659
====
Rental expense for fiscal 1996, 1995 and 1994 totaled $14,
$51 and $100, respectively.
5. Income Taxes
The Company follows the provisions of Financial Accounting
Standards Board's SFAS No. 109, Accounting for Income Taxes
("SFAS 109"). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
A deferred tax liability or asset is recognized for the tax
consequences of temporary differences in the timing of the
recognition of revenues and expenses for financial and tax
reporting purposes. A deferred tax benefit or expense is
recognized for the net change during the year in the
deferred tax liability or asset.
The reconciliations between the provision for income taxes
and the amounts computed by applying the federal statutory
rate of 34% to
pre-tax income consists of the following:
1996 1995 1994
Income tax expense at Federal
statutory rate $2,196 $ 909 $1,043
State income taxes, net of
Federal tax benefit 417 192 238
Effect of permanent difference (46) (23) (76)
Other 9 (13) (38)
------ ------ ------
$2,576 $1,065 $1,167
====== ====== ======
The Company's provision for income taxes consists of the
following:
1996 1995 1994
Current federal $2,320 $ 998 $1,275
Deferred federal (191) (127) (354)
Current state 447 194 246
------ ------ ------
$2,576 $1,065 $1,167
====== ====== ======
5. Income Taxes (continued)
The components of the deferred tax asset consists of the
following at March 31:
1996 1995
Operating reserves and accruals $1,060 $890
Other 41 20
------ ----
$1,101 $910
====== ====
6. Lawsuits, Claims and Related Matters
During fiscal year ended March 31, 1991, the Company
entered into arbitration with a minority shareholder
regarding the price to be paid by the Company to retire the
minority shares. During fiscal year ended March 31, 1994,
the arbitrator ruled favorably on the Company's behalf, and
a settlement agreement was signed by which the Company was
to pay the minority shareholder $2,552 (which represents
the fair value of the retired shares of $3,490 plus
interest, offset by legal fees incurred by the Company of
$825 plus interest, and $113 due personally to the sole
shareholder). The amount due to the sole shareholder was
received by the Company and paid as a dividend during
fiscal year ended March 31, 1994.
7. Common Stock
During fiscal year ended March 31, 1995, the Company paid
cash dividends of $450 to the sole shareholder.
During fiscal year ended March 31, 1994, the Company
retired shares held by the minority shareholder worth
$3,490 for $2,552 (see Note 6). In addition, cash
dividends of $383 were paid to the sole shareholder (which
is inclusive of the cash dividend paid of $131 as discussed
in Note 6).
8. Employee Benefit Plans
The Company has a defined contribution retirement plan (the
"Plan") for all employees who are at least 18 years of age
and who have completed at least one year of service. The
Company contributed and expensed $39, $31 and $29 under the
provisions of the Plan for 1996, 1995, and 1994,
respectively.
The Company provides pension benefits for all its employees
through a profit-sharing plan under which annual
contributions of the Company's income are made at the
discretion of management. Such contributions approximated
$156, $156, and $190 in fiscal 1996, 1995, and 1994,
respectively, and were funded by the Company.
9. Executive Compensation Plan
The Company has a discretionary executive compensation plan
(the "Executive Plan") whereby certain key
executives of the Company are paid bonuses which are based upon
achieving certain business performance measures. The
bonuses paid to key executives under the Executive
Plan during fiscal 1996, 1995 and 1994 aggregated $531,
$302, and $259 respectively.
10. Related Party Transactions
The Company paid $1,040, $1,225 and $920 as executive
compensation to the sole shareholder during fiscal 1996, 1995
and 1994, respectively.