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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, 1995
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 0-1491
BEST LOCK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 35-1092570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 50444, INDIANAPOLIS, INDIANA 46250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 849-2250
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. [ ]
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 February 9, 1996.
COMMON STOCK 121,653.85 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
BEST LOCK CORPORATION
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 8
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 16
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 49
13 Certain Relationships and Related Transactions 52
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 52
Signatures 54
Index to Exhibits 55
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. Registrant was organized in 1928
as a Corporation under the laws of the State of Delaware. Neither the
registrant nor its 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 its subsidiary during the fiscal year just ended.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
(1) Industry segments. Registrant 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. Registrant 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 registrant is the
manufacture or sourcing, distribution and sale of access control products and
services, primarily including locks, lock components and adaptations.
Registrant specializes in providing locking systems for commercial end-users,
including institutional, industrial and government facilities.
(i) Registrant's mechanical locking system
is built around a removable key-controlled core and housing utilizing the
tumbler system. The sale of registrant'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 registrant. Additionally,
the registrant has supplemented its product offerings to end-users with other
access control and auxiliary products.
Registrant's mechanical locks, lock
components and adaptations are manufactured or assembled in its plant located in
Indianapolis, Indiana and sold by registrant through sales representatives
throughout the United States, Canada and other countries. Registrant's
representatives are independent representatives maintaining separate
inventories, or corporate-owned sales offices, both selling directly to end-
users.
Registrant does not manufacture all of
the access control products it sells but purchases a number of such items from
other manufacturers. Registrant 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 registrant's system of locks, registrant
assists in maintaining and setting up for its customers a masterkey plan for
proper control and security of the customer's locking system.
Registrant 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. Registrant's sales have generally increased during the past
five years.
3
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.
NAME OF CLASS 1995 1994 1993
- ------------- ---- ---- ----
Door Security Products 68% 67% 67%
All Others 32 33 33
There have not been any significant
changes in the kinds of products produced or services sold since the beginning
of the fiscal year.
Registrant 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 registrant during the next
fiscal year.
(iii) The raw materials essential to the
registrant'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 for the registrant. The majority of
essential raw materials are purchased from three midwestern suppliers. There
are no significant problems related to the procurement of raw materials for
registrant'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 registrant's business. Registrant has 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 of the early patent rights licensed or otherwise acquired have expired.
Continuing research and development results in patents being issued to the
registrant 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 registrant's business, a backlog for its manufacturing business exists
for production planning.
(vi) There is no unusual working capital
requirement for the registrant. Normal working capital requirements for
inventory and accounts receivable are met through internal funding or borrowings
from outside bank sources.
(vii) The manufacturing, sourcing,
distribution or selling business of the registrant is not dependent upon any one
single customer, or very few customers, the loss of which would have a material
adverse effect on the registrant.
4
(viii) The backlog of orders as of the dates
shown below are believed to be firm:
February 9, 1996 $4,219,942
March 15, 1995 6,417,949
It is expected that 100% of the backlog
on February 9, 1996 will be filled within the current fiscal year. The
registrant's sales and order flow do not generally reflect any seasonal
fluctuations.
(ix) It is not believed that any material
portion of the business of the registrant is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the government.
(x) The business of the registrant 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 the registrant. 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 registrant's lock systems.
Due to the fact that registrant has been
engaged in business for more than sixty-five years and has specialized in the
sale of masterkeyed systems of locks, it believes that it is a significant
factor in this specialized field. Since industry statistics are not available,
registrant is not able to state its relative standing in the overall lock market
or in the more specialized masterkeyed system of locks market.
(xi) Registrant expended approximately
$3,055,000, $3,050,000 and $2,345,000 on research activities relating to the
development of new products or the improvement of existing products in the years
ending December 31, 1995, 1994 and 1993, respectively.
Registrant has not engaged in any
material customer sponsored research during the past three fiscal years.
(xii) Registrant 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 the registrant or its subsidiary.
Registrant estimates it will voluntarily
invest approximately $299,507 during its current and succeeding fiscal year to
continue to enhance the Company's overall environmental standards. This amount
includes capital expenditures ($30,000) and operating expenses of environmental
protection facilities.
(xiii) The total staff of registrant as of the
close of its fiscal year consisted of approximately 497 production and
maintenance employees; and 698 office, sales and executive employees.
5
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. The registrant 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 6%, 7% and 7% of registrant's total sales during 1995, 1994 and
1993, respectively. The risk and profitability of such business does not differ
substantially from domestic sales.
ITEM 2. PROPERTIES.
Manufacturing facilities and engineering and executive offices
of registrant are located in multipurpose 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 registrant's use in four major phases in 1958, 1965, 1977 and 1989.
Registrant is using the majority 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. Registrant 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 registrant.
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 registrant
against ILCO, a North Carolina corporation, charged ILCO with infringement of
Best's patent, trade dress and trademark right in certain patented keys and
other keys, and with unfair competition.
On August 18, 1995, the Court entered an "Order on Join Motion
to Amend the Final Judgment and for Dismissal of Remaining Claims" finding for
the defendant, Ilco Unican Corporation, relating to the validity of U.S. Patent
No. 5,136,869 and U.S. Design Patent No. 327,636; stipulating infringement if
the patents had not been held invalid; dismissing with prejudice with respect to
Ilco Unican Corporation the remaining claims pertaining to trademark, trade
dress and unfair competition brought by registrant; dismissing without prejudice
the remaining trademark, trade dress and unfair competition declaratory judgment
counterclaims brough by Ilco Unican Corporation and awarding no monetary
damages.
On September 18, 1995, registrant filed Notice of Appeal with
the Court of Appeals for the Federal Circuit.
If the Court of Appeals for the Federal Circuit upholds the
trial court, the registrant believes there will be no material adverse impact on
the consolidated financial position or results of operations.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Election of Directors at Annual Shareholder Meeting on October
30, 1995: (A total of 111,214 shares were represented by owner or proxy).
VOTES FOR
---------
Russell C. Best 109,215
Mariea L. Best 109,136
Gregg A. Dykstra 109,171
Larry W. Rottmeyer 109,036
Eric M. Fogel 109,004
Arthur Little 1,516
An amendment to Registrant's Certificate of Incorporation that would
limit the personal liability of the Registrant's directors to the Corporation or
its Shareholders for monetary damages for breach of their fiduciary duty to the
extent permitted by Delaware law.
FOR AGAINST ABSTAIN
--- ------- -------
109,163 1,739 147
A proposal to ratify and approve the selection of Arthur Andersen LLP
as auditors for the year 1995.
FOR AGAINST ABSTAIN
--- ------- -------
109,778 1,327 109
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY-HOLDER
MATTERS.
The registrant's 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 shares as of December 27, 1995 and December 31, 1994 was $390.00
and $385.00 per share respectively.
There are 215 shareholders of record of registrant's stock as of
February 9, 1996.
Dividends have been declared and paid annually in the respective
amounts of $5.41 and $5.40 per share. There is no known restriction on
registrant's present or future ability to pay such dividends other than the
availability of sufficient funds and the requirement that registrant comply with
the provisions of registrant's unsecured bank line of credit. 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 1995, 1994, and 1993, 8, 0 and 82 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.
8
ITEM 6. Selected Financial Data.
Page 1 of 2
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1995 THROUGH 1991
The following consolidated summary of selected financial data should be read in
conjunction with the accompanying notes to consolidated financial statements:
1995 1994 1993 1992 1991
------------- ------------- ------------ ------------- ------------
Net sales $ 118,546,487 $ 104,669,003 $ 98,895,807 $ 84,865,287 $ 74,752,175
Net income (loss) before cumulative
effect of change in accounting principle (4,204,498) 2,208,155 1,149,518 2,458,328 4,241,851
Net income (4,204,498) 2,208,155 1,799,518 2,458,328 4,241,851
Total assets 69,016,896 71,003,419 64,216,989 62,259,855 61,169,715
Long-term obligations
(excluding deferred taxes) 19,067,424 4,444,971 4,745,065 4,552,378 2,228,349
Common stock and common stock of
Universal and Best, redeemable under
Stock Bonus Plan 5,931,931 8,939,316 - - -
Earnings and dividends per common share - see page 2 of 2.
9
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, 1995 THROUGH 1991
1995 1994 1993 1992 1991
------ ------- ------- -------- -------
Earnings (loss) per share of common stock:
Best Lock Corporation and Subsidiary
(121,653.85 shares outstanding in 1995;
131,185.85 shares outstanding in 1994;
131,238.85 shares outstanding each year 1993-1991)-
Net income (loss) before cumulative effect of
change in accounting principle $(33.88) $ 16.83 $ 8.76 $ 18.73 $ 32.32
Cumulative effect of SFAS 109 "Accounting
for Income Taxes" $ 0.00 $ 0.00 $ 4.95 $ 0.00 $ 0.00
------ ------- ------- -------- -------
Net income (loss) $(33.88) $ 16.83 $ 13.71 $ 18.73 $ 32.32
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Best Universal Lock Co. and Subsidiaries
(Series A - 86,469 shares and Series B - 300,000
shares outstanding each year) -
Series A -
Net income (loss) $ (9.95) $ 3.92 $ 3.30 $ 4.57 $ 7.95
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Series B -
Net income (loss) $ (9.95) $ 3.92 $ 3.30 $ 4.57 $ 7.95
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Frank E. Best, Inc. and Subsidiaries
(598,710 shares outstanding each year) -
Net income (loss) $ (6.43) $ 1.93 $ 1.45 $ 2.27 $ 3.97
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Dividends per share:
Best Lock Corporation, common $ 5.41 $ 5.40 $ 5.00 $ 4.90 $ 4.70
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Best Universal Lock Co. -
Preferred (7% cumulative) $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Series A Common (Note 2) 1.67 1.66 1.63 1.61 1.59
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Series B Common (Note 2) 1.10 1.09 1.06 1.04 1.02
------ ------- ------- -------- -------
------ ------- ------- -------- -------
Frank E. Best, Inc. Common $ 0.53 $ 0.52 $ 0.51 $ 0.49 $ 0.47
------ ------- ------- -------- -------
------ ------- ------- -------- -------
10
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 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 - 1995 VS. 1994
The Company experienced record sales of $118.5 million in 1995, up 13% from
1994. Improved sales volume both at the Best Locking Systems Division and at
the Best Lock Manufacturing Division, as well as a decrease in the backlog at
Best Lock Manufacturing, attributed to the increase in sales. Higher material
costs significantly impacted the gross margin for 1995, which decreased from
47.5% of sales to 40.6%. Approximately $1.8 million of the increase in material
costs was related to the redesign of the Company's 9K lever handle lock, which
occurred in late 1994. The Company did not increase the price of this product
to its customers, even though the standard cost per unit increased by
approximately 18% due to the redesign. A task force has been formed for the
purpose of decreasing costs related to the production of the 9K lock by
mid-1996. Higher scrap rates in the production of this product were also
experienced during 1995, which increased costs by approximately $1.0 million.
In addition, the Company disposed of obsolete inventory during the year of
approximately $2.1 million. Salaries, wages and fringe benefits associated with
the manufacture of products increased by approximately $1.9 million during 1995.
Selling, general and administrative, and engineering costs increased by $7.3
million over 1994. During the fourth quarter, the Company announced a
restructuring plan with the goal of significantly reducing payroll-related
expenses. The provisions of the plan include early retirement as well as
voluntary and involuntary separation for employees in certain job
classifications, mostly non-production related. The Company recorded a $3.1
million restructuring charge for anticipated separation and facilities closing
costs associated with this plan. Professional fees were higher than the prior
year by $3.0 million, mainly attributable to assistance required for the
development and installation of new software for the order fulfillment, accounts
payable, and general ledger functions. This software was put into production
during the third quarter of 1995 and the first quarter of 1996. Higher sales
commissions of $485,000, due to higher sales and a change in commission rates,
and increased travel expenses of $366,000 accounted for the remainder of the
increase in selling, general and administrative and engineering expenses.
Research and development expenditures totaled $3.1 million during 1995, a slight
increase over 1994. The Company began marketing its electronic access security
product during the fourth quarter of the year. Other research and development
expenditures related to the development of computer software for internal use.
As a result of the factors described above, operating income decreased by $8.9
million, or 7.5% of sales, to a loss of $6.1 million for 1995. Interest expense
increased by $863,000, due to borrowings against a bank line of credit.
Proceeds from the borrowings were used to finance the purchase of an interest in
Best Lock Partnership (a newly-formed partnership created for the purpose of
acquiring shares of Best and Universal from Walter E. Best and certain other
family members and trusts) and for the payment of severance, vacation and bonus
payments to Walter E. Best, Robert W. Best, Richard E. Best, Marshall W. Best
and Edwina McLemore in exchange for their resignations. $1.2 million of the
proceeds from the borrowings was also
11
used for payment in exchange for covenants not to compete from Walter E. Best,
Robert W. Best, Richard E. Best, and Marshall W. Best.
Other income increased by $748,000 from 1994 to 1995. During 1994, the Company
accrued $701,000 of professional fees relating to the settlement of claims
arising from a derivative action against it by a director, as well as all
claims against the Chief Executive Officer and another officer. These expenses
were reflected in other income (expense) in 1994.
Net income decreased by $6.4 million to a loss of $4.2 million, or 3.5% of sales
in 1995. Income tax benefit was 35.9% of the loss before tax in 1995. For
1994, income tax expense was 8.1% of the income before tax, mainly due to the
generation of tax credits during 1993 that the company recognized in 1994.
RESULTS OF OPERATIONS - 1994 VS. 1993
The Company's net sales for 1994 increased 6% over 1993, primarily due to
improved sales volume related to the recognition of a full year of sales for
sales offices that began operations during 1993. The gross margin improved to
47.5% of sales from 43.0% in 1993, due to the overall higher level of retail
sales at the distribution level. The Company also negotiated a three year
purchase agreement with its major brass supplier to keep materials costs
consistent with 1993 while the market price for brass, the largest raw material
component of its products, increased approximately 11%.
Salaries and wages were $4.3 million higher than 1993 levels, due primarily to a
charge of $2.3 million in the fourth quarter for anticipated employee-related
expenses related to restructuring plans. The restructuring, which was
partially completed on February 15, 1995, included the resignation of Walter E.
Best, Chairman of the Board and President, as well as the resignations of
Richard E. Best and Marshall W. Best, both Vice Presidents of the Company.
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 to (1) higher health insurance claims costs, a portion of which
the company is self-funding; (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 $900,000; and (3) a change in the discount rate
used to calculate the actuarial present value of the accumulated retirement
benefit obligation. This change in the discount rate, from 7 1/2% in 1993 to 8%
in 1994, resulted in a reduction in expense of $434,000.
Total selling, general and administrative and engineering expenses increased
$6.3 million, or 15.5% over 1993. Reductions in bad debt expense of $500,000
and lower repairs and utilities expenditures of $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 accounting functions as well
as for other special projects.
Net income of $2.2 million increased 23% over 1993 to 2% of sales. Income taxes
decreased by $686,000 to 8% of income before taxes, due to the generation during
1993 of certain tax credits of approximately $656,000 that the Company recorded
in 1994.
On February 15, 1995, the Company settled a derivative action that had been
threatened by a director during the third quarter of 1994. Expenses related to
the settlement of the threatened litigation increased other non-operating
expenses by $701,000 during 1994.
12
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.0 at December 31, 1995, compared to 2.6 at
December 31, 1994. Cash and cash equivalents decreased by $3.4 million during
1995, as excess cash was used to purchase treasury stock and for increased
levels of capital expenditures. The current ratio was also affected by an
increase in current liabilities of $2.2 million due to the $3.1 million charge
for restructuring expenses.
The Company's continued emphasis on inventory management and backlog reduction
resulted in a decrease in inventory of $3.2 million. Finished goods inventory
in the corporate owned sales distribution facilities and at the manufacturing
plant decreased by $1.6 million from 1994. Raw material and work-in-process
inventory at the manufacturing plant also decreased by $1.6 million.
Property, plant and equipment additions increased by $1.7 million to $5.6
million in 1995 from the 1994 total of $3.9 million. Approximately $3.7 million
of the 1995 capital expenditures related to the installation of enhanced
computer systems and related software. Capital expenditures for 1996 are
expected to be in the $4 million range, which includes approximately $2.3
million for improvements to manufacturing equipment.
Total liabilities increased by $16.7 million from 1994 to 1995, mainly due to
increased borrowings of $15.2 million. Other accrued expenses decreased by
$626,000 due to the payment of professional fees related to the settlement of a
derivative action against the Company by a director.
The Company desires to retain its strong credit rating, and therefore pays all
vendors according to terms and takes all discounts offered.
Cash provided by operating activities decreased to $1.4 million in 1995,
compared with $11.0 million in 1994 and $5.4 million in 1993. The $9.6 million
decrease was due primarily to the decrease in net income of $6.4 million. The
remainder of the decrease was a result of the change in cash used for working
capital purposes.
During 1995, the Company negotiated a $25 million bank line of credit for the
purpose of acquiring an interest in Best Lock Partnership. On February 15,
1995, $12.0 million was borrowed under the line of credit in order to finance
this transaction. As of December 31, 1995, $15.0 million was outstanding. The
additional $3.0 million borrowed during 1995 was used to purchase treasury
stock. 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 also 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, charged ILCO with infringement of the
Company's trade dress and trademark right in certain patented keys and other
keys, and with unfair competition. On August 18, 1995, the Court entered an
"Order on Joint Motion to Amend the Final Judgment and for Dismissal of
Remaining Claims" finding for the defendant, Ilco Unican Corporation, relating
to the validity of U.S. Patent No. 5,136,869 and U.S. Design Patent No. 327,636;
stipulating infringement if the patents had not been held invalid; dismissing
with prejudice with respect to Ilco Unican Corporation the remaining claims
pertaining to trademark, trade dress and unfair competition brought by the
Company;
13
dismissing without prejudice the remaining trademark, trade dress and unfair
competition declaratory judgment counterclaims brought by Ilco Unican
Corporation and awarding no monetary damages. On September 18, 1995, the
Company filed Notice of Appeal with the Court of Appeals for the Federal
Circuit.
OTHER
Foreign sales decreased to approximately 6% of total sales during 1995, from 7%
in 1994 and 1993. The profit on these sales improved by approximately $250,000
during 1995.
The firm backlog of approximately $4.2 million as of February 9, 1996 is $2.2
million lower than the prior year. The Company significantly reduced its
backlog during 1995 by re-engineering certain processes in the manufacturing,
assembly and shipping areas. The Company is continuing to focus on customer
satisfaction in the areas of delivery and service, which will result in shorter
lead times.
The Company has not experienced any unusual inflation in its purchases or sales
for the years 1995, 1994, or 1993.
The Company has not had and does not expect to incur any significant future
environmental liability.
14
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15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) 1. Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Income (Loss) for the Years Ended December
31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
Schedules Supporting Consolidated Financial Statements-
Schedule
Number
-------
II Valuation and Qualifying Accounts - Corporate and
Consolidated - for the Years Ended December 31, 1995,
1994 and 1993
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shareholders of Best Lock Corporation:
We have audited the accompanying consolidated balance sheets of BEST LOCK
CORPORATION (a Delaware corporation) AND SUBSIDIARY as of December 31, 1995 and
1994, and the related consolidated statements of income (loss), shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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 Best Lock Corporation and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Company changed its 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 schedule listed under Item 8 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied to the audit of the basic consolidated
financial statements and, in our opinion, fairly states 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 11, 1996.
17
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18
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19
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31
---------------------------------
1995 1994
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 1,348,876 $ 4,792,083
Trade receivables
Direct 11,878,119 11,680,289
Sales representatives and other 1,893,871 2,688,434
Allowance for uncollectible accounts (263,559) (244,829)
Estimated refundable income taxes 2,628,103 68,407
Current portion of notes receivable (Note 15) 14,895 81,987
Inventories (Notes 1 and 4) 11,383,058 14,579,058
Deferred income taxes (Notes 1 and 5) 4,239,578 3,566,922
Other prepaid expenses 379,906 152,342
------------ ------------
Total current assets 33,502,847 37,364,693
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
(Notes 1 and 3)
Land and buildings 14,200,461 13,954,001
Machinery and equipment 28,941,851 29,725,748
Tooling 8,519,483 8,185,849
Furniture, fixtures and other 11,034,048 8,378,701
Construction work-in-progress 2,473,290 975,301
------------ ------------
65,169,133 61,219,600
Less - accumulated depreciation (34,297,523) (31,082,462)
------------ ------------
Total property, plant and equipment 30,871,610 30,137,138
------------ ------------
OTHER ASSETS
Long-term notes receivable (Note 15) 3,358,972 3,280,332
Other assets 1,283,467 221,256
------------ ------------
Total assets $ 69,016,896 $ 71,003,419
------------ ------------
------------ ------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31
------------------------------
1995 1994
------------ -------------
CURRENT LIABILITIES
Notes payable $ 2,500 $ 2,500
Current portion of retirement benefit
obligations 1,362,431 1,381,967
Trade accounts payable 3,487,402 1,641,302
Customer advances 1,433,801 1,501,304
Accrued liabilities
Income taxes 430,953 868,407
Property and other taxes 976,765 960,153
Payroll and vacation pay 4,225,317 3,918,751
Accrued restructuring (Note 14) 3,462,508 2,394,593
Accrued medical claims 970,000 850,000
Other 194,497 820,713
------------- --------------
Total current liabilities 16,546,174 14,339,690
------------- --------------
LONG-TERM DEBT (Note 7) 15,197,079 -
RETIREMENT BENEFIT OBLIGATION (Note 10) 3,870,345 4,444,971
DEFERRED INCOME TAXES (Notes 1 and 5) 2,120,957 2,269,369
------------- --------------
Total liabilities 37,734,555 21,054,030
------------- --------------
COMMON STOCK AND COMMON STOCK OF UNIVERSAL AND
BEST, REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) 5,931,931 8,939,316
------------- --------------
SHAREHOLDERS' EQUITY
Common stock, no par value, 200,000 shares
authorized; 145,128.85 shares issued;
121,653.85 shares outstanding 1995,
131,185.85 shares outstanding 1994,
131,238.85 shares outstanding 1993 1,407,841 1,407,841
Accumulated earnings 44,826,657 49,523,858
Cumulative translation adjustment (Note 1) (141,496) (197,955)
Common stock and common stock of Universal and
Best, redeemable under Stock Bonus Plan (Note 8) (5,931,931) (8,939,316)
Treasury stock (14,810,661) (784,355)
------------- --------------
Total shareholders' equity 25,350,410 41,010,073
------------- --------------
Total liabilities and shareholders' equity $ 69,016,896 $ 71,003,419
------------- --------------
------------- --------------
The accompanying notes to consolidated financial statements are an
integral part of these statements.
21
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 (LOSS)
Year Ended December 31
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
NET SALES $118,546,487 $104,669,003 $ 98,895,807
OPERATING EXPENSES
Cost of Goods Sold 70,380,467 54,913,711 56,361,196
Selling 30,349,379 26,766,914 24,919,160
General and Administrative 21,554,232 16,434,727 12,661,743
Engineering, research and development 2,336,673 3,775,743 3,085,631
------------ ------------ ------------
Total operating expenses 124,620,751 101,891,095 97,027,730
------------ ------------ ------------
OPERATING INCOME (LOSS) (6,074,264) 2,777,908 1,868,077
Interest expense (870,062) (6,809) (47,510)
Other income (expense), net 380,427 (367,685) 210,609
------------ ------------ ------------
INCOME (LOSS) before provision for income taxes (6,563,899) 2,403,414 2,031,176
Provision (benefit) for income taxes (Note 5) (2,359,401) 195,259 881,658
------------ ------------ ------------
NET INCOME (LOSS) before cumulative effect of change in accounting principle (4,204,498) 2,208,155 1,149,518
Cumulative effect of change in accounting principle (Note 1) - - 650,000
------------ ------------ ------------
NET INCOME (LOSS), Best Lock Corporation and Subsidiary (4,204,498) 2,208,155 1,799,518
Minority interest in net (income) loss, Best Lock Corporation and Subsidiary 521,623 (653,892) (489,289)
Corporate - Best Universal Lock Co. expense (55,600) (39,332) (34,352)
------------ ------------ ------------
NET INCOME (LOSS), Best Universal Lock Co. and Subsidiaries (3,738,475) 1,514,931 1,275,877
Minority interest in net (income) loss, Best Universal Lock Co. and Subsidiaries 1,029,185 (339,232) (285,415)
Corporate - Frank E. Best, Inc. expense (42,848) (22,409) (125,438)
------------ ------------ ------------
NET INCOME (LOSS), Frank E. Best, Inc. and Subsidiaries $ (2,752,138) $ 1,153,290 $ 865,024
------------ ------------ ------------
------------ ------------ ------------
Best Universal Lock Co.
Best Lock -------------------------- Frank E.
Earnings (loss) per common share: Corporation Series A Series B Best, Inc.
----------- ---------- ----------- ------------
1995 $ (33.88) $ (9.95) $ (9.95) $ (6.43)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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 (LOSS) $ 13.71 $ 3.30 $ 3.30 $ 1.45
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding:
1995 124,114.13 75,669.87 300,000.00 427,806.72
---------- --------- ---------- ----------
---------- --------- ---------- ----------
1994 131,235.37 86,469.00 300,000.00 598,710.00
---------- --------- ---------- ----------
---------- --------- ---------- ----------
1993 131,238.85 86,469.00 300,000.00 598,710.00
---------- --------- ---------- ----------
---------- --------- ---------- ----------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
December 31
------------------------------------------------
1995 1994 1993
------------ ------------ -----------
COMMON STOCK, no par value, 200,000 shares
authorized; 145,128.85 shares issued; 121,653.85
shares outstanding 1995, 131,185.85 shares outstanding
1994, 131,238.85 shares outstanding 1993 $ 1,407,841 $ 1,407,841 $ 1,407,841
------------ ----------- -----------
ACCUMULATED EARNINGS
Balance at beginning of year 49,523,858 48,024,394 46,881,069
Net income (loss) (4,204,498) 2,208,155 1,799,518
Cash dividends received 165,444 - -
Cash dividends paid (see below) (658,147) (708,691) (656,193)
------------ ----------- -----------
Balance at end of year 44,826,657 49,523,858 48,024,394
------------ ----------- -----------
COMMON STOCK AND COMMON STOCK OF UNIVERSAL AND
BEST, REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) (5,931,931) (8,939,316) -
------------ ----------- -----------
CUMULATIVE TRANSLATION ADJUSTMENT (Note 1) (141,496) (197,955) (108,563)
------------ ----------- -----------
TREASURY STOCK
Balance at beginning of year (784,355) (763,950) (763,950)
Shares purchased (14,026,306) (20,405) -
------------ ----------- -----------
Balance at end of year (14,810,661) (784,355) (763,950)
------------ ----------- -----------
Total shareholders' equity $ 25,350,410 $41,010,073 $48,559,722
------------ ------------ -----------
------------ ------------ -----------
Cash dividends per share $5.41 $5.40 $5.00
------------ ------------ -----------
------------ ------------ -----------
The accompanying notes to consolidated financial statements are an
integral part of these statements.
23
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
-----------------------------------------------
1995 1994 1993
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 119,115,867 $103,456,897 $ 95,602,653
Cash paid to suppliers and employees (116,012,304) (92,551,180) (88,640,460)
Interest received 494,908 137,171 78,189
Interest paid (761,831) (3,353) (48,077)
Income taxes (paid) refunded (1,460,682) 14,044 (1,600,390)
------------ ----------- ------------
Net cash provided by operating activities 1,375,958 11,053,579 5,391,915
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividend receipts 165,444 - -
Proceeds from sale of property, plant and equipment 88,383 167,790 34,654
Capital expenditures (5,593,397) (3,895,823) (4,738,876)
Note receivable from an officer - (3,400,000) -
------------ ----------- ------------
Net cash used in investing activities (5,339,570) (7,128,033) (4,704,222)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of credit 29,064,607 - -
Payments on unsecured line of credit (14,100,000) - -
Purchase of treasury stock (13,793,834) (20,405) -
Dividend payments (658,147) (708,691) (656,193)
------------ ----------- ------------
Net cash provided by (used in) financing activities 512,626 (729,096) (656,193)
------------ ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,779 (6,859) (24,896)
------------ ----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,443,207) 3,189,591 6,604
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,792,083 1,602,492 1,595,888
------------ ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,348,876 $ 4,792,083 $ 1,602,492
------------ ----------- ------------
------------ ----------- ------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss) $ (4,204,498) $ 2,208,155 $ 1,799,518
Adjustments-
Depreciation and amortization 4,904,810 4,364,558 4,057,571
Provision for losses on accounts receivable 117,417 38,413 503,023
(Gain) loss on sale of property, plant and equipment 83,408 (4,875) 18,304
Changes in assets and liabilities-
(Increase) decrease in
Accounts and notes receivable 600,453 (703,419) (3,071,111)
Refundable income taxes (2,559,696) 1,484,991 (887,465)
Inventories 3,226,858 (139,575) 1,843,195
Prepaid and other expenses (900,220) (1,860,533) 99,677
Other assets (1,341,482) 222,977 67,934
Increase (decrease) in
Accounts payable, customer advances and accrued
liabilities 2,630,801 4,905,541 804,623
Income taxes payable (439,319) 693,421 86,892
Deferred income taxes (148,412) (125,857) (406,307)
Retirement benefit and benefit obligation (594,162) (30,218) 476,061
------------ ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,375,958 $ 11,053,579 $ 5,391,915
------------ ----------- ------------
------------ ----------- ------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
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. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a. NATURE OF BUSINESS
The principal business of the Best Lock Companies is the manufacture
or sourcing, distribution and sale of access control products and services.
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for each parent company in the
Best Lock Companies include their respective subsidiaries as indicated below:
PERCENT
PARENT COMPANY SUBSIDIARIES OWNED
Frank E. Best, Inc. Best Universal Lock Co. 83%
(Best)
Best Universal Lock Best Lock Corporation 79%
Co. (Universal)
Best Lock Best Universal Locks Limited (Canada) 100%
Corporation (Lock or the Company)
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.
Best, Universal and Lock file separate federal income tax returns, as
these entities are not eligible to file on a consolidated basis.
c. CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with a 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.
25
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
d. INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method for
approximately 95% of consolidated inventories. The remaining inventories are
valued at the lower of cost, first-in, first-out (FIFO) or market.
e. REVENUE RECOGNITION
Sales are recognized when product is shipped to customers or when
service or installation is complete.
f. DEPRECIATION
Depreciation is provided on the straight-line method for book purposes
and on an accelerated method for income tax purposes.
g. AMORTIZATION
During 1995, the Company purchased covenants not to compete for
$1,240,000 which are being amortized ratably over the life of the covenants.
Amortization expense was $206,667 in 1995.
h. INCOME TAXES
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
subsequent changes in tax rates. The effect of adopting SFAS 109 has been
reflected in the Consolidated Statement of Income (Loss) for the year ended
December 31, 1993 as a cumulative effect of a change in accounting principle of
$650,000.
i. RESEARCH AND DEVELOPMENT
Research and development costs related to products are expensed as
incurred. Development costs related to software for internal use are expensed
or capitalized as incurred, depending on the useful life of the expenditure.
The total amounts expensed were approximately $3,055,000, $3,050,000 and
$2,345,000 in 1995, 1994, and 1993, respectively.
26
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
j. CURRENCY TRANSLATION
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 Company's consolidated financial statements
include translation gains (losses) of $56,459, ($89,392) and ($93,199) in 1995,
1994 and 1993, respectively, all of which are reflected as a component of
shareholders' equity.
k. NONCASH TRANSACTION
The Company financed the purchase of $348,702 of treasury stock during
1995 by issuing a note payable.
l. USE OF ESTIMATES
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. Actual results could differ from those estimates.
2. DIVIDENDS
The Articles of Incorporation of Universal require that dividends on common
stock be distributed as follows: a) the first approximately $138,000 in
dividends are to be distributed equally to Series A holders and to Series B
holders and, b) the remainder is distributed on an equal per share basis to
Series A and B holders (on a noncumulative basis). These disproportionate
distributions are reflected in calculating the minority interest of Best.
27
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation is provided using the
following straight-line rates:
Buildings 2-1/2%, 3% & 5%
Land Improvements 6-2/3% & 10%
Machinery and equipment 8-1/3%
Tooling 12-1/2% & 20%
Furniture and fixtures 10% to 33%
Vehicles 20% to 50%
A 3-year depreciation life was adopted in 1995 for certain items such as
computers, fax machines, copiers and telephone systems, to reflect a decreased
useful life resulting from accelerating technology changes. Depreciation life
for additions of this type was 5 years in 1994 and years prior. Computer
software is being depreciated using a 5 year life.
Expenditures for property, plant and equipment are reflected as
construction work-in-progress until they are placed into service. The type and
nature of the costs capitalized include only costs from unrelated third parties
for equipment and installation.
Maintenance and repairs are expensed as incurred. Replacements and
betterments which extend the useful life of an asset 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 (loss).
4. INVENTORIES
FIFO cost of inventories approximates replacement cost and exceeds LIFO
inventory by $8,597,000, $7,616,000 and $7,562,000 in 1995, 1994 and 1993,
respectively.
28
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Inventories reflected at LIFO cost were as follows:
DECEMBER 31
-----------
1995 1994 1993
---- ----- ----
Finished goods $ 4,958,614 $ 6,526,239 $ 6,691,204
Work-in-process 6,182,505 7,816,878 7,546,117
Raw materiaL 241,939 235,941 252,207
----------- ----------- -----------
Total Inventory $11,383,058 $14,579,058 $14,489,528
----------- ----------- -----------
----------- ----------- -----------
The cost of materials, direct labor and manufacturing overhead associated
with the production of inventories is included in the valuation of inventory.
During 1995 and 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 1995 and 1993 purchases.
The effect of these liquidations increased net income by approximately $480,000
and $40,000 or $3.87 and $.31 per share of common stock in 1995 and 1993,
respectively.
5. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
YEAR ENDED DECEMBER
-------------------
1995 1994 1993
---- ---- ----
U. S. Federal -
Current $(1,293,028) $ 1,688,594 $ 726,795
Deferred (646,845) (1,847,248) 39,772
Foreign -
Current 203,810 12,880 (49,569)
Deferred 4,902 17,694 36,105
State -
Current (515,232) 462,885 122,590
Deferred (113,008) (139,546) 5,965
------------ ------------ ----------
$(2,359,401) $ 195,259 $ 881,658
------------ ------------ ----------
------------ ------------ ----------
29
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Earnings (loss) before income taxes were as follows:
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
Domestic $(7,060,863) $ 2,335,442 $ 2,063,230
Foreign 496,964 67,972 (32,054)
------------ ----------- -----------
$(6,563,899) $ 2,403,414 $ 2,031,176
------------ ----------- -----------
------------ ----------- -----------
The effective rate of income taxes provided (benefited) varied from the
U.S. Federal statutory rate for the following reasons:
YEAR ENDED DECEMBER 31
----------------------
1995 1994 1993
---- ---- ----
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 (6.3) 8.8 4.0
Foreign tax credit - (27.3) -
Foreign income taxes 0.6 0.3 9.2
Other credits - (10.8) (5.0)
Nondeductible expenses 5.5 5.0 2.1
Other (1.7) (1.9) (.9)
------ ------ ------
Effective rate of tax provided
(benefited) (35.9)% 8.1% 43.4%
------ ------ ------
------ ------ ------
The Company has $816,000 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 Company also has alternative minimum tax credits available to offset
certain future U. S. tax obligations. These credits have no expiration date and
were generated as a result of the carryback of the 1995 net operating loss to
1992 and 1993. The benefit of these credits has been reflected as a reduction
to the provision for income taxes for year ended December 31, 1995.
30
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effect of temporary differences giving rise to the Company's
consolidated current and noncurrent deferred income taxes are as follows:
ASSET (LIABILITY)
------------------
AS OF DECEMBER 31,
------------------
1995 1994
---- ----
Current deferred income taxes :
Vacation accrual $ 768,760 $ 759,511
Inventory capitalized for tax purposes,
expensed for book purposes 209,286 256,711
Current portion of pension and qualified
retirement benefit obligations 625,097 598,462
Restructuring accrual 1,382,926 1,071,003
Medical claims accrual 301,547 248,274
Inventory reserve 119,820 283,475
Current portion of foreign tax credit 307,467 142,609
Current portion of AMT credit 287,037 -
Other 237,638 206,877
----------- -----------
$ 4,239,578 $ 3,566,922
----------- -----------
----------- -----------
Noncurrent deferred income taxes:
Excess tax over book depreciation $(4,366,125) $(4,154,697)
Noncurrent portion of foreign tax credit 508,612 513,391
Noncurrent portion of AMT credit 345,788 -
Noncurrent portion of pension and quali-
fied retirement benefit obligations 1,337,114 1,371,937
Other 53,654 -
----------- -----------
$(2,120,957) $(2,269,369)
----------- -----------
----------- -----------
31
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
7. DEBT
The Company has an agreement with a financial institution for letters of
credit available primarily for issuance to a foreign vendor. At December 31,
1995, the Company had no outstanding letters of credit.
The Company entered into a $25,000,000 line of credit agreement on February
15, 1995, which was amended effective December 31, 1995. The agreement expires
on May 5, 1998 and bears interest at a variable rate, based upon the prime rate
or LIBOR, at the Company's election. The line of credit is secured by a blanket
lien on all accounts and notes receivable, inventory, machinery and equipment,
and intangible assets with a negative pledge on real estate. The agreement
contains financial covenants including those relating to debt service coverage,
tangible net worth, and liabilities to tangible net worth. As of December 31,
1995, the Company was in compliance with all required covenants. The Company
borrowed $12,000,000 under this agreement on February 15, 1995. The highest
amount outstanding during 1995 was $15,300,000. The interest on these
borrowings is based on LIBOR. The interest rate at December 31, 1995 was 7.06%.
Interest expense on the 1995 borrowings was $809,242.
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 1995 and 1994 and $250,000 in 1993, 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 amended plan,
participants, upon reaching certain eligibility requirements, may receive cash
or shares of Lock, Universal and/or Best common stock. 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, 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 consolidated balance sheets as "Common stock and common stock of
Universal and Best, redeemable under Stock Bonus Plan."
On December 28, 1995, Lock purchased all of the common stock of Best held
by the Stock Bonus Plan at an independently appraised value as of December 27,
1995, of $29.74 per share. The purpose of this transaction was to provide
liquidity to the Stock Bonus Plan in anticipation of payments out of the plan
pursuant to the early retirement plan discussed in Note 14.
32
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The fair market value of the shares held by the Stock Bonus Plan at
December 31, 1995, was $5,931,931; however, the Company has calculated the
present value of the potential future cash payments (net of cash held) by the
Company under the Stock Bonus Plan payable in years 1996 through 2021 to be
approximately $350,000. 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 (10,539.19 common shares) and Universal
(27,262 common shares) shares held by the Stock Bonus Plan will not
appreciate or depreciate in future periods.
2) Annual cash dividends per share are assumed to continue to be paid as
follows: Lock $5.41, Universal $1.67. The calculation assumes the
cash dividend received by the Stock Bonus Plan will be available for
cash distributions to retirees from the Plan. Thus, the present value
of the potential future cash payments by the Company has been reduced
by the cash dividends received by the Plan.
3) All payments with the exception of certain known future terminations
are assumed to occur one year after the participant's retirement.
Retirement is assumed to be in the year the participant reaches age
65.
4) The discount rate used to calculate the present value of Lock's
potential future cash payments was 8.25%.
5) It is assumed that an additional $750,000 will be paid out of the Plan
during 1996 and $750,000 will be paid out of the Plan during 2001 as a
result of the early retirement and voluntary separation plan discussed
in Note 14.
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 6% of total sales during 1995
and 7% of total sales during 1994 and 1993.
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's 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
33
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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:
DECEMBER 31
-----------
1995 1994
---- ----
Actuarial present value of the accumu-
lated benefit obligation $7,447,021 $7,246,736
Plan assets at fair value 5,669,032 4,938,080
---------- ----------
Retirement benefit obligation
included in the consolidated
balance sheets $1,777,989 $2,308,656
---------- ----------
---------- ----------
The discount rate used to calculate the actuarial present value of the
accumulated benefit obligation was 8% in 1995 and 1994 and 7.5% in 1993. The
long-term rate of return on plan assets was 8% in 1995 and 1994 and 7.5% in
1993. 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 $340,592 in 1995, $31,842 in 1994 and $865,485 in 1993.
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 1995 and 1994 and 7.5% in 1993) 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 former 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 former
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 $356,758, $1,030,833,
and $365,533 in 1995, 1994 and 1993, respectively. The retirement benefit
obligation for supplemental benefits included in the consolidated balance sheets
totaled $3,035,429 and $3,104,885 at December 31, 1995 and 1994, 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
34
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
years, beginning in 1993. The expenses related to this benefit were $26,380,
$15,817 and $22,721 in 1995, 1994, and 1993, respectively. The retirement
benefit obligation for the RRSP included in the consolidated balance sheets
totaled $39,774 and $35,563 at December 31, 1995 and 1994, 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
1995, 1994 and 1993) of the benefits to be provided under the terms of these
agreements was charged to expense in the amounts of $34,463, $34,359 and $62,379
in 1995, 1994 and 1993, respectively. The retirement benefit obligation for the
Canadian agreements included in the consolidated balance sheets totaled $379,584
and $377,834 at December 31, 1995 and 1994, 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.
A summary of the retirement benefit obligations included in the
consolidated balance sheets is presented below:
1995 1994
---- ----
Defined Benefit Employees
Pension Plan $ 1,777,989 $ 2,308,656
Supplemental Retirement Benefit
Agreements 3,035,429 3,104,885
Registered Retirement Savings
Plan (Canada) 39,774 35,563
Supplemental Retirement Benefit
Agreements (Canada) 379,584 377,834
----------- -----------
$ 5,232,776 $ 5,826,938
----------- -----------
----------- -----------
Current Portion $ 1,362,431 $ 1,381,967
Non-current Portion 3,870,345 4,444,971
----------- -----------
$ 5,232,776 $ 5,826,938
----------- -----------
----------- -----------
The Company implemented a 401(k) profit sharing plan (the 401(k) Plan)
during 1994. Employees are eligible after reaching age 21 and completing one
year of continuous service as of the enrollment dates each year. 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
$571,000 and $221,000 in 1995 and 1994.
35
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
known claims will not have a material adverse impact on the Company's financial
position or results of operations.
The Company leases various office and warehouse facilities and other
vehicles under noncancelable lease arrangements. Lease terms are from one to
ten years and most provide options to renew. Future minimum lease payments
under noncancelable operating leases as of December 31, 1995 are as follows:
Amount
------
1996 $ 636,909
1997 546,014
1998 399,837
1999 183,576
2000-2005 469,425
-----------
$ 2,235,761
-----------
-----------
Rent expense charged to operations totaled $761,024, $852,565 and $935,645
in 1995, 1994, and 1993, respectively.
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 amounts are not being recorded related to
undistributed earnings. The cumulative amounts of undistributed earnings on
which income taxes have not been recognized are as follows:
December 31
-----------
1995 1994
---- ----
Best $26,000,000 $27,200,000
Universal $31,300,000 $35,000,000
Lock $ 1,934,000 $ 1,600,000
36
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. RECLASSIFICATIONS
Certain reclassifications have been made in the consolidated balance
sheets and statements of income (loss) for the years ended December 31, 1994
and 1993 to conform to the current year presentation.
14. RESTRUCTURING
In the fourth quarter of 1995, the Company accrued $3.1 million in
connection with the announcement of a board approved early retirement, voluntary
and involuntary separation plan to reduce the work force by approximately 340
people. The Company plans to reduce payroll-related expenses by consolidating
certain functions in the distribution division and by consolidating or
eliminating certain internal processes in the manufacturing and support
functions. The restructuring charge includes estimated employee-related and
facilities expenses associated with the consolidation and termination of certain
operations and employees. The plan is expected to be substantially completed
during 1996.
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 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, Rich 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 (loss).
On February 15, 1995, Lock purchased for cash an 87% non-voting interest in
a partnership for $5,582,626. The purpose of the partnership, which was newly
formed, is to acquire and hold securities for investment purposes. 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 purchased 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.
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.
37
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
line of credit of $25,000,000 as discussed in Note 7.
The Company accounted for the purchase of the Lock shares and the 87%
partnership interest as treasury stock, which resulted 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 decreased from 27% to 23% and the minority interest of Best decreased
from 22% to 21%.
During 1995, in addition to the above transactions, the Company acquired
shares of Lock, Universal and Best which were accounted for as treasury stock.
This treatment resulted in a reduction to shareholders' equity of Lock of
$5,848,082, Universal of $4,773,932 and Best of $3,869,643. As a result of
these transactions, the minority interest of Universal decreased from 23% to 21%
and the minority interest of Best decreased from 21% to 17%.
15. RELATED PARTY TRANSACTIONS
On May 5, 1994, Lock'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 Lock 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 entered into a split dollar life insurance agreement as of
December 29, 1995 with a trust established by Russell C. Best, pursuant to which
the Company and the trust will share in the premium costs of a whole life
insurance policy that has a face value death benefit of $5,000,000. Under the
agreement, the Company will pay approximately $55,000 each policy year for the
first 15 years of the policy. The Company is not obligated to make its share of
the annual premium. Only the trustee may cancel or surrender the policy. Upon
the death of Mr. Best, the Company will receive the cumulative amount of its
premium payments. Prior to Mr. Best's death and prior to the 30th year of the
policy, upon cancellation or surrender of the policy, the Company will receive
the lesser of its cumulative premium payments or the cash surrender value of the
policy. To the extent the policy is not canceled or surrendered in its first 30
years, the Company will receive its cumulative premium payments in the 30th year
of the policy.
Walter E. Best, former President of the Company, is the President and owns
in excess of 10% of the stock of Best Aircraft Corporation. The Company leased
automobiles from Best Aircraft Corporation, paying $30,030, $183,470 and
$180,656 for such services in 1995, 1994, and 1993, respectively. Larry W.
Rottmeyer, employed during 1994, became a Director and Vice President of the
Company during 1995. Mr. Rottmeyer resigned as a Director on February 26, 1996
and was removed as a Vice President on March 5, 1996. During Mr. Rottmeyer's
employment, he was also a Director and a greater than 10% equity owner of
Marcon, Inc. until June 9, 1995. The Company purchased market research services
from Marcon, Inc., during 1995 and 1994, paying $547,942 and $291,716 for such
services, respectively. Eric M. Fogel, Director from October 30,
38
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1995 until March 1, 1996, is a partner in the law firm of Holleb & Coff. The
Company paid Holleb & Coff $112,221 in 1995 for legal services.
16. REDEMPTION OF BEST UNIVERSAL LOCK CO. STOCK
On July 1, 1995, Universal redeemed all 63 shares of its outstanding
preferred stock at $105 per share plus cumulative dividend, for a total of
$7,056.
17. OUTSTANDING SHARES
The number of outstanding shares of Universal and Best used in the
calculation of earnings per share differs from the number of outstanding shares
shown on the cover page of the 10-K for each of the two companies. The cover
page of the 10-K reflects all shares legally outstanding. The earnings per
share disclosures reflect as treasury stock shares held by subsidiaries of
Universal and Best that are still legally outstanding, in accordance with
generally accepted accounting principles.
39
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, 1995
Collections Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- ----------------------------- ----------- ---------- ----------- ----------- ------------
CORPORATE
Best Universal Lock Co. $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Frank E. Best, Inc. $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CONSOLIDATED (Best Lock
Corporation and Subsidiaries)
Allowance for uncollectible
accounts receivable $ 244,829 $ 117,417 $ 28,522 $ (127,209) $ 263,559
---------- ----------- ---------- ----------- ----------
---------- ----------- ---------- ----------- ----------
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
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, 1994
Collections Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- -------------------------------------- ----------- ----------- ----------- ----------- -----------
CORPORATE
Best Universal Lock Co. $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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
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, 1993
Collections Deductions
Additions of Accounts For Accounts
Balance Charged to Previously Receivable Balance
Description January 1 Income Written off Written off December 31
- -------------------------------- ---------- ----------- ----------- ----------- ------------
CORPORATE
Best Universal Lock Co. $ - $ - $ - $ - $ -
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
Frank E. Best, Inc. $ - $ - $ - $ - $ -
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
CONSOLIDATED (Best Lock
Corporation and Subsidiaries)
Allowance for uncollectible
accounts receivable $ 249,969 $ 503,023 $ 275 $ (403,131) $ 350,136
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
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
This page not used.
43
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 34 Chief Executive Since 1991 12/31/96
Officer, President
and Director
Mariea L. Best 32 Director Since 1995 12/31/96
Gregg A. Dykstra 39 Vice-President Since 1995 12/31/96
and Director
Larry W. Rottmeyer* 40 Vice-President Since 1995 12/31/96
and Director
Eric M. Fogel** 40 Director Since 1995 12/31/96
(b) IDENTIFICATION OF EXECUTIVE OFFICERS.
All Positions Period Served
Expiration and Offices with in such
Name Age Of Office Registrant Position
---- --- --------- ---------- --------
Russell C. Best 34 12/31/96 Chief Executive 1995 (Pres.)
Officer/President 1994 (CEO)
Gregg A. Dykstra 39 12/31/96 Vice President 1995
Larry W. Rottmeyer* 40 12/31/96 Vice-President 1995
Mark G. Ahearn 41 12/31/96 Secretary and 1995
General Counsel
* Larry W. Rottmeyer resigned his Director position effective on February 26,
1996. He was removed as Vice President on March 5, 1996.
** Eric M. Fogel resigned his position effective March 1, 1996.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES.
None.
44
(d) FAMILY RELATIONSHIPS. Mariea L. Best is the spouse of
Russell C. Best.
(e) BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
DURING THE PAST FIVE YEARS.
(1) Russell C. Best, Chief Executive Officer and Director,
has served registrant in the capacity of CEO since May, 1994; Executive Vice
President of registrant from June 1992 to May 1994; Marketing Director of
registrant from 1989-1992; served registrant as Director since June, 1990 and
Chairman of the Board since March, 1995.
Mariea L. Best, Director, has served as a Director of
registrant since 1995; sole shareholder and president of Best Event and Travel,
Inc. from 1991-1994; Special Event Coordinator for Wiersma from 1987-1990.
Gregg A. Dykstra, Vice President/Treasurer and
Director, has served as Vice President of registrant since 1995; Treasurer of
registrant since March 1995; Secretary of registrant from March 1995 to October
1995; General Counsel of registrant from November 1989 to July 1995; served
registrant as Director since 1995.
Larry W. Rottmeyer, Vice President until March 5, 1996
and Director until February 26, 1996, has served as Vice President of registrant
since September 1995; Director of Business Development of registrant from May
1995 to September 1995; Vice President of Marketing of registrant from October
1994 to May 1995; Chief Executive Officer/President for Marcon Corporation, an
independent marketing and research firm, from October 1994 to June 1995; Chief
Executive Officer/President and senior marketing consultant for Marcon
Corporation from August 1987 to October 1994; Director of Reflectix, Inc. since
January 1994; served registrant as Director since 1995 until February 26, 1996.
Eric M. Fogel, Director, has served as Director of
registrant since 1995 until March 1, 1996; partner in law firm of Holleb & Coff,
Chicago, Illinois, since December 1993; associate in law firm of Sonnenschein
Nath & Rosenthal, Chicago, Illinois, from July 1989 to November 1993.
Mark G. Ahearn, General Counsel and Corporate
Secretary, has served registrant as General Counsel since July of 1995;
Secretary since December of 1995; Associate Counsel for registrant since April
1994, Staff Attorney for registrant since August 1992; self employed private
legal practice from July 1991 to August 1992; State Director for United States
Senator Dan Coats of Indiana from January 1989 to June 1991.
(2) Directorships. Russell C. Best, who was a Director of
registrant through December 31, 1995, was also a Director of Frank E. Best,
Inc. and Best Universal Lock Co. through December 31, 1995. Mariea L. Best,
Gregg A. Dykstra, Larry W. Rottmeyer and Eric M. Fogel became Directors of
registrant, Frank E. Best, Inc. and Best Universal Lock Co. in 1995.
(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
45
competent jurisdiction, permanently or temporarily enjoining such director from
acting as an 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 subsidiary during the
fiscal years ended December 31, 1995, 1994 and 1993.
(b) SUMMARY COMPENSATION TABLE
Name & Principal
----------------
Position Year Total Salary(3) Total Bonus(4) Total Other(5)
-------- ---- --------------- -------------- --------------
Russell C. Best 1995 $ 597,745 $ 0 $ 96,487
Chief Executive Officer 1994 406,657 343,665 13,562
1993 250,705 1,779 12,076
Gregg A. Dykstra 1995 260,687 100,000 9,581
Vice-President 1994 155,832 11,475 7,760
1993 147,148 1,779 8,515
Larry W. Rottmeyer(1) 1995 273,986 100,000 10,565
Vice-President 1994 41,539 270 43
1993 0 0 0
Walter E. Best(2) 1995 873,276 0 3,731
Chairman and President 1994 444,965 3,665 11,550
1993 435,668 1,779 11,637
Richard E. Best(2) 1995 467,112 0 33,224
Vice-President 1994 214,343 1,300 13,196
1993 212,374 1,779 15,087
(1) Removed as an officer March 5, 1996
(2) Resigned effective February 15, 1995
(3) In the case of Russell C. Best, the salary amount for 1995 includes $7,867
in taxes paid by the Company on the value of a trip paid by the Company. In the
case of Gregg A. Dykstra, the salary amount for 1995 includes an auto stipend of
$11,577. The 1995 salary amount for Gregg A. Dykstra also includes an amount
equal to $80,033 as a retroactive base pay adjustment for 1995 which was paid in
1996. In the case of Larry W. Rottmeyer, the salary amount for 1995 includes an
auto stipend of $17,300 and $7,228 in taxes paid by the Company on the value of
a trip paid by the Company. The 1995 salary amount for Larry W. Rottmeyer also
includes an amount equal to $64,584 as a retroactive base pay adjustment for
1995 which was paid in 1996. In the case of Walter E. Best, the salary amount
for 1995 includes $121,275 paid pursuant to a supplemental retirement agreement,
$500,000 paid as severance, $9,000 paid as consulting fees, and $4,250 in
46
tax return preparation fees. In the case of Richard E. Best, the salary amount
for 1995 includes $423,381 paid as severance and $1,770 in tax return
preparation fees.
(4) In 1995, the bonus payments were discretionary and were paid in 1996 in
recognition of services provided in 1995. In the case of Russell C. Best, the
bonus amount for 1994 includes an amount equal to $340,000 in recognition of
services provided in calendar year 1994, payable in accordance with the
employment agreement with Russell C. Best. In 1994, the bonus payments consisted
of a flat base amount plus a percentage based on the employee's achievement of
certain business objectives. In 1993, the bonus payments were flat amounts.
(5) In the case of Russell C. Best, this amount includes the value of group
term life premiums in excess of $50,000 ($920, $459, and $213 respectively, in
1995, 1994 and 1993), the annual lease value of his company vehicle ($16,449,
$12,316, and $9,583 respectively, in 1995, 1994 and 1993), the amount paid by
the Company for tax return preparation and legal fees on his behalf ($14,882,
$787 and $530 respectively in 1995, 1994 and 1993), contributions by the Company
to the 401(k) plan on his behalf ($3,000 in 1995), $1,750 contributed by the
Company to the Best Lock Corporation Stock Bonus Plan, a defined contribution
plan, on his behalf in 1993, $317 in disability insurance premiums paid on his
behalf in 1995, $547 in spousal travel paid by the Company in 1995, $11,205 in
value of a trip paid by the Company in 1995, and for 1995, $49,168 reflecting
the present value of the economic benefit of the portion of a split dollar life
insurance premium paid by the Company, based on the time period between the date
the premium was paid and December 29, 2025, the earliest date the Company could
receive a refund, without interest, of the premium paid. In the case of Gregg
A. Dykstra, this amount includes the value of group term life premiums in excess
of $50,000 ($149, $218, and $185 respectively, in 1995, 1994 and 1993), the
annual lease value of his company vehicle ($6,100, $6,100, and $5,517
respectively, in 1995, 1994 and 1993), the value of spousal travel paid by the
Company ($332 in 1995 and $1,339 in 1993), the amount paid by the Company for
tax return preparation fees on his behalf ($375 in 1994 and 1993), contributions
by the Company to the 401(k) plan on his behalf ($3,000 and $1,067 respectively
in 1995 and 1994), and $1,099 contributed by the Company to the Best Lock
Corporation Stock Bonus Plan, a defined contribution plan, on his behalf in
1993. In the case of Larry W. Rottmeyer, this amount includes the value of
group term life premiums in excess of $50,000 ($190 and $43 respectively, in
1995 and 1994), $332 in spousal travel paid by the Company in 1995, and $10,043
in value of a trip paid by the Company in 1995. In the case of Walter E. Best,
this amount includes the annual lease value of his company vehicle ($731,
$5,850, and $5,850 respectively, in 1995, 1994 and 1993), the amount paid by the
Company for tax return preparation fees on his behalf ($4,250 and $3,970
respectively, in 1994 and 1993), contributions by the Company to the 401(k) plan
on his behalf ($3,000 and $1,450 respectively in 1995 and 1994), and $1,817
contributed by the Company to the Best Lock Corporation Stock Bonus Plan, a
defined contribution plan, on his behalf in 1993. In the case of Richard E.
Best, this amount includes the value of group term life premiums in excess of
$50,000 ($64, $276, and $209 respectively, in 1995, 1994 and 1993), the annual
lease value of his company vehicle ($1,469, $11,750, and $11,750 respectively,
in 1995, 1994 and 1993), the amount paid by the Company for tax return
preparation fees on his behalf ($1,170 and $970 respectively, in 1994 and 1993),
$572 in spousal travel paid by the Company in 1993, $28,691 in principal and
interest of loans made by the Company to Richard E. Best which were forgiven in
1995, contributions by the Company to the 401(k) plan on his behalf ($3,000 in
1995), and $1,587 contributed by the Company to the Best Lock Corporation Stock
Bonus Plan, a defined contribution plan, on his behalf in 1993.
(c) 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 Registrant to the plan are made upon the authority
47
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 Summary Compensation Table are less than $50,000 in
each year presented.
(2) Russell C. Best, along with other employees,
participates in a qualified noncontributory defined benefit pension plan
approved by the 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. The monthly benefit payable to Russell C. Best
under this plan is $490.
(d)(e)(f) OTHER COMPENSATION. There was no other compensation
paid to the named individuals exceeding 10% of the compensation reported for
such individual.
(g) COMPENSATION OF DIRECTORS. Directors are paid $25,000 per
calendar year for services rendered, effective April 1, 1995.
(h) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENT. On May 5, 1994, the registrant 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 the
Corporation. 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 per 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
the Company, 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 the
Company 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 proceeds and
certain shares of Best Universal Lock Co. owned by Russell C. Best. Such shares
will be released from this pledge pro rata as the principal of the loan is
repaid to the Company.
The Agreement also provides severance benefits in the event of
termination of employment under certain circumstances. In the event of
termination of employment by the Company 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 the Company 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, the
Company loaned $3,400,000 to Russell C. Best pursuant to the terms of a Loan
Agreement dated
48
May 5, 1994, to which the Company 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 Summary Compensation Table, resulting from the individual's
resignation, retirement, or any changes following a change in control of the
registrant.
(i) 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 February 9, 1996:
49
Title of Name and Type of Amount Percent
Class Address Ownership Owned Of Class
- -------------------------------------------------------------------------------
Common stock, Russell C. Best Of Record 97,243.34 80%
no par value c/o Best Lock Corporation and Shares
P. O. Box 50444 Beneficial
Indianapolis,
Indiana 46250
Common stock, Best Universal Of Record 95,556.34 79%
no par value Lock Co., Shares
c/o Best Lock Corporation
P. O. Box 50444
Indianapolis,
Indiana 46250
Common stock, The NBD Bank, N.A. As Trustee 10,537.19 9%
no par value One Indiana Square, for Stock Shares
Indianapolis, Bonus Plan
Indiana 46204
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following information is given
as of February 9, 1996:
Amount Percent
Title Of Class Beneficially Owned Of Class
-------------- ------------------ --------
Common stock, $1 par value, of Frank E.
Best, Inc., (registrant's parent)
(Owned by Russell C. Best, Director and
President) 463,139.00 (1) 70%
(Owned by Mariea L. Best, Director and 1.00 0%
Vice President)
(Owned by Gregg A. Dykstra, Director
and Secretary) 1.00 0%
(Owned by Directors and Officers of regis-
trant, as a group, 3 in number) 463,141.00 70%
Series A, common stock, no par value, of Best
Universal Lock Co., (registrant's parent)
(Owned by Russell C. Best, Director and
President) 56,261.00 (2) 56%
(Owned by Mariea L. Best, Director and
Vice President) 1.00 0%
50
(Owned by Gregg A. Dykstra, Director and
Secretary) 27,263.00 (2) 40%
(Owned by Larry W. Rottmeyer, Director) 27,262.00 (2) 40%
(Owned by Directors and Officers of the
registrant, as a group, 3 in number) 56,263.00 56%
Series B, common stock, no par value, of Best
Universal Lock Co., (registrant's parent)
(Owned by Russell C. Best, Director and
President) 300,000.00 (3) 100%
Common stock, no par value, of registrant
(Owned by Russell C. Best, Director and
President) 107,779.53 (4) 89%
(Owned by Mariea L. Best, Director) 1.00 0%
(Owned by Gregg A. Dykstra, Director and
Vice President) 10,537.19 (4) 9%
(Owned by Larry W. Rottmeyer, Director and
Vice President) 10,537.19 (4) 9%
(Owned by Directors and Officers of the
registrant, as a group, 2 in number) 107,780.53 89%
(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 power to
dispose of 145,775 shares held by Best Lock Corporation.
(2) 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, 8,787 shares owned
by Best Lock Partnership and his power to dispose of 18,085 shares held
by Best Lock Corporation), and shared power to direct the disposition of
27,262 shares held by the Best Lock Corporation Stock Bonus Plan.
(3) 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.
(4) 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 Best Universal Lock Co., of which he has voting control), and
shared power to direct the disposition of 10,537.19 shares held by the Best
Lock Corporation Stock Bonus Plan.
(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.
51
(d) SECTION 16(A) REPORTING DELINQUENCIES. Based solely upon a
review of Forms 3 and 4 and amendments thereto provided to the Corporation
during the most recent fiscal year and Form 5 and amendments thereto furnished
to the Corporation with respect to its most recent fiscal year and written
representations from its directors, officers and more than 10% shareholders, the
following sets forth certain information concerning Section 16(a) reporting
delinquencies by the above-referenced persons during the Corporation's most
recently completed fiscal year.
With respect to Section 16(a) of the Exchange Act, the
following insider filings were delinquent: Mark G. Ahearn, Form 3; Mariea L.
Best, Form 3; Gregg A. Dykstra, Form 3; Eric M. Fogel, Form 3; and Larry W.
Rottmeyer, Form 3.
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 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, former
President of registrant, is the President and owns in excess of 10% of the stock
of Best Aircraft Corporation. The registrant leased automobiles from Best
Aircraft Corporation, paying $30,030, $183,470 and $180,656 for such services in
1995, 1994, and 1993, respectively. Larry W. Rottmeyer, employed during 1994,
became a Director and Vice President of the Company during 1995. Mr. Rottmeyer
resigned as a Director on February 26, 1996 and was removed as a Vice President
on March 5, 1996. During Mr. Rottmeyer's employment, he was also a Director and
a greater than 10% equity owner of Marcon, Inc. until June 9, 1995. Registrant
purchased market research services from Marcon, Inc., during 1995 and 1994,
paying $547,942 and $291,716 for such services, respectively. Eric M. Fogel,
Director from October 30, 1995 until March 1, 1996, is a partner in the law firm
of Holleb & Coff. Registrant paid Holleb & Coff $112,221 in 1995 for legal
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, 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 of registrant unconsolidated are
omitted because (1) consolidated financial statements are included; and (2)
registrant is an operating company and the subsidiary included in the
consolidated financial statements is totally-held.
52
All required financial statements and schedules are either
included in Item 8 of this Form 10-K or are omitted because the required
information is included in the financial statements or in the notes thereto.
(b) REPORTS ON FORM 8-K: None filed in last quarter of 1995.
53
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 30, 1996
BEST LOCK CORPORATION
By: /S/ RUSSELL C. BEST By: /S/ GREGG A. DYKSTRA
------------------- --------------------
Russell C. Best Vice President
Chief Executive Officer and Director
and Director
By: /S/ PAULA J. TINKEY
-------------------
Controller
Principal Accounting Officer
54
INDEX TO EXHIBITS
EXHIBIT
10(a) Credit Agreement
10(b) Split Dollar Insurance Agreement
21 Subsidiaries (incorporated by reference in Note 1 to the consolidated
financial statements)
55