- ------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-1490
FRANK E. BEST, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1142810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 50444, INDIANAPOLIS,INDIANA 46250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 849-2250
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No
Indicate the number of shares outstanding of each of the registrant's classes
of common, as of October 25, 1996.
COMMON STOCK 598,710 SHARES
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INDEX
-----
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
three months ended September 30, 1996 and 1995 3
Condensed Consolidated Statements of Income for
the nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets at September 30,
1996 and December 31, 1995 5-6
Condensed Consolidated Statements of Shareholders' Equity
at September 30, 1996 and December 31, 1995 7
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
2
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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended September 30
-------------------------------
1996 1995
------------ -------------
NET SALES $32,076,158 $32,843,190
OPERATING EXPENSES
Cost of goods sold 17,415,473 19,686,845
Selling 8,243,313 8,248,008
General and administrative 3,161,452 4,228,566
Engineering, research and development 187,269 645,764
---------- ----------
Total operating expenses 29,007,507 32,809,183
---------- ----------
OPERATING INCOME 3,068,631 34,007
Interest expense (311,428) (227,767)
Other income, net 138,811 69,764
---------- ----------
INCOME (LOSS) before provision for income taxes 2,896,034 (123,996)
Provision (benefit) for income taxes 1,222,777 (47,878)
---------- ----------
NET INCOME (LOSS), Best Lock Corporation
and Subsidiary 1,673,257 (76,118)
Minority interest in net (income) loss, Best
Lock Corporation and Subsidiary (358,947) 292
Corporate - Best Universal Lock Co. expense (6,320) (90)
---------- ----------
NET INCOME (LOSS), Best Universal Lock Co.
and Subsidiaries 1,307,990 (75,916)
Minority interest in net (income) loss,
Best Universal Lock Co. and Subsidiaries (220,229) 15,146
Corporate - Frank E. Best, Inc. income
(expense) 23,029 (77)
---------- ----------
NET INCOME (LOSS), Frank E. Best, Inc.
and Subsidiaries $1,110,790 $ (60,847)
---------- ----------
---------- ----------
Best Universal Lock Co.
Best Lock ------------------------ Frank E.
Corporation Series A Series B Best, Inc.
----------- --------- -------- ----------
Earnings (loss) per common share, three months ended:
September 30, 1996 $ 13.75 $ 3.63 $ 3.63 $ 2.65
----------- ---------- -------- ----------
----------- ---------- -------- ----------
September 30, 1995 $ (0.62) $ (0.20) $ (0.20) $ (0.15)
----------- ---------- -------- ----------
----------- ---------- -------- ----------
Weighted average shares outstanding, three months
ended:
September 30, 1996 121,653.85 60,739.31 300,000.00 418,457.89
---------- --------- ---------- ----------
---------- --------- ---------- ----------
September 30, 1995 122,797.47 78,498.31 300,000.00 418,457.89
---------- --------- ---------- ----------
---------- --------- ---------- ----------
See accompanying notes to condensed consolidated financial statements.
3
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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
1996 1995
------------- -------------
NET SALES $ 89,774,150 $ 91,081,063
OPERATING EXPENSES
Cost of goods sold 48,759,004 51,812,946
Selling 24,627,655 22,296,814
General and administrative 12,462,346 13,057,524
Engineering, research and development 826,862 1,862,879
------------- -------------
Total operating expenses 86,675,867 89,030,163
------------- -------------
OPERATING INCOME 3,098,283 2,050,900
Interest expense (889,946) (590,605)
Other income, net 253,803 306,516
------------- -------------
INCOME before provision for income taxes 2,462,140 1,766,811
Provision for income taxes 1,136,968 722,143
------------- -------------
NET INCOME, Best Lock Corporation and
Subsidiary 1,325,172 1,044,668
Minority interest in net income, Best
Lock Corporation and Subsidiary (284,184) (213,716)
Corporate - Best Universal Lock Co.
expense (34,948) (10,492)
------------- -------------
NET INCOME, Best Universal Lock Co. and
Subsidiaries 1,006,040 820,460
Minority interest in net income, Best
Universal Lock Co. and Subsidiaries (169,392) (230,191)
Corporate - Frank E. Best, Inc.
income (expense) 54,136 (12,479)
------------- -------------
NET INCOME, Frank E. Best, Inc. and
Subsidiaries $ 890,784 $ 577,790
------------- -------------
------------- -------------
Best Universal Lock Co.
Best Lock ------------------------ Frank E.
Corporation Series A Series B Best, Inc.
----------- --------- -------- ----------
Earnings per common share, nine months ended:
September 30, 1996 $ 10.89 $ 2.79 $ 2.79 $ 2.13
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
September 30, 1995 $ 8.36 $ 2.16 $ 2.16 $ 1.28
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Weighted average shares outstanding, nine months ended:
September 30, 1996 121,653.85 60,739.31 300,000.00 418,457.89
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
September 30, 1995 124,943.23 79,985.85 300,000.00 450,038.27
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
See accompanying notes to condensed consolidated financial statements.
4
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
- ------------------------------------------------------------------------------
September 30 December 31
1996 1995
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 3,084,850 $ 1,413,372
Trade receivables:
Direct 14,325,636 11,878,119
Sales representatives and other 3,371,290 1,893,871
Allowance for uncollectible accounts (233,320) (263,559)
Estimated refundable income taxes - 2,628,103
Current portion of notes receivable 12,181 14,895
Inventories 11,679,506 11,383,058
Prepaid income taxes 4,468,905 4,239,578
Other prepaid expenses 180,575 379,906
------------ ----------
Total current assets 36,889,623 33,567,343
------------ ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and buildings 13,843,894 14,037,266
Machinery and equipment 27,972,248 28,694,247
Tooling 8,703,041 8,423,818
Furniture, fixtures and other 13,272,773 9,927,645
Construction work-in-progress 188,462 2,473,290
------------ ----------
63,980,418 63,556,266
Less - accumulated depreciation (36,852,349) (33,734,786)
------------ ----------
Total property, plant and equipment 27,128,069 29,821,480
------------ ----------
OTHER ASSETS
Long-term notes receivable 3,358,972 3,358,972
Other assets 898,300 1,084,300
------------ ----------
Total assets $ 68,274,964 $ 67,832,095
------------ ----------
------------ ----------
See accompanying notes to condensed consolidated financial statements.
5
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
- ------------------------------------------------------------------------------
September 30 December 31
1996 1995
------------ -----------
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 2,500 $ 2,500
Current portion of retirement benefit obligations 1,331,663 1,362,431
Accounts payable 3,267,906 3,517,797
Customer advances 1,712,459 1,433,801
Accrued liabilities:
Income taxes 879,609 478,185
Property and other taxes 1,275,449 976,765
Payroll and vacation pay 3,406,512 5,195,317
Accrued severance 1,619,080 3,462,508
Other 2,118,884 219,252
----------- ----------
Total current liabilities 15,614,062 16,648,556
----------- ----------
LONG-TERM DEBT 15,816,236 15,197,079
RETIREMENT BENEFIT OBLIGATION 2,819,090 3,870,345
DEFERRED INCOME TAXES 2,586,843 2,120,957
----------- ----------
Total liabilities 36,836,231 37,836,937
----------- ----------
MINORITY INTEREST IN SUBSIDIARIES 15,110,079 14,503,728
----------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 600,000 shares
authorized; 598,710 shares issued 598,710 598,710
Capital surplus 77,972 77,972
----------- ----------
Total capital stock 676,682 676,682
Accumulated earnings 24,771,654 23,880,870
Cumulative translation adjustment (142,313) (88,753)
Treasury stock (8,977,369) (8,977,369)
----------- ----------
Total shareholders' equity 16,328,654 15,491,430
----------- ----------
Total liabilities and shareholders' equity $ 68,274,964 $ 67,832,095
----------- ----------
----------- ----------
See accompanying notes to condensed consolidated financial statements.
6
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
- ------------------------------------------------------------------------------
September 30 December 31
1996 1995
------------ -----------
COMMON STOCK, $1 par value, 600,000 shares
authorized; 598,710 shares issued $ 598,710 $ 598,710
CAPITAL SURPLUS 77,972 77,972
----------- -----------
Total capital stock 676,682 676,682
----------- -----------
ACCUMULATED EARNINGS
Balance at beginning of year 23,880,870 27,491,946
Net income (loss) - (nine months ended September 30, 1996
and twelve months ended December 31, 1995) 890,784 (3,255,138)
Cash dividends - (317,316)
Difference between dividends of Series A and
Series B common shareholders of Best Universal
Lock Co. - (38,622)
----------- -----------
Balance at end of year 24,771,654 23,880,870
----------- -----------
CUMULATIVE TRANSLATION ADJUSTMENT (142,313) (88,753)
----------- -----------
TREASURY STOCK
Balance at beginning of year (8,977,369) -
Shares purchased - (8,977,369)
----------- -----------
Balance at end of period (8,977,369) (8,977,369)
----------- -----------
Total shareholders' equity $ 16,328,654 $ 15,491,430
----------- -----------
----------- -----------
Cash dividends per share: $ - $ 0.53
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
7
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
1996 1995
--------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 85,854,082 $ 88,087,728
Cash paid to suppliers and employees (85,083,302) (88,958,826)
Interest received 148,805 298,324
Interest paid (964,382) (225,301)
Income taxes (paid) refunded 2,134,073 (1,563,424)
------------ -----------
Net cash provided (used) by operating activities 2,089,276 (2,361,499)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 55,085 16,061
Capital expenditures (1,054,202) (4,496,903)
Net cash used in investing activities (999,117) (4,480,842)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings against line of credit 26,200,000 13,700,000
Payments on line of credit (25,580,843) -
Other borrowings - 232,472
Purchase of treasury stock - (9,353,984)
Redemption of Universal preferred stock - (6,300)
Dividends paid - Universal preferred stock - (441)
Premium paid on redemption of Universal preferred stock - (315)
------------ -----------
Net cash provided by financing activities 619,157 4,571,432
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (37,839) 19,968
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,671,477 (2,250,941)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,413,373 4,843,579
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,084,850 $ 2,592,638
------------ -----------
------------ -----------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 890,784 $ 577,790
Adjustments-
Depreciation and amortization 4,093,635 3,572,293
Provision for losses on accounts receivable 81,972 98,618
Loss on sale of property, plant and equipment 41,811 30,966
Changes in assets and liabilities- 453,576 443,907
(Increase) decrease in:
Accounts and notes receivable (4,067,711) (3,388,405)
Refundable income taxes 2,628,103 (882,869)
Inventories (327,909) 769,021
Prepaid income taxes and other expenses (29,996) 418,617
Other assets (230,860) (1,340,708)
Increase (decrease) in:
Accounts payable, customer advances and accrued liabilities (1,239,372) (1,481,608)
Income taxes payable 411,380 (582,562)
Deferred income taxes 465,886 229,982
Retirement benefit and benefit obligation (1,082,023) (826,541)
------------ -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 2,089,276 $ (2,361,499)
------------ -----------
------------ -----------
See accompanying notes to condensed consolidated financial statements.
8
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have not been
audited by independent accountants. In the opinion of the Company's
management, the financial statements reflect all adjustments necessary to
fairly present the results of operations for the three and nine month periods
ended September 30, 1996 and 1995, the Company's financial position at
September 30, 1996 and December 31, 1995, and the cash flows for the
nine-month periods ended September 30, 1996 and 1995. These adjustments are
of a normal recurring nature.
Certain notes and other information have been omitted from the interim
financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1995 Form 10-K.
The results for the three and nine months ended September 30, 1996 are not
necessarily indicative of future financial results.
The condensed consolidated financial statements for each parent Company in
the Best Lock Companies (the Company) include their respective subsidiaries
as indicated below:
Percent Owned
Parent Company Subsidiaries As of September 30, 1996
-------------- ------------ ------------------------
Frank E. Best, Inc. Best Universal Lock Co. 83%
(Best)
Best Universal Lock Best Lock Corporation 79%
Co. (Universal)
Best Lock Best Universal Locks Limited (Canada) 100%
Corporation (Lock or the Company)
2. INCOME TAXES
The effective tax rate for the third quarter of 1996 was 42.2 percent
compared with (38.6) percent for the third quarter of 1995 and the effective
tax rates for the nine months ended September 30, 1996 and 1995 were 46.2
percent and 40.9 percent, respectively. The change for all periods presented
is due to an increase in state tax expense.
9
3. FINANCING ARRANGEMENTS
The Company entered into a $25.0 million line of credit agreement on
February 15, 1995, which was amended 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, liabilities to tangible net worth, and tangible net
worth, the most restrictive of which relates to tangible net worth. As of
September 30, 1996 the Company was in compliance with all required covenants.
The covenants require tangible net worth (shareholder equity less certain
intangible assets and related party receivables) to increase to $23.5 million
by December 31, 1996 and to $28.5 million by December 31, 1997. At
September 30, 1996, tangible net worth was $22.3 million.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the statements of income and
balance sheet for the prior periods to conform to the current period
presentation.
5. RESTRUCTURING
During 1995, the Company recorded a restructuring charge of $3.1 million
in connection with the announcement of a board approved early retirement,
voluntary and involuntary separation plan. The Company's plan was to reduce
the number of employees in all divisions and centralize certain functions in
the distribution division.
As of September 30, 1996, 63 employees had separated or agreed to
separate under the voluntary separation or early retirement provisions of the
plan. In conjunction with the acceptances, the Company accrued approximately
an additional $1 million in restructuring expenses during the first quarter
of 1996, due to the additional expenses associated with voluntary separation
and early retirement. The total number of anticipated separations was
reduced during the first quarter from 340 in the original plan to 193,
resulting in an approximate $1 million reduction in the reserve. In the
third quarter of 1996, the Company made additional changes to the plan, which
reduced the number of anticipated separations from 193 to 63 and reduced the
restructuring reserve by approximately $800 thousand. The number of
anticipated separations was reduced due to a change in the management of the
sales and marketing areas of the company, which resulted in a revision to the
plan to eliminate positions in those areas.
6. SUBSEQUENT EVENT
On November 12, 1996, Lock purchased 1,000 shares of its common stock for
$395.00 per share, 1,102 shares of the common stock of Universal for $67.68
per share, and 3,000 shares of the common stock of Best for $30.13 per share
from a shareholder. In addition, on such date, each of Lock, Universal, Best
and the shareholder entered into a seven year Release Agreement whereby the
parties mutually released each other from any claims, and whereby the
shareholder, on behalf of itself and its affiliates, agreed not to purchase
shares in or take any action with respect to the governance or operations of
any of Lock, Universal or Best.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since Frank E. Best, Inc. and Best Universal Lock Co. are non-operating
parents of Best Lock Corporation, a discussion of Best Lock Corporation's
business is necessary in order to understand the character and development of
the total enterprise. As the variations between the financial statements of
these three companies are not significant, the discussion and analysis of
Best Lock Corporation is representative of all. The following, therefore, is
a discussion of the business of Best Lock Corporation (the Company).
ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Sales for the third quarter of 1996 were $800 thousand, or 2.3%, lower than
the same period of 1995. The majority of the decrease was in sales from the
manufacturing division (BLM) to independent distributors and Authorized
Contract Construction Dealers. During the third quarter of 1995, the backlog
of unshipped orders at BLM was reduced significantly, which accounted for
approximately $1.7 million in sales. Sales from the distribution division
(BLS) to end customers in the third quarter of 1996 were also slightly lower
than the third quarter of 1995.
The gross profit on sales for the third quarter of 1996 improved by $1.5
million to 45.7% of sales, compared to 40.1% for the same period of 1995.
Salaries, wages and fringe benefits in the cost of goods sold decreased $790
thousand from the comparable period of 1995, mainly due to the lower
headcount from separation packages offered in the indirect labor areas and
lower overall fringe benefit costs. Changes implemented during the first
quarter of 1996 to reduce inefficiencies involving the production costs of
the Company's lever-handle cylindrical lock also contributed to the
improvement in the gross profit. During the third quarter of 1996, the
Company discovered that mortise locksets manufactured since December of 1995
did not meet stated standards and could, in certain situations, cause a
security breach. A $1.1 million increase in product service expense for the
estimated material, labor, and travel costs to replace certain parts in the
defective locksets was recorded during the third quarter of 1996. Margins
improved in the distribution division during the third quarter of 1996
compared to 1995, due to a price increase implemented by the Company during
the quarter.
Operating income for the three months ended September 30, 1996 increased by
$3.0 million over the three months ended September 30, 1995 to 9.6% of sales,
due to the improved gross profit and reduced selling, general and
administrative, and engineering expenses. Third quarter selling, general and
administrative, and engineering expenses were $1.5 million lower than the
third quarter of 1995. During the third quarter of 1996, the Company revised
the number of separations anticipated to be offered under the plan that was
approved in the fourth quarter of 1995. This revision reduced general and
administrative expenses during the third quarter of 1996 by $800 thousand.
The reduction in fringe benefit costs that helped to improve the gross profit
also accounted for most of the remaining decrease in selling, general and
administrative, and engineering expenses for the quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Due to the strong sales performance during the third quarter of 1995 and
sluggish sales during the first quarter of 1996, sales for the nine months
ended September 30, 1996 were $1.3 million lower than the prior year. The
gross profit on sales for the nine months ended September 30, 1996 improved
by $1.7 million to 45.7% of sales, compared to 43.1% for the same period of
1995. Salaries, wages and fringe benefits in the cost of goods sold decreased
approximately $1 million from the comparable period of 1995, mainly due to
the lower headcount from separation packages offered in the indirect labor
areas and lower overall fringe benefit costs. Changes implemented during the
first quarter of 1996 to reduce inefficiencies involving the production costs
of the Company's lever-handle cylindrical lock contributed approximately $590
thousand to the improvement in the gross profit for the nine months. During
the third quarter of 1996, the Company discovered that mortise locksets
manufactured since December of 1995 did not meet stated standards and could,
in certain situations, cause a security breach. A $1.1 million increase in
product service expense for the estimated material, labor, and travel costs
to replace certain parts in the defective locksets was recorded during the
third quarter of 1996.
11
For the nine months ended September 30, 1996, selling, general and
administrative, and engineering expenses were $700 thousand higher than the
prior year. Salaries, wages and fringe benefits in the distribution division
were $1.1 million higher in 1996 than the comparable period of 1995, which
accounted for the majority of the increase. These increases are attributable
to expanded service and installation operations, as well as expenses
associated with the establishment of an electronics distribution operation.
During the third quarter of 1996, the Company revised the number of
separations anticipated to be offered under the plan that was approved in the
fourth quarter of 1995. This revision reduced general and administrative
expenses during the third quarter of 1996 by $800 thousand. Operating income
for the nine months ended September 30, 1996 increased $1.0 million from the
same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity continues to be strong at September 30, 1996, due to
the availability of approximately $9 million on the line of credit. Working
capital increased by approximately $4.4 million, mainly due to increased
accounts receivable at September 30, 1996. Refundable income taxes decreased
$2.6 million from December 31, 1995 to September 30, 1996 due to the receipt
of 1995 estimated tax overpayments and carryback claims. The current ratio
improved from 2.0:1 at December 31, 1995 to 2.4:1 at September 30, due to
positive cash flow from operations. Inventory turns for the first nine
months of 1996 were 5.5, which is comparable to the same period in 1995.
Inventory levels at September 30, 1996 have been relatively unchanged since
December 31, 1995.
Capital expenditures for the first nine months of 1996 were approximately
$1.1 million. Capital spending is projected to total approximately $1.5-$2.0
million for the year. The Company plans to meet its 1996 working capital and
capital expenditure requirements through funds from operations and from its
existing credit facility. The Company also plans to meet all required bank
covenants through results of operations.
12
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Form 10-K for the year ended
December 31, 1995. There have been no new legal proceedings initiated during
the quarter, nor has there been a change in status or termination of any
previously reported legal proceeding.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRANK E. BEST, INC.
-------------------
(Registrant)
Date: NOVEMBER 14, 1996 By: /s/ STEPHEN J. COOPER
---------------------
Treasurer
/s/ PAULA J. TINKEY
---------------------
Controller
14