FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file no. 2-27393
NOLAND COMPANY
A Virginia Corporation IRS Identification #54-0320170
2700 Warwick Boulevard
Newport News, Virginia 23607
Telephone: (804) 928-9000
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock $10 Par Value
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 [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1994, was approximately $29,776,317.
3,700,876 shares of the Registrant's Common Stock were outstanding at the close
of business on March 15, 1994.
DOCUMENTS (or portions thereof) INCORPORATED BY REFERENCE
Part of
Document Form 10-K
Annual Report to Stockholders for the year ended Parts II and IV
December 31, 1993
Noland Company Proxy Statement for April 20, 1994, Parts III and IV
Annual Meeting of Stockholders
This report contains 42 pages. The exhibit index is shown on page 17 of this
10-K.
PART I
Item 1 Business
(1) (a) A Virginia corporation founded in 1915, Noland Company is a
distributor of Plumbing/Heating, Electrical, Industrial and Air
Conditioning/Refrigeration supplies, with branch facilities in
fourteen Southern states.
While most of its sales are wholesale, the Company plays a modest
retail role through product showrooms and other marketing efforts
of certain items. It handles products of over 6,000 vendors and
sells to thousands of customers, largely in the industrial and
construction sectors of the Southern United States. There have
been no significant changes in the Company's methods of operation
during the last five years. However, the growing demand for
computer-based, fully automated procurement systems for MRO
(Maintenance, repair and operating) products is attracting new
business and widening the scope and possibilities for potential
sales growth in this market.
Noland Properties, Inc., a wholly owned subsidiary, holds and
manages the real estate holdings of the Company and acquires sites
and provides facilities to house the Company's various branches as
required.
(b) The Company operates in only one industry segment, the distribution
of mechanical equipment and supplies. Markets for these products
are all areas of construction -- residential, nonresidential
(commercial, institutional, and industrial), and non-building
(highways, sewers, water, and utilities); manufacturing; domestic
water systems; and maintenance/repair/modernization.
(c) During the last five years, the Company has continued to serve
essentially the same markets described in Item 1 (1) (b). Current
plans call for the continuation of this policy. The Company does
not manufacture any products.
(i) Total sales of each class of similar products for
the last five years are as follows:
1993 1992 1991 1990 1989
(In thousands)
Plumbing/Heating $220,879 $225,239 $220,179 $247,805 $265,351
Electrical 43,363 49,090 47,498 57,539 62,860
Industrial 54,099 54,851 52,644 59,442 61,528
Air Conditioning/Refrigeration 84,600 82,906 64,214 63,687 64,890
$402,941 $412,086 $384,535 $428,473 $454,629
Not all branches have all four departments. If a product department does not
exist in a particular branch, any sales of that department's products are
attributed to the department that makes the sale.
(ii) The Company continues to market new products introduced by its
suppliers/manufacturers. None will require the investment of a
material amount of the assets of the Company.
(iii) The Company does not use or market raw materials.
(iv) The Company holds several sales franchises and has produced a
variety of copyrighted materials and systems used in the normal
conduct of its business. It is virtually impossible to dollar-
quantify their significance. None are reflected as assets in the
Company's Balance Sheet. The Company has no patents.
(v) The business in general is seasonal to the extent of the construction
industry it supplies.
(vi) It is the practice of the Company to carry a full line of inventory
items for rapid delivery to customers. At times, advance buying is
necessary to ensure the availability of products for sale. The
Company also extends credit, and this and the necessity for an
adequate supply of merchandise ordinarily absorbs most of the
Company's working capital.
(vii) The Company sells products to many thousands of customers. Although
there is no customer which accounts for 10% or more of the Company's
sales, there are several customers of which the loss of any one could
have a material adverse effect on the Company's business.
(viii)The dollar amount of the Company's backlog of orders believed to be
firm was approximately $29,715,000 at December 31, 1993, and
$30,073,000 at December 31, 1992.
(ix) The portion of the Company's business with the Government and subject
to renegotiation is not considered material.
(x) The wholesale distribution of all products in which the Company is
engaged is highly competitive. Competition results primarily from
price, service and the availability of goods. Industry statistics
indicate that Noland Company is one of the larger companies in its
field.
(xi) Company-sponsored research and development activities expenditures in
1993, 1992 and 1991 were immaterial.
(xii) The Company believes it is in full compliance with Federal, State and
local provisions which have been enacted or adopted regulating the
discharge of materials into the environment. The effects of
compliance are not material with respect to capital expenditures,
earnings and competitive position of the Company. No material capital
expenditures are anticipated for environmental control facilities
during the remainder of the current year and the succeeding year.
(xiii) As of December 31, 1993, the Company employed 1,683 persons.
(d) From its founding in 1915 and continuing through 1993, the Company
confined its operations to the Southern area of the United States.
Item 2 Properties
The main properties of the Company consist of 94 facilities, including
warehouses, offices, showrooms, paved outside storage areas and covered pipe
storage sheds. These are located throughout the South: in Alabama, Arkansas,
Delaware, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina,
South Carolina, Tennessee, Texas, Virginia and West Virginia. Twelve are
held under leases and the remaining eighty-two are owned by the Company.
All but one of the owned properties is free of any related debt. The
executive office of the Company is located at 2700 Warwick Boulevard,
Newport News, Virginia 23607.
In the opinion of management, the aforementioned facilities are suitable for
the purposes for which they are used, are adequate for the needs of the
business and are in continuous use in the day-to-day course of operations.
The Company's policy is to maintain, repair and renovate its properties on a
continuing basis, replacing older structures with new buildings and yard
facilities as the need for such replacement arises. In addition, reference
is made to Note 2 (c), page 16 of the Annual Report to Stockholders filed as
an exhibit hereto, with respect to property excess to current needs.
Item 3 Legal Proceeding
None of material consequence.
Item 4 Submission of Matters to a Vote of Security Holders
None
Additional Item
Executive Officers of the Registrant
Positions and Offices Business Experience
Name Age Held with Registrant During the Past 5 Years
Lloyd U. Noland, III 50 Chairman of the Board, Chief Executive Officer
President and Director of the Registrant.
Donald G. Hurley 61 Vice President-Marketing Chief Marketing Officer.
and Director Previously, Vice
President Manager of
Operations-Select
Branch/Complexes.
A. P. Henderson, Jr. 50 Vice President-Finance Chief Financial Officer
and Director of the Registrant.
Charles A. Harvey 54 Vice President-Corporate Responsible for the
Data Registrant's Corporate
Data Division.
John E. Gullett 52 Vice President-Corporate Responsible for the
Communications Registrant's Corporate
Communications Dept.
James E. Sykes, Jr. 50 Treasurer/Secretary Responsible for Regis-
trant's treasury
functions and
secretarial duties.
William G. Overman 53 Vice President-Purchases Responsible for Corporate
Purchases Division.
Prev. purchasing agent
for plumbing and heating.
Ronald K. Binger 47 Vice President-General Responsible for adminis-
Credit Manager tering the Registrant's
credit related
activites. Previously,
General Credit Manager
(1991-1992), and Manager
Internal Audit
Department.
David E. Gregg 47 Vice President-Manager Responsible for electric-
of Merchandising, al and industrial market-
Electrical/Industrial ing activities. Prev.
Manager of Merchandising,
Plumbing and Heating
(1990-1991) and Complex
Manager.
All executive officers were elected for a term of one year beginning May 1, 1993
and/or until their successors are elected and qualified. None of the executive
officers are related by blood, marriage or adoption. Service has been
continuous since the date elected to their present positions. There are no
arrangements or understandings between any officer and any other person pursuant
to which he was elected an officer. Mr. Noland III has served as an officer
since 1981, Mr. Henderson since 1983, Mr. Harvey since 1980, Mr. Gullett since
1982, Mr. Hurley since 1988, Mr. Overman since 1988 and Mr. Sykes since 1982.
Messrs Binger and Gregg were elected officers during the April 1993 Board of
Directors meeting.
PART II
Item 5 Market for the Registrant's Common Stock and Related Security Holder
Matters
The information set forth on the inside back cover of the Annual Report
to Stockholders contains information concerning the market price of
Noland Company's common stock for the past two years, the number of
holders thereof and the dividend record with respect thereto for the
past two years. This information is incorporated herein by reference.
Item 6 Selected Financial Data
The information set forth under the caption "Ten-Year Review of Selected
Financial Data" relating to sales, net income, total assets, long-term
debt, net income per share and dividends per share for the years 1989
through 1993 is incorporated herein by reference from pages 20 and 21 of
the enclosed Noland Company Annual Report to Stockholders for the year
ended December 31, 1993.
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the above caption is incorporated herein
by reference from pages 10 and 11 of the enclosed Noland Company Annual
Report to Stockholders for the year ended December 31, 1993.
Item 8 Financial Statements and Supplementary Data
The following consolidated financial statements of Noland Company,
included in the Annual Report to Stockholders for the year ended
December 31, 1993, are incorporated herein by reference:
Annual
Report to
Stockholders
(page)
Report of Independent Accountants 12
Consolidated Statement of Income and Retained Earnings--
Years ended December 31, 1993, 1992 and 1991 13
Consolidated Balance Sheet--December 31, 1993, 1992 and 1991 14
Consolidated Statement of Cash Flows --
Years ended December 31, 1993, 1992 and 1991 15
Notes to Consolidated Financial Statements 16-19
Item 9 Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10 Directors and Executive Officers of the Registrant
Data relating to Directors is incorporated herein by reference from
pages 2 and 3 of the 1994 Noland Company Proxy Statement for the April
20, 1994 Annual Meeting of Stockholders.
Data relating to Executive Officers is included in Part I of this
report.
Item 11 Executive Compensation
The information set forth under the caption "Compensation of Executive
Officers" on page 4 of the 1994 Noland Company Proxy Statement for the
April 20, 1994, Annual Meeting of Stockholders is incorporated herein
by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Voting Securities and
Principal Holders Thereof" and "Nominees for Director" on pages 1, 2 and
3 of the 1994 Noland Company Proxy Statement for the April 20, 1994,
Annual Meeting of Stockholders is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
(a) There were no material direct or indirect transactions with
management and others.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements
Included in PART II, Item 8 of this report:
Report of Independent Accountants
Consolidated Statement of Income and Retained
Earnings--Years Ended December 31,
1993, 1992 and 1991
Consolidated Balance Sheet--December 31,
1993, 1992 and 1991
Consolidated Statement of Cash Flows
--Years ended December 31,
1993, 1992 and 1991
Notes to Consolidated Financial Statements
With the exception of the aforementioned information
incorporated by reference and the information in the 1993
Annual Report to Stockholders on the inside back cover and
pages 11, 12, 20 and 21 incorporated in response to Items 5, 6
and 7 in this Form 10-K Annual Report, the 1993 Annual Report
to Stockholders is not to be deemed "filed" as part of this
report.
The individual financial statements of the registrant have not
been filed because consolidated financial statements are
filed. The registrant is an operating company and the
subsidiary is wholly owned.
2. Financial Statement Schedules
Included in PART IV of this report:
For the three years ended December 31, 1993
Form 10-K Page(s)
Schedule V Property and Equipment 10
Schedule VI Accumulated Depreciation and
Amortization of Property and
Equipment 12
Schedule VIII Valuation and Qualifying
Accounts 13
Schedule IX Short-Term Borrowings 14
Other financial statement schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the consolidated
financial statements or notes thereto.
Report of Independent Accountants
on Consolidated Financial Statement schedules 16
3. The exhibits are listed in the Index of Exhibits required by
Item 601 of Regulation S-K at item (c) below.
(b) Reports on Form 8-K
No reports on Form 8-K for the three months ended December 31, 1993,
were required to be filed.
(c) The Index of Exhibits and any required Exhibits are included beginning
at page 17 of this report.
(d) Not applicable.
Item 14(a)(2)
Financial Statement Schedules
FORM 10-K
SCHEDULE V
Noland Company and Subsidiary
Property and Equipment (1)
Column A Column B Column C Column D Column E Column F
Balance at Other Balance at
Beginning Additions Changes End of
Classification of Year at Cost Retirements Add (Deduct) Year
Year ended December 31, 1993
Land $ 12,208,430 $ 254,038 $ - $ (48,837)(2) $ 12,413,631
Buildings 59,614,812 3,363,978 936,385 (36,372)(2) 62,006,033
Equipment & Fixtures 43,848,498 3,862,724 2,753,506 36,372 (2) 44,994,088
Leasehold Improvements 973,065 130,009 - - 1,103,074
Property Excess to Current Needs 2,455,675 - 303,886 48,837 (2) 2,200,626
Total $119,100,480 $ 7,610,749 $3,993,777 $ -0- $122,717,452
Year ended December 31, 1992
Land $ 11,802,280 $ 409,916 $ 7,731 $ 3,965 (2) $ 12,208,430
Buildings 57,984,961 2,034,534 379,651 (25,032)(2) 59,614,812
Equipment & Fixtures 44,313,738 3,668,425 4,177,457 43,792 43,848,498
Leasehold Improvements 960,846 18,897 5,245 (1,433) 973,065
Property Excess to Current Needs 2,450,092 59,837 32,754 (21,500)(2) 2,455,675
Total $117,511,917 $ 6,191,609 $4,602,838 $ (208) $119,100,480
Year ended December 31, 1991
Land $ 12,204,299 $ 476,146 $ 38,102 $ (840,063)(2) $ 11,802,280
Buildings 54,929,813 3,089,618 59,944 25,474 (2) 57,984,961
Equipment & Fixtures 43,560,197 2,978,681 2,225,140 - 44,313,738
Leasehold Improvements 461,237 530,947 31,338 - 960,846
Property Excess to Current Needs 1,698,971 - 63,468 814,589 (2) 2,450,092
Total $112,854,517 $ 7,075,392 $2,417,992 $ -0- $117,511,917
[FN]
See Notes to Schedule V on page 11
FORM 10-K
Notes to Schedule V
(1) For financial reporting purposes, depreciation is computed by the
straight-line method based on estimated useful lives of properties
(e.g., buildings, 40 years; equipment and fixtures, 3-10 years; and
leasehold improvements, over the life of the lease).
For tax reporting purposes, depreciation is computed by the straight-
line method for buildings placed in service after 1986 and by
accelerated methods on buildings placed in service prior to 1987 and
equipment.
Property in excess of current needs consists primarily of land held
for possible future expansion and branch facilities not currently in
use.
(2) Includes reclassifications among the accounts shown. Also includes
reclassification to assets held for resale.
FORM 10-K
SCHEDULE VI
Noland Company and Subsidiary
Accumulated Depreciation and Amortization of Property and Equipment
Column A Column B Column C Column D Column E Column F
Balance at Additions Other Balance at
Beginning Charged to Costs Changes End of
Description of Year and Expenses Retirements Add(Deduct) (1) Year
Year ended December 31, 1993:
Buildings $21,359,847 $ 1,825,990 $ 382,263 $ -0- $22,803,574
Equipment & Fixtures 28,541,525 4,190,078 2,327,219 -0- 30,404,384
Leasehold Improvements 280,006 92,142 - -0- 372,148
Total $50,181,378 $ 6,108,210 $2,709,482 $ -0- $53,580,106
Year ended December 31, 1992:
Buildings $19,683,832 $ 1,773,886 $ 99,270 $ 1,399 $21,359,847
Equipment & Fixtures 27,889,677 4,394,178 3,742,330 - 28,541,525
Leasehold Improvements 197,255 89,395 5,245 (1,399) 280,006
Total $47,770,764 $ 6,257,459 $3,846,845 $ -0- $50,181,378
Year ended December 31, 1991:
Buildings $18,014,149 $ 1,712,517 $ 42,834 $ - $19,683,832
Equipment & Fixtures 25,144,657 4,602,521 1,857,501 - 27,889,677
Leasehold Improvements 166,534 62,059 31,338 - 197,255
Total $43,325,340 $ 6,377,097 $1,931,673 $ - $47,770,764
[FN]
(1) Includes reclassifications among the accounts shown.
FORM 10-K
SCHEDULE VIII
Noland Company and Subsidiary
Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
Balance Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions(2) of Year
Valuation accounts
deducted from assets
to which they apply--
for doubtful accounts
receivable
December 31, 1993 $2,206,442 $ 816,874(1) $ - $2,054,889(3) $ 968,427
December 31, 1992 $2,195,801 $2,799,631(1) $ - $2,788,990 $2,206,442
December 31, 1991 $1,950,218 $3,690,693(1) $ - $3,445,110 $2,195,801
(1) Net of recoveries on bad debts of $524,859 for 1993, $398,345 for 1992, and $222,938 for
1991.
(2) Represents charges for which reserve was previously provided.
(3) Includes $200,000 reserve for final disposition of assets accepted as settlement of debt.
FORM 10-K
SCHEDULE IX
Noland Company and Subsidiary
Short-Term Borrowings
Column A Column B Column C Column D Column E Column F
Weighted
Weighted Maximum Average Average
Category of Average Amount Amount Interest
Aggregate Balance at Interest Outstanding Outstanding Rate
Short-Term End of Rate at During the During the During the
Borrowings Year End of Year(1) Year Year (2) Year (3)
Year ended December 31, 1993 Banks $ 7,000,000 3.48% $ 7,000,000 $ 845,758 3.52%
Year ended December 31, 1992 Banks $ 3,500,000 3.72% $17,800,000 $ 9,221,006 4.08%
Year ended December 31, 1991 Banks $10,000,000 4.80% $12,250,000 $ 6,590,655 6.21%
(1) The Weighted Average Interest Rate at December 31 is the ratio of applicable annual interest expense to the year-end
borrowings.
(2) Computed on the basis of average month-end borrowings.
(3) The Weighted Average Interest Rate during the year is the ratio of applicable interest expense for the year to
weighted average monthly borrowings.
[FN]
Note: The interest rate at December 31, 1993 was 3.48%.
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.
NOLAND COMPANY
March 25, 1994 By Lloyd U. Noland III
Chairman of the Board
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Chairman of the Board,
Lloyd U. Noland, III President and Director March 25, 1994
Lloyd U. Noland, III
Vice President-Finance,
Chief Financial Officer
Arthur P. Henderson, Jr. and Director March 25, 1994
Arthur P. Henderson, Jr.
Vice President-Marketing March 25, 1994
Donald G. Hurley and Director
Donald G. Hurley
James E, Sykes, Jr. Treasurer/Secretary March 25, 1994
James E. Sykes, Jr.
COOPERS & LYBRAND
REPORT OF INDEPENDENT ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
_______________________
Our report on the consolidated financial statements of Noland Company and
Subsidiary has been incorporated by reference in this Form 10-K from page 12
of the 1993 Annual Report to Stockholders of Noland Company. In connection
with our audits of such consolidated financial statements, we have also
audited the related consolidated financial statement schedules listed in Item
14 (a) 2 on page 7 of this Form 10-K.
In our opinion, the consolidated financial statement schedules referred
to above, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND
Newport News, Virginia
March 4, 1994
EXHIBIT INDEX
Exhibit Number Exhibit Page
(3) Articles of Incorporation and Bylaws Previously Filed
(4) Instruments defining the rights of
Security holders, including indentures Not Applicable
(9) Voting trust agreement Not Applicable
(10) Material contracts Not Applicable
(11) Statement regarding computation of per
share earnings--clearly determinable Not Applicable
(12) Statement regarding computation of
ratios Not Applicable
(13) Portions of Annual Report to Portions Incorporated
Stockholders By Reference
(18) Letter regarding change in accounting
principles Not Applicable
(19) Previously unfiled documents Not Applicable
(22) Subsidiary of the Registrant Previously Filed
(23) Published report regarding matters
submitted to vote of security holders Not Applicable
(24) Consents of experts and counsel Not Applicable
(25) Power of attorney Not Applicable
(28) Additional exhibits Not Applicable
(29) Information from reports furnished to
state insurance regulatory authorities Not Applicable
As to any security holder requesting a copy of the Form 10-K, the Company
will furnish any exhibit indicated in the above list as filed with the Form 10-K
upon payment to it of its expenses in furnishing such exhibit.
This page intentionally left blank.
EXHIBIT 13
Page
Inside back cover 20 - 21
Ten Year Review 22 - 23
Management Discussions 24 - 27
Report of Independent Accountants 28
Consolidated Statement of Income 29
Consolidated Balance Sheet 30
Consolidated Statement of Cash Flows 31
Notes to Consolidated Financial Statements 32 - 42
Inside Back Cover Info
______________________
Shareholder and Investor Information
Corporate Information
Corporate Headquarters:
Noland Company
2700 Warwick Boulevard
Newport News, Virginia 23607
(804) 928-9000
Wholly Owned Subsidiary:
Noland Properties, Inc.
2501 Washington Avenue
Newport News, Virginia 23607
(804) 247-8200
Investor Inquiries or Request for Form 10-K:
Call or write:
Richard L. Welborn
Assistant Vice President-Finance and Tax Administrator
2700 Warwick Boulevard
Newport News, Virginia 23607
(804) 928-9000
Auditors:
Coopers & Lybrand
11832 Rock Landing Drive
Newport News, Virginia 23606
Legal Counsel:
Hunton & Williams
P.O. Box 1535
Richmond, Virginia 23212
Stock Information
The Company's common stock is traded over the counter as part of NASDAQ's
National Market System (symbol: NOLD). On March 15, 1994, the approximate
number of holders of record of the Company's common stock was 2,800.
Market Prices:
The following table sets forth the reported high and low prices for the common
stock on the NASDAQ system:
_________________________________
High Low
- ---------------------------------
1993
Qtr. 4 $17.25 $15.00
Qtr. 3 $18.00 $15.25
Qtr. 2 18.50 15.00
Qtr. 1 18.75 15.00
1992
Qtr. 4 $16.50 $14.13
Qtr. 3 16.50 14.50
Qtr. 2 16.00 14.50
Qtr. 1 15.50 12.50
_________________________________
P/E Ratio:
_________________________________
High Low
- ---------------------------------
1993 21 17
1992 15 11
_________________________________
Dividend Policy:
Noland has paid regular cash dividends for 61 consecutive years; and, while
there can be no assurance as to future dividends because they are dependent on
earnings, capital requirements and financial condition, the Company intends to
continue that policy. Dividend payments are subject to the restrictions
described in the Notes to the Consolidated Financial Statements.
Dividends Paid:
The Company paid quarterly dividends of $.06 per share in each quarter of 1992
and 1993.
Registrar:
Noland Company
Transfer Agent:
Mellon Financial Services
Four Station Square
Pittsburgh, Pennsylvania 15219-1173
(412) 236-8000
Annual Meeting:
April 20, 1994, 2:00 p.m.
Noland's Corporate Headquarters
Newport News, Virginia
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited) Annual Report
NOLAND COMPANY AND SUBSIDIARY Pages 20-21
(Dollar amounts in thousands, except per share data)
1993 1992 1991 1990 1989
Income Statement Data
Sales $402,941 $412,086 $384,535 $428,473 $454,629
Gross Profit 77,306 77,265 71,000 79,982 83,328
Operating Expenses 74,692 73,227 74,355 75,641 75,413
Operating Profit (Loss) 2,614 4,038 (3,355) 4,341 7,915
Interest Expense 2,422 3,058 3,724 4,742 5,973
Interest Expense as Percent of Total Assets 1.3 1.7 2.0 2.5 3.1
Income (Loss) Before Income Taxes 5,291 6,610 (1,203) 6,377 8,468
Pretax Profit as Percent of Sales 1.3 1.6 NA 1.5 1.9
Income Taxes Payable (Receivable) 1,996 2,518 (478) 2,651 3,441
Effective Tax Rate 37.7 38.1 (39.7) 41.6 40.6
Net Income (Loss) 3,295 4,092 (725) 3,726 5,027
Income Paid to Stockholders (Cash Dividends) 888 888 1,702 1,665 1,629
Income Reinvested 2,407 3,204 NA 2,061 3,398
Property and Equipment Expenditures 7,611 6,191 7,075 10,798 9,812
Depreciation and Amortization 6,178 6,365 6,543 6,433 6,306
Balance Sheet Data
Stockholders' Equity 102,596 100,189 96,985 99,412 97,351
Working Capital 65,203 65,509 64,433 70,701 76,486
Current Ratio 2.6 2.8 2.6 2.8 2.8
Total Assets 191,380 185,372 189,072 192,887 195,069
Long-term Debt 38,505 40,511 42,898 44,299 48,721
Borrowed Funds 47,485 46,097 54,299 56,131 60,030
Borrowed Funds as Percent of Total Assets 24.8 24.9 28.7 29.1 30.8
Total Liabilities as Percent of Total Assets 46.4 46.0 48.7 48.5 50.1
Per Share Data *
Net Income (Loss) .89 1.11 (.20) 1.01 1.36
Cash Dividends Paid to Stockholders .24 .24 .46 .45 .44
Stockholders' Equity (Book Value) 27.72 27.07 26.21 26.86 26.30
Return on Average Stockholders' Equity 3.2 4.2 NA 3.8 5.3
Stock Price Range:
Average High 18.13 16.13 14.88 19.19 24.19
Average Low 15.06 13.91 12.25 15.00 22.09
Number of Employees at December 31 1,683 1,720 1,704 1,797 1,924
Number of Branches at December 31 93 93 92 92 94
Supplemental Information
The Company elected the LIFO method of inventory valuation in 1974.
The above information (i.e., gross profit, income and taxes) is stated on that basis.
Had the Company used the FIFO method, the results would have been:
Gross Profit 77,318 76,541 70,888 80,429 84,486
Income (Loss) Before Income Taxes 5,303 5,886 (1,315) 6,824 9,626
Income Taxes Payable (Receivable) 2,000 2,226 (495) 2,770 3,815
Net Income (Loss) 3,303 3,660 (820) 4,054 5,811
Net Income (Loss) Per Share .89 .99 (.22) 1.10 1.57
Stockholders' Equity (Book Value) Per Share 32.21 31.19 30.81 31.17 30.84
Return on Average Stockholders' Equity 2.8 3.2 NA 3.5 5.2
* Based on 3,700,876 shares outstanding.
(1) Net income for 1987 includes $362,000 ($.10 per share) due to the cumulative effect on
prior years of a change in accounting for deferred income taxes.
(2) Net income for 1986 includes $813,000 ($.22 per share) due to a change in accounting for
pension costs.
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited) Annual Report
NOLAND COMPANY AND SUBSIDIARY Pages 20-21
(Dollar amounts in thousands, except per share data)
1988 1987 1986 1985 1984
Income Statement Data
Sales $461,255 $434,593 $426,489 $380,913 $335,826
Gross Profit 83,491 80,978 79,204 69,414 61,748
Operating Expenses 75,098 70,397 67,176 60,203 52,219
Operating Profit (Loss) 8,393 10,581 12,028 9,211 9,529
Interest Expense 5,673 4,865 4,656 2,971 2,299
Interest Expense as Percent of Total Assets 2.8 2.5 2.6 1.7 1.7
Income (Loss) Before Income Taxes 8,882 11,422 12,259 10,996 10,521
Pretax Profit as Percent of Sales 1.9 2.6 2.9 2.9 3.1
Income Taxes Payable (Receivable) 3,553 4,936 5,956 4,539 4,389
Effective Tax Rate 40.0 43.2 48.6 41.3 41.7
Net Income (Loss) 5,329 6,848(1) 6,303(2) 6,457 6,132
Income Paid to Stockholders (Cash Dividends) 1,554 1,480 1,458 1,382 1,283
Income Reinvested 3,775 5,368 4,845 5,075 4,849
Property and Equipment Expenditures 12,918 9,153 10,379 12,352 11,288
Depreciation and Amortization 6,028 5,623 5,088 3,991 3,104
Balance Sheet Data
Stockholders' Equity 93,953 90,178 84,810 79,965 74,890
Working Capital 78,713 83,456 83,528 66,002 51,002
Current Ratio 2.5 2.8 3.4 2.4 2.4
Total Assets 200,716 194,139 180,264 170,274 133,407
Long-term Debt 47,631 51,254 55,504 38,831 18,681
Borrowed Funds 68,240 68,462 63,446 59,461 30,732
Borrowed Funds as Percent of Total Assets 33.9 35.3 35.0 35.0 23.0
Total Liabilities as Percent of Total Assets 53.2 53.5 53.0 53.0 43.9
Per Share Data *
Net Income (Loss) 1.44 1.85(1) 1.70(2) 1.74 1.66
Cash Dividends Paid to Stockholders .42 .40 .39 .37 .35
Stockholders' Equity (Book Value) 25.39 24.37 22.92 21.61 20.24
Return on Average Stockholders' Equity 5.8 7.8 7.7 8.3 8.5
Stock Price Range:
Average High 20.63 22.69 26.31 16.50 13.11
Average Low 18.75 19.13 21.06 15.30 12.27
Number of Employees at December 31 2,019 1,972 1,976 1,990 1,719
Number of Branches at December 31 101 100 100 99 82
Supplemental Information
The Company elected the LIFO method of inventory valuation in 1974.
The above information (i.e., gross profit, income and taxes) is stated on that basis.
Had the Company used the FIFO method, the results would have been:
Gross Profit 88,585 82,665 79,119 68,945 62,433
Income (Loss) Before Income Taxes 13,976 13,109 12,174 10,527 11,206
Income Taxes Payable (Receivable) 5,499 5,304 5,915 4,308 4,723
Net Income (Loss) 8,477 7,805 6,260 6,219 6,483
Net Income (Loss) Per Share 2.29 2.11 1.69 1.68 1.75
Stockholders' Equity (Book Value) Per Share 29.71 27.84 26.13 24.85 23.53
Return on Average Stockholders' Equity 8.0 7.8 6.6 6.9 7.7
* Based on 3,700,876 shares outstanding.
(1) Net income for 1987 includes $362,000 ($.10 per share) due to the cumulative effect on
prior years of a change in accounting for deferred income taxes.
(2) Net income for 1986 includes $813,000 ($.22 per share) due to a change in accounting for
pension costs.
Annual Report Pages 10-11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net income for 1993 was $3.3 million compared to $4.1 million
for 1992. Business conditions were weaker than expected in the
first six months of the year, resulting in a net loss for that
period. However, increased demand for our products in the second
half, along with continued improvements in profit margins, credit
and inventory during the year, helped offset the mid-year loss and
report a net profit for the year.
Results of Operations
Sales for 1993 were $402.9 million, compared to 1992's sales
of $412.1 million or a 2.2 percent decline. The decline in sales
was centered in six of the fourteen states in which Noland
operates. Sales for 1992, as compared with 1991, increased $27.5
million, or 7.2 percent. Sales in three of the four product
departments declined in 1993, with only Air Conditioning/
Refrigeration showing an increase over the prior year. The mix of
sales between stock items and direct shipment items was 86 percent
and 14 percent, respectively, for both 1993 and 1992.
Gross profit, as a percent of sales, was 19.2 percent for
1993, 18.7 percent for 1992 and 18.5 percent for 1991. The higher
gross profit percentages for 1993 and 1992 represent the
continuing efforts of the Company to improve margins. The
increased profit margin caused gross profit dollars to equal the
year-earlier period despite $9 million in less sales. Gross
profit for 1992 and 1991 includes the beneficial effect of the
liquidation of certain LIFO inventory layers.
Operating expenses increased 2.0 percent over 1992 to a total
of $74.7 million. Operating expenses, as a percent of sales, were
18.5 percent, 17.8 percent, and 19.3 percent in 1993, 1992, and
1991, respectively. The 1993 increase in operating expenses is
principally due to higher personnel-related costs which include a
$548,000 charge for the adoption of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions." SFAS No. 106
requires the Company to accrue annually the net periodic
postretirement benefit cost rather than recognizing the cost when
benefits are paid. The $548,000 charge reduced net income by nine
cents per share. The Accumulated Postretirement Benefit
Obligation at January 1, 1993 was $4.1 million and is being
amortized over 20 years. The increased personnel - related costs
were largely offset by a $2 million reduction in net bad debts.
This was on top of a $900,000 reduction in bad debts in 1992. The
Company's 1993 credit losses of $816,000 were less than three-
tenths of one percent of sales, the ratio that has been our goal
since the beginning of our credit crisis in the early 1990's.
Interest expense decreased for the fourth consecutive year to
a total of $2.4 million. This is $636,000 or 20.8 percent less
than 1992. These declines are due largely to lower average short-
term borrowings and continued low interest rates.
Adversely affecting earnings for the year was a $419,000 loss
on the sale of the Company's former North Little Rock, Ark.
property, which reduced net income seven cents per share.
The Company sells products to many thousands of customers.
Although there is no customer which accounts for 10 percent or
more of the Company's sales, there are several customers of which
the loss of any one could have a material adverse effect on the
Company's business.
The growing demand for computer-based, fully automated
procurement systems for MRO (maintenance, repair and operating)
products is attracting new business and widening the scope and
possibilities for potential sales growth in this market. As a
result, an increased percentage of Company resources are being
dedicated to developing comprehensive working relationships with
large industrial customers.
Looking ahead, the Company believes homebuilding, home
remodeling, and manufacturing all should improve in 1994. These
better market conditions, coupled with a better-trained sales
force and a new year-long sales and marketing program, give reason
to believe that sales growth should resume in 1994.
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits." This
Statement will not have a material effect on the Company's
financial condition or results of operations. The Statement was
adopted January 1, 1994.
Liquidity and Capital Resources
The Company maintains its liquidity through: (1) cash flow
from operations; (2) short-term financings; (3) bank line of
credit arrangements, when needed; and (4) additional long-term
debt.
During 1993 the Company generated $5.9 million in cash flow
from operations, down from $14.7 million in 1992. The $5.9
million from operations along with additional borrowings of $1.4
million was used to purchase $7.6 million in capital assets and
pay dividends.
The Company's financial position remains strong with working
capital of $65.2 million and a current ratio of 2.6 to 1.
Management believes the Company's liquidity, working capital and
capital resources are sufficient to meet the needs of the
foreseeable future.
Impact of Inflation
Reported results, for the most part, are net of the impact of
inflation because of the Company's use of the LIFO (last-in,
first-out) inventory method. During inflationary periods, this
method removes artificial profits induced by inflation and
presents operating results in truer, more absolute terms. Since
adopting LIFO in 1974, the Company has avoided both the
recognition of these inflationary profits and the unnecessary
payment of related taxes on such income. At approximate
replacement cost, the Company's inventory investment was $86.9
million at year-end 1993, while the LIFO inventory balance was
$55.5 million -- a difference accumulated since 1974 of $31.4
million.
For purposes of financial reporting, the depreciation charge
to earnings for the use of capital assets is reflected on the
straight-line basis which does not necessarily keep pace with
rising replacement costs of those assets.
Annual Report Page 12
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
certified public accountants
COOPERS
& LYBRAND
To the Board of Directors and Stockholders of Noland Company:
We have audited the accompanying consolidated balance sheets of Noland
Company and Subsidiary as of December 31, 1993, 1992 and 1991, and the
related consolidated statements of income, retained earnings and cash flows
for each of the three years in the period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Noland Company and Subsidiary as of December 31, 1993, 1992 and
1991, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Newport News, Virginia Coopers & Lybrand
March 4, 1994
Annual Report Page 13
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1993, 1992, and 1991
Sales $402,941 $412,086 $384,535
Cost of Goods Sold:
Purchases and freight in 330,244 333,848 313,486
Inventory, January 1 50,866 51,839 51,888
Inventory, December 31 (55,475) (50,866) (51,839)
Cost of Goods Sold 325,635 334,821 313,535
Gross Profit on Sales 77,306 77,265 71,000
Operating Expenses 74,692 73,227 74,355
Operating Profit (Loss) 2,614 4,038 (3,355)
Other Income:
Cash discounts, net 3,340 3,445 3,244
Service charges 1,383 1,692 2,229
Miscellaneous 376 493 403
Total Other Income 5,099 5,630 5,876
Interest Expense 2,422 3,058 3,724
Income (Loss) Before Income Taxes 5,291 6,610 (1,203)
Income Taxes 1,996 2,518 (478)
Net Income (Loss) $ 3,295 $ 4,092 $(725)
Retained Earnings, January 1 61,916 58,712 61,139
Cash Dividends Paid (1993 and 1992--$.24 per share;
1991--$.46 per share) (888) (888) (1,702)
Retained Earnings, December 31 $64,323 $ 61,916 $58,712
Net Income (Loss) Per Share $ .89 $ 1.11 $ (.20)
[FN]
The accompanying notes are an integral part of the financial statements.
Annual Report Page 14
CONSOLIDATED BALANCE SHEET
NOLAND COMPANY AND SUBSIDIARY
December 31, 1993, 1992, and 1991
(In thousands)
Assets 1993 1992 1991
Current Assets:
Cash and cash equivalents $ 2,191 $ 2,538 $ 2,324
Accounts receivable(net of allowance for doubtful accounts)46,830 45,267 48,191
Inventory (net of reduction to LIFO) 55,475 50,866 51,839
Deferred income taxes 1,763 2,343 2,315
Prepaid expenses 699 368 210
Total Current Assets 106,958 101,382 104,879
Property and Equipment, at cost:
Land 12,414 12,208 11,802
Buildings 62,006 59,615 57,985
Equipment and fixtures 46,097 44,821 45,275
Property in excess of current needs 2,200 2,456 2,450
Total 122,717 119,100 117,512
Less accumulated depreciation 53,580 50,181 47,771
Total Property and Equipment, net 69,137 68,919 69,741
Assets Held for Resale 1,306 1,558 1,901
Prepaid Pension 11,706 10,650 9,607
Other Assets 2,273 2,863 2,944
$191,380 $185,372 $189,072
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowings $ 7,000 $ 3,500 $ 10,000
Current maturity of long-term debt 1,980 2,086 1,401
Accounts payable 20,976 18,738 20,643
Accrued employee compensation 3,973 3,609 2,951
Other accruals and liabilities 6,570 6,603 5,319
Federal and state income taxes 1,256 1,337 132
Total Current Liabilities 41,755 35,873 40,446
Long-term Debt 38,505 40,511 42,898
Deferred Income Taxes 8,404 8,799 8,743
Accrued Postretirement Benefits 120 - -
Stockholders' Equity:
Capital common stock, par value, $10;
authorized, 6,000,000 shares; issued, 3,880,888 shares 38,809 38,809 38,809
Retained earnings 64,323 61,916 58,712
Total 103,132 100,725 97,521
Less treasury stock, 180,012 shares, at cost 536 536 536
Stockholders' Equity 102,596 100,189 96,985
$191,380 $185,372 $189,072
[FN]
The accompanying notes are an integral part of the financial statements.
Annual Report Page 15
CONSOLIDATED STATEMENT OF CASH FLOWS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 3,295 $4,092 $ (725)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,178 6,365 6,543
Amortization of prepaid pension cost (1,056) (1,043) (748)
Deferred income taxes 185 28 (571)
Provision for doubtful accounts 1,341 3,198 3,913
Loss (gain) on sale of property 387 (33) 78
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,904) (274) 2,092
(Increase) decrease in inventory (4,609) 973 49
(Increase) decrease in prepaid expenses (331) (158) (2)
Decrease (increase) in assets held for resale 252 343 (480)
Decrease (increase) in other assets 520 (27) 198
Increase (decrease) in accounts payable 2,238 (1,905) 1,831
Increase (decrease) in accrued employee compensation 364 658 (590)
(Decrease) increase in other accruals and liabilities (33) 1,284 23
(Decrease) increase in federal and state income taxes (81) 1,205 (318)
Increase in postretirement benefits 120 - -
Total adjustments 2,571 10,614 12,018
Net cash provided by operating activities 5,866 14,706 11,293
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,611) (6,191) (7,075)
Proceeds from sale of assets 898 789 408
Net cash used by investing activities (6,713) (5,402) (6,667)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 70,425 178,900 199,435
Short-term payments (66,925) (185,400) (199,845)
Long-term debt repayments (2,112) (1,702) (1,422)
Dividends paid (888) (888) (1,702)
Net cash provided (used) by financing activities 500 (9,090) (3,534)
CASH AND CASH EQUIVALENTS:
(Decrease) increase during year (347) 214 1,092
Beginning of year 2,538 2,324 1,232
End of year $ 2,191 $ 2,538 $ 2,324
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,463 $ 3,145 $ 3,802
Income taxes $ 1,630 $ 1,285 $ 411
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING ACTIVITY:
Assets obtained in settlement of accounts receivable $ - $ - $ 862
[FN]
The accompanying notes are an integral part of the financial statements.
Annual Report Pages 16-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOLAND COMPANY AND SUBSIDIARY
1. Principal Business of the Company
Noland Company is a wholesale distributor of mechanical
equipment and supplies. These products are categorized under
plumbing/heating, electrical, industrial and air
conditioning/refrigeration.
Markets for these products are all areas of construction--
residential, nonresidential (commercial, institutional and
industrial) and non-building (highways, sewer, water and utilities);
manufacturing; domestic water systems; and maintenance /repair
/modernization.
Noland Properties, Inc., a wholly owned subsidiary, holds and
manages the real estate holdings of the Company and acquires sites
and provides facilities to house the Company's various branches as
required.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the accounts of
Noland Company and its wholly owned subsidiary, Noland Properties,
Inc. All material intercompany transactions have been eliminated.
b. Inventory
Inventory is stated at the lower of cost or market, with market
being current replacement cost. The cost of inventory has been
principally determined by the last-in, first-out (LIFO) method since
1974.
c. Property and Equipment
Property and equipment are valued at cost less accumulated
depreciation. Depreciation is computed by the straight-line method
based on estimated useful lives of properties and equipment.
Expenditures for maintenance and repairs are charged to earnings
as incurred. Upon disposition, the cost and related accumulated
depreciation are removed and the resulting gain or loss is reflected
in income for the period.
For tax reporting purposes, depreciation is computed by the
straight-line method for buildings placed in service after 1986 and
by accelerated methods on equipment and on buildings placed in
service prior to 1987.
Property in excess of current needs consists primarily of land
held for possible future expansion and branch facilities not
currently in use.
d. Retirement Plan
The Company has a noncontributory retirement plan that covers
all employees with one year or more of service. Benefits are based
on years of service and compensation during active employment. The
Company's policy is to fund annually the minimum funding
requirements under the Employee Retirement Income Security Act of
1974.
e. Postretirement Benefit Plans
The Company offers postretirement health and life benefits to
substantially all employees who retire with the required years of
service. Health care benefits provided to the retirees and spouses
consist of a reimbursement towards the purchase of the retirees'
health plan of choice. The amount of reimbursement is based on
years of service. Life insurance in the amount of $3,000 is
provided to all retirees. Additional coverage may be purchased in
an amount up to a total of fifty percent of final earnings. The
Company pays a share of the cost of such additional coverage. The
cost of these benefits is funded on a pay-as-you-go-basis.
Net periodic postretirement cost for 1993 was based on the
provisions of Statement of Financial Accounting Standards No. 106
"Employers' Accounting For Postretirement Benefits Other Than
Pensions." In 1992 and 1991, postretirement benefit costs were
recognized as claims were paid.
f. Income Taxes
Income tax expense was based on the provisions of Statement of
Financial Accounting Standards No. 109 for 1993 and 1992. For 1991,
income tax expense was based on the provisions of Statement of
Financial Accounting Standards No. 96.
A deferred tax asset or liability is recognized for the deferred
tax consequences of all temporary differences.
g. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be
cash equivalents. Due to the short maturity period of cash and cash
equivalents, the carrying amount approximates the fair value.
The Company has no requirements for compensating balances. The
Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
h. Extra Compensation
All employees with at least one year of service participate in
one or more of the Company's extra compensation plans which are
based on earnings before income taxes and certain adjustments. The
cost of these plans was $1,658,000 in 1993, $1,280,000 in 1992 and
$856,000 in 1991.
3. Accounts Receivable
Accounts receivable shown as of December 31, 1993, 1992, and
1991 are net of an allowance for doubtful accounts of $968,000,
$2,206,000, and $2,196,000, respectively. Bad debt charges, net
of recoveries, were $816,000 for 1993, $2,800,000 for 1992, and
$3,691,000 for 1991.
4. Inventory
Comparative year-end inventories are as follows:
1993 1992 1991
(In thousands)
- -------------------------------------------------------------
Inventory, at approximate
replacement cost $86,879 $82,258 $83,954
Reduction to LIFO 31,404 31,392 32,115
LIFO inventory $55,475 $50,866 $51,839
Liquidation of certain inventory layers carried at lower costs
which prevailed in prior years as compared with costs of 1992
purchases had the effect of increasing 1992 net income $429,000
($.12 per share). In 1991 the liquidation decreased net loss
$588,000 ($.16 per share).
5. Notes Payable
a. Short-term Borrowings:
Amounts payable to banks were $7,000,000, $3,500,000, and
$10,000,000 at December 31, 1993, 1992, and 1991, respectively.
The interest rate, which is based on existing Federal Funds
rates, at December 31, 1993 was 3.48 percent. The carrying
amount of these short-term borrowings approximates fair value
because of the short maturity of the borrowings.
The Company had unused lines of credit totaling $26,500,000 at
December 31, 1993.
b. Long-term Debt:
1993 1992 1991
(In thousands)
Promissory note, 9.60% interest payable
quarterly, $600,000 due annually June
1994 through 1995, $1,850,000 due
annually June 1996 through 2000 with
balance due June 2001. (1) $12,400 $13,000 $13,000
Promissory note, 10.15% interest
payable quarterly, $1,250,000 due
annually each January through 1994
with balance due January 1995. (1) 2,625 3,875 5,125
Promissory note, variable interest
payable weekly (3.90% at December
31, 1993), fully revolving basis
through June 1, 1995. (1) 10,000 10,000 10,000
Industrial revenue financings, variable
interest payable quarterly (3.21% to
7.50% at December 31, 1993) with varying
maturities from 1994 to 2004. (1)(2) 15,460 15,690 16,120
Other - 32 54
$40,485 $42,597 $44,299
Less current maturities 1,980 2,086 1,401
$38,505 $40,511 $42,898
(1) Subject to agreements that require the Company to maintain
not less than $55,000,000 in working capital and not less
than a 1.75-to-1 year-end current ratio. Cash dividends
cannot exceed 50 percent of earnings, excluding net gains on
disposition of capital assets, reckoned accumulatively from
January 1, 1986. Earnings retained since that date not
restricted under this provision amount to $5,640,000.
(2) Industrial Development Revenue Refunding Bonds are callable
at the option of the bondholders upon giving seven days
notice to the Trustee. The carrying value of these bonds is
a reasonable estimate of fair value as interest rates are
based on prevailing market rates. At December 31, 1993,
property and equipment with a net book value of $859,000 was
pledged as collateral. In addition, to ensure payment of
the long-term refunding bonds the Company has caused to be
delivered to the Trustee an irrevocable, direct pay letter
of credit in favor of the Trustee in the amount of
$15,615,000. The contract amount of the letter of credit is
a reasonable estimate of its fair value as the value is
fixed over the life of the commitment. No material loss is
anticipated due to nonperformance by the counterparties to
those agreements.
The fair value of the remaining $25 million of long-term debt is
estimated based on the borrowing rates currently available to the
Company for loans with similar terms and average maturities. The
fair value of this long-term debt is $26.5 million for 1993.
Annual maturities of long-term debt for the five years
subsequent to December 31, 1993, are as follows: 1994, $1,980,000;
1995, $2,105,000; 1996, $3,635,000; 1997, $3,215,000, 1998,
$1,850,000.
6. Postretirement Health Care and Life Insurance Benefits
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Accumulated
Postretirement Benefit Obligation (APBO) is being amortized over
twenty years. The APBO was determined using a 7.5 percent discount
rate. The change in accounting reduced 1993 net income $342,000 or
nine cents per share. Net postretirement benefit cost reflects the
impact of a plan amendment which reduced 1993 cost by approximately
$400,000. There are no plan assets.
The components of net periodic postretirement benefit costs for
1993 are:
(In thousands)
- ------------------------------------------------------------------
Service cost - benefits earned
during the period $ 53
Interest cost on accumulated postretirement
benefit obligation 292
Net amortization and deferral 203
Net postretirement benefit cost $ 548
Postretirement benefit costs for 1992 and 1991 were recognized
as claims were paid and totaled $287,000 and $277,000,
respectively.
The following table sets forth the plans' combined
postretirement benefit liability as of December 31, 1993:
(In thousands)
Accumulated postretirement benefit obligation:
Retirees $(2,288)
Fully eligible active employees (863)
Other active plan participants (898)
(4,049)
Unrecognized transition obligation 3,863
Unrecognized net loss 66
Postretirement liability recognized in the
balance sheet $ (120)
7. Retirement Plan
The components of the provision for net periodic pension cost
were as follows:
1993 1992 1991
(In thousands)
- -----------------------------------------------------------------
Service cost - benefits earned
during the period $ 749 $ 847 $ 738
Interest cost on projected
benefit obligation 2,128 2,038 1,963
Actual return on assets (4,272) (1,877) (7,652)
Net amortization and deferral 339 (2,051) 4,203
Net pension cost $(1,056) $(1,043) $( 748)
Assumptions used in the accounting were:
1993 1992 1991
Discount rate 7.5% 8.0% 7.0%
Rate of increase in future
compensation levels 4.0% 4.0% 4.0%
Long-term rate of return 8.0% 8.0% 8.0%
The following table sets forth the Plan's funded status and
the related amounts recognized in the Company's balance sheet at
December 31, 1993, 1992, and 1991.
1993 1992 1991
(In thousands)
- -----------------------------------------------------------------------
Actuarial present value of
projected benefit obligation,
based on employment service
to date and current salary
levels:
Vested benefits $(27,501) $(25,076) $(26,886)
Nonvested benefits (494) (426) (398)
Accumulated benefit obligation (27,995) (25,502) (27,284)
Additional amounts related
to projected salary increases (2,219) (2,228) (2,437)
Projected benefit obligation (30,214) (27,730) (29,721)
Plan assets at fair value;
primarily U.S. Government and
corporate bonds and equity
securities 42,733 40,339 40,187
Plan assets in excess of
projected benefit obligation 12,519 12,609 10,466
Unrecognized net loss/(gain)
from past experience different
from that assumed (245) (256) 1,979
Unrecognized net asset at
January 1, 1986, being
recognized principally over
8.5 years (568) (1,703) (2,838)
Prepaid pension $ 11,706 $10,650 $ 9,607
In February 1991, the Company made changes to its retirement plan
which had the effect of increasing net pension cost $1,121,000 in
1991.
8. Income Taxes
The Company adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" effective January 1, 1992.
There was no effect on 1992 or prior years' net income due to this
change in accounting.
Tax expense (benefit):
1993 1992 1991
(In thousands)
- ---------------------------------------------------------------------------
Federal:
Current $1,310 $2,127 $ (189)
Deferred 436 24 (224)
State:
Current 239 363 (27)
Deferred 11 4 (38)
Total $1,996 $2,518 $ (478)
The components of the net deferred tax liability are:
1993 1992 1991
(In thousands)
Current deferred (assets)
Accounts receivable $ (365) $ (830) $ (826)
Inventory (875) (1,004) (999)
Accrued vacation (523) (509) (490)
Total net current deferred (asset) (1,763) (2,343) (2,315)
Noncurrent deferred (assets) liabilities
Property and equipment 4,706 4,900 5,243
Pension asset 4,405 4,007 3,615
Postretirement
benefit liability (206) - -
Other (501) (108) (115)
Total net noncurrent deferred
liability 8,404 8,799 8,743
Net deferred liability $6,641 $6,456 $6,428
The reasons for the difference between total tax expense
(benefit) and the amount computed by applying the statutory federal
income tax rate to income (loss) before income taxes are as follows:
1993 1992 1991
(In thousands)
Statutory rate applied to
pretax income $1,799 $2,248 $ (409)
State income taxes, net
of federal tax benefit 158 240 (36)
Other 39 30 (33)
Total tax expense (benefit) $1,996 $2,518 $ (478)
9. Postemployment Benefits
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits." The
Statement was adopted on January 1, 1994. This Statement is not
material to the Company's financial condition or results of
operations.
10. Lease Commitments
The Company leases various assets used in its business, notably
some of the warehouse and office facilities and equipment. These
leases have varying expiration dates and often include renewal and
purchase options. Certain leases require the Company to pay
escalations in cost over base amounts for taxes, insurance, or other
operating expenses incurred by lessor.
Rental expense under operating leases for 1993, 1992, and 1991
was $792,000, $764,000, and $631,000, respectively.
Minimum payments due for years after 1993 under noncancelable
operating leases are $550,000 in 1994, $251,000 in 1995, $186,000 in
1996, $61,000 in 1997 and $94,000 thereafter.
11. Concentration of Credit Risk
The Company sells its products to all major areas of construction
and manufacturing markets throughout the Southern United States. When
the Company grants credit, it is primarily to customers whose ability
to pay is dependent upon the construction and manufacturing industry
economics prevailing in the Southern United States; however,
concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers comprising
the Company's customer base. The Company performs ongoing credit
evaluations of its customers and in certain situations requires
collateral. The Company maintains reserves for potential credit
losses, and such losses have been within management's expectations.
12. Contingencies
The Company is a defendant in various lawsuits arising in the
normal course of business. In the opinion of management, the outcome
of these lawsuits will not have a material adverse effect on the
Company's financial position.