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, 1994 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, 1995, was approximately $34,221,159.
3,700,876 shares of the Registrant's Common Stock were outstanding at the close
of business on March 15, 1995.
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, 1994
Noland Company Proxy Statement for April 26, 1995, Parts III and IV
Annual Meeting of Stockholders
This report contains 36 pages. The exhibit index is shown on page 12 of this
10-K.
1
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 fifteen 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:
1994 1993 1992 1991 1990
(In thousands)
Plumbing/Heating $241,273 $220,879 $225,239 $220,179 $247,805
Electrical 46,076 43,363 49,090 47,498 57,539
Industrial 62,279 54,099 54,851 52,644 59,442
Air Conditioning/Refrigeration 90,574 84,600 82,906 64,214 63,687
$440,202 $402,941 $412,086 $384,535 $428,473
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.
2
(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 $36,979,000 at December 31, 1994, and
$29,715,000 at December 31, 1993.
(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 1994, 1993 and 1992 were immaterial.
(xii) The Company believes it is in 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, 1994, the Company employed 1,741 persons.
(d) From its founding in 1915 and continuing into 1994, the Company
confined its operations to the Southern area of the United States.
In late 1994 the Company opened its' first location in Pennsylvania.
A second Pennsylvania location was opened in February 1995.
Item 2 Properties
The main properties of the Company consist of 99 facilities, including
warehouses, offices, showrooms, paved outside storage areas and
covered pipe storage sheds. These are located in the following states:
Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Maryland,
Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee,
Texas, Virginia and West Virginia. Fourteen are held under leases and
the remaining eighty-five 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.
3
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 Five Years
Lloyd U. Noland, III 51 Chairman of the Board, Chief Executive Officer of
President and Director and Registrant.
Officer since 1981
Frank A. Wimbush 49 Senior Vice President- Vice President-Sales and
Marketing and Branch Marketing for All-Phase
Operations. Officer Electric Supply Company from
since March 1995 1988 to 1994.
A. P. Henderson, Jr. 51 Vice President-Finance Chief Financial Officer of
Officer since 1983 the Registrant.
Charles A. Harvey 55 Vice President-Corporate Responsible for the
Data. Officer since 1980 Registrant's Corporate Data
Division.
John E. Gullett 53 Vice President-Corporate Responsible for the
Communications Registrant's Corporate
Officer since 1982 Communications Department.
James E. Sykes, Jr. 51 Treasurer/Secretary Responsible for Registrant's
Officer since 1982 treasury functions and
secretarial duties.
William G. Overman 54 Vice President-Purchases Responsible for Corporate
Officer since 1988 Purchases Division.
Ronald K. Binger 48 Vice President-General Responsible for administering
Credit Manager the Registrant's credit
Officer since 1993 related activities.
Previously, General Credit
Manager (1991-1992), and
Manager of Internal Audit
Department.
David E. Gregg 48 Vice President-Manager Responsible for electrical,
of Merchandising,and industrial marketing
Electrical/Industrial activities. Previously
Officer since 1993 Manager of Merchandising,
Plumbing and Heating (1990-
1991) and Complex Manager.
All executive officers, except Mr. Frank A. Wimbush, were elected for a term of
one year beginning May 1, 1994 and/or until their successors are elected and
qualified. Mr. Wimbush joined the Company on March 14, 1995. 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.
4
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 1990
through 1994 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, 1994.
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, 1994.
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, 1994, 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, 1994, 1993 and 1992 13
Consolidated Balance Sheet--December 31, 1994, 1993 and 1992 14
Consolidated Statement of Cash Flows --
Years ended December 31, 1994, 1993 and 1992 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 1995 Noland Company Proxy Statement for the
April 26, 1995 Annual Meeting of Stockholders.
Data relating to Executive Officers is included in Part I of this
report.
5
Item 11 Executive Compensation
The information set forth under the caption "Compensation of Executive
Officers" on page 4 of the 1995 Noland Company Proxy Statement for the
April 26, 1995, 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 1995 Noland Company Proxy Statement for the April 26,
1995, 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, 1994, 1993
and 1992
Consolidated Balance Sheet--December 31,
1994, 1993 and 1992
Consolidated Statement of Cash Flows
--Years ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
With the exception of the aforementioned information incorporated by
reference and the information in the 1994 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 1994 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, 1994
6
Form 10-K Page(s)
Schedule II Valuation and Qualifying
Accounts 9
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 11
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, 1994,
were required to be filed.
(c) The Index of Exhibits and any required Exhibits are included beginning
at page 12 of this report.
(d) Not applicable.
7
Item 14(a) (2)
Financial Statement Schedules
8
FORM 10-K
SCHEDULE II
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, 1994 $ 968,427 $ 774,432(1) $ - $ 774,432 $ 968,427
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
[FN]
(1) Net of recoveries on bad debts of $685,511 for 1994, $524,859 for 1993,
and $398,345 for 1992.
(2) Represents charges for which reserve was previously provided.
(3) Includes $200,000 reserve for final disposition of assets accepted as
settlement of debt.
9
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 24, 1995 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 24, 1995
Lloyd U. Noland, III
Vice President-Finance,
Chief Financial Officer
Arthur P. Henderson, Jr. and Director March 24, 1995
Arthur P. Henderson, Jr.
James E. Sykes, Jr. Treasurer/Secretary March 24, 1995
James E. Sykes, Jr.
Allen C. Goolsby, III Director March 24, 1995
Allen C. Goolsby, III
10
COOPERS & LYBRAND L.L.P.
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 1994 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 L.L.P.
Newport News, Virginia
February 28, 1995
11
EXHIBIT INDEX
Exhibit Number Exhibit Page
(2) Plan of acquisition, reorganization,
liquidation or succession Not Applicable
(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
Stockholders 14 - 35
(16) Letter regarding change in a certifying
accountant Not Applicable
(18) Letter regarding change in accounting
principles Not Applicable
(21) Subsidiary of the registrant Previously Filed
(22) Published report regarding matters
submitted to vote of security holders Not Applicable
(23) Consents of experts and counsel Not Applicable
(24) Power of attorney Not Applicable
(27) Financial data schedule 36
(28) 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.
12
This page intentionally left blank.
13
EXHIBIT 13
INDEX
Page
Inside back cover 15 - 16
Ten Year Review 17 - 18
Management Discussions 19 - 21
Report of Independent Accountants 22
Consolidated Statement of Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Cash Flows 25
Notes to Consolidated Financial Statements 26 - 35
14
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.
Suite 400, Central Fidelity National Bank
2700 Washington Avenue
Newport News, Virginia 23607
(804) 247-8200
(After May 1, 1995)
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 L.L.P.
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, 1995, the approximate
number of holders of record of the Company's common stock was 2,450.
15
Market Prices:
The following table sets forth the reported high and low prices for the
common stock on the NASDAQ system:
_________________________________
_______________High _____Low_____
1994
Qtr. 4 $21.75 $18.75
Qtr. 3 $22.00 $19.50
Qtr. 2 $21.50 $17.00
Qtr. 1 $18.50 $15.00
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
_________________________________
P/E Ratio:*
_________________High______Low____
1994 13 9
1993 21 17
_________________________________
*Based on final, full-year earnings
Dividend Policy:
Noland has paid regular cash dividends for 62 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
1993 and 1994.
Registrar:
Noland Company
Transfer Agent:
Mellon Financial Services
Four Station Square
Pittsburgh, Pennsylvania 15219-1173
(412) 236-8000
Annual Meeting:
April 26, 1995, 4:00 p.m.
Noland's Corporate Headquarters
Newport News, Virginia
16
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited)
NOLAND COMPANY AND SUBSIDIARY
(Dollar amounts in thousands, except per share data)
1994 1993 1992 1991
Income Statement Data
Sales $440,202 $402,941 $412,086 $384,535
Gross Profit 86,166 77,306 77,265 71,000
Operating Expenses 78,259 74,692 73,227 74,355
Operating Profit (Loss) 7,907 2,614 4,038 (3,355)
Interest Expense 2,626 2,422 3,058 3,724
Interest Expense as Percent of Total Assets 1.3 1.3 1.7 2.0
Income (Loss) Before Income Taxes 10,568 5,291 6,610 (1,203)
Pretax Profit as Percent of Sales 2.4 1.3 1.6 NA
Income Taxes Payable (Receivable) 4,341 1,996 2,518 (478)
Effective Tax Rate 41.1 37.7 38.1 (39.7)
Net Income (Loss) 6,227 3,295 4,092 (725)
Income Paid to Stockholders (Cash Dividends) 888 888 888 1,702
Income Reinvested 5,339 2,407 3,204 NA
Property and Equipment Expenditures 10,858 7,611 6,191 7,075
Depreciation and Amortization 6,232 6,178 6,365 6,543
Balance Sheet Data
Stockholders' Equity 107,865 102,596 100,189 96,985
Working Capital 65,575 65,203 65,509 64,433
Current Ratio 2.2 2.6 2.8 2.6
Total Assets 208,623 191,380 185,372 189,072
Long-term Debt 36,914 38,505 40,511 42,898
Borrowed Funds 53,130 47,485 46,097 54,299
Borrowed Funds as Percent of Total Assets 25.5 24.8 24.9 28.7
Total Liabilities as Percent of Total Assets 48.3 46.4 46.0 48.7
Per Share Data *
Net Income (Loss) 1.68 .89 1.11 (.20)
Cash Dividends Paid to Stockholders .24 .24 .24 .46
Stockholders' Equity (Book Value) 29.15 27.72 27.07 26.21
Return on Average Stockholders' Equity 5.9 3.2 4.2 NA
Stock Price Range:
Average High 20.94 18.13 16.13 14.88
Average Low 17.56 15.06 13.91 12.25
Number of Employees at December 31 1,741 1,683 1,720 1,704
Number of Branches at December 31 99 93 93 92
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 86,404 77,318 76,541 70,888
Income (Loss) Before Income Taxes 10,806 5,303 5,886 (1,315)
Income Taxes Payable (Receivable) 4,441 2,000 2,226 (495)
Net Income (Loss) 6,365 3,303 3,660 (820)
Net Income (Loss) Per Share 1.72 .89 .99 (.22)
Stockholders' Equity (Book Value) Per Share 33.69 32.21 31.19 30.81
Return on Average Stockholders' Equity 5.2 2.8 3.2 NA
[FN]
* 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.
17
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited)
NOLAND COMPANY AND SUBSIDIARY
(Dollar amounts in thousands, except per share data)
1990 1989 1988 1987 1986 1985
Income Statement Data
Sales $428,473 $454,629 $461,255 $434,593 $426,489 $380,913
Gross Profit 79,982 83,328 83,491 80,978 79,204 69,414
Operating Expenses 75,641 75,413 75,098 70,397 67,176 60,203
Operating Profit (Loss) 4,341 7,915 8,393 10,581 12,028 9,211
Interest Expense 4,742 5,973 5,673 4,865 4,656 2,971
Interest Expense as Percent of Total Assets 2.5 3.1 2.8 2.5 2.6 1.7
Income (Loss) Before Income Taxes 6,377 8,468 8,882 11,422 12,259 10,996
Pretax Profit as Percent of Sales 1.5 1.9 1.9 2.6 2.9 2.9
Income Taxes Payable (Receivable) 2,651 3,441 3,553 4,936 5,956 4,539
Effective Tax Rate 41.6 40.6 40.0 43.2 48.6 41.3
Net Income (Loss) 3,726 5,027 5,329 6,848(1) 6,303(2) 6,457
Income Paid to Stockholders (Cash Dividends) 1,665 1,629 1,554 1,480 1,458 1,382
Income Reinvested 2,061 3,398 3,775 5,368 4,845 5,075
Property and Equipment Expenditures 10,798 9,812 12,918 9,153 10,379 12,352
Depreciation and Amortization 6,433 6,306 6,028 5,623 5,088 3,991
Balance Sheet Data
Stockholders' Equity 99,412 97,351 93,953 90,178 84,810 79,965
Working Capital 70,701 76,486 78,713 83,456 83,528 66,002
Current Ratio 2.8 2.8 2.5 2.8 3.4 2.4
Total Assets 192,887 195,069 200,716 194,139 180,264 170,274
Long-term Debt 44,299 48,721 47,631 51,254 55,504 38,831
Borrowed Funds 56,131 60,030 68,240 68,462 63,446 59,461
Borrowed Funds as Percent of Total Assets 29.1 30.8 33.9 35.3 35.0 35.0
Total Liabilities as Percent of Total Assets 48.5 50.1 53.2 53.5 53.0 53.0
Per Share Data *
Net Income (Loss) 1.01 1.36 1.44 1.85(1) 1.70(2) 1.74
Cash Dividends Paid to Stockholders .45 .44 .42 .40 .39 .37
Stockholders' Equity (Book Value) 26.86 26.30 25.39 24.37 22.92 21.61
Return on Average Stockholders' Equity 3.8 5.3 5.8 7.8 7.7 8.3
Stock Price Range:
Average High 19.19 24.19 20.63 22.69 26.31 16.50
Average Low 15.00 22.09 18.75 19.13 21.06 15.30
Number of Employees at December 31 1,797 1,924 2,019 1,972 1,976 1,990
Number of Branches at December 31 92 94 101 100 100 99
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 80,429 84,486 88,585 82,665 79,119 68,945
Income (Loss) Before Income Taxes 6,824 9,626 13,976 13,109 12,174 10,527
Income Taxes Payable (Receivable) 2,770 3,815 5,499 5,304 5,915 4,308
Net Income (Loss) 4,054 5,811 8,477 7,805 6,260 6,219
Net Income (Loss) Per Share 1.10 1.57 2.29 2.11 1.69 1.68
Stockholders' Equity (Book Value) Per Share 31.17 30.84 29.71 27.84 26.13 24.85
Return on Average Stockholders' Equity 3.5 5.2 8.0 7.8 6.6 6.9
[FN]
* 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.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion focuses on the consolidated results
of operations, financial condition and cash flows of Noland Company.
This section should be read in conjunction with the consolidated
financial statements and notes.
Results of Operations
Sales for 1994 increased $37.3 million to $440.2 million or 9.2
percent greater than 1993's sales of $402.9 million. Sales for 1993
were 2.2 percent less than 1992's sales of $412.1 million. Strong
conditions in the key markets of construction activity and factory
production, combined with an aggressive sales and marketing program,
produced the $37.3 million sales increase. All four product
departments had sales growth for the year, led by a 15 percent
increase for the industrial department. The possibilities for
potential sales growth by the industrial department through systems-
selling programs aimed at reducing customers' procurement costs
remain strong.
Sales for the air conditioning/refrigeration department also
should continue to grow, aided by the opening in late December 1994
of a five-branch complex dedicated to serve air conditioning
contractors in South Florida.
Gross profit, as a percent of sales, continued to improve in
1994 to 19.6 percent compared to 19.2 percent for 1993 and 18.7
percent for 1992. The higher gross profit percentages represent the
continuing efforts of the Company to improve margins. These
efforts focused on reducing costs of buying merchandise for resale
and pricing strategies that allow a profit commensurate with the
services provided by a full service wholesaler.
Operating expenses increased 4.8 percent over 1993 to a total
of $78.3 million. The increase is due primarily to personnel-
related costs. In 1993 operating expenses were 2.0 percent greater
19
than 1992. Operating expenses, as a percent of
sales, were 17.8 percent, 18.5 percent, and 17.8 percent in 1994,
1993, and 1992, respectively. 1994 and 1993 operating expenses
include a $562,000 and $548,000 charge, respectively, due to the
adoption of Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other than
Pensions" in 1993. 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 Accumulated
Postretirement Benefit Obligation at January 1, 1993 was $4.1
million and is being amortized over 20 years.
Interest expense increased in 1994 after four consecutive
years of decreases, to a total of $2.6 million or 8.4 percent
greater than 1993. The increase is due largely to higher average
short-term borrowings and higher rates.
The results of the 1994 activity generated net income of $6.2
million, or 89 percent greater than in 1993. Net income for 1993
was $3.3 million compared to $4.1 million for 1992. Adversely
affecting 1993 earnings was a $419,000 loss on the sale of the
Company's former North Little Rock, Arkansas property.
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.
Looking ahead, rising interest rates are already having a
dampening effect on housing construction, which could affect growth
in 1995. However, there appears to be enough business in the
pipeline, when combined with previously mentioned factors, to afford
opportunities for growth in 1995.
20
Liquidity and Capital Resources
The Company maintains its short and long-term 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, when needed.
During 1994 the Company generated $4.6 million in cash flow
from operations and $5.6 million in cash flow from net borrowing
activity. This cash, along with $762,000 from beginning cash, was
used to purchase $10.9 million in capital assets and pay dividends.
The Company's financial position remains strong with working
capital of $65.6 million and a current ratio of 2.2 to 1.
Management believes the Company's liquidity, working capital and
capital resources are sufficient to meet the working capital and
capital expenditure 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 $96.1 million at year-end 1994,
while the LIFO inventory balance was $64.5 million -- a difference
accumulated since 1974 of $31.6 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.
21
REPORT OF INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
a professional services firm
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, 1994, 1993 and
1992, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period
ended December 31, 1994. 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, 1994, 1993 and 1992, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
Newport News, Virginia Coopers & Lybrand L.L.P.
February 28, 1995
22
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1994, 1993, and 1992
(In thousands, except per share amounts)
1994 1993 1992
Sales $440,202 $402,941 $412,086
Cost of Goods Sold:
Purchases and freight in 363,019 330,244 333,848
Inventory, January 1 55,475 50,866 51,839
Inventory, December 31 (64,458) (55,475) (50,866)
Cost of Goods Sold 354,036 325,635 334,821
Gross Profit on Sales 86,166 77,306 77,265
Operating Expenses 78,259 74,692 73,227
Operating Profit 7,907 2,614 4,038
Other Income:
Cash discounts, net 3,627 3,340 3,445
Service charges 1,330 1,383 1,692
Miscellaneous 330 376 493
Total Other Income 5,287 5,099 5,630
Interest Expense 2,626 2,422 3,058
Income Before Income Taxes 10,568 5,291 6,610
Income Taxes 4,341 1,996 2,518
Net Income $ 6,227 $ 3,295 $4,092
Retained Earnings, January 1 64,323 61,916 58,712
Cash Dividends Paid ($.24 per share) (888) (888) (888)
Retained Earnings, December 31 $69,662 $ 64,323 $61,916
Net Income Per Share $ 1.68 $ .89 $ 1.11
[FN]
The accompanying notes are an integral part of the financial statements.
23
CONSOLIDATED BALANCE SHEET
NOLAND COMPANY AND SUBSIDIARY
December 31, 1994, 1993, and 1992
(In thousands)
Assets 1994 1993 1992
Current Assets:
Cash and cash equivalents $ 1,429 $ 2,191 $ 2,538
Accounts receivable(net of allowance for doubtful accounts) 52,458 46,830 45,267
Inventory (net of reduction to LIFO) 64,458 55,475 50,866
Deferred income taxes 2,001 1,763 2,343
Prepaid expenses 231 699 368
Total Current Assets 120,577 106,958 101,382
Property and Equipment, at cost:
Land 13,293 12,414 12,208
Buildings 66,040 62,006 59,615
Equipment and fixtures 49,002 46,097 44,821
Property in excess of current needs 1,928 2,200 2,456
Total 130,263 122,717 119,100
Less accumulated depreciation 57,278 53,580 50,181
Total Property and Equipment, net 72,985 69,137 68,919
Assets Held for Resale 1,356 1,306 1,558
Prepaid Pension 12,240 11,706 10,650
Other Assets 1,465 2,273 2,863
$208,623 $191,380 $185,372
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowings $ 14,100 $ 7,000 $ 3,500
Current maturity of long-term deb 2,116 1,980 2,086
Accounts payable 23,743 20,976 18,738
Accrued employee compensation 4,696 3,973 3,609
Other accruals and liabilities 8,634 6,570 6,603
Federal and state income taxes 1,713 1,256 1,337
Total Current Liabilities 55,002 41,755 35,873
Long-term Debt 36,914 38,505 40,511
Deferred Income Taxes 8,638 8,404 8,799
Accrued Postretirement Benefits 204 120 -
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 69,662 64,323 61,916
Total 108,471 103,132 100,725
Less treasury stock, 180,012 shares, at cost 536 536 536
Less unearned compensation, restricted stock 70 - -
Stockholders' Equity 107,865 102,596 100,189
$208,623 $191,380 $185,372
[FN]
The accompanying notes are an integral part of the financial statements.
24
CONSOLIDATED STATEMENT OF CASH FLOWS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1994, 1993, and 1992
(In thousands)
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,227 $3,295 $ 4,092
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,232 6,178 6,365
Amortization of prepaid pension cost (534) (1,056) (1,043)
Deferred income taxes (4) 185 28
Amortization of unearned compensation, restricted stock 12 - -
Provision for doubtful accounts 1,460 1,341 3,198
Loss (gain) on sale of property 40 387 (33)
Change in operating assets and liabilities:
(Increase) in accounts receivable (7,088) (2,904) (274)
(Increase) decrease in inventory (8,983) (4,609) 973
Decrease (increase) in prepaid expenses 468 (331) (158)
(Increase) decrease in assets held for resale (50) 252 343
Decrease (increase) in other assets 749 520 (27)
Increase (decrease) in accounts payable 2,767 2,238 (1,905)
Increase in accrued employee compensation 723 364 658
Increase (decrease) in other accruals and liabilities 2,064 (33) 1,284
Increase (decrease) in federal and state income taxes 457 (81) 1,205
Increase in postretirement benefits 84 120 -
Total adjustments (1,603) 2,571 10,614
Net cash provided by operating activities 4,624 5,866 14,706
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,858) (7,611) (6,191)
Proceeds from sale of assets 797 898 789
Net cash used by investing activities (10,061) (6,713) (5,402)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 178,000 70,425 178,900
Short-term payments (170,900) (66,925) (185,400)
Long-term debt repayments (1,455) (2,112) (1,702)
Dividends paid (888) (888) (888)
Purchase of restricted stock (82) - -
Net cash provided (used) by financing activities 4,675 500 (9,090)
CASH AND CASH EQUIVALENTS:
(Decrease) increase during year (762) (347) 214
Beginning of year 2,191 2,538 2,324
End of year $ 1,429 $ 2,191 $ 2,538
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,553 $ 2,463 $ 3,145
Income taxes $ 3,889 $ 1,630 $ 1,285
[FN]
The accompanying notes are an integral part of the financial statements.
25
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. 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.
26
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.
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 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 1994 and 1993 was accrued
based on the provisions of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting For Postretirement Benefits
Other Than Pensions." In 1992, postretirement benefit costs were
recognized as claims were paid.
f. Income Taxes
A deferred tax asset or liability is recognized for the deferred
tax consequences of all temporary differences.
27
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 $2,175,000 in 1994, $1,658,000 in 1993 and
$1,280,000 in 1992.
i. Unearned Compensation - Restricted Stock Plan
In 1994 the stockholders approved a restricted stock plan for
senior executives of the Company. Under the Plan, 50,000 shares in
the aggregate, limited to 10,000 shares per year, may be granted as
restricted stock. Participants may not dispose or otherwise
transfer stock granted for three years from date of grant.
Restrictions lapse at the rate of 20 percent of the stock per year
beginning at the end of the third year. Upon issuance of stock
under the plan, unearned compensation equivalent to the market value
at the date of grant is charged to stockholders'
equity and subsequently amortized over seven years. In 1994,
$82,000 was charged to unearned compensation - restricted stock,
with $12,000 amortized to compensation expense, leaving a balance of
$70,000 at December 31, 1994.
3. Accounts Receivable
Accounts receivable are net of an allowance for doubtful
accounts of $968,000 for 1994 and 1993 and $2,206,000 for 1992. Bad
debt charges, net of recoveries, were $774,000 for 1994, $816,000
28
for 1993 and $2,800,000 for 1992.
4. Inventory
Comparative year-end inventories are as follows:
1994 1993 1992
(In thousands)
Inventory, at approximate
replacement cost $96,100 $86,879 $82,258
Reduction to LIFO 31,642 31,404 31,392
LIFO inventory $64,458 $55,475 $50,866
During 1992, 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).
5. Notes Payable
a. Short-term Borrowings:
Amounts payable to banks were $14,100,000; 7,000,000 and
$3,500,000 at December 31, 1994, 1993, and 1992, respectively. The
average interest rate, which is based on existing Federal Funds
rates, at December 31, 1994, 1993, and 1992 was 6.08 percent, 3.48
percent, and 3.72 percent, respectively. 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 $18.4 million at
December 31, 1994.
b. Long-term Debt:
1994 1993 1992
(In thousands)
Promissory note, 9.60% interest payable
quarterly, $600,000 due June 1995,
$1,850,000 due annually June 1996
through 2000 with balance due June
2001. (1) $11,800 $12,400 $13,000
29
Promissory note, 10.15% interest
payable quarterly, $1,375,000 due
January 1995. (1) 1,375 2,625 3,875
Promissory note, variable interest
payable weekly (6.63% at December
31, 1994), fully revolving basis
through June 1, 1996. (1) 10,000 10,000 10,000
Industrial revenue financings, variable
interest payable quarterly (5.69% to
7.50% at December 31, 1994) with varying
maturities from 1995 to 2004. (1)(2) 15,330 15,460 15,690
Other 525 - 32
39,030 40,485 42,597
Less current maturities 2,116 1,980 2,086
$36,914 $38,505 $40,511
(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 $7,878,000.
(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, 1994, property and equipment
with a net book value of $922,000 was pledged as collateral. In
addition, to ensure payment of the long-term refunding bonds
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.
30
The fair value of the remaining $23.7 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 $24.2 million for 1994.
Annual maturities of long-term debt for the five years
subsequent to December 31, 1994, are as follows: 1995, $2,116,000;
1996, $3,647,000; 1997, $3,228,000; 1998, $1,864,000; 1999,
$3,840,000.
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 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 discount
rate used to calculate the APBO was 8.5 percent for 1994 and 7.5
percent for 1993.
The components of net periodic postretirement benefit costs for
1994 and 1993 are:
(In thousands) 1994 1993
Service cost - benefits earned
during the period $ 50 $ 53
Interest cost on accumulated postretirement
benefit obligation 309 292
Net amortization and deferral 203 203
Net postretirement benefit cost $ 562 $ 548
The following table sets forth the plans' combined
postretirement benefit liability as of December 31, 1994 and 1993:
(In thousands) 1994 1993
Accumulated postretirement benefit obligation:
Retirees $(2,676) $(2,288)
Fully eligible active employees (565) (863)
31
Other active plan participants (704) (898)
(3,945) (4,049)
Unrecognized transition obligation 3,660 3,863
Unrecognized net loss 81 66
Postretirement liability recognized in the
balance sheet $ (204) $ (120)
Postretirement benefit costs for 1992 were recognized as claims
were paid and totaled $287,000.
7. Retirement Plan
The components of the provision for net periodic pension cost
were as follows:
1994 1993 1992
(In thousands)
Service cost - benefits earned
during the period $ 843 $ 749 $ 847
Interest cost on projected
benefit obligation 2,177 2,128 2,038
Actual return on assets 650 (4,272) (1,877)
Net amortization and deferral (4,204) 339 (2,051)
Net pension cost $ 534 $(1,056) $(1,043)
Assumptions used in the accounting were:
1994 1993 1992
Discount rate 8.5% 7.5% 8.0%
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, 1994, 1993, and 1992.
1994 1993 1992
(In thousands)
Actuarial present value of
projected benefit obligation,
based on employment service
to date and current salary
levels:
32
Vested benefits $(25,250) $(27,501) $(25,076)
Nonvested benefits (230) (494) (426)
Accumulated benefit obligation (25,480) (27,995) (25,502)
Additional amounts related
to projected salary increases (2,127) (2,219) (2,228)
Projected benefit obligation (27,607) (30,214) (27,730)
Plan assets at fair value;
primarily U.S. Government and
corporate bonds and equity
securities 39,856 42,733 40,339
Plan assets in excess of
projected benefit obligation 12,249 12,519 12,609
Unrecognized net loss/(gain)
from past experience different
from that assumed (9) (245) (256)
Unrecognized net asset at
January 1, 1986, being
recognized principally over
8.5 years - (568) (1,703)
Prepaid pension $ 12,240 $ 11,706 $ 10,650
8. Income Taxes
The components of income tax expense are as follows:
1994 1993 1992
(In thousands)
Federal:
Current $3,723 $1,310 $2,127
Deferred - 436 24
State:
Current 618 239 363
Deferred - 11 4
Total $4,341 $1,996 $2,518
The components of the net deferred tax liability are:
1994 1993 1992
(In thousands)
Current deferred (assets)
Accounts receivable $ (365) $ (365) $ (830)
Inventory (1,072) (875) (1,004)
Accrued vacation (564) (523) (509)
Total net current deferred (asset) (2,001) (1,763) (2,343)
Noncurrent deferred (assets) liabilities
Property and equipment 4,702 4,706 4,900
Pension asset 4,606 4,405 4,007
Postretirement
benefit liability (77) (206) -
Other (593) (501) (108)
Total net noncurrent deferred
liability 8,638 8,404 8,799
Net deferred liability $6,637 $6,641 $6,456
The reasons for the difference between total tax expense and the
amount computed by applying the statutory federal income tax rate to
income before income taxes are as follows:
1994 1993 1992
(In thousands)
Statutory rate applied to
pretax income $3,593 $1,799 $2,248
State income taxes, net
of federal tax benefit 409 158 240
Other 339 39 30
Total tax expense $4,341 $1,996 $2,518
9. Postemployment Benefits
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" was adopted January 1, 1994.
This Statement is not material to the Company's financial condition or
results of operations.
10. Lease Commitments
The Company leases some of the warehouse and office facilities
used in its business. 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 1994, 1993, and 1992 was
$711,000, $792,000, and $764,000, respectively.
34
Minimum payments due for years after 1994 under noncancelable
operating leases are $887,000 in 1995, $735,000 in 1996, $599,000 in
1997, $538,000 in 1998 and $275,000 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.
35