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, 1995 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, 1996, was approximately $29,703,000.
3,700,876 shares of the Registrant's Common Stock were outstanding at the close
of business on March 15, 1996.
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, 1995
Noland Company Proxy Statement for April 24, 1996, Parts III and IV
Annual Meeting of Stockholders
This report contains 33 pages. The exhibit index is shown on page 11 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 2,000 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:
1995 1994 1993 1992 1991
(In thousands)
Plumbing/Heating $245,407 $241,273 $220,879 $225,239 $220,179
Electrical 48,444 46,076 43,363 49,090 47,498
Industrial 64,741 62,279 54,099 54,851 52,644
Air Conditioning/Refrigeration 110,920 90,574 84,600 82,906 64,214
$469,512 $440,202 $402,941 $412,086 $384,535
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 dollar amount of the Company's backlog of orders believed to be
firm was approximately $40,193,755 at December 31, 1995, and
$36,979,000 at December 31, 1994.
(viii) The portion of the Company's business with the Government and
subject to renegotiation is not considered material.
(ix) 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.
(x) Company-sponsored research and development activities expenditures
in 1995, 1994 and 1993 were immaterial.
(xi) 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.
(xii) As of December 31, 1995, the Company employed 1,655 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. Thirteen are held under leases and the
remaining eighty-six 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 (d),
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.
3
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 52 Chairman of the Board, Chief Executive Officer of
President and Director and Registrant.
Officer since 1981
Frank A. Wimbush 50 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. 52 Vice President-Finance Chief Financial Officer of
Officer since 1983 the Registrant.
Charles A. Harvey 56 Vice President-Corporate Responsible for the
Data. Officer since 1980 Registrant's Corporate Data
Division.
John E. Gullett 54 Vice President-Corporate Responsible for the
Communications Registrant's Corporate
Officer since 1982 Communications Department.
James E. Sykes, Jr. 52 Treasurer/Secretary Responsible for Registrant's
Officer since 1982 treasury functions and
secretarial duties.
All executive officers were elected for a term of one year beginning May 1, 1995
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.
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 1991
through 1995 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, 1995.
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, 1995.
4
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, 1995, 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, 1995, 1994 and 1993 13
Consolidated Balance Sheet--December 31, 1995, 1994 and 1993 14
Consolidated Statement of Cash Flows --
Years ended December 31, 1995, 1994 and 1993 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 1996 Noland Company Proxy Statement for the
April 24, 1996 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 1996 Noland Company Proxy Statement for the
April 24, 1996, 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 1996 Noland Company Proxy Statement for the
April 24, 1996, 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.
5
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, 1995, 1994
and 1993
Consolidated Balance Sheet--December 31,
1995, 1994 and 1993
Consolidated Statement of Cash Flows
--Years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
With the exception of the aforementioned information incorporated by
reference and the information in the 1995 Annual Report to Stockholders on
the inside back cover and pages 10, 11, 20 and 21 incorporated in response
to Items 5, 6 and 7 in this Form 10-K Annual Report, the 1995 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, 1995
Form 10-K Page(s)
Schedule II Valuation and Qualifying
Accounts 8
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 10
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, 1995, were
required to be filed.
(c) The Index of Exhibits and any required Exhibits are included beginning
at page 11 of this report.
(d) Not applicable.
6
Item 14(a)(2)
Financial Statement Schedules
7
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, 1995 $ 968,427 $ 739,929(1) $ - $ 700,224 $1,008,132
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
(1) Net of recoveries on bad debts of $896,772 for 1995, $685,511 for
1994 and $524,859 for 1993.
(2) Represents charges for which reserve was previously provided.
(3) Includes $200,000 reserve for final disposition of assets accepted as
settlement of debt.
8
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 22, 1996 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 22, 1996
Lloyd U. Noland, III
Vice President-Finance,
Chief Financial Officer
Arthur P. Henderson, Jr. and Director March 22, 1996
Arthur P. Henderson, Jr.
James E. Sykes, Jr. Treasurer/Secretary March 22, 1996
James E. Sykes, Jr.
Allen C. Goolsby, III Director March 22, 1996
Allen C. Goolsby, III
9
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 1995 Annual Report to Stockholders of Noland Company. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedules listed in Item 14 (a) 2 on page 8 of this Form
10-K.
In our opinion, the 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 19, 1996
10
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 - 32
(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 33
(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.
11
This page intentionally left blank.
12
EXHIBIT 13
INDEX
Page
Inside back cover 14 - 15
Ten Year Review 16 - 17
Management Discussions 18 - 20
Report of Independent Accountants 21
Consolidated Statement of Income 22
Consolidated Balance Sheet 23
Consolidated Statement of Cash Flows 24
Notes to Consolidated Financial Statements 25 - 32
13
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
Investor Inquiries or Request for Form 10-K:
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, 1996, the approximate
number of holders of record of the Company's common stock was 2,500.
14
Market Prices:
The following table sets forth the reported high and low prices for the
common stock on the NASDAQ system:
_________________________________
_______________High _____Low_____
1995
Qtr. 4 $20.25 $17.50
Qtr. 3 $21.25 $17.75
Qtr. 2 $22.00 $19.50
Qtr. 1 $21.75 $18.75
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
_________________________________
P/E Ratio:*
_________________High______Low____
1995 15 13
1994 13 9
_________________________________
*Based on final, full-year earnings
Dividend Policy:
Noland has paid regular cash dividends for 63 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
1994 and the first two quarters of 1995. The rate was increased to $.08 per
share beginning with the July 1995 payment.
Registrar:
Noland Company
Transfer Agent:
Chemical Mellon Shareholder Services, L.L.C.
Four Station Square
Third Floor
Pittsburgh, Pennsylvania 15219-1173
(412) 236-8000
Annual Meeting:
April 24, 1996, 10:00 a.m.
Noland's Corporate Headquarters
Newport News, Virginia
15
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited)
NOLAND COMPANY AND SUBSIDIARY
(Dollar amounts in thousands, except per share data)
1995 1994 1993 1992
Income Statement Data
Sales $469,512 $440,202 $402,941 $412,086
Gross Profit 89,087 86,166 77,306 77,265
Operating Expenses 83,389 78,259 74,692 73,227
Operating Profit (Loss) 5,698 7,907 2,614 4,038
Interest Expense 3,239 2,626 2,422 3,058
Interest Expense as Percent of Total Assets 1.5 1.2 1.2 1.7
Income (Loss) Before Income Taxes 8,237 10,568 5,291 6,610
Pretax Profit as Percent of Sales 1.8 2.4 1.3 1.6
Income Taxes Payable (Receivable) 3,290 4,341 1,996 2,518
Effective Tax Rate 39.9 41.1 37.7 38.1
Net Income (Loss) 4,947 6,227 3,295 4,092
Income Paid to Stockholders (Cash Dividends) 1,036 888 888 888
Income Reinvested 3,911 5,339 2,407 3,204
Property and Equipment Expenditures 9,735 10,858 7,611 6,191
Depreciation and Amortization 6,655 6,232 6,178 6,365
Balance Sheet Data
Stockholders' Equity 111,688 107,865 102,596 100,189
Working Capital 71,889 65,575 65,203 65,509
Current Ratio 2.4 2.0 2.3 2.8
Total Assets 213,520 217,085 201,029 185,372
Long-term Debt 41,611 36,914 38,505 40,511
Borrowed Funds 45,332 53,130 47,485 46,097
Borrowed Funds as Percent of Total Assets 21.2 24.5 23.6 24.9
Total Liabilities as Percent of Total Assets 47.7 50.3 48.9 46.0
Per Share Data *
Net Income (Loss) 1.34 1.68 .89 1.11
Cash Dividends Paid to Stockholders .28 .24 .24 .24
Stockholders' Equity (Book Value) 30.18 29.15 27.72 27.07
Return on Average Stockholders' Equity 4.5 5.9 3.2 4.2
Stock Price Range:
Average High 21.31 20.94 18.13 16.13
Average Low 18.38 17.56 15.06 13.91
Number of Employees at December 31 1,655 1,741 1,683 1,720
Number of Branches at December 31 99 99 93 93
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 91,187 86,404 77,318 76,541
Income (Loss) Before Income Taxes 10,337 10,806 5,303 5,886
Income Taxes Payable (Receivable) 4,124 4,441 2,000 2,226
Net Income (Loss) 6,213 6,365 3,303 3,660
Net Income (Loss) Per Share 1.68 1.72 .89 .99
Stockholders' Equity (Book Value) Per Share 34.39 33.69 32.21 31.19
Return on Average Stockholders' Equity 4.9 5.2 2.8 3.2
[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.
16
TEN-YEAR REVIEW OF SELECTED FINANCIAL DATA (Unaudited)
NOLAND COMPANY AND SUBSIDIARY
(Dollar amounts in thousands, except per share data)
1991 1990 1989 1988 1987 1986
Income Statement Data
Sales $384,535 $428,473 $454,629 $461,255 $434,593 $426,489
Gross Profit 71,000 79,982 83,328 83,491 80,978 79,204
Operating Expenses 74,355 75,641 75,413 75,098 70,397 67,176
Operating Profit (Loss) (3,355) 4,341 7,915 8,393 10,581 12,028
Interest Expense 3,724 4,742 5,973 5,673 4,865 4,656
Interest Expense as Percent of Total Assets 2.0 2.5 3.1 2.8 2.5 2.6
Income (Loss) Before Income Taxes (1,203) 6,377 8,468 8,882 11,422 12,259
Pretax Profit as Percent of Sales NA 1.5 1.9 1.9 2.6 2.9
Income Taxes Payable (Receivable) (478) 2,651 3,441 3,553 4,936 5,956
Effective Tax Rate (39.7) 41.6 40.6 40.0 43.2 48.6
Net Income (Loss) (725) 3,726 5,027 5,329 6,848(1) 6,303(2)
Income Paid to Stockholders (Cash Dividends) 1,702 1,665 1,629 1,554 1,480 1,458
Income Reinvested NA 2,061 3,398 3,775 5,368 4,845
Property and Equipment Expenditures 7,075 10,798 9,812 12,918 9,153 10,379
Depreciation and Amortization 6,543 6,433 6,306 6,028 5,623 5,088
Balance Sheet Data
Stockholders' Equity 96,985 99,412 97,351 93,953 90,178 84,810
Working Capital 64,433 70,701 76,486 78,713 83,456 83,528
Current Ratio 2.6 2.8 2.8 2.5 2.8 3.4
Total Assets 189,072 192,887 195,069 200,716 194,139 180,264
Long-term Debt 42,898 44,299 48,721 47,631 51,254 55,504
Borrowed Funds 54,299 56,131 60,030 68,240 68,462 63,446
Borrowed Funds as Percent of Total Assets 28.7 29.1 30.8 33.9 35.3 35.0
Total Liabilities as Percent of Total Assets 48.7 48.5 50.1 53.2 53.5 53.0
Per Share Data *
Net Income (Loss) (.20) 1.01 1.36 1.44 1.85(1) 1.70(2)
Cash Dividends Paid to Stockholders .46 .45 .44 .42 .40 .39
Stockholders' Equity (Book Value) 26.21 26.86 26.30 25.39 24.37 22.92
Return on Average Stockholders' Equity NA 3.8 5.3 5.8 7.8 7.7
Stock Price Range:
Average High 14.88 19.19 24.19 20.63 22.69 26.31
Average Low 12.25 15.00 22.09 18.75 19.13 21.06
Number of Employees at December 31 1,704 1,797 1,924 2,019 1,972 1,976
Number of Branches at December 31 92 92 94 101 100 100
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 70,888 80,429 84,486 88,585 82,665 79,119
Income (Loss) Before Income Taxes (1,315) 6,824 9,626 13,976 13,109 12,174
Income Taxes Payable (Receivable) (495) 2,770 3,815 5,499 5,304 5,915
Net Income (Loss) (820) 4,054 5,811 8,477 7,805 6,260
Net Income (Loss) Per Share (.22) 1.10 1.57 2.29 2.11 1.69
Stockholders' Equity (Book Value) Per Share 30.81 31.17 30.84 29.71 27.84 26.13
Return on Average Stockholders' Equity NA 3.5 5.2 8.0 7.8 6.6
[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
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 1995 were $469.5 million compared to $440.2 million for 1994 for
a 6.7 percent increase. Sales for 1994 were 9.2 percent greater than 1993's
sales of $402.9 million. The 6.7 percent increase in 1995 sales was reasonably
satisfying given an up-and-down economy that failed to live up to expectations.
The air conditioning and refrigeration department, which primarily serves
heating and air conditioning contractors with equipment and supplies, enjoyed a
22 percent growth in sales. The late-1994 addition of five branches in South
Florida was the primary factor in this increase. Without these newer branches,
air conditioning sales would have been 5 percent higher than those of 1994.
The other three departments--electrical, plumbing and heating, and industrial--
had sales increases ranging from 2 to 5 percent.
Gross profit, as a percent of sales, declined to 19.0 percent in 1995 from
19.6 percent for 1994 and 19.2 percent for 1993. The decline in gross profit
percentage in 1995 is attributable to LIFO and other year-end inventory
adjustments. The 1995 LIFO inventory adjustment increased cost of goods sold
by $2.1 million, while the 1994 adjustment was only $238,000.
Operating expenses increased 6.6 percent over 1994 to a total of $83.4
million. The increase is largely due to new branches and higher personnel-
related costs. In 1994 operating expenses were 4.8 percent greater than 1993.
Operating expenses, as a percent of sales, were 17.8 percent in 1995 and 1994
and 18.5 percent in 1993. 1995 operating expenses include $249,000 for pension
expense compared to a $534,000 reduction to operating expenses in 1994 and a
$1.1 million reduction to 1993 operating expenses. The reversal from income to
expense is due in part to the unrecognized net pension asset becoming fully
amortized in 1994.
Interest expense increased in 1995 to a total of $3.2 million or 23.4
percent greater than 1994. The increase is due largely to higher average
18
borrowings and higher short-term rates throughout the year. 1994 interest
expense was 8.4 percent greater than 1993.
The results of the 1995 activity generated net income of $4.9 million
compared to $6.2 million for 1994 and $3.3 million for 1993. Adversely
affecting 1993 earnings was a $419,000 loss on the sale of the Company's former
North Little Rock, Arkansas property.
Despite weather-related sluggish sales thus far in 1996, the Company is
upbeat about its prospects for this year. Based on current information,
construction activity and factory production levels should be somewhat stronger
than in 1995, creating sufficient demand for our products and services. At the
same time, we now have in place a strengthened management team and a new
marketing structure that focuses more energy on increasing market share and
capitalizing on significant growth opportunities.
Barring an economic downturn, we believe we are positioned for solid sales
growth in 1996.
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 1995 the Company generated $17.4 million in cash flow from
operations. This cash was used to purchase $9.7 million in capital assets,
retire short-term debt and pay dividends.
The Company's financial position remains strong with working capital of $71.9
million and a current ratio of 2.4 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, reflect the impact of inflation because
of the Company's use of the LIFO (last-in, first-out) inventory method. During
19
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 $91.8 million at year-end 1995, while the LIFO inventory balance was $58.1
million -- a difference accumulated since 1974 of $33.7 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.
20
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, 1995, 1994 and 1993, and the related
consolidated statements of income and retained earnings and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Noland Company
and Subsidiary as of December 31, 1995, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Newport News, Virginia Coopers & Lybrand L.L.P.
February 19, 1996
21
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1995, 1994, and 1993
(In thousands, except per share amounts)
1995 1994 1993
Sales $469,512 $440,202 $402,941
Cost of Goods Sold:
Purchases and freight in 374,039 363,019 330,244
Inventory, January 1 64,458 55,475 50,866
Inventory, December 31 (58,072) (64,458) (55,475)
Cost of Goods Sold 380,425 354,036 325,635
Gross Profit on Sales 89,087 86,166 77,306
Operating Expenses 83,389 78,259 74,692
Operating Profit 5,698 7,907 2,614
Other Income:
Cash discounts, net 3,849 3,627 3,340
Service charges 1,469 1,330 1,383
Miscellaneous 460 330 376
Total Other Income 5,778 5,287 5,099
Interest Expense 3,239 2,626 2,422
Income Before Income Taxes 8,237 10,568 5,291
Income Taxes 3,290 4,341 1,996
Net Income $ 4,947 $ 6,227 $ 3,295
Retained Earnings, January 1 70,926 65,587 63,180
Cash Dividends Paid ($.28 per share in 1995
$.24 per share in 1994 and 1993) (1,036) (888) (888)
Retained Earnings, December 31 $74,837 $ 70,926 $ 65,587
Net Income Per Share $ 1.34 $ 1.68 $ .89
[FN]
The accompanying notes are an integral part of the financial statements.
22
CONSOLIDATED BALANCE SHEET
NOLAND COMPANY AND SUBSIDIARY
December 31, 1995, 1994, and 1993
(In thousands)
Assets 1995 1994 1993
Current Assets:
Cash and cash equivalents $ 12,578 $ 9,891 $ 11,840
Accounts receivable(net of allowance for
doubtful accounts) 50,504 52,458 46,830
Inventory (net of reduction to LIFO 58,072 64,458 55,475
Deferred income taxes 1,902 2,001 1,763
Prepaid expenses 276 231 699
Total Current Assets 123,332 129,039 116,607
Property and Equipment, at cost:
Land 13,288 13,293 12,414
Buildings 70,622 66,040 62,006
Equipment and fixtures 51,519 49,002 46,097
Property in excess of current needs 2,054 1,928 2,200
Total 137,483 130,263 122,717
Less accumulated depreciation 61,819 57,278 53,580
Total Property and Equipment, net 75,664 72,985 69,137
Assets Held for Resale 1,291 1,356 1,306
Prepaid Pension 11,991 12,240 11,706
Other Assets 1,242 1,465 2,273
$213,520 $217,085 $201,029
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, short-term borrowings $ - $ 14,100 $ 7,000
Current maturity of long-term debt 3,721 2,116 1,980
Bank overdrafts 11,968 8,462 9,649
Accounts payable 21,350 23,743 20,976
Other accruals and liabilities 14,236 13,330 10,543
Federal and state income taxes 168 1,713 1,256
Total Current Liabilities 51,443 63,464 51,404
Long-term Debt 41,611 36,914 38,505
Deferred Income Taxes 8,352 8,638 8,404
Accrued Postretirement Benefits 426 204 120
Stockholders' Equity:
Capital common stock, par value, $10;
authorized, 6,000,000 shares; issued,
3,700,876 shares 37,009 37,009 37,009
Retained earnings 74,837 70,926 65,587
Total 111,846 107,935 102,596
Less unearned compensation, restricted stock 158 70 -
Stockholders' Equity 111,688 107,865 102,596
$213,520 $217,085 $201,029
[FN]
The accompanying notes are an integral part of the financial statements.
23
CONSOLIDATED STATEMENT OF CASH FLOWS
NOLAND COMPANY AND SUBSIDIARY
For the years ended December 31, 1995, 1994, and 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,947 $6,227 $ 3,295
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,655 6,232 6,178
Amortization of prepaid pension cost 249 (534) (1,056)
Deferred income taxes (187) (4) 185
Amortization of unearned compensation, restricted
stock 35 12 -
Provision for doubtful accounts 1,637 1,460 1,341
Loss on sale of property - 40 387
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 317 (7,088) (2,904)
Decrease (increase) in inventory 6,386 (8,983) (4,609)
(Increase) decrease in prepaid expenses (45) 468 (331)
Decrease (increase) in assets held for resale 65 (50) 252
Decrease in other assets 163 749 520
(Decrease) increase in accounts payable (2,393) 2,767 2,238
Increase in other accruals and liabilities 906 2,787 331
(Decrease) increase in federal and state income
taxes (1,545) 457 (81)
Increase in postretirement benefits 222 84 120
Total adjustments 12,465 (1,603) 2,571
Net cash provided by operating activities 17,412 4,624 5,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,735) (10,858) (7,611)
Proceeds from sale of assets 461 797 898
Net cash used by investing activities (9,274) (10,061) (6,713)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdrafts 3,506 (1,187) 4,147
Short-term borrowings 156,175 178,000 70,425
Short-term payments (170,275)(170,900) (66,925)
Long-term borrowings 10,954 - -
Long-term debt repayments (4,652) (1,455) (2,112)
Dividends paid (1,036) (888) (888)
Purchase of restricted stock (123) (82) -
Net cash provided (used) by financing activities (5,451) 3,488 4,647
CASH AND CASH EQUIVALENTS:
Increase (decrease) during year 2,687 (1,949) 3,800
Beginning of year 9,891 11,840 8,040
End of year $ 12,578 $ 9,891 $11,840
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,997 $ 2,553 $ 2,463
Income taxes $ 5,022 $ 3,889 $ 1,630
[FN]
The accompanying notes are an integral part of the financial statements.
24
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. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. 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.
d. 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.
Property in excess of current needs consists primarily of land held for
possible future expansion.
25
e. 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.
f. 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 by the retiree 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.
g. Income Taxes
A deferred tax asset or liability is recognized for the deferred tax
consequences of all temporary differences.
h. 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.
i. 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
$1,969,000 in 1995, $2,175,000 in 1994 and $1,658,000 in 1993.
j. 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. The fair value of the awards in 1995 and 1994 was $123,000
and $82,000, respectively. These amounts were reflected as unearned
26
compensation - restricted stock, with $35,000 and $12,000 amortized to
compensation expense in 1995 and 1994, respectively. The number of shares
granted was 6,000 in 1995 and 4,000 in 1994.
k. Reclassifications
Certain amounts in prior years' financial statements have been
reclassified to conform to the 1995 presentation.
3. Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of
$1,008,000 for 1995 and $968,000 for 1994 and 1993. Bad debt charges, net of
recoveries, were $739,000 for 1995, $774,000 for 1994, and $816,000 for 1993.
4. Inventory
Comparative year-end inventories are as follows:
1995 1994 1993
(In thousands)
Inventory, at approximate
replacement cost $91,814 $96,100 $86,879
Reduction to LIFO 33,742 31,642 31,404
LIFO inventory $58,072 $64,458 $55,475
5. Notes Payable
a. Short-term Borrowings:
There were no short-term borrowings at December 31, 1995. Amounts
payable to banks at December 31, 1994 and 1993 were $14,100,000 and $7,000,000,
respectively. The average interest rate, which is based on existing Federal
Funds rates, at December 31, 1994 and 1993 was 6.08 percent and 3.48 percent,
respectively. The carrying amount of these short-term borrowings approximate
fair value because of the short maturity of the borrowings.
The Company had unused lines of credit totaling $34.8 million at
December 31, 1995.
b. Long-term Debt:
1995 1994 1993
(In thousands)
Promissory note, 9.60% interest payable
quarterly, $1,850,000 due annually June
1996 through 2000 with balance due June
2001. (1) $11,200 $11,800 $12,400
Promissory note, 10.15% interest
payable quarterly. Principal paid
in full in 1995. (1) - 1,375 2,625
Promissory note, variable interest
27
payable weekly (6.28% at December
31, 1995), fully revolving basis
through June 1, 1997. (1) 10,000 10,000 10,000
Promissory note, variable interest
payable monthly (6.3% at December
31, 1995), principal due August
1998. (2) 7,500 - -
Industrial revenue financings, variable
interest payable quarterly (5.23% to
7.50% at December 31, 1995) with varying
maturities from 1996 to 2004. (1)(3) 15,200 15,330 15,460
Other 1,432 525 -
45,332 39,030 40,485
Less current maturities 3,721 2,116 1,980
$41,611 $36,914 $38,505
(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 ondisposition of capital assets, reckoned
accumulatively from January 1, 1986. Earnings retained since that date
not restricted under this provision amount to $9,315,000.
(2) The Company entered into an unsecured term revolver loan with a
committed amount of $15,000,000. The Company may pay down and reborrow
within the committed amount without penalty except for a non-usage fee
if the average usage for a 90 day period is less than 50 percent.
(3) 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, 1995, property and equipment with a net book value of $895,000 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 $30.1 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
$30.9 million for 1995.
28
Annual maturities of long-term debt for the five years subsequent to December
31, 1995, are as follows: 1996, $3,721,000; 1997, $4,072,000; 1998, $9,364,000;
1999, $3,840,000; 2000, $3,366,000.
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 change in accounting reduced
1993 net income $342,000 or $.09 cents per share. The Accumulated
Postretirement Benefit Obligation (APBO) is being amortized over twenty years.
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 7.0 percent for 1995, 8.5 percent
for 1994 and 7.5 percent for 1993.
The components of net periodic postretirement benefit costs are:
(In thousands) 1995 1994 1993
Service cost - benefits earned
during the period $ 45 $ 50 $ 53
Interest cost on accumulated postretirement
benefit obligation 316 309 292
Net amortization and deferral 203 203 203
Net postretirement benefit cost $ 564 $ 562 $ 548
The following table sets forth the plans' combined postretirement benefit
liability as of December 31, 1995, 1994, and 1993:
(In thousands) 1995 1994 1993
Accumulated postretirement benefit obligation:
Retirees $(2,938) $(2,676) $(2,288)
Fully eligible active
employees (644) (565) (863)
Other active plan
participants (880) (704) (898)
(4,462) (3,945) (4,049)
Unrecognized transition
obligation 3,457 3,660 3,863
Unrecognized net loss 579 81 66
Postretirement liability recognized in the
balance sheet $ (426) $ (204) $ (120)
7. Retirement Plan
The components of the provision for net periodic pension cost were as
follows:
29
1995 1994 1993
(In thousands)
Service cost - benefits earned
during the period $ 726 $ 843 $ 749
Interest cost on projected
benefit obligation 2,278 2,177 2,128
Actual return on assets (11,936) 650 (4,272)
Net amortization and deferral 9,181 (4,204) 339
Net pension cost $ 249 $( (534) $(1,056)
Assumptions used in the accounting were:
1995 1994 1993
Discount rate 7.0% 8.5% 7.5%
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, 1995, 1994, and 1993.
1995 1994 1993
(In thousands)
Actuarial present value of
projected benefit obligation,
based on employment service
to date and current salary
levels:
Vested benefits $(30,966) $(25,250) $(27,501)
Nonvested benefits (259) (230) (494)
Accumulated benefit obligation (31,225) (25,480) (27,995)
Additional amounts related
to projected salary increases (2,431) (2,127) (2,219)
Projected benefit obligation (33,656) (27,607) (30,214)
Plan assets at fair value;
primarily U.S. Government and
corporate bonds and equity
securities 49,531 39,856 42,733
Plan assets in excess of
projected benefit obligation 15,875 12,249 12,519
Unrecognized net loss/(gain)
from past experience different
from that assumed (3,884) (9) (245)
Unrecognized net asset at
January 1, 1986, being
30
recognized principally over
8.5 years - - (568)
Prepaid pension $ 11,991 $ 12,240 $ 11,706
8. Income Taxes
The components of income tax expense are as follows:
1995 1994 1993
(In thousands)
Federal:
Current $2,936 $3,723 $1,310
Deferred (159) - 436
State:
Current 541 618 239
Deferred (28) - 11
Total $3,290 $4,341 $1,996
The components of the net deferred tax liability are:
1995 1994 1993
(In thousands)
Current deferred (assets)
Accounts receivable $ (379) $ (365) $ (365)
Inventory (960) (1,072) (875)
Accrued vacation (563) (564) (523)
Total net current deferred (asset) (1,902) (2,001) (1,763)
Noncurrent deferred (assets) liabilities
Property and equipment 4,687 4,702 4,706
Pension asset 4,512 4,606 4,405
Postretirement
benefit liability (160) (77) (206)
Other (687) (593) (501)
Total net noncurrent deferred
liability 8,352 8,638 8,404
Net deferred liability $6,450 $6,637 $6,641
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:
1995 1994 1993
(In thousands)
Statutory rate applied to
pretax income $2,801 $3,593 $1,799
State income taxes, net
of federal tax benefit 357 409 158
Other 132 339 39
Total tax expense $3,290 $4,341 $1,996
31
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 1995, 1994, and 1993 was $992,000,
$711,000, and $792,000, respectively.
Minimum payments due for years after 1995 under noncancelable operating
leases are $843,000 in 1996, $750,000 in 1997, $617,000 in 1998, $395,000 in
1999 and $266,000 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 allowances 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 or results of operations.
32