[cover page has design down left margin]
Bryan
Steam
Corporation
Annual Report
Year ended June 30, 1997
To Our Shareholders:
The enclosed annual report shows the financial condition of our Company as of
June 30, 1997 and the results of operations for the past three years. The past
fiscal year came to a successful completion.
Overall sales as well as profits were up from the preceding year and reached the
highest level in our Company's history. Sales were up approximately 17% and
profits were up approximately 40%.
Our ongoing aggressive advertising and marketing campaign, along with our superb
representative organization, contributed primarily to this excellent increase.
We continue to concentrate our efforts in these areas as well as to enhance our
assistance to the representative organization.
Our backlog remains strong, but is expected to decline slightly in the second
quarter. This anticipated decline is primarily due to the cyclic nature of our
industry. We feel confident that the third and fourth quarters will show
increases as in past years.
Our directors have declared a dividend of $2.00 per share, a $0.50 per share
increase over that paid in 1996. This dividend is payable on September 15, 1997
to shareholders of record August 29, 1997. Your check is enclosed. Attached is a
notice of the Annual Meeting of Shareholders to be held on October 2, 1997
together with a proxy and a proxy statement.
If you cannot be present at the shareholders' meeting, we would appreciate your
signing and returning the proxy immediately.
/s/ H. Jesse McVay
H. Jesse McVay
President
Enclosures: Notice of Annual Meeting of Shareholders
Proxy Form
Proxy Statement
Dividend Check
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's consolidated net income for the year ended June 30, 1997
was $1,609,015, compared to $1,148,934 and $927,141 for the years ended June 30,
1996 and 1995, respectively. The Company's earnings per share totaled $8.41 for
the year ended June 30, 1997, compared to $6.01 and $4.85 for the years ended
June 30, 1996 and 1995, respectively. The increase in net income of $460,081, or
40%, was primarily attributable to Bryan Boilers' operations, which had net
income of $1,614,268 for the year ended June 30, 1997. Wendland also generated
net income of approximately $117,140 for the year ended June 30, 1997. MEMCO
generated a loss of $121,905 through June 30, 1997. Operating profit totaled
$2,346,494, or 8.94% of sales, in 1997 compared to $1,668,590, or 7.42% of
sales, and $1,228,360, or 7.03% of sales, in 1996 and 1995, respectively. Please
note that the addition of the income and losses of the three companies does not
necessarily add up to the Company's consolidated after-tax profit because of tax
considerations from the losses at MEMCO.
The Company's combined sales income of $26,232,883 for the year ended
June 30, 1997 represents an increase of approximately 16.71% over the sales
income of $22,476,628 for the year ended June 30, 1996. The increase in sales
for 1997 as compared to 1996 is primarily attributable to two factors: (I) the
addition of approximately $1,000,000 in sales by MEMCO in 1997, and (ii)
increased sales by Bryan Boilers in 1997 of approximately $2,800,000 over its
sales in 1996. The increase in sales by Bryan Boilers was primarily due to the
acceptance by the industry of Bryan's large water tube boilers and a very
aggressive sales campaign by Bryan Boilers and its sales representatives.
Competition in Bryan Boilers' small water tube boiler market remains very
intense. However, internal concerns of some competitors seem to have mitigated
this competitive situation somewhat. During the year ended June 30, 1997, Bryan
Boilers found that it was not necessary to give as large discounts as often as
it had in the past. Bryan Boilers had no price increase during the fiscal year
1997. However, a price increase of approximately 3% was placed in effect on
September 1, 1997.
Wendland Manufacturing Corporation maintained its price structure,
which increased its cost of goods sold by an amount reflecting the increased
cost of material and labor.
MEMCO, still on the learning curve, had no direct increase in pricing
during fiscal 1997.
The Company's cost of goods sold for the year ended June 30, 1997 was
$20,212,160, compared to $17,887,043 and $13,913,906 for the years ended June
30, 1996 and 1995, respectively. The Company's cost of goods sold as a
percentage of sales was 77.05% in 1997, which decreased when compared to 79.58%
in 1996. Management believes that the decrease in cost of goods sold reflects
management's efforts to control materials costs and to sustain labor efficiency,
efforts which management will continue in fiscal year 1998. As reported last
year, Bryan Boilers negotiated a new collective bargaining agreement in May,
1995, which runs through May, 1998. This collective bargaining agreement
provides for an increase in wages for Bryan Boilers' bargaining unit of 3.5% in
each of the years covered by the contract.
Total expenses for the year ended June 30, 1997 totaled $3,674,229,
compared to $2,920,995 for the year ended June 30, 1996. Total expenses for the
year ended June 30, 1997 were approximately 14% of sales, as compared to 13% for
the year ended June 30, 1996.
Total other income totaled $234,474 in 1997 compared to $173,960 and
$247,271 in 1996 and 1995, respectively. The increase in other income in 1997
over 1996 resulted primarily from an increase in Interest and dividend income
and an increase in Freight income, which was offset somewhat by a decrease in
Other income and expense. Interest and dividend income increased by
approximately $55,000 over this same period in 1996, and is approximately equal
to 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Financial Condition
The Company's total assets at June 30, 1997 were $17.2 million compared
to $16.2 million and $15.1 million at June 30, 1996 and 1995, respectively. The
increase in total assets resulted primarily from the approximately $1 million
increase in property, plant and equipment. The majority of this $1 million is
attributable to Bryan Boilers in the form of a building addition during 1997.
Total current liabilities at June 30, 1997 were approximately $2.4 million,
which compares favorably to the $2.5 million and $1.6 million at June 30, 1996
and 1995, respectively. The Company's net worth at June 30, 1997 was $14.4
million, compared to $13.1 million and $12.2 million at June 30, 1996 and 1995,
respectively.
Liquidity and Capital Resources
Total cash and cash equivalents and investments at June 30, 1997 were
$1,835,565, compared to $1,921,293 and $4,121,350 at June 30, 1996 and 1995,
respectively. This minor decrease in the Company's liquid assets in 1997
resulted primarily from the increase in inventory between 1997 and 1996, the
retirement of short and long term debt, and the construction of the
manufacturing addition at Bryan Boilers. The combined working capital ratio of
current assets to current liabilities was 4.67:1 at June 30, 1997, compared to
4.61:1 and 7.07:1 at June 30, 1996 and 1995, respectively. Management estimates
that capital expenditures for fiscal 1998 will total approximately $600,000.
There is no major item included in this estimation. Management anticipates that
internal sources of funds will be adequate to cover the planned capital
expenditures.
General
Management considers Bryan Boilers' performance for the last fiscal
year to be excellent considering the competitive nature of this industry.
Management considers the performance of Wendland Manufacturing to be very
satisfactory, considering the regionality of its markets. Management considers
the MEMCO performance to be satisfactory. We do believe that MEMCO (still a
start-up company) will still struggle in the year ahead, but start to show a
profit during fiscal 1999.
Although the Company may in the future consider possible acquisitions,
it is not currently pursuing any. Management intends to continue to emphasize
growth and profitability in the coming year by continuing to increase the
progress we've made in quality, customer service and cost containment.
OFFICERS AND DIRECTORS
Present Positions
and Offices with the Principal Occupation
Name Company or Employments
- -------------------- --------------------------- ----------------------------
Albert J. Bishop Chairman of the Board, Chairman of the Board
Director and member of the
Executive Committee
H. Jesse McVay President, General Manager, President of the Company
Director
Kurt J. Krauskopf Corporate Secretary Secretary of the Company
Paul D. Donaldson Treasurer Treasurer of the Company
Harold V. Koch Director Chairman Emeritus
of the Board
G. N. Summers Director Owner of Saine-Summers
Insurance Agency
Jack B. Jackson Director Retired community bank
Chairman, Peru office,
First of America Bank -
Indiana
James R. Lockhart, Jr. Director Vice President & General
Manager of Residential
Business Development for
GAF Materials Corp.
Bryan D. Herd Director Design consultant,
Partridge Home
Furnishings
ADDITIONAL INFORMATION
There are approximately 1,047 record holders of the Company's shares of
common stock. There is no established trading market for the Company's shares
and the Company is not normally informed of the terms of transactions in its
shares.
The Company's shares are traded sporadically over-the-counter. Set
forth below are the range of high and low bid quotations as reported on
Tradeline for each quarter during the last two fiscal years. These quotations
may reflect inter-dealer transactions, without retail mark-up, mark-down, or
commission. They do not necessarily represent actual transactions and management
does not have knowledge of the volume of trading, if any, at any of such bid
prices.
QUARTER ENDED HIGH ASK LOW BID
September 30, 1995 49 1/2 42 1/4
December 31, 1995 49 1/4 42 1/4
March 31, 1996 45 33
June 30, 1996 47 35
September 30, 1996 47 37
December 31, 1996 38 38
March 31, 1997 39 1/2 39 1/4
June 30, 1997 50 47
The Company has paid dividends for the last several years on an annual basis.
The annual dividends per share paid during its 1997 and 1996 fiscal years and
the dates of payment are:
$1.50 September 13, 1996
$1.40 September 15, 1995
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH SHAREHOLDER, ON THE WRITTEN
REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB,
INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, REQUIRED TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, FOR THE COMPANY'S MOST RECENT
FISCAL YEAR. THE WRITTEN REQUEST SHOULD BE DIRECTED TO: KURT J. KRAUSKOPF,
SECRETARY, BRYAN STEAM CORPORATION, P. O. BOX 27, PERU, INDIANA 46970.
THIS PAGE
INTENTIONALLY
LEFT BLANK
[CASSEN COMPANY LLC LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: The Board of Directors and Stockholders
of Bryan Steam Corporation
We have audited the accompanying consolidated balance sheets of Bryan Steam
Corporation (a New Mexico Corporation) and subsidiary as of June 30, 1997, 1996,
and 1995, and the related consolidated statements of income, retained earnings
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bryan Steam Corporation and subsidiary as of June 30, 1997, 1996, and 1995, and
the results of their consolidated operations, consolidated retained earnings and
consolidated cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Selected Consolidated Financial Data
is presented for the purposes of additional analysis and is not a required part
of the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Cassen Company LLC
CASSEN COMPANY LLC
Indianapolis, Indiana
July 25, 1997
CONSOLIDATED STATEMENTS OF INCOME
June 30,
1997 1996 1995
------------- --------------- ---------
SALES................................................ $ 26,232,883 $ 22,476,628 $17,480,290
---------- ---------- ----------
COST OF GOODS SOLD
Inventory - Beginning............................. $ 4,202,010 $ 4,181,513 $ 3,881,151
Purchases & Freight............................... 11,530,216 10,178,216 8,173,090
Labor............................................. 5,436,966 4,581,203 3,535,022
Other Costs....................................... 3,522,171 3,148,121 2,506,156
----------- ----------- -----------
TOTAL........................................ $ 24,691,363 $ 22,089,053 $18,095,419
Less: Inventory - Ending.......................... 4,479,203 4,202,010 4,181,513
----------- ----------- -----------
COST OF GOODS SOLD.............................. $ 20,212,160 $ 17,887,043 $13,913,906
----------- ---------- ----------
GROSS PROFIT ON SALES................................ $ 6,020,723 $ 4,589,585 $ 3,566,384
----------- ----------- -----------
EXPENSES
Salaries & Wages - Officers....................... $ 244,015 $ 278,261 $ 174,280
Salaries & Wages - Other.......................... 910,276 772,170 554,145
Depreciation Expense.............................. 207,935 119,184 105,375
Pension Plan...................................... 268,658 115,523 119,204
Taxes - Payroll & Local........................... 166,422 117,387 72,713
Provision for Bad Debts........................... 77 15,207 20,564
Repairs & Maintenance............................. 130,564 78,141 41,461
General & Administrative.......................... 1,746,282 1,425,122 1,250,282
----------- ----------- ----------
TOTAL EXPENSES.................................. $ 3,674,229 $ 2,920,995 $ 2,338,024
----------- ----------- ----------
OPERATING PROFIT..................................... $ 2,346,494 $ 1,668,590 $ 1,228,360
---------- ----------- ----------
OTHER INCOME (LOSS)
Interest and Dividend Income...................... $ 158,675 $ 103,984 $ 157,871
Interest Expense.................................. (88,281) (82,830) --
Net gain (loss) on investment securities.......... (3,872) (1,589) 11,928
Frieght Income.................................... 115,599 86,613 --
Other Income and expense.......................... 52,353 67,782 77,472
----------- ------------ -----------
TOTAL OTHER INCOME.............................. $ 234,474 $ 173,960 $ 247,271
----------- ----------- ----------
INCOME BEFORE INCOME TAXES .......................... $ 2,580,968 $ 1,842,550 $ 1,475,631
PROVISION FOR INCOME TAXES........................... 971,953 693,616 548,490
----------- ------------ ----------
NET INCOME .......................................... $ 1,609,015 $ 1,148,934 $ 927,141
========== =========== ==========
EARNINGS PER SHARE................................... $ 8.41 $ 6.01 $ 4.85
=========== ============ ==========
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Income.
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 1997 1996 1995
------------ --------------- ---------
CURRENT ASSETS
Cash & Cash Equivalents........................... $ 368,879 $ 304,739 $ 2,192,946
Investment Securities............................. 1,466,686 1,616,554 1,928,404
Accounts Receivable, Net.......................... 4,814,745 4,793,663 3,051,854
Inventory......................................... 4,479,203 4,202,010 4,181,513
Prepaid Federal Income Taxes...................... 27,528 84,414 - -
Prepaid Expenses.................................. 282,644 335,183 190,839
------------ ------------ -----------
TOTAL CURRENT ASSETS............................ $ 11,439,685 $ 11,336,563 $11,545,556
---------- ---------- ----------
PROPERTY, PLANT & EQUIPMENT
(Cost, less accumulated depreciation)............. $ 5,576,122 $ 4,568,220 $ 3,524,417
----------- ---------- ----------
OTHER ASSETS
Intangible Assets, Net............................ $ 201,791 $ 268,058 $ 20,698
Deposits.......................................... 5,171 5,171 - -
------------- ------------- -----------
TOTAL OTHER ASSETS.............................. $ 206,962 $ 273,229 $ 20,698
----------- ------------ ----------
TOTAL ASSETS......................................... $ 17,222,769 $ 16,178,012 $15,090,671
========== ========== ==========
LIABILITIES & NET WORTH
CURRENT LIABILITIES
Accounts Payable - Trade.......................... $ 851,512 $ 553,079 $ 320,072
Capital Lease Obligations......................... 8,632 - - - -
Line of Credit - Norwest Bank..................... 45,400 20,000 - -
Notes Payable..................................... - - 302,620 - -
Accrued Liabilities............................... 1,427,492 1,168,974 1,026,825
Current Portion of Long-term Debt................. 24,300 341,673 200,000
Federal Income Taxes Payable...................... - - - - 118,730
State Income Taxes Payable........................ 4,837 - - 36,453
Deferred Federal Income Tax....................... 70,071 60,678 39,915
Deferred State Income Tax......................... 16,085 13,963 9,157
------------ ------------ -----------
TOTAL CURRENT LIABILITIES....................... $ 2,448,329 $ 2,460,987 $ 1,751,152
---------- ---------- ----------
LONG-TERM LIABILITIES
Capital Lease Obligations......................... $ 45,272 $ - - $ - -
Long-term Debt.................................... 44,968 238,207 800,000
Deferred Federal Income Tax....................... 229,926 308,816 262,474
Deferred State Income Tax......................... 50,609 70,845 60,215
Dividends Payable................................. 11,834 10,016 8,863
------------ ------------ -----------
TOTAL LONG-TERM LIABILITIES..................... $ 382,609 $ 627,884 $ 1,131,552
----------- ----------- ----------
NET WORTH
Common Capital Stock, Without Par Value,
200,000 Shares - Authorized & Issued............ $ 810,272 $ 810,272 $ 810,272
Retained Earnings................................. 13,610,286 12,307,596 11,426,422
Treasury Stock, at cost, 8,716 Shares............. (28,727) (28,727) (28,727)
------------ ------------ ------------
TOTAL NET WORTH................................. $ 14,391,831 $ 13,089,141 $12,207,967
---------- ---------- ----------
TOTAL LIABILITIES AND NET WORTH...................... $ 17,222,769 $ 16,178,012 $15,090,671
========== ========== ==========
The accompanying notes to financial statements are an integral part of these
Consolidated Balance Sheets.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
June 30,
1997 1996 1995
------------- --------------- ---------
BALANCE AT BEGINNING OF YEAR......................... $12,307,596 $11,426,422 $10,749,269
Net Income........................................ 1,609,015 1,148,934 927,141
Dividends Paid.................................... (286,885) (267,760) (249,988)
Adjustment to Prior Year Income Tax Expense....... (19,440) - - - -
-------------- ----------- -----------
BALANCE AT END OF YEAR............................... $13,610,286 $12,307,596 $11,426,422
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Retained Earnings.
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30,
1997 1996 1995
------------- --------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers...................... $ 26,392,669 $ 20,876,838 $17,310,182
Cash paid to suppliers and employees.............. (22,990,668) (20,083,591) (16,254,730)
Interest and dividends received................... 158,675 129,783 155,422
Interest paid..................................... (90,437) (80,674) (3,819)
Income taxes paid................................. (1,017,281) (850,672) (199,000)
------------ ------------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES....................... $ 2,452,958 $ (8,316) $ 1,008,055
------------ ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment ................. $ (1,466,181) $ (1,493,997) $ (615,347)
Proceeds from sale of plant & equipment........... 5,346 - - - -
Purchases of investment securities................ (222,916) (520,008) (894,308)
Proceeds from sale of investment securities....... 368,912 817,019 1,587,087
Deposits with Utilities........................... - - (5,171) - -
Purchase of Noncompete Agreements................. - - (300,000) - -
Purchase of Goodwill.............................. - - (13,627) - -
------------ ------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES....................... $ (1,314,839) $ (1,515,784) $ 77,432
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings............... $ - - $ 322,620 $ - -
Principal payments on short-term borrowings....... (277,220) - - - -
Principal payments on capital lease obligations... (1,080) - - - -
Principal payments on long-term debt.............. (566,612) (464,484)
Proceeds from long-term debt...................... 56,000 44,364 1,000,000
Dividends paid.................................... (285,067) (266,607) (252,754)
------------ ------------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES....................... $ (1,073,979) $ (364,107) $ 747,246
------------ ------------- -----------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS................................... $ 64,140 $ (1,888,207) $1,832,733
CASH AND EQUIVALENTS AT BEGINNING OF YEAR............ $ 304,739 $ 2,192,946 $ 360,213
------------ ------------- -----------
CASH AND EQUIVALENTS AT END OF YEAR.................. $ 368,879 $ 304,739 $2,192,946
=========== ============ ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Non-cash investing transactions included trading used
equipment having a fair
market value for new equipment,
in addition to boot given, and the recording
of capital lease obligations.
Fair value of used equipment given................ $ - - $ 14,150 $ 20,579
=========== =========== =========
Capital lease obligations recorded................ $ 54,984 $ - - $ - -
=========== =========== =========
The accompanying notes to financial statements are an integral part of these
Consolidated Statements of Cash Flows.
SELECTED CONSOLIDATED FINANCIAL DATA
(All except per share amounts are in thousands)
Year Ended June 30,
1997 1996 1995
-------- -------- --------
TOTAL ASSETS $ 17,223 $ 16,178 $ 15,091
======== ======== ========
LONG-TERM OBLIGATIONS
Capital lease obligations $ 45 $ -- $ --
Long-term debt 45 238 800
Deferred income taxes 281 380 323
Dividends payable 12 10 9
-------- -------- --------
TOTAL LONG-TERM OBLIGATIONS $ 383 $ 628 $ 1,132
======== ======== ========
SALES - NET $ 26,233 $ 22,477 $ 17,480
COST OF GOODS SOLD 20,212 17,887 13,914
-------- -------- --------
GROSS PROFIT ON SALES $ 6,021 $ 4,590 $ 3,566
TOTAL EXPENSES 3,674 2,921 2,338
-------- -------- --------
OPERATING PROFIT $ 2,347 $ 1,669 $ 1,228
OTHER INCOME 234 174 247
-------- -------- --------
INCOME BEFORE INCOME TAXES $ 2,581 $ 1,843 $ 1,475
PROVISION FOR INCOME TAXES 972 694 548
-------- -------- --------
NET INCOME $ 1,609 $ 1,149 $ 927
======== ======== ========
EARNINGS PER SHARE - COMMON STOCK
(191,284 shares in 1 191,284 shares in
1996; 191,284 shares in 1995) $ 8.41 $ 6.01 $ 4.85
======== ======== ========
OPERATING PROFIT PER SHARE - COMMON STOCK
(191,284 shares in 1997;191,284
shares in 1996; 191,284 shares in 1995) $ 12.27 $ 8.72 $ 6.42
======== ======== ========
DIVIDENDS PER SHARE - COMMON STOCK
(191,284 shares in 1997; 191,284 shares in
1996; 191,284 in 1995) $ 1.50 $ 1.40 $ 1.30
======== ======== ========
The accompanying notes to financial statements are an integral part of this
Selected Consolidated Financial Data.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation manufactures boilers and boiler accessories at its Bryan Steam
Corporation (Bryan Steam) plant in Peru, Indiana. Bryan Steam's wholly-owned
subsidiary, Wendland Manufacturing Corp. (Wendland), operates a tank
manufacturing facility in San Angelo, Texas. Wendland's wholly- owned
subsidiary, Monticello Exchanger and Manufacturing Co. (Monticello),
manufactures heat exchangers at its plant in Monticello, Indiana. The
Corporation sells its products through independent sales representatives. North
America is the principal market for the Corporation's products.
Bryan Steam's sales were 83.87% of total consolidated sales, while Wendland's
and Monticello's sales were 10.59% and 5.54% of the total, respectively.
1a. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include cash on
hand, deposits in banks, certificates of deposit, money funds and all highly
liquid debt instruments with original maturities of three months or less. The
fair value of cash and cash equivalents, based on current market prices, is
$368,879.
1b. INVESTMENT SECURITIES
Investment securities are valued at cost, which approximates the market
value. Based on current market prices, the fair value of investment
securities is $1,470,867. Current gross unrealized gains and (losses) totaled
$24,491 and $(20,310), respectively.
1c. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of buildings,
equipment, fixtures and vehicles is computed using the straight-line method
over estimated useful lives.
Estimated useful lives are:
Years
-------------------------- ---------------
Buildings & improvements 10 - 40
Machinery & equipment 10
Furniture & fixtures 5 - 10
Vehicles 4 - 10
Expenditures for equipment repair and maintenance and for replacements and
renewals of portions of structures which are not considered as lengthening
the life of the structures are expensed as incurred. Additions, replacements
and renewals of equipment are capitalized.
When property or equipment is retired, sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and
gains and losses resulting from such transactions are reflected in income.
1d. RESEARCH & DEVELOPMENT
Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged for the years ended
June 30, 1997, 1996, and 1995 were $101,290, $92,063, and $119,233,
respectively.
1e. INVENTORY
The Corporation's inventory of raw materials is valued at lower of cost,
using the FIFO method, or market. The Corporation's inventories of
work-in-process and finished goods are valued at cost per unit.
1f. SUPPLEMENTAL INCOME INFORMATION
The amounts of depreciation and maintenance are set forth in the statement of
income. There were no management or service contract fees or royalties paid
during the years ended June 30, 1997, 1996, and 1995. Advertising costs are
expensed as incurred.
1g. INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
109-"Accounting for Income Taxes", July 1, 1993. This Statement supersedes
SFAS 96-"Accounting for Income Taxes". Deferred income taxes reflect the
future federal and state tax consequences of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end.
1h. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Corporation and of its wholly-owned subsidiary. Intercompany transactions
and balances have been eliminated in consolidation.
1i. INDUSTRY SEGMENT
During the year ended June 30, 1997, the Corporation operated exclusively in
one industry segment, the manufacture of boilers, tanks, and heat exchangers.
1j. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments," requires disclosures of fair value information about
financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. For most of its covered financial instruments, the
Corporation's carrying value closely approximates the fair value of the
financial instruments to the Corporation.
1k. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from the estimates.
2. INVENTORY
Inventories are stated at the lower of cost or market. Cost approximates
market. Such cost includes raw materials, direct labor, other direct costs
and production overhead. The inventories are valued on the first-in,
first-out (FIFO) method.
Inventories at June 30 are as follows:
Finished goods and... 1997 1996 1995
---------- ---------- -------
work-in-process.... $1,165,334 $1,136,608 $ 843,503
Raw materials........ 3,313,869 3,065,402 3,338,010
--------- --------- ---------
TOTAL.............. $4,479,203 $4,202,010 $4,181,513
========= ========= =========
- --------------------------------------------------------------------------------
3. INCOME TAXES
- --------------------------------------------------------------------------------
As discussed in Note 1g, on July 1, 1993, the Corporation adopted Statement
of Financial Accounting Standards No. 109-"Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Corporation's
financial statements or tax returns. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than enactments
of changes in the tax law or rates.
The Corporation and its subsidiary file separate income tax returns.
The provision for income taxes consists of the following:
For the years ended June 30,
1997 1996 1995
----------- ----------- -----------
Current taxes
Federal ......................... $ 847,472 $ 483,412 $ 388,744
State ........................... 212,093 127,663 106,398
----------- ----------- -----------
Total ......................... $ 1,059,565 $ 611,075 $ 495,142
----------- ----------- -----------
Deferred taxes
Federal ......................... $ (69,359) $ 67,105 $ 43,388
State ........................... (18,253) 15,436 9,960
Total ........................ $ (87,612) $ 82,541 $ 53,348
Provision (benefit) for
income taxes .................... $ 971,953 $ 693,616 $ 548,490
=========== =========== ===========
Reconciliation of total provision for income tax with the expected provision
obtained by applying statutory rates to pretax income:
For the years ended June 30,
1997 1996 1995
--------- --------- ---------
Expected tax provision . $ 990,165 $ 606,802 $ 616,814
Nondeductible expenses/
(nontaxable income) .. (15,760) 86,814 (68,324)
Tax benefit of graduated
rates used in the
calculation of the
deferred tax liability -- -- --
Other .................. (2,452) -- --
--------- --------- ---------
Total Provision for
Income Tax ........... $ 971,953 $ 693,616 $ 548,490
========= ========= =========
The sources of the temporary differences for deferred income taxes as of June
30, are summarized as follows:
1997 1996 1995
Depreciation ..... $ 1,021,060 $ 908,281 $ 771,984
----------- ----------- -----------
Pension .......... 206,118 272,434 126,909
Net Operating Loss (327,321) -- --
Other ............ (17,372) (12,460) (9,511)
-----------
$ 882,485 $ 1,168,255 $ 889,382
=========== =========== ===========
Deferred Income
Tax Liabilities.. $ 366,691 $ 454,302 $ 371,761
=========== =========== ===========
Deferred tax liabilities (assets) are comprised of the following:
For the years ended June 30,
1997 1996 1995
---------- ---------- -------
Depreciation .............. $ 423,728 $ 379,661 $ 322,689
Pension ................... 86,156 113,877 53,048
--------- --------- ---------
Gross deferred tax
liability ............. $ 509,884 $ 493,538 $ 375,737
--------- --------- ---------
Allowance for bad debts ... $ (6,547) $ (5,208) $ (3,976)
Net operating loss
carryforward, expires
June 30, 2011 ........... (136,646) (34,028) --
Capital loss carryforward . -- -- --
--------- --------- ---------
Gross deferred tax assets $(143,193) $ (39,236) $ (3,976)
Deferred tax assets
valuation allowance ..... $ -- $ -- $ --
--------- --------- ---------
Deferred tax liabilities
(assets) ................ $ 366,691 $ 454,302 $ 371,761
========= ========= =========
4. PENSION PLANS
The Corporation has non-contributory pension plans for substantially all
employees at its Peru, Indiana facility. The initial pension plan was
established on or about July 1, 1966. Plan assets consist of government and
corporate bonds, mutual funds, guaranteed investment contracts, and cash
equivalent investments. Pension benefits are based on taxable earnings and
years of service. The Corporation's policy is to fund at least the minimum
amounts required by Federal law and regulation.
Pension expense includes the following components:
1997 1996 1995
--------- --------- ---------
Service cost - benefits
earned during year ..... $ 226,998 $ 175,553 $ 214,930
Interest cost on projected
benefit obligation ..... 266,026 278,403 268,558
Actual return on assets ..... (151,097) (346,036) (179,441)
Net of other components .. (62,339) (42,720) (164,893)
--------- --------- ---------
Net periodic
pension cost ........... $ 279,588 $ 65,200 $ 139,154
The reconciliation of the funded status of the plans is as follows:
Year Ended 6/30/97 6/30/96 6/30/95
Measurement Date 3/31/97 3/31/96 3/31/95
Actuarial present value of benefit obligations:
Vested benefit
obligation ............. $(2,798,339) $(3,490,452) $(2,605,779)
Accumulated benefit
obligation ............. $(3,102,787) $(3,826,817) $(2,858,294)
Projected benefit
obligation ............. $(3,878,041) $(4,627,297) $(3,427,845)
Plan assets at
fair value ............. 4,100,016 4,637,004 4,178,854
----------- ----------- -----------
Plan assets greater
(less) than projected
benefit obligation ..... $ 221,975 $ 9,707 $ 751,009
Unrecognized net
(gain) loss ............ 177,968 536,257 (320,239)
Prior service cost not yet
recognized in net
periodic pension cost .. 29,369 31,533 33,697
Unrecognized transition
obligation (assets) .... (223,197) (305,063) (337,558)
----------- ----------- -----------
Prepaid (accrued)
pension expense........... $ 206,115 $ 272,434 $ 126,909
========== ========== ==========
The assumptions used in determining pension expense and funded status
information shown above were as follows:
6/30/97 6/30/96 6/30/95
Discount rate...... 7.50% 7.00% 8.25%
Rate of salary
progression...... 4.00% 4.00% 4.00%
Long-term rate of return
on assets........ 7.00-8.50% 7.00% 7.00%
The discount rates for June 30, 1997, and 1996 are based upon the Moody's AA
Corporate Bond Index.
- --------------------------------------------------------------------------------
4. PENSION PLANS (CONTINUED)
- --------------------------------------------------------------------------------
Contributions to a union sponsored defined contribution pension plan for
years ended June 30, 1997, 1996, and 1995 were $224,750, $171,238, and
$131,323, respectively. This plan covers all bargaining unit employees. This
plan is not administered by the Corporation and contributions are determined
in accordance with provisions of a negotiated labor contract.
The Corporation maintains a defined contribution money-purchase plan for
qualified employees at its San Angelo, Texas facility. The Corporation's
contribution to this retirement plan is determined by the voluntary
contributions made by the employees. The Corporation matches employee
contributions up to 3% of the individual employee's earnings. During the
years ended June 30, 1997, and 1996, the Corporation incurred expenses of
$20,230 and $16,652, respectively, for this retirement plan, all of which was
charged to operations.
5. PLANT, PROPERTY & EQUIPMENT
June 30,
-----------------------------------
1997 1996 1995
---------- ---------- ----------
Land .................. $ 197,326 $ 183,526 $ 54,676
Buildings ............. 3,809,322 2,883,870 2,486,135
Machinery & Equipment . 3,488,412 3,131,250 2,432,653
Equipment under capital
lease ................. 54,984 -- --
Patterns - Hoppes ..... 30,000 30,000 30,000
Furniture & fixtures .. 1,020,343 958,293 774,841
Vehicles .............. 376,247 311,718 288,843
---------- ---------- ----------
$8,976,634 $7,498,657 $6,067,148
Less: Accumulated
Depreciation .......... (3,400,512) (2,930,437) (2,542,731)
TOTALS ................ $5,576,122 $4,568,220 $3,524,417
6. CONTINGENT LIABILITIES
The Corporation is involved in litigation arising from the normal course of
business. In the opinion of management, based on advice of legal counsel,
this litigation will not have any material adverse effect on the financial
position of the Corporation.
7. RELATED PARTY TRANSACTIONS
The Corporation paid approximately $613,253 in the fiscal year 1997, and
$553,956 in the fiscal year ended 1996 to cover premiums for various
property, casualty, and workers compensation insurance policies on which an
insurance agency owned by G. N. Summers, a director of the Corporation,
received commissions. Refunds totalling $4,210 in the year ended June 30,
1997, and $26,067 in the year ended June 30, 1996 were received by the
Corporation as a result of periodic insurer audits of the various policies.
There are no other reportable related party transactions between the
Corporation and its directors, executive officers, 5% beneficial shareholders
or immediate family members of the foregoing persons.
The Corporation paid freight charges totaling $12,800 to Western Express
through January 31, 1997, at which time Wendland Manufacturing Corp.
(Wendland) purchased all of the business assets of Western Express. Prior to
February 1, 1997, an officer of Wendland had an ownership interest in Western
Express.
8. INTANGIBLES
Amortization is recorded under the "straight line method." Goodwill and
non-compete agreements are being amortized over five years. Expenditures to
acquire a patent are capitalized and amortized over 17 years.
9. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
In 1990, the Corporation adopted Statement of Financial Accounting Standard
No. 105 which requires disclosure of information about financial instruments
with off-balance sheet risk and about concentrations of credit risk for all
financial instruments.
OFF-BALANCE SHEET RISK
As of June 30, 1997, the Corporation had no significant off-balance sheet
risk.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Corporation to
significant concentrations of credit risk consist principally of temporary
cash investments and trade receivables.
The Corporation places its cash and temporary investments with various high
quality financial institutions. Cash accounts, on deposit at a local bank,
sometimes exceeded the $100,000 limit established by the Federal Deposit
Insurance Corporation. The Corporation maintains accounts with several stock
brokerage firms. The accounts contain cash and various securities. Cash
balances, which are generally not significant, are insured up to $100,000 by
the Securities Investor Protection Corporation (SIPC). Investment securities
balances, as reported in the balance sheet, are insured by SIPC up to various
limits, depending on the brokerage firm.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Corporation's customer
base, and their dispersion across many different industries and geographical
areas. No individual customer balance exceeded 10% of the Corporation's trade
receivables at the balance sheet date.
In management's opinion, as of June 30, 1997, and 1996, the Corporation had
no other significant concentrations of credit risk.
10. COMPARATIVE STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
June 30,
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Income ................ $ 1,609,015 $ 1,148,934 $ 927,141
Non-Cash Items
Included in Net Income:
Adjustment to prior year
tax expense ......... (19,440) -- --
Amortization ........... 66,267 79,517 10,042
Depreciation ................... 495,001 447,072 366,388
(Gain) loss on disposal
of equipment ........ 12,916 3,121 17,985
(Gain) loss on sale
of securities ....... 3,872 1,589 11,928
Deferred Income Taxes .. (87,612) 82,541 53,348
Changes in:
Accounts Receivable .... (21,082) (1,741,809) (271,836)
Inventory .............. (277,193) (20,497) (300,362)
Prepaid Income Taxes ... 56,886 (84,414) 170,014
Prepaid Expense ................ 52,539 (144,344) (87,156)
Other Assets ........... -- -- (5,000)
Accounts Payable -
Trade ............... 298,434 233,007 (86,795)
Accrued Expenses ....... 258,518 142,150 202,358
Accrued Income Taxes ... 4,837 (155,183) --
----------- ----------- -----------
NET CASH PROVIDED
(USED) BY OPERATING
ACTIVITIES .......... $ 2,452,958 $ (8,316) $ 1,008,055
=========== =========== ===========
11. OPERATING LEASES
The Corporation has entered into noncancelable operating leases for two
vehicles, a computer, a software license, and office equipment expiring in
various years through 2002. Remaining minimum lease payments, by year, are
as follows:
Year Ended June 30,
-------------------
1998.................. $ 28,730
1999.................. 25,979
2000.................. 25,541
2001.................. 25,367
2002.................. 11,500
-------
TOTAL.. $117,117
Rental expense totalled $20,986 during the fiscal year ended June 30, 1997.
12. CAPITAL LEASES
The Corporation is a lessee of a phone system and hydraulic shear under
capital leases, both expiring in 2002. The assets and liabilities under
capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are
amortized over the estimated productive life of the asset. Amortization of
the assets under capital leases is included in depreciation expense for the
current year.
Following is a summary of the property held under capital lease:
New Lucent Partner Phone System $4,839
New Atlantic Hydraulic Shear 50,145
$54,984
Less: Accumulated Amortization (741)
$54,243
Amortization of assets under capital leases charged to expense in 1997 was
$741.
The annual interest rates on the phone system and hydraulic shear are 18% and
9%, respectively. Total interest cost incurred during the year was $412 and
$251, respectively, all of which was charged to operations.
Minimum future lease payments under the capital leases as of June 30, 1997,
for each of the next five years and in the aggregate are:
1998 $ 14,924
1999 14,924
2000 14,923
2001 14,923
2002 12,493
-------
Total minimum lease payments $ 72,187
Less: Amount representing interest (18,283)
Present value of minimum
lease payments $ 53,904
=======
13. INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30,
1997 1996 1995
-------- -------- --------
Organization
Expense $ 5,000 $ 5,000 $ 5,000
Noncompetition
Agreements 300,000 300,000 100,000
Patents 9,214 9,214 9,214
Goodwill - Wendland 13,627 13,627 - -
Goodwill - Hoppes 10,000 10,000 10,000
-------- -------- --------
$337,841 $ 337,841 $124,214
Less:
Accumulated
Amortization (136,050) (69,783) (103,516)
-------- -------- --------
$201,791 $268,058 $ 20,698
======= ======= ========
14. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
June 30,
1997 1996 1995
---------- ---------- ----------
Trade Receivables $4,822,885 $4,774,684 $3,012,285
Other Receivables 9,232 31,439 49,080
Allowance for
Doubtful Accts. (17,372) (12,460) (9,511)
---------- ---------- ----------
$4,814,745 $4,793,663 $3,051,854
========= ========= =========
15. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 30,
1997 1996 1995
---------- --------- ---------
Commissions $ 807,617 $ 621,882 $ 694,809
County Property Taxes 254,251 224,006 226,651
Insurance 21,440 - - - -
Interest - - 2,156 - -
Payroll 165,239 125,784 39,402
Pension & 401(k) - - 23,051 - -
Payroll Taxes &
Withholdings 148,977 129,351 65,963
Other 2,836 861 - -
Vacation & Sick Pay 10,488 41,883 - -
Sales Taxes 3,463 - - - -
Ad Valorem Taxes 13,181 - - - -
---------- --------- ---------
$1,427,492 $1,168,974 $1,026,825
========= ========= =========
16. LONG-TERM DEBT
Long-term debt consists of the following:
Note payable to Norwest Bank for equipment,
matures June 30, 2002. Note is secured by same
equipment. Principal and interest are currently
being made in monthly installments. The interest
rate is 10.22%. $ 44,047
Installment note payable to Norwest Bank for, and
secured by, an automobile. Monthly principal
and interest payments of $274 are payable
through the loan's April 18, 2001 maturity date,
at 9% interest. 10,618
Note payable to Robert Laframboise Mechanical
Limited in annual installments of $20,167 (Canadian),
without interest. This note is unsecured, and matures
September 15, 1997. 14,603
Total $ 69,268
=======
Maturities of long-term debt are as follows:
Year Ending
June 30, Amount
1998 $24,300
1999 10,705
2000 11,816
2001 12,478
2002 9,969
TOTAL $69,268
- --------------------------------------------------------------------------------
17. OTHER COMMITMENTS
- --------------------------------------------------------------------------------
The Corporation has $500,000 available on its $500,000 line of credit from
First of America Bank. The line of credit expires October 31, 1997.
At June 30, 1997, the Monticello subsidiary was indebted to Norwest Bank in
the amount of $45,400 on a $100,000 revolving commercial plan. This
obligation was collateralized by a security interest in the Monticello
subsidiary's inventory, equipment, accounts receivable and intangibles.
Norwest Bank also holds an unsecured guaranty by Bryan Steam Corporation on
this obligation. The outstanding balance is due December 31, 1997 with
interest at a current rate of 9.25% in monthly installments beginning July
30, 1997.
Production employees at the Corporation's Peru, Indiana facility are
covered by a collective bargaining agreement which will expire in May,
1998.
18. BUSINESS COMBINATIONS
On July 3, 1995, Wendland Manufacturing Corp. (Wendland), the Corporation's
wholly-owned subsidiary, acquired substantially all the tank manufacturing
business assets of a Texas corporation for $1,115,000. Results of
operations from July 3, 1995 through June 30, 1996 are included in this
report.
Wendland also acquired substantially all the heat exchanger manufacturing
business assets of an Indiana corporation on December 6, 1995 for $215,000.
Wendland operated this business as a division from acquisition through June
30, 1996.
On March 15, 1996, Wendland exchanged $447,952 of the net assets of the
heat exchanger manufacturing business for 100% of the outstanding common
stock of its wholly-owned subsidiary, Monticello Exchanger and
Manufacturing Co. (Monticello). Monticello's results of operations from
March 15 through June 30, 1996 are included in this report.
On January 31, 1997, Wendland purchased all the business assets of Western
Express Company, a Texas corporation, which operates as a common carrier
for transporting goods in the United States. The purchase price was
$38,000. Results of operations from January 31, through June 30, 1997 are
included in this report.
19. INVESTMENT SECURITIES
On July 1, 1994, the Corporation adopted Statement of Financial Accounting
Standards No. 115 - "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The Corporation's policy has been, historically, to
classify its investment securities as current assets, even though
management has set a precedent, evidencing its intent, by holding its
investment securities to maturity. The Corporation considers none of its
investment securities to be, or to have been, available-for-sale or trading
securities. Investment securities held to maturity, which do not have
either a single or defined maturity date, have been allocated to the
"maturing within one year" maturity grouping.
The following is a summary of investment securities classified as held to
maturity:
June 30, 1997 June 30, 1996
Fair Amortized Fair Amortized
Value Cost Value Cost
---------- ---------- ---------- ----------
Equity Securities ................ $ 194,161 $ 184,461 $ 71,629 $ 68,176
U.S. Government obligations ...... -- -- -- --
Obligations of individual states
and political subdivisions ... 1,095,081 1,100,725 1,274,581 1,299,298
Obligations of foreign governments -- -- -- --
Corporate obligations ............ 156,375 155,500 73,500 75,000
Mortgage-backed securities ....... 25,250 26,000 25,000 26,000
Other ............................ -- -- 154,912 148,080
---------- ---------- ---------- ----------
$1,470,867 $1,466,686 $1,599,622 $1,616,554
========== ========== ========== ==========
- --------------------------------------------------------------------------------
19. INVESTMENT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
At June 30, 1997, investment in debt securities, classified as held to
maturity, mature as follows:
Maturity
Within After
1 year 1-5 years 5-10 years 10 years
---------- ----------- ---------- ---------
Obligations of individual states
and political subdivisions ..... $822,020 $215,350 $ 10,955 $ 52,400
Corporate obligations .......... -- -- -- 155,500
Other .......................... -- -- -- --
-------- --------- -------- --------
$822,020 $ 215,350 $ 10,955 $207,900
======== ========= ======== ========
The following is a summary of gross unrealized holding gains and losses for
investment securities classified as held to maturity:
June 30, 1997 June 30, 1996
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Holding Holding Holding Holding
Gains Losses Gains Losses
------- ------- ------- -------
Equity Securities ................ $ 9,876 $ 176 $ 4,867 $ 1,414
U.S. Government obligations ...... -- -- -- --
Obligations of individual states
and political subdivisions ... 13,115 18,759 9,532 34,249
Obligations of foreign governments -- -- -- --
Corporate obligations ............ 1,500 625 -- 1,500
Mortgage-backed securities ....... -- 750 -- 1,000
Other ............................ -- -- 6,832 --
------- ------- ------- -------
$24,491 $20,310 $21,231 $38,163
======= ======= ======= =======
Realized gains and losses were determined on the basis of specific
identification during the years ended June 30, 1997 and 1996. Gross
proceeds and gross realized gains and losses on securities classified as
held to maturity were:
June 30,
1997 1996
-------- --------
Sale proceeds ....................... $308,912 $518,572
======== ========
Redemption proceeds ................. $ 60,000 $298,447
======== ========
Amortized cost of sales & redemptions $372,784 $686,734
======== ========
Gross realized gains ................ $ -- $ 7,245
======== ========
Gross realized losses ............... $ 3,872 $ 8,834
======== ========
The Corporation sold investment securities during the fiscal year ended June
30, 1997, and used the proceeds to partially fund construction of a new
building in Peru, Indiana.
The Corporation sold investment securities during the fiscal year ended June
30, 1996, and used the proceeds to purchase the business assets of Monticello
Tank Company.
The Corporation sold investment securities during the fiscal year ended June
30, 1995 and purchased a U.S. Treasury Money Fund having a higher current
yield. Redemption proceeds from municipal bond maturities were subsequently
invested in similar municipal bonds.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values for the Corporation's financial
instruments are as follows:
June 30, 1997
Carrying Fair
Value Value
---------- ----------
Cash and Cash Equivalents .................. $ 368,879 $ 368,879
Investment Securities (held to maturity) ... 1,466,686 1,470,867
Accounts Receivable ........................ 4,814,745 4,814,745
Non-compete Agreements ..................... 180,000 180,000
Deposits with Utilities .................... 5,171 5,171
Accounts Payable ........................... 851,512 851,512
Accrued Expenses ........................... 1,427,492 1,427,492
Note Payable - Norwest Bank ................ 44,047 44,047
Note Payable - Line of Credit - Norwest Bank 45,400 45,400
Note Payable - Laframboise ................. 14,603 14,603
Note Payable - Auto Loan - Norwest Bank .... 10,618 10,618
Dividends Payable .......................... 11,834 11,834
The fair value of investment securities is an estimate based on quoted
market prices. The fair value of long-term debt is based on current rates
at which the Corporation could borrow funds with similar remaining
maturities.