Item 1 Business
(1) (a) A Virginia corporation founded in 1915, Noland Company is a distributor of Plumbing/Heating, Air Conditioning, Industrial and Electrical supplies, with branch facilities in fourteen 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.
(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:
1996 1995 1994 1993 1992 (In thousands)
Plumbing/Heating $241,235 $245,407 $241,273 $220,879 $225,239 Air Conditioning 115,963 110,920 90,574 84,600 82,906 Industrial 62,451 64,741 62,279 54,099 54,851 Electrical 46,056 48,444 46,076 43,363 49,090 $465,705 $469,512 $440,202 $402,941 $412,086
Not all branches have all four departments. If a product department does not exist in a particular branch, any sales of that department's products are attributed to the department that makes the sale.
(ii) The Company continues to market new products introduced by its suppliers/manufacturers. None will require the investment of a material amount of the assets of the Company.
(iii) The Company does not use or market raw materials.
(iv) The Company holds several sales franchises and has produced a variety of copyrighted materials and systems used in the normal conduct of its business. It is virtually impossible to dollar-quantify their significance. None are reflected as assets in the Company's Balance Sheet. The Company has no patents.
(v) The business in general is seasonal to the extent of the construction industry it supplies.
(vi) It is the practice of the Company to carry a full line of inventory items for rapid delivery to customers. At times, advance buying is necessary to ensure the availability of products for sale. The Company also extends credit, and this and the necessity for an adequate supply of merchandise ordinarily absorbs most of the Company's working capital.
(vii) The dollar amount of the Company's backlog of orders believed to be firm was approximately $37,437,444 at December 31, 1996, and $40,194,000 at December 31, 1995.
(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 1996, 1995 and 1994 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, 1996, the Company employed 1,692 persons.
(d) From its founding in 1915, the Company has operated principally in the Southern United States. In late 1994 the Company opened its first location in Pennsylvania. Additional Pennsylvania locations were opened in 1995 and 1996.
Item 2
Item 2 Properties
The main properties of the Company consist of 107 facilities, including warehouses, offices, showrooms, paved outside storage areas and covered pipe storage sheds. These are located in the following states: Alabama, Arkansas, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia. Eighteen are held under leases and the remaining eighty-nine are owned by the Company. The executive office of the Company is located at 80 29th Street, 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
Item 3 Legal Proceeding
None of material consequence.
Item 4
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 53 Chairman of the Board, Chief Executive Officer of President and Director. and Registrant. Officer since 1981
Frank A. Wimbush 51 Senior Vice President- Vice President-Sales and Marketing and Branch Marketing for All-Phase Operations. Officer Electric Supply Company Since March 1995 from 1988 to 1994.
A. P. Henderson, Jr. 53 Vice President-Finance. Chief Financial Officer of Officer since 1983 the Registrant.
Charles A. Harvey 57 Vice President-Corporate Responsible for the Data. Officer since 1980 Registrant's Corporate Data Division.
John E. Gullett 55 Vice President-Corporate Responsible for the Communications. Registrant's Corporate Officer since 1982 Communications Department.
James E. Sykes, Jr. 53 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, 1996 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
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
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 1992 through 1996 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, 1996.
Item 7
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, 1996.
Item 8
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, 1996, 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, 1996, 1995 and 1994 13
Consolidated Balance Sheet--December 31, 1996, 1995 and 1994 14
Consolidated Statement of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 15
Notes to Consolidated Financial Statements 16-19
Item 9
Item 9 Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10
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 1997 Noland Company Proxy Statement for the April 23, 1997 Annual Meeting of Stockholders.
Data relating to Executive Officers is included in Part I of this report.
Item 11
Item 11 Executive Compensation
The information set forth under the caption "Compensation of Executive Officers" on page 4 of the 1997 Noland Company Proxy Statement for the April 23, 1997, Annual Meeting of Stockholders is incorporated herein by reference.
Item 12
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 1997 Noland Company Proxy Statement for the April 23, 1997, Annual Meeting of Stockholders is incorporated herein by reference.
Item 13
Item 13 Certain Relationships and Related Transactions
(a) Effective November 1, 1996, the Company entered into a ten-year agreement to lease an existing office building for its corporate headquarters. The building is owned by Basic Construction Company. Basic Construction owns 893,967 shares of Noland Company stock. The majority of Basic Construction Company stock is owned by The L.U. Noland 1982 Trust whose trustees are Mr. Lloyd U. Noland, Jr.'s wife, Jane K. Noland, and his three children: Lloyd U. Noland III, Susan C. Noland and Anne N. Edwards. Under the terms of the lease, the Company will pay an annual rental fee of approximately $260,000 per year. The Company will bear the direct costs of utilities and real estate taxes. The terms of the lease were based on an evaluation by an independent real estate firm.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
PART IV
Item 14
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, 1996, 1995 and 1994
Consolidated Balance Sheet--December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows --Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
With the exception of the aforementioned information incorporated by reference and the information in the 1996 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 1996 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, 1996
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, 1996, 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.
Item 14(a)(2)
Financial Statement Schedules
FORM 10-K
SCHEDULE II
Noland Company and Subsidiary
Valuation and Qualifying Accounts
[FN] (1) Net of recoveries on bad debts of $657,609 for 1996, $896,772 for 1995 and $685,511 for 1994.
(2) Represents charges for which reserve was previously provided.
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 21, 1997 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 21, 1997 Lloyd U. Noland, III
Vice President-Finance, Chief Financial Officer Arthur P. Henderson, Jr. and Director March 21, 1997 Arthur P. Henderson, Jr.
James E. Sykes, Jr. Treasurer/Secretary March 21, 1997 James E. Sykes, Jr.
Frank A. Wimbush Senior Vice President- March 21, 1997 Frank A. Wimbush Finance and Branch Operations and Director
Allen C. Goolsby, III Director March 21, 1997 Allen C. Goolsby, III
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 1996 Annual Report to Stockholders of Noland Company. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 (a) 2 on page 8 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Newport News, Virginia February 28, 1997
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 - 31
(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 32
(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.
This page intentionally left blank.
EXHIBIT 13 INDEX
Page
Management's Discussion 14 - 15
Report of Independent Accountants 16
Quarterly Financial Data 17
Consolidated Statement of Income 18
Consolidated Balance Sheet 19
Consolidated Statement of Cash Flows 20
Notes to Consolidated Financial Statements 21 - 27
Ten Year Review 28 - 29
Inside back cover 30 - 31
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 1996 were $465.7 million compared to $469.5 million for 1995 for a decline of one percent. Excluding our fourth-quarter acquisitions, total sales declined 1.2 percent. Sales for 1995 were 6.7 percent greater than 1994's sales of $440.2 million. Three of the Company's four product departments suffered sales declines, with only the air conditioning department improving sales. The Company's year-long focus on improving operations and launching several major new initiatives may have distracted personnel from the sales end of the business.
Gross profit, as a percent of sales, improved to 19.5 percent in 1996 from 19.0 percent for 1995. It was 19.6 percent in 1994. The gross profit percentage in 1996 benefitted from the year-end LIFO adjustment primarily because of low inflation. The 1996 LIFO inventory adjustment decreased cost of goods sold by $207,000, while the 1995 adjustment increased cost of goods sold by $2.1 million.
Operating expenses increased 1.2 percent over 1995 despite the additional costs associated with the opening of nine branches involved in two separate acquisitions in the latter part of 1996. In 1995 operating expenses were 6.6 percent greater than 1994. Operating expenses, as a percent of sales, were 18.1 percent in 1996 and 17.8 in 1995 and 1994. 1996 operating expenses were reduced $232,000 for pension income compared to a $249,000 increase in operating expenses in 1995 and a $534,000 reduction in 1994 operating expenses.
Interest expense declined by 12.7 percent to $2.8 million from $3.2 million. The decrease is due to lower average borrowings and lower short-term rates throughout the year. 1995 interest expense was 23.4 percent greater than 1994.
The results of the 1996 activity generated net income of $5.9 million compared to $4.9 million for 1995 and $6.2 million for 1994.
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.
The Company began 1996 with $12.6 million in cash. Along with cash generated from financing activities, the Company used $10.9 million to purchase capital assets and $6.1 to increase inventory. The Company was also able to pay for two acquisitions which added nine branch locations.
The Company's financial position remains strong with working capital of $77.4 million and a current ratio of 2.6 to 1. Management believes the Company's liquidity, working capital and capital resources are sufficient to meet the working capital and capital expenditure needs of the foreseeable future.
Outlook
The economy appears headed for another year of growth in 1997 and our Company's entire selling organization has been retooled with a new compensation program, more emphasis on inside sales, and better leadership. In addition, we are well positioned to take advantage of opportunities afforded through the 1996 opening of several strategically located branches in Pennsylvania, Virginia and Florida. We expect to resume a healthy growth in sales in 1997.
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 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 $101.3 million at year-end 1996, while the LIFO inventory balance was $67.8 million -- a difference accumulated since 1974 of $33.5 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.
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, 1996, 1995 and 1994, 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, 1996. 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, 1996, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
Newport News, Virginia Coopers & Lybrand L.L.P. February 28, 1997
[FN] The accompanying notes are an integral part of the financial statements.
[FN] The accompanying notes are an integral part of the financial statements.
[FN] The accompanying notes are an integral part of the financial statements.
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, air conditioning, industrial and electrical.
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.
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. 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.
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 $1,897,000 in 1996, $1,969,000 in 1995 and $2,175,000 in 1994.
j. Unearned Compensation - Restricted Stock Plan The Company provides 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 1996, 1995 and 1994 was $125,000, $123,000 and $82,000, respectively. These amounts were reflected as unearned compensation - restricted stock, with $50,000, $35,000 and $12,000 amortized to compensation expense in 1996, 1995 and 1994, respectively. The number of shares granted was 6,000 in 1996, and 1995 and 4,000 in 1994.
k. Reclassifications Certain amounts in prior years' financial statements have been reclassified to conform to the 1996 presentation.
3. Accounts Receivable Accounts receivable are net of an allowance for doubtful accounts of $1,008,000 for 1996 and 1995 and $968,000 for 1994. Bad debt charges, net of recoveries, were $856,000 for 1996, $739,000 for 1995, and $774,000 for 1994.
4. Inventory Comparative year-end inventories are as follows:
(In thousands) 1996 1995 1994 Inventory, at approximate replacement cost $101,318 $91,814 $96,100 Reduction to LIFO 33,536 33,742 31,642 LIFO inventory $67,782 $58,072 $64,458
5. Notes Payable a. Short-term Borrowings: Amounts payable to banks at December 31, 1996 and 1994 were $6,000,000 and $14,100,000, respectively. There were no short-term borrowings at December 31, 1995. The average interest rate, which is based on existing Federal Funds rates, at December 31, 1996 and 1994 was 7.1 percent and 6.08 percent, respectively. The carrying amount of these short-term borrowings approximates fair value because of the short maturity of the borrowings.
The Company had unused lines of credit totaling $16.8 million at December 31, 1996.
b. Long-term Debt: (In thousands) 1996 1995 1994 Promissory note, 9.60% interest payable quarterly, $1,850,000 due annually June 1997 through 2000 with balance due June 2001. (1) $ 9,350 $11,200 $11,800 Promissory note, 10.15% interest payable quarterly. Principal paid in full in 1995. (1) - - 1,375 Promissory note, variable interest payable weekly (6.50% at December 31, 1996), fully revolving basis through June 1, 1998. (1) 10,000 10,000 10,000 Promissory note, variable interest payable monthly (6.21% at December 31, 1996), principal due August 1998. (2) 15,000 7,500 - Industrial revenue financings, variable interest payable quarterly (4.21% at December 31, 1996) with varying maturities from 1997 to 2004. (1)(3) 13,415 15,200 15,330 Other 502 1,432 525 48,267 45,332 39,030 Less current maturities 3,228 3,721 2,116 $45,039 $41,611 $36,914
(1) Subject to agreements that require the Company to maintain not less than $55,000,000 in working capital and not less than a 1.75-to-1 year-end current ratio. Cash dividends cannot exceed 50 percent of earnings, excluding net gains on disposition of capital assets, reckoned accumulatively from January 1, 1986. Earnings retained since that date not restricted under this provision amount to $11,062,000.
(2) The Company has 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. 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 $13,900,000. 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 $34.9 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 $35.2 million for 1996.
Annual maturities of long-term debt for the five years subsequent to December 31, 1996, are as follows: 1997, $3,228,000; 1998, $16,864,000; 1999, $3,840,000; 2000, $3,366,000; 2001, $3,395,000.
6. Postretirement Health Care and Life Insurance Benefits The components of the provision for net periodic postretirement benefit costs are:
(In thousands) 1996 1995 1994 Service cost - benefits earned during the period $ 58 $ 45 $ 50 Interest cost on accumulated postretirement benefit obligation 300 316 309 Net amortization and deferral 210 203 203 Net postretirement benefit cost $ 568 $ 564 $ 562
The following table sets forth the plans' combined postretirement benefit liability as of December 31, 1996, 1995, and 1994: (In thousands) 1996 1995 1994 Accumulated postretirement benefit obligation: Retirees $(2,690) $(2,938) $(2,676) Fully eligible active employees (650) (644) (565) Other active plan participants (924) (880) (704) (4,264) (4,462) (3,945) Unrecognized transition obligation 3,254 3,457 3,660
Unrecognized net loss 350 579 81 Postretirement liability recognized in the balance sheet $ (660) $ (426) $ (204)
The discount rate used to calculate the APBO was 7.5 percent for 1996, 7.0 percent for 1995 and 8.5 percent for 1994. There are no plan assets.
7. Retirement Plan The components of the provision for net periodic pension cost are: (In thousands) 1996 1995 1994 Service cost - benefits earned during the period $ 998 $ 726 $ 843 Interest cost on projected benefit obligation 2,402 2,278 2,177
Actual return on assets (7,955) (11,936) 650
Net amortization and deferral 4,323 9,181 (4,204)
Net pension cost $ (232) $ 249 $ (534)
Assumptions used in the accounting were: 1996 1995 1994 Discount rate 7.0% 7.0% 8.5% Rate of increase in future compensation levels 4.0% 4.0% 4.0% Long-term rate of return 8.25% 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, 1996, 1995, and 1994.
(In thousands) 1996 1995 1994
Actuarial present value of projected benefit obligation, based on employment service to date and current salary levels: Vested benefits $(31,041) $(30,966) $(25,250) Nonvested benefits (250) (259) (230) Accumulated benefit obligation (31,291) (31,225) (25,480) Additional amounts related to projected salary increases (3,175) (2,431) (2,127) Projected benefit obligation (34,466) (33,656) (27,607) Plan assets at fair value; primarily U.S. Government and corporate bonds and equity securities 55,120 49,531 39,856 Plan assets in excess of projected benefit obligation 20,654 15,875 12,249 Unrecognized net loss/(gain) from past experience different from that assumed (8,431) (3,884) (9) Prepaid pension $ 12,223 $ 11,991 $ 12,240
8. Income Taxes The components of income tax expense are as follows: (In thousands) 1996 1995 1994 Federal: Current $3,289 $2,936 $3,723 Deferred (76) (159) - State: Current 594 541 618 Deferred (13) (28) - Total $3,794 $3,290 $4,341
The components of the net deferred tax liability are:
(In thousands) 1996 1995 1994 Current deferred (assets) Accounts receivable $ (379) $ (379) $ (365) Inventory (1,196) (960) (1,072) Accrued vacation (608) (563) (564) Total net current deferred (asset) (2,183) (1,902) (2,001) Noncurrent deferred (assets) liabilities Property and equipment 4,694 4,687 4,702 Pension asset 4,600 4,512 4,606 Postretirement benefit liability (252) (160) (77) Other (498) (687) (593) Total net noncurrent deferred liability 8,544 8,352 8,638 Net deferred liability $6,361 $6,450 $6,637
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: (In thousands) 1996 1995 1994 Statutory rate applied to pretax income $3,283 $2,801 $3,593 State income taxes, net of federal tax benefit 391 357 409 Other 120 132 339 Total tax expense $3,794 $3,290 $4,341
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 1996, 1995, and 1994 was $1,036,000, $992,000, and $711,000, respectively.
Minimum payments due for years after 1996 under noncancelable operating leases are $1,111,000 in 1997, $958,000 in 1998, $854,000 in 1999, $687,000 in 2000 and $2,616,000 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. Asset Acquisition The Company purchased a secured note from Foothill Capital Corporation issued by Raub Supply Co., for $9.9 million. Additional operating advances of $3.2 million were made through the note to Raub. Collections on the note totaled $4.1 million. Effective December 6, 1996 the Company agreed to accept certain operating assets of Raub, with a fair value of $7.6 million, as partial payment on the note. Results, using the purchase method, for new locations beginning December 7, 1996 are included in 1996 audited results. The outstanding note balance of $1.4 million is collateralized by real estate.
The following table reflects the unaudited pro forma combined results of operations, assuming the acquisition had occurred at the beginning of each year presented: (In thousands) 1996 1995 Net sales $ 488,182 $ 505,749 Net income 6,117 5,512 Net income per share $ 1.65 $ 1.49
The pro forma information does not purport to be indicative of the results which actually would have occurred had the acquisition been in effect during the periods presented or of results which may occur in the future.
13. 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.
[FN] * Based on 3,700,876 shares outstanding.
[FN] (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.
Inside Back Cover Info
Shareholder and Investor Information
Corporate Information Corporate Headquarters:
Noland Company 80 29th Street Newport News, Virginia 23607 (757) 928-9000
Wholly Owned Subsidiary:
Noland Properties, Inc. Suite 400, Central Fidelity National Bank 2700 Washington Avenue Newport News, Virginia 23607 (757) 247-8200
Investor Inquiries or Request for Form 10-K:
Richard L. Welborn Assistant Vice President-Finance and Tax Administrator 80 29th Street Newport News, Virginia 23607 (757) 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 13, 1997, the approximate number of holders of record of the Company's common stock was 2,500.
Market Prices: The following table sets forth the reported high and low prices for the common stock on the NASDAQ system:
High Low Qtr. 4 $23.75 $20.50 Qtr. 3 $22.25 $19.50 Qtr. 2 $21.25 $18.00 Qtr. 1 $20.00 $17.50 Qtr. 4 $20.25 $17.50 Qtr. 3 $21.25 $17.75 Qtr. 2 $22.00 $19.50 Qtr. 1 $21.75 $18.75
P/E Ratio:* High Low
1996 15 13
1995 15 13
*Based on final, full-year earnings
Dividend Policy: Noland has paid regular cash dividends for 64 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 $.08 per share in each quarter of 1996 and the last two quarters of 1995. The rate was $.06 per share for the first two quarters of 1995.
Registrar: Noland Company
Transfer Agent: ChaseMellon Shareholder Services, L.L.C. Four Station Square, Third Floor Pittsburgh, Pennsylvania 15219-1173 (412) 236-8000
Annual Meeting: April 23, 1997, 10:00 a.m. Noland's Corporate Headquarters Newport News, Virginia