FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2002 Commission file no. 2-27393
NOLAND COMPANY
A Virginia Corporation IRS Identification #54-0320170
80 29th Street
Newport News, Virginia 23607
Telephone: (757) 928-9000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Outstanding common stock, $10.00 par value at April 23, 2002: 3,557,018 shares.
This report contains 11 pages.
NOLAND COMPANYAND SUBSIDIARY
INDEX
Part 1: FINANCIAL INFORMATION | PAGE NO. |
Item 1. Financial Statements | |
Consolidated Balance Sheets - | |
March 31, 2002 and Dec. 31, 2001 | . . . . . . . . .3 |
Consolidated Statements of Income - | |
Three Months Ended March 31, 2002 and 2001 | . . . . . . . . .4 |
Consolidated Statements of Cash Flows - | |
Three Months Ended March 31, 2002 and 2001 | . . . . . . . . .5 |
Notes to Consolidated Financial Statements | . . . . . . . . .6 |
Item 2. Management's Discussion and Analysis of Financial | |
Condition and Results of Operations | . . . . . . . . .8 |
Signatures | . . . . . . . . 10 |
| |
Certifications | . . . . . . . . 11 |
PART 1. FINANCIAL INFORMATION
NOLAND COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
Item 1. Financial Statements
March 31, December 31,
2002 * 2001 *
Assets
Current Assets:
Cash and cash equivalents $ 3,086,058 $ 3,606,187
Accounts receivable, net 54,293,648 56,699,501
Inventory, net 56,911,168 57,743,020
Other current assets 783,808 678,451
Total Current Assets115,074,682118,727,159
Property and Equipment, at cost:
Land 17,748,876 17,721,917
Buildings 88,632,770 88,210,396
Equipment and fixtures 67,137,093 66,746,192
Property in excess of current needs 1,530,850 1,539,431
Total 175,049,589 174,217,936
Less accumulated depreciation 90,842,911 89,549,572
Property and Equipment, net 84,206,678 84,668,364
Assets Held for Resale 447,136 447,136
Prepaid Pension 26,132,784 25,804,184
Other Assets 957,234 1,046,201
$226,818,514 $230,693,044
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - short term borrowings $ 2,989,467 $ 4,000,000
Current maturity of long-term debt 1,202,774 1,464,993
Book overdrafts 5,877,119 6,485,518
Accounts payable 24,232,226 23,669,591
Other accruals and liabilities 10,441,462 13,499,515
Federal and state income taxes 408,274 367,886
Total Current Liabilities 45,151,322 49,487,503
Long-term Debt 20,163,000 20,187,000
Deferred Income Taxes 12,729,866 12,668,047
Accrued Postretirement Benefits 2,134,673 2,090,231
Stockholders' Equity:
Capital common stock, par value $10;
authorized, 6,000,000 shares; issued,
3,558,298 and 3,557,829 shares 35,582,980 35,578,290
Retained earnings 111,576,462 111,344,866
Accumulated other comprehensive loss,
net of tax (202,044) (303,360)
Unearned compensation, stock plans (317,745) (359,533)
Stockholders' Equity146,639,653146,260,263
$226,818,514 $230,693,044
* Restated. See note 2.
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Three Months Ended
March 31,
20022001 *
Merchandise sales $109,695,916 $114,930,701
Cost of goods sold:
Purchases and freight-in 87,453,782 91,262,078
Inventory, beginning 57,743,020 65,121,199
Inventory, ending (56,911,168) (64,455,454)
Cost of goods sold88,285,63491,927,823
Gross profit on sales 21,410,282 23,002,878
Operating expenses 21,816,067 22,123,425
(Gains) from sale of property (8,319) (404,568)
Operating (loss) profit (397,466) 1,284,021
Other income:
Cash discounts, net 1,063,767 1,051,192
Service charges 272,525 312,425
Miscellaneous 190,457 225,548
Total other income1,526,7491,589,165
Interest expense 296,716 515,539
Income before income taxes 832,5672,357,647
Income taxes 316,300 894,607
Net income $ 516,267 $1,463,040
Earnings per share:
Basic $ .15 $ .41
Diluted $ .15 $ .41
Average shares outstanding:
Basic3,522,5803,550,683
Diluted3,549,5173,581,221
Cash dividends per share $ .08 $ .08
* Restated. See note 2.
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months
Ended March 31,
2002 | 2001 * | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 516,267 | $1,463,040 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 2,000,305 | 2,030,486 |
Amortization of prepaid pension cost | (328,600) | (644,750) |
Provision for doubtful accounts | 285,449 | 266,966 |
Deferred income taxes | - | 153,306 |
Increase in LIFO reserve | 192,500 | 75,000 |
Gain on sale of property | (8,319) | (404,568) |
Amortization of unearned compensation-restricted stock | 34,577 | 32,060 |
Change in operating assets and liabilities: | ||
Decrease in accounts receivable | 2,120,404 | 2,531,620 |
Decrease in inventory | 639,352 | 590,745 |
(Increase) decrease in other current assets | (105,357) | 2,820,850 |
Decrease in other assets | 88,967 | 82,944 |
Increase (decrease) in accounts payable | 562,635 | (3,287,692) |
(Decrease) in other accruals and liabilities | (2,894,918) | (3,673,238) |
Increase in federal and state income taxes | 40,388 | 238,361 |
Increase in accrued post retirement benefits | 44,442 | 63,329 |
Total adjustments | 2,671,825 | 875,419 |
Net cash provided by operating activities | 3,188,092 | 2,338,459 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Capital expenditures | (1,639,068) | (4,650,056) |
Proceeds from sale of assets | 108,768 | 462,586 |
Net cash (used in) investing activities | (1,530,300) | (4,187,470) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
(Decrease) increase in bank overdrafts | (608,399) | 1,241,061 |
Short-term (payments) borrowings ' net | (1,010,533) | 9,275,000 |
Long-term debt (payments)- net | (286,219) | (7,770,220) |
Issue deferred directors stock | 11,901 | 13,531 |
Retirement of common stock | - | (129,689) |
Dividends paid | (284,671) | (286,780) |
Net cash (used in) provided by financing activities | (2,177,921) | 2,342,903 |
CASH AND CASH EQUIVALENTS: | ||
(Decrease) increase during first quarter | (520,129) | 493,892 |
Beginning of year | 3,606,187 | 3,349,283 |
End of first quarter | $3,086,058 | $3,843,175 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
Non-cash change in fair value derivatives | $ 101,316 | $___ -____ |
* Restated. See note 2.
The accompanying notes are an integral part of the financial statements.
NOLAND COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. In the opinion of the Company, the accompanying consolidated financial statements of Noland Company and Subsidiary contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's consolidated financial position as of March 31, 2002, as restated, and its results of operations and cash flows for the three months ended March 31, 2002 and 2001, as restated. The balance sheet as of December 31, 2001, as restated, was derived from audited financial statements as of that date.
2. In late October 2002, the Company determined that gains from certain sales of excess real estate in 2001 should be recognized as income. These transactions were previously treated as non-monetary exchanges and no gain was recognized. The effect of recognizing the gains was to increase first quarter 2001 net income by $252,000. The consolidated statement of income and consolidated statement of cash flows for the three months ended March 31, 2001 and the consolidated balance sheets as of March 31, 2002 and December 31, 2001 have been restated to include the effects of recognizing the gains, as follows:
Consolidated Results of Operations
For the three months ended March 31, 2001
2001
| As Reported | Restated |
Gains from sale of property | $ - | $ 404,568 |
Operating profit | 879,453 | 1,284,021 |
Income before income taxes | 1,953,079 | 2,357,647 |
Income taxes | 741,300 | 894,607 |
Net income | $ 1,211,779 | $ 1,463,040 |
Basic earnings per share | $ .34 | $ .41 |
Diluted earnings per share | $ .34 | $ .41 |
Net cash provided by (used in) operating activities | $ (601,981) | $ 2,338,459 |
Net cash used in investing activities | $(1,247,031) | $(4,187,470) |
Consolidated Balance Sheet
March 31, 2002December 31,2001
| As Reported | Restated | As Reported | Restated |
Total current assets | $115,069,073 | $115,074,682 | $118,721,550 | $118,727,159 |
Total property and equipment, net | 78,953,668 | 84,206,678 | 79,415,354 | 84,668,364 |
Total assets | 221,559,895 | 226,818,514 | 225,434,425 | 230,693,044 |
Deferred income taxes | 10,728,009 | 12,729,866 | $ 10,666,190 | $ 12,668,047 |
Stockholders' equity | 143,382,891 | 146,639,653 | 143,003,501 | 146,260,263 |
Total liabilities and stockholders' equity | $221,559,895 | $226,818,514 | $225,434,425 | $230,693,044 |
3. The Notes to Consolidated Financial Statements included in the Company's December 31, 2001 Annual Report on Form 10-K/A are an integral part of the interim financial statements. The Company takes a physical inventory in the fourth quarter of each year. The Company uses estimated gross profit rates to determine cost of goods sold during interim periods. In addition, the Company makes certain estimates to compute the LIFO reserve. The rate of inflation/deflation for an interim period is not necessarily consistent with the full year rate of inflation/deflation. Year-end inventory adjustments to reflect actual inventory levels are made in the fourth quarter.
4. Due to the seasonal nature of the construction industry supplied by the registrant, results of operations for the quarter ended March 31, 2002 are not necessarily indicative of the results for the full year.
5. Accounts Receivable as of March 31, 2002 and December 31, 2001 are net of allowance for doubtful accounts of $2,637,000 and $2,312,000, respectively. Quarterly bad debt charges, net of recoveries, were $285,000 for 2002 and $267,000 for 2001.
6. The difference in diluted and basic weighted average shares outstanding used to calculate earnings per share is due to non-vested shares of restricted stock.
7. Revenue from product sales is generally recognized when goods are received by the customer and the risks and rewards of ownership have transferred to the customer.
8. Comprehensive income consists of net income and changes in the fair value of derivative instruments. The components of comprehensive income for the three months ended March 31, 2002 and 2001 are as follows:
Three Months Ended
March 31,
2002 | 2001 | |||
Net income | $516,267 | $1,463,040 | ||
Gain on derivative instruments, net of income tax expense of $61,819 |
101,316 |
____-____ | ||
Comprehensive income | $617,583 | $1,463,040 |
9. Effective January 1, 2002 the Company adopted SFAS NO. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Adoption of these statements did not have a material impact on the Company's financial statements. SFAS No. 143 "Accounting for Asset Retirement Obligations" is effective for years beginning after June 30, 2002. Adoption of this statement is not expected to have a material impact on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Included in this discussion are forward-looking management comments and other statements that reflect management's current outlook for the future. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Such risks and uncertainties include, but are not limited to, general business and economic conditions, climatic conditions, competitive pricing pressures, and product availability.
Restatement of Consolidated Financial Statements
In late October 2002, the Company determined that gains from certain sales of excess real estate in 2001 should have been recognized as income. These transactions were previously treated as non-monetary exchanges and no gain was recognized. The effect of recognizing the 2001 gain was to increase first quarter net income by $252,000. The consolidated statement of income and consolidated cash flows for the three months ended March 31, 2001 and the consolidated balance sheets as of March 31, 2002 and December 31, 2001 have been restated to include the effect of recognizing these gains.
Liquidity and Capital Resources
The Company maintains its short- and long-term liquidity through: (1) cash flow from operations; (2) short-term borrowings from bank line of credit arrangements, when needed; and (3) additional long-term debt, when needed.
The Company's financial condition remains strong with working capital of $69.9 million and a current ratio of 2.5. Operating activities provided $3.2 million in cash flow for the first quarter of 2002. The cash flow was used for capital expenditures, dividends and a reduction in short- and long-term debt. Total short- and long-term debt is down $15.3 million from March 31, 2001 and $1.3 million from December 31, 2001. Management believes the Company has adequate financial resources to meet the needs of the foreseeable future.
Results of Operations
The first quarter of 2002 produced sales of $109,696,000 compared to $114,931,000 for the same quarter a year ago. The 4.6% drop in sales reflects sluggish construction and manufacturing activity in many parts of the Company's territory. Electrical/industrial sales fell 15.1% due in part to softening in the Company's integrated supply business, which is heavily dependent upon manufacturing activity. Plumbing sales declined 4.7%. Air conditioning sales, which rely heavily on the equipment replacement market, increased 4.6% for the first quarter of 2002, compared to a year ago. The increase is attributed to the newer air conditioning operations in Florida, most of which opened late in the first quarter of 2001. The Company's gross profit margins declined to 19.5% for the first quarter of 2002 compared to 20.0% for the first quarter of 2001 reflecting the competitive pricing conditions. The combination of lower sales and margins resulted in a $1.6 million decline in gross profit.
Operating expenses were $307,000, or 1.4%, less than the year earlier total. The reduction was achieved even with a 49% decline in non-cash pension income. Pension income from the overfunded pension plan reduced operating expenses $329,000 compared to $645,000 a year ago. Lower personnel and utility costs accounted for much of the decline. Other income is down 3.9% due to less service charges on past due accounts receivable. Interest expense declined by 42.4% due to lower rates and lower average borrowings.
SIGNATURES
Pursuant to the requirements 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
November 18, 2002 Arthur P. Henderson, Jr.
Arthur P. Henderson, Jr.
Vice President-Finance
CERTIFICATIONS
I, Lloyd U. Noland, III, certify that:
1. I have reviewed this amended quarterly report on Form 10-Q of the registrant for the three months ended March 31, 2002.
2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report.
3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report.
Lloyd U. Noland, III
Name: Lloyd U. Noland, III
Title: Chief Executive Officer
I, Arthur P. Henderson, Jr., certify that:
1. I have reviewed this amended quarterly report on Form 10-Q of the registrant for the three months ended March 31, 2002.
2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report.
3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report.
Arthur P. Henderson, Jr.
Name: Arthur P. Henderson, Jr. Title: Vice President - Finance
